Holding

Cancellation of a licence under Rule 6(30) does not automatically invoke the forfeiture provisions of Rule 6(28); forfeiture requires a separate, duly confirmed order, and the State cannot recover loss for a period beyond the one‑year licence, with the cancellation order also violating natural‑justice principles.

Summary

The appellants, who were granted toddy‑shop licences for one financial year, were found to have mixed diazepam in toddy, an offence under the Kerala Abkari Act, leading to cancellation of their licences under Rule 6(30) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974. The State then sought forfeiture of the security deposit and recovery of alleged losses for three years under Rule 6(28) and the Kerala Revenue Recovery Act, despite the licences being for only one year and the appellants having been acquitted of the criminal charge. The Supreme Court held that Rule 6(30) and Rule 6(28) operate in distinct fields; cancellation under 6(30) does not automatically trigger the forfeiture provisions of 6(28), and forfeiture requires a separate, duly confirmed proceeding. The Court also found that the cancellation order violated principles of natural justice and that the State could not claim loss for a period beyond the licence term. Consequently, the High Court judgment was set aside and the appeals were allowed.

Issues considered

The mixing of diazepam in toddy constitutes an offence under the Kerala Abkari Act and justifies licence cancellation under Rule 6(30).
Whether cancellation of a licence under Rule 6(30) automatically attracts the forfeiture and loss‑recovery consequences of Rule 6(28).
Whether the Assistant Excise Commissioner could, without confirmation by the Excise Commissioner, order forfeiture of the security deposit.
Whether the principles of natural justice were complied with in the cancellation and forfeiture proceedings.
Whether the State may claim loss for three years when the licence was granted for only one year under Section 18A of the Kerala Abkari Act.
The appropriate basis for claiming damages – statutory provisions versus contract law and the applicability of Section 74 of the Indian Contract Act.
The jurisdictional relationship between the Assistant Excise Commissioner and the Excise Commissioner when exercising overlapping powers.
The validity of the revenue‑recovery demand under the Kerala Revenue Recovery Act, Section 7.

Legislation cited

Indian Contract Acts. 74
Kerala Abkari Acts. 18A, s. 24, s. 26, s. 29, s. 56, s. 57(a)
Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985s. 22

Subjects

Kerala Abkari ActRule 6(30)Rule 6(28)licence cancellationnatural justicecontract damagesHeydon's ruleadministrative lawres extra commerciumsecurity depositrevenue recoverydiazepam adulterationexcise law

Judgment

(2009] 4 S.C.R. 331

~~ V.K. ASHOKAN A
V.
ASSTT. EXCISE COMMNR. & ORS.
Civil Appeal No. 1541 of 2009
MARCH 5, 2009
B
[S.S. SINHA AND CYRIAC JOSEPH, JJ.]
<j Kera/a Abkari Shops (Disposal in Auction) Rules, 1974:
JI(
r. 6(30)- Mixing of 'diazepam' in toddy- Held: Constitutes
an offence - Licence liable to cancellation under r. 6(30) - c
Kera/a Abkari Act - ss.57(a), 56.
rr.6(28), 6(30) - Cancellation of licence under Rule 6(30)
- Forfeiture of deposit in terms of Rule 6(28) would not
automatically follow.
,--t D
Kera/a Revenue Recovery Act: s. 7 - Demand for loss
incurred by Government in holding re-auction on cancellation
of licence - Loss purportedly sustained by the State as if the
privilege of sale in toddy was transferred for three years - Held:
Licence was granted for one year only - Advertisement was
E
made for one year and confirmation of sale was also accorded
for a year only - Grant of licence for carrying out business as
~ • envisaged under Section 18A of the Kera/a Abkari Act is
imperative in character whereby a valid contract for a period
of three years was clearly impermissible in law - Therefore,
demand could not be made towards the loss suffered for three F
years - Kera/a Abkari Act - s. 18A.
Interpretation of statutes: Heydon's rule - Applicability
of
.,-1
Administrative law: Principles of natural justice - Violation G
of - Held: Since no notice issued to licencee before
cancellation of licence, principles of natural justice not
complied with.

331 H
332 SUPREME COURT REPORTS [2009] 4 S.C.R

A Jurisdiction. Statutory authorities - Where two statutory ..-•
authorities could exercise the same power, if a matter was
heard by one authority, the other could not exercise the power
Doctrines/Principles: 'res extra commercium' - Carrying
on business in liquor - Held: It is considered to be 'res extra
8 commercium '.

Words and phrases: Security - Meaning of.
Appellants were carrying on business of toddy. In
March, 1997, the State Government published a
C notification expressing its intention to part with its
privilege of vending toddy through retail shops in the
notified excise ranges for the year 1997-98 wherefor public
auction was proposed to be held. Although the
Notification for holding auction for one Financial year was
D published, the District Collector held auction for three
years purportedly on the basis of past practice. Appellants
were successful bidders. They entered into a temporary
agreement for a period of three years. They were however
granted licence to deal in the said commodity only for one
E year. The Board of Revenue confirmed the said auction.
Appellants furnished security to the extent of one-third of
the amount payable for the first year.
In September, 1997, Excise Inspectors inspected the ,
toddy shops of the appellants and took three bottles of
F toddy as sample. On chemical examination of samples,
'Diazepam' 1.8 mg. to 2.2 mg. per litre of toddy sample
was detected. Pursuant thereto, criminal case was
registered against appellants. However, appellants were
acquitted.
G
Separate proceedings were also initiated by Assistant
Commissioner for ..;ancellation of licences under Rule
6(28) and Rule 6(30). Licences were cancelled under Rule
6(30). So far as the orders directing cancellation of
H licences in terms of the provisions of Rule 6(28) were
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 333

,...'-i concerned, they were referred to the Excise Commis-A
sioner for confirmation.
In the meantime, auctions were held. As no bidder
turned out, the Assistant Commissioner of Excise entered
into negotiations with some of the parties and granted
licences to them. B
The matters were referred to the Commissioner of
Excise for confirmation of sale. At that stage, the Board
held that in cases where licences were cancelled in terms
of Rule 6(30), Rule 6(28) would also be automatically c
attracted and on that basis, the decision of Assistant
Commissioner was upheld.
On 19.12.1997, the Assistant Commissioner of Excise
issued another order forfeiting the security deposit.
, Consequent to the said order, the Circle Inspector of D
Excise issued a notice dated 8.1.1998 demanding a huge
amount as also the interest thereon at the rate of 18% per
annum stating that the State Government had suffered
losses in holding re-auctions and wherefor licences were
granted. Revenue Recovery proceedings were initiated E
under Section 7 of the Kerala Revenue Recovery Act.
The appellants filed writ petitions, which were
dismissed. Hence the appeals.
Allowing the appeals, the Court F
HELD: 1. There cannot be any doubt whatsoever that
a proceeding for cancellation of licence is maintainable
on the ground of contravention of any of the provisions
of the Kerela Abkari Shops (Disposal in Auction) Rules,
1974 or the conditions of licence. The High Court has G
rightly noticed that mixing of "diazepam" with toddy
constitutes an offence in terms of the provisions of the
Kerela Abkari Act. The same being in violation of not only
the Rules but also the conditions of licence, Rule 6(30)
would be attracted. [Para 26] [358-8-C] H
334 SUPREME COURT REPORTS [2009] 4 S.C R.

r
A 2.1. Rule 6(30) and Rule 6(28) operate in two different ~

fields. Whereas licence can be cancelled in terms of Rule
6(28) only when the kist has not been regularly paid, Rule
6(30) applies in a wider spectrum. The consequences
emanating from Rule 6(28) cannot ensue even in cases
B where a licence had been terminated in terms of Rule
6(30), as the rules have not stated so explicitly. It was so
done prior to the substitution of the present rule. The very ,..
fact that the State in exercise of its rule making power ,
~

amended the rule in terms whereof the original clause (b)
c was deleted is a clear pointer to show that a conscious
step was taken not to take recourse of forfeiture of deposit
in a case where licence is cancelled in terms of Rule 6(30).
[Para 26] [358-D-F]
2.2. The principles contained in the Heydon's Rule
D shall squarely be attracted in this case. It is a settled •
principle of interpretation of statute that when an
amendment is made to an Act, or when a new enactment
is made, Heydon's rule is often utilized in interpreting the
same. For the purpose of construction of Rule 6(30), as it
E stands now, the Court is entitled to look to the legislative
history for the purpose of finding out as to whether the
mischief prior to such amendment is sought to be rectified
}
or not. Applying the Heydon's rule, it is held that such was
the intention on the part of the Rule making authority. [Para
F 26] [358-G-H; 359-A-B]
Philips Medical Systems (Cleveland) Inc. vs. Indian MRI
Diagnostic and Research Ltd. & Anr. 2008 (13) SCALE 1 -
relied on.
3. Rule 6(32) and Rule 6(34) provide for similar ~~
G
consequences but in absolutely different situations. Rule
6(32) provides for forfeiture only in a case where the
amount of fine is not paid. It is not a case where Rule 6(32)
was directed to be applied as the licensees did not deposit
the amount of fine imposed on them. It is also not a case
H
V.K. ASHOKAN V. ASSTT EXCISE COMMNR. & ORS. 335

that forfeiture was ordered in view of the judgment of A
conviction passed against the licensees. The step taken
by the respondent State, for forfeiture of amount of
deposit as also recovery of the amount of loss purported
to have been sustained by them, could have taken
recourse to in terms of Rule 6(34) if they were convicted. B
Recourse thereto could have been taken only by the
appropriate authority. The same would not automatically
follow only because the licence was cancelled in terms
of Rule 6(30) of the Rules. Therefore, the Board was not
correct to hold that the consequences laid down in Rule c
6(28) would automatically be attracted. [Para 27] [359-8-E]
4. The order passed under Rule 6(28) of the Rules
must be confirmed by the Excise Commissioner. Such is
not the requirement in case of cancellation of licence
under Rule 6(30). [Para 28] [359-F] D
•
5. A bare perusal of the provisions contained in Rule
6(28) would clearly show that the order of cancellation of
licence need not be passed only because it is lawful to
do so. The Licensing Authority in such matters exercises
a discretionary jurisdiction. The proviso appended to the E
said rule is a clear pointer to the said effect. In a given
case, it is possible for a licensee to show that although in
fact he had not paid the kist, he could not do so for
sufficient or cogent reasons; he also could raise a plea
which could have been accepted by the Licensing F
Authority that interest of justice would be subserved if he
is allowed to deposit the amount with interest or penalty,
as the case may be. [Para 29] [360-F-G]
6. It was impermissible for the Assistant Commis- G
sioner of Excise to pass the order dated 19.12.1997
opining that the consequences of forfeiture under rule
6(28) is automatic upon cancellation of licence under Rule
6(30). [Para 30] [361-A-B]
7. It is a basic rule of administrative law that where H
336 SUPREME COURT REPORTS [2009] 4 S.C.R.

