State of Kerala Rep. by the Chief and ors. Vs. Biju Thomas S/O. Thomas - Court Judgment

Excerpt:
- code of civil procedure, 1908.[c.a. no. 5/1908]. section 100-a [as substituted by c.p.c. amendment act, 2002]: [v.k. bali, cj, kurian joseph & k. balakrishnan nair, jj] applicability held, section is not retrospective. all appeals filed prior to 1.7.2002 are competent. but subsequent to 1.7.2002 intro court appeals against judgment of single judge is not maintainable. provisions of section 100-a, c.p.c., will prevail over the provisions contained in the kerala high court act, 1959. - 9. the authorities under the act, after issuing the demand notice to the petitioner, inter alia demanding the payment of arrears of kist amount and the interest due thereon and since there was a failure on the part of the petitioner to comply with the demand so made, they have proceeded, not.....orderh.l. dattu, c.j.1. the core issue in these appeals filed by the state of kerala and the original petitions filed by the licensees who were issued with licences under the provisions of the kerala abkari act read with kerala abkari shops (disposal in auction) rules, 1974 is, as to whether it is permissible for the state legislature to enact a provision for the forfeiture of the whole or any portion of the kist deposited by persons who purchased the right to sell toddy, arrack, foreign liquor or ganja in addition to damages recoverable by the government on account of the breach of conditions of sale laid down by the government from time to time.2. the law we are concerned with is, the provisions of the kerala abkari act and the kerala abkari shops (disposal in auction) rules 1974. the.....

Judgment:
ORDER

H.L. Dattu, C.J.

1. The core issue in these appeals filed by the State of Kerala and the Original Petitions filed by the licensees who were issued with licences under the provisions of the Kerala Abkari Act read with Kerala Abkari Shops (Disposal in Auction) Rules, 1974 is, as to whether it is permissible for the State Legislature to enact a provision for the forfeiture of the whole or any portion of the kist deposited by persons who purchased the right to sell toddy, arrack, foreign liquor or ganja in addition to damages recoverable by the Government on account of the breach of conditions of sale laid down by the Government from time to time.

2. The law we are concerned with is, the provisions of the Kerala Abkari Act and the Kerala Abkari Shops (Disposal in Auction) Rules 1974. The statutory provisions which we are required to interpret in these appeals are Section 29(2)(r) of the Abkari Act and Rule 6(28) of the Abkari Shops (Disposal in Auction) Rules.

3. The source of power for the State Government to make the laws in regard to intoxicating liquors is traceable to Entry 8 of List II of Schedule VII to the Constitution of India which provides for intoxicating liquor, that is to say, production, manufacture, possession, transport, purchase and sale of intoxicating liquors, and Entry 51 which provides for Duties of Excise on the goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; but not including medicinal and toilet preparations containing alcohol or any substance included in sub paragraph (b) of this entry.

4. The provisions which require to be noticed are Sections 18A, 24, 26 and 29 of the Abkari Act and Rule 5(4B) and 5(10), 5(15), 5(16), 5(17), 5(19) and Rule 6(28) of the Abkari Shops (Disposal in Auction) Rules.

5. We will now briefly state the factual matrix in order to appreciate the reasoning and conclusion reached by the learned Single Judge and the contentions canvassed by the learned Counsel for the parties to the lis. The facts are few and they are not in dispute. For the purpose of disposal of the bunch of appeals and the original petitions, we may notice the facts stated in O.P. No. 26942 of 2001.

6. The petitioners in the Original Petition are the licencees for the conduct of toddy shops in Pathanamthitta Excise Range. In the auction held for granting privilege to conduct the toddy shop, the petitioner was the highest bidder and he had accepted to take the privilege for conducting the toddy shop for an amount of Rs. 1,20,02,000/-. The period of licence was from 1.4.2000 to 31.3.2001. The bid amount is the annual rental or kist for the shop. The same is payable as per the rules in 10 equal monthly instalments commencing from the month of April.

7. At the time of executing the preliminary agreement with the excise authorities, petitioner was required to deposit in cash or bank draft or both, an amount equivalent to not less than 30% of the amount of his bid or such other amount as may be fixed by the officer conducting the sale. In fact, the petitioner had paid 30% of the bid amount in a sum of Rs. 39,80,000/-. He had also produced before the auction officer solvency certificate for an amount of not less than 30% of the bid amount.

8. After the confirmation of the sale by the Board of Revenue, the Excise Commissioner had issued the licence to the petitioner to conduct the vending of toddy for the excise year 1.4.2000 to 31.3.2001. After commencement of the business, the petitioner had remitted the kist instalments for the months of April, May, June, July, August and September. Since, according to him, he had suffered heavy loss in the business, he could not pay the kist amount for the month of October onwards.

