Jagatjit Distlling and Allied Industries Limited vs The State of Punjab and others

R.S. Narula, J.—At the relevant time Jagatjit Distilling and Allied Industries Limited, the appelant before us, was holding a distillery licence (copy Annexure ''A'' to the writ petition) issued to it u/s 21 of the Punjab Excise Act (1 of 1914) hereinafter called the Act) for the manufacture of country spirit, special country spirit, foreign liquor, rectified spirit, and denatured spirit. On April 21, 1964. notice (Annexure ''G'') was issued to the Appellant by the Excise and Taxation Commissioner, Punjab, complaining of certain irregularities having been committed by the Appellant and directing the Appellant to show cause within a week of the receipt of the notice why action under the Act and the rules and also as indicated in condition No. 7 of the distillery licence should not be taken against it for the violation of the said rules and directions issued to the distillery. It was further pointed out that in case nothing was heard from the Appellant within the stipulated period it would be presumed that it had no explanation to offer and further necessary action would be taken in the matter on merits. On the same date, another notice (Annexure ''H'') was also served by the same authority on the Appellant complaining of some other violation of rules and threatening the same action. Detailed reply to the show-cause notice (Annexure ''I'') was submitted by the Appellant on May 1, 1964. After considering the reply, order Annexure ''J'' was passed by the Excise and Taxation Commissioner, Punjab, wherein the Appellant was let off with a "warning" in so far as charges other than charge No. 4 in Annexure ''G'' were concerned. On charge No. 4, the following order was recorded:

The charge at serial No. (4) above is indeed serious. This being, however, their first irregularity of this kind, I in exercise of powers under Sections 36 and 80 of the Punjab Excise Act (I of 19141) hereby impose a penalty of Rs. 1000/ (rupees one thousand), on the said distillery and order that the amount of penalty mentioned above should be deposited by them within a period of one week from the receipt of this order.

It was to get the above quoted order of the Excise and Taxation Commissioner (Annexure ''J'') quashed that Appellant came to this Court under Articles 226 and 227 of the Constitution in October, 1964.

One of the grounds on which the order was sought to be annulled was mentioned in the writ petition in the following words: -

The order is not covered by Sections 36 and 80 of the Punjab Excise Act, Section 36 only empowers the Financial Commissioner to cancel or suspend the licence in certain eventualities, and Section 80 gives power to the Financial Commissioner to refrain from cancelling or suspending the licence if the company agreed to pay a penalty. There is no power given by any of these sections to impose a penalty as has been done by Respondent No. 2 in this case

The petition was contested by the Respondents, i.e. by the State of Punjab and the Excise and Taxation Commissioner, Punjab. The learned Single Judge, who heard the petition, held that there was no patent error of law discernible in the view which had been taken by the Excise and Taxation Commissioner in the impugned order. It was then argued before the learned Single Judge that while the Excise and Taxation Commissioner could have revoked or suspended the licence after adequate notice of hearing to the licensee, the imposition of penalty was not a punishment which could be levied u/s 36 of the Act. The learned Judge held that there was a power in the Excise and Taxation Commissioner u/s 80 of the Act, Sub-section (2) of which stated that the cancellation or suspension of any licence, permit or pass u/s 36(a), (d) or (c) may be foregone or revoked by and at the sole discretion of the authority having power to cancel or suspend the licence on payment by the holder of such licence, permit or pass of such penalty as such authority may fix. It was held that Sub-section (2) of Section 80 clearly vested authority in the Excise and Taxation Commissioner to impose a lesser punishment of fine instead of passing an order of cancellation of revocation of licence in a proper case. On the above metioned findings, the writ petition of the Appellant was dismissed with costs on February 24, 1965. Dissatisfied with the judgment of the learned Single Judge, the Appellant has come up before us under Clause 10 of the Letters Patent.

Mr. H. L. Soni, the learned Counsel for the Appellant, firstly contended that the impugned order had been passed without affording the Appellant any opportunity to show cause against the proposed action. In view of the opportunity allowed to the Appellant by the admitted service of the show-cause notices (Annexures ''G'' and ''H'') on it, and fully availed of by it while submitting its detailed representation (Annexure ''I''), there is no merit whatever in this contention of Mr. Soni.

