Surinder Mohan vs Deep Kumar and Company and Others

M.S. Liberhan, J.—This judgment will dispose of Regular Second Appeals Nos. 3662 to 3668 also, as they involve common question of law on similar facts.

This appeal is by the plaintiff-appellant against the judgment and decree of the courts below, dismissing the suit for injunction.

The facts stated by Surinder Mohan plaintiffs are: The country liquor vend was auctioned on March 23, 1979. Bid was accepted. The vend was allotted to the firm known as M/s. Deep Kumar & Company, in which the appellant was a partner. Since the firm did not pay the instalments, the license was cancelled and the vend was re-auctioned. The state of Haryana, exercising the powers under the Punjab Excise Act, 1914 (for short, ''the Act''), the Haryana liquor license Rules, 1979 (for short ''the Rules'') and the contract entered into by the firm with the State for the sale of the liquor under the license issued, imposed a penalty, and claimed damages. A demand of about Rs. 34 lacs as penalty and damages was raised against the firm. The State sought to recover about Rs. 5 lacs as arrears of land revenue from the plaintiff alone. The plaintiff claimed himself to be of 20 years of age at the time of auction and the contract, and thus incapable and incompetent to enter into any legal contract with the State for sale of liquor. It was claimed that as the contract was void being in violation of Section 27 of the Act, no recovery can be made from the plaintiff. Thus injunction was sought for restraining the respondents from recovering any amount from the plaintiff.

The defendants other than the firm contested the suit. It was asserted; that the suit was not maintainable in the present form, as no amount was deposited in terms of Section 78 read with Section 158 of the Punjab Land Revenue Act, plaintiff was estopped by his act and conduct from Challenging his liability as the terms of auction were announced at the time of bid, wherein it was specifically stated that no person below the age of 25 years had a right to bid, still he, by suppressing the material fact with respect to his age, gave bid and entered into the contract. Plaintiff cannot be permitted to take advantage of his own fraudulent act. Numerous other objections were raised to the suit including that the plaintiff being admittedly above the age of 18 years, could enter into a valid contract. The provisions of Section 27 of the Act were claimed to be directory and not mandatory non-compliance whereof cannot result in absolving the plaintiff from his liability.

The trial Court found that the suit was maintainable and there was no estoppel. It was found that there was no bar under Sections 78 and 158 of the Punjab Land Revenue Act to the suit. The bid was made on behalf of the firm of which the plaintiff was a partner only. The license was issued in favour of the firm and contract and license for sale were with the firm, the contract and the license were valid and the plaintiff was liable to pay the amount claimed being a partner. The suit was dismissed.

In appeal the lower appellate court observed that the findings with respect to maintainability of suit and there being no bar of Section 78 of the Act were not challenged; rather the issues were conceded. It was conceded that the plaintiff on the date of auction and at the time of entering into the contract was below the age of 25 years. It was found that there was no violation of Section 27 of the Act and Section 23 of the Indian Contract Act, the contract entered into and the license granted were valid and since the plaintiff had asked for the postponement of payment of instalments of auction money for and on behalf of the firm, and the vend''s license was in favour of the firm and not in his individual capacity, he was only a representative of the firm, therefore, the plaintiff was liable to pay the amount demanded. The appeal was dismissed.

The only question raised in this appeal was whether the contract entered into and license issued by the State was void qua the appellant?

It was contended that partnership as defined by the Indian Partnership Act is an association of persons who have agreed to share the profits of the business carried on by all or any of the acting for all. It is an accepted legal proposition as observed by Veeraswamy, CJ. in R.M. Chidambaram Pillai and Another Vs. Commissioner of Income Tax, Madras, , that:- "notwithstanding the fact that a firm like an association of persons is for the purpose of assessment treated as a separate entity, it is not a legal person having a corporate character distinct from that of its members. A firm is but a compendious expression of the relationship between the partners, who, by an agreement between them, embark on a commercial venture and contribute capital or labour and share profit and loss according to mutual understanding in mercantile practice the trade seems to look upon the firm as a kind of a body distinct from its members and capable in its right of owning property and entering into dealings and creating rights and liabilities biding on the partners. But in law that clearly is not the position. It is true that looked at from certain circumstances permitted by the partnership Act, a firm may have the appearance of the trappings of a continuous body possessing somewhat a corporate character. For instance, by agreement to the contrary, the death of a partner may not affect the continuity of the firm. Nevertheless the firm is brought about by a contract and is dissolved by the Will of the Partners and in the making of a firm, there is nothing like incorporation.