9. The authorities under the Act, after issuing the demand notice to the petitioner, inter alia demanding the payment of arrears of kist amount and the interest due thereon and since there was a failure on the part of the petitioner to comply with the demand so made, they have proceeded, not only to cancel the licence granted to the petitioner and also have forfeited 30% of the amount deposited by the petitioner at the time of executing the preliminary agreement with the excise authorities/auction officer.

10. After adjusting the rentals so deposited by the petitioner, they have also issued Revenue Recovery notice calling upon the petitioner to pay a sum of Rs. 38,16,636/- alleged to be the arrears of kist in respect of the shops for which licence was granted to conduct the business in vending of toddy and the interest for delayed payment. Aggrieved by the recovery notice so issued, petitioner was before this Court in O.P. No. 26492 of 2001. The relief that was sought for by the petitioner in the said writ petition, apart from others, was to declare the Rule 6(28) of the Kerala Abkari (Disposal in Auction) Rules to the extent it provides for forfeiture of security deposit made for due performance of the conditions of the licence as ultra vires and void and without legislative sanction; to declare that the provisions of Indian Contract Act, 1872 are applicable to the contracts entered into by the petitioner with the respondents except to the extent specifically excluded in Clause (r) of Sub-section (2) of Section 29 of the Kerala Abkari Act and lastly, to declare that respondents have no authority to forfeit the amount deposited by the petitioner as security for the due performance of the contract under Rule 5(10) read with Rule 5(19) of the Kerala Abkari (Disposal in Auction) Rules.

11. The learned Single Judge following the judgment rendered by him in O.P. No. 3527 of 2002 disposed of on 11th October, 2004, has allowed the writ petition. In the judgment, the learned Judge as observed that, there is no justification for the revenue recovery officer to initiate revenue recovery proceedings after forfeiting and adjusting the security deposit made for the arrears towards kist amount.

In the Review Petition filed by the State, the learned Single Judge has noticed Rule 5(10), 5(16), 5(18), 5(19) and Rule 6(28) of the Rules, and after referring to the meaning of the expression 'forfeiture' from the Black's Law Dictionary has stated, 'so the security furnished by the petitioner is the amount to be adjusted towards liability arising out of the contract. The amount due from the petitioner at the relevant time comes to about Rs. 70 lakhs. If the contention of the review petitioner is accepted, they can take the security deposit of Rs. 69 lakhs and again thereafter demand another Rs. 70 lakhs. Such an interpretation is unwarranted in the light of the above quoted provisions of the Rules relied on by the review petitioner. The word 'forfeiture' used in the rules should be understood as forfeiture of the security deposit towards the amount due. The same cannot be done as a punishment for violation of the contract as contended by the learned Government Pleader. Any such interpretation of the rules would make the rules ultra vires and unconstitutional'. Aggrieved by the reasoning and conclusions reached by the learned Single Judge, the State is before us in these appeals.

12. We have heard learned Senior Advocate Sri. V.N. Achuthakurup and Sri. C.C. Thomas, learned Counsel appearing for the petitioners and the learned Government Advocate for the State. The contentions canvassed by them will be noticed by us at the appropriate place in the course of our judgment.

13. The points in controversy are, whether Rule 6(28) to the extent it provides for forfeiture of security deposit is ultra vires, void and without legislative sanction; whether the provisions of Indian Contract Act, 1872 are applicable to the contracts entered into by the petitioners with the respondents except to the extent specifically excluded under Clause (r) of Sub-section (2) of Section 29 of the Act; and whether the respondents have no authority to forfeit the amount deposited by the petitioners as security for the due performance of the contract under Rule 5(10) read with Rule 5(19) of the Kerala Abkari Shops (Disposal in Auction) Rules

14. In these matters, the Revenue has done nothing more than forfeiting the sums deposited by the licensees for the default committed by them in paying the kist amount during the currency of the licence during the relevant excise year.

