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Reportabl e

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 128  OF 2013 (Arising out of S.L.P. (C) No. 19133 of 2009)

State of Bihar and Others ...  Appellants

Versus

Nirmal Kumar Gupta ..Respondent  

J U D G M E N T

Dipak Misra, J.

Leave granted.

2. The pivotal  issue that emerges for consideration in  

this appeal is whether the Division Bench of the High  

Court of Judicature at Patna has correctly interpreted  

the effect and impact of the Bihar Excise (Settlement  

of Licences for retail  sale of country/spiced country  

liquor)  Rules,  2004 (for  short  “the Rules”)  and the

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sale  notification  published  by  the  Collector  of  

Kishanganj  in  Excise  Form  127  for  various  excise  

shops in groups in the said district for the year 2006-

07 and the terms of licence.

3.  As the factual matrix would exposit,  the Collector,  

Kishanganj,  got the sale notification in Excise Form  

127 issued for settlement of various excise shops in  

various groups in  the district  of  Kishanganj  for  the  

financial  year  2006-07  which  stipulated  that  the  

settlement  shall  be  made  on  23rd March,  2006  on  

auction-cum-tender  basis  and,  accordingly,  

applications were invited from interested persons.  As  

the  settlement  could  not  be effected  in  respect  of  

group  ‘ka’  shops  in  the  said  district,  the  Collector  

issued a second notification on 17th May, 2006 for the  

said group ‘ka’ which consisted of six country spirit  

shops and three spiced country spirit shops.  On 5th  

June, 2006, the group ‘ka’ excise shops were settled  

in favour of the respondent at a monthly licence fee  

of  Rs.8,29,600/-.   The  respondent  deposited  the  

advance security of Rs.8,29,594/- on 7th June, 2006  

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and further  Rs.8,29,600/-  on 22nd June,  2006.   The  

Collector,  Kishanganj  moved  the  Commissioner  for  

his approval and the same was granted on 1st July,  

2006 in the office of the Collector on 5th July, 2006  

and  on  that  day  itself,  the  licence  was  issued  in  

favour of the respondent-licencee.  It is the case of  

the appellant that as the respondent did not deposit  

the requisite 1/4th amount of the annual licence fee  

as advance security  as prescribed under the Rules  

but did so in three instalments, there was delay in  

obtaining the approval from the Excise Commissioner  

in terms of Rule 17(kha) of the Rules.  Despite the  

delay  in  the  payment  of  the  advance  deposit,  the  

Collector  had  recommended  his  case  for  approval  

and,  eventually,  the  Commissioner  approved  the  

grant of licence in respect of group ‘ka’ shops and,  

ultimately, the licence was issued, as stated earlier,  

on 5th July, 2006.

4. As there was breach of the conditions of the licence,  

a demand was raised for the period commencing 5th  

June,  2006  to  5th July,  2006  by  the  Excise  

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Superintendent,  Araria-cum-Kishanganj  on  27th  

March, 2007.  On receipt of the demand notice, the  

respondent moved the Excise Superintendent on 29th  

April,  2007 asking him to withdraw the demand on  

the  ground  that  he  had  not  utilized  the  privilege  

during  that  period.   Thereafter,  he  challenged  the  

demand notice before the Excise Commissioner, who  

rejected  the  application  vide  order  dated  18th  

September, 2008.  Being grieved by the said order he  

moved the High Court invoking the writ jurisdiction in  

CWJC No. 16577 of 2008.

