Mohan Meakin Limited vs The State of Himachal Pradesh and Others

Rajiv Sharma, J.—Petitioner is a Company incorporated under the Companies Act, 1956 having its registered office at Solan Brewery, Solan, District Solan, H.P. It is carrying on business of manufacture and sale of Indian Made Foreign Spirit and Beer etc. Petitioner was granted distillery licence on 07.02.1963 under the Punjab Distillery Rules, 1932. The Manager of the Company was served with a notice on 26th July, 2005. According to the notice, the premises were inspected on 01.07.2005 in the presence of Sh. P.K. Dutt, Manager-Cum-Head. The general cleanliness in beer section was quite poor and one Pasteurizer was also lying in a state of disuse for the last 15 years. It was emanating foul smell and was unhygienic. It was further stated that the petitioner-Company has contravened the provisions of Rule-45 of the Punjab Distillery Rules, 1932, as applicable to the State of Himachal Pradesh (hereinafter referred to as ''the Rules'' for the sake of convenience). According to the notice, the petitioner''s licence was liable to be cancelled u/s 36(c) of the Punjab Excise Act, 1914, as applicable to the State of Himachal Pradesh. The Manager was called upon to appear in the office of Additional Excise and Taxation Commissioner (South Zone), to show cause why action should not be taken against him for the irregularities stated in the notice. In sequel to notice, dated 26th July, 2005, the petitioner-Company has filed a detailed reply. The Additional Excise and Taxation Commissioner-Cum-Collector (Excise), (South Zone), H.P. Shimla has passed the order on 01.09.2005, whereby a penalty of Rs. 2,000/- was imposed upon the petitioner-Company for violating Rule-45 of the Punjab Distillery Rules, 1932, as applicable to the State of Himachal Pradesh.

Feeling aggrieved by the order, dated 01.09.2005, the petitioner preferred an appeal before the learned Excise & Taxation Commissioner, exercising the powers of Financial Commissioner, Himachal Pradesh, Shimla, who dismissed the same on 31.03.2009. Hence this petition.

Mr. K.D. Sood, learned Senior Advocate has vehemently argued that the penalty imposed upon the petitioner-Company is not in accordance with law.

Mr. Neeraj K. Sharma, learned Deputy Advocate General has supported the orders, dated 01.09.2005 and 31.03.2009.

I have heard the learned counsel for the parties and gone through the pleadings carefully.

According to Sub-section (2) of Section 20 of the Punjab Excise Act, 1914, no distillery or brewery shall be constructed or worked except under the authority and subject to the terms and conditions of a licence granted in that behalf by the Financial Commissioner u/s 21. The establishment or licensing or distilleries and breweries is provided u/s 21.

Section 36 of the Punjab Excise Act, 1914 provides for cancellation or suspension of licenses. Sub-section (c) of Section 36 of the Punjab Excise Act, 1914 reads as under:

(c) in the event of any breach by the holder of such license, 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 license, permit or pass; or

Section 80 empowers excise officers to compound offences. Sub section (2) of Section 80 reads as under:

(2) The cancellation or suspension of any license, 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 license, permit or pass of such penalty as such authority may fix.

The Punjab Distillery Rules, 1932 have also been framed under the Punjab Excise Act, 1914. Sub-rule (a) of The Punjab Distillery Rules, 1932 defines "license" to mean license granted for a distillery u/s 21 of the Punjab Excise Act, I of 1914. Rule-5 provides that the license shall be in form D-2 and is not transferable except with the sanction of the Financial Commissioner.

Rule-45 reads as under:

If the buildings and plant including the measures, etc., referred to in the preceding rule are not properly maintained and the premises and plant are not kept properly clean, the licensee may be required to stop all work in the distillery within one week after receipt of notice to that effect from the Collector.

Form ''D-2'' has been prescribed, whereby the conditions are also imposed. According to condition No. 1, the licensee shall observe the provisions of the Punjab Excise Act, I of 1914, and all rules made thereunder, and all rules made under any other law for the time being in force applicable to the manufacture, issue and sale of spirit.

In the instant case, the premises of the petitioner were inspected on 01.07.2005. Unhygienic conditions were found to be prevailing in the premises. According to notice, the petitioner has contravened Rule-45 of The Punjab Distillery Rules, 1932 and his licence was liable to be cancelled u/s 36(c) of the Punjab Excise Act.

It is not in dispute that the petitioner-company is required to abide by all the provisions of the Act and the Rules framed thereunder including Rule 45 of the Act. According to plain language of Rule-45, if the premises are not properly maintained, the licensee may be required to stop all the work in the distillery within one week after receipt of notice to that effect from the Collector. In the instant case, it is specifically stated that the licence of the petitioner was liable to be cancelled u/s 36(c) of the Punjab Excise Act, 1914 for violating Rule 45 of the Act.

Sub-section (c) of Section 36, as quoted hereinabove, provides that licence may be cancelled or suspended in the event of any breach by the holder of such license, permit or pass or by his servants, or by and one acting on his behalf with his express or implied permission, of any of the terms or conditions of such license, permit or pass.