15. The Abkari Act (1 of 1077) was passed by His Highness Maharaja of Cochin on the 5th day of August, 1902 and the same was extended to the whole of Kerala as per Act 10 of 1967, which received the assent of the President on 29th July, 1967. The object of the Act as stated in the Preamble to the Act, is to consolidate and amend the law relating to import, export, transport, manufacture, sale and possession of intoxicating liquor and of intoxicating drugs in the State of Kerala. The source of power for framing the Act can be traced to Entry 8 of List II and Entry 51 of List II of Seventh Schedule to the Constitution of India. Section 2(23) of the Act defines the meaning of the expression 'rental' to mean the rental payable under Section 18A of the Act in consideration of the grant of exclusive or other privilege of manufacturing, supplying or selling any liquor or intoxicating drugs. Section 18A of the Act provides for grant of exclusive or other privilege of manufacture, etc., on payment of rentals. Sub-section (1) of Section 18A of the Act authorises the Government to grant to any person or persons on such conditions and for such period as it deems fit, the exclusive or other privilege of manufacturing or supplying by wholesale; or of selling by retail; or of manufacturing or supplying by wholesale and 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 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 Section 17 and 18. Sub-section (2) of Section 18 of the Act prohibits the person or persons to whom privilege for selling or supplying either by wholesale or by retail any liquor or intoxicating drug until he receives a licence in that behalf from the Commissioner of Excise. Section 24 of the Act provides for grant of licence. Under this Section, a licence or a permit under the Act can be granted by the Excise Commissioner on payment of such fees prescribed for specified period and subject to such restrictions and conditions. Under Section 26 of the Act, the Commissioner may cancel or suspend any licence or permit granted under the Act, apart from others, if the licensee has failed to pay any fee, duty, tax or rental.

16. The rule making power is contained in Section 29 of the Act. Sub-section (1) of Section 29 of the Act provides that the Government may make rules for the purpose of carrying out the provisions of the Act. In other words, the Rules cannot be framed in matters that are not contemplated under the Act. Apart from the general powers contained in the Section 29(1) of the Act, the State Government is also authorised under Sub-section (2) to make rules for regulating trade or business under the Abkari Act. The legislature has specifically authorised the State Government for making a rule providing for forfeiture of whole or any portion of the kists deposited by persons who purchased the right to sell toddy, arrack, foreign liquor or ganja in addition to breach of conditions of sale laid down by the Government. The said sub-section requires to be noticed. It reads as follows:

for the forfeiture, notwithstanding provisions 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 liquor 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.

17. The State Government, in exercise of its powers under Sections 18A and 29 of the Abkari Act has framed Kerala Abkari Shops (Disposal in Auction) Rules, 1974. Chapter II of the Rules provides for disposal of the shops. Under Rule 3 of the Rules, any member of the Board of Revenue, or by the District Collector of the District or by the Deputy Commissioner of Excise or by any officer authorised by the Government or by the Board of Revenue, may by public auction, grant privilege of vending toddy and foreign liquor, for any period in all or any of the independent shops as may be decided by the Government from time to time. Chapter IV of the Rules provides for general conditions applicable to the sale of abkari shops. Under Rule 5(4B), the officer conducting the auction may exclude an intending bidder from auctions of a shop/shops/groups of shops, on his failure to prove before him at the time of auction that he has means to raise a sum towards remittances immediately either in cash or in Bank Draft or in both, for not less than one third of the rental of such shop/shops/group of shops, for the contract year to which the auction pertains. That only means that the intending bidder should have the financial capacity to make immediate payment, if his bid is accepted in auction to deposit 1/3rd of the rental such shop/shops.

18. Under Sub-rule (10) of Rule 5 of the Rules, once a person is declared to be the auction purchaser, by the officer conducting the auction sale he cannot withdraw the offer made and he shall at once execute a temporary agreement in Form No. 1 appended to the Rules. He shall also make a deposit in cash or bank draft or both an amount equivalent to not less than 30% of the amount of his bid or such other higher amount as may be fixed by the officer conducting the sale and also required to furnish personal securities, if required by such officer.

He shall also produce before the auctioning officer a solvency certificate for an amount not less than 30% of the bid amount or in lieu of solvency certificate additional cash security or Bank draft or bank guarantee for an amount not less than 30% of the bid amount. If the auction purchaser fails to comply with the aforesaid conditions, the auction officer may provisionally declare the next highest bidder as the auction purchaser or he may put to auction shop or shops either immediately or any other date notified by him. In the case of accepted tenders, the demand draft enclosed along with the tenders will be credited towards the cash security. The rules also authorises auction officer, to forfeit to the State Government the amount of demand draft, if the auction purchaser fails to execute the temporary agreement with the required security. The re-auction that may be held by the auction officer is again at the risk of first auction purchaser. He cannot claim any gain accruing in re-auction, but, if there is any loss to the State Government that should be again made good by the first auction purchaser.

19. Under Sub-rule (13), auction sale requires to be confirmed by the Board of Revenue. The Board has the discretion either to accept or reject any bid for valid reason.