It has been observed in numerous judgments that firm as such has no legal recognition. The law involving the firm looks to the partners composing it and any change amongst them destroys the identity of the firm. What is called the property of the firm. What is called the property of the firm is the property of the partners.

It was contended that in view of the fact that partnership does not bear the character of being an incorporate body and is being constituted of its partners, the contract by an incompetent partner in view of Section 27 of the Act was a void contract. No liability could be fixed on the appellant under the Act or the void contract. It was contended that the contract as well as the license issued was illegal and void. It is in violation of the mandatory provisions of Section 27 of the Act. The section puts a bar or impose prohibition on the State from entering into a contract or permitting sale by a person under the age of 25 years. The State was debarred from entering into any contract with a person of less than 25 years of age. The State cannot be permitted to enforce a void contract.

In order to support the said submission, the Learned Counsel for the appellant contended that in order to determine whether the provisions of Section 27 are mandatory or directory one has to see to the language of the statute. When the language of the statute is clear or is incapable of two interpretations, it would be wrong to discard the clear meaning. There is no general rule to determine whether the provisions are mandatory or directory. The courts are bound to give effect to the clear meaning of the Statute irrespective of its consequences. It was contended that Section 27 is contained in Chapter IV of the Act which provides for manufacture, possession and sale of liquor. While dealing with the said subject, the Legislature had put an embargo of age u/s 27 while providing for grant of lease or license to manufacture, sell etc. by the State to any person on such terms and conditions as deemed fit. The State may lease the right to manufacture, supply or sale of liquor, but the Act puts an exception to the said right of lease or license viz. lessee or licensee would not be of less than 25 years of age. Section 29 further provides that no person under the age of 25 years shall be permitted to sell the liquor. Similarly a prohibition has been provided against the employment by a licensee of any person under 25 years of age by Section 30 of the Act. Violation of the said sections has been made penal by Section 62 of the Act. The provisions are in consonance with the State Policy of Prohibition enshrined in the Constitution of India.

The counsel for the appellant relied on Nashirwar and Others Vs. State of Madhya Pradesh and Others, where in it has been observed that sale of liquor has at all times been considered as a proper subject of Legislative Regulations. At the root of this regulatory or prohibitory measure lies the public expediency and the public morality in regulating the sale of intoxicating liquor is the police power of the State to regulate business and mitigate evils. The manner and the extent of the Regulation rests in the discretion of the authority though one of the purposes may be to raise revenue. The purpose of the Act and the Rules is to restrict and control the consumption of intoxicating liquor which is necessary for the preservation of the public health and moral. The said observations find approval in all the subsequent judgments.

The Learned Counsel for the appellant relied upon Ajit Singh and Others Vs. State of Punjab and Another, wherein the Supreme Court had observed that when the language of the statute is clear and two interpretations are not reasonably possible, it would be wrong to discard the plaint meaning of the words used in order to meet the possible ends of justice. It would be improper to call in aid external aid of the, construction to find out the hidden meaning of it. To similar effect are the observations in The State of Uttar Pradesh and Others Vs. Babu Ram Upadhya,

The counsel for the respondent has controverted the said submission and contended that Section 27 of the Act is only directory as non-compliance with it carries no penal consequences. It was further contended that the word ''may'' has been used and ''may'' stands for permissive nature of the provisions. The counsel for the respondents relies on Dalchand Vs. Municipal Corporation, Bhopal and Another, , wherein it has been observed that there are no ready tests or invariable formulas to determine whether a provision is mandatory or directory. However, the guiding principles laid down in this judgment are:

(i) What is the broad purpose of the statute?

(ii) What is the object of the provisions to be considered?

(iii) Where the design of such a statute is the avoidance or prevention of public mischief but the enforcement of a particular provision literally amounts to defeat the design, the provision should be held to be directory.

