Judgment
As delivered
PETITIONER:UNION TERRITORY OF PONDICHERRY AND OTHERS
Vs.
RESPONDENT:P.V. SURESH AND OTHERS
DATE OF JUDGMENT23/09/1993
BENCH:JEEVAN REDDY, B.P. (J)BENCH:JEEVAN REDDY, B.P. (J)BHARUCHA S.P. (J)
CITATION:1994 SCC (2) 70 JT 1993 (5) 4101993 SCALE (3)869
ACT:
HEADNOTE:
JUDGMENT:
The Judgment of the Court was delivered byB.P. JEEVAN REDDY, J.- The Union of India represented by theUnion Territory of Pondicherry is the appellant in theseappeals which are directed against the judgment of aDivision Bench of Madras High Court in a batch of writpetitions filed by the respondents, arrack licensees ofPondicherry and Mahe. Civil Appeal Nos. 1543-1630 of 1984pertain to Pondicherry territory while Civil Appeal Nos. 693to 695 and 695-A pertain to Mahe territory. In the UnionTerritories of Pondicherry, Mahe and Karalkal, arracklicences are granted by way of auction. For the excise year1981-82 (commencing from July 1, 1981 to June 30, 1982)auctions were conducted in June 1981. The writ petitionerswere the highest bidders in respect of respective shops.They made the necessary deposits and obtained permits tocommence their business with effect from July 1, 198 1. Thearrack licensees from Pondicherry territory also depositedthe three months' rental at the inception of the excise yearas required by the rules. They drew supplies from theGovernment depots and carried on their business for a periodof three months. Thereafter they approached the High Courtat Madras by way of writ petitions for issuance of anappropriate writ order or direction directing therespondents in the writ petition to forbear from collectingthe 'kist' amount in respect of each of the shops and fordirecting the respondents further to supply the quantity ofarrack at the rate at which it was supplied during theprevious excise year (i.e. 1980-8 1).
2. So far as the arrack licensees from Mahe area areconcerned, they did not deposit the three months' rental asrequired by the rules. They drew the initial supply ofarrack, did business for 15 days and thereafter abandonedthe business. They too approached the Madras High Court byway of writ petitions for a direction to the respondentstherein to issue to the petitioners the full quantity ofarrack as was being supplied to them during the previousexcise year, failing which to reduce the 'kist' payable bythe petitioners proportionately.
3. According to the law in force at the relevant time inthe said Union Territories, the arrack licensees wereobliged to draw their supplies only and exclusively from theGovernment source. They were prohibited from drawing theirsupplies from any other source. Further, they were alsoobliged to sell the arrack at the price fixed by theGovernment. The Government had its own factories where thearrack was manufactured, which was distributed among theseveral shops in the Union Territories. For the previousexcise year i.e., for 1980-8 1, the supplies were made atthe rate of one decalitre per day for an annual revenue ofRs 18,000. In other words, if the annual bid in respect ofan arrack shop was Rs 18,000, such shop was entitled to andwas supplied arrack at the rate of one decalitre per day.For the excise year 198081, however, the authoritiesprescribed the ratio of one decalitre for an annual bid ofRs 40,000, which meant that the quantum of supplies to whicheach arrack shop was entitled to went down for the year1981-82 compared with the previous year i.e., 1980-81. Onthe representation of the licensees,73the said ratio was altered to one decalitre per day for anannual bid of Rs 34,000 on October 27, 1981. What isimportant to notice is that the Government did not notifythe said ratio at the time of conducting the auctions forthe excise year 1981-82. It appears that it was not doingso during any of those years, which defect, if we can callit one, is said to have been remedied in the later years.It is this defect in the system of auction that has led tothe crop of writ petitions in the Madras High Court, fromwhich these appeals arise. In many other States, theminimum guarantee quota which the Government undertakes tosupply and which the licensee is equally under an obligationto lift, is specified even at the time of the auctions.Where this is done, there is no room for the controversy ofthe type arising herein.