Counsel then submitted that on a perusal of the record, the learned Single Judge should have held that charge No 4 had not been proved as it was the Excise Department itself which had made it impossible for the Appellant to bottle country spirit of sixty degrees after March 25, 1964, as the departmental representative had insisted on the Appellant''s first clearing all its stocks of eighty degrees country spirit before bottling sixty degrees spirit. An allegation to that effect had been made in the writ petition and had been unequivocally denied in the written statement of the Respondents. A plea to that effect had also been taken in the written representation submitted to the Excise and Taxation Commissioner previously, and the same did not find favour with that authority. We are unable to see our way to embark on an inquiry into a disputed question of fact of this type. This argument goes into the merits of the controversy with which we are not concerned.

It was lastly contended by Mr. Soni that without first passing an order cancelling or revoking the licence of the Appellant, it was not open to the Excise and Taxation Commissioner to impose any penalty on the Appellant. Condition No. 7 of the distillery licence (Annexure ''A'' to the writ petition) under which the impugned penalty has been levied was in the following terms:-

If the licensee infringes, or causes or permits any person to infring any of the conditions of this licence, the Financial Commissioner may forthwith revoke and determine the licence and forfeit to Government the whole or any part of the deposit made by the licensee under Rule 4(a) of the Distillery Rules published in the Financial Commissioner''s notification No. 1474-E&S, dated the 5th May, 1932."

Clause (c) of Section 36 of the Act which authorises the cancellation or suspension of the licence is in the following terms:-

Subject to such restrictions as the Stale Government may

prescribe, the authority granting any licence, permit or pass under

this Act may cancel or suspend it-

(a) .. .. .. ..

(b) .. .. .. ..

(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 permission, of any of the terms or conditions of such licence, permit or pass; or "The cancellation or suspension of any licence, permit or pass u/s 36(a), (b) or (c) of this .Act may be foregone or revoked by and at the sole discretion of the authority having power to cancel or suspend it on payment by the holder of such licence, per-mit or pass of such penalty as such authority may fix.

The findings of fact recorded by the Excise Commissioner about the appellant having in fact contravened some terms of the licence are binding on us, and we proceed to decide this appeal on the assumption that the appellant bad in fact rendered itself liable to be proceeded against under sections 36/80 of the Act.

When the judgment of a Divison Bench of this Court (A.N.Grover and H.R. Khanna, JJ.) in Jagatjit Distilling and Allied Industries Ltd. v State of Punjab and another ILR (1965) 1P&H. 189 was cited before the learned Single Judge, he disposed of the reference in the following words:-

Mr. Tuli has invited my attention to a recent decision, Grover and Khanna, JJ in Jagatjit Distilling and Allied Industries v. State of Punjab ILR (1965) 1 P&H. 189. in which a similar argument was raised by Mr. Tuli and to which reference has been made in the Bench decision at Page 198. In that case the procedure adopted by the Financial Commissioner in imposing penalty was attacked but it seems to have been taken for granted that the power to impose penalty was there. In that case the Bench upheld the penalty under sub-section (2) of Section 80. In my opinion there is no force in this petition which fails, and is dismissed with costs.