(iv) Interpretation should be adopted where possible to prevent the public mischief and inconvenience and not to defeat the main object in the statute.

(v) Whether the non-compliance carries with it penal consequences or not?

Section 27 of the Act reads as under:

Grant of lease of manufacture etc.-(1) The State Government may lease to any man not below the age of twenty five years, on such conditions and for such period as it may deem fit, the right�

(i) of manufacturing or of supplying by wholesale, or of birth, or

(ii) or selling by whole sale or by retail, or

(iii) of manufacturing or of supplying by wholesale, or of both and of selling by retail;

any country liquor or intoxicating drug within any specialocal area.

(2) The Collector shall grant to a lessee under Sub-section (1) a license in the terms of his lease; and, when there is no condition in the lease which prohibits subletting, may, on the application of the lessee, grant a license to any Sub-lessee approved by the Collector.

In my considered view the provisions of Section 27 are mandatory. This section does not call for any interpretation as the plain reading of the section makes it obvious that the State has been prohibited from entering into any contract for the sale or possession of liquor by a person less than 25 years of age. The law forbids any agreement with a person less than 25 years of age.

The section itself is contained in a Chapter where license for manufacture, possession and sale has been prohibited except on the terms and conditions given in Sections 20 to 33-A of the Act. The genesis from which the intention of the Legislature can be inferred are the subsequent sections wherein employing a person of less than 25 years of age by a licensee or sale of the liquor to a person less than 25 years of age has been prohibited.

Section 28 of the Act reads as under:

Manufacture and sale of liquor in military cantonments-Within the limits of any military cantonment and within such distance from those limits as the Central Government in any case may prescribe, no license for the manufacture or sale of liquor and no lease of the retail vend of liquor, such as is described in Section 27 shall be granted unless with the consent of the Commanding Officer.

Section 29 of the Act reads as under:

Prohibition of sale to persons under the age of twenty five years Non licensed vendor and no person in the employ of such vendor or acting on his behalf shall sell or deliver any liquor or intoxicating drug to any person apparently under the age of twenty five years whether for consumption such person or by another person and whether for consumption on or off by the premises of such vendor.

Section 30 of the Act reads under:

Prohibition of employment of men under the age of twenty five years and of women. No person who is licensed to sell any liquor or intoxicating drug for consumption on his premises shall during the hours in which such premises are kept open for business, employ or permit to be employed either with or without remuneration any man under the age of 25 years or any women in any part of such premises in which such liquor or intoxicating drug is consumed by the public.

Violations of said provisions has been made punishable. Any person violating entails a punishment u/s 62 of the Act which reads as under:

Penalty for unlawful selling to person under twenty five or employing them or women-If any licensed vendor, or any person in his employ or acting on his behalf:

(a) in contravention of Section 29 sells or delivers any liquor or intoxicating drug to any person apparently under the age of twenty five years, or

(b) in contravention of Section 30 employs or permits to be employed, on any part of his licensed premises referred to in that Section any man under the age of twenty five years or women, or

(c) sells any intoxicant to a person who is drunk or intoxicated; or

(d) permits drunkness, intoxication, disorderly conduct or gaming on the licensed premises of such licensed vendor; or

(e) permits any person whom he knows or has reason to believe to have been convicted of any non-bailable offence or any reputed prostitute to frequent his licensed premises whether, for the purposes of crime or prostitution or not;

He shall in addition to any other penalty in which he may be liable be punishable with a fine which may extend to five hundred rupees.

When any licensed vendor or any person in his employ or acting on his behalf is charged with permitting drunkness or intoxication on the licensed premises of such vendor, and it is proved that any person was drunk or intoxicated on such premises, it shall lie on the person charged to prove that the licensed vendor or the person employed by him or acting on his behalf took all reasonable steps for preventing drunkness or intoxication on such premises.

The provisions of Section 27 of the Act actually forbid the Sate from entering into any agreement with a person less than 25 years of age. The State being a sovereign, it appears, no penalty has been provided for violation of Section 27 of the Act.

Even otherwise, testing on the principles of public policy as observed above, as well as taking into consideration the Directive Principles enshrined in our constitution our aim towards prohibition is one of the cherished wishes of the citizens.