A two statutory authorities could exercise the same power r~
if a matter has been heard by one authority, the other could
not have exercised the power. Furthermore, the nature of
power to be exercised by the Commissioner of Excise,
namely, cancellation of licence on the one hand and
B confirmation of a sale and/or confirmation of an order
passed by the Assistant Commissioner of Excise, on the
other, stand on different footings. The appellants had no
right to carry on business in liquor. It is considered to be •
·res extra commercium'. [Para 30] [361-D-F] ~

c State of Punjab & Anr. vs. Devans Modem Breweries Ltd.
& Anr. (2004) 4 SCC 26; Kera/a Samsthana Chethu Thozhilali
Union VS. State of Kera/a & Ors. (2006) 4 sec 327 - relied on.
State of M.P v. Nand/al Jaiswal (1986) 4 SCC 566;
Khoday Distilleries Ltd. v State of Kamataka (1995) 1 SCC
D
574 - referred to. ..
8. When a licence has been granted, which is subject
to exercise of statutory power, the provisions of the statute
must be complied with before a penal action thereunder
E is taken. The law provides for compliance of principles of
natural justice, as consequence flowing from an order of
cancellation of licence has serious consequences and as
such it was obligatory on the part of the Excise ~

Commissioner to comply with the principles of natural
F justice. He has failed to do so. [Para 31] [363-8-C]
9. The Commissioner of Excise being a higher
authority had already expressed his opinion that
application of Rule 6(28) of the Rules is automatic
consequent upon the cancellation of licence in terms of
G sub-rule (30) of Rule 6. Assistant Commissioner of Excise ,.._~

could not have taken a different view. The proceeding,
thus, in a case of this nature should have been initiated
by the Assistant Commissioner of Excise and not by the
Commissioner of Excise. Where the statutory authority, it
H is well known, exercises his jurisdiction conferred on him
VK. ASHOKAN V ASSTT EXCISE COMMNR & ORS. 337

by a statute, he has to apply his own mind and the A
procedures laid down therefor must be scrupulously
followed. It is furthermore a well settled principle of law
that a statutory authority must exercise its jurisdiction
within the four corners of the statute. Any action taken
which is not within the domain of the said authority would s
be illegal and without jurisdiction. [Paras 33, 32, 35] [364-
• D; 363-D; 365-G-H]
K. I. Shephard vs. Union of India (1987) 4 SCC 431; Rajesh
Kumar & Ors. vs. Dy CIT & Ors. (2007) 2 SCC 181; Commis-
sioner of Police, Bombay vs. Gordhandas Bhanji AIR 1952 C
SC; Ramana Dayaram Sheffy vs. The International Airport
Authority of India & Ors. Al R 1979 SC 1628 - referred to.
10.1. A binding contract no doubt comes into
, operation on the acceptance thereof by the State but
0
where the acceptance of the amount of bid was subject
to an order of confirmation by a statutory authority, the
acceptance of offer must be held to be conditional and
the same being subject to the confirmation, it is difficult
to accept the contention that the contract was for the
entire period of three years. The grarit of licence for the E
purposes of carrying out business as envisaged under
Section 18A of the Act is imperative in character whereby
a valid contract for a period of three years was clearly
impermissible in law. In that view of the matter, the demand
could not have been made towards the loss suffered for F
a period of three years. [Para 36] [367-C-E]
10.2. Damages can be imposed on a licensee either
for violation of the provisions of a statute on the part of the
,.,-.! licensee and/or under the contract. So far as the damages G
to be levied under statute is concerned, it would be governed
by the provisions of the statute. However, if damages are
to be computed under the contract, the provisions of the
Indian Contract Act and/or the terms of the contract would
be relevant. Ordinarily, they should not be mixed up. If H
338 SUPREME COURT REPORTS (2009] 4 S.C.R.

A having regard to the provisions of Section 18A of the Act, ~-'
no contract for a period of more than one year could have
been granted, damages could not have been calculated
on the basis of the contract. [Para 37] [367-8-E]
11. The term ·security' signifies that which makes
B secure or certain. The State could at any time recoup its
damages or at least a part of it from the amount of security.
Sub-Rule (28) of Rule 6 confers a discretionary jurisdiction
on the Assistant Commissioner of Excise. Exercise of ~

such jurisdiction in favour of revenue, if any, would
c furthermore be subject to confirmation by the Board of
Revenue. The said statutory authority may at its discretion
cancel the licence. While doing so, it may order a resale
at the risk and cost of the licensee. It may at its option
also direct the management of the business of the contract
D by the departmental agency or otherwise dispose of the ..
'
same. It is only when one or other direction is issued, all
losses on account of such cancellation and resale or
departmental management or other disposal of the
privilege shall be borne by the defaulting licensee.
E Whereas all losses are to be borne by the licensee but he
would have no right to the gain, if any, which accrues by
reason of such resale of license or taking over of the
management of the business by the departmental agency ' ....
or disposal thereof otherwise. Actual losses suffered by
F the State by reason of any of the aforementioned actions
taken must therefore be clearly ascertained. As Rule 6(28)
provides for a penal clause, the principles of natural justice
were required to be applied. Rule 6(28) itself provides that
any sum due from a licensee on account of kist, tree-tax
G
or otherwise may be recovered from his deposit subject .. "'
only to the condition that if any adjustment is made from
the deposit, the licensee would be bound to replace the
sum adjusted therefor within fifteen days of receipt of
notice from the Excise Officer in charge of the Division in
which his shop is situated. The proviso appended confers
H
V.K. ASHOKAN V. ASSTT EXCISE COMMNR & ORS. 339

,--. a wide jurisdiction upon the Assistant Excise A
Commissioner to restore the licence cancelled by him in
the event the defaulter pays up the amount defaulted by
him before the expiry of one month from the date of such
cancellation. The said rule, therefore, does not postulate
that consequences must ensue on happening of one B
contingency or the other. [Para 38] [369-C-H; 370-A-D]
Chetumal Bu/chand vs. Noorbhoy Jafferji AIR 1928 Sind
89 - referred to.

12.1. If damages cannot be calculated and the terms c
of the contract provides therefor only for penalty by way
of liquidated damages, having regard to the provisions
contained in Section 74 of the Indian Contract Act a
reasonable sum only could be recovered which need not
in all situations even be the sum specified in the contract.
0
r [Para 39] [370-E-F]
Mau/a Bux vs. Union of India AIR 1970 SC 1955; Shree
Hanuman Cotton Mills & anr. vs. Tata Air Craft Ltd. AIR 1970
SC 1986; Fateh Chand vs. Balkishan Oas (1964) 1 SCR 515-
relied on. E
Natesa Aiyar v. Appavu Padayachi (1913) I.LR. 38 Mad.
178; Singer Manufacturing Company v. Raja Prasad (1909)
I. L. R. 36 Cal. 960; Manian Patter v. The Madras Railway
Company (1906) l.L.R.19 Mad. 188 - referred to.
F
12.2. Forfeiture of earnest money under a contract
for sale of property whether movable or immovable, if the
amount is reasonable, would not fall within Section 74.
[Para 40] [372-F]
13. Where under the terms of the contract the party G
in breach has undertaken to pay a sum of money or to
forfeit a sum of money which he has already paid to the
party complaining of a breach of contract, the undertaking
is of the nature of a penalty. [Para 40] [372-H; 373-A]
H
340 SUPREME COURT REPORTS (2009] 4 S.C.R.

A Saurabh Prakash vs. DLF Universal Ltd. (2007) 1 SCC r'
228 - relied on.
Kunwat Chiranjit Singh v. Har Swarup A. I. R. 1926 PC. 1;
Roshan Lal v. The Delhi Cloth and General Mills Company
Ltd., Delhi I. L. R. 33 All. 166; Muhammad Habibu/lah v.
B Muhammad Shafi l.L.R. 41 All. 324; Bishan Chand v. Radha
Kishan Das l.D. 19 All. 490 - referred to.
14. Raids were conducted; shops were sealed on •
specific allegations, namely, the licensees had mixed some •
poisonous substance with liquor. They were prosecuted
c for adding 'Diazepem'. Evidently, the fact that the chemical
report showed that 'Diazepem' had been mixed with toddy
have prejudiced the licensing authority. Such prejudice
is apparent even on the face of the impugned order
passed by the High Court. It has not been denied that all
D the appellants have since been acquitted of the said
charges by a competent criminal court. In the peculiar '
facts and circumstances of this case, therefore, it was not
a case where even Rule 6(28) could have also been
resorted to. [Para 41] [373-B·E]
E

-..
Case Law Reference
2008 (13) SCALE 1 relied on Para 26
(2004) 4 sec 26 relied on Para 30 •
(2006) 4 sec 327 relied on Para 30
F
(1986) 4 sec 566 referred to Para 30
(1995) 1 sec 574 referred to Para 30
(1987) 4 sec 431 referred to Para 32
G (2007) 2 sec 181 referred to Para 32 r·-.

