Union Of India (Uoi) vs Central Distillary & Breweries ...
2002 Latest Caselaw 389 Del

JUDGMENT

S.B. Sinha, C.J.

1. The vires of Rule 21 of the Delhi Country Liquor Bonded Warehouse Rules, 1962 is in question in this LPA and connected writ petition.

2. The basic fact of the matter, which is similar in all the cases, is not much in dispute.

3. However, for the purpose of disposal of these cases, we may note the fact of the matter from CWP 1253/2000.

4. The writ petitioners have been grated license for wholesale supply of liquor in form CLW-1/L-9. In terms of the conditions of the said license, liquor was to be supplied in the bottles at the rates specified therein. The petitioner deposited the security amount and license fees in terms of the Terms and Conditions therefore. In terms of Clause 20 of the Terms and Conditions of the Contract, the licensee is required to hold such stocks of liquor as are considered by the Collector of Excise to meet day-to-day requirements of the country liquor vends and failure on his part to do so would entail him to pay penalty not exceeding Rs. 2/- per proof litre of country liquor. Allegedly, the respondent No. 3 issued Show Cause Notices on 9th December 1993, 21st December 1993, 7th January 1994, 6th April 1994, 17th June 1994 and 2nd November 1994 alleging in that the petitioner had violated Clause 21 of the excise policy by not supplying 25% of the total quantity of country liquor ordered for a particular month by the 8th day of the month and/or by not supplying 50% of the total quantity by 15th day and/or 75% of total by 22nd day and/or 100% by the last day of that month.

5. On the aforementioned ground the petitioner was called upon by the respondent No. 3 to show cause as to why an action under Section 36(C)/80 of the Punjab Excise Act, 1914 may not be taken against it. Replies to the said notices were submitted by the petitioner. The respondent No. 3 being not satisfied therewith imposed penalty amounting to Rs. 7,51,833.50 upon the petitioner. Aggrieved by the said order, the petitioner preferred appeals before the respondent No. 2. Although the orders passed by respondent No. 3 were initially stayed but the appeals were ultimately dismissed.

6. The said order was questioned in the writ petition wherein the petitioner inter alia had prayed for the following:

i) Issue a Writ of Mandmus or any other suitable writ or direction quashing Rule 21 of the Delhi Bonded Warehouse Rules 1976, or such part thereof as may be found to be ultra vires the power of the rule making authority.

7. A learned single Judge of this court declared the said rules to be unconstitutional and consequently held that the order impugned in the writ petition imposing penalty was illegal.

8. The said judgment is in question in this Letter Patent Appeal. Several writ petitions have also been filed questioning similar orders passed by the Commissioner of Excise.

9. In CW 1257/2000, the show cause notices issued by the respondent No. 3 were dated 2nd November 1994, 22nd February 1995, 21st August 1995, 22nd August 1995, 8th January 1996 and 10th January 1996 and total penalties amounting to Rs. 7,65,950/- were imposed vide different orders dated 30th May 1994 and 1st September 1994. The prayer therein was to the following effect:

"(A) issue a writ of certiorari/mandamus or any other writ, order of direction thereby quashing or setting aside the orders dated 6th March 2000 passed by the respondent No. 2 in appeals No. 4, 23, 24, 25, 26, 27, 28, 29, 30 and 31/94."

10. In CW 1262/2000, the show cause notices issued by respondent No. 3 were dated 9th December 1993, 21st December 1993, 7th January 1994 and 6th April 1994 and total penalties amounting to Rs. 15,82,800/- were imposed vide different orders dated 25th February 1994, 6th April 1994, 6th June 1994, 10th June 1994, 16th June 1994, 18th July 1994, 1st September 1994, 15th September 1994, 7th October 1994 and 7th November 1994. The prayer therein was to the following effect:

"(A) issue a writ of certiorari/mandamus or any other writ, order or direction thereby quashing or setting aside the orders dated 6th March 2000 passed by the respondent No. 2 in appeals No. 1, 2, 5, 6, 11, 13, 14, 19, 20, 21, 22, 40, 41, 40, 51, 52, 53, 54 of 1994."