20. Under Sub-rule (15), once the sale is confirmed by the Board of Revenue, the auction purchaser shall execute a permanent agreement in Form No. 11 appended to the rules and take out licence for installation of shop or shops. On failure of the auction purchaser to make deposit referred to in Sub-rule (10) or take out licence or execute temporary or permanent agreement or furnish personal security or additional cash security, as may be directed by the Board of Revenue, the deposit already made by him towards security shall be forfeited to the State Government and the shop shall be resold or otherwise disposed of by the Assistant Excise Commissioner subject to confirmation by the Board of Revenue.

21. Under Sub-rule (16), the State Government reserves enormous powers in the event of the auction purchaser commits any default of the conditions prescribed under Sub-rules (10) or (15) of the Rules. Any re-auction that may be conducted by the auction officer is always at the risk of the original auction purchaser. If the State Government makes any profit out of such re-auction, the first auction purchaser/defaulting auction purchaser cannot claim any gain accruing by such re-auction, but if there is any loss to the State Government, he is required to make good the deficiency between the total amount payable for the whole period under the terms of the original sale and the total amount payable by the subsequent auction purchaser. In the event of loss to the Government the forfeited deposit shall be deducted from the loss arising from the re-sale and the remainder if any will be recovered from the defaulter with interest as if it is an arrears of land revenue.

22. Under Sub-rule (19) of Rule 5 of the Rules, the amount deposited under Sub-rule (10) of Rule 5 shall be taken as security for the due performance of the conditions of the licence. The said amount will be credited towards the kist due for two or more instalments as the case may be unless it is previously appropriated under the rules.

23. Chapter V of the Rules provides for general conditions applicable to the licensees of Toddy, Arrack or Foreign Liquor Shops. The relevant rule that requires to be noticed is Rule 6(28) of the Rules.

It is as under:

(28) Whenever the licensee fails to pay the kist, tree tax, duty, etc., due from from for any month together with the interest due under Sub-rule (25) on or before the 25th day of the month, the Assistant Excise Commissioner subject to the 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 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. Disposal otherwise than by resale includes closure. The whole of the deposit, of 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 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 to 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 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 of notice from the Excise Officer in charge of the Division 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 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.

24. Under Sub-rule (28) of Rule 6 of the Rules, if a licensee fails to pay the kist, tree tax, duty etc., for any month together with interest under Sub-rule (25), the Assistant Commissioner, subject to confirmation by the Board of Revenue, can cancel the licence, order re-sale at the risk of the licensee or direct management of the business of contract by departmental agency or otherwise dispose of the same. The loss incurred by the government on account such cancellation and re-sale or departmental management or other disposal of the privilege will be borne by the defaulting licensee. If for any reason, in such re-auction, if there is any gain to the State, the same will not accrue to the licensee. The said sub-rule also provides for forfeiture of the whole of deposit made by the licensee at the commencement of the lease period.

25. Sri. C.C. Thomas, learned Counsel would contend that the amount deposited by the licensees at the time of execution of preliminary or permanent agreement after the auction officer accepts their highest bid is in the nature of security deposit for the due performance of the contract awarded under the Rules and there is no provision under the Act which would authorise the respondents for forfeiture of such a security deposit and therefore, forfeiture of security deposit is illegal and unsustainable in law. It is further contended that the respondents by invoking Rule 6(28) of the rules have forfeited the security deposit made by the petitioners at the time of execution of permanent agreement with respondents and the said rule which provides for forfeiture of security deposit is ultra vires and without legislative sanction. Alternatively, it is contended that the Abkari Act does not provide the respondents with power to frame rules for forfeiture of security deposit. It is further contended that the petitioners are entitled to get the amount deposited towards security for the due performance of the contract either refunded or adjusted towards kist arrears, if any.

26. The learned Government Advocate relying on Rule 6(28) of the Rules submits that if a licensee fails to pay the kist amount, the Assistant Commissioner subject to the approval by the Board of Revenue, apart from cancelling the licence and ordering resale of privilege to vend arrack, toddy, etc., is entitled to forfeit the whole of the deposit made at the commencement of lease.

27. In these petitions, the petitioners are not questioning the competence of the State Legislature in authorising the State Government to make a rule, if they so desire, providing for forfeiture of the whole or any portion of the kist deposited by persons who purchase the right to sell toddy, arrack, etc., in addition to damages recoverable by the Government on account of the breach of conditions laid down by the State Government from time to time. Their primary contention is that the amount deposited by them at the time of executing temporary or permanent agreement after they are declared as auction purchaser by the auction officer represents the security deposit for proper or due performance of the contract and the legislature has not authorised the rule making authority to frame any rule providing for forfeiture of security deposit.

