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TMI Blog1974 (1) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... nthly quota of liquor. He also for the said months did not pay the monthly rentals. 4. For the abovesaid lapses on the part of the petitioner, his licence and the lease were suspended and cancelled on 4-7-1971. And on 29-7-1971 the group of shops which the petitioner had obtained on lease were re-auctioned. The reaction fetched a rental of ₹ 265/- for the rest of the excise year. 5. As a result for the losses sustained by the Government a notice under the Madras Revenue Recovery Act was issued on 19-1-1972. The demand was for ₹ 7,804-76 Ps. 6. In the counter, however, the demand is put at ₹ 14,133-75 ps. the break up of this demand is shown as follows :-- (1) Rs, 9,361/- as the issue price of the total quantity of short lifted quota of liquor amounting to 2,300 litres. The petitioner' deposit of ₹ 3,100/- was adjusted towards the said amount due leaving a balance of Rs, 6,261/-. (2) The total amount due towards rental is shown to be ₹ 7,872-75 ps. 7. It is to challenge the said demand that the writ petition has been filed. A writ of certiorari is sought to quash the said demand notice. 8. The first contention of the learned Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act at the end, Serial No. 1 relates to arrack. In column 3, the mode of levying duty reads: 'On the quantity issued from the distillery or warehouse.' 16. We then proceed to read some of the Rues of the Andhra Pradesh, Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969, refereed hereafter as Retail Rules. 17. Rule 3 provides that every lease of right to sell liquor in retail shall be granted by auction. The lease shall ordinarily be for a period of one excise year. 18. Sub-rule (2) further provides that the Commissioner shall be competent to fix the minimum guaranteed quantity that should be sold in the case of the arrack shops in every excise year apart from other things mentioned therein. 19. Rule 10 prescribes the mode and the officers authorised to conduct auction. According to it the auction shall be conducted by bids or submission of tenders. 20. Rule 13 then relates to submission of tender and bidding. 21. Rule 15 pertains to signature in the register. it directs the auctioning authority to obtain in the register the signatures of the bidders referred to therein. 22. We then come to Rule 16. It states that the auction purchases sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons except for the month of September, unless the licensee has committed default in lifting the minimum guaranteed quantity for two successive months : Provided further where the Commissioner deems it necessary to permit a shop keeper to draw the deficit quantity short drawn in any month in the subsequent months, he shall obtain the prior approval of the Government for granting such permission. (2) Where a licensee fails to lift the arrack as permitted by the Excise Superintendent or to indemnify the advance amounts so adjusted by the end of the succeeding month in which the short drawal of quantity had occurred, the right acquired by the defaulting licensee shall be re-auctioned forthwith. (3) * * * (4) The successful purchaser of an arrack shop shall, before obtaining a licence, intimate the concerned Excise Superintendent in writing his distribution for each month of the minimum quantity of arrack guaranteed as per the requirements. The Excise Superintendent shall be competent to revise the distribution so made by the auction-purchaser before the issue of licence and not during the course of the year and his decision shall be binding on the auction-purchaser. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of excise year had short-lifted the quota in one or more months but the authorities fail to adjust the issue price of the short-lifted quota towards the advance money or they fail to re-auction forthwith in cases where although permission was granted by the Superintendent to lift the quota in the succeeding month or the licensee had failed to indemnify the advance amount so adjusted, have the authorities no remedy after the conclusion of the contract to recover the issue price of the short-lifted quota? The answer obviously depends upon the question whether Rule 15 provides an exclusive remedy for recovery of issue price of the short-lifted quota. If it is borne in mind that the moment the licensee fails to (sic) (lift?) the minimum guaranteed quantity he commits a breach of contract. The minimum guaranteed quantity is determined at two levels. Firstly it is determined for the whole Excise year. And secondly the minimum guaranteed quantity for the excise year is spread over the 12 months of he excise year and for each month a specific minimum guaranteed quantity is fixed. If the licensee does not lift the quota in a month and the Government adjust the issue price of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf liable for damages, the other party, i.e., the Government has not availed of the remedy of recovering the damages by adjusting it towards the advance money paid by the licensee. We fail to see as to how the liability to pay the damages which arose out of breach of contract or the right to recover damages on account of such breach accrued to the Government came to an end merely because the Government failed to adjust the amount of damages towards the advance money immediately and failed to call upon the licensee to replenish the advance money to that extent. The sub-rule (1) if read as permissive, then it is possible for the Government to adjust the issue price of the short-lifted quota for the whole year towards the advance money even after the contractual exercise year is over. We cannot find any limitation in Rule 15 (1) on the right of the Government to recover damages arising out of a breach of contract committed by the licensee. Such recovery of damages can be either by adjustment towards advance money as per sub-rule (1) and calling upon the defaulter licensee to replenish the advance money or under the general law by adjusting the loss sustained by the Government towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the balance of liquidating damages after the conclusion of contract is also recognised. To that extent then the judgment. To that extent then the judgment supports the view which we have taken. 39. In Writ Appeal No. 136 of 1972, D/- 26-4-1973 (Andh, Pra), a Division Bench consisting of M. Krishna Rao and G. Venkatrama Sastry, JJ. firstly held that 'So long as Rule 15 is valid in the sense that it is not unconstitutional or ultra vires, it should be implemented without reference to any consideration of the ordinary law of damages.' 40. It was further observed that 'in the context of Rules 15 and 16 it has to be inferred that Rule 15, recognises the right of the Government as a contracting party to recover damages against the licensee in case of breach on the part of licensee in lifting the minimum guaranteed quantity. The mode of recovery alone is provided by method of adjustment. Hence while holding that Rule 15 is valid, we hold that as a matter of interpretation of the said Rule it merely provides for a right in favour of the Government to recover damages liquidated as equivalent to cost price of liquor.' 41. The learned Judges then said : ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government must be limited to the exercise of those remedies which are provided under the Rule. If it seeks remedies other than those provided by the rule it has to rely on the ordinary law of contract.' 46. A reading of the said judgment makes it clear that while adjustments under Rule 15 can be made and the licensee called upon to replenish the advance amount, the said rule, however, does not authorise the Government to collect the full value of the liquor which the licensee failed to lift. After adjustment, if any balance of liquidated damages is left to be recovered , the Government can seek the ordinary remedy and it has to rely on the law of the contract. Since it was not shown that the Government has suffered any damage because of short lifting of the quota , it would not be justified in demanding the amount which it did. The learned Judge , however, did not agree with the view that the issue price is in the nature of liquidated damages fixed in the event of a breach. He also did not desire to base his judgment on the ground that the Government has not taken any steps to mitigate damages. 47. We are unable to agree with the view that the issue price cannot be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he right to recover the damages for breach of contract and the remedies available to the Government for the recovery of the same. 55. We then come to Section 74 of the Contract Act. A careful reading of that section would indicate, as the marginal note seems to make out, that the section applies to a contract where a penalty is stipulated by way of compensation for breach of contract. The section provides for two types of cases. Firstly a case in which a sum is named as the amount to be paid by way of compensation in case of breach. Secondly a case where the contract contains any other stipulation by way of penalty for a breach of contract. The disjunctive word 'or' makes it plain that both the situations which though have been alternatively mentioned are given the same treatment by the Section. The words 'any other stipulation by way of penalty' following the words 'if a sum is named in the contract etc.' make it manifest that the sum so named may also amount penalty in certain cases. In other words where the amount named is the result of the genuine pre-estimate of damages, to use the illuminating phrase of Lord Dunedin, then Section 74 has no applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic Tyre Co. Ltd. v. New Garage Motor Co. Ltd., (1915 AC 79). 59. Lord Dunedin stated succinctly the various propositions deducible from the authoritative decisions as follows : '1. Though the parties to a contract who use the words 'penalty' or 'liquidated damages' may prima facie be supposed to mean what they say , yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case. 