Hans Raj Ghai and Others vs The Lt. Governor and Others

S. Ravindra Bhat, J.—In these petitions under Article 226 of the Constitution, several reliefs were claimed, including validity of rules framed by the respondents. However, during proceedings, the challenge to legal provisions were given up and the petitioners confined their attack to the orders issued by the respondents on 25.7.1977, 27.7.1997 (in W.P.(C) 551/1977) and to the orders dated 17.2.1978, 14.3.1978 in the second petition (W.P.(C) 453/1978). The facts necessary to decide the cases are that the petitioners'' firm (hereafter referred to as "the firm"; its original partners having died during the pendency of the proceedings; their legal representatives being impleaded in the present cases) had successfully bid in auction held on 30.3.1977, by the respondent Excise Authorities for a liquor shop in Hari Nagar Ashram, New Delhi. The petitioners bid Rs. 31 lakhs. On 2.4.1977, the L-10 licence to vend liquor was issued to the firm. The licence, a copy of which is part of the record, also incorporated the conditions for auction which stipulated that the successful bidder had to furnish Rs. 1 lakh as security for the due observance of the licence. Under Clause 13(a), the bidder had to pay 1/10th of the bid money on the spot and the balance in 10 instalments, payable by 7th of every month following the opening of shop. The conditions also stipulated that in case of default of such payment, the licence could be re-sold and if the price in the subsequent bid was lower, the balance or difference would be recovered from the original bidder. Clause 14(a) empowered the Government to impose penalty in addition to cancellation in the event of default in the payment of monthly instalment. Clause 18(ii) prescribed that the successful bidder had to open the shop within a week of issuance of licence and that failure to do so would result in forfeiture of the advance deposit. The bidder was responsible for damages or loss of revenue to the Government.

The petitioners claim that still head duty (excise duty component of the fixed retail sale price of certain quantity of liquor) was increased on 6.4.1977 within a week of the issuance of licence; it reduced the profit margin assured by the respondent, at the time of auction. It is also alleged that on 16.5.1977, the existing timings were altered, to the petitioners'' disadvantage. They allege that in the first week after grant of licence for five days, respondents did not supply liquor to the outlet for sale though they were bound to do so. In addition, it is alleged that the respondents did not permit the petitioners to charge sales tax from the customers.

It is claimed by the petitioners that the condition could not have been altered by the respondents. Having induced the firm to first place a high bid on the basis of existing circumstances they could not have unilaterally changed material conditions such as timings and imposed additional burdens in the form of duties etc. The petitioners claim that after acceptance of their bid, they remitted Rs. 4.1 lakhs which included surety and 10% of the total bid amount. The petitioners rely upon a legal notice issued on 1.7.1977 to the respondents which outlined various defaults allegedly committed by the latter. It is claimed that in this background, the respondents issued a show cause noticed dated 27.7.1977 requiring explanation from the petitioner, why the licence should not to be cancelled due to their failure to pay Rs. 5,68,473/-, the licence fee due and payable. The petitioners replied on 1.8.1977 refuting their liability and alleging, in turn, that the respondents were liable for damages. On the strength of these averments, this Court was approached when on 8.8.1977, the execution of notices of demand, pursuant to the show cause notice, were stayed. Later, on 5.9.1977 the Court observed that since the respondents'' interests were secured to the extent of Rs. 4.1 lakhs and also that the petitioners had deposited an amount of Rs. 2,29,000/- as licence fee, the demand made should be stayed till final recovery was allowed by Court. That interim order subsists and continues to bind the parties.

The petitioners were later permitted to amend the W.P.(C) 551/1977 and challenge an order dated 8.2.1978. The amendment was permitted on 26.4.1979, when the Court noticed that the amount deposited and the security offered, protected interests of the revenue/respondent, which by then were alleged to be to the tune of Rs. 26,48,622.25.

The cancellation of licence and imposition of liability by the petitioners, of the later orders is attacked as arbitrary and unreasonable, in the second writ petition. They contend that having been induced to place a high bid, on the basis of prevalent conditions, on 31.3.1977, the respondents should not have changed the circumstances so radically as to make the vend unviable. It is alleged that the increase in still head duty and change in timings drastically altered conditions on which the unit had been awarded. Had the petitioner been aware about such impending changes, such a high bid of Rs. 31 lakhs, for the duration of licence would not have been placed; it may not even have been interested to bid for the vend. It is contended that the conditions of contract between the parties have to be construed fairly and reasonably. So viewed, the law prescribes in proviso to Section 44 of the Punjab Excise Act, 1914, (referred to as "the Act", as applicable to the Union Territory of Delhi), that the licence fee or a part of it can be suitably waived.