5. The High Court referred to Rules 16, 17, 20, 22 and  

24 and recorded its opinion in the following manner: -

“That  group  of  shops  have  been  settled  in  favour  of  the  petitioner  in  the  midst of excise year, is not in dispute.  It is  also a fact that on 5th June, 2006, the bid  made  by  the  petitioner  for  group  ‘ka’  excise  shops  of  Kishanganj  District  was  highest  and  accepted  by  the  auctioning  authority by such acceptance is subject to  approval  of  the  Excise  Commissioner.  There  also  does  not  seem  to  be  any  dispute that there was some default on the  part  of  the  petitioner  in  payment  of  the  advance  security  amount.   However,  the  default seems to have been condoned as  despite the said default, his bid dated 5  th    

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June, 2006 was not cancelled and licence  was issued in Form 26C of the Rules on 5  th    July, 2006.  Rules 16 and 17 of the Rules,  when read together, would show that the  final  acceptance  of  the  bid  by  the  auctioning  authority,  by  itself,  does  not  entitle the bidder to get the licence as the  said  bid  has  to  be  accepted  by  the  Commissioner of Excise and only after it is  accepted  by  the  Commissioner,  then the  licence is issued.  In the backdrop of the  aforesaid legal  position,  when we turn to  the facts of the present case, it would be  seen  that  although  highest  bid  of  the  petitioner was accepted on 5th June, 2006  but it was only on 30th June, 2006 that the  Licensing  Authority  recommended  to  the  Commissioner  of  Excise  for  approval  of  settlement  and  it  was  approved  by  the  Excise  Commissioner,  Bihar  on  1st July,  2006  and  after  receipt  of  the  approval  from the Excise Commissioner on 5th July,  2006,  the  licence  was  issued  by  the  Licensing Authority on that date.  Surely, in  the backdrop of the facts that the licence  was issued on 5  th   July, 2006 the petitioner    could  not  have  been  fastened  with  the  liability  to  pay  licence  fee  from 5  th   June,    2006.”

[Underlining is ours]

6. Questioning  the  correctness  of  the  aforesaid  

conclusion,  it  is  submitted  by  Mr.  Gopal  Singh,  

learned counsel for the State of Bihar, that the High  

Court  has  fallen  into  error  by  construing  that  the  

default  has  been  condoned  though  there  is  no  

concept of condonation in such a trade.  It is urged  

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by him that as the requisite advance licence fee was  

not deposited as per the Rules,  the approval could  

not be obtained earlier and hence, the Department,  

not  being  at  fault,  should  not  suffer  the  loss  of  

revenue more so when the licencee had accepted the  

conditions  enumerated  in  the  licence.  That  apart,  

submits  Mr.  Singh,  as  per  the  Rules,  in  such  a  

situation,  the respondent was legally bound to pay  

the licence fee from the date of settlement.

7. Mr.  Shantanu Sagar,  learned counsel  appearing for  

the respondent,  per contra, has submitted that the  

High Court has correctly determined the controversy  

that the liability would be from the date of issue of  

the licence and not earlier than that, for unless the  

licence  is  issued,  he  cannot  trade  in  liquor  and  

further it  cannot be said that the State has parted  

with the exclusive privilege.

8. To appreciate the controversy, it is necessary to refer  

to certain Rules.  Rule 16 of the Rules deals with the  

acceptance of bid or tenders.  It reads as follows: -

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“16. Acceptance of bid or tenders.– (1)  The  Auctioning  Authority  shall  not  be  bound to accept the highest bid or tender  or any bid.  If the highest bid or tender is  not  accepted,  the  licensing  officer  shall  instantaneously declare the date of  fresh  auction, mentioning the reasons.  In such a  circumstance,  the  entire  deposited  advance money will be refunded to those  applicants who do not want to participate  in subsequent auction.

(2) If  the  bid  amount  in  any  auction  is  finally accepted, any subsequent offer with  regard to that bid shall not be considered.  No further negotiation shall be entertained  by  the  Licensing  Authority  or  the  officer  conducting the auction.”

9. Rule  17  of  the  Rules  which  provides  for  final  

acceptance of the bid is as follows: -

“17.  Final acceptance of bid. – (a) The  recommendation  to  grant  exclusive  privilege of retail sale for the shop or group  of shops to the person bidding highest, and  acceptance under Rule 16, shall be sent to  the  Commissioner  of  Excise  by  the  Licensing Officer, and after his acceptance  a licence will be issued.

(b) The amount of highest bid, accepted  will be the annual amount of licence fee.”