28. In Clause (r) of Sub-section (2) of Section 29 of the Act, the Legislature has authorised the State Government to make rules for the forfeiture of the whole or any portion of the kist deposited by the person who purchased the right to sell toddy, arrack etc. The expression 'forfeiture' is defined in the Black's Legal Dictionary. The Black's Legal Dictionary states, that 'to forfeit' is 'to lose, or lose the right to, by some error, fault, offence or crime', 'to incur a penalty'. Forfeiture as judicially annotated, is 'a punishment annexed by law to some illegal act or negligence, 'something imposed as a punishment for an offence or delinquency'. The word, in this sense, is frequently associated with the word 'penalty'. According to Black's Legal Dictionary, the terms fine, forfeiture, and penalty are often used loosely, and even confusedly; but when a discrimination is made, the word 'penalty' is found to be generic in character, including both fine and forfeiture. A 'fine' is a pecuniary penalty and is commonly (perhaps always) to be collected by suit in some form. A 'forfeiture' is a penalty by which one loses his rights and interest in his property. More explicitly, the U.S. Supreme Court has explained the concept of 'forfeiture' in the context of statutory construction. Chief Justice Taney, in the State of Maryland v. The Baltimore & Ohio RR Co. 11 L.Ed. 714, 722 observed:

And a provision, as in this case, that the party shall forfeit a particular sum, in case he does not perform an act required by law, has always, in the construction of statutes, been regarded not as a contract with the delinquent party, but as the punishment for an offence. Undoubtedly, in the case of individuals, the word forfeit is construed to be the language of contract, because contract is the only mode in which one person can become liable to pay a penalty to another for breach of duty, or the failure to perform an obligation. In legislative proceedings, however, the construction is otherwise, and a forfeiture is always to be regarded as a punishment inflicted for a violation of some duty enjoined upon the party by law; and such, very clearly, is the meaning of the word in the act in question.

The same connotation has been imparted by Apex Court too. A Bench, in the case of Bankura Municipality v. Lalji Raja & Sons 1953 SCR 767, has held:

According to the dictionary meaning of the word 'forfeiture' the loss or the deprivation of goods has got to be in consequence of a crime, offence or breach of engagement or has to be by way of penalty of the transgression or a punishment for an offence. Unless the loss or deprivation of the goods is by way of a penalty or punishment for a crime, offence or breach of engagement it would not come within the definition of forfeiture.

The word forfeiture must bear the same meaning of a penalty for breach of a prohibitory direction. The fact that there is arithmetical identity, assuming it to be so, between the figures of the illegal collections made by the dealers and the amounts forfeited to the State, cannot create a conceptual confusion that what is provided is not punishment but a transference of funds. If this view be correct, and we hold so, the legislature by inflicting the forfeiture, does not go outside the crease when it hits out against the dealer and deprives him, by the penalty of the law, of the amount illegally gathered from the customers. See R.S. Joshi v. Ajit Mills Ltd. : [1978]1SCR338 .

29. After the words 'forfeiture', the legislature has used the expression 'notwithstanding provisions to the contrary contained in the Indian Contract Act, or in any other law for the time being in force. A non obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions. The expression 'notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force or in any contract' came up for consideration before the Supreme in Iridium India Telecom Ltd. v. Motorola Inc. : AIR2005SC514 . In the said decision, the Apex Court at Paras 34, 35, 36 and 37, has stated as under:

34. After noticing the observations made in Aswini Kumar Ghosh 1953 SCR 1 and Dominion of India v. Shrinbai A. Irani : [1955]1SCR206 , this Court in Chandavarkar Sita Ratna Rao v. Ashalata S. Guram (1986) 4 SCC 477, observed thus, in the context of W.A. No. 2485 of 2005 etc. construction of a non obstante clause:

67. A clause beginning with the expression 'notwithstanding anything contained in this Act or in some particular provisions in the Act or in some particular Act or in any law for the time being in force, or in any contract is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the non obstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non obstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an impediment for an operation of the enactment. See in this connection the observations of this Court in South India Corporation (P) Ltd. v. Secy. Board of Revenue, Trivandrum : [1964]4SCR280 .35. Again in Parayankandiyal Eravath Kanapravan Kalliani Amma v. K. Devi : AIR1996SC1963 this Court observed:

77. Non obstante clause is sometimes appended to a section in the beginning, with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provisions or Act mentioned in that clause. It is equivalent to saying that in spite of the provision or Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provision indicated in the non obstante clause will not be an impediment for the operation of the enactment. See Union of India v. G.M. Kokil 1984 Supp SCC 196, Chandavarkar Sita Ratna Rao v. Ashalata S. Guram (1986) 4 SCC 477, R.S. Reghunath v. State of Karnataka : AIR1992SC81 , G.P. Singh's Principles of Statutory Interpretation.