Sub-section (2) of Section 80 of the Punjab Excise Act, 1914 provides that the cancellation or suspension of any license, permit or pass u/s 36(a),(b) or (c) of this Act may be forgone 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 license, permit or pass of such penalty as such authority may fix.

The Additional Excise and Taxation Commissioner-Cum-Collector (Excise), (South Zone), H.P., Shimla has not cancelled or suspended the licence issued to the petitioner. However, a penalty of Rs. 2000/- has been imposed upon the petitioner.

Mr. Neeraj K. Sharma, learned Deputy Advocate General, has also argued that the penalty has been imposed under Sub-section (2) of Section 80 of the Punjab Excise Act, 1914. The Court is of the considered view that the penalty could only be imposed upon the petitioner, if the competent authority has initially decided to suspend/cancel the licence and thereafter decided to forego or revoke the same. It is reiterated that it was specifically mentioned in the notice Annexure P-1 that the license of the petitioner was liable to be cancelled u/s 36(c) of the Punjab Excise Act, 1914. The competent authority, as per the plain reading of Rule-45, could stop the work of the distillery within one week after receipt of notice to the effect from the Collector. However, there is no order of stopping the work of distillery. Since the petitioner''s licence was neither suspended nor revoked, the penalty could not be imposed.

The Division Bench of Punjab and Haryana High Court in Jagatjit Distilling & Allied Industries Limited Vs. The State of Punjab and others, The Punjab Law Reporter 546 has held that the order of imposition of penalty u/s 80(2) can be made only after the competent authority decides to forego or revoke an order of cancellation or suspension of licence and the second condition is that the authority having power to cancel or suspend the licence at its sole discretion chooses to forego or revoke the orders of cancellation or suspension of the licence on payment of the penalty imposed by it. The Division Bench has held as under:

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 order 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 accordance with the law laid down by the Supreme Court, and cannot, therefore, be sustained.

In the instant case, since no order of cancellation or suspension has been passed u/s 36(c) of the Punjab Excise Act, 1914, there was no question of revoking or foregoing the cancellation or suspension of the licence and to impose the penalty of Rs. 2000/-.

The Apex Court in The The Karnal Distillery Co. Ltd. Vs. The State of Haryana and Others, has explained the ambit of Section 36(c) of the Punjab Excise Act as under:

Mr. Sibbal learned Advocate for the appellant raised various contentions to show that the stand taken by the department was not justified and that the licence of the appellant could not be cancelled in the manner it was sought to be done. In our view, it is not necessary to deal with all the contentions raised. u/s 20(2) of the Punjab Excise Act, 1914 no distillery or brewery can be constructed or worked except under the authority and subject to the terms and conditions of a licence granted in that behalf by the Financial Commissioner u/s 31. Under the latter section the Financial Commissioner, subject to such restrictions and conditions as the State government may impose, may make rules regarding the granting of licence for distilleries, stills or breweries, the security to be deposited by the licensee of a distillery or brewery, etc. Section 36 provides that:

Subject to such restrictions as the State government may prescribe, the authority granting any licence, permit or pass under this Act may cancel or suspend it....

(A) and (b) X X X

(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;

XXX. Section 80(1) gives the Collector the power to accept from any person reasonably suspected of having committed an offence punishable u/s 62, Section 65 or Section 68 of the Act a sum of money by way of compensation for such offence. Ss. (2) of the section lays down:

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, permit or pass of such penalty as such authority may fix.

The Commissioner promulgated rules known as The Punjab Distillery Rules, 1932 u/s 59 of the Act. Rule 5 thereof shows that the licence to run a distillery must be in Form D-2. Rule 37 lays down that:

The licensee shall have always in stock gur, molasses or mahua store to be provided by him and approved by the Financial Commissioner, a quantity of gur, molasses or mahua sufficient for the preparation of wash for the full working of all his stills, calculated upon the data set forth....

Assuming that this rule permitted the Commissioner to give a direction for increasing the covered storage capacity of molasses or to cover its uncovered molasses tank any violation of that 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 to 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. To "forego" according to Shorter Oxford Dictionary means "to go past, to neglect, slight, to let go, give up etc." Foregoing, cancellation or suspension therefore would mean giving up or undoing the effect of cancellation. In our opinion Section 80(2) does not authorise the Commissioner to make a conditional order in the form in which he purported to do by his order of 5/06/1963. There was no cancellation of licence by that order. The Commissioner merely intimated the appellant that its licence had become liable to cancellation or suspension but instead of cancelling the licence he was imposing a penalty of Rs. 500.00 to be paid within a fortnight failing which action for cancellation would be taken u/s 36(c). The Commissioner''s show cause notice, dated 16/10/1964 proceeds on the basis that as the penalty had not been paid within the period fixed, the licence had to be cancelled in terms of the order of 5/06/1963. 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.

Accordingly, the writ petition is allowed. Annexure P-3, dated 01.09.2005 and Annexure P-5, dated 31.03.2009 are quashed and set aside. The pending application(s), if any, also stands disposed of. No costs.