Writ Appeal No.991 of 2020

## `IN THE HIGH COURT OF KERALA AT ERNAKULAM` ## `PRESENT` ``` THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR ``` ``` & ``` ``` THE HONOURABLE MRS. JUSTICE C.S. SUDHA ``` ``` TUESDAY, THE 21[ST] DAY OF DECEMBER 2021 / 30TH AGRAHAYANA, 1943 ``` ## `WA NO. 991 OF 2020` ``` AGAINST THE JUDGMENT DATED 11.02.2020 IN WP(C) 41658/2017 OF HIGH ``` ``` COURT OF KERALA APPELLANTS/LEGAL HEIR OF THE 1ST PETITIONER & 2ND PETITIONER IN THE W.P.(C): ``` ``` 1K.K.BINU AGED 55 YEARS S/O LATE K.KARUNAKARAN,RESIDING AT KOZHITHODATHU VEEDU,PANTHRANDUMURI NAGAR,THATTAMALA.P.O, KOLLAM- 20(LEGAL HEIR OF K.KARUNAKARAN,1ST PETITIONER IN WP(C)) *2P.AMBIKA DEVI,(DELETED) AGED 85 YEARS W/O.LATE K.KARUNAKARAN,KOZHITHODATHU VEEDU, PANTHRANDUMURI NAGAR,THATTAMALA.P.O, KOLLAM-20. BY ADVS. S.MUHAMMED HANEEFF SRI.M.H.ASIF ALI ``` ## `RESPONDENTS/RESPONDENTS IN THE W.P(C):` - `1 THE ASSISTANT EXCISE COMMISSIONER KOLLAM-691001.` - `2 THE EXCISE COMMISSIONER, THIRUVANANTHAPURAM-695001.` - `3 STATE OF KERALA, REP.BY ITS SECRETARY TO THE GOVERNMENT,TAXES(A)DEPARTMENT, SECRETARIAT,THIRUVANANTHAPURAM. BY ADV.SR.GP.T.K.VIPINDAS` ``` THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 21.12.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` Writ Appeal No.991 of 2020 2 ## **P.B.SURESH KUMAR & C.S.SUDHA, JJ. -----------------------------------------------** **Writ Appeal No.991 of 2020** **-----------------------------------------------** **Dated this the 21[st] day of December, 2021** ## **JUDGMENT** ## **P.B.Suresh Kumar, J.** This writ appeal is directed against the judgment in W.P.(C) No.41658 of 2017. The appellants represent the petitioners in the writ petition. Parties and documents are referred to in this judgment, as they appear in the writ petition. 2. The petitioners, their son K.K.Binu and one Omanakuttan were licensees of a foreign liquor shop during 19992000. The said shop was auctioned in their favour for an annual rental (kist) of Rs.61,61,611/- payable in instalments of Rs.6,71,614/-. A sum of Rs.18,48,483/- was paid by the licensees towards security deposit at the time of grant of licence. Though the licensees have remitted a few of the initial instalments of the rental, they have committed defaults in remitting the balance instalments. Initially, when default of Writ Appeal No.991 of 2020 3 one instalment was committed by the licensees, the authorities have adjusted the said instalment namely Rs.6,71,614/- from the security deposit furnished by the licensees and directed the licensees to replenish the security deposit. The licensees have not complied with the said direction. They have also not remitted the remaining instalments of the rental. The licence granted to the petitioners and others was, in the circumstances, cancelled for non-payment of the rental and the remaining security deposit was forfeited in terms of Rule 6(28) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974 (the Rules). 3. In the meanwhile, the petitioners and others have completed their term of licence. Revenue recovery proceedings have been consequently initiated against them for realisation of the balance rental payable by them, viz, Rs.19,18,909/- together with interest amounting to Rs.18,29,537/-. While the said proceedings was pending, the Government introduced an Amnesty Scheme for settlement of the liability of the defaulters under the Rules. The petitioners and others have applied for the benefit of the Amnesty Scheme and settled the liability by remitting a sum of Rs.19,75,028/- Writ Appeal No.991 of 2020 4 in terms of the said scheme. 4. After settling the liability, the petitioners have applied to the Government for refund of the forfeited security deposit. The request made by the petitioners in this regard was rejected by the Government in terms of Ext.P4 order. The petitioners challenged Ext.P4 order before this court in W.P.(C) No.3414 of 2016. This court set aside Ext.P4 order in terms of Ext.P6 judgment and directed reconsideration of the matter. The request of the petitioners for refund of the amount was rejected by the Government again in terms of Ext.P7 order. Ext.P7 order was under challenge in the writ petition. Having regard to the fact that the security deposit furnished by the petitioners and others was forfeited in terms of the Rules; that the order of forfeiture has become final and that the petitioners and others have accepted the amount demanded from them without giving credit to the security deposit as their liability and settled the same availing the benefit of the Amnesty Scheme, the learned Single Judge took the view that they are not entitled to refund of the security deposit. The writ petition was accordingly dismissed. The petitioners are aggrieved by the decision of the learned Single Judge. Hence this Writ Appeal No.991 of 2020 5 appeal. 