AIR 1952 SC 16 referred to Para 34 .....
AIR 1979 SC 1628 referred to Para 34

H AIR 1928 Sind 89 referred to Para 38
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 341

,,"'1 AIR 1970 SC 1955 relied on Para 39 A
AIR 1970 SC 1986 relied on Para 39
(1964) 1 SCR 515 relied on Para 39

(1913) I.LR. 38 Mad. 178 referred to Para 39
B
(1909) I.LR. 36 Cal. 960 referred to Para 39

(1906) l.LR.19 Mad. 188 referred to Para 39
"
I'
(2007) 1 sec 22a relied on Para 40

A.l.R. 1926 P.C. 1 referred to Para 40 c
l.L.R. 33 All. 166 referred to Para 40
I.LR. 41 All. 324 referred to Para 40
l.D. 19 All. 490 referred to Para 40 D
t
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1541
of 2009
From the Judgement and Order dated 17.10.2005 of the
H6n'ble High Court of Kerala at Ernakulani in 0.P. Nti. 5742 of E
1998 (H).

WITH
-1
Civil Appeal No. 1542 of 2009
Civil Appeal No.1543 of 2009 F
Civil Appeal No. 1544 of 2009
Civil Appeal No. 1545 of 2009

..
~
Civil Appeal No. 1546 of 2009
Civil Appeal No. 1547 of 2009
G

R.F. Nariman, Harish N. Salve, Mathai M. Paikadey, F.M.S.
Anam, Fazlin Anam, N.K. Unnikrishnan, Roy Abraham, Seema
Jain, Vimlesh Kumar, Himinder Lal, for the Appellants.
H
342 SUPREME COURT REPORTS (2009] 4 S.C.R.

A TLV Iyer, G. Prakash, for the Respondent.
The Judgement of the Court was delivered by
S.B. SINHA, J.
1. Leave granted.
B
2. Interpretation of the provisions of the Kera la Abkari Act
(for short, "the Act") and the Rules framed thereunder known as
the Kerala Abkari Shops (Disposal in Auction) Rules, 1974 (for •
short, "the Rules") is the question involved in these appeals.
C They arise out of a common judgment and order dated
17.10.2005 passed by a Division Bench of the High Court of
Judicature at Kerala at Ernakulam in O.P. No. 5742of1998 (H).
W.A. No. 1822 of 1998 (C). O.P. No. 5910 of 1998 (C), 0. P.
No. 5783 of 1999 (L), O.P. No.10276 of 1998 (W), and W.A.
D No.1790 of 1998(C).
3. The questions involved herein broadly arise in the
following factual matrix in the cases. We would, however, notice
the fact involved in the individual cases also.
4. Appellants herein carry on business in toddy. For the
E
purpose of grant of privilege in terms of the provisions of the
said Act and the Rules framed thereunder, the State frames
policy-decision from time to time.
The position of the parties with reference to the name of
F the licenses and the other relevant dates would appear from the
following:
SL S.L.P Licencee of Date of Rule Details of Details of
No No. Shop Nos. cancellation under Writ Criminal
& Excise of Licence which Petition Case
Range licence is filed before
cancelled the High
Court by
the
petitioners

1. 25060 of Licencee of 26.09 1997 Rule 6 Writ Accused
2005 Shop Nos. vide order of (30) of Petition No. 1 in
H
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 343
[S.B. SINHA, J.)

(V.K. 55 to 96 of Assistant the O.P.No. S.C.No.83
Ashoka ) Thrissur Excise Abkari 5742of. of 1999 -
Excise Commissioner shops 1998 acquitted
Range (Disposal dismissed by the
in by the Sessions
Auction) judgment Judge by
Rules. impugned judgment
in the dated B
S.L.P. 16.05.2008

2. 25467of Licencee of 27.10.1g97 Rule 6 Writ Accused
2005 Shop Nos. vide order of 6(28) of Petition No. 2 in
(V.K. 109 to 222 the Assistant the O.P. No. S.C.
Ashokan of Excise Abkari 6609 of No.21 O of
lrinjalakuda Commissioner shops 1998 - 1999 - c
Excise (Disposal judgment acquitted
Range in of Single by
Auction) Judge on judgment
Rules. 21.07.1989 dated
Writ 16.05.2008
Appeal No.
-1
1822 of
D
1998
dismissed
by the
impugned
judgment
in this E
S.L.P.

3. 1568of Licencee of 26.09.1997 Rule 6 Writ Accused
2006 Shop Nos.1 vide order of (30) of Petition No. 2 in
(PK to 54 of the Assistant the O.P.No. S.C.
Rajan) Cherpu Excise Abkari 5910 of No.293 of
Excise Commissioner shops 1998 1999 -
F
Range (Disposal dismissed acquitted
in by the by
Auction) judgment judgment
Rules. impugned dated
in this 15.11.2005
S.L.P.

Rule 6 No
G
4. 1773 of Licences of 25.05.1998 Writ
2006 Shop Nos.1 vide order of (28) of Petition criminal
(T.P. to 52 and the Assistant the O.P. No. case
Saleem) 137 & 138 Excise Abkari 5783 of against him
of Commissioner shops 1999
Vadanapally (Disposal dismissed
Excise in by the H
344 SUPREME COURT REPORTS [2009) 4 S.C.R.

A Range Auction) judgment
Rules. impugned
in the S.LP.

5 2166 of Licensee of 26.09.1997 Rule 6 Writ Accused
2006 Shop Nos. vide order of (30) of Petition No. 1 in
(K.C. 97 to 171 of the Assistant the O.P 10276 SC. No. 8<
B Rajan) Anthikad Excise Abkari of 1998 of 1999 -
Excise Commissioner shops dismissed acquitted
Range (Disposal by the by
in judgment judgment •
Auction) impugned dated
Rules. in this SLP. 02.09.2006 •
c 6. 1696 of Petitioner is 26.09.1997 Rule 6 Writ Petitioner's
2006 the widow vide order of (30) of Petition late
(Thankam of KV the Assistant the O.P. No. husband
Rama- Rama- Excise Abkari 5910 of was
krishanan) krishnan Commissioner shops 1998 - accused
who was a (Disposa I dismissed No. 3 in
co-licencee in by the S.C.No.
D of shop Auction) judgment 293 of
..
Nos. 1 to 54 Rules. impugned 1999 which
of Cherpu in this SLP case ended
Excise in acquittal
Range by
judgment
dated
E 15.11.2005

7. 6091 of Petitioner is 27.10.1997 Rule 6 Writ Petitioner's
2006 the widow vide order of (28) of Petition late
(Thankam of KV the Assistant the No. 6609 husband
Rama- Rama- Commissioner Abkari of 1998 - was
krishnan) krishnan shops dismissed accused
F (Disposa I by Single No.1 in
who was a
co-licensee in Judge by S.C. No.
of Shop Auction) judgment 210 of
Nos. 109 to Rules. dated 1999 which
222 of 21.7.1998 case ended
lrinjalakuda WA No. in acquittal
G Excise 1790 of by •--.
Range. 1998 judgment
dismissed dated
by the 16.05.2008
judgment
impugned
in this SLP.
H
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 345
. [S.S. SINHA, J.]

A--Y 5. On or about 6.3.1997, the Government of Kerala A
published a notification in its Gazette expressing its intention to
part with its privilege of vending toddy through retail shops in
the notified Excise Ranges for the year 1997-98 wherefor public
auction was proposed to be held on the dates notified therefor.
We are concerned with shops situate within Thrissur Range, B
lrinjalakuda Range, Cherpu Range, Vadanappally Range and
Anthikad Range.

6. Indisputably, although the notification for holding auction
for one Financial Year was published, the Collector of the District
held auction for three years, namely, 1997-98, 1998-99 and C
1999-2000 purporting to be on the basis of the past practice
prevalent therefor. Appellants participated in the said auction
and became the successful bidders. On the date of auction,
they entered into a temporary agreement in Form-II appended
to the Rules, which was for a period of three years. They were, D
however, granted license to deal in the said commodity only for
one year.

7. The Board of Revenue is said to have confirmed the
said auction. Appellants upon having declared to be the
successful bidders furnished security to the extent of one-third E
of the amount payable for the first year.
8. On or about 6.9.1997 and 7.9.1997, Excise Inspectors,
inspected the toddy shops of the appellants and took three bottles
of toddy as sample. They were sent for chemical examination F
to the specified laboratories. A common certificate was obtained
in respect of all samples stating that "Diazepam" had been
detected therein at varying rates of 1.8 mg to 2.2 mg per litre of
toddy sample. Pursuant thereto, criminal cases were registered
against the appellants. It is now accepted that appellants have G
been acquitted of the charges leveled against them in the
criminal proceedings.
9. Separate proceedings were also initiated by the
Assistant Excise Commissioner for cancellation of licenses.
Those proceedings, as would appear from the following H
346 SUPREME COURT REPORTS [2009] 4 S.C.R.

