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The Indian Contract Act, 1872
Section 29 in The Indian Contract Act, 1872
Section 73 in The Indian Contract Act, 1872
Section 69 in The Indian Contract Act, 1872
State Of Kerala vs K. M. Charia Abdullah & Co on 5 October, 1964

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Kerala High Court
K.Raman vs State Of Kerala




OP No. 13224 of 1998(Y)

                      ...  Petitioner


                       ...       Respondent

                For Petitioner  :DR.SEBASTIAN CHAMPAPPILLY

                For Respondent  : No Appearance

% Dated :       /  /

: O R D E R
.PL 58
.TM 3
.BM 3
         O.P.NO.13224 OF 1998-Y@@
         O.P.NO. 3690 OF 1999-L@@
         O.P.NO.20479 OF 2002-K@@
         Dated this the 17th day of March, 2005@@
         J U D G M E N T@@
((HDR 0
	[OP 13224 of 1998 and connected cases]

.HE 1
.SP 2
        		When O.P.No.20479 of  2002  had  come  up  for
        consideration, the learned Government Pleader had brought
        to the attention of the Court a judgment of this Court in
        O.P.No.105  of  1992,  where it had been held that a full
        time Sweeper as on 7-4-1970 working in a Panchayat is not
        entitled to continue in service till  attainment  of  the
        age of  60.   The claim urged in O.P.No.20479 of 2002 was
        that the petitioner was entitled to continue  in  service
        till  he  attains  the  age of 60 years, as authorised by
        Rule 60(b) of Part I of the Kerala Service  Rules,  since
        he was in service as a last grade servant as on 7-4-1970.
        The  learned  single Judge had found that the decision in
        O.P.No.105/92 might have to be examined  with  particular
        reference   to   certain   other   rules  and  there  was
        possibility of recognition of the claims  as  highlighted
        in the  later  Original  Petition.    The  said  Original
        Petition was therefore referred for  consideration  by  a
        Bench.   It  is  noticed that on the same day the learned
        Judge had directed the other two Original Petitions  also
        to be listed along with the referred case.
        	2.	The claims as put in O.P.No.13224 of 1998  and
        O.P.No.20479  of  2002  are  identical in nature, but the
        facts presented in  O.P.No.3690  of  1999  appear  to  be
        different on   certain   aspects.     The  petitioner  in
        O.P.No.3690 of 1999 was the petitioner in  O.P.No.105  of
        1992, referred  to earlier.  His claims had been found as
        not sustainable, and as a consequential  measure  certain
        payments  made over to him were attempted to be recovered
        as inadmissible.  These proceedings are challenged.    We
        will deal  with  the  above  O.P.    after  examining the
        contentions in the connected cases.
        	3.	Petitioners  in  O.P.No.20479  of   2002   and
        O.P.No.13224 of  1998  are  similarly  situated.   We may
        first refer to the facts stated in O.P.No.20479 of  2002.
        At  the  time  of  filing  of  the Original Petition, the
        petitioner was working as a Peon of  a  Grama  Panchayat.
        His  first  appointment  was  as  a  full time Sweeper at
        Kattiparuthi Panchayat on 01-11-1965.  He claims that his
        appointment was as a last grade servant.    He  had  been
        later promoted  as  a Peon on 1-07-1972.  He submits that
        this too was a last grade service, as could be seen  from
        Ext.P2.   The  averment  in the Original Petition is that
        when the Kerala Panchayat Common Service  Rules  came  in
        the  year  1977, he was placed as a last grade servant in
        the common service.  Thereafter, Special  Rules  for  the
        Kerala  Panchayats Subordinate Service were introduced in
        1994 and  they  were  deemed  to  have  come  into  force
        effective from  01-01-1990.  It is also submitted that on
        the  formation  of  the  Kerala  Panchayats   Subordinate
        Service  Rules,  staff  under  the  Local  Administration
        Department and staff coming  under  the  purview  of  the
        Kerala  Panchayat Common Service were integrated into one
        service, namely Kerala Panchayats Subordinate Service.
        	4.	The  contention  is  that  the benefit of Rule
        60(b) of Part I of the Kerala Service Rules  were  always
        available to the staff of Local Administration Department
        in  respect  of  members,  who  had been in service as on
        07-04-1970, in the last grade service, provided they were
        continuing  in  the  last   grade   service   thereafter.
        Therefore,  it  is  argued  that  when  such services are
        integrated, a differential treatment could not have  been
        practiced, sidelining the claims of a group of persons in
        the integrated  cadres.   But he was issued with an order
        asking him to go on superannuation on attaining  the  age
        of 55 years.    This was irregular and illegal.  In fact,
        this is the subject matter of  challenge.    In  view  of
        interlocutory orders passed, the petitioner is continuing
        in service.
        	5.	In   O.P.No.13224   of  1998,  the  petitioner
        commenced his service in 1965, according  to  him,  as  a
        Full Time Scavenger at Parappananadi Panchayat, as a last
        grade servant.  He was promoted as Peon on 01-04-1973 and
        continued to  work as a last grade servant.  Reference is
        made to the Panchayats Common Service Rules, 1977 as also
        the Kerala Panchayats Subordinate Service Rules, 1994 and
        he had obtained the benefits.  But he  was  attempted  to
        retired on attaining the age of 55 years and the Original
        Petition  had  been filed challenging such proposals, and
        in view of the interim orders, he had continued up to the
        attainment of 60 years of age.  Now he has  retired  from
        service.   In  both the cases, the petitioners pray for a
        declaration that they are entitled  to  the  benefits  of
        Rule 60(b) of Part I K.S.R.
        	6.	Counter affidavits  have  been  filed  by  the
        Deputy Director   of   Panchayats.     According  to  the
        Government Pleader, the claims are not sustainable.   The
        petitioners were contingent employees, when they received
        appointments, and could be recognised as belonging to the
        last  grade  service, only after securing the postings as
        peons.  That was far later than 07-04-1970.    Therefore,
        they  did  not come within the purview of Rule 60(b), and
        were obliged to retire at the age of  55.    The  interim
        orders have come to their help to continue, but the legal
        position requires to be clarified.
        	7.	One more aspect has been  brought  in  through
        the counter   affidavit.     It  is  that  the  Panchayat
        employees have been declared as  government  servants  by
        G.O.(MS).No.25/87/LAD  dated  03-02-1987,  and  from  the
        above  said  date,  they  are  recognised  as  government
        servants.   It  had  no  retrospective  effect,  and  the
        contingent employees were never given any larger  rights.
        According to the Government Pleader, the integration with
        the  employees of Local Administration Department did not
        confer the rights as  the  petitioners  agitated  in  the
        Original Petitions.
        	8.	The learned Judge, however, was of the opinion
        that a fresh look might be necessary, in respect  of  the
        claims  urged  by  the  petitioners that they were always
        governed by the Kerala Service Rules.
        	9.	In  O.P.No.105  of  1992,  a  learned Judge by
        judgment dated 03-04-1995, had considered the  claims  of