Taking into consideration broad purpose of the statute and object of the provisions under consideration. The intention of the Legislature appears to be that persons of immature mind or youthful nature should be kept away from the influence of liquor as far as possible.

The contention of the Learned Counsel for the respondents that the provisions are directory cannot be accepted for any reason. In case the provisions are accepted to be directory and their violation is permitted freely. The provisions of the statute shall become negatory and shall stand sblitterated in practice.

In view of the law laid down in the judgments cited and the observations made above, I am of the considered view that the provisions of Section 27 of the Act are mandatory.

In view of the admitted facts that the contract has been entered into by the state with the plaintiff in violation of Section 27, the same shall be deemed to be illegal. There is no controversy that a contract in violation of the mandatory provisions of the Act shall be a void contract and the State shall not be at liberty to take advantage of a void contract. There is again no controversy that every contract made for or about any matter which is prohibited shall be deemed to be a void contract irrespective of the fact whether it was made unlawful by a statute or not. Prohibition of entering into a contract with a person of less than 25 years of age is inbuilt in Section 27 itself. By operation of this section, a person below the age of 25 years has been made incompetent of entering into any contract for possessing, or selling of liquor. Consequently, he cannot be held to be bound by the contract which he was not having any legal capacity to enter into. No liability can be fixed under the void contract. The agreement, therefore, shall be deemed to be a nullity.

The counsel for the respondent further contends that since the appellant had not disclosed his age at the time of entering into contract though the terms and conditions were pronounced at the time of auction, he is estopped from contending that the contract is void. He further submits that asking for time to make the payment shall amount to ratification of the contract. I am afraid, this contention of the respondent cannot be upheld. There is no doubt that there cannot be any estoppel against the statute. Principle of estoppel is only procedural in nature and not equitable. Where the contract has been entered into violation of the mandatory provisions prohibiting such a contract which is part of the substantive law, the equitable provisions cannot be invoked to alter the law. The estoppel cannot be invoked to make the provisions of statutory law redundant, nor the parties can, by their mutual act and conduct undo the prohibitory provisions of the law. Mere consent of an incompetent party to enter into a contract cannot be a substitute for competency. The principle of equity considers as done which ought to have been done over and above what not ought to have been done.

The Learned Counsel for the appellant contends that Section 2 of the Indian Contract Act envisages that the agreement enforceable in law are the contracts Section 10 further provides that the agreement entered into by parties competent to contract are enforceable in law as the contracts. Section 10 reads as under:

What agreements are contracts. All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force in India and not hereby expressly repealed by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.

The Contract Act further provides who are persons competent to contract for which reference to Section 11 may be made which reads as under:

Who are competent to contract: Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.

Section 11 envisages that every person is competent to contract who is of the age of majority and who is of sound mind and is not disqualified from contracting by any law. Here admittedly the plaintiff being under the age of 25 years was disqualified to enter into the contract. He being disqualified, the contract has not come into existence between the competent persons. Any contract having been entered into between incompetent persons is a void contract as envisaged by Section 23 of the Indian Contract Act, which reads as under:

What considerations and objects are lawful and what not: The consideration or object of an agreement is lawful, unless it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or provides or implies injury to the person or property of another; or the court regards it as immoral or opposed to public policy.

In each of these cases the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

In my considered view as observed above, the alleged contract on the basis of which amount is proposed to be recovered from the plaintiff, is a void contract as having been entered into by persons disqualified from entering into the same. Last but not the least, the contract having been entered into in a manner which is opposed to the public policy enshrined under the Act shall be a void contract, u/s 23 of the Indian Contract Act.

Learned Counsel for the respondent has not been able to point out any ground much less substantial to hold otherwise.

The contention of the counsel for the appellant that writing letters, seeking time or extension of time amount to ratification cannot be upheld. Void contract is deemed to be non-existent and hence incapable of ratification. The State, in the garb of ratification, cannot be permitted to enforce a void contract.

No other point has been raised.

In view of my observations made above, the appeal is accepted. Judgments and decrees of the courts below are set aside and the suit of the plaintiff is decreed. The defendants are restrained from recovering any amount from the plaintiffs on the basis of the impugned contract or license issued.