36. Reference was made to A.G.Varadarajulu v. State of T.N. : [1998]2SCR390 , at Para 16. This judgment merely followed the observations made in Aswini Kumar (supra) and Madhav Rao Scindia v. Union of India : [1971]3SCR9 . There is no doubt that where the non obstante clause is widely worded, 'a search has, therefore, to be made with a view to determining which provision answers the description and which does not'. The historical development of the law suggests that the non obstante clause in Section 129 intended to bypass the entire body of the Code so far as the rules made by the chartered High Court for regulating the procedure on its original side are concerned.

37. The observations of this Court in R.S. Reghunath in para 11 and 12 SCC and AIR were pressed into service. These paragraphs merely reiterate and follow the observations made in Aswini Kumar Ghosh (supra), Dominion of India : [1955]1SCR206 , Union of India v. R.S. Kokil (supra) as well as the observations made in Chandavarkar Sita Ratna Rao v. Ashalata S. Guram (supra). Finally, in R.S. Raghunath (supra) at SCC p.347 in para 12, the words of Chinnappa Reddy, J. were quoted:

33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and they section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place'.

30. The question that falls for our consideration is, whether the amount deposited by the auction purchaser after their bids are accepted by the auction officer, does it represent the 'security deposit' as contended by the learned senior Counsel Sri.Achutha Kurup and Sri.C.C.Thomas or is it part of the kist amount as contended by the learned Government Advocate. The learned Counsel for the petitioner would contend that the security deposit that is provided is for the due performance of the contract and not as a part of the Kist or rentals payable for the privilege granted for vending of arrack and what can be forfeited is only the Kist amount and not the security deposit made for due performance of the contract. Therefore, the rule which provides for forfeiture of the security deposit is ultra vires and without legislative sanction. The argument sounds very attractive but on a deeper consideration, in our view, has no merit. We say so for the reason that the Rules are framed by the State Government in exercise of the powers given to it under the Act. A rule should be interpreted as to facilitate the working out its objects and make the provisions of the Act effective and implement the purpose of the Act, but this requires to be achieved without violating the provisions of the section which controls the rules. A rule has to be read with section under which it is made. In order to vitiate a rule, it must be shown that there is direct and glaring conflict with the section. It is the section which controls the rules and not vice versa. The Apex Court time and again has observed that the object of the subordinate legislation is to carry out the statutory provisions effectively and not to neutralise or contradict them. The rules made under rule making power should strictly conform with the intendment of the main provisions of the Statute and be consistent therewith. In the instant case, the Rules are made by the State Government, in exercise of the powers conferred on it, under the provisions of the Act. They, therefore, have statutory force and fall with in the law made by the enacting legislature itself. If a rule has been made by the appropriate authority in exercise of a valid power to make it and if it does not contravene the provisions of the Act or the Constitution, it is not for the courts to consider the question of its reasonableness, fairness or propriety. Rules are meant only for the purpose of carrying out the provisions of the Act and therefore, they cannot take away what is conferred by the Act nor whittle down its effect.

31. The State has exclusive privilege to sell liquor and this privilege can be sold under the relevant law. The State has power to regulate trade or business by placing restrictions on such trade or business. The system of auctioning of the right to possess excisable goods like country liquor like toddy, arrack and foreign liquor is only a method of realising duty through grant of licences to those who made the highest bid at the auctions and thus to raise the revenue. No absolute right to sell liquor is given to any person under the Act and that right is controlled by the provisions of the said Act. In dealing with reasonable restrictions no abstract standard or general pattern is possible to lay down. In each case regard to be had to the nature of trade or business, the conditions prevailing in such trade or business, the nature of infringement alleged and the underlying purpose of the restriction, the imposition of which is alleged to constitute an infringement.

32. If the legislature vests in a body or authority the power to collect the Kist in accordance with the provisions of the Act, it is but essential that certain safeguards should be made by the very legislature to see that the Kist is collected in terms of the Act. This is one of the ancillary objects closely allied with imposition and collection of Kist. Such a provision should be deemed to be both incidental and ancillary to the achievement of the objectives of the Act. Demanding deposit of 30% of the annual rental by way of security for payment of Kist amount is only a regulatory measure and it is neither arbitrary nor unreasonable.