        almost identical    nature.      The   petitioner   there
        (petitioner in O.P.No.3690 of 1999) had joined service as
        a part time Sweeper in 1960 and in 1963 he became a  full
        time Sweeper.    In  1972,  a post of Peon had arisen and
        after certain legal proceedings he had been  directed  to
        be accommodated  thereto.   The claim was that he being a
        full time contingent employee right  from  1963,  he  was
        entitled  to  the  benefit of Rule 60(b) of Part I K.S.R,
        and therefore, could continue up to the age of 60  years.
        The Court had repelled the contentions, pointing out that
        he  was not a government servant as on 07-04-1970 but was
        an employee attached to a Panchayat.  The  learned  Judge
        also  found  that  he  was not in the cadre of last grade
        	10.	It had been observed that although  government
        servants,  who  were part time contingent employees, were
        regularised  with  effect  from  07-04-1970  and   became
        entitled  to  the  benefit of Rule 60(b) of Part I K.S.R,
        such orders had not come to the benefit of  employees  of
        the Panchayat.    The  learned  Judge  found that only by
        order dated 03-02-1987, the Government had declared  that
        Panchayat employees of the State would be treated as full
        scale government  servants.   The claims were rejected on
        these premises.  In view of the reference order,  we  may
        therefore  examine  as  to  whether  the judgment needs a
        	11.	The  argument  of  the learned counsel for the
        petitioners Dr.Sebastian  Champappilly,  which  has  been
        highlighted  in the reference order, is that although the
        petitioners were employees  attached  to  the  Panchayat,
        they were always governed by the provisions of the Kerala
        Service Rules.  It is submitted that the Kerala Panchayat
        (Establishment) Rules  1967  governed  them.   Rule 2(vi)
        says that `last grade servants' has the same  meaning  as
        in the  Kerala  Service  Rules.    Rule 12(16A) of Part I
        K.S.R defines `last grade service' as following:@@
.SP 1
             "Last Grade Service" means service in any post
             included in  the  Kerala  Last  Grade  Service
             constituted  by  the  Special  Rules  for  the
             Kerala Last  Grade  Service,  published  under
             G.O.(P)  No.82/Public (Rules) Department dated
             the 8th March 1966, in Part I  of  the  Kerala
             Gazette  No.14,  dated  the 5th April 1966, as
             amended from time to time,  and  includes  all
             other  posts  carrying the lowest scale of pay
             in the schedule of pay scales  in  force  from
             time  to time and service in any post declared
             by the Government to be a  post  in  the  Last
             Grade Service".
.SP 2
        The  argument is that as the post of full time Sweeper is
        included as a last grade post in the  Special  Rules  for
        the Last Grade Service, the incumbent can be treated as a
        last grade  servant.  Category 4 in the Special Rules for
        Kerala Last Grade Service is clear to show  that  Sweeper
        is  a  post  which  is  to  be considered as a last grade
        servant.  Counsel contends that because of Rule 2(vi)  of
        the  Kerala  Panchayats  (Establishment)  Rules 1967, the
        petitioners concerned were to be treated  as  last  grade
        servants.  This is especially because Rule 17 of the said
        Rules  provided  that  the  Kerala  Service  Rules  shall
        mutatis mutandis apply to the Panchayat employees.    The
        consequence,  according  to  him, would be that they will
        get the benefit of Rule 60(b) as well.
        	12.	According to the referring  Judge,  these
        aspects have not been gone into when the earlier judgment
        had  been  pronounced, and especially adoption by Rule 17
        had been overlooked.   Therefore,  an  opinion  has  been
        entered  that the person need not be a government servant
        as on  07-04-1970  and  the  question  of  extending  the
        benefit   to  the  employees,  who  were  attached  to  a
        Panchayat also, could be re-examined.
        	13.	Although with vehemence this argument  is
        fielded,   we   have  also  necessarily  to  examine  the
        background and the scope  of  the  applicability  of  the
        Rules.   The  counter  affidavit  filed clearly indicates
        that on  the  crucial  date  i.e.    on  07-04-1970,  the
        petitioners   were  paid  from  contingent  fund  of  the
        Panchayat and were only contingent employees.  The Kerala
        Panchayats   (Establishment)   Rules,   1967   were   not
        applicable  to such persons at all, as could be seen from
        Rule 3 thereof.  It is prescribed that:
.SP 1.5
               "3.   Applicability  --  These  rules  shall
               apply to all  full  time  employees  in  the
               service  of  Panchayats  in the State, other
               than executive officers, whether  permanent,
               temporary or officiating but shall not apply
               to those who are paid out of contingencies."
.SP 2
        If  that  is  the  case,  the  petitioners  cannot   seek
        assistance  from  Rule 17, which provides for application
        of Kerala Service Rules, only to the Panchayat employees.
        As pointed out in the counter  affidavit,  if  they  were
        Panchayat  employees,  they  could have been roped in for
        the benefit.  But  that  is  not  the  case  here.    The
        petitioners were not last grade employees as on the date,
        but  were  only  contingent employees and had come to the
        category of last  grade  service  only  on  later  dates.
        Panchayats  Common  Service Rules came into force in 1977
        and although  they  were  not  applicable  to  contingent
        employees,  by  this  time  the petitioners of course had
        became regular Panchayat employees.   The  provisions  of
        the  Kerala  Service  Rules  were  applicable to them, as
        adopted, but we have to take notice of the situation that
        the Panchayats Common Service  Rules  were  in  operation
        from 01-04-1977  alone.   This did not confer any special
        benefits on the petitioners as attempted to be  urged  in
        the  Original  Petitions,  notwithstanding that from 1972
        and 1973 onwards the petitioners were  to  be  deemed  as
        last grade employees having been appointed as Peons.
        	14.	From 03-02-1987 onwards, by the operation
        of  G.O.(MS)  No.25/87/LAD,  the Panchayat employees were
        declared as Government servants, but this was  also  with
        prospective effect.      Therefore,  by  any  stretch  of
        interpretation, it could not have been possible  to  hold
        that  the  petitioners  were entitled to be considered as
        Government employees in the  last  grade  service  as  on
        07-04-1970.   Only  if  a positive finding with regard to
        such claims had come in favour of the  petitioners,  they
        could have claimed to continue in service notwithstanding
        the attainment of 55 years of age.
        	15.	Contingent  employees  are  the  group of
        personnel who receive  salaries  from  contingent  funds.
        They had  no  security  or regularity of employment.  The
        significance of 07-04-1970, according to  the  Government
        Pleader,  is  that  it  was  on  the  said  date that the
        contingent  employees  in  Government  service  had  been
        regularised as  government  servants.    The  benefit  of
        continuation up to the age of 60 years had thereupon been