5. Heard the learned counsel for the petitioners as also the learned Senior Government Pleader. 6. The learned counsel for the petitioners argued that in **V.K.Ashokan v. Assistant Excise Commissioner and others** , (2009)14 SCC 85, the Apex Court has held that security deposit made under the Rules cannot be forfeited unilaterally unless a loss has been caused to the Government. According to the learned counsel, insofar as the petitioners and others have remitted the entire amounts due to the Government by availing the benefit of the Amnesty Scheme, there is absolutely no justification for retaining the balance security deposit furnished by the petitioners. _Per contra_ , the learned Government Pleader argued that the dictum in **V.K.Ashokan** cannot be applied in the case on hand since the cancellation of licence in that case was on an entirely different provision and ground and not for non-payment of the rental as in the case on hand. 7. The short question that falls for consideration is whether the petitioners are entitled to the benefit of the dictum in **V.K.Ashokan** . Writ Appeal No.991 of 2020 6 ## 8. Rule 6(28) of the Rules reads thus: “6(28) Whenever the licensee fails to pay the kist, tree-tax, duty, etc. due from him for any month together with, the interest due under sub-rule (25) on or before the 25[th] day of the month, the Assistant excise Commissioner subject to confirmation by the Board of Revenue may cancel the licence and order a resale at the risk of the licensee or direct the management of the business of the contract by departmental agency or otherwise dispose of the same. All losses on account of such cancellation and resale or Departmental management or other disposal of the privilege shall be borne by the defaulting licensee, but he shall have no right to the gain, if any, which accrues. Disposal otherwise than by resale includes closure. The whole of the deposit, if any made at the commencement of the lease shall be liable to forfeiture. The departmental management fee collected from a shop while it was under departmental management due to default of payment of security, kist, etc. shall be liable to forfeiture at the discretion of the Excise Commissioner. The Assistant Excise Commissioner may, however, allow sales to continue or make such other arrangements as he deems fit pending resale Writ Appeal No.991 of 2020 7 or other disposal of the privilege. Any sum due from a licensee on account of kist, tree tax or otherwise may be recovered from his deposit, if any made by him at the commencement of the lease or collected under the Revenue Recovery Act. If any adjustment is made from the deposit the licensee shall be bound to replace the sum adjusted from his deposit within fifteen days of receipt of notice from the Excise Officer in charge of the division in which his shop is situated. Interest on account of loss by resale shall be calculated from the date of confirmation of the resale of the shop: Provided that the Assistant Excise Commissioner concerned may before confirmation of cancellation by the Board of Revenue, restore the licence cancelled by him subject to confirmation by the Board of Revenue, if the defaulter pays up the amount defaulted by him before the expiry of one month from the date of such cancellation.” (underline supplied) As evident from the extracted rule, it confers power on the competent authority to cancel the licence and order resale of the shop if the licensee fails to pay the kist due from him for any month. The rule aforesaid also confers powers on the competent authority to forfeit 8 Writ Appeal No.991 of 2020 the whole of the security deposit, if any, made at the time of commencement of the lease. It is invoking the said statutory provision that the competent authority has forfeited the security deposit furnished by the petitioners and others before initiating proceedings for realisation of the balance rental payable by the petitioners with interest. It was held by this court in **State of Kerala and others v. Biju Thomas and Others,** 2007 (4) KHC 552 that in a case of the instant nature where there is default in remitting the instalments of the kist, forfeiture of the security deposit furnished by the licensee is permissible under the said rule. Rule 6(30) of the Rules reads thus: “6(30) Infraction of any of the rules or the conditions of the licence either by the licensee or by any person in his employment shall entail on the licensee or his agent or both, a fine of Rs.5,000 or cancellation of the licence or both. An officer of and above the rank of the Assistant Excise Commissioners shall be competent to impose all or any of the above penalties: Provided that if the holder of such licence or permit, sells or stores for sale liquor in any premises Writ Appeal No.991 of 2020 9 other than the licensed premises, such penalty shall not be less than twenty-five thousand rupees.” As explicit from the extracted rule, it confers power on the competent authority to cancel the licence and impose a fine on the licensee for infraction of any of the rules or conditions of licence. It is relevant to note that while Rule 6(28) of the Rules authorises cancellation of licence and forfeiture of security deposit for non-compliance of the provisions therein, Rule 6(30) only provides for cancellation of licence and imposition of penalty for non-compliance of the provisions therein. 