33. Clause (r) of Sub-section (2) of Section 29 of the Act provides for framing of a rule forfeiting the whole or any part of the kist amount, if for any reason there is breach of conditions of sale by the purchaser who has purchased the right to sell toddy, arrack etc. According to the learned Counsel, what is deposited by the petitioner at the time of execution of either the preliminary agreement or the permanent agreement is, the security deposit and the said amount cannot be forfeited, since the legislature has not authorised the rule making authority to make a rule for forfeiture of the security deposit. As we have already noticed whether 30% of the amount deposited by the auction purchaser represents 30% of the annual rental payable for the right to sell liquor or a security deposit made for the due performance of the contract, if it is held by this Court that the amount deposited by the auction purchaser at the time of execution of either the preliminary agreement or the permanent agreement represents the kist payable by the auction purchaser, then the rule making authority is empowered under Clause (r) of Sub-section (2) of Section 29 of the Act to frame such a rule.

34. Now it is necessary to notice the scheme of the Act and the purpose for which a rule providing for forfeiture of certain amounts deposited by the auction purchaser under certain circumstances is provided under the Act.

35. The legislature, by incorporating specifically Sub-clause (r) to Sub-section (2) of Section 29 of the Act, has authorised the rule making authority for the forfeiture of whole or any part 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 breach of conditions laid down by the Government from time to time. Under Rule 5 of the Rules, the auction officer is authorised to exclude an intending bidder from auctions of a shop/shops/or groups of shops on his failure to prove before the auctioning authority at the time of auctions, such means to raise a sum towards remittance immediately either in cash or in bank draft or in both or by bank guarantee for not less than one-third of rental of such shops for the contract year. The expression 'rental' is defined under the Abkari Act. It means the rental payable under Section 18-A in consideration of the grant of an exclusive or other privilege of manufacturing, supplying or selling any liquor or intoxicating drugs. Therefore, even before the commencement of the auction, a person who intends to participate in the auction for getting the privilege to vend in liquor, he should prove to the satisfaction of the auctioning officer that he has a good financial background to pay the rentals for the contract year by immediately depositing one-third rental of the bid amount. In Rule 5(10) of the Rules, once a person is declared to be the auction purchaser by the auctioning officer conducting the sale, he shall execute a temporary agreement along with 30% of the bid amount and under Rule 5(15), once the recommendation made by the auction officer is accepted by the revenue, the auction purchaser is required to execute a permanent agreement along with additional security, if any, as may be fixed by the Board of Revenue. The deposits so made shall be taken as security for the due performance of the conditions of licence and that will be credited towards the Kist due for two or more instalments as the case may be during the contract year unless they are already appropriated. Then we come to crucial portion of general conditions applicable to licensees of toddy, arrack or foreign liquor shops. Apart from others, Sub-rule (28) of Rule 6 provides for forfeiture of deposit made by the auction purchaser, if he fails to pay the Kist, tree-tax, duty etc. due from him for any month along with interest as provided in Sub-rule (25) on or before 25th day of the month, and apart from cancelling of the licence, the Assistant Excise Commissioner may order resale of the right to vend toddy, arrack etc., at the risk of the defaulting licensee. By this action, what is forfeited is the 30% of the rentals deposited by the auction purchaser/licensee for the failure to pay the Kist/rentals payable during the contract year. In our view, the amount deposited by the auction purchaser at the time of entering into contract with the State Government for the grant of privilege to vend in toddy, arrack, foreign liquor etc., is in the nature of a coin having two faces. It is collected by the department as a security deposit for proper performance of the contract during contract year and during the contract period, if the licensee performs his obligations in terms of the contract, the amount that is initially deposited by the auction purchaser will be adjusted or credited towards the kist due for two or more instalments. The amount deposited continues to be security deposit as long as there is no breach of conditions of the agreement by the auction purchaser and once there is breach of conditions, i.e. default in payment of kist, tree tax, duty etc., or other dues in respect of the shop, the amount which is deposited by way of 30% rentals is liable for forfeiture. As observed by Chief Justice Taney in the case of State of Maryland v. The Baltimore & Ohio RR Co. (supra), that the party shall forfeit a particular sum, in case he does not perform an act required by law, has always, in the construction of statutes been regarded not as a contract with a delinquent party but as a punishment for an offence. Undoubtedly, in the case of individuals, the word forfeit is construed to be the language of contract, because contract is the only mode in which one can become liable to pay a penalty to another for breach of duty, or failure to perform an obligation.

In legislative proceedings, however, the construction is otherwise, and a forfeiture is always to be regarded as a punishment inflicted for a violation of some duty enjoined upon the party by law. The observation made by the learned Judge in the above decision would squarely apply in the facts and circumstances of the present case.