It is contended that every conceivable obstruction in the smooth functioning of the vend was created by the respondents. These included irregular supplies to the outlet by the respondents as well as permission for the opening of another vend in the vicinity which resulted in the petitioners'' unit ultimately losing out business. All these circumstances were detailed in the legal notice dated 1.7.1977 and in the reply to the show cause notice furnished on 6.8.1977. Nevertheless, the respondents, in a highly arbitrary manner went ahead to cancel the unit and further impose penalty in an unreasonable and illegal manner. It is averred that the petitioners had asked the respondents to take over the shop by the end of June 1977 due to the changed circumstances and in the absence of any action, they handed over the keys to the Excise Authorities, by dispatching it through registered post, on 30th June, 1977. This was received by the Collector on 2nd June, 1977. It is contended that in these circumstances, at best, the respondents could only have claimed proportionate value of the unit and not the entire licence fee which had been bid i.e. 31 lakhs.

It is contended that after the surrender of shop on 30th June, 1977, no further liabilities could be imposed on the petitioner, by the respondents. The petitioners further rely on Section 39 of the Act and contend that the authority to recover licence fee is not compulsive but is only discretionary. Discretion has to be exercised in a reasonable, and not in an arbitrary manner. It is lastly contended that the respondents cannot claim the amounts by virtue of the later orders, particularly, 14.3.1978 since they were not put to any loss or disadvantage and that it was always open to them to let out the unit or auction it for the balance period.

The respondents in their reply contend that the petitioners from inception defaulted in the payment of licence fee. Though fee was payable by the first week of April, 1977, they did not deposit it and asked permission to pay it in several instalments which was acceded to, as a concession by the respondents. The petitioners also defaulted in payment of licence for May 1977 and sought extension on 19th June, 1977 to pay it upto 30th June, 1977. This too was conceded by the Commissioner. The Respondents allege that 30th June and 1st July, 1977 were dry days. On 2nd July, 1977, the concerned Excise Inspector informed the respondents that the petitioners'' outlet had been abandoned. Later, the petitioners removed their goods from the premises.

The Respondents contend that no licensee can surrender his licence without first issuing one month''s notice, in writing to the Collector, by virtue of the Section 44 of the Act. The closure of the vend by the petitioners, therefore, was illegal and amounted to its abandonment. Consequently, they were liable to pay the fee for the entire year, in accordance with the terms and conditions of their bid.

It is contended that pursuant to leave granted by this Court, the Collector of Excise by his order dated 8th February, 1978, held the petitioners were liable to pay Rs. 6,14,508/- towards licence fee and interest upto 30th June, 1977. He had also imposed penalty of Rs. 25,000/- for wilful desertion and abandonment of the liquor vend. The respondents refute the petitioner''s contentions that it permitted to vend the liquor to be run at Badarpur.

It is alleged that at the time of auction, the retail sale price per bottle was Rs. 10/- including excise duty. The respondents allege at the time auction the bidders were notified that the rates on duty were likely to be revised even though the final amounts had not been announced due to the absence of a formal notification. The respondents deny any assurance to the petitioners that the country liquor shop for Kalkaji Police Station would be at Badarpur. It is claimed that the bid offered by the petitioners was voluntary and without any kind of inducement.

The respondents aver that the impugned action is justified in law since the petitioners did not comply with the terms of the licence and failed to give the requisite notice. They contend that the writ petitions should therefore be dismissed.

Mr. V.P. Singh, learned counsel submitted that the respondents were bound to act fairly and reasonably but did not do so. The petitioner was led to believe that timings for the liquor vend would be continued as it was, and that the existing level of taxes and excise duties too would be maintained. Also, the petitioner submitted its bid on the understanding that no other liquor shop would be opened in the vicinity. However, all this understanding was not honored; as a result the unit became unprofitable right from the beginning. The high bid of Rs. 31 lakhs placed was on the prevailing conditions; if they were changed, to the petitioner''s disadvantage, it was within its rights in seeking to rescind the contract.

Learned counsel submitted that though called a license, the arrangement between the parties was contractual. The conditions, spelt out in the terms annexed to the license, enabled the licensee such as petitioner to cancel the arrangement, if the circumstances radically altered. Even Section 44 visualized such a situation. In these circumstances, the impugned decisions of the respondents, cancelling the license, and seeking to recover the entire value of the bid, was not only unfair, but entirely unreasonable. Counsel contended that permitting the respondents to use their coercive powers and recover the amounts, adjudicated unilaterally by them as arrears of land revenue, would be unconscionable, and highhanded.

It was submitted that the question of recovering any amounts from the petitioner would have arisen if the respondents had incurred any loss as a result of the petitioner''s action, in issuing legal notice and terminating the agreement. The petitioner had paid proportionate value of the bid; it had not been able to work the license for any reasonable or substantial period. If the respondents were so minded, and if public interest had required, they would have taken steps to re-auction the license for the balance period. It was contended, in this context that being a species of contract, the respondents were under an obligation to mitigate their losses, assuming (though not admitting) that they had incurred any. Counsel for the petitioner relied on the principles underlying Section 73 of the Contract Act.