4. The grievance made in the writ petitions filed byPondicherry licensees was this since the authorities did notannounce or intimate at the time of conducting the auctionsthat the rate of supply is being altered, the writpetitioners assumed that arrack will be supplied at the samerate it was supplied for the previous excise year i.e.,1980-81. For the previous excise year, arrack was suppliedat the rate of one decalitre for an annual bid of Rs 18,000.It is on the said basis and assumption that the petitionershad given their bids which were far in excess of the bidsreceived for the previous excise year. Only after they paidthe amounts and commenced the business that they wereapprised of the change in the rate of supply which came as ashock to them. Since the licensees have no other source ofsupply, and because they are obliged to sell at the pricefixed by the Government, they were not able to realise eventhe 'kist' amount (monthly installment) by the sale ofarrack supplied to them. Even at the rate of one decalitrefor an annual bid of Rs 34,000, the licensees were bound toand were incurring losses. There cannot be a contract whichis so constituted that it can result only In loss to thelicensee. At the said rates of supply, no licensee can evermeet even the monthly 'kist', let alone meet hisestablishment charges and other expenses and earn profit.By changing the rate of supply the administration hasremoved the basic assumption, the underpinning, underlyingthe contracts. The contracts thus stand frustrated. In anyevent, the contracts are vitiated by mistake of fact. Theauthorities are responsible for this situation inasmuch asthey failed to intimate the prospective bidders of thechange in the rate of supply at the time of auctions. Theyare precluded from changing the rate of supply by the ruleof promissory estoppel. The Administration is bound tosupply them arrack at the rate of one decalitre for anannual bid of Rs 18,000. Alternatively, 'kist' may becollected from them for the entire excise year at the rateof Rs 18,000 per decalitre supplied. In other words, the'kist' amount be reduced proportionate to the rate of supplyin vogue during the previous excise year. (We shall dealwith the writ petitions filed by licensees of Mahe areaseparately and therefore we are not mentioning contentionsat this stage.)
5. The Administration (respondents in the writ petitions)opposed the writ petitions saying that the petitioners haveno statutory right to supply of74any particular quantity of arrack, nor is the administrationunder a statutory obligation to supply a particular quantityor all the quantity that may be asked for by the licensees.The Government has reserved to itself the right to revisethe quantity of arrack even during the currency of thelease, vide condition 22(3) of the licence. The change inthe rate of supply of arrack has been necessitated onaccount of the concern of the Administration to ensureequitable distribution of arrack produced in the Pondicherrydistilleries among the several licensees in the UnionTerritory. The annual 'kist' has been taken as theyardstick for fixing the quota of arrack to individuallicensees. This was the practice followed at all points oftime. Even during the previous excise year, the rate ofsupply was not uniform. It was changed three times duringthat year and the rate of one decalitre for Rs 18,000 annualbid was the rate obtaining towards the end of the previousexcise year. In the circumstances, the writ petitioners hadno basis or justification for assuming that supply of arrackduring the current year (1981-82) will be at the said rateof one decalitre for an annual bid of Rs 18,000. Indeed,all these arguments are nothing but mere after thoughts.The writ petitioners of Pondicherry area paid the deposits,took permits and licences and did business without anycomplaint for a period of three months. Only when auctionsin the neighboring State of Tamil Nadu were conductedwherein the bids went up exceedingly high as compared to theprevious year's bids, on account of which arrack becamedearer in Tamil Nadu shops, diving the consumers toPondicherry shops that the writ petitioners started askingfor more supplies to meet the said heightened demand. Whenthe Administration did not supply such excessive supplies,they came forward with the writ petitions. The story putforward in the writ petitions is one fabricated to buttresstheir case in the writ petitions. Indeed, when thelicensees made representation for alteration of the rate ofsupply, the administration reduced it from one decalitre foran annual bid of Rs 40,000 to one decalitre for an annualbid of Rs 34,000. There is no question of the writpetitioners suffering any loss in the circumstances. It wasalso submitted that even the sale price fixed by theGovernment was raised substantially with effect fromDecember 29, 1981 for Pondicherry region; it was raised from68 paise to one rupee. The Government also raised anobjection that the writ petitioners having entered intocontracts with the Administration cannot wriggle out oftheir contractual obligations by resorting to Article 226 ofthe Constitution. It was submitted that because thesubject-matter of the writ petitions was purely contractualin nature, the writ petitions were not maintainable.
6. The High Court overruled the objections of theadministration with respect to the maintainability of thewrit petitions. It then examined the merits of thecontroversy and found that at the rate of supply prescribedfor the excise year 1981-82, the licensees were bound tosuffer losses, even if the rate of supply is one decalitrefor an annual bid of Rs 34,000. It demonstrated the saidfact by setting out the following table in its judgment:
75"Monthly Yearly upset One day's kistupset price price (upset rental) (upset price)(upset rental)Rs 38,000 Rs 4,56,000 Rs 1249.32
Calculation of quota of arrack supplied as per originalorder of Government.
