Case: State of Haryana Vs. Jage Ram

These appeals have a long history. Liquor vends were put to auction by the Excise Department of the Government of Haryana w hereupon, the highest bidders were given the necessary licences to sell liquor. Some of the licensees committed default in the payment of amounts due from them under the terms of the auction. Thereupon, the vends were reauctioned except for three vends which, though published for reauction, were given by private negotiations. The original licensees, who were called upon to pay the difference between the amount which they were liable to pay and the amount realised by resale of the vends, filed writ petitions in the High Court of Punjab and Haryana contending that the State Government had no power to demand the various amounts which they had allegedly defaulted in paying. The High Court accepted that contention, holding that the State Government had no authority to demand the amounts for failure to pay which, the vends were put to resale. As a necessary consequence of that finding, the fresh grants made by reauction or private treaty were held invalid. The result of this was that the writ-petitioners stood relieved of their obligation to make good the shortfall. This is the broad history of thesefacts of that case and the events lending to the present proceedings are mentioned in a judgment of this Court reported in State of Haryana v. Jage Ram(1). In this case, an auction was held on March 27, 1967 for the grant of a retail vend known as Biswan Meel, Sonepat, for the year 1967-68. The respondents Jage Ram and others offered the highest bid in that auction. Under Condition 14 (iii) of the auction, respondents became liable to pay an amount calculated at the rate of Rs. 17.60 per litre, which came t o Rs. 10, 92, 960.00. They paid a security deposit for the due performance of the terms of the auction but they committed default in payment of installments which fell due on April 10 and April 25, 1967. On May 17, 1967 the Excise authorities cancelled the licence of the respondents and informed them that the vend will be resold on May 23, 1967 at the risk of the respondents. In pursuance of the order dated May, 17, the Biswan Meel vend was reauctioned on May 23, the highest bid offered being in the sum of Rs. 2, 46, 000.00. On July 11, respondents were called upon by a notice to pay a sum of Rs. 7, 41, 577.40, being the difference between the amount which they were liable to pay under the terms of the original auction and the amount fetched in the reauction. Thereupon, respondents filed a writ petition in the High Court challenging the legality of that notice. The High Court allowed the writ petition, quashed the order cancelling the respondents licence as also the notice calling upon them to make good the shortfall of seven lakh rupees and odd. The High Court gave to the State of Punjab a certificate to appeal to this Court.The appeal came up for hearing before a three-Judge Bench which by its aforesaid Judgment dated April 21, 1980 held that the writ jurisdiction of the High Court under Article 226 cannot be used for avoiding contractual obligations. On merits, it was held by this Court following a Constitution Bench decision in Har Shanker v. The Deputy Excise and Taxation Commissioner, (1) that since rights in regard to the manufacture and sale of intoxicants are vested in the State, it is open to the State to part with these rights, which are in the nature of a privilege, for consideration. The Court further held that the amounts which the State Government had charged to the respondents were neither in the nature of a tax nor in the nature of an excise duty but were in the nature of a price which the State Government was entitled to charge as consideration for parting with its privilege in favour of thesetting aside the judgment of the High Court and upholding the demand made by the State Government upon the respondents, the question naturally arose whether the respondents could be held liable for the shortfall between the bid offered by them and the amount realised in the reauction. It was urged by the respondents that the reauction which was held on May 23, 1967 was not in accordance with the relevant Rules and therefore, they could not be called upon to pay the difference between the amount which they were originally liable to pay and the amount which was fetched in the reauction of the vend. To be more specific, it was contended on behalf of the respondents that no notice of the intended resale was given as required by Rule 36 (3) of the Punjab Liquor Licence Rules, 1956, that no notice was published or affixed at any conspicous public place notifying the proposed resale, nor indeed was the resale announced by the beat of drums. According to the respondents, one Lal Chand went to the office of the Excise and Taxation Officer, Rohtak, and managed to have his bid accepted in the resale of the vend. Respondents further urged that through the resale of the vend was to be effective for a period of about 10 months out of the 12 months for which the vend was originally auctioned, there was a large short fall of over