11. In CW 1263/2000, the show cause notices issued by respondent No. 3 were dated 2nd November 1994, 22nd February 1995, 21st August 1995, 22nd August 1995, 8th January 1996 and 10th January 1996 and total penalties amounting to Rs. 3,06,548/- were imposed vide different orders dated 2nd December 1997, 2nd December 1997, 11th December 1997 and 24th February 1998. The prayer therein was to the following effect:

"(A) issue a writ of certiorari/mandamus or any other writ, order or direction thereby quashing or setting aside the orders dated 6th March 2000 passed by the respondent No. 2 in appeals No. 12 to 24 of 1998."

The learned single Judge in his judgment held:

(i) imposition of penalty was de hors' the contract;

(ii) assuming the power to impose penalty in Rule 21 forms part of the contract, the same is contrary to or inconsistent with the provisions of Section 74 of the Contract Act.

(iii) Rule 21 does not speak of damage and as such, the pre-conditions of Section 74 of the Contract Act have not been fulfillled.

(iv) Rule 21 which is a statutory rule conferring power to impose penalty upon the statutory authorities, is ultra vires Punjab Excise Act.

12. Ms. Avinash Ahlawat, learned counsel appearing on behalf of the appellant would submit that the object of the Rules 20 and 21 is that the required estimated quantity of the liquor be supplied by the specified dates, as failure to do so may give rise to use of spurious liquor by the consumers which would be dangerous to public health. The learned counsel would contend that Rules 20 and 21 must be read together and so read, the parties were bound to keep the minimum stock as was stipulated in the agreement.

13. The learned counsel would point out that Rule 21 has been declared intra vires by a learned Single Judge of this court in M/s Pilkhani Distillery & Chemical Works, Pilkhani (n. Rly) Saharanpur v. The Lieutenant Governor, Union Territory, Delhi and Ors., CWP No. 1322/80.

14. Mr. J.S. Arora, learned counsel appearing on behalf of the first respondent, however, would submit that no provisions for levy of penalty can be made by way of a delegated legislation inasmuch as the same is essentially a legislative function. The learned counsel would contend that Section 58 of the Punjab Excise Act does not authorize levy of penalty. According to the learned counsel, if such provision be held to be a part of the contract, the same would itself be ultra vires inasmuch as the same has been made de hors' the statutory provisions. In any event, the learned counsel would contend that if it is a part of the contract, Section 74 of the Indian Contract Act would apply.

15. In support of the said contention, reliance has been placed on Maula Bux v. Union of India, and Union of India v. Rampur Distillery & Chemical Co. Ltd., .

16. In any event, the learned counsel would urge that by reason of rule making power, no quasi judicial authority can be created which is also an essential legislative function.

17. Mr. R. Venkatramani, the learned Sr. Advocate appearing for the petitioner in some of the writ petitions while adopting the submission of Mr. Arora, would further urge that a contractual liability to pay pre-estimated damages must pass the test of Section 74 of the Contract Act. The learned counsel would contend that provisions to levy penalty cannot be in addition to right to claim compensation. According to the learned counsel, liquidated damages as fixed by the parties, cannot be imposed unless actual loss or damage is suffered and it is only in certain situation the court can grant a reasonable amount by way of compensation.

18. For the proposition as to what would be the quantum of damages, the learned counsel relied upon K.P. Subbarama Sastri and Ors. v. K.S. Raghavan and Ors., .

19. Punjab Excise Act, 1914 admittedly is applicable in the National Capital Territory of Delhi. Section 34 of Chapter VI of the said Act provides for grant of license, permits and passes. In terms of Section 34 of the said Act, every license, permit or pass shall be granted inter alia subject to such restrictions and on such conditions and for such period as to the Excise Commissioner may direct.

20. In terms of Section 9 of the Act, the general superintendence and administration of matters relating to excise vests in the Excise Commissioner. Clause (b) of Section 9 empowers the Collector to have control over all the Excise Officers in the Union Territory of Delhi subject to the control of the Excise Commissioner.

21. Section 34, as indicated herein before, provides for grant of license, permit or pass on payment of such fees and subject to such restrictions and on such conditions and in such form and for such period as the Excise Commissioner may direct.

22. Section 35 provides for grant of licenses for sale, subject to the rules made by the Excise Commissioner under the powers conferred by this court for grant of license for sale by the Collector. There exists a provision for cancellation or suspension of the license under Section 36.

23. Section 58 provides for the rule making power. Sub-section (1) of Section 58 reads thus:

"58. Power of Lieutenant Governor to make rules.