(a) Quota per day at 1 Cec. Litre for 114 litresRs 40,000 of annual 'kist'
(b) Quota per day for Rs 34,000 134 litresCost of arrack at distillery at the (a) Rs 492.48price fixed in the notification (b) Rs 578.88
(a) Total upset rental at rate (a) Rs 1741.80
(b) -do- at rate (b) Rs 1828.20Sale price Income on sale at price fixed by notification.
Rate(a)Rs.12.60 Per litre x 114 litres Rs 1436.40Rate(b)Rs.12.60 per litre x 134 litres Rs 1638.40Loss Per Day: Cost price minus sale price:
(1741.80-1436.40) = 305.40(1828.20-1638.40) = 189.80Loss Per Year: (a)Rs 1,11,325.00
(b) Rs 51,027.00"
(From the above statement, it appears that the High Courthas adopted the price of Rs 12.60 paise per litre whichaccording to the administration is the rate prevailing up toDecember 27, 1981 where after it had gone up substantially.The counsel for the parties before us could not throw anylight in this aspect.)
7.Having found that the licensee was bound to incur losseven at the rate of onedecalitre for an annual bid of Rs34,000, the High Court held that it was an inherentlyimpossible contract. It opined that no licensee can beexpected to or will be in a position to pay the prescribed'kist' amount in the circumstances. Having come to the saidconclusion, the High Court accepted the writ petitioners'plea that in such a situation the petitioners should bepermitted to pay the 'kist' amount applying the formula Rs18,000 per annum for every decalitre of arrack supplied perday. Accordingly, it allowed the writ petitions with thefollowing directions:
"Taking all these aspect into consideration,we hold, that all the writ petitioners arebound to pay the 'kist' at the rate that wasobtained for a particular shop during theprevious year i.e. 1980-81. Moulding reliefon the above lines, all the writ petitions areallowed in part to the extent indicated aboveand dismissed in other respects. There willbe no order as the costs."
8.In these appeals, it is submitted by Shri A.S. Nambiar,learned counsel for the Administration (Union of India) thatthe High Court has exceeded its jurisdiction in granting therelief it did. The High Court, it is76complained, has actually remade the contract between theparties. It ha specifically altered the terms andconditions of the agreement and licence prescribed by law.No writ can be issued contrary to the provisions of lawIndeed, the writ petitions ought to have been dismissed onthe ground that the writ petitioners were seeking to enforcecontractual rights. The writ petitions raised a purelycontractual dispute. There was no violation of anystatutory provision on the part of the Administration. TheAdministration did not violate any of the obligations underthe contract. There was no statutory right inhering in thewrit petitioners to demand the supply of arrack at aparticular rate. The only obligation of the Administrationwas to make an equitable distribution of the availablesupplies among the several licensees. The theory that thewrit petitioners are bound to suffer losses at the rate ofsupply prescribed by the Administration for the excise year1981-82 is not correct as a fact. Even if it is correct, itis no ground for the High Court to interfere in the matter.It is no part of the court's obligation to ensure profit tothe licensees. On the other hand, the learned counsel forthe licensees (respondents in these appeals) supported thereasoning and conclusion of the High Court.