        saved, and incorporated in the Rules.  But, a  contingent
        employee  of  Panchayat  had  not been conferred any such
        right at any time.  Therefore, the  claims  as  presented
        were inherently weak.
        	16.	The Kerala Panchayats Subordinate Service
        Rules, 1994 had  come  into  force  from  01-01-1990  and
        although it might have been possible for the employees of
        erstwhile  Local  Administration  Department  to  put  up
        claims as arising from Rule 60(b), it could not have been
        claimable by the petitioners, for the reason that  as  on
        the  crucial  date  they  were  contingent employees, not
        covered by the Kerala Service Rules or last grade service
        rules and therefore not employees of last grade  service,
        as  the  definition  under  rule 2(vi) of the rules would
        have relevance only in the case of  personnel,  who  came
        within the fold of the rules.  Consequently, the Original
        Petitions are liable to be dismissed.
        	17.	On  the  strength  of  the interim orders
        passed, petitioner  in  O.P.No.13224  of  1998  had  been
        continuing  in service and had duly retired on attainment
        of the  age  of  60  years.    His  services  after   the
        attainment  of  55  years of age therefore could not have
        conferred  on  him,  any  benefits  other  than  pay  and
        allowances,  for  which  he  was  eligible, to the extent
        permissible.  It cannot be  denied.    However,  in  such
        matters,  the  monetary  reliefs  have  to be paid on the
        basis of last  pay  drawn  on  the  date  of  the  normal
        retirement  date,  without  the  benefit  of  increments,
        weightage etc.  
        	18.	Government    Circular   No.81/88   dated
        28-10-1988 perhaps would be  relevant,  and  modified  by
        later orders.  Period of retention beyond the normal date
        of  superannuation  is  to  be treated as period spent on
        duty only for the limited purpose and  claiming  pay  and
        allowances,  restricted  to  that  to which he would have
        entitled  to  on  the  normal  date  of   superannuation.
        Increments,  promotion  or pay revision benefits also are
        inadmissible,  and  benefits  of  commutation  would   be
        admissible,  without  medical  examination,  provided  he
        applies for it within one year of his date of  discharge.
        When  we  find that the continuation beyond the age of 55
        was inadmissible, these consequences necessarily have  to
        	19.	Resultantly,  the petitioner will have to
        refund the excess amounts he would have  drawn,  than  to
        which  he  would have been legally entitled to as per the
        Government orders in force.  His service for the  purpose
        of  pension  will also have to be reckoned as on the date
        on which he had attained the age of 55 years and he  will
        be  entitled  to pension only from the date of his actual
        departure from service, taking notice of the circumstance
        that he continued as a full member till such time getting
        larger emoluments  than  pension.    These  are   to   be
        appropriately adjudged.    The  petitioner may be advised
        immediately about  the  monetary  liability  and  reliefs
        arising  out  of  these  exercises,  and  to  the  extent
        possible, within a period of three months from  the  date
        of receipt of a copy of this judgment.
        	20.	Similar  directions,  as  has  been  made
        above,  will  govern  the  case  of  the  petitioner   in
        O.P.No.20479 of  2002.    He  has to relieve from service
        forthwith and will be entitled to pension only  reckoning
        his  service  up  to  the  attainment of 55 years of age.
        Pensionary benefits will be payable from  today  onwards.
        In  his case also, government orders regarding the actual
        pay admissible for the period beyond 55 years of  age  is
        to be calculated and without the benefit of increments or
        fixation, and excess payments could be recovered.
        	21.	As  far  as  the  contentions  raised  in
        O.P.No.3690 of 1999 are concerned, he is already bound by
        the judgment in O.P.No.105 of 1992.  He had also got  the
        benefit  of  continuing  in  service  on  the strength of
        interim orders.    It  is  seen  that  initially  he  had
        overstayed  in  service  because  of the oversight on the
        part of his superior officers in omitting to  notice  his
        age of  superannuation.    Ext.P11 had been issued to him
        during July, 1998 intimating that he had drawn excess pay
        and allowances.  Increments, earned leave  surrender  and
        certain  benefits,  to  which  he  would  not  have  been
        normally entitled to, were disbursed.  It is also evident
        that  inadmissible  period  of  service  (service  as   a
        contingent  employee) had been reckoned for conferment of
        higher grades on completing ten years and 20 years.    If
        at  all,  it  could  have  been  taken only for the grade
        admissible  on  rendering  25  years   of   service,   as
        prescribed by  the  Government  orders.  The petitioner's
        contention is that having been permitted to  continue  in
        service  on the strength of interim orders, such benefits
        should not have been denied to  him,  and  reference  had
        been made to a reported decision in Kochu Kunju v.  State@@
                                            EEEEEEEEEEE     EEEEE
        of Kerala   [1986  KLT  1281].    Although  every  excess@@
        payments requires to be remitted back, of course  subject
        to  Rules,  in  this particular case, we do not think the
        petitioner is to be directed to  pay  back  the  amounts.
        This  is  for the reason that O.P.No.105 of 1992 had been
        dismissed on 03-04-1995 and the petitioner was  forthwith
        directed to  go  on  retirement.  But it was only after a
        period of three years, and by Ext.P11 dated 17.7.1998, he
        had  been  advised  of  the  alleged   excess   overdrawn
        payments.   This  was  therefore  irregular  and  without
        authority of law, as an upper limit  of  three  years  is
        prescribed  by  Note  3  to Rule 3 Part III of the Kerala
        Service Rules, for arranging recovery from the pensioner.
        The petitioner had retired from  service  on  03-04-1995.
        There  was  delay  in  regularising  the  period  of  his
        service, but the Department should have taken expeditious
        steps.   The  Government  Pleader  submits   that   while
        granting  provisional  pension,  within  the  three  year
        period,  an  undertaking  had  been  obtained  from   the
        petitioner.   But,  we  feel that the Note to the Rule is
        part of the Rule and strict observance of the period  has
        to get obedience.
        	22.	In  the aforesaid circumstances, Exts.P11
        and P12 demand will stand quashed.  The  petitioner  will
        be  entitled  only  to  a  pension,  taking notice of the
        circumstance that his continuance in  service  after  the
        attainment of 55 years of age was impermissible, although
        subsequently regularised for the purpose of expediency.
        	The Original Petitions are disposed of as above.
        			      (M.RAMACHANDRAN, JUDGE)@@
                                        (K.T.SANKARAN, JUDGE)@@
((HDR 0
.HE 2
.SP 1
                                (M.RAMACHANDRAN & K.T.SANKARAN, JJ)@@
                                O.P.NO.13224 OF 1998-Y@@
                                O.P.NO. 3690 OF 1999-L@@
                                O.P.NO.20479 OF 2002-K@@