(1) The Lieutenant Governor of Delhi may, by notification, make rules for the purpose of carrying out the provisions of this Act or any other law for the time being in force relating to excise revenue."

24. Sub-section (2) of Section 58, without prejudice to the generality of the provisions contained in Sub-section (1), empowers the Lt. Governor of Delhi to make rules in relation to the matters specified therein. Clauses (d) and (e) of Sub-section (2) of Section 58 read as under

"(2). In particular, and without prejudice to the generality of the forgoing provisions, the (Lieutenant Government) of Delhi may make rules-

(d) regulating the import, export, transport or possession of any (intoxicant), (or excise bottle and the transfer, price or use of any type or description of such bottle);

(e) regulating the periods and localities for which, and the persons, or classes of persons to whom licenses, permits and passes for the vend by wholesale or by retail of any (intoxicant) may be granted and regulating the number of such licenses which may be granted in any local area;"

25. Sub-section (3) of Section 58 provide for previous publication of the rules.

26. Section 59 provides for the power of the Excise Commissioner to make rules regulating manufacture, supply or sale or any intoxicant.

27. Pursuant to and in furtherance of the power conferred upon him the Lt. Governor in terms of Section 58 of the said Act, made the Rules known as Delhi Country Liquor Bonded Warehouse Rules, 1976.

28. The Excise Commissioner, therefore, has the requisite jurisdiction to impose restrictions and conditions either generally or specially. Section 59, confers power upon the Excise Commissioner to make rules inter alia for regulating the manufacture, supply storage or sale of any intoxicant. The rule making power is conferred upon the Lt. Governor for regulating the import, export, transport or possession of any intoxicant or excise bottle and transfer, price or use of any type of description of such bottle.

29. "Collector" has been defined in Rule 2(vi) to include "any revenue officer in independent charge of a district and/or any of the officials appointed by the Lt. Governor to discharge throughout any specified local area, the functions of a Collector under the Act."

30. Rule 2(x) defines "minimum stock" as "such stock as may be fixed by the Excise Commissioner to be the minimum stock of country liquor in bottles as prescribed."

Rule 3(b) reads thus:

"The license for a Bonded Warehouse shall be granted in form CLW-I on payment of a fee of Rs. 50.00 per annum payable in advance."

Rule 4 provides for the deposit of security.

Rules 20 and 21 read thus:

"20. "Stocks": The licensee shall always be bound to keep a minimum stock of country liquor as may be laid down from time to time by Collector of Excise.

21. "Penalty": Failure to build up and to maintain the minimum stock of country liquor and failure to maintain its regular supplies as prescribed by the Collector of Excise, from time to time and/or failure to supply country liquor within the time which the Collector of Excise deems reasonable, will render the licensee liable to pay penalty not exceeding Rs. 2/- per proof litre of country liquor demanded but not supplied. Aggrieved by the order of the Collector of Excise, the licensee shall have right of appeal to the Excise Commissioner whose decision shall be final and binding upon the licensee."

31. Although Rule 21 uses the expression "penalty", the same would not mean that thereby an offence has been committed which is friable by a court of law or by a quasi judicial authority.

32. The writ petitioners have not contended that the Commissioner of Excise cannot specify the minimum stock to be kept by the licensee.

33. The purpose for which the minimum stock is required to be kept is not in dispute i.e. to avoid use of spurious liquor. The purport and object to make such rules is thus in public interest.

34. it is not in dispute that nobody has a fundamental right to carry on business in liquor. By grant of license, merely a privilege is conferred. Such a privilege can be subject to such terms and conditions as may be prescribed by the statutes or by contract.

35. The license granted in form CLW1/L-9 clearly postulates that the license would be subject to the provisions of the Punjab Excise Act and the Delhi Country Liquor Bonded Warehouse Rules, 1976 and the terms and conditions of the tender notice between the licensee and the Delhi Administration.

36. As in terms of the provisions of Punjab Excise Act as also the Rules, terms and conditions have been imposed, we are of the opinion that the licensees are bound thereby.

37. As the said condition has been imposed by way of conditions of license which, was noticed hereinbefore, are regulatory in nature, we are of the opinion that thereby the essential legislative function has not been delegated nor such delegation upon the Excise Commissioner having regard to the purport and object of the Act suffers from the vice of excessive delegation.