9. In **V.K.Ashokan** , the cancellation of the licence of the party was under Rule 6(30) of the Rules on account of the registration of criminal cases against the licensee on the allegation that the toddy kept by them for sale was adulterated. The question considered in that case was as to whether consequence laid down in Rule 6(28) of the Rules would automatically get attracted when a licence is cancelled in terms of Rule 6(30) of the Rules as well. The Apex Court answered the question negatively in the following words: “ **34.** There cannot be any doubt or dispute whatsoever that a proceeding for cancellation of 10 Writ Appeal No.991 of 2020 licence is maintainable on the ground of contravention of any of the provisions of the Rules or the conditions of licence. The High Court has rightly noticed that mixing of “diazepam” with toddy constitutes an offence in terms of the provisions of the Act. The same being in violation of not only the Rules but also the conditions of licence, Rule 6(30) would be attracted. **35.** The appellants before us are not questioning the order terminating their licences. In any event, the period of licence is over. Whether the consequence of termination of licence would attract forfeiture of deposit or not is the question. Rule 6(30) and Rule 6(28) operate in two different fields. Whereas licence can be cancelled in terms of Rule 6(28) only when the kist has not been regularly paid, Rule 6(30) applies in a wider spectrum. The consequences emanating from Rule 6(28) cannot ensue even in cases where a licence had been terminated in terms of Rule 6(30), as the Rules have not stated so explicitly. It was so done prior to the substitution of the present rule. **36.** The very fact that the State in exercise of its rule-making power amended the Rule in terms Writ Appeal No.991 of 2020 11 whereof the original clause ( _b_ ) was deleted is a clear pointer to show that a conscious step was taken not to take recourse of forfeiture of deposit in a case where licence is cancelled in terms of Rule 6(30). The principles contained in Heydon's rule shall squarely be attracted in this case. **37.** It is a settled principle of interpretation of statute that when an amendment is made to an Act, or when a new enactment is made, Heydon's rule is often utilised in interpreting the same. [See _Philips Medical Systems (Cleveland) Inc._ v. _Indian MRI Diagnostic and Research Ltd._ [(2008) 10 SCC 227 : (2008) 3 SCC (Cri) 764 : (2008) 13 Scale 1] ] For the purpose of construction of Rule 6(30), as it stands now, the Court is entitled to look to the legislative history for the purpose of finding out as to whether the mischief prior to such amendment is sought to be rectified or not. Applying Heydon's rule, we have no other option but to hold that such was the intention on the part of the rule-making authority. **38.** We may furthermore notice that the legal position becomes explicit having regard to the provisions of Rule 6(32) and Rule 6(34). They provide for similar consequences but in absolutely different Writ Appeal No.991 of 2020 12 situations. Rule 6(32) provides for forfeiture only in a case where the amount of fine is not paid. It is not a case where Rule 6(32) was directed to be applied as the licensees did not deposit the amount of fine imposed on them. It is also not a case that forfeiture was ordered in view of the judgment of conviction passed against the licensees. **39.** The step taken by the respondent State for forfeiture of the amount of deposit as also recovery of the amount of loss purported to have been sustained by them could have taken recourse to in terms of Rule 6(34) if they were convicted. Recourse thereto could have been taken only by the appropriate authority. The same would not automatically follow only because the licence was cancelled in terms of Rule 6(30) of the Rules. Therefore, the Board, in our opinion, was not correct to hold that the consequences laid down in Rule 6(28) would automatically be attracted. **40.** We have noticed hereinbefore that the order passed under Rule 6(28) of the Rules must be confirmed by the Excise Commissioner. Such is not the requirement in case of cancellation of licence under Rule 6(30). Writ Appeal No.991 of 2020 13 **41.