A chart were initiated either under Rule 6(28) or Rule 6(30) of the .... '"
Rules.
Proceeding initiated Range
under Rule

B Civil Appeal @ SLP 6(30) Thrissur
(C) No. 25060/2005
Civil Appeal @ SLP 6(28) lrinjalakuda •
(C) No. 25467/2005 "
c
Civil Appeal @ SLP 6(30) Cherpu
(C) No. 1568/2005
Civil Appeal @ SLP 6(30) Cherpu
0 (C) No. 1696/2006 ' '
Civil Appeal @ SLP 6(28) Vadanappally
(C) No. 1773/2006
Civil Appeal @ SLP 6(30) Anthikad
E
(C) No. 2166/2006
Civil Appeal @ SLP 6(28) lrinjalakuda " ~

(C) No. 6091/2005
F
10. Licenses were cancelled in terms of the said provisions
on or about 26.9.1997. So far as the orders directing
cancellation of licences in terms of the provisions of Rule 6(28)
are concerned, they were referred to the Excise Commissioner
for confirmation.
G •· -.,,
11. In the meantime, auctions were held. As no bidder
turned out, the Assist::mt Commissioner of Excise entered into
negotiations with some of the parties on the basis whereof, the
licenses were also qranted to the said parties for the remaining
H period.
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 347
[S.B. SINHA, J.]

"' -"' 12. The matters were referred to the Commissioner of A
Excise for confirmation of sale. At that stage, the Board
purported to have come to the conclusion that in cases where
licenses were cancelled in terms of the provisions of Rule 6(30)
of the Rules, Rule 6(28) would also be automatically attracted
and on the basis thereof, the decision of the Assistant B
Commissioner was upheld.
~ 13. On or about 19.12.1997, the Assistant Commissioner
r of Excise issued another order forfeiting the amount of security
deposit purporting to act in terms of Rule 6(28) of the Rules,
stating: C

"As per order number first cited, the licences of toddy
shops of Cherpu, Thrissur and Anthikad ranges was
cancelled under Rule 6 (30) of Abkari Shops (Disposal in
Auction) Rules 1974, since the Original purchasers of toddy D
shops of above ranges for the year 1997-2000 violated
the rules and licence conditions and committed the
offences punishable under Section 57(a) and 56 of Abkari
Act and also Section 22 of NDPS Act 1985 conse-quent
on the detection of Diazepam in the samples of toddy
sent for chemical analysis from toddy depot and toddy E
shops of the above ranges.

' Board as per reference 2nd cited have ordered that rule
6(28) of Abkari Shops (Disposal in Auction) Rules 1974
is automatically attracted in these cases and uphold the F
decision of the Asst. Excise Commissioner, Thrissur of
cancellation of the licence made as per rule 6(30) read
with rule 6 (28).
Hence as per rule 6(28) of Abkari Shops (Disposal in
Auction) Rules 1974, the amount of Rs.58,50,000/- in G
respect of toddy shops of Cherpu range, Rs.44,40,000/-
in respect of toddy shops of Thrissur range and
Rs.88,50,000/- in respect of toddy shops of Anthikad range
deposited by the original purchasers of the above
toddy shops as per TR No. 4232, 4230 and 4229 H
348 SUPREME COURT REPORTS [2009] 4 S.C.R

A respectively are hereby forfeited to Government with ,... ...
immediate effect."

14. Consequent to the said order, the Circle Inspector of
Excise issued a notice dated 8.1.1998 demanding a huge
amount as also the interest thereon at the rate of 18% per annum
B stating that the Government of Kerala had suffered losses in
holding re-auctions which took place on or about 11.11.1997
and wherefor licences had been granted with effect from ~

14.11.1997. Revenue Recovery proceedings were initiated ,
under Section 7 of the Kerala Revenue Recovery Act on
c 11.3.1998 asking the appellants to remit the amount mentioned
therein with interests as arrears in respect of toddy shops
specified therein.

15. Two of the appellants before us had filed writ petitions.
During the pendency of the said writ petitions, Tahsildar
D ~

(Revenue Recovery) issued an order in Form 11 attaching the '
immovable properties of the appellants whereupon applications
for amendment of the writ petition were filed, inter alia,
questioning the proceedings initiated subsequent to the filing
of the writ petition.
E
16. A learned single judge of the High Court dismissed
the said writ applications. Two writ appeals were preferred
\
thereagainst. In the meanwhile, other appellants had also filed
writ petitions. The Division Bench, however, withdrew all other
R

F writ applications before it and disposed of the pending writ
petitions as also the said writ appeals by a common judgment.
17. The High Court noticed the contentions raised before
it in paragraph 11 of its judgment, which reads as under:
"Counsel submitted that sub-rule (30) of rule 6 of the Kera la ,.... "
G
Abkari Shops (Disposal in Auction) Rules was not in
existence prior to 30.3.1996 but was substituted on
30.3.1996 which has not conferred any power on the depart
ment to cancel the licence. Sri K. Ramakumar appearing
for some of the licencees submitted that licences were
H
V,K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 349
[S.B. SINHA, J.]

__,--.i cancelled without notice to the petitioners and the A
principles of natural justice have been violated. Further
counsel also referred to Section 26 of the Kerala Abkari
Act and submitted that only Commissioner has got the
power to cancel the licence and the cancellation of the
licence by Assistant Commissioner was without B
jurisdiction. Identical are the contentions raised by
Advocate Sri. Premjit Nagendran as well. Additional
Advocate General on the other hand supported the
, action of the department." ·
Holding that the order cancelling the licence having been C
passed as "diazepam" had been detected on chemical
examination of the toddy seized from the business premises of ,
the appellants and furthermore they having defaulted in payment
of kist, committed an offence punishable under Section 57A(iii)
and Section 55(1) of the Abkari Act. D
18. The contention raised before the High Court that the
licence was granted for a period of one year and hence for rest
of the years appellants were not liable to pay the kist amount,
was rejected stating:
E
"Consequently contention of the counsel that licence was
also for one year and therefore petitioner cannot be held
liable for the rest of the period cannot be accepted.
Respondent State is legally entitled to recover the loss
caused to the State by issuing demand notice to the F
petitioners. We are of the view that the action taken by the
Respondents is perfectly in order and in accordance with
the Kerala Abkari Act and the Rules framed thereunder."
19. Mr. R.F. Nariman, Mr. Harish Salve, Mr. Mathai M.
Paikadey, the learned Senior Counsel and Mr. Roy Abraham, G
learned counsel appearing in support of these appeals raised
the following contentions:
i. Proceedings under Rule 6(28) and under Rule 6(30)
being different in nature, while cancelling licences in H
350 SUPREME COURT REPORTS [2009] 4 S.C.R.

A terms of Rule 6 (30) of the Rules the consequences ,.... ">-..
emanating from Rule 6(28)are not envisaged under
the statute.

ii. Rule 6(30), as it originally stood, contained a
provision for forfeiture of the amount deposited and
B the same having been deleted from the statute book,
recourse to the said provision was wholly
impermissible.

iii. The licences having been granted for one year; ~ '

c assuming that the agreement was entered into by
and between the Commissioner of Excise and the
appellants for a period of three years, the amount of
purported loss could have been calculated only for
the rest of the year.
D iv. In any event, as there are some cases, in which there ~
...
was no failure to pay kist and in any event having
regard to the fact that the amount of security furnished
would cover the entire kist amount, Rule 6(28) could
not have been taken recourse to.
E Proceedings for forfeiture of the deposit, etc. in any
v.
view of the matter being a matter arising out of a
contract qua contract, it was obligatory on the part of
the State to prove actual damages, inasmuch as for
•
invoking such a penal clause, the State was bound
F to establish breach of contract on the part of the
licensees and consequential entitlement to damages
particularly when the contracts themselves had been
terminated.
vi. The Commissioner of Excise could not have
G t· -"'
confirmed cancellation of licenses and consequential
orders in such cases which are covered by Rule 6(30)
and not Rule 6(28).
20. Mr. T.L.V. Iyer, learned Senior Counsel appearing on
H behalf of the State of Kerala, on the other hand, would contend:
,,- V.K. ASHOKAN V. ASSTT EXCISE COMMNR & ORS. 351
[S.B. SINHA, J.]

i. Keeping in view the scheme of the Act and the Rules, A
appellants having with their eyes wide open took
part in the bid for a period of three years and having
entered into agreements for the said period cannot
be permitted to contend that the contract was for one
yea~ B
ii. Having regard to the provisions contained in Rule
5(10) of the Rules read with conditions of the
Agreement as contained in Form I and Form II
' fl
appended thereto, the mode of determination of the
quantum of damages being fixed, namely, the original C
amount minus resale amount plus cost of resale, the
amount which was payable to the State and the
amount which was offered by the new purchasers
together with interest at the rate of 18% per annum,
the losses suffered during the period 1998-99 and D
1999-2000 can also be recovered by the State
having regard to the terms as contained in the
agreement as it is not denied or disputed that the
appellants executed agreement for a period of three
~ara. E
21. The Act was enacted by Maharaja of Cochin By Act
No.10of1967, it was extended to the whole of Kerala. By reason
of the provisions of the said Act, manufacture or sale of liquor,
including country liquor is regulated. The regulatory statute,
indisputably, is made in terms of Entry 8 of List II of the Seventh F
Schedule of the Constitution of India. A licence is granted under
the Act. The licensees indisputably are required to carry out the
manufacture or sale of country liquor in terms of the provisions
of the Act, rules framed thereunder as also the terms and
conditions of the licence. G
"Country Liquor" has been defined in Section 3(12) of the
Act to mean 'toddy or arrack'.
'Toddy' has been defined in section 3(8) oftheActto mean:
H
352 SUPREME COURT REPORTS [2009] 4 S.C.R.

A 'Toddy'' means fermented or unfermented juice drawn from
coconut. palmyra. date, or any other kind of palm tree."