Learned counsel relied on the judgments of the Punjab and Haryana High Court, in Brij Lal Sham Lal & Co. vs. State of Punjab CWP No. 1942/1969 and M/s Lal Chand Amrit Lal vs. State of Punjab CWP 585/1969 and submitted that Section 38 merely enacts the procedure for recovery of the license fee and confers discretion to the authority to recover the balance license fee from an ex-licensee whose license is cancelled. It was further contended that these judgments have also ruled that the arrangement is hybrid, being both statutory and contractual. It is submitted that even though Section 44 provides for notice and recovery of license fee, the authorities are under obligation to apply the mind to facts of each case, and decide first whether the discretion under the proviso, for waiver of the fee, should be appropriately exercised in a given case. These procedures were not followed; the impugned orders are, it is contended, arbitrary and illegal.

Ms. Avnish Ahlawat, learned counsel, submitted that the writ petitions do not merit consideration and should be dismissed. According to her, once the petitioner bid for the vend, he was bound to proceed and continue with it; he could not have abandoned the unit. Counsel submitted that though seemingly contractual, public interest considerations weigh with excise authorities in awarding such contracts. It was contended that the nature of liquor or alcoholic beverages permitted to be sold in such outlets is ensured for its quality; the outlet has to be maintained, to regulate supply of liquor. If the auction purchaser is unable to continue with the vend, the possibility of consumers turning to unauthorized sources and becoming prey to spurious liquor is quite real. Therefore, the auction purchaser or licensee has to continue operating the unit, for the duration of the license. This is ensured through imposition of penalty and recovery of amounts, working out to the balance of amount due to the excise authorities. In this case, the petitioner was unable to pay even the first few instalments; he sought extension. The respondents granted it, which clearly shows their bona fides and that they were willing to extend concessions to the petitioner. The latter, however did not chose to continue with the contract, citing flimsy grounds.

Learned counsel submitted that assuming though not admitting that a new vend was indeed opened as alleged by the petitioner, that could not enable him to back out of a binding contract. It was submitted that the petitioner cannot plead that the increase in revenue or excise duty constituted a substantial change in the circumstances, justifying his abandonment of the contract. He was no worse off than others who had bid in the auction. His not even paying any installment, after confirmation of the auction, was unacceptable.

Learned counsel placed reliance on the judgment of the Supreme Court, in State of Haryana and Others Vs. Lal Chand and Others, . It was submitted that payment of the instalments on the due dates was a condition for the performance of the contract, and that failure of the petitioner to make such payments relieved the respondent of its obligations. The action in assessing the amounts was therefore neither arbitrary nor mala fide; it was within the bounds of the powers conferred on the executive authorities under law. The petitioner could not, therefore complain to be aggrieved on this score.

It was submitted that there was no material on record to suggest that the petitioners were ever given any assurance that the excise or taxation levels would be retained at the same levels throughout the year, or that other powers under the rules, in so far as opening of vends would not be used, or that others could not open them. Similarly, change of timings could not be cited as a legitimate ground for attacking the impugned order. Having agreed to abide by the terms the petitioner behaved in an utterly irresponsible manner, in running away from the site. The authorities acted reasonably in invoking their powers under the Act and rules; the question of any mitigation by them did not arise.

The operative part of the order dated 8-2-77, which culminated in the first show cause notice, issued in July, 1977, reads as follows:

This sudden closure of the vend is, therefore, a case one authorised abandonment of the liquor vend and the respondents are liable for the consequences. u/s 44 of the Punjab Excise Act, 1914, it is provided that "no licensee shall surrender his licence except on the expiry of one month notice in writing given to the Collector of his intention to surrender the same and on demand of the fee payable for the licence for the whole period for which it would have been current but for the surrender." The respondents, therefore, clearly contravened section 44 of the Punjab Excise Act and were liable for the consequences u/s 36 and 39 of the Punjab Excise Act. The respondents did not claim any compensation for their alleged losses. On the contrary the respondents made an application on 19.6.1977 seeking extension of time for payment of their licence fees for the month of June. 1977. This extension was granted by the Excise Commissioner on 20-6-77. The application made in this regard is Ex. PW 1/D and the order of the Excise Commissioner is Ex. PW 1/E. The respondents instead of taking advantage of this extension of time, abandoned the vend altogether causing thereby loss of revenue to the Department and inconvenience to the liquor consuming population of the locality. The notice dated 27-7-77 was, therefore, legally valid and in view of the facts stated above the licence issued to the respondents is liable to cancellation. But in view of the fact that the licensee had already abandoned the vend and their business, cancellation of licence will at best be an action on the paper only.