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party: the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Ship-Building Co. v. Don Jose Ramos Yzquierdoy Castaneda, (1905 AC 6). 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of breach (Public Works Commr. v. Hills, (1906 AC 368)) and Webster v. Bosanquet, (1912 AC 394 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of it or is a penalty attached to the breach I think that, by this date, there is ample guidance in the authorities how to decide between the two alternatives. The appropriate tests have been worked out in a number of leading cases and, as we know, they are conveniently brought together in a speech of Lord Dunedin in (1915 AC 79). if believe that the line of demarcation if drawn in its simplest form (as Lord Dunedin himself said in 1906 AC 368 at p. 375) if one says that a sum cannot be legally exacted as liquidated damages unless it is found to amount to 'a genuine pre-estimate of' damages (to use the phrase originated by Lord Robertson in 1905 AC 6 at p. 19). If it does not amount to such a pre-estimate, then it is to be regarded as a penalty, and I do not myself think that it helps to identify a penalty to describe it as in the nature of a threat 'enforced in terrorem' (to use Lord Halsbury Phrase in (1886) 11 AC 332 at p. 348). I do not find that the description adds anything of substance to the idea conveyed by the word 'penalty' itself and it obscures the fact that penalties may quite readily be undertaken by parties who are not in the least terrori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The discretion of the court in the matter of reducing the amount of damages agreed upon is left unqualified by any limitation though of course the expression 'reasonable compensation' used in the section necessarily implies that the discretion so vested must be exercised with due care, caution and no sound principles. What follows is that 'reasonable' compensation is a question of fact and has to be decided in the light of facts and circumstances of each case. It is, however, manifest that if there is a penal provision against default some compensation under Section 74 has to be given irrespective of the fact whether damage has been actually suffered or not. We are fortified in this view by a decision of the Madras High Court in Muthukrishna v. Sankralingam, (1913) ILR 36 Mad 229 (FB). 63. To put it in other words, in practice it may frequently happen that a person suffers no damage at all as a result of a breach of contract; and in that event he cannot recover substantial damages from the person guilty of breach of contract; nevertheless the innocent party is entitled to what is known as 'nominal' damages as a recognition of the fact that the guilty pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the excise year or of the contract the full agreed quota of liquor is not lifted and the Government has failed to take any action under Rule 15 of the Retail Vend Rules, even then the Government is entitled to set off the amount of compensation calculated at the rate of issue price for the quantum of liquor short lifted. Such a course even if falls outside the provisions of Rules 15 of Retail Vend Rules, the Government is entitled to such a course under the common law. (4) After set off as above, if any, the amount of compensation calculated at the rate of the issue price for the short-lifted quota, the Government has, according to the contract, a right to recover the compensation from the licensee who committed the breach. Even then if such a claim does not strictly come under Rule 15 of the Retail Vend Rules, even then under the common law and subject to Section 74 of the Contract Act, the Government is entitled to recover such liquidated damages. (5) It has to be decided in each case in the light of facts and circumstances of the case whether the stipulation to pay a certain sum by way of compensation is genuine pre-estimated damages for breach of contract or it is so exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en then the innocent party would be entitled to a reasonable compensation. 70. In H. C. Mills v. Tata Aircraft, : [1970]3SCR127 two questions were argued : (1) that the amount of ₹ 2,50,000/- was not by way of deposit or earnest money but was part of the purchase price and therefore it was not liable to be forfeited: (2) whether the said amount was liquidated damages or was it a panalty. 71. In regard to the first argument, the Supreme Court found that the amount was earnest money. In regard to the second question, the Supreme Court observed that it was unnecessary to go into the question as to whether the amount forfeited can be considered reasonable or not. This decision therefore does not decide anything contrary to what we have said. . 