Rs. 7 lakhs on account of the fact that due publicity was not given to the resale.By the aforesaid judgment dated April 21, 1980 this Court remanded the matter to the High Court and called for its findings on two questions: (1) Whether it was necessary according to the Rules which were in force at the relevant time to give publicity to the reauction, and (2) if so, whether such publicity was in fact given to theHigh Court has transmitted its findings to this Court, which are against the respondents. The High Court has held by its order dated September 29, 1980 that the Rules relied upon by the respondents by which publicity is required to be given to the resale are directory and not mandatory and that these rules were substantially complied with. These findings are assailed by the respondents who, by reason of the findings of the High Court, are virtually in the position of appellantsfinding of the High Court that the rules were substantially complied with is based on an affidavit filed by Shri N.S. Bedi, Deputy Excise and Taxation Commissioner, Sonepat, in which he has stated that all possible steps were taken in connection with the publicity done for the reauction of the vend. The affidavit says that telegrams were issued on May 19, 1967 by the Excise and Taxation Officer, Rohtak to the Excise and Taxation Officers of Hissar, Karnal, Gurgaon, Mohindergarh, Ambala and Jind informing them that the reauction will be held on May 23, 1967 at 10.00 a.m. and asking them to give due publicity to the reauction. The affidavit further says that letters were also written on May 20, 1967 to the important licensees of the State informing them of the date and time of the reauction and requesting them to attend it. The affidavit asserts that 40 bids were recorded in the reauction and the 40th bid, being the highest, was accepted.It seems to us impossible to accept the findings of the High Court. We will not enter into the controversy whether the rules governing reauction of vends, of which respondents allege breach, are directory or mandatory in character. Even assuming for the purpose of argument that they are directory, we are unable to hold that they have been substantially complied with. Rule 36 (24) of the Punjab Liquor Licence Rules, 1956 as amended by the Notification dated March 31, 1967 says that when a licence is cancel led, it may be resold by public auction or by private contract in accordance with the procedure laid down in the other clauses of Rule 36.

Court's reasoning:
In these circumstances, it is difficult to hold that any publicity as such was given to the reauction. When a rule requires publicity to be given to an auction-sale, what is necessarily implied is that due steps must be taken to give sufficiently advance intimation of the intended sale and its material terms to the members of the public or, at least, to that section of the public which normally engages in the kind of business which is the subject-matter of the auction-sale. Even the five special invitees would have found it difficult to come prepared to take part in resale which was held on 23rd May. They were not invited to a wedding feast. They were invited to attend the resale of a liquor vend and it is well-known that a certain amount has to be paid by the successful bidder on the fall of the hammer. We are also unable to appreciate that the Excise authorities of the Government of Haryana should have picked and chosen some five particular persons as recipients of the notice of reauction. How their names transpired and what is their particular status, respectability and standing in the liquor trade, are matters on which no light is thrown. There is no material before us on which to doubt the integrity of the authorities who were connected with the reauction. But their conduct must be abovebid-sheet shows that only six persons offered bids in the reauction and none of the five invitees was amongst those six. It appears that a small, closely-knit group participated in the reauction, successfully keeping out others who might have of offered adequate bids in the reauction, were they to have notice thereof. Indeed, the amount which was fetched in the reauction itself furnishes prima facie evidence that all was not well with the reauction. The respondents had given their original bid in the sum of Rs. 10, 92, 960.00 which covered a period of one year from April 1, 1967 to March 31, 1968. The reauction was held on May 23, 1967 for a licence which was to be effective for the little over 10 months. It is surprising that the reauction should have fetched a bid of as small an amount as Rs. 2, 46, 000.Since the reauction was not held in accordance with the rules, either in their letter or in their spirit, and since, especially, due publicity was not given to the reauction, it is impossible to uphold reauction and mulet the respondents in the resultant shortfall. We are of the opinion that rule 36(3) of the Rules was not even substantially complied with. It is reasonable to assume that since due publicity was not given to the reauction, adequate bids were not received, resulting in prejudice to the respondents.