Section 18A provides for grant of exclusive or other
privilege of manufacture, etc. on payment of rentals. It reads as
under:
B
"1 BA. Grant of exclusive or other privilege of
manufacture, etc. on payment of rentals:- (1) It shall
be lawful for the Government to grant to any person or
persons, on such conditions and for such period as they
c may deem fit, the exclusive or other privilege-

(i) of manufacturing or supplying by wholesale; or

(ii) of selling by retail; or

(iii) of manufacturing or supplying by wholesale and
D selling by retail, any liquor or intoxicating drugs within
any local area on his or their payment to the
Government of an amount as rental in consideration
of the grant of such privilege. The amount of rental
may be settled by auction, negotiation or by any other
E method as may be determined by the Government,
from time to time, and may be collected to
·the exclusion of, or in addition, to the duty or tax
leviable under Sections 17 and 18. ..
(2) No grantee of any privilege under sub-section (1) shall
F exercise the same until he has received a licence in that
behalf from the Commissioner.
(3) In such cases, ifthe Government shall by notifiation so
direct, the provisions of Section 12 relating to toddy and
toddy producing trees shall not apply."
G
22. The State of Kera la in exercise of its rule making power
conferred upon it under Sections 18-A and 29 of the Act framed
rules known as The Kerala Abkari Shops (Disposal in Auction)
Rules, 1974.
H
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 353
[S.B. SINHA, J.]

Rule 7(2) of the Rules reads as under: A
"7(2). No toddy other than that drawn from the Coconut
Plamyrah or Choondapana palms shall be sold by the
licensees. All toddy kept or offered for sale should be of
good quality and unadulterated. Nothing shall be added to
it to increase its intoxicating power or for any other B
purpose."

Rule 2(d) defines the term "Assistant Excise
Commissioner" to mean an Officer in executive-charge of an
Excise Division and includes any officer appointed by the c
Government under clause (b) of Section 4 of the Act to exercise
f
the powers and to perform the functions of an Assistant Excise
Commissioner under these rules. Rule 2(db) defines the term
"Auction purchaser" to mean an open bidder or a tenderer
deciared as an auction purchaser in the auction. The term D
"Board of Revenue" is defined by Rule 2(e) to mean the Board
of Revenue, Kerala constituted under the Kerala Board of
RevenueAct, 1957.
Rule 3 empowers the State to take policy decisions for
grant of privilege for any period in all or any of the independent E
shops within the tracts or taluks to be notified in the Gazette by
way of public auction shop by shop or in lot or lots, inter alia, by
the Collectors of the Districts. Rule 4 provides that the number,
location and the period for which the privilege of vending, selling
or supplying is to be auctioned and the dates of auction shall be F
notified in the Gazette at least 10 days before the
commencement of the auctions. Rule 5(10) envisages execution
of a temporary agreement between the auction purchaser and
the auctioning officer. The auction purchaser has to furnish
solve·ncy certificate and 30% of the bid amount. Rule 5(15) G
provides that in addition to the solvency certificate and cash
security mentioned in sub-rule (10), the auction purchaser shall
furnish such personal sureties as may be required of him to the
satisfaction of the Assistant Excise Commissioner. The Board
of Revenue may direct auction purchaser to furnish additional H
354 SUPREME COURT REPORTS (2009] 4 S.C.R

A cash security. Failure to comply with sub-rule (10) of Rule 5. .,.,.....,
would lead to forfeiture of the security deposit and the shop
resold or disposed of by the Assistant Excise Commissioner
subject to the confirmation of Board of Revenue.

Rule 6 forbids sale or possessing of toddy outside the local
B limits specified in the licence by any licensee.
Rule 6(28) reads as under:-

"6(28) Whenever the licensee fails to pay the kist, tree-
•
...
tax, duty, etc. due from him for any month together with, the
c interest due under sub-rule (25) on or before the 25th day
of the month, the Assistant Excise Commissioner subject
to confirmation by the Board of Revenue may cancel the
licence and order a resale at the risk of the licensee or
direct the management of the business of the contract by
D departmental agency or otherwise dispose of the same.
All losses on account of such cancellation and resale or
~
..
Departmental management or other disposal of the
privilege shall be borne by the defaulting licensee, but he
shall have no right to the gain, if any, which accrues.
E Disposal otherwise than by resale includes closure. The
whole of the deposit, if any made at the commencement
of the lease shall be liable to forfeiture. The Departmental
Management fee collected from a shop while it was under ...
Departmental management due to default of payment of
F security, kist, etc. shall be liable to forfeiture at the discretion
of the Excise Commissioner. The Assistant Excise
Commissioner may, however, allow sales to continue or
make such other arrangements as he deems fit pending
resale or other disposal of the privilege. Any sum due
from a licensee on account of kist, tree-tax or otherwise
G + ..
may be recovered from his deposit, if any made by him at
the commencement of the lease or collected under the
Revenue Recovery Act. If any adjustment is made from
the deposit the licensee shall be bound to replace the
sum adjusted from his deposit within fifteen days of receipt
H
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 355
[S.B. SINHA, J ]

of notice from the Excise Officer in charge of the Division A
in which his shop is situated. Interest on account of loss by
resale shall be calculated from the date of confirmation of
the resale of the shop.
Provided that the Assistant Excise Commissioner
concerned may before confirmation of cancellation by the 8
Board of Revenue, restore the licence cancelled by him
subject to confirmation by the Board of Revenue, if the
defaulter pays up the amount defaulted by him before the
expiry of one month from the date of such cancellation."
c
Rule 6(30) reads as under:
. .
"6(30) Infraction of any of the rules or the conditions of the
licence either by the licensee or by any person in his
,, employment shall entail on the licensee or his agent or
,;r ~ both, a fine of Rs.5,000 or cancellation of the licence or D
both. An officer-of and above the rank of the Assistant
Excise Commis~ioners shall be competent to impose all
or any of the above penalties:
Provided that if the holder of such licence or permit, sells
or stores for sale liquor in any premises other than the E
licenced premises, such penalty shall not be less than
twenty five thousand rupees."
,The said rule 6(30), however was substituted by GO(P)
75/96/TD published in Kerala Gazette Extraordinary 514 dated F
30.3.1996, prior whereto, the said rule 6(30) reads thus:
"6(30) Infraction of any of the conditions of the licence or
of these rules or of the Tree Tax Rules or any offence
committed against the Abkari Act, with or without the
,,· -+ licensed premises either by a licensee or by any person G
in his employment shall entail on the licensee either:-
(a) Payment of fine upto Rs.2,000 (two thousand); or
(b) Forfeiture of deposit if any and cancellation of licence
and resale or other disposal of the privilege at the H
•,
356 SUPREME COURT REPORTS [2009] 4 S C.R.

A risk of the licensee. When the licence is thus cancelled rP"'-~
the amount still payable for the reminder of the term
of the licence shall become due at once."
Rule 6(32) reads as under:

B "6(32) Failure on the part of the licensee to pay up the
amount of the fine, if any, imposed upon him under these
clause shall entail on him the consequence similar to these
prescribed in sub-rule (28) for failure to pay the kist due
from him. ...
c Rule 6(34) reads as under:
"6(34). If any licensee is convicted of any offence under
any law for the time being in force relating to Excise
Revenue, the Excise Commissioner may declare his
licence forfeited. If any auction purchaser had been
D
convicted of any such offence before a licence is actually •
issued to him, the Board of Revenue may cancel his
'
contract and refuse the issue of licence. If the licensee is

E
convicted under the Penal Code or after the issue of the
licence to him should it transpire that previous to such
issue he was convicted under the law or was disqualified
to hold a shop under sub-rule (3) Rule 5 such conviction
..
or the disqualification shall render him liable to forfeiture
of the licence and also the forfeiture of his deposit, if the
offence of which he is convicted or the disqualification
F disclosed is such, as in the opinion of the Board of Revenue
renders him unfit to hold it. When a licence is forfeited
under this sub-rule the privilege shall be resold or otherwise
disposed of at the risk of the licensee."

G Chapter VI of the Rules contains special conditions
applicable to licensees for the privilege of vending toddy in
~ ...
independent shops.
23. The Government of Kerala issued a notification on
6.3.1997 expressing its intention to part with its privilege of
H
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 357
[S.B. SINHA, J.]

/-+i vending toddy and foreign liquor in respect of several Ranges A
including Thrissur, lrinjalakuda, Cherpu, Vadanappally, Anthikad.
24. Indisputably, a fax message was received from the
Excise Commissioner by the District Collectors of all the districts
which are in the following terms:
B
"Please refer to your fax message No. RS-381/97 dated
17.3.1997 regarding the Abkari auction held on 17.3.1997.
As the Gazette Notification was only for 97-98, confirmation
can also be only for 97-98, provided the bidders are willing
to pay 1/3rd of total bid amount as rental for 97-98. c
For 98-99 and 99-2000 separate Government approval
will be obtained for extension of agreement at the same
rates, without fresh auction. If the bidders are willing to
accept these conditions Board of Revenue will confirm
the bids for 97-98 and take action for extension beyond D
31.3.1998.
Please confirm the above within 24 hours."
Pursuant to the above fax message received from the
Excise Commissioner by the District Collectors of all the E
districts, a permanent agreement was thereafter entered into in
Form II. Separate licenses were issued for one year, i.e. for
i 1997-98 only, which are valid for the period from 1.4.1997 to
31.3.1998. Confirmation of auction was granted for one year
on~ F
25. We will proceed on the basis that although the license
was granted for one year, appellants had in fact entered into a
contract for three years. Indisputably, they participated in the
bid which was held for a period of three years. The effect of the
.,.-..o bid for the said period, however, would be considered a little G
later.
As the said auction was confirmed. appellants started
conducting their businesses. Indisputably, they furnished security.
Some of them paid their kist regularly. Two sets of proceedings H
358 SUPREME COURT REPORTS [2009] 4 S.C.R.