38. Such a power, in our opinion, having regard to the object and purport of the Act is reasonable.

39. In A. Damodaran and Anr. v. State of Kerala and Ors., , it has been held:

"13. The appellants became entitled to get licenses from the Government which had to perform its duty to execute written agreements and grant licenses as soon as the appellants fulfillled required conditions by paying up the remainder of the amounts due. The Government had performed its part of the bargain and even allowed the appellants to start selling liquor. The appellants also became liable and bound to perform their corresponding obligations under the conditions of the auctions imposed in pursuance of statutory provisions. This reciprocity of obligations, quite apart from its basis in agreement, had thus acquired an operative force resting on statutory sanction and equity."

40. Yet again, in P.N. Kaushal and Ors. v. Union of India and Ors., , it has been held:

"49. We come to the crux of the matter. Is Section 59(f)(v) bad for want of guidelines? Is it over-broad or too bald? Does it lend itself to naked unreasonable exercise? We were taken through a few rulings where power without embankments was held bad. They related to ordinary items like coal or restrictions where guidelines were blank. Here, we are in a different street altogether. The trade is instinct with injury to individual and community and has serious side-effects recognized everywhere in every age. Not to control alcohol business is to abdicate the right to rule for the good of the people. Not to canalize the age and sex of consumers and servers, the hours of sale and cash-and-carry basis the punctuation and pause in days to produce partially the 'dry' habit -- is to fail functionally as a welfare State. The whole scheme of the statute proclaims its purpose of control in time and space and otherwise. Section 58 vests in Government the power for more serious restrictions and laying down of principles. Details and lesser constraints have been left to the rule-making power of the Financial Commissioner. The complex of provisions is purpose-oriented, considerably re-informed by Article 47. Old statutes get invigorated by the Paramount Parchment. Interpretation of the text of pre-constitution enactments can legitimately by infused with the concerns and commitment of the Constitution, as an imperative exercise. Thus, it is impossible to maintain that no guidelines are found in the Act.

41. In view of the afore-mentioned authoritative pronouncement, it cannot be said that the said rule is unreasonable.

42. In the instant case, the question as to whether the said provision is mandatory or directory, does not arise. By reason of Rule 21 an enabling provision has been made to impose penalty up to Rs. 2 per proof litre. Thus, in a given situation, the collector may not impose any penalty at all. Furthermore, the reasonableness of the said provisions stands fortified as that an appeal can be preferred against an order passed by the Collector. In a given case, the power of judicial review may also be exercised by the High Court in relation to such orders. Rules may not be made only in terms of the Rule making power contained in Sections 58 and 59 of the Act. General rules could also be framed by the Excise Commissioner having regard to the provisions contained in Section 34 of the Act read with Section 9 thereof.

43. In that view of the matter, we are of the opinion that such imposition of conditions for license by the Excise Commissioner cannot be said to be wholly unreasonable.

44. The submission of the learned counsel for the petitioner to the effect that Section 74 of the Contract Act will attracted in a case of this nature, in our opinion, cannot be accepted. It is not a case where the parties have, by reason of an agreement, agree to pay pre-estimated damages. As indicated hereinabove, by reason of the Rule 21, penalty can be imposed as to the extent of Rs. 2/- per proof litre. Thus, the concept of Section 74 of the Indian Contract Act cannot be brought in Rule 21 of the Rules.

45. The matter has been considered in some details in this judgment of Chadha, J. in M/s. Pilkani Distillery & Chemical Works, Pilkhani (n. Rly) Sharanpur v. The Lieutenant Governor, Union Territory, Delhi & Ors. (supra), which in our opinion lays down the correct law. Consequently it must be held that the impugned judgment cannot be sustained. For the reasons afore-mentioned, it must be held that Rule 21 is intra vires.

46. The learned counsel for the petitioner in the writ petition has questioned the orders passed by the statutory authorities, inter alia, on the ground that penalty has been imposed despite the fact that there had been a delay in allocation or order. Having gone through the impugned orders, we are of the opinion that the same does not suffer from any illegality, irrationality or procedural impropriety and thus, in exercise of this court's power of the judicial review the same do not warrant any interference.

47. For the reasons afore-mentioned, LPA is allowed. The impugned judgment is set aside. The appeal is allowed and the writ petition are dismissed but in the facts and circumstances of the case, there shall be no orders a to costs.