72. In Maula Bax v. Union of India, : [1970]1SCR928 the contention was that since the Government had not suffered any loss because of the default, it could not forfeit the amount of deposit. The Supreme Court observed : 'It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the Court is competent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act can be levied on any excisable article 'manufactured or produced'. In the State it can be levied at such rate as may be specified in the notification but in no case such rate shall exceed the rates mentioned in the schedule, Section 21 is thus the charging section. 81. Section 22 admittedly is not the charging section. It relates to the mode of levying duties. No doubt in clause (a) it says that the duty mentioned in Section 21 shall be levied in one or more of the modes mentioned therein. It then says 'rateably' on the quantity of any excisable article produced , manufactured in or issued from the distillery etc.' If Section 22 also is treated as a charging section , then Section 21 shall have no function to perform. If Section 21 is the only charging section , then since the duty is leviable on excisable articles manufactured or produced, no duty is possible to be levied on issue of liquor which is manufactured or produced. Any such interpretation of Section 22 shall be inconsistent not only with Section 21 of the Act but also with Entry 51. List II of the Seventh Schedule to the Constitution. Entry 51 permits levy of duty only on production and manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1971 and batch dated 17-12-1971 takes the same view. We agree with the said judgment in this behalf although for the reasons given by us. 87. B. C. Banerjee v. State of M.P., : [1971]81ITR105(SC) can easily be distinguished on the facts. In that case it was held that the excise duty is a duty on manufacture or production. Section 25 of the M.P. Excise Act deals with duty on excisable articles. Section 26 prescribes the ways of levying such duty. These provisions are similar to our Sections 21 and 22 of the Act. Thus Section 25 imposes duty while Section 26 dealt with the manner of levying duty. In that case, however, the duty was sought to be levied by a rule on liquor which the contractor has failed to lift. It is because of this imposition of the duty that it was held that the rule-making authority could not have made such a rule . In the instant case no duty is imposed on the short-lifted quota by any rule. The duty is imposed only on the liquor manufactured or produced. Such a duty already imposed is sought to be collected at the stage of issue of the liquor from the distillery etc. Since the contract to pay issue price included the excise duty so imposed on manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two actions i.e. either the lease is taken over under the Collector's management or the lease right has been resold. In all the instant cases it was not in dispute that for some reason or the other for default the lease rights were resold. The present cases therefore satisfy the requirements of clause (b) and they fall within its ambit. 93. The instant cases would also fall within the ambit of Section 65 (c) to the extent at least of excise duty agreed to be paid. The amounts are undoubtedly due to the Government. The word 'amount' is wide enough to include the sum due on account of liquidated damages atleast in regard to excise duty. There can be little doubt that such amounts due on account of excise contracts . It is incorrect to say that in some cases since no lease was executed , there was no contract. The contract in such cases is concluded the moment the final bid is accepted. See G. Srinivasa Reddy v. Government of Andhra Pradesh: : AIR1973AP178 (FB) and there cannot be any difficulty in holding that these contracts relate to excise revenue. The said term is defined in Section 2 (12) of the Act. It means revenue derived or derivable from any duty, rent et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch suits. 99. The attention of the learned Judges was obviously not drawn to Section 65 of the Act and Section 22 of the Revenue Recovery Act. 100. It was then contended that in a certain case the re-auction took place after nearly ten months from the date of the petitioner's default. It is said therefore the Government is not entitled to damages. Unfortunately this contention has not been specifically raised. No counter therefore was filed. No prejudice seems to have been caused to the petitioner. It is not therefore possible to accept this contention. 101. In W.P. No. 1440 of 1973, Mr. Ramachandra Reddy argued that since the petition filed under Rule 29 for remission by the petitioner is pending before the Government, the demand notice should not be allowed to be enforced untill the said petition is disposed of. It is, however, seen from the counter that the ground on which the remission is asked is stoutly denied by the Government. No evidence is produced by the petitioner to prove the said ground. Moreover, no provision of law or any authority was brought to our notice which compels the Government to postpone the recovery until the petition under Rule 29 is dispose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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