I, therefore, in exercise of the powers u/s 36 of the Punjab Excise Act read with Sections 60 and 80 of the said Act hereby order that the licensee shall pay a sum of Rs. 6,14,508/-towards licence fee upto 30th June, 1977 as arrears of land revenue u/s 60 of the Punjab Excise Act and further impose a fine of Rs. 25,000/- on the respondents for wilful desertion and abandonment of the country liquor vend in violation of the terms and conditions for the grant of the licence and Section 44 of the Punjab Excise Act.

The order challenged in the second petition, i.e dated 14-3-1978 (pursuant to the show cause notice dated 17-2-1978) is an ex parte order. The material part of that order is in the following terms:

I have considered these objections and I am of opinion that the stay order granted by the High Court on staying the recovery of the amount indicated in the show cause notice dated 27-7-77 has nothing to do with the present proceedings. In that case the High Court passed an order staying the recovery of the dues payable up to 30th of June 1977. The petitioner only challenged the show cause notice issued on 27-7-77. The prayers of the respondents are also to stay the recovery shown in the show cause notice. The stay order of the court cannot go beyond the relief claimed by the respondents. I am. therefore, of the opinion that in this case proceedings against the respondents can be taken independently and separately. As regards the other pleas taken by the respondents, in their replies it was for the respondents to prove that the alleged changes in the terms and conditions were illegal and invalid. Since they have elected not to appear before me and lead evidence, no findings on these pleas can be given. However going through the records of this case I find that the enhancement of Excise duty and increase in the number of dry days are subject matters of writ petitions in the High Court and it is also evident from the terms and conditions that the Excise Department retained the right to change the terms and conditions and this was made known to the respondents at the time of auction.

From the statement of Shri. M.L. Narula, it is evident that a sum of Rs. 26,48,622.25 np is recoverable as dues from the respondents up to 6 February 1978. A detailed order was passed against the respondents on 8-2-78 holding them liable to pay the amount of licence fee plus interest for the period up to the 30th of June 1977. The circumstances of that case and reasons even in that case for the recovery of the amount from the respondents are equally applicable to the present case. The order dated 8-2-78 be read as part of this order.

I, therefore hold the respondents guilty of breach of Section 44 of the Punjab Excise Act, and, therefore, liable to pay a sum of Rs. 26,48,622.25 to the Excise Department for the period from first of July, 1978 and this amount be recovered as arrears of land revenue from the licensee.

The relevant provisions of the Punjab Excise Act are extracted below:

Sec. 36. Power to cancel or suspend licenses etc.

Subject to such restrictions as the (Lieutenant Governor) of Delhi may prescribe, the Authority granting any licence, permit or pass under this Act may cancel or suspend it-

(a) if it is transferred or sublet by the holder thereof without the permission of the said authority; or

(b) if any duty or fee payable by the holder thereof be not duly paid; or

(c) in the event of any breach by the holder of such licence, permit or pass or by his servants, or by any one acting on his behalf with his express or implied per mission of any of the terms or conditions of such licence, permit or pass; or

(d) if the holder thereof is convicted of any offence punishable under this Act or any other law for the time being in force relating to revenue, or for any cognizable and non-bailable offence, or any offence punishable under the (Dangerous Drugs Act 1930) or under the (Merchandise Marks Act, 1889) or of any offence punishable under Sections 482 to 489 (both inclusive) of the Indian Penal Code, 1860.

(e) if the holder thereof is punished for any offence referred to in clause (8) of Section 167 of the Sea Customs Act, 1878.

(f) where a licence, permit or pass has been granted on the application of the grantee of a lease under this Act, on the requisition in writing of such grantee; or

(g) at will, if the conditions of the licence or permit provide for such cancellation or suspension.

Sec. 38. Power to recover fee.

In the case of cancellation or suspension of licence under clause (a), (b), (c), (d) or (e) of Section 36, the fee payable for the balance of the period for which any licence would have been current but for such cancellation or suspension, may be recovered from the ex-licensee as excise revenue.

Sec. 39. Power of Collector to take grants under management or to resell.

If any holder of a licence granted under this Act, or any person to whom a lease has been granted u/s 27, makes default in complying with any condition imposed upon him by such licence or lease, the Collector may take the grant under management at the risk of the person who has so defaulted or may resell it and recover in the manner laid down in Section 60 of this Act any deficiency in price and all expenses of such resale.

Sec. 44. Surrender of licence.

(1) No holder of a licence under this Act to sell any (intoxicant) shall surrender his licence except on the expiration of one month''s notice in writing given by him to the Collector of his intention to surrender the same and on payment of the fee payable for the licence for the whole period for which it would have been current but for the surrender:

Provided that, if the Collector is satisfied that there is sufficient reason for surrendering the licence, he may remit to the holder thereof the sum so payable on surrender or any portion thereof.

