FOREIGN LIQUOR DEALERS ASSOCIATION Vs. STATE OF KERALA

JUDGEMENT

(1.) PETITIONERS in all these original petitions are licensees of foreign liquor shops or bars in the hotels and restaurants having FL 1 or FL 2 licences. PETITIONERS can purchase liquor only from Kerala State Bewarages (Manufacturing and Marketing) Corporation (hereinafter referred to as 'the corporation' ). As per the conditions of licence purchase can be effected only through the Corporation holding FL 9 licence. Corporation is purchasing liquor in bulk from the manufacturers of Indian made foreign liquor (IMFL ). During the abkari year 1996-97 Government had enhanced excise duty to the tune of 200% with effect from 1. 4. 1996. The above duty was reduced to 100% with effect from 1. 4. 1997. There was a sight increase in price of liquor from June. 1997. It is the contention of the petitioners that the Corporation was not able to supply the requirements. In view of the increased price in 1996-97. licensees did not purchase the usual quota in March 1997. But in view of the reduction in duty there was high demand. Considering the possible demand. petitioners have auctioned the shops with high bid amount. But. the Corporation did not supply the required quantity in April. 1997 and this continued in May also. They have filed representations to the Minister stating that they have auctioned the shops at high rates. But the Corporation is not supplying liquor enough for distribution. In view of the non-supply. they will have to struggle hard for paying kist in time. They also requested that they may be allowed to bring foreign liquor from other sources. In the Kerala Liquor Transits Rules. 1975 there are enough stringent provisions to prevent misuse of permission to transport liquor. Sale of liquor is the privilege of the State. Only because of the licence. petitioners are able to sell liquor. But. as per the licence conditions. petitioners are bound to buy liquor only through the Corporation. The Corporation is not supplying liquor as demanded by the petitioners. Therefore. it is prayed that there should be proportionate reduction in the kist amount payable for April and May. 1997. There are compelling circumstances to reduce the kist amount notwithstanding rules 6 (25) and 6 (26) of the Abkari Shops (Disposal in auction) Rules. It is also submitted by them that when they bid the shops.-they had in their mind that in 1997-98 there is a reduction of excise duty and consequently reduction in price and there was prohibition of arrack and therefore. they will be able to sell liquor in good quantities and get a good profit. Since it is compulsory for them to purchase liquor from the corporation. they were also on the belief that Corporation will supply liquor as demanded by them. Since liquor was not supplied as demanded. they were not able to sell liquor as expected and in view of non-availability of liquor. not due to their fault. they are unable to pay full kist and theory of 'legitimate expectation' is applicable. In spite of their legitimate expectation they were not able to get supply and sell liquor. They are doing the business with licences from the Government and in view of the non-supply of liquor by the corporation as expected. consequent kist reduction should be granted in the quantum of excise duty.

(2.) PETITIONERS relied on the decision of the Supreme court in State of Rajasthan and Ors. v. Nandlal & Ors. (1993 Supp. (1) SCC 681 ). In that case. retail sale of country liquor in the State of Rajasthan was regulated by Rajasthan Excise Act. 1950. They can sell liquor only as per the provisions of the Act and Rules. During 1967-68. licences were granted under two different systems. One was called the 'guarantee System' and the other was called 'exclusive Privilege System'. Under the Guarantee System. licensees were guaranteed to draw from the Government Warehouse and sell during that year country liquor of a specified value which was called the amount guaranteed. Licensee was obliged to deposit 10% of the amount of guarantee by way of security at the time of grant of licence. Licencee was also under an obligation to draw from the warehouse every month liquor equivalent in value to I/ 12th pf the amount guaranteed. Under the Exclusive Privilege System. licensee was granted exclusive privilege of selling country liquor by retail within a particular local area. Under this system also. licencee was required to deposit 10% of the said amount by way of security at the time of grant of licence. Total amount has to be deposited in 12 monthly instalments and the licensee was entitled to draw liquor from the Government Warehouse using the said deposits. The State was not able to supply liquor as agreed or intended by the petitioners. It was held by the Court that it is for the writ petitioners to establish their contention that in spite of their demand State could not supply the requisite quantity of liquor. The mere fact that there was a shortfall in overall production of country liquor in the State during the said year does not establish the contention of the petitioners. Contention of the petitioners has to be proved. However. it was held that State has got an obligation to make requisite quantity of material available to the contractor on demand and contractor's obligation to lift the material from the State Warehouse. The Court held as follows: "before parting with this matter. we must refer to an extreme argument urged by Shri Gupta on behalf of the State. According to him. the liability of the licensee to pay the agreed amount remains unaffected even if there is a total failure on the part of the State in supplying the liquor. We cannot obviously agree with such a proposition. State is the only source of supply for such licensees. Unless the State supplies them the liquor they cannot carry on their business. As stated earlier. it is essentially a commercial contract. no doubt. governed by statutory provisions. The obligation to supply constitutes the underpinning of the contract. This does not. however. mean that the State is bound to supply as much as is demanded or that its failure to supply on a given day or in a given week can be termed as Mule to supply. Supplies of liquor are normally effected through warehouses and depots maintained by or on behalf of the State. Supplies have to be drawn over the month. It cannot be insisted that the entire monthly quantity or any other quantity must be supplied at once or as and when demanded by licensee. All that can be said is that all licencees must be treated in a fair and equal manner in the matter of supplies. particularly during the lean years. Due regard must also be had to the rules. conditions of licence and agreement and other provisions applicable in that behalf. in determining whether there was a failure on the part of the State to supply. Again. the extent of relief in case of failure on the part of the State to supply depends upon the length of period of non-supply. the loss caused to the licensee on that account. all of which has to be judged in the light of the relevant provisions of the Act. rules. conditions of licence and agreement and other orders. if any applicable". (para 19) Based upon the above decision. it was argued that since the Corporation which is an instrumentality of the State failed to supply liquor as demanded depending upon the shortfall in each case. reduction in kist should be granted. It was further argued that in view of legitimate expectation they are entitled to claim proportionate reduction in kist in the circumstances detailed earlier.

(3.) THE Supreme Court in Panna Lai and Ors. v. State of rajasthan & Ors. (1975 (2) SCC 633) held' that the onerous nature of the terms is no ground for the licencees to reside from the express obligations undertaken by them. THE Court observed: "the licences in the present case are contracts between the parties. THE licensees voluntarily accepted the contracts. THEy fully exploited to their advantage the contracts to the exclusion of others. THE High Court rightly said that it was not open to the appellants to resale from the contracts on the ground that the terms of payment were onerous. THE reasons given by the High Court were that the licensees accepted the licence by excluding their competitors and it would not be open to the licensees to challenge the terms either on the ground of inconvenient consequence of terms or of harshness of terms. " THE above decision was again considered by the Supreme court in State of Haryana & Ors. v. Lai Chand & Ors. ( (1984) 3 SCC 634)and held that after making bid for grant of exclusive privilege of liquor vend with full knowledge of terms and conduits of auction. the bidder cannot wriggle out of the contractual obligations arising out of acceptance of his bid by filing writ petition. Same view was expressed by the Supreme Court in State of haryana v. Jage Ram (AIR 1980 SC 2018) and in State of Punjab v. Dial Chand gian Chand & Co. (AIR 1983 SC 743 ). In these cases also petitioners accepted the conditions mentioned in R. 6 (25) and petitioners cannot wriggle out of the circumstances.