9.As indicated by us at the inception of this judgmentthe present controversy is the result of the omission tomention the rate or quantum of supply in the auctionnotification. This was necessary in view of the fact thatnot only the source of supply for the licensees was theAdministration alone but also because the licensees wereobliged to sell the arrack at the rate fixed by theAdministration. If the Administration had indicated at thetime of auction that the rate of supply for the excise year1981-82 would be at the rate of one decalitre per day for anannual bid of Rs 40,000, the bidders (including the writpetitioners) would have modulated their bids on that basis.It may be that strictly speaking, the Administration isright in saying that there was no basis for the biddersincluding the writ petitioners to assume that the rate ofsupply would be one decalitre per day for an annual bid ofRs 18,000 because that was not the constant rate even forthe whole of the previous excise year much less for theearlier years. It is equally true that the rate of supplyhas always been changing. But at the same, it cannot begain said that the rate of supply has a fundamentalsignificance to the viability of the contract. The HighCourt has demonstrated through the above statement ofparticulars that at the rate of supply of one decalitre perday for an annual bid of Rs 40,000 or even Rs 34,000, thelicensee is bound to incur loss and would not be able to payeven the 'kist' let alone meet establishment expenses andearn profit. Maybe we are not sure that the saidstatement of particulars is based upon the sale price whichwas in force from July 1, 1981 to December 27, 1981 and notthe sale price effective from December 27, 1981. Even so,it cannot be forgotten that the sale price of arrack wasrevised only on and from December 27, 1981 by which datepractically half of the licence period was over. Similarly,the revision in the rate of supply from one decalitre perday for an annual bid of Rs 40,000 to one decalitre per dayfor an annual bid of Rs 34,000 was with effect from77October 27, 198 1, by which date again about four months'period (out of 12 months' licence period) had expired. Inthe above state of facts, the High Court was perhapsjustified in holding that the contracts entered into betweenthe licensees and the Administration require to be modifiedin the peculiar facts and circumstances of this case. Inour opinion, the main vitiating factor was the omission tomention the rate of supply at the time of conducting theauction itself even where the Administration had the rightto revise it during the licence period. It is, however, notnecessary for us to go into the question what effect thesaid omission had upon the contracts. The licensees writpetitioners did their business for the entire excise yearunder the interim orders of the High Court. They wereallowed to draw supplies and pay 'kist' calculated on thebasis of Rs 18,000 per annum for supply of one decalitre perday. The contract period was over long ago. At this stageall that remains to be done is to devise a formulaappropriate to the circumstances. The situation herein isundoubtedly exceptional and unusual which in turn calls foran unusual solution.
10.At this stage, it is necessary to point out that theHigh Court while seeking to demonstrate that at the rate ofone decalitre for an annual bid of Rs 40,000 or even at therate of one decalitre per day for an annual bid of Rs34,000, the licensee is bound to suffer losses, did notpause to consider what would be the result if the 'kist'amount is reduced applying the formula Rs 18,000 annual bidfor the supply of one decalitre per day. As we have pointedout herein before, the rate of supply was never constant andthat even during the previous excise year, the rate ofsupply was revised upwards on two occasions. Accordingly,the writ petitioners could not have, reasonably speaking,assumed either that the said rate of supply (one decalitreper day for an annual bid of Rs 18,000) would be the rate ofsupply at the inception of their licence period or that thesaid rate of supply would remain unchanged during the wholeof the year 1981-82. Not only Rule 22(3) empowered theAdministration to alter it at any time, it was actuallychanged twice during the previous excise year. In the faceof the Rule position and the practice, there was no basisor justification for the writ petitioners to assume whatthey say they assumed. The rate of supply could have beenaltered at any time during 1981-82.
11.In the circumstances of this case, our inquiry islimited to the question whether the contract was soconstructed that loss was inherent and implicit in it; ifso, it ought to be modified. Otherwise, the Court has nojurisdiction to alter the terms or rewrite the contractbetween the parties.
12.The learned counsel for the appellant placed before usa memo of calculation according to which the profits earnedby licensees at the rate prescribed by the High Court wouldbe about 66 per cent on their investment. We do not proposeto go into these calculations. In the peculiarcircumstances of this case, we are of the opinion that the'kist' amount should be revised to such a figure (on thebasis of actual supplies made to each shop) as would in allthe circumstances ensure a margin of 15 per cent on (sic of)the annual bid. This 15 per cent would take care of the78establishment expenses and also include profit. Since thisformula cannot satisfactorily be evolved by us for lack ofrelevant material before us, we remit the matter to theGovernment. The Government shall, after hearing the writpetitioners, evolve a formula which ensures the abovemargin. While evolving the formula, the Government shalltake into account the change in the sale price and thechange in the rate of supply referred to hereinabove. Onsuch determination, if the licensees are found liable to payany further amounts, the same shall be paid by them andrecovered in accordance with law. If, on the other hand,the Administration is found liable to refund any amounts,the same shall be refunded to the licensees. We mustreiterate that the formula evolved by us is peculiar to thefacts of this case and has been evolved in view of theexceptional facts and circumstances of this case, and shallnot be treated as a precedent. The writ appeals areaccordingly allowed with the above directions. The judgmentof the High Court under appeal is modified accordinglyinsofar as it pertains to the licensees of Pondicherryarea/territory. No costs in these appeals.
13.Now coming to the licensees of the shops in the Mahearea, the situation is different altogether. Theselicensees did not deposit the three months' 'kist'. Theydid business for the first 15 days and thereafter abandonedthe shops. In that situation, the Administration had noopinion but to issue the notice dated August 17, 1981.Under the said notice issued by the Deputy CommissionerExcise, Mahe, the attention of the said licensees wasinvited to the fact that they have failed to remit thesecurity deposit and to execute the necessary agreements asper the rules and therefore they were called upon toexplain, within two days of the receipt of the said notice,the reasons for then- lapse in remitting the securitydeposits and in executing the agreements, failing which, itwas indicated, appropriate action would be taken againstthem according to law. Soon after receiving this notice,they rushed to the High Court with writ petitions prayingfor issuance of directions to the respondents(Administration) "to issue to the petitioner the fullquantity of arrack as was being supplied to him during lastyear failing which to reduce the 'kist' payable by thepetitioner proportionately on the basis of the arrack supplyand in respect of the petitioner's arrack shop No. 1situated at Mahe". (Prayer quoted from Writ Petition No.6652 of 198 1.) In these writ petitions the said fourlicensees asked for an interim injunction "restraining therespondents herein from taking any proceedings pursuant tothe memo of the second respondent No. 2228/A2/81-81, datedAugust 17, 1981 by either canceling the bid or forfeitingthe earnest money deposit of the petitioner in respect ofarrack shop No. 1, at Mahe". In the said miscellaneousapplication Justice Padmanathan passed the following orderon August 25, 198 1:
"1. That notice returnable in four weeks fromthis date, do issue to the respondents to showcause why this petition should not be compliedwith; and
2.interim injunction do issue to therespondents herein restraining them fromtaking any proceedings pursuant to the memo ofthe 2nd79respondent No. 2228/A2/81-82, dated August 17,1981 by either canceling the bid or forfeitingthe earnest money deposit of the petitioner Inrespect of arrack shop No. 1 at Mahe, pendingfurther orders on this petition."
14.We must say that we are not only surprised at the order passed by the High Court but also feel disturbed that the High Court chose to pass an order if interim injunction restraining the authorities from taking any action by way of canceling the licence or forfeiting the earnest money deposit, without simultaneously calling up the petitioners to deposit the 'kist' amount and other deposits according to the Rules. The result of the said order was that the licensees writ petitioners neither paid any deposits or 'kist' amounts nor did they do any business in the shops. They just kept quiet. They continued to abandon the shops; meanwhile the excise year was over. When the writ petitions came up for final hearing, the licensees of these four shops argued that inasmuch as they have not drawn any supplies and have not done any business in the respective shops, they should not be made liable for paying the 'kist' amount or deposits in accordance with the Rules. This plea has been rejected by the High Court in our opinion rightly. The petitioners having abandoned the shops and thereafter having obtained an interim injunction of the nature indicated above thereby re straining- the authorities from taking any action against the licensees for recovery of the amounts due and/or from terminating their licences/permits and also from conducting re-auction (unless the licences in favour of these writ petitioners were cancelled, no re-auction could be conducted) they cannot escape the consequences of their action. The interim order cannot and does not protect them. One must also notice the different manner in which the prayer in the writ petition and the prayer in the petition for injunction have been phrased. (We have set out both of them herein before.) The fact that the court granted the interim injunction as prayed for by them does not absolve them from the consequences of their action which flow according to law. They must pay the whole amount due. The benefit of the order made in the case of the Pondicherry licensees shall not be available to these licensees. The appeals preferred by them, Civil Appeal Nos. 693, 695 and 695-A of 1985 are dismissed with costs. The costs of the appellant are assessed at Rs 5000 in each of the four appeals which shall be paid by the respondents writ petitioners in the said appeals.
15.Before parting with the case, we feel constrained to reiterate our unhappiness about the interim injunction order made in the Mahe writ petitions. Passing of interim orders is not and cannot be a matter of course nor a matter of charity. In the matters touching public revenue the courts ought to be more cautious. For better or worse, the courts have come to acquire a veto over the public exchequer. This power should be exercised with good amount of self-restraint and with a sense of responsibility. The power is coupled with accountability accountability to the Constitution, to the laws of the land and above all to ourselves. The court must apply its mind to the facts of the case and must also envisage the implications and 80 consequences of the order it proposes to make. This is so even at the ad interim stage when the respondent is not represented. We are sorry to say that none of these considerations appear to have been present in the mind of the learned Judge while passing the orders of injunction relating to Mahe shops. We are not happy at making these remarks but we felt compelled to say so in the circumstances. We hope and trust that no occasion would arise ever again for reiterating these remarks.