A were initiated, as noticed hereinbefore, one in terms of Rule .+ ·\
6(28) and another in terms of Rule 6(30) of the Rules.
26. We would first deal with the proceedings initiated under
Rule 6(30) of the Rules.

B There cannot be any doubt or dispute whatsoever that a
proceeding for cancellation of licence is maintainable on the
ground of contravention of any of the provisions of the Rules or
the conditions of licence. The High Court has rightly noticed that
mixing of "diazepam" with toddy constitutes an offence in terms ~
c of the provisions of the Act. The same being in violation of not
only the Rules but also the conditions of licence, Rule 6(30) would
be attracted. Appellants before us are not questioning the order
terminating their licenses. In any event, the period of licence is
over.
D Whether the consequence of termination of licence would •
attract forfeiture of deposit or not is the question. Rule 6(30)
and Rule 6(28) operate in two different fields. Whereas licence
can be cancelled in terms of Rule 6(28) only when the kist has
not been regularly paid, Rule 6(30) applies in a wider spectrum.
E The consequences emanating from Rule 6(28) cannot ensue
even in cases where a licence had been terminated in terms of
Rule 6(30), as the rules have not stated so explicitly. It was so
done prior to the substitution of the present rule. The very fact
that the State in exercise of its rule making power amended the
F rule in terms whereof the original clause (b) was deleted is a
clear pointer to show that a conscious step was taken not to
take recourse nf forfeiture of deposit in a case where licence is
cancelled in terms of Rule 6(30). The principles contained in
the Heydon's Rule shall squarely be attracted in this case. It is a
settled principle of interpretation of statute that when an
G
amendment is made to an Act, or when a new enactment is
made, Heydon's rule is often utilized in interpreting the same.
{See Philips Medical Systems (Cleveland) Inc. vs. Indian MRI
Diagnostic and Research Ltd. & Anr [2008 (13) SCALE 1]}.
For the purpose of construction of Rule 6(30), as it stands now,
H
V.K. ASHOKAN V. ASSTT EXCISE COMMNR. & ORS. 359
[S.B. SINHA, J.]

the Court is entitled to look to the legislative history for the A
purpose of finding out as to whether the mischief prior to such
amendment is sought to be rectified or not. Applying the
Heydon's rule, we have no other option but to hold that such
was the intention on the part of the Rule making authority.
27. We may furthermore notice that the legal position B
becomes explicit having regard to the provisions of Rule 6(32)
and Rule 6(34). They provide for similar consequences but in
absolutely different situations. Rule 6(32) provides for forfeiture
only in a case where the amount of fine is not paid. It is not a
case where Rule 6(32) was directed to be applied as the C
licensees did not deposit the amount of fine imposed on them.
It is also not a case that forfeiture was ordered in view of the
judgment of conviction passed against the licensees. The step
taken by the respondent State, for forfeiture of amount of deposit
as also recovery of the amount of loss purported to have been D
sustained by them, could have taken recourse to in terms of
Rule 6(34) if they were convicted. Recourse thereto could have
been taken only by the appropriate authority. The same would
not automatically follow only because the licence was cancelled
in terms of Rule 6(30) of the Rules. Therefore, the Board, in our E
opinion, was not correct to hold that the consequences laid
down in Rule 6(28) would automatically be attracted.
28. We have noticed hereinbefore that the order passed
under Rule 6(28) of the Rules must be confirmed by the Excise
Commissioner. Such is not the requirement in case of F
cancellation of licence under Rule 6(30).
Indisputably, whereas in the cases where Rule 6(28) was
taken recourse to, records were sent to the Commissioner of
Excise for confirmation of the order, no such step was taken by G
the said authority in cases where Rule 6(30) was taken recourse
to. Indisputably, the Board constituted under the· Kera la Board
of Revenue Act stands abolished. In terms of the said Rules, it
is stated at the Bar that he Commissioner of Excise being a
Member thereof; for all intent and purport, exercises the H
360 SUPREME COURT REPORTS (2009] 4 S.C.R.

.......
A jurisdiction of the Board. We may assume the same to be legally ~

permissible.

29. Functions of the Board and/or its power under the Act
have not been specified under the Act. The Board, indisputably,
derives its power to act in a supervisory capacity only in terms
B of the provisions of the Kerala Board of Revenue Act and not
under the said Act. Board. thus, did not have any supervisory
jurisdiction under the Act, apart from the functions of the Excise •
Commissioner as contained in the provisions of Section 4(b) ~

of the Act. Even otherwise, the Board vis-'-vis the Excise
c Commissioner does not have any power to take cognizance of
a matter suo motu. It is accepted at the Bar that only when the
question as regards confirmation of the resale was placed
before the Commissioner of Excise, he purported to have
noticed that apart from violating the conditions of licence as
D also the Rules wherefor proceedings for cancellation of licence >
was initiated, appellants have also allegedly failed and/or
neglected to pay their kist and as such they made themselves
liable for action in terms of Section 6(28) of the Rules. It is neither
denied nor disputed that apart from the lack of inherent
E jurisdiction to initiate such a suo motu proceeding, neither any
notice was issued to the licensees nor any proceeding was
initiated therefor. The principles of natural justice had, thus, not
-~
been complied with.

A bare perusal of the provisions contained in Rule 6(28)
F would clearly show that the order of cancellation of licence need
not be passed only because it is lawful to do so. The Licensing
Authority in such matters exercises a discretionary jurisdiction.
The proviso appended to the said rule is a clear pointer to the
said effect. In a given case, it is possible for a licensee to show
G that although in fact he had not paid the kist, he could not do so
for sufficient or cogent reasons; he also could raise a plea which
··~
could have been accepted by the Licensing Authority that interest
of justice would be subserved if he is allowed to deposit the
amount with interest or penalty, as the case may be.
H
V.K. ASHOKAN V. ASSTT EXCISE COMMNR. & ORS. 361
[S.B. SINHA, J.]

30. For the aforementioned reasons, we are of the opinion A
that it was impermissible for the Assistant Commissioner of
Excise to pass the said order dated 19.12.1997 opining that
the consequences of forfeiture under rule 6(28) is automatic
upon cancellation of licence under Rule 6(30).

At this juncture, we may also notice the submission of Mr. 8
Iyer that Commissioner of Excise is also a Licensing Authority
within the meaning of Section 26 of the Act and, thus, whether
he had exercised a power in terms thereof or in terms of Rule
6(28) is immaterial. The learned counsel contended that where
a function is entrusted to a statutory authority, the order passed C
by it may not be held to be invalidated only because no provision
of law was mentioned or the provision of law incorrectly
mentioned. There cannot be any dispute with regard to the
aforementioned legal proposition but in a case of this nature,
where admittedly, the principles of natural justice were violated D
as it is a basic rule of administrative law that where two statutory
authorities could exercise the same power if a matter has been
heard by one authority, the other could not have exercised the
power.

Furthermore, the nature of power to be exercised by the E
Commissioner of Excise, namely, cancellation of licence on the
one hand and confirmation of a sale and/or confirmation of an
order passed by the Assistant Commissioner of Excise, on the
other, stand on different footings. We are not oblivious of the
fact that the appellants have no right to carry on any business in F
liquor. It is considered to be 'res extra commercium'. (See State
of Punjab &Anr. vs. Devans Modern Breweries Ltd. & anr. (2004)
(SCC 26).

In Kera/a Samsthana Chethu Thozhifali Union vs. State G
of Kera/a & ors. [(2006) 4 SCC 327], this Court held:
"22. It is, furthermore, not in dispute that Article 14 of the
Constitution of India would be attracted even in the matter
of trade in liquor.
H
362 SUPREME COURT REPORTS [2009] 4 S.C.R

A 25. While imposing terms and conditions in terms of
Section 18A of the Act, the State cannot take recourse to
something which is not within its jurisdiction or what is
otherwise prohibited in law. Sub-sections (c) and (d) of
Section 24 of the Act provide that every licence or permit
B granted under the Act would be subject to such restrictions
and on such conditions and shall be in such form and
contain such particulars as the Government may direct
either generally or in any particular instance in this behalf.
The said provisions are also subject to the inherent
c limitations of the statute. Such an inherent limitation is that
rules framed under the Act must be lawful and may not be
contrary to the legislative policy. The rule making power is
contained in Section 29 of the Act. At the relevant time,
Sub-section ( 1) of Section 29 of the Act provided that the
government may make rules for the purpose of carrying
D
out the provisions of the Act which has been amended by
Act No. 12 of 2003 with effect from 1.4.2003 empowering
the State to make rules either prospectively or retro-
spectively for the purposes of the Act."

E Referring to State of M.P VS. Nandlal Jaiswa/ [(1986) 4
SCC 566} and Khoday Distilleries Ltd. vs. State of Karnataka
[(1995) 1 sec 574], it was held:

"27. The State may have unfettered power to regulate the
manufacture, sale or export-import sale of intoxicants but
F in the absence of any statutory provision, it cannot, in
purported exercise of the said power, direct a particular
class of workers to be employed in other categories of
liquor shops.
28. The Rules in terms of Sub-section (1) of Section 29 of
G
the Act, thus, could be framed only for the purpose of
carrying out the nrovisions of the Act. Both the power to
frame rules and the power to impose terms and conditions
are, therefore, subject to the provisions of the Act. They
must confo~m tc the legislative policy. They must not be
H
VK. ASHOKAN V ASSTT EXCISE COMMNR. & ORS. 363
[S.B. SINHA, J.]

contrary to the other provisions of the Act. They must not A
be framed in contravention of the constitutional or statutory
scheme."