10. On a perusal of the aforesaid two Rules,  it  is vivid  

that the Licensing Officer conducting auction accepts  

the bid and,  thereafter,  sends his  recommendation  

for grant of exclusive privilege of retail sale for the  

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shops  or  group of  shops  to  the Commissioner  and  

after  his  acceptance,  the  licence  is  issued.   The  

pertinent  part  of  this  Rule  is  that  the  amount  of  

highest bid accepted would be the annual amount of  

licence fee.

11. Rule 19 provides for payment of advance security in  

the  manner  prescribed  therein.   The  said  Rule  is  

reproduced hereinbelow: -

“19.  Payment  of  Advance  Security. –  After the declaration of acceptance of the  highest  bid  the  Licensing  Authority,  one  fourth,  portion  of  the  annual  licence  fee  shall  be  paid  by  the  highest  bidder  as  advance security in the following manner  for due execution of a contract: -

(a) An amount equivalent to sixth portion  of  annual  licence  fee  shall  be  immediately deposited in cash or in the  form  of  Bank  Draft.   The  amount  of  cash/Bank  Draft  and  that  of  advance  money deposited previously under Rule  11(a) and Rule 11(c) respectively, shall  be  adjusted  in  part  from  security  amount.

(b) The  payable  remaining  amount  on  account of advance security shall  have  to  be  deposited  within  ten  days  of  auction or before commencement of the  licence whichever is earlier.”

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12. On a plain reading of the said Rule, it is manifest that  

the highest  bidder  has to immediately deposit  one  

fourth of the annual licence fee as advance security  

money in the manner provided in sub-clauses (a) and  

(b) of the Rule.

13. Rule  20 deals  with  the consequences of  default  in  

advance security.  It reads as under: -

“20.  Default  in  advance  security. –  In  case  of  failure  to  deposit  the  amount  of  advance security, as mentioned in Rule 19,  within the prescribed time, the settlement  and  the  licence,  if  issued,  shall  stand  cancelled and the deposited amount, if any,  shall  be  forfeited  to  the  Government.   In  such  a  circumstance,  a  re-auction  or  alternative arrangement shall  be made by  the Licensing Authority.”

14. The aforesaid Rule, when properly scrutinized, clearly  

lays  the  postulate  that  if  the  advance  security  

amount is not deposited in accordance with the time  

limit  prescribed under Rule 19,  the settlement and  

the licence, if issued, shall stand cancelled and the  

deposited  sum,  if  any,  shall  be  forfeited  to  the  

Government.   Thus,  there  is  a  distinction  between  

settlement and issue of licence.

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15. Rule  23  deals  with  adjustment/refund  of  advance  

security  amount.   It  stipulates  that  the  security  

amount referred to in Rule 19 shall be refunded at  

the end of the settlement period if all the dues and  

claims of the State Government with regard to the  

auctioned shop or group of shops have already been  

paid by the licencee.

16. Rule 24 deals with the commencement of the period  

of licence.  It is as follows: -

“24.  Commencement of the period of  licence. – A licence issued in favour of any  auction-purchaser  shall  be  effective  from  1st April  of  the  excise  year  unless  the  Licensing Authority orders otherwise.  The  auction-purchaser shall be liable to pay the  bid money from the first day of the licence  period, even if the licence has been issued  thereafter.

Provided that if any shop or a group  of shops is settled in the midst of the  excise  year,  the  licence  shall  commence  from  the  date  of  settlement of the shop or the group of  shops.

The  Licensing  Authority  shall  mention  details of the shops/licences to be settled  and annual minimum guaranteed quantity  to be lifted under those licences and the  reserved  fee  thereof,  in  the  sale  notification for every excise year.”

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17. The  said  Rule  has  to  be  carefully  x-rayed  and  

understood.   It  clearly  lays  down  that  the  licence  

shall be effective from 1st April of the excise year and  

the auction-purchaser shall be liable to pay the bid  

money from the first day of the licence period, even  

if the licence has been issued thereafter.  The proviso  

further stipulates that if any shop or a group of shops  

is settled in the midst of the excise year, the licence  

shall commence from the date of settlement of the  

shop or the group of shops.