** Indisputably, whereas in the cases where Rule 6(28) was taken recourse to, records were sent to the Commissioner of Excise for confirmation of the order, no such step was taken by the said authority in cases where Rule 6(30) was taken recourse to. Indisputably, the Board constituted under the Kerala Board of Revenue Act stands abolished. In terms of the said Rules, it is stated at the Bar that the Commissioner of Excise being a member thereof; for all intent and purport, exercises the jurisdiction of the Board. We may assume the same to be legally permissible. **42.** Functions of the Board and/or its power under the Act have not been specified under the Act. The Board, indisputably, derives its power to act in a supervisory capacity only in terms of the provisions of the Kerala Board of Revenue Act and not under the said Act. The Board, thus, did not have any supervisory jurisdiction under the Act, apart from the functions of the Excise Commissioner as contained in the provisions of Section 4( _b_ ) of the Act. Even otherwise, the Board vis-à-vis the Excise Commissioner does not have any power to take cognizance of a matter suo motu. It is accepted at the Bar that only when the question as regards Writ Appeal No.991 of 2020 14 confirmation of the resale was placed before the Commissioner of Excise, he purported to have noticed that apart from violating the conditions of licence as also the Rules wherefor proceedings for cancellation of licence were initiated, the appellants have also allegedly failed and/or neglected to pay their kist and as such they made themselves liable for action in terms of Rule 6(28) of the Rules. It is neither denied nor disputed that apart from the lack of inherent jurisdiction to initiate such a suo motu proceeding, neither any notice was issued to the licensees nor any proceeding was initiated therefor. The principles of natural justice had, thus, not been complied with. **43.** A bare perusal of the provisions contained in Rule 6(28) would clearly show that the order of cancellation of licence need not be passed only because it is lawful to do so. The licensing authority in such matters exercises a discretionary jurisdiction. The proviso appended to the said rule is a clear pointer to the said effect. In a given case, it is possible for a licensee to show that although in fact he had not paid the kist, he could not do so for sufficient or cogent reasons; he also could raise a plea which could have been accepted by the Writ Appeal No.991 of 2020 15 licensing authority that interest of justice would be subserved if he is allowed to deposit the amount with interest or penalty, as the case may be. **44.** For the aforementioned reasons, we are of the opinion that it was impermissible for the Assistant Commissioner of Excise to pass the said order dated 19-12-1997 opining that the consequences of forfeiture under Rule 6(28) is automatic upon cancellation of licence under Rule 6(30).” Insofar as the cancellation of the licence of the petitioners and others and consequent forfeiture of the security deposit furnished by the petitioners was invoking Rule 6(28) of the Rules, the dictum aforesaid in **V.K.Ashokan** may not have any application to the facts of the present case. 10. The learned counsel for the appellants, placing reliance on the observations made by the Apex court in the said case that if forfeiture in a given case is of the nature of penalty, Section 74 of the Indian Contract Act would apply. According to the learned counsel, the forfeiture of the security deposit made by the petitioners in the case on hand is by way of penalty insofar as no loss has been caused by the petitioners to the State and the petitioners are Writ Appeal No.991 of 2020 16 therefore entitled to refund of the forfeited security deposit. True, it is observed by the Apex court in the said case that if the forfeiture is of the nature of penalty, Section 74 of the Indian Contract Act would apply. But, in the case on hand, the security deposit was forfeited at a point of time when loss has been caused by the petitioners to the State. The petitioners have not challenged the order of forfeiture at the relevant time. They have also not challenged the order of forfeiture in the writ petition from which the writ appeal arises. Their case is only that insofar as they have settled the liability at a later point of time, they are entitled to refund of the security deposit which has been forfeited. The petitioners have not made out any right to claim refund of the security deposit forfeited at the time when they have caused loss to the Government. In the said view of the matter, we do not find any merit in the writ appeal and the same is, accordingly, dismissed. ## **Sd/-** ## **P.B.SURESH KUMAR, JUDGE.** **Sd/-** **C.S.SUDHA, JUDGE.** Mn Writ Appeal No.991 of 2020 17 * The 2[nd] appellant “P.Ambika Devi” is deleted from the array of parties in WA 991/2020 vide order of the Honourable Supreme Court in Special Leave to Appeal (C) No.16108/2022 dated 19/9/2022. **Sd/-** **ASSISTANT REGISTRAR**