It was the order of the Excise and Taxation Commissioner imposing penalty of Rs. 25,000/- on the distillery for violation of certain rules which was sought to be quashed in that case. No order for cancellation of the licence had been passed before imposing the penalty. The learned Judges referred to their earlier judgment, dated August 20, 1964 in Civil Writ 315 of 1964-The Karnal Distillery Co , Ltd , Karnal v. The State of Punjab C. W. 315 of 1964. (to the facts of which detailed reference is hereinafter made), and observed that the form in which the order had been made in the Karnal Distillery case 1 allowing the payment of penalty within a certain time failing which action for cancellation of distillery licence would be taken was the correct form but the order directing payment of the penalty without making an order of cancellation was not correct. The writ petition was partially allowed quashing the order of the Commissioner in so far as it directed immediate payment of the amount of penalty. It was left open to the excise authorities to make a proper order in accordance with the judgment of the High Court. It was observed that it would be for the distillery to make up its mind after fresh order had been passed either to allow the amount of penalty to remain with the Government in payment of the penalty or to face proceedings for cancellation or suspension of its licence In our opinion the learned Single Judge should normally have followed the judgment of the Division Bench in the Karnal Distillery case 1 which held the field till then, and should have passed an order in terms of the one which had been passed by A. N. Grover and H. R. Khanna, JJ, in that petition. The learned Advocate General for the State of Punjab contended that the State would have no objection to an order being passed in the above said terms provided the Appellant is prepared to consider an opportunity for having its licence cancelled instead of paying penalty to be more beneficial to it. Mr. H. L. Soni, counsel for the Appellant, said that he had no instructions to commit the Appellant in that behalf and that he would merely insist on proceedings being taken strictly in accordance with law, though his personal opinion was that the Appellant would not choose to have the distilling licence cancelled merely in order to avoid payment of Rs. 1.000/.

Though none of the counsel referred to any other case, we find that the legal position in this respect has since been crystallised by the authoritative pronouncement of their Lordships of the Supreme Court, in the case of the Karnal Distillery Co. Ltd. v. The State of Haryana and others C. A. 1256 (N) of 1968. decided on October 1969. It is at this stage that it becomes necessary to give a brief history of the Karnal Distillery case. The original order which had been passed by the Excise Commissioner in that case was in the following terms:-

The management of the Distillery have thus rendered their licence in Form D 2 granted in favour of the Karnal Distillery Company Limited, Karnal, liable to cancellation or suspension u/s 36(c) of the Punjab Excise Act (1 of 1914). However, instead of cancelling the licence, I. in exercise of powers u/s 80(2) of the Act, ibid, hereby impose a penalty of Rs. 500/- (rupees five hundred) only on the management of the said Distillery. The amount of penalty should be deposited by the management in the Government Treasury, Karnal, within a fortnight of the receipt of this order failing which action for cancellation of the Distillery licence will be taken u/s 36(c) of the Act.

The validity of the above quoted order was challenged in this Court in Civil Writ 315 of 1964. At the hearing of the writ petition, the Division Bench was informed that during the pendency of the petition, the licence of the Karnal Distillery Co. Ltd., Karnal, had also been cancelled for making some other default. The learned Judges of the Division Bench who heard the case observed that this fact could not alter the legal position contemplated by Sub-section (2) of Section 80 of the Act which provision was interpreted in the following terms:-

Subsection (2) of Section 80 also indicates that imposition of cash penalty is a kind of leniency shown to the licensee instead of the severe penalty of cancellation or suspension of the licence. Cases can, however, always arise where a licensee may prefer to have his licence cancelled instead of paying the penalty. In such an event, the authorities concerned cannot insist upon recovering the penalty instead of cancelling the licence.

On the basis of the above quoted interpretation of Section 80(2) of the Act, H. R. Khanna, J. with whom A.N. Grover J. agreed, passed the following order: -

In view of the above, I would quash the proceedings which are being taken by the excise authorities for recovery of the amount of penalty as arrears of land revenue. In other respects the writ petition is dismissed.

Even after the passing of the above quoted order of the Division Bench, the Karnal Distillery Co., Ltd., did not pay the penalty of Rs 500/-. The Excise Commissioner then issued a notice to the distillery to show cause why its licence should not be cancelled since it had failed to pay the amount of the penalty within a period of two weeks allowed by the earlier order. The subsequent tender of the amount of the penalty by cheque was refused and ultimately on December 18, 1937, the licence of the company was cancelled. The order of cancellation of the licence was then impugned in Civil Writ 39 of I9b8. By his judgment, dated March 18, 1968, P.C., Pandit, J. dismissed the writ petition on the finding that the order of cancellation of the licence, dated December, 18. 1967, had been passed in accordance with law. Letters Patent Appeal No. 168 of 1968, against the order of the learned Single Judge was dismissed in limine. Leave to appeal to the Supreme Court against that order having also been refused, an appeal against the order of the Division Bench upholding the judgment of P.C. Pandit J. was admitted by the Supreme Court under Article 136 of the Constitution. While allowing that appeal and reversing the judgment of this Court by their judgment, dated October 16, 1969, their Lordships of the Supreme Court held as follows:

Any violation of that direction (the direction given by the Commissioner of Excise under a rule requiring the licensee to obey the direction) could be met with an order for cancellation or suspension of the licence u/s 36 of the Act. Having passed such an order of cancellation or suspension, it would be open 11 the Commissioner or the authority concerned to impose a penalty for the infraction complained of and give the distillery a notice to the effect that the suspension or the cancellation would be revoked or foregone if the penalty was paid. The word revocation is only apposite when it is intended to repeal, annul or withdraw some order which has already become effective.

It was similarly observed that "foreging" cancellation or suspension would mean giving up or undoing the effect of cancellation. It was held that Sub-section (2) of Section 80 does not authorise the Commissioner to make a conditional order in the form in which he purported to do so by his order dated June 5, 1963. It was found on the facts of the case referred to above that there was no cancellation of the licence by the order dated June 5, 1963. as the Commissioner had merely intimated that the licence of the distillery had become liable to cancellation or suspension, but instead of cancelling the licence merely imposed a penalty of Rs. 500/- to be paid within a fortnight failing which action for cancellation was to be taken u/s 86(c). In effect, therefore, the approval of the form of that order by the Division Bench of this Court (Grover and Khanna, JJ.) in their first judgment in the Karnal Distillery case was negatived. It was then held:-

Section 36 of the Act does not permit the taking of such a course. The grounds for cancellation or suspension of the licence are specified in sub Clauses (a) to (g) of the section and default in payment of penalty levied under the Act does not find a place therein. The imposition of a penalty by way of threat of cancellation of licence was also not permissible under the Act.

The older of the Commissioner cancelling the licence on account of default in payment of the penalty was held to be invalid. The argument of the learned Attorney . General to the effect that u/s 80 of the Act, it was not obligatory on the Commissioner to first pass an order of cancellation of the licence, and then revoke it on payment of penalty, and the further argument that Section 80 permitted the making of an order directing payment of fine in lieu of cancellation and making cancellation effective in default of payment of fine were repelled by the Supreme Court. It was held that the Supreme Court did not think that Section 80 could bear that interpretation

The only penalty allowed to be imposed by Section 36 of the Act is of cancellation or suspension of the licence issued under the Act. No order suspending or cancelling the licence of the Appellant was passed in the present case. An order of imposition of penalty can indeed be passed under Sub-section (2) of Section 80 of the Act, but that can be done only within the circumscribed limits of that provision. According to the authoritative pronouncement of their Lordships of the Supreme Court in the Karnal Distillery case, the order of imposition of penalty u/s 80(2) can be made only after the competent authority decides to forego or revoke an crier of cancellation or suspension of a licence. In other words, the passing of an order of cancellation or suspension of a licence u/s 36 (a), (b) or (c) of the Act, is the condition precedent for invoking Section 80(2). The second sine qua non of an order for imposition of a penalty under Sub-section (2) of Section 80 is that the authority having power to cancel or suspend the licence, at its sole discretion choses to forego or revoke the order of cancellation or suspension of the licence on payment of the penalty imposed by it. As already pointed out the very first condition precedent was not satisfied in the instant case. The question of the second condition been fulfilled did not, therefore arise. The impugned order of imposition of the penalty on the Appellant was not in accord with the law laid down by the Supreme Court, and cannot, therefore, the sustained.

For the reasons recorded above, this appeal is allowed with costs, the judgment and order of the learned Single Judge is reversed the writ petition of the Appellant is granted, and the impugned order of Respondent No 1 is quashed. Counsel''s fee Rs. 100/-.

Mehar Singh, C.J.

I agree