(2) Sub-section (1) shall not apply in the case of any licence granted u/s 27(2).

Explanation:- The words ''holder of a Licence'' as used in this Section include a person whose tender bid for a licence has been accepted, although he may not actually have received the licence.

The facts may briefly be noticed as follows:

(1) The petitioner firm successfully bid in a liquor auction, for the vend, in March, 1977. The price was Rs. 31 lakhs; as bid money it paid ten per cent of the amount, and the balance was payable in equal instalments, on the seventh of each month.

(2) Possession of the vend was taken over by the petitioner. It defaulted in paying the instalments for May and June, 1977. Its request for extension of time, in that regard was acceded to by the respondent.

(3) The petitioner sent keys of the premises, housing the vend, to the respondent, on 30-6-1977. Contemporaneously, it also caused counsel''s notice to be issued to the excise department alleging that increase in still head duty, change in dry days and opening of another vend had made its business unprofitable. According to the respondents, this action amounted to abandonment of the license, warranting recovery and penal proceedings. It issued a show cause notice for the purpose.

(4) The petitioner firm approached this court, with the first petition. The court granted an ad-interim order. Later, the show cause notice proceedings culminated in the order dated 8-2-1977, which imposed penalty and recovery of the license for the period till the end of June, 1977. That is the subject matter of the amended first writ petition.

(5) The respondents issued a show cause notice on 17-2-1978 for recovering the of a sum of Rs. 26.48, 622.25, to which the petitioner replied. This demand was confirmed by an ex-parte order on 14-3-1978. This is the subject matter of the second writ petition.

The question which this court has to consider, in the background of the above facts, is whether the impugned orders are arbitrary and unreasonable.

It is now well settled that no one has a right to trade in liquor or intoxicants. (See Khoday Distilleries Ltd. and Others Vs. State of Karnataka and Others, Har Shankar and Others Vs. The Dy. Excise and Taxation Commr. and Others, P.N. Kaushal vs. Union of India AIR 1978 SC 1457). Such activities do not enjoy the protection of Article 19(1)(g) of the Constitution and are regarded as "res extra commercium". Therefore, the petitioners cannot complain of violation of that right. However the question nevertheless is whether the action in seeking recovery of the two amounts, i.e. Rs. 6,14,508 and Rs. 26,48,622.25 is arbitrary as being contrary to Article 14 of the Constitution of India.

Lal Chand (supra) was a case where the auction purchaser of a liquor vend, under the same enactment, i.e the Punjab Excise Act. successfully bid and was granted the license. He bid Rs. 10,11,000/- which was accepted. The bidder defaulted in the conditions; the vend had to be auctioned again barely two months later. The State sought to recover Rs. 3.46 lakhs, which was questioned in writ proceedings. The High Court allowed the petitions. The Supreme Court reversed its findings, and held as follows:

The announcement of conditions governing the auctions was in the nature of an invitation to an offer to those who were interested in the sale of country liquor. The bids given in the auctions were offers made by the prospective vendors to the Government. The Government''s acceptance of those bids was the acceptance of willing offers made to it. On such acceptance, the contract between the bidders ad the Government became concluded and a binding agreement came into existence between them. The powers of the Financial Commissioner to grant liquor licences by auction and to collect licence fees through the medium of auctions cannot by writ petitions be questioned by those who had their venture succeeded, would have relied upon those very powers to found legal claim. Reciprocal rights and obligations arising out of contract do not depend for their enforceability upon whether a contracting party finds it prudent to abide by the terms of the contract. By such a test no contract could ever have a binding force.

To the same effect are the decisions of this Court in State of Haryana. vs. Jage Ram and the State of Punjab vs. Dial Chand Gian Chand & Co. laying down that persons who offer their bids at an auction to vend country liquor with full knowledge of the terms and conditions attaching thereto, cannot be permitted to wriggle out of the contractual obligations arising out of the acceptance of their bids by a petition under Article 226 of the Constitution.

It therefore follows that payment of the instalments on the due dates was a condition prerequisite to the performance of the contract, and that the failure of the respondents to make such payments relieved the State Government of their obligations. The Excise and Taxation Commissioner would therefore have been justified if he had cancelled the licence under Rule 36(23) and put the liquor vend to reauction for the remaining period of the financial year. Instead of taking this drastic step of cancellation of contract, the Deputy Excise and Taxation Commissioner served the respondents with the impugned notice of demand for payment of the first fortnightly instalment of Rs. 13,000. The respondents were bound to pay the defaulted instalment on the due date but without complying with the notice of demand moved the High Court under Article 226 of the Constitution challenging the demand on the ground that the licence fee partakes of the nature of an excise duty. As already stated, the High Court following its decision in Kanhiya Lal case struck down the notice of demand. The result has been that the respondents enjoyed the privilege of retail vend of country liquor, Butana for the entire period without payment of any licence fee. On merits, learned counsel appearing for the respondents had nothing to urge against the impugned notice of demand.

The court had also overruled the contention that the arrangement amounted to an executive order; it held that the contract was a statutory one not governed by Article 299 of the Constitution of India. In an earlier decision, reported as A. Damodaran and Another Vs. State of Kerala and Others, the Supreme Court had to deal with a fact-situation where the licensee alleged that, like in the present case, a change in policy occurred on 1st April, of the concerned year, leading to heavy losses. It therefore sought an order from the court, to relieve it from paying amounts for the balance period of the license. The Supreme Court, affirming the High Court''s decision to dismiss the petition, underlined the obligations of a liquor vend license as follows:

The appellants became entitled to get licenses from the Government which had to perform its duty to execute written agreements and grant licenses as soon as the appellants fulfilled required conditions by paying up the remainder of the amounts due. The Government had performed its part of the bargain and even allowed the appellants to start selling liquor. The appellants also became liable and bound to perform their corresponding obligations under the conditions of the auctions imposed in pursuance of statutory provisions. This reciprocity of obligations, quite apart from its basis in agreement, had thus acquired an operative force resting on statutory sanction and equity.

The insistence of the State authorities, therefore, that the termination of license in this case amounted premature cancellation, without following the statutory preconditions and in violation of the terms and conditions, therefore can no longer be faulted as arbitrary. Its concern that the liquor consuming public, in such cases, would have been exposed to hazards of spurious or adulterated liquor, too cannot be lightly brushed aside. Nor can the argument of promissory estoppel be seriously argued in the facts of this case. No material, apart from the pleadings and contents of the notice were disclosed to the court about the nature of representation by the state (about retaining the still head excise duty at the same levels throughout the year, or that the number of dry days would be unvaried) which induced the petitioner to bid for the vend. It is only in the form of the petitioner''s word in these proceedings. No agreement, or arrangement can be pleaded as estoppel against the state from using its legislative powers (Ref State of Kerala and Another Vs. The Gwalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. etc., . Similarly, there can be no estoppel against the statute (Ref. A.P. Pollution Control Board Ii Vs. Prof. M.V. Nayudu (Retd.) and Others, ; and Pune Municipal Corporation and Another Vs. Promoters and Builders Association and Another, Devasahayam (D) by LRs. Vs. P. Savithramma and Others,

Dealing with an argument of estoppel in somewhat similar circumstances, where the writ petitioners had successfully persuaded the court to hold that they should be relieved from paying the balance amounts of license fee ("kisht") on account of supervening unanticipated events, the Supreme Court allowed the State of Karnataka and Another Vs. K.K. Mohandas and etc., and held as follows:

What the plaintiffs have gone for was a commercial venture with attendant risks. If they felt that the risk could not be taken, it was for him to repudiate the contract as a whole. In fact, when the Government apparently tried to terminate the contracts because of the failure of the plaintiffs to remit the Kist amounts as agreed to for the months of July and August 1990, the plaintiffs obtained interim orders from the High Court interdicting such termination and went ahead with vending arrack in exercise of their right under the agreements. Having insisted on performance of the contract and having exercised their rights under it, the plaintiffs are not entitled to repudiate their obligations under the contract. No case of estoppel, conventional or promissory, would arise here.

The finding on estoppel is based merely on the promise made or the proposal made by the Minister concerned in his speech in the Assembly and the failure of the Government to implement the policy of prohibition of sale of toddy in public. We are of the view that the plea raised by the plaintiffs does not lay an adequate foundation for accepting the plea of estoppel justifying their being relieved of the obligation undertaken by them based on their bids and as contained in the written contracts entered into by them with the Government. There is no case that the contract contains any term which is a mistake or that it contains any term that casts an obligation on the State which obligation the State had failed to fulfil.

In this situation, we do not think that it is necessary to discuss ail those decisions on promissory estoppel, its ambit and whether in a case like the ones before us, detriment need not be shown before the plea could be upheld to relieve one of the parties alone of its obligation. We are satisfied that no foundation for sustaining the prayers made in these cases has been laid and no case in support established.

The "privilege" (a rather inapt term, if one may say so, in the modern context) of sale in liquor is no more and no less a contract. The petitioner may be right in arguing that it is a hybrid creature, being an arrangement under statute, as well as a contract: Lal Chand to a certain extent supports this argument; it upholds the statutory nature of the contract. The further question therefore is whether the respondents acted arbitrarily in not considering the circumstances and using the proviso to Section 44 to relieve the petitioner''s liability. As an adjunct, the petitioner also argues that the respondents should have taken steps to mitigate their losses and not waited, till almost the end of February 1978 and claimed in excess of Rs. 26 lakhs.

The proviso to Section 44(1) has been relied on by the petitioner; it enacts that if sufficient reasons for surrender of the license are given by the Licensee, the Collector may remit to the holder thereof the sum payable on surrender or any portion thereof. The question here is whether the power to remit the obligation (to pay license fee for the unexpired period) also imposes an obligation to consider the circumstances of each case, to see whether remission is necessary. The main part of the provision enacts an obligation on the licensee to give 30 days notice. The power to relieve is only by way of an exception; the Collector has to be satisfied in the circumstances of the case. Nothing in the Act or any terms and conditions, save the assertions of the petitioner, were shown to this court indicative that the proviso, which primarily cast an obligation on it to give notice, compels the state to use that discretion. The power is wide; it is not couched in mandatory terms. The discretion was potential; not compulsive.

Mitigation of loss is a principle engrafted in Section 73 of the Contract. It enacts, the formula for calculation of damages, for breach of contract. The principle of mitigation obliges the non-defaulting party to take steps and see that the damage is minimized. Yet, the concept cannot be stretched too far, as held by the Supreme Court, in M. Lachia Setty and Sons Ltd. Vs. Coffee Board, Bangalore,

At the outset it must be observed that the principle of mitigation of loss does not give any right to the party who is in breach of the contract but it is a concept that has to be borne in mind by the court while awarding damages. The correct statement of law in this behalf is to be found in HALSBURY''S LAWS OF ENGLAND (4th Edn.) Vol. 12, para 1193 at page 477 which runs thus;

1193. Plaintiffs duty to mitigate loss.-The plaintiff must take all reasonable steps to mitigate the loss which he has sustained consequent upon the defendant''s wrong, and, if he fails to do so, he cannot claim damages for any such loss which he ought reasonably to have avoided.

Again, in para 1194 at p. 478 the following statement occurs under the heading Standard of conduct required of the plaintiff:

The plaintiff is only required to act reasonably, and whether he has done so is a question of fact in the circumstances of each particular case, and not a question of law. He must act not only in his own interests but also in the interests of the defendant and keep down the damages, so far as it is reasonable and proper, by acting reasonably in the matter. In cases of breach of contract the plaintiff is under no obligation to do anything other than in the ordinary course of business, and where he has been placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the defendant whose breach of contract has occasioned the difficulty....

The plaintiff is under no obligation to destroy his own property, or to injure himself or his commercial reputation, to reduce the damages payable by the defendant. Furthermore, the plaintiff need not take steps which would injure innocent persons,

(emphasis supplied)

As held in the previous part of the judgment, there is no principle which obliged the respondents to remit the balance license fee. The petitioner cannot again at the mere asking rely on the principle of mitigation to say that the respondents should have limited their losses. Therefore, this court holds that it cannot, through the back door, as it were, now ask the respondents (who are not claiming damages, but are recovering license fee through statutory power) to limit the amount payable by it. However, to the extent the petitioner argues that the respondents were nevertheless bound to exercise the power to recover, reasonably, there cannot be any cavil All State power, has to be reasonably exercised, taking into consideration relevant facts, eschewing irrelevant considerations, in a bona fide manner, and to further objectives of the policy or statute concerned. Superadded to this is the obligation to act in a non-arbitrary and fair manner. These two concepts, i.e non-arbitrariness and fairness are unshakeable pillars of equality.

In the facts of this case, the petitioner seems to have a justifiable grievance with regard to recovery of entire balance of license fee. The state does not appear to have put the vend to auction, for that balance period. No doubt, the petitioners conduct in not giving notice does not entitle it to the kind of reliefs sought here. Yet, the court cannot be oblivious of the facts. The vend was made available to the respondents, after its cancellation or termination, in the first week of July, 1977. The respondents could have, in public interest professed well have proceeded to re-auctioned the vend and recovered the balance from the petitioner. However, it chose to keep quiet, and issued the show cause notice in February, 1978, ultimately culminating in the order dated 14-3-1978. Had the locale of the vend been as important to the respondents, surely they would have ensured that public interest of the nature argued by them, in the proceedings. Instead, they have chosen to wait and recover the balance license fee.

In recent times, the courts have recognized that state action, which adversely affects individuals or individual interests, has to be proportionate. (Ref. Council of Civil Service Union (CCSU) vs. Minister for Civil Service, (1984) 3 All. E.R. 935 : Hind Construction Co. vs. Workmen Hind Construction and Engineering Co. Ltd. Vs. Their Workmen, Management of The Federation of Indian Chambers of Commerce and Industry Vs. Their Workman, Shri R. K. Mittal, Teri Oat Estates (P) Ltd. Vs. U.T., Chandigarh and Others, . In Ram Chander vs. D.D.A, ILR (2004) 2 Del 575, a Division Bench of this court had applied the doctrine while adjudging the order of blacklisting of a contractor, by the Delhi Development Authority. English law has assimilated, circumspectly though, the "proportionality" doctrine while adjudging the correctness of an administrative order, or determination, in judicial review (Ref: R. vs. Secretary of the State for Home, ex-parte Brind 1991 (1) All ER 720; R. vs. Ministry of Defence, ex p Smith 1995 (4) All ER 427) In A, vs. Secretary of State 2005 (3) All ER, the House of Lords, by a majority of 8-1, on an application of, inter alia, the proportionality doctrine held that a statutory order, and the Anti-terrorism, Crime and Security Act, 2001 were incompatible with the provisions of the European Convention for the Protection of Human Rights and Fundamental Freedoms. The decided case and authorities point to the use of the proportionality test as an element enabling judicial review, of an administrative measure or order, as being excessive, hence "disproportionate" and arbitrary. This was explained recently in Management of Coimbatore District Central Co-operative Bank Vs. Secretary, Coimbatore District Central Co-operative Bank Employees Association and Another, as follows:

So far as the doctrine of proportionality is concerned, there is no gainsaying that the said doctrine has not only arrived in our legal system but has come to stay. With the rapid growth of administrative law and the need and necessity to control possible abuse of discretionary powers by various administrative authorities, certain principles have been evolved by courts. If an action taken by any authority is contrary to law. improper, irrational or otherwise unreasonable, a court of law can interfere with such action by exercising power of judicial review. One of such modes of exercising power, known to law is the "doctrine of proportionality.

"Proportionality" is a principle where the court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of decision-making consists in the attribution of relative importance to the factors and considerations in the case. The doctrine of proportionality thus steps in focus true nature of exercise-the elaboration of a rule of permissible priorities.

In this case, as explained earlier, the respondents have not shown why the entire license fee is sought to be recovered, particularly when they made no attempt to re-auction the vend. Further, the second order, dated 14-3-1978 shows that writ petitions had been filed before the court, challenging the change in policy, increasing the excise duty and increasing the dry days in a week. In these circumstances, though the action of the respondents cannot be faulted on grounds of legality, or that it was arbitrary, yet it is a disproportionate response. They could have re-auctioned the vend, and in case of deficiency, recovered the balance from the petitioner. In that sense, the impugned order dated 14-3-1978 is a disproportionate response; to that extent, it can be said to be arbitrary. None of the decided cases, except Damodaran reveal that recovery of the entire balance license fee was approved. Damodaran was undoubtedly in the context of a change in policy, where prohibition was imposed with effect from 1st May, 1967, leading the licensee to argue that the change absolved him of the liability to pay the entire balance fee. This was negatived by the court. However, what should be kept in mind is that the decision was before the judgment in Mrs. Maneka Gandhi Vs. Union of India (UOI) and Another, and later developments, such as expansion of the concept of "State" and widening of the horizons of judicial review and a corresponding obligation of administrative authorities to act in a non-arbitrary and fair manner. Proportionality is also one added dimension which has to be appropriately factored into every administrative action. K. K. Mohandas (supra) is a decision where the licensees had sought for recovery of the amounts paid by them, through a suit. Lal Chand was a case where the vend was re-auctioned. In view of these, the court is of the opinion that though the action cannot be characterized as arbitrary use of power, it is one of disproportionate exercise of power and to that limited extent, unfair and arbitrary. Also, no reason is shown why the sum of Rs. 26 lakhs is to be recovered, when the state could easily have auctioned the vend immediately, sometime in August or September, 1977 and recovered the balance license fee.

During the pendency of proceedings, these last 31 years and with passage of time, the original firm stood dissolved; its partners died. The estate is now represented through legal representatives. In view of the above findings, and the attendant facts of this case, it would be appropriate that though on an application of the doctrine of proportionality would normally mean that the state should consider the matter afresh, ends of justice require that the court exercises its discretion and moulds the relief. Accordingly, instead of the amount of Rs. 6,39,508/- plus Rs. 26,48,622.25 (aggregating to Rs. 32,88,120/25) the petitioner should deposit two thirds of the said amount, i.e. Rs. 21,92,080/25). In view of the above reasons, the impugned orders are set aside to the extent they enable the respondents to recover Rs. 6,39,508/- plus Rs. 26,48,622.25. They are accordingly modified; the petitioner shall, instead pay two thirds the aggregate of said amount, after adjusting the amounts already deposited with the respondents, pursuant to directions in these two proceedings. The writ petitions are partly allowed in these terms. In the circumstances, there shall be no order on costs.