18. The High Court,  interpreting the Rule  position,  has  

opined that the shops were settled in favour of the  

respondent in the midst of the year, i.e., on 5th June,  

2006,  and after  obtaining the  approval  on  1st July,  

2006 from the Excise Commissioner, the licence was  

issued by the Licensing Authority on 5th July, 2006,  

and,  therefore,  the  demand  of  licence  fee  for  the  

period  from 5th June,  2006  to  5th July,  2006 is  not  

sustainable.

19. As the factual matrix would reveal, the notification in  

Form No. 127 was issued on 23rd March, 2006.  The  

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terms  and  conditions  of  the  settlement  of  excise  

shops were duly incorporated in the sale notification  

and  as  per  Rule  8,  the  terms  and  conditions  

mentioned  in  the  notification  are  deemed  to  be  

included in the conditions of the licence.  As per the  

first  notification,  all  the  three  country  spirit  shops  

could not be settled and further steps were taken for  

settlement and, eventually, the bid of the respondent  

was  accepted  on  5th June,  2006  with  the  annual  

licence fee of Rs.99,55,200/- or at a monthly fee of  

Rs.8,29,600/-.  The respondent was required to pay  

1/4th of  the annual  licence fee as advance security  

money but he failed to do so in time.  He deposited  

the requisite amount in three instalments, i.e.,  first  

on  7th June,  2006,  second  on  22nd June,  2006  and  

third on 17th July, 2006.  As per Rule 19(a), he was  

required to deposit 1/6th portion of the annual licence  

fee immediately in cash or in the form of bank draft.  

The remaining amount of advance security was to be  

deposited within ten days of the auction or before the  

commencement of the licence.  Thus, the respondent  

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failed to comply with the said Rule.   However,  the  

Collector recommended his case on 30th June, 2006  

which was accepted on 1st July, 2006 and the licence  

was issued on 5th July, 2006.  It is worthy to note that  

thereafter,  demand  notice  of  Rs.16,03,893/-  was  

issued  by  the  Excise  Superintendent.   The  

Commissioner  took  note  of  the  fact  that  out  of  

Rs.74,36,071/-, the licencee had paid Rs.66,36,794/-  

and, hence, a sum of Rs.7,99,277/- remained to be  

paid.  Be it noted, on 3rd March, 2007, the licence was  

cancelled for breach of other conditions and in the  

present  case,  we  are  not  concerned  with  those  

conditions,  for  the  controversy   in  praesenti  only  

relates to the demand commencing 5th June, 2006 to  

5th July, 2006.

20. The High Court  has  opined that  the State had not  

parted with the exclusive privilege till the licence was  

issued.  Under Rule 24, a licence issued in favour of  

the auction-purchaser is effective from 1st April of the  

excise  year  unless  the  Licensing  Authority  orders  

otherwise and the auction purchaser is liable to pay  

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the bid money from the first day of the licence period  

even if the licence has been issued thereafter.  That  

apart, he is supposed to pay the licence fee from the  

commencement  of  the  settlement  period  and  the  

licence commences from the date of the settlement.  

In the case at hand, it was settled on 5th June, 2006.  

The  licence  was  issued  on  5th July,  2006.   The  

principle  of  condonation of  default  has  been taken  

recourse to by the High Court on the foundation that  

despite  default  in  making  deposit  of  advance  

security, the licensing officer recommended his case  

for  approval  to  the  Commissioner  of  Excise.   The  

default,  as we perceive, comes into play if  there is  

violation  of  Rule  19  which  stipulates  for  advance  

security.  There is no dispute over the fact that there  

was delay.  The respondent was clearly responsible  

for  the  same.   The  licensing  officer  thought  it  

appropriate to recommend his case and the Excise  

Commissioner did approve it  and on receipt of the  

approval,  the licence was issued on the same day.  

The respondent  accepted the licence knowing fully  

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well the terms and conditions of the licence and that  

he has to pay the licence fee from the date of the  

settlement.