31. But there is no gainsaying that when a license has been
granted, which is subject to exercise of statutory power, the
provisions of the statute must be complied with before a penal 8
action thereunder is taken. The law provides for compliance of
__, principles of natural justice as consequence flowing from an
order of cancellation of licence has serious civil consequences
t and as such it was obligatory on the part of the Excise
Commissioner to comply with the principles of natural justice. C
He has failed to do so.

32. The submission of Mr. Iyer that in few of the matters
Assistant Commissioner of Excise had served notices before
the recovery proceedings had been initiated cannot be accepted
0
for more than one reason. Such a notice had been issued only
pursuant to the order passed by the higher authority, namely,
the Commissioner of Excise. As the higher authority had also
cancellation of license, administrative discipline would require
that it is complied therewith. Issuance of such notices was,
therefore, a mere formality. E

In K./. Shephard vs. Union of India [(1987) 4 SCC 431],
;. this court observed:

"It is common experience that once a decision has
been taken, there is a tendency to uphold it and a F
representation may not really yield any fruitful
purpose."

Secondly, because when an authority has already made
up his mind, the formality of complying with the principles G
of natural justice may be held to be a nominal and sham
one.
In Rajesh Kumar & ors. vs. Dy CIT & ors. [(2007) 2 SCC
181], this Court held:
H
364 SUPREME COURT REPORTS (2009] 4 S.C.R

A "15. Effect of civil consequences arising out of ••
determination of lis under a statute is stated in State of
Orissa v. Dr. (Miss) Binapani Dei and Ors. (1967) 2 SCR
625. It is an authority for the proposition when by reason
of an action on the part of a statutory authority. civil or evil
B consequences ensue. principles of natural justice are
required to be followed. In such an event, although no
express provision is laid down in this behalf compliance
of principles of natural justice would be implicit. In case of •
~ :
denial of principles of natural justice in a statute. the same
c may also be held ultra vi res Article 14 of the Constitution."

33. We have noticed hereinbefore that the Commissioner
of Excise being a higher authority had already expressed his
opinion that application of Rule 6(28) of the Rules is automatic
consequent upon the cancellation of licence in terms of sub-
D rule (30) of Rule 6. Assistant Commissioner of Excise could not
have taken a different view. •
If only the Assistant Commissioner of Excise had the
original authority to issue such a notice and not the
Commissioner of Excise being an higher authority, the law laid
E down by this Court in Commissioner of Police, Bombay vs . .
Gordhandas Bhanji [Al R 1952 SC 16] would have been
applicable. The proceeding, thus, in a case of this nature should
have been initiated by the Assistant Commissioner of Excise
and not by the Commissioner of Excise. Where the statutory
F authority, it is well known, exercises his jurisdiction conferred
on him by a statute, he has to apply his own mind and the
procedures laid down therefore must be scrupulously followed.

34. In Ramana Dayaram Shetty vs. The International
Airport Authority of India & ors. [AIR 1979 SC 1628], this Court
G
held:

"It is a well settled rule of administrative law that an executive
authority must be rigorously held to the standards by which
it professe£ its actions to be judged and it must
H scrupulously observe those standards on pain of
VK. ASHOKAN V ASSTT. EXCISE COMMNR. & ORS. 365
[S.B. SINHA, J.]·

invalidation of an act in violation of them. This rule was A
enunciated by Mr. Justice Frankfurter in Vitarelli v. Seaton
(1959) 359 U.S. 535: 3 L Ed. 2d 1012 where the learned
Judge said:
'An executive agency must be rigorously held to the
standards by which it professes its action to be judged. B
Accordingly, if dismissal from employment is based on a
defined procedure, even though generous beyond the
requirements that bind such agency, that procedure must
be scrupulously observed. This judicially evolved rule of
administrative law is now firmly established and, if I may C
add, rightly so. He that takes the procedural sword shall
perish with the sword.'

This Court accepted the rule as valid and applicable in
India in A.S. Ahluwalia v. State of Punjab (1975) 3 SCR
0
82: (AIR 1975 SC 984) and in subsequent decision given
in Sukhdev v. Bhagatram (1975) 3 SCR 619: (AIR 1975
SC 1331), Mathew, J., quoted the above-referred
observations of Mr. Justice Frankfurter with approval. It
may be noted that this rule, though supportable also as
emanation from Article 14, does not rest merely on that E
article. It has an independent existence apart from Article
14. It is a rule of administrative law which has been judicially
evolved as a check against exercise of arbitrary power by
the executive authority. If we turn to the judgment of Mr.
Justice Frankfurter and examine it, we find that he has not F
sought to draw support for the rule from the equality clause
of the United States Constitution, but evolved it purely as
a rule of administrative law. Even in England, the recent
trend in administrative law is in that direction as is evident
from what is stated at pages 540-41 in Prof. Waders G
Administrative Law 4th edition. There is no reason why
we should hesitate to adopt this rule as a part of our
continually expanding administrative law. Today with
tremendous expansion of welfare and social service
functions, increasing control of material and economic H
366 SUPREME COURT REPORTS [2009] 4 S.C.R.

A resources and large scale assumption of industrial and
commercial activities by the State, the power of the
. \_
\;----

executive Government to affect the lives of the people is
steadily growing. The attainment of socio-economic justice
being a conscious end of State policy, there is a vast and
B inevitable increase in the frequency with which ordinary
citizens come into relationship of direct encounter with
State power-holders. This renders it necessary to structure
~
and restrict the power of the executive Government so as
--~
to prevent its arbitrary application or exercise. Whatever
c be the concept of the rule of law, whether it be the meaning
given by Dicey in his "The Law of the Constitution" or the
definition given by Hayek in his "Road to Serfdom" and
"Constitution of liberty" or the exposition set-forth by Harry
Jones in his 'The Rule of Law and the Welfare State",
D there is, as pointed out by Mathew, J., in his article on "The
Welfare State, Rule of Law and Natural Justice" in "Demo-
;.
..
cracy, Equality and Freedom," "substantial agreement is
in juristic thought that the great purpose of the rule of law
notion is the protection of the individual against arbitrary
E exercise of power, wherever it is found". It is indeed
unthinkable that in a democracy governed by the rule of
law the executive Government or any of its officers should
possess arbitrary power over the interests of the individual. ~
..-
Every action of the executive Government must be
F informed with reason and should be free from arbitrariness.
That is the very essence of the rule of law and its bare
minimal requirement. And to the application of this principle
it makes not difference whether the exercise of the power
involves affection of some right or denial of some privilege."
G 35. It is furthermore a well settled principle of law that a ... '
statutory authority must exercise its jurisdiction within the four
corners of the statute. Any action taken which is not within the
domain of the said authority would be illegal and without
jurisdiction.
H
V.K. ASHOKAN V ASSTT. EXCISE COMMNR. & ORS. 367
[S.B. SINHA, J.]

36. We may now consider the applicability of Rule 6(28) A
of the Rules (without going into the individual cases).
The notices of demand were issued for a huge sum towards
the loss purported to have sustained by the State as if the
privilege of sale in toddy was transferred by the State in favour
of the appellants herein for a period of three years. We have 8
noticed hereinbefore that not only the licence was granted for a
period of one year only, i.e., 1997-98, in fact, the advertisement
had been made for one year and confirmation of sale was also
accorded for the said year only. A binding contract no doubt
comes into operation on the acceptance thereof by the State C
but where the acceptance of the amount of bid was subject to
an order of confirmation by a statutory authority acceptance of
the offer must be held to be conditional and the same being
subject to the confirmation, it is difficult to accept the contention
> of Mr. Iyer that the contract was for the entire period of three D
years. The grant of licence for the purposes of carrying out
business as envisaged under Section 18A of the Act is
· imperative in character whereby a valid contract for a period of
three years was clearly impermissible in law. In that view of the
matter, the demand could not have been made towards the loss E
suffered for a period of three years.

1 We have also noticed hereinbefore that even the amount
of security which was required to be furnished by the licensee
was calculated as if the contract was being given for one year
onl~ F
We may for the purpose of further discussions take into
consideration the fact involved in Civil Appeal arising out of
Special Leave Petition (Civil) No. 25467 of 2005. The bid for
1 • toddy shop Nos. 109 to 222 for a period of 1997-2000 given by G.
the appellant was Rs. 15, 10,00,000/-. A security of Rs.
1,51,00,000/- has been furnished. Appellant started carrying on
business on and from 1.4.1997. They paid tax for first-half of
the year 1997-98. They had allegedly defaulted in payment of
the kist for the month from July 1997 onwards which was due on H
368 SUPREME COURT REPORTS [2009] 4 S C.R
,
A 1.10.1997 as per Rules. Raid, as noticed hereinbefore, was
conducted on 19. 7.1997.
Indisputably. the officers of the Excise Department of the
State of Kerala sealed the shop due to which the appellants
could not carry out any business from July till October. Apart
B from the fact that they were required to pay the kist for a period
of six months and not for a period of two and a half years, the
demand of Rs.11, 10,23,687/- made on them cannot be said to
be legal and valid. Appellant had inter alia contended that the
•
auction amount for one year being Rs.5,03,33,333/- out of which
c they had already deposited Rs.3,20,00,020/- being an amount
for more than the rental for a period of seven months, there was
no default. Indisputably, the said amount of Rs.3,20,00,020/-
included the amount of security. But in the event, the license
was to be cancelled with effect from 19.7.1997, the said amount
D was available to the State Government for compensating itself
towards the damage suffered by it.
37. Damages can be imposed on a licensee either for
violation of the provisions of a statute on the part of the licensee
and/or under the contract. So far as the damages to be levied
E under statute is concerned, it will be governed by the provisions
of the statute. However, if damages are to be computed under
the contract, the provisions of the Indian Contract Act and/or the
terms of the contract would be relevant. Ordinarily, they should
not be mixed up. If having regard to the provisions of Section
F 18A of the Act no contract for a period of more than one year
could have been granted, damages could not have been
calculated on the basis of the contract.
Rules 3 and 4 of the Rules and factually all the documents
point out that appellants had been allowed to carry out their
G
business for a period of one year. Appellants were called upon
to pay a sum of Rs.2,06,55, 786/- by notice dated 21.10.1997
within three days without complying with the principles of natural
justice as the appellant had not been given an opportunity of
hearing entirely on the basis of the recommendations made by
H
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR~ & ORS. 369
[S.B. SINHA, J.]

the Circle Inspector of Excise. The contract was directed to be A
cancelled inter alia on the premise that the contractors did not
remit the defaulted amount such as kist tree tax and interest in
spite of the said notices.

38. It is on the aforementioned ground alone the order of .
cancellation as also the forfeiture of security amount was 8
passed. No statement had been made as to how and in what
" manner the State suffered any loss. If the amount of security is
.; to be taken into consideration indisputably there would be no
default.
c
The term 'security' signifies that which makes secure or
certain. It makes the money more assured in its payment or
more readily recoverable as distinguished from, as for example,
a mere 1.0.U., which is only evidence of a debt, and the word is
not confined to a document which gives a charge on specific
0
property, but includes personal securities for money. [See
Chetumal Bulchand vs. Noorbhoy Jafferji (AIR 1928 Sind 89)].
It is a word of general import signifying an assurance. The
amount of security was available in cash. The State could at
any time recoup its damages or at least a part of it from the -
amount of security. It is with the aforementioned backdrop, we E
may analyze the provisions of sub-Rule (28) of Rule 6. It confers
a discretionary jurisdiction on the Assistant Commissioner of
Excise. Exercise of such jurisdiction in favour of revenue, if any, ·
would furthermore be subject to confirmation by the Board of
Revenue. The said statutory authority may at its discretion cancel F
the licence. While doing so, it may order a resale at the risk and
cost of the licensee. It may at its option also direct the
management of the business of the contract by the departmental
a@ency or otherwise dispose of the same. ltis only when one or
other direction is issued, all losses on account of such G
\ cancellation and resale or departmental management or other
disposal of the privilege shall be borne by the defaulting licensee.
It is of some importance to notice that whereas all losses are to
be borne by the licensee but he would have no right to the gain,
if any, which accrues by reason of such resale of license or taking H
370 SUPREME COURT REPORTS (2009] 4 S.C.R.

A over of the management of the business by the departmental
agency or disposal thereof otherwise. Actual losses suffered
by the State by reason of any of the aforementioned actions
' ·-
taken must therefore be clearly ascertained.
As Rule 6(28) provides for a penal clause, the principles
B of natural justice were required to be applied. Rule 6(28) itself
provides that any sum due from a licensee on account of kist,
tree-tax or otherwise may be recovered from his deposit subject
only to the condition that if any adjustment is made from the •
deposit, the licensee would be bound to replace the sum ..
c adjusted therefor within fifteen days of receipt of notice from the
Excise Officer in charge of the Division in which his shop is situated.
The proviso appended confers a wide jurisdiction upon
the Assistant Excise Commissioner to restore the licence
cancelled by him in the event the defaulter pays up the amount
D
defaulted by him before the expiry of one month from the date ~
~

of such cancellation. The said rule, therefore, does not postulate
that consequences must ensue on happening of one contingency
or the other.

E 39. There is another aspect of the matter which cannot be
lost sight of. If damages cannot be calculated and the terms of
the contract provides therefor only for penalty by way of liquidated
damages, having regard to the provisions contained in Section
74 of the Indian Contract Act a reasonable sum only could be
F recovered which need not in all situations even be the sum
specified in the contract. {See Maula Bux vs. Union of India [AIR
1970 SC 1955] and Shree Hanuman Cotton Mills & anr vs.
Tata Air Craft Ltd. [Al R 1970 SC 1986]

G
Section 74 of the Contract Act reads as under:
"When a contract has been broken, if a sum is named in
the contract as the amount to be paid in case of such
.. '

breach, or if the contract contains any other stipulation by
way of penalty, the party complaining of the breach is
entitled, whether or not actual damage or loss is proved
H
V.K. ASHOKAN V. ASSTT. EXCISE COMMNR. & ORS. 371
[S.B. SINHA, J.)

to have been caused thereby, to receive from the party A
who has broken the contract reasonable compensation
not exceeding the amount so named or, as the case may
be, the penalty stipulated for.

* * * * * *"
B
There are authorities, no doubt coloured by the view which
was taken in English cases, that Section 74 of the Contract Act
would have no application to cases of deposit for due
performance of a contract which is stipulated to be forfeited for
breach, e.g.,. Natesa Aiyar v. Appavu Padayachi [1913] l.L.R. c
-· 38 Mad. 178.; Singer Manufacturing Company v. Raja Prosad
[1909] l.L.R. 36 Cal. 960.; Manian Patterv. The Madras Railway
Company [1906] l.L.R. 19 Mad. 188, but this view no longer is
good law in view of the judgment of this Court in Fateh Chand
vs. Balkishan Das (1964) 1· SCR 515 =(AIR 1963 SC 1405). D
This Court observed at p.526 (of SCR):
"Section 74 of the Indian Contract Act deals with the
measure of damages in two classes of cases (i) where
the contract names a sum to be paid in case of breach,
and (ii) where the contract contains any other stipulation E
by way of penalty.... The measure of damages in the case
of breach of a stipulation by way of penalty is by Section
74 reasonable compensation not exceeding the penalty
stipulated for."

The Court also observed: F

"It was urged that the section deals in terms with the right
to receive from the party who has broken the contract
reasonable compensation and not the right to forfeit what
has already been received by the party aggrieved. There G
is however no warrant for the assumption made by some
of the High Courts in India, that Section 74 applies only to
cases where the aggrieved party is seeking to receive
some amount on breach of contract and not to cases
whereupon breach of contract an amount received under H
372 SUPREME COURT REPORTS (2009] 4 S.C.R.

A the contract is sought to be forfeited. In our judgment the 1' <
.
expression "the contract contains any other stipulation by
way of penalty" comprehensively applies to every covenant
involving a penalty whether it is for payment on breach of
contract of money or delivery of property in future, or for
B forfeiture of right to money or other property already
delivered. Duty not to enforce the penalty clause but only
to award reasonable compensation is statutorily imposed
upon courts by Section 74. In all cases, therefore, where ~

there is a stipulation in the nature of penalty for forfeiture
'
c of an amount deposited pursuant to the terms of contract
which expressly provides for forfeiture, the court has
jurisdiction to award such sum only as it considers
reasonable but not exceeding the amount specified in the
contract as liable to forfeiture.", and that,
D 'There is no ground for holding that the expression "contract ).
contains any other stipulation by way of penalty" is limited
to cases of stipulation in the nature of an agreement to
•
pay money or deliver property on breach and does not
comprehend covenants under which amounts paid or
E property delivered under the contract, which by the terms
of the contract expressly or by clear implication are liable
to be forfeited."

40. Forfeiture of earnest money under a contract for sale
of property whether movable or immovable, if the amount is
F reasonable, would not fall within Section 74. That has been
opined in several cases. (See Kunwar Chiranjit Singh v. Har
Swarup A.l.R. 1926 P.C. 1.; Roshanlal v. The Delhi Cloth and
General Mills Company Ltd., Delhi I.LR 33All. 166.; Muhammad
Habibullah v. Muhammad Shafi I.LR. 41 All. 324.; Bishan Chand
G v. Radha Kishan Das l.D. 19 All. 490). These cases have
explained that forfeiture of a reasonable amount paid as earnest
.... "
money does not amount to imposing a penalty. But if forfeiture
is of the nature of penalty, Section 74 applies. Where under the
terms of the contract the party in breach has undertaken to pay
H a sum of money or to forfeit a sum of money which he has already
VK. ASHOKAN V ASSTT. EXCISE COMMNR. & ORS. 373
[S.B. SINHA, J.]

paid to the party complaining of a breach of contract, the A
undertaking is of the nature of a penalty.
{See Mau/a Bux (supra) and Saurabh Prakash vs. DLF
Universal Ltd. [(2007) 1 SCC 228]}

41. We may not moreover lose sight of another fact. B
Raids were conducted; shops were sealed on specific
allegations, namely, the licensees had mixed some poisonous
substance with liquor. They were prosecuted for adding
'Diazepem'. Evidently, the fact that the chemical report showed
that 'Diazepem' had been mixed with toddy have prejudiced c
the licensing authority. Such prejudice is apparent even on the
face of the impugned order passed by the High Court.

It has not been denied or disputed before us that all the
appellants have since been acquitted of the said charges by a
competent criminal court. It was in the aforementioned situation D
we thought of taking into consideration all aspects of the matter
so as to do complete justice to the parties.
In the peculiar facts and circumstances of this case,
therefore, we are of the opinion that it was not a case where
even Rule 6(28) could have also been resorted to. As we h::>ve E
not applied our mind to the judgment rendered by the criminal
court leading to the acquittal of the appellants, we leave the
parties to seek any other remedies available to them in law,

42. For the aforementioned reasons, the impugned F
judgment of the High Court is set aside. These appeals are
allowed. Consequently the Writ Petitions stand allowed to the
extent indicated above. However, in the facts and circumstances
of the case, there shall be no order as to costs.

D.G. Appeals allowed.