+OP No. 1369 of 1995(K)

                      ...  Petitioner


                       ...       Respondent

!                For Petitioner  :SRI.P.S.GEORGE

^                For Respondent  :GOVERNMENT PLEADER


 Dated :     17/05/2005
 O R D E R

.PL 56 .TM 3 .BM 3 ........L....T.....T...............T.......T.......T.......T....J (M.RAMACHANDRAN & K.P.BALACHANDRAN, JJ)@@ jAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

--------------------------------------------@@ j O.P.NO.1369 OF 1995-K@@ j &@@ j O.P.NO.2180 OF 1995-H@@ j

--------------------------------------------@@ j Dated this the 17th day of May, 2005@@ jAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA @@ j J U D G M E N T@@ jEEEEEEEEEEEEEEE ((HDR 0 [OP Nos.1369 & 2180 of 1995]

-:#:-@@ AAAAA )) .HE 1 .SP 2 .JY Ramachandran,J:@@ EEEEEEEEEEEEEE The above two Original Petitions were heard together, and as suggested by the parties, they are being disposed of by a common judgment. Recovery steps under Abkari liabilities are subjected to challenge.

2. In O.P.No.1369 of 1995, there had been advertence to another Original Petition filed by a similarly situated person as O.P.No.8318 of 1994. After noticing the contentions, this Court, by judgment dated 01-02-2002, had dismissed the said Original Petition. But, however, taking notice of the submissions of the petitioners that the arguments may be noticed afresh, we had gone to the merits of the contentions raised.

3. The Original Petitions had been referred to be heard by a Bench, by order dated 13-06-2002. The learned judge had recorded that the arguments urged by the petitioners with reference to sections 73 and 74 of the Indian Contract Act were to be noticed. The scope and impact of the amendment to Rule 13 of the Abkari Shops Departmental Management Rules, 1972, also were to be looked into. We had heard Mr.V.Giri and Mr.Bachu Kurian Thomas for the petitioners, as also the learned Government Pleader.

4. The petitioner in O.P.No.1369 of 1995 was the licensee of Group No.2 Arrack Shops in Kalpetta Range for the year 1993-94. The bid amount was Rs.27,27,001/-. The security amount of Rs.8,18,100/-, which was 30% of the bid amount, had been remitted by him. Solvency Certificate had been made available and on the basis of the concluded contract, the licensee had been permitted to run the shops for the abkari year commencing from 01-04-1993.

5. The petitioner submits that there was inadequate supply of arrack. It was far insufficient to the needs and as days passed it became evident that adequate quantity of arrack could not have been possible to be procured. According to him, exasperated, he had represented to the Excise Commissioner about his predicaments and the Government had also been addressed in the matter. Ultimately, by his letter dated 01-09-1993, copy of which is produced as Ext.P3, he had informed the Government that he was closing the arrack shops effective from 30-08-1993.

6. The petitioner submits that the full facts presented by him had not been appreciated by the Government, but he had been served with an order dated 11-10-1993 stating that the licence issued to him had been cancelled and a resale is ordered at the risk of the licensee. The reason shown was that he had discontinued the running of the shops for 30 days consecutively. Ext.P4 is the above said communication. The petitioner submits that in spite of the above there were about 46 days delay in putting the shops in Departmental management and by consistent and impractical attitude shown, possible aspirants, who would have stepped into his shoes, had been dissuaded. It is pointed out that though the shops were notified for sale in the last week of November 1993, the upset price was shown as Rs.27,27,001/-. Resultantly, the Departmental management continued up to 31-03-1994.

7. It is however disclosed that the petitioner had in the meanwhile filed O.P.No.2971 of 1994 for a declaration praying that the rights and liabilities based on bidding of Group No.2 Arrack Shops had come to an end by 30-08-1993 and no liability whatsoever subsisted thereafter in respect of the contract. Later, on his request the Original Petition had been closed giving him liberty to move the Department appropriately. Consequent to his representations, however, the Department had held that he was always answerable for the loss which the Government had sustained. Thereafter, Ext.P9 demand notice came to be issued. Consequential enforcement proceedings as Exts.P10 and P10(a) are therefore subjected to challenge in these proceedings.

8. The petitioner reiterates his contentions that after his notice there was no discretion or rights left with the Department to demand any amount from him as liability. It is submitted that it was a case where steps had been enforced under Rule 6(28) of the Abkari Shops (Disposal in Auction) Rules and therefore the rigour of Sub-Rule 5(15) of the Rules could not have been applied to him. The contract turned out to be one impossible of being carried out. Arrack had become a scarce commodity to be procured. Therefore, it could not have been a case where he was a defaulting licensee and consequently was not liable for any damages on principles of frustration.

9. According to Mr.Giri, learned counsel, the Government had not done anything to mitigate the possible damage or loss. The Original Petition had been amended so as to agitate the principles enunciated under section 73 of the Indian Contract Act. The argument was that the party who suffered loss consequent to breach of contract, namely the Government, might have been entitled to only compensation for loss or damage. The Government was bound to do everything reasonably possible for mitigating the loss. Prompt and effective steps for a resale for the rest of the months had not been carried out. For almost about five months the Abkari shops concerned were under Departmental management. This was against the mandate of the Rules. Further, income realised by the conduct of business for the above period, in any case, should have been credited to him while assessing the dues, as the Government was not expected to make a gain at the expenses of the petitioner. Therefore, the amendment brought in during December, 1993 to Rule 13 of the Departmental Management Rules denying such benefit was inapplicable to the contract which had commenced earlier. The demand for excise duty, beyond August, 1993 also was per se invalid, as the Excise duty would have arisen only if arrack had been lifted for distribution. As there was no case that the shop was being run, the claim was preposterous. Therefore, according to him, the demand as presented was not enforceable.

10. The petitioner had secured an order of stay against the steps for recovery, and it was in operation all through out.

11. A counter affidavit had been filed by the respondents controverting the contentions. It is submitted that having entered into a contract for a prescribed right, the petitioner could not have wriggled out of the contract, himself, for any of the reasons urged in the Original Petition. In view of Rules 6(10) and 6(14) of the Kerala Abkari Shops (Disposal in Auction) Rules, a licensee was to keep the shops open unless closure is authorised by the competent authority. Therefore, the premature closure would have had no legal effect. It is also submitted that as per the amended provision, brought with effect from 04-03-1993 by G.O.(P) No.29/93/TD, the responsibility to procure spirit or arrack for sale was placed on the concerned contractor alone. He had stopped the shop unauthorisedly, and thereby prevented the Government from gaining the premium otherwise payable. The prescribed amount of duty payable on the designated quantum was to be remitted on or before 10th day of every month. Failure to remit the duty was to be treated on par with failure to remit kist. Therefore, the petitioner had legal liability to pay the price offered as also the duty payable from month to month as the Government should not have been put to prejudice because of any conduct of the petitioner.

12. The allegation that there was lethargy on the part of the Department, is also controverted. It is submitted that after terminating the licence, the shops were put under Departmental management. This was from 27-11-1993 to 31-03-1994. The counter affidavit shows that in the meanwhile steps had been taken for resale of the shops and on several occasions, auction proceedings were conducted, but no bidders had come up. The allegation is refuted, viz., that there was no attempt made for mitigation of the loss. Departmental Management Rules obliges the Government to see that as far as possible there is no gap in the matter of running of the shops, but rules also provide that if there are no substantial offers forthcoming, the Department is authorised to close down the shops. The petitioner has no locus standi in the matter, and the Rules also did not envisage any notice, in the given circumstances to be issued to him.

13. In the counter affidavit, it had been admitted that when the shops were under the Departmental management, the Department had received Rs.5,06,472/- as Departmental management fee and Rs.2,05,129/- as Excise duty, but the petitioner could not have claimed any benefit out of the sums so received. Because of the amendment brought about in December, 1993, the fee could have been adjusted only in a contingency where the contractor had demised during the terms of the contract, and at no other time.

14. According to the Government Pleader, principles of the Indian Contract Act have no relevance, since the transaction between the petitioner and the respondents was a statutory contract, the terms of which stood governed by statute. The claims presently urged are contrary to public interest. The liability was absolute in nature. It was not an instance where one of the parties to contract became a sole arbiter, since the petitioner could not have wriggled out of the liability of payment of the price in respect of the shops he bid and which stood confirmed as prescribed by the Rules. The contracted price required to be paid. The licence was obliged to be cancelled at his risk and responsibility. The notices issued were therefore legal and valid in all respects. These were the trend of the pleadings.

15. O.P.No.2180 of 1995 had been filed jointly by two persons, who were licensees of Mattancherry Group No.5 Arrack Shops for the year 1993-94. The bid amount of this Group was Rs.47,07,007/-. They had furnished cash security for a sum of Rs.14,12,100/- and Solvency Certificate for a like sum. Licence evidently had been granted in their favour because of a valid contract that had been entered into between them and the Government.

16. Here also the petitioners had discontinued the running of the arrack shops on the plea that sufficient quantity of arrack was not forthcoming. Reference is made to Ext.P1 letter dated 20-07-1993 addressed to the Commissioner of Excise. It was requested that they may be relieved from the contract already entered into and the amount deposited is to be adjusted appropriately. Further prayer was that they were not to be mulcted with penal consequences. The shops were offered to be surrendered. It is seen that by order dated 28-08-1993 (Ext.P2), the Assistant Excise Commissioner had cancelled the licenses issued in favour of the petitioners. He had further directed that the shops were to be put to resale. The proceedings disclose that there was default in the payment of kist from the month of May onwards and in spite of directions security amount had not been replenished. Exts.P3 and P4 recovery notices issued thereafter had however been subjected to challenge. More or less identical contentions had been raised by the petitioners herein, as urged in O.P.No.1369 of 1995.

17. Even though interim orders had been passed in O.P.No.2180 of 1995, staying the steps taken by the Department for enforcing the recoveries, because of certain developments the stay has been vacated. We may briefly advert to the above as well.

18. The second petitioner in O.P.No.2180 of 1995 had filed an affidavit on 10th of June, 2003 alleging that he has been made a party to the proceedings without his knowledge and consent. He claims that he had not signed the Original Petition. He had not executed any vakalath, and his name had been dragged into the petition without bona fides, at the instance of the first petitioner (Padmini Amma). He even had alleged that the counsel who filed the Original Petition had committed professional misconduct. I.A.No.4020 of 2003 had been filed by him requesting this Court to pass orders allowing him to be impleaded as an additional respondent in the Original Petition.

19. This was stoutly opposed by the first petitioner. A counter affidavit and additional documents were made available to show that the second petitioner had turned turtle with least of bona fides.

20. Taking notice of the allegation of forgery, earlier this Court had directed that the Deputy Inspector General of Police, Ernakulam Range is to look into the matter. A report had been filed by the said officer. However, we find that the report as above is not satisfactory, and the version of the first petitioner has not been appropriately ascertained. It will in any case be risky to rely on the report for any purpose. Consequently, any further action on the crime registered as 201/2004 in the Pattanakad Police Station is to be discontinued. The second petitioner has failed to explain the countless loose ends in his anxiety to wash off his hands. We notice that the second petitioner had been a beneficiary of the interim orders passed in the said Original Petition. It is too much to assume that the first petitioner had duped the Assistant Excise Commissioner, when the bid had taken place, when the agreement was signed, and no particular reason is shown to explain the conduct of the first petitioner for remitting a sizable sum of Rs.13 lakhs at the inception of the agreement, giving equal credit to the second petitioner. He had also not challenged the steps taken by the Excise Authorities implicating him in the proceedings for recovery, on allegation of fraud.

21. Taking notice of the controversy, by an order dated 01-11-2004, the stay granted in the Original Petition had been vacated. As of now, it may not be just or proper to grant permission to the petitioner for participating in the proceedings as a respondent. The application is therefore rejected, and the second petitioner is to be deemed as continuing as petitioner for all purposes, especially as there was no submission made by him for permission to withdraw from the proceedings in the course of hearing.

22. We may examine the legal contentions that had been raised in the aforesaid context. The learned counsel for the petitioners had adverted to a decision of a Division Bench of this Court reported in 1994 (1) KLT 627 (Bhavani Amma v. State) in respect of their@@ EEEEEEEEEEEEEE EEEEE submission that principles of the Contract Act are to be applied and the demand as put up against them is misconceived. Counsel also submits that the contentions raised by the parties therein had found acceptance and the appeal filed therefrom had been dismissed by the Supreme Court in the decision reported as State v.@@ EEEEE Narayana Pillai (2000 (1) KLT 166). But the facts of the@@ EEEEEEEEEEEEEEE case appear to be different and the observations therefore may not be safe to be relied on. Petitioner there had deposited the bid amount and presented the solvency certificate as required by the rules, he having been declared the successful bidder. However, the Board of Revenue had not confirmed the sale for quite some time, which is mandated by the Rules. Because of the above, he was prevented from executing a regular agreement and no formal licence had been given over. The petitioner had contended that he was to be given confirmation before 01-04-1981 and finding that this is not forthcoming he had issued a notice on 06-04-1981, urging the respondents to take expeditious action. There was no response from the respondents. He had again issued a notice on 16-05-1981 informing that therefore he was not willing to be a licensee in respect of the shops in question.

23. However, the Department ignored such letters and took a stand that he became answerable for the full dues and he could not have been permitted to withdraw. This evidently was on the strength of Rule 5(10) and (15) of the Abkari Shops (Disposal in Auction) Rules. Because of the reluctance of the petitioner however, the Department had been obliged to re-notify the sale and later on in respect of the shops Departmental management was brought about. Thereafter, claims had been put up requiring the bidder to pay the compensation. It was on the plea that the consequential steps taken were at the risk of the petitioner. These proceedings were challenged. Taking notice of the facts of the case, the Court had held that the petitioner therein was not liable to pay any amount of penalty, as the department had been at fault, and it was a case where he was entitled to get back his security deposit in full.

24. But the petitioners can hardly rely on the said decision. In the present cases, the facts show that there was an offer and acceptance and at the volition of the petitioners alone, later, the shops were surrendered. Therefore, the consequences were to follow as provided by the statute. The counter affidavit speaks about the efforts taken by the Department to put the shops for resale. Earnest attempts were made for resale of the shops by publication of notice in the official gazette, and repeated attempts were made thereafter. We feel that the Government had not shirked their responsibility, as postulated by the Rules, and it may not be justified or proper for the petitioners to allege that the Government had not taken steps for mitigating the loss.

25. Considerable reliance had been placed on the second limb of the decision in Bhavani Amma's case (supra) and especially, the principles laid down in paragraph 32, which are extracted herein below:-

"32. The general principle of contract and Contract@@ i i .SP 1 Act cannot be totally ignored in considering the rules. We have to remember that we are considering a piece of delegated legislation. A delegated legislation cannot claim same equality, insulation and immunity which is enjoyed by a statute passed by a competent legislature. The subordinate legislation is always liable to be questioned on all the grounds on which a plenary legislation could be questioned. In addition, certainly the delegated legislation can be challenged on the ground that it does not conform to the statute under which it is made. It may further be faulted on the ground that it is contrary to some other statute. It is a cardinal principle that subordinate legislation must yield to plenary legislation. We may also say that subordinate legislation may also be questioned on the ground that it is unreasonable in the sense that it is manifestly arbitrary. This concept of invalidating a delegated legislation can be seen from the decisions of English Courts where Judges would say "Parliament never intended authority to make such rules. They are unreasonable and ultra vires". The position of law has been clearly stated by Diplock.L.J. in Mixnam Properties Ltd. v. Chrtsey U.D.C. (1964 (1) QB 214) thus: The various grounds upon which subordinate legislation has sometimes been said to be void....can, I think, today be properly regarded as being particular applications of the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute. Thus the kind of unreasonableness which invalidates a bye-law is the not antonym of `reasonableness' in the sense of which that expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say: "Parliament never intended to give authority to make such rules; they are unreasonable and ultra vires......If the courts can declare subordinate legislation to be invalid for `uncertainty', as distinct from unenforceable.....this must be because Parliament is to be presumed not to have intended to authorise the subordinate legislative authority to make changes in the existing law which are uncertain..."

.SP 2

26. Argument is that the veracity of subordinate rules is to be tested with reference to the specific authorisation, the parent statute supplied. The principle of the decision cannot be disputed. But, however, the observations made as above do not appear to be relevant as far as the present case is concerned.

27. We had occasion to notice the provision of the statute which referred to rule making powers. General powers are given by Section 29. Section 29(r) is to the following effect;-

29(r) "for the forfeiture notwithstanding provisions@@ i i .SP 1 to the contrary contained in the Indian Contract Act,1872 or in any other law, of the whole or any portion of the kists deposited by persons who purchase the right to sell toddy, arrack, foreign liquors or ganja, in addition to damages recoverable by Government on account of the breach of conditions of sale laid down by the Government from time to time."

Coupled with the above, Section 69 is worded .SP 2 in the following manner:-

69. Publication of rules and notifications:-- "All@@ i iAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA .SP 1 rules made and notifications issued under this Act shall be made and issued by publication in the Gazette. All such rules and notifications shall thereupon have the force of law and read as part of this Act and may in like manner be varied, suspended or annulled."

.SP 2

28. But this section as such may not be supplying extra punch to the Rules in spite of the wording of the section, as they continue to be subordinate legislation, and normally will have to be understood with a restriction, as observed in Bhavani Amma's decision. Further the weighty observation of the Supreme Court made in State of Kerala v. Abdulla and Co. (AIR 1965 SC@@ EEEEEEEEEEEEEEEE EEEEEEEEEEEEEEEE 1585) construing a similar provision of the Madras Sales Tax Act throws light into these aspects. The Rules can be only rules, and cannot transpose itself as provisions of the Act.

29. But power is reserved with the Government to frame rules by Section 29(r). The Abkari Shops (Disposal in Auction) Rules have been brought in exercise of such powers, and the non obstante clause puts them beyond the reach or restriction of the Indian Contract Act. It is evident that the attention of the Division Bench, while Bhavani Amma's case was being considered had not been brought to existence of the above section in the Abkari Act. However, as the said decision mainly rested on the facts of the case, we do not think the issue requires to be placed before a larger bench. The Supreme Court, while affirming Bhavani Amma's case in State v. Narayana@@ EEEEE EEEEEEEE Pillai (2000 (1) KLT 166) had also not gone to the above@@ EEEEEE aspects and the delay in confirmation of the contract as spoken to by Rule 5(13) of the Abkari Shops (Disposal in Auction) Rules alone had come to be highlighted.

30. The cancellation of the respective licences was in exercise of powers under the said Rules. It is true that Rule 5 of the Rules are mostly relevant at the point of time of the sale of the shops. But, compartmentalisation in absolute terms appears to be not proper, as at least certain conditions spill over to later periods of the tenure, e.g. Rule 17, which states that the auction purchaser shall be liable to the penalties for any of the breach of the condition under the Rules, even in a case where formal licence is not issued. As far as the petitioners are concerned, that stage is over, and Rule 6 appearing in Chapter V of the Rules were to the applied. Under Rule 6(14), shops once opened, but in which the sales have been discontinued for more than thirty days consecutively shall be liable to be resold at the risk of the licensees. Again, Sub-Rule 28 provides that defaults invite cancellation of licence and resale is at the risk of the licensee. The Officer has authority to bring it under departmental management, or otherwise dispose of the same. The losses shall be borne by the defaulted licensees. Such provisions have statutory sanction, because of section 29(r) of the Act. The breach of the contract is not disputed, though excuses have been raised, but in proceedings under Article 226 of the Constitution of India, such question cannot be examined satisfactorily. We are of the view that the coercive proceedings are therefore not illegal, and powers vested alone had been enforced.

31. A licence issued under the Abkari Act is not a right as is ordinarily understood by the said term, but only a privilege. The contract entered into by the parties and their conduct can only be on the lines laid down by the statute. Import of provision of other statute therefore could be necessarily excluded, as what governs the parties is a self contained code. We repel the contentions raised by the petitioners, for this reason also.

32. Petitioners urged that on principles of mitigation of loss, the party who suffered the loss was expected to exert itself for reducing the loss, and this had not been attempted by the Government, and to this extent, the petitioners were entitled to relief. But, under Rule 6(28) of the Abkari Shops (Disposal in Auction) Rules, closure is given an extended meaning. It is declared that `Disposal otherwise than by resale includes closure'. We had found that the Department had attempted to put the shops on resale, but were not successful. They could have discontinued the shops. Therefore, the contentions raised by the petitioners do not appear to have any merit.

33. What has been demanded from the petitioners are payments which are statutorily permissible and we hardly find any reason to interfere with such demands. But of course in respect of certain items it would be necessary to make clarifications. Excise duty had been demanded from the petitioners on the plea that such liability continues even after the surrender of the shops and termination of the original contract and therefore it cannot be avoided at the instance of defaulter. The plea of the petitioners, on the other hand, is that impost of Excise duty arises only when the commodity is lifted from the supplier and therefore, demand cannot validly be raised when there was no such supply at all.

34. Even though in the first blush, it may appear that the contention is valid, we have to observe that acceptance of such contentions will interfere with the terms of a statutory contract. It is not disputed that by the stipulation of the contract, Excise duty was payable for the designated quantity and distributed for the period of lease, as undertaken. This was a price agreed and by a unilateral step, the petitioners cannot get any advantage to the detriment of the Government. The petitioners have no case that they had withdrawn from the field because of the conduct of the other contracting party. Therefore, we cannot accept a position whereby Government is to suffer loss. The issue had also been finally settled by the Supreme Court in 2001 (3) SCC 694 (Solomon Antony and others v. State of Kerala and@@ EEEEEEEEEEEEEEEEEEEEEEEEEEE EEEEEEEEEEEEEEEEEEEEE others). Grant of permit to import or purchase of a@@ EEEEEE designated quantum of duty paid rectified spirit, at the contractor's request, on condition that they would remit the Excise duty on such quantum in each month, according to the Supreme Court, was sufficient authority for the Government to make such a demand for the whole period. It had been held that the contractors were liable to pay the duty in respect of even unlifted portion of the designated quantum of rectified spirit. Therefore, the argument cannot be accepted.

35. Nevertheless, in the case of the petitioner in O.P.No.1369 of 1995, it has come by way of an admission in the counter affidavit, that an amount of Rs.2,05,129/has come to the Government exchequer as Excise Duty for the period from 27-11-1993 to 31-03-1994. The petitioner will be entitled to get credit for this amount, as otherwise it will amount a double payment of duty. We presume, for want of materials, that for the above period the designated quota of arrack had been procured. The advantage at least technically has therefore to go over to him. Such relief may not be available to the petitioners in O.P.NO.2180 of 1995, as there is no such plea forthcoming.

36. One other item of remission claimed was in respect of the Departmental management fee that had come to be collected in respect of the shops, which is the subject matter of O.P.No.1369 of 1995. An amount of Rs.5,06,472/- had come as Departmental management fee in respect of the said shops. The plea of the Government is that because of the amendment brought in 1993 to Rule 13 of the Kerala Abkari Shops (Departmental Management) Rules, 1972 excepting in a case of death of the licensee, such fee is not to be given credit to and this amount will not be available therefore to be considered as repayment from the petitioner. However, the petitioner refers to a Division Bench judgment of this Court in O.P.No.2861 of 1994, to which one of us was a party. It had been held that the contracts in those cases were entered into before the amendment of Rule 13, and the petitioners are liable to pay only the actual loss suffered by the Government in realization of rentals and excise duty. It had been noticed that there was no provision in the agreement for forfeiture of any departmental management fee. Although the learned Government Pleader submits that by virtue of Rule 35 of the Abkari Shops (Disposal in Auction) Rules, it would have been possible for the Government to incorporate additional conditions when statute was amended, we have to see and notice that the licence issued to the petitioner had been cancelled well before and even prior to the date of the amendment. Although the existing rule .PL 60 left the matter to the discretion of the Assistant Excise Commissioner, we feel that it will be unjust to deny the reliefs to the petitioner, and the benefit of the decision in the batch of cases.

37. Resultantly, the petitioner in O.P.No.1369 of 1995 would be entitled to get credit of an amount of Rs.5,06,472/-, which was received as departmental management fee for the period from 27-11-1993 to 31-03-1994 in respect of the shops.

38. Both the Original Petitions are dismissed. However, in respect of the petitioner in O.P.No.1369 of 1995, demand notices are to be issued afresh, giving credit to the said petitioner for a total sum of Rs.5,06,472 + Rs.2,05,129 viz., Rs.7,11,601/- (Total amount of Departmental Management Fee and Excise Duty levied in respect of the shops for the concerned year), but without benefit of any interest. The parties are directed to suffer costs.


((HDR 0 )) .HE 2 .PA ...............T.......T.......L.......T.......T.......T................J............. .SP 1 (M.RAMACHANDRAN & K.P.BALACHANDRAN,JJ)@@ jAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

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Dated: 17th day of May, 2005