1994 (2) TMI 294 - SC - Central Excise

Whether there was a failure on the part of the State in supplying the arrack undertaken by it to supply and whether the licensees are entitled to any rebate/remission in the amounts payable by them under the contracts, on account of such failure, if any/ Held that - In case of contracts freely entered into with the State, like the present ones, there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State), for the purpose of altering or adding to the terms and conditions of the contract, merely because it happens to be the State. In such cases, the mutual rights and liabilities of the parties are governed by the terms of the contracts (which may be statutory in some cases) and the laws relating to contracts. It must be remembered that these contracts are entered into pursuant to public auction, floating of tenders or by negotiation. There is no compulsion on anyone to enter into these contracts. It is voluntary on both sides. There can be no question of the State power being involved in such contracts. It bears repetition to say that the State does not guarantee profit to the licensees in such contracts. There is no warranty against incurring losses. It is a business for the licensees. Whether they make profit or incur loss is no concern of the State. In law, it is entitled to its money under the contract. It is not as if the licensees are going to pay more to the State in case they make substantial profits. We reiterate that what we have said hereinabove is in the context of contracts entered into between the State and its citizens pursuant to public auction, floating of tenders or by negotiation. It is not necessary to say more than this for the purpose of these cases. What would be the position in the case of contracts entered into otherwise than by public auction, floating of tenders or negotiation, we need not express any opinion herein. The appeals preferred by the State are allowed and the appeals preferred by the licensees/contractors are dismissed.

Issues Involved
1. Failure of the State in supplying arrack.
2. Entitlement of licensees to rebate/remission.
3. Interpretation of Kerala Abkari Act and relevant rules.
4. Validity of Rule 6(26) of the Auction Rules.
5. Legitimacy of additional supply demands.
6. Applicability of promissory estoppel and legitimate expectation.
7. Doctrine of fairness and reasonableness in state contracts.
8. Maintainability of writ petitions under Article 226.

Detailed Analysis

1. Failure of the State in Supplying Arrack
The primary issue was whether the State failed to supply the arrack it undertook and whether this entitled the licensees to any rebate/remission. The court examined the Kerala Abkari Act and the Auction Rules, particularly Rule 8(1), which mandates the supply of a monthly quota but leaves additional supplies to the discretion of the authorities. The court found no statutory obligation on the State to supply additional quantities demanded by the licensees.

2. Entitlement of Licensees to Rebate/Remission
The court examined Rule 6(26) of the Auction Rules, which states that "no remission or abatement of the rental shall be claimable by the licensee on any account whatsoever." The court held that this rule, read with Rule 8(1), precludes any claim for remission or abatement except in the specific situation where the government fails to supply the monthly quota. The court concluded that the licensees are not entitled to any remission or rebate for non-supply of additional quantities.

3. Interpretation of Kerala Abkari Act and Relevant Rules
The court analyzed various sections of the Kerala Abkari Act, including Sections 15, 18-A, 24, 25, 28, and 29, and the Auction Rules, particularly Rule 8(1). The court emphasized that these statutory provisions and rules constitute the terms and conditions of the contract, binding both the government and the licensees. The court also noted that the Assistant Excise Commissioner has discretionary power to permit additional supplies but is not obligated to do so.

4. Validity of Rule 6(26) of the Auction Rules
The licensees challenged Rule 6(26) as ultra vires. However, the court upheld the rule, stating that it is a statutory provision that precludes any claim for remission or abatement of the rental. The court found no basis to declare the rule ultra vires.

5. Legitimacy of Additional Supply Demands
The court found that the licensees had no statutory right to additional supplies. The court noted that the government had supplied whatever additional quantities were available and that there was no complaint of inequitable distribution. The court also observed that the demand for additional supplies by the licensees during the excise year 1981-82 was highly exaggerated, likely to create a case for remission.

6. Applicability of Promissory Estoppel and Legitimate Expectation
The court rejected the licensees' argument based on promissory estoppel and legitimate expectation. The court held that these doctrines cannot be invoked to alter or amend specific terms of a contract, especially when the terms are statutory. The court found that the licensees could not have legitimately expected additional supplies equal to the previous year's supplies, given the scarcity of arrack.

7. Doctrine of Fairness and Reasonableness in State Contracts
The court rejected the argument that the doctrine of fairness and reasonableness should be read into the contract to create an obligation on the State to supply additional quantities. The court held that this doctrine, developed in administrative law, cannot be invoked to amend, alter, or vary the express terms of a contract. The court emphasized that the mutual rights and liabilities of the parties are governed by the terms of the contract and the laws relating to contracts.

8. Maintainability of Writ Petitions under Article 226
The court held that the writ petitions filed by the licensees were not maintainable under Article 226 for enforcing or avoiding contractual obligations. The court reiterated that the remedy under Article 226 cannot be resorted to for such purposes.

Conclusion
The Supreme Court allowed the appeals preferred by the State and dismissed the appeals preferred by the licensees/contractors. The court upheld the statutory provisions and rules governing the contract, found no basis for the licensees' claims for remission or rebate, and rejected the applicability of doctrines like promissory estoppel and legitimate expectation in this context.

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