21. At this juncture, we may usefully address to the issue  

whether  in  a  case  of  this  nature,  the  principle  of  

condonation  of  default  by  way  of  conduct  can  be  

attracted.  First of all, under the Rules, the authorities  

are  entitled  to  forfeit  the  amount  deposited  when  

there  is  non-compliance  of  the  Rules.   It  is  to  be  

borne in mind that the nature of the trade has also its  

own significance.  In  Amar Chandra Chakraborty  

v.  The  Collector  of  Excise,  Govt.  of  Tripura,  

Agartala and others1, this Court held thus: -

“Trade  or  business  in  country  liquor  has  from its  inherent nature been treated by  the  State  and  the  society  as  a  special  category requiring legislative control which  has  been  in  force  in  the  whole  of  India  since  several  decades.   In  view  of  the  injurious  effect  of  excessive  consumption  of liquor on health this trade or business  must be treated as a class by itself and it  cannot  be  treated on  the  same basis  as  other trades while considering Article 14.”

1 AIR 1972 SC 1863

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22. In the case of Nashirwar etc. v. State of Madhya  

Pradesh and Others2,  this  Court  opined that  the  

State  has  the  exclusive  right  or  privilege  in  

manufacturing and selling of liquor and a citizen has  

no fundamental right to do business in liquor.  It has  

been further ruled that it is within the police power of  

the  State  to  enforce  public  morality  by  prohibiting  

trade in noxious or dangerous goods.

23. In  Har Shandar and Others etc.  v.  The Deputy  

Excise and Taxation Commissioner and others  

etc.3,  the  Constitution  Bench  reiterated  the  

principles  that  there is  no fundamental  right  to  do  

trade or business in intoxicant and the State has the  

authority to prohibit every form of activity in relation  

to intoxicant including manufacture, storage, export,  

import,  sale and possession.   It  has also been laid  

down that a wider right to prohibit absolutely would  

include  the  narrower  right  to  permit  dealings  in  

intoxicants in  such terms of  general  application as  

the State deems expedient.

2 AIR 1975 SC 360 3 AIR 1975 SC 1121

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24. In  State  of  M.P.  and  others  etc.  v.  Nandlal  

Jaiswal  and  others  etc.4, this  Court  held  that  

trading in liquor is inherently punitive in nature.

25. In  M/s.  Khoday  Distilleries  Ltd.  v.  State  of  

Karnataka5, the Constitution Bench has ruled that  

the right to carry on occupation,  trade or business  

does not extend to trade or business or any activities  

which  are  injurious  and against  the  welfare  of  the  

general public.  It is further held therein that a citizen  

has no fundamental right to do business in intoxicant  

as liquor.

26. In  M/s.  Ugar  Sugar  Works  Ltd.  v.  Delhi  

Administration and others6, this Court reiterated  

the said principle and emphasized on the regulatory  

powers of the State.

27. In  State of M.P.  and Ors.  etc.  etc.  v.  Nandlal   

Jaiswal  and Ors.  etc. etc.7,  a  two-Judge Bench,  while  

expressing the view that Article 14 of the Constitution is  

attracted  to  grant  of  exclusive  right  or  privilege  for  4 AIR 1987 SC 251 5 (1995) 1 SCC 574 6 AIR 2001 SC 1447 7 AIR 1987 SC 251

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manufacture  and sale  of  liquor  as  it  involves  the  State  

largesse, has stated thus:-

“33.  But,  while  considering  the  applicability of Article 14 in such a case,  we  must  bear  in  mind  that,  having  regard  to  the  nature  of  the  trade  or  business,  the  Court  would  be  slow  to  interfere  with  the  policy  laid  down  by  the  State  Government  for  grant  of  licences  for  manufacture  and  sale  of  liquor.  The Court would, in view of the  inherently  pernicious  nature  of  the  commodity  allow  a  large  measure  of  latitude  to  the  State  Government  in  determining  its  policy  of  regulating,  manufacture  and  trade  in  liquor.  Moreover,  the  grant  of  licences  for  manufacture  and  sale  of  liquor  would  essentially  be  a  matter  of  economic  policy where the Court would hesitate to  intervene  and  strike  down  what  the  State  Government  had  done,  unless  it  appears to be plainly arbitrary, irrational  or mala fide.”

[emphasis supplied]

28. In  P.N. Krishna Lal and Ors. v. Govt. of Kerala  

and Anr.8, the Court expressed thus:-

“28....dealing  in  liquor  inherently  pernicious  or  dangerous  goods  which  endangers the community or subversive  of  morale,  is  within  the  legislative  competence  under  the  Act.  The  State  has thereby the power to prohibit trade  

8 1995 Supp (2) SCC 187

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or  business  which  is  injurious  to  the  health and welfare of the public and the  elimination  and  exclusion  from  the  business  is  inherent  in  the  nature  of  liquor  business.  The  power  of  the  legislature to evolve the policy and its  competence  to  raise  presumptive  evidence should be considered from this  scenario.”

[emphasis supplied]

29. In Secretary to Govt., Tamil Nadu and Anr. v. K.   

Vinayagamurthy9, it has been held as follows:

“7....So  far  as  the  trade  in  noxious  or  dangerous  goods  are  concerned,  no  citizen  can  claim to  have trade in  the  same and the intoxicating liquor being a  noxious  material,  no  citizen  can  claim  any  inherent  right  to  sell  intoxicating  liquor by retail. It cannot be claimed as  a privilege of a citizen of a State. That  being the position, any restriction which  the  State  brings  forth,  must  be  a  reasonable  restriction  within  the  meaning  of  Article  19(6)  and  reasonableness of the restriction would  differ  from trade to trade and no hard  and fast rule concerning all  trades can  be laid down....”

30. In  State of Punjab and Anr. v. Devans Modern  

Breweries Ltd. and Anr.10,  it  has been reiterated that  

trade  in  liquor  is  considered  inherently  noxious  and  

pernicious. 9 AIR 2002 SC 2968 10 (2004) 11 SCC 26

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31. We  have  referred  to  the  aforesaid  decisions  to  

accentuate the nature of the trade, the role of the State,  

the economic concept of the policy, limited attractability  

of Article 14 of the Constitution as regards the legislation  

or  policy,  the  restriction  inherent  in  the  policy  and  the  

duty of the court.  On the aforesaid touchstone, we are  

required to see whether the doctrine of condonation by  

conduct, especially in the present case, could have been  

taken recourse to by the High Court.  The respondent had  

availed the benefit of the licence being fully aware of the  

Rules,  notification  and  the  terms  incorporated  in  the  

licence.  The Rules provide that he has to pay from the  

date of  the settlement  and in  this  case,  the settlement  

took place on 5th June, 2006.  In view of what has been  

engrafted in the Rules, there cannot be any trace of doubt  

that  the  respondent  has  to  be  made  liable  to  pay  the  

licence fee from the date of the settlement.  There could  

not have been condonation of default.  Such a concept is  

alien to the present nature of trade and a licencee cannot  

claim any benefit under the same as the whole thing is  

governed by the command of the Rules.  That apart, we  

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are unable to subscribe to the interpretation placed by the  

High Court that the auction-purchaser is liable to pay from  

the date of issuance of licence but not from the date of  

the settlement as that runs counter to the plain language  

of Rule 24.  Reading the Rules in a comprehensive manner  

in juxtaposition with the notification which forms the terms  

and conditions of the licence and the nature of the trade,  

the irresistible conclusion is that the liability accrued from  

the date of the settlement and, therefore, we find that the  

order  passed by the  Excise Commissioner  was just  and  

proper and there was no warrant on the part of the High  

Court to interfere with the same.

32. Consequently,  the  appeal  is  allowed,  the  order  

passed  by  the  High  Court  is  set  aside  and  that  of  the  

Excise Commissioner is restored.  The parties shall  bear  

their respective costs.

……………………………….J. [K. S. Radhakrishnan]

……………………………….J.                                            [Dipak Misra]

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New Delhi; January 08, 2013

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