36. The Abkari Act provides for framing of a rule for forfeiture of kist amount for the breach of the conditions of agreement and also for recovery of damages. The competence of the legislature in this regard is not questioned by the licensees, but they only say that there is no provision under the Act for forfeiture of security deposit. In our opinion, in view of the discussion we have made earlier, it may not be possible to hold that the legislature has not provided any provision in the Abkari Act to frame a rule providing for forfeiture of the whole or any portion of the kists deposited by persons who purchase the right to sell toddy, arrack etc.

37. Section 74 of the Indian Contract Act provides for compensation for breach of contract where penalty is stipulated for. To attract the provisions of Section 74, it is not necessary that the entire contract should come to an end; the breach of each term thereof can be visualised in advance and taken care of by providing an adequate clause for liquidated damages so that the parties to the contract can proceed to work out the contract in future and settle the question of damages that have accrued on the basis of the rate that has been put as a pre-estimate at the commencement of the contract. It is contended by learned Counsel Sri. C.C. Thomas that merely because Clause (r) of Sub-section (2) of Section 29 begins with a non-obstante clause, it cannot be construed as a departure from the provisions of the Indian Contract Act and to give an overriding effect in a provision enacted by the State Legislature. This issue need not detain us for long, in view of what has been stated by the Apex Court in Iridium India Telecom Ltd.'s case (supra), while explaining the construction of non-obstante clause, wherein it is said that 'it is equivalent to saying that in spite of the provisions of the Act or any other Act mentioned, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an impediment for an operation of the enactment'. It is suffice to observe that a non-obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions.

38. Lastly, the learned Counsel Sri. C.C. Thomas would submit that the respondents/Excise authorities have no authority to forfeit the amount deposited by the petitioners as security for the due performance of the contract under Rule 5(10) read with Rule 5(19) of the Rules. In fact a Division Bench of this Court in the case of Vijayabhanu v. State of Kerala : 2006(1)KLT140 , has observed that,

Section 18A of the Abkari Act deals with grant of exclusive or other privilege of manufacture etc., on payment of rentals, which does not confer any power on the Government to forfeit the kist deposited by persons. Section 29(r)(2) however, enables the rule making authority to frame rules for the forfeiture of whole or any portion of the kists deposited by persons who purchase the right to sell toddy, arrack, foreign liquors or ganja notwithstanding the provisions to the contrary contained in the Indian Contract Act, 1972 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. It is in exercise of the powers conferred under Section 18A read with Section 29 of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974 was framed. Right to forfeit the amount is contained only in Rule 5(10), (15), (19), Rule 6(27), (33) and (34). If any person commit any default it is always open to the rule making authority to invoke the above mentioned rules.

In view of the discussion on issue No. 1, this contention of the learned Counsel pales into insignificance.

39. The Apex Court in the case of C.M. Joseph and Ors. v. State of Kerala and Ors. : (2001)10SCC578 , while holding Rule 6(39) of the Rules as a valid piece of legislation was pleased to observe:

When a rule was in existence at the time when the licence was granted to the petitioners, the High Court rightly observed that the petitioners could not be allowed to impugn the same. Also, there is no infirmity in Rule 6(39) of the Abkari Shops (Disposal in Auction) Rules which states that the licensee shall be bound by all the rules which have been passed under the Abkari Act and which may thereafter be made under the Act or in any law relating to abkari revenue.

40. Now, coming to the case laws on which reliance is placed by learned Counsel for the parties, the first one was, the decision of this Court in Bhavani Amma v. State of Kerala 1994 (1) KLT 627. This was a case, where the court was construing Rule 5(14) of the Rules and after a detailed discussion of the various provisions in the Rules, the Court was pleased to observe, that, it is incumbent on the auction officer/Board of Revenue that confirmation or rejection with reasons therefor of the sale requires to be communicated to the auction purchaser in writing as soon as possible. In our view, that does decision would not assist the petitioners in any manner whatsoever.

41. The other decision on which strong reliance was placed is the decision of the Apex Court in the case of Kerala Samsthana Chethu Thozhilali Union v. State of Kerala and Ors. : (2006)IILLJ529SC . In the said decision, what came up for consideration before the Apex Court was Rule 4(2) and Rule 9(10)(b) of the Kerala Abkari Shops Disposal Rules, 2002. By the said provisions, the rule making authority had directed that one arrack worker each must be employed in all toddy shops.

42. The Court while considering the vires of the said rules was pleased to hold that the rules so provided are contrary to the provisions of the Abkari Act, and, therefore, struck down the rules on the ground that the same is beyond the scope of provisions of the Act. In our opinion, the said decision would not assist the petitioners in any manner, whatsoever.

43. In view of the above discussion, we are of opinion that the appeals filed by the State Government requires to be allowed and the original petitions filed by the licensees requires to be rejected.

Accordingly, we give the following: