PETITIONER:
LAKHANLAL ETC.
Vs.
RESPONDENT:
THE STATE OF ORISSA & ORS.(with connected appeals)
DATE OF JUDGMENT15/10/1976
BENCH:
SHINGAL, P.N.
BEG, M. HAMEEDULLAH
CITATION:
1977 AIR 722 1977 SCR (1) 811
1976 SCC (4) 660
ACT
Bihar and Orissa Excise Act, 1915 as amended by Amend-
ing Acts of 1970 and 1971--ss. 22 and 29--Power of State to
auction exclusive privilege to vend liquor--Nature of
payment received.
HEADNOTE
Section 22(1) of the Bihar & Orissa Excise Act, 1915,
provides that the States may grant to any person on such
conditions and for such periods as it may think fit, the
exclusive privilege of manufacturing or selling in retail
count try liquor. The proviso provides that a public
notice shall be given of the intention to grant such exclu-
sive privilege and that a decision would be taken after
considering objections. Sub-section (2) provides that no
grantee of such a privilege shall exercise it unless or
until he has received a licence in that behalf from the
Collector or the Excise Commissioner.
In the present case the Collector issued a notice in
form GL 10 relating to the auction of the right to open a
liquor shop at the site named in the notice and the payment
of the licence fee therefor. The respondent was a success-
ful bidder at the auction. He deposited the money under r.
103 of the Excise Rules but the Government did not grant
him the licences. In a writ petition filed by the respond-
ent the State Government alleged that the bids at the auc-
tion were not satisfactory and that in the interest of
revenue the State Government did not accept the bids. The
High Court held (i) that the State Government had no power
to interfere with the auction held by the Collector after it
had become final and could not direct reauction and (ii)
that the realisation at the auction was not a fee but a tax
not contemplated by the Act and that the auction price for
a licence was not excise duty within the meaning of Entry 51
of List II and hence r. 103(1) of the Rules providing for
fixation of licence fee by auction was in excess of the
rule-making power of the Board. The High Court also held
that what was-purported to be given under the sale notice of
the Collector was not the grant of exclusive privilege under
s. 22.
By the Bihar & Orissa Excise (Orissa Amendment Ordi-
nance) 1970 which later became the Act, s. 29(2) was amend-
ed. The State Government issued an order for fresh settle-
ment of the shops and the Collector accordingly called for
tenders.
In the respondent’s writ petition the High Court held
that the State Government’s order was invalid as the author-
ities for fixing the procedure. under s. 29(2) as amended
had not been specified and the order left it to the uncon-
trolled discretion of the authority concerned to accept or
reject any tender and to determine the adequacy of the
amount offered in the tender. The State Government’s order
and the Collector’s tender notice were quashed and the
Collector was directed to issue licence to the respondent.
The High Court accordingly held that the respondent was
entitled to the grant of the exclusive privilege under s. 22
because he was the highest bidder in the auction.
The High Court also held in a petition filed by another
respondent, that in so far as s. 29(2) provided that the sum
payable under sub-s. (1) thereof shall be determined "other-
wise" than by calling tenders or by auction it was uncon-
stitutional; that portion of s. 29(2). should, therefore, be
struck down: that s. 6 of the Amending Act, 1970 was ultra
vires as there was exercise of judicial power by the legis-
lature and, therefore, the licence fee collected by the
State was illegal; but that as the respondent had already
enjoyed the benefit of the licence and voluntarily partici-
pated in the auction he wag not entitled to its refund.
3--1338S.C.I./76
812
Therefore the Second Amendment Act, 1971 was passed. The
vires of the amended sections 21 and 29 was challenged in
writ petitions but the High Court dismissed them.
In appeals to this Court,
HELD: (1) The provisions of the Act and the express
declarations make clear that the State Government had the
power to reject a bid. In any event no right is created in
the bidder by making a bid. The administration of the
Excise Department and the collection of revenue within the
district vest in the Collector. It is not correct to say
that the notice issued by the Collector in form GL 10 was
sufficient to show that the exclusive privilege for retail
sale of country liquor was not proposed to be given to the
successful bidders at the auction. The High Court erred in
holding that a condition regarding the opening of additional
shops was inserted in the Form. [821 F; 819D; 820E]
(b) It has been held by this Court that the State has
the exclusive right or privilege of manufacturing and sell-
ing liquor. The State grants such right or privilege in the
shape of a licence or a lease. The State has the power to
hold, a public auction for grant of such right or privilege
and accept payment of a sum in consideration of grant of
lease, that the amount payable by the bidders as licensees
was neither a fee in the technical sense nor a tax, but was
in the. nature of price of a privilege and that auctions
were only a mode or medium for ascertaining the best price
obtainable thereof. Therefore, the right granted to the
bidders by public auction and the licences issued to them
was clearly an exclusive privilege within the meaning of s.
22(1 ) of the Bihar Act and it was expressly provided in s.
29 that it would be permissible for the State not to
accept payment of a sum in consideration of the grant of the
exclusive privilege. [819 H; 820A-D]
Nashirwar etc. v. The State of Madhya Pradesh [1975] 2
S.C.R. 861; Hat Shankar & ors. v. The Dy. Excise and Taxa-
tion Commissioner & ors. [1975] 3 S.C.R. 254; Thakur Prasad
Sac & ors. v. The Member, Board of Revenue & ors. [1976] 2
S.C.R. 850; State of Orissa & ors. v. Harinarayan Jaiswal &
ors.. [1972] 3 S.C.R. 784 applied.
(c) The view of High Court that after the acceptance of
the bid the Collector should have issued the licence and
that he committed an illegality in ordering reauction pre-
supposes that a binding obligation had come into existence
in favour of the bidder by accepting a deposit from him even
though this was done on the express condition that it was
tentative and was not an acceptance of his bid. In the
peculiar facts and circumstances of the auction, the bids
were nothing more than offers in response to an invitation
to make tenders and such auctions were the mode. of ascer-
taining the highest offers. The basic conditions for the
emergence of rights through offers or conditions made and
accepted and acted upon by paying any specified or agreed
price as consideration were wanting in this case. The
express and advertised terms of. the auction made it clear
that the money tendered was to be deemed to be deposited
tentatively, pending the acceptance of the bid. The bids
were neither offers nor acceptance’ by the Government. They
were only offers by the bidders.to purchase the rights. The
essentials of an agreement and mutuality of obligations were
absent altogether. Since auction is only a mode of ascer-
taining the highest offer, the State Government can deter-
mine the sum payable by any other method and hence. the High
Court was wrong in striking down the expression "other-
wise" from s. 29(2)(a). [820 H; 821 A-C]
(d) These auctions are not ordinary auctions where a
binding agreement could be deemed to be concluded at the
fall of the.hammer, creating mutually enforceable obliga-
tions but. are a means for ascertaining the highest offers
for the exclusive privileges which the Government alone
could grant for carrying on a trade or business considered
noxious under the law, and which, because of its special
character, could be regulated m any way or even prohibited
altogether by the Government. This special character of the
trade or business would appear from the power of the State
Government to grant the exclusive privilege to carry on
trade m the manufacture and sale of liquor. [821 F-G]
(e) There is no justification for the argument of the.
respondents that it was not permissible for the State Gov-
ernment to issue directions for reauction even when it found
that the bids at the auction were unsatisfactory. So long
as the powers of the Government to reject a bid are not used
in an unreasonable or mala fide manner, their exercise
cannot be questioned [821 G]
2(a) The High Court’s view that r. 103(1) was ultra.
vires was taken under the mistaken impression that the State
was collecting a tax under the garb of a fee and that the
auction price for a licence could not be treated as duty
within the meaning of Entry 51, List II of the Seventh
Schedule. But what was sought to be raised was considera-
tion and not fee. The use of the expression "’fees" in the
rule is inaccurate but that:cannot detract from the real
nature of the recovery. [822 A-B]
(b) The argument of the respondent that r. 103 continued
to remain invalid even after the promulgation of the Amend-
ment Act is not correct because s. 5 of the Second Amendment
Act has substituted a new sub-s. (2)for the old subsection
providing for auction and this sub-section stated that it
shall be deemed always to have been substituted". Section
17 has validated all grants made by way of licences for
manufacture and retail sale of country liquor and the
amounts paid or payable therefor. [824 G-H; 825 C]
(c) The power to accept or reject a tender without
assigning any reason cannot be said to be arbitrary as s.
29(2) (which has been amended with retrospective effect)
itself provides that (i) it shall be exercised in the inter-
est of the Excise revenue, (ii) by the specified authority
and (iii) under such control as may be specified. In the
instant case the ’State Government retained the power of
accepting or rejecting the tender or for calling of a fresh
tender, to itself, and such an order cannot be said to be an
absolute or naked power of the nature apprehended by the
High Court. Moreover, the power to accept or reject the
highest o,r any bid was expressly reserved under the im-
pugned sale notification. [823 A-C]
(3) Even though no authority was specified for taking
action under s. 29(1) it was the Collector who is in charge
of the Excise Administration that took action in the
present case and his action was approved by the State Gov-
ernment. Moreover, the State Government issued a modified
order under s. 29 nominating itself as the authority to
determine the sufficiency of the. sum payable. [822 D]
(4) It has been held by this Court that there is no
fundamental right to do trade or business in intoxicants and
that in all their manifestations these rights are vested in
the State and without such vesting there can be no effective
regulation of various forms of activities in relation to
intoxicants. There is no inherent right in a citizen to
sell intoxicating liquors by retail. [823 H]
Krishan Kumar Narula etc. v. The State of J & K & ors
[1967] 3 S.C.R. 50; Nashirwar etc. v. The State of M.P.
[1975] 2 S.C.R. 861; Har Shankar & ors. v. The Dy. Excise &
Taxation Commissioner & ors. [1975] 3 S.C.R. 254; Coovetlee
Bharucha v. The Excise Commissioner [1954] S.C.R. 873 fol-
lowed.
(5) Since the Bihar & Orissa Excise (Second Orissa
Amendment) Act, 1971 has made good the deficiency, if any,
by stating that the amending provisions in ss. 2 to 5 of the
Amending Act, 1970 shall be deemed always to have been so
added or inserted or substituted, the High Court was wrong
in holding that there was any exercise of judicial power by
’the Legislature. [824 C-D]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 351-359/72.
Appeals from the Judgment and Order dated 7-5-1971 of
the Orissa High Court in O.J.C. Nos. 1185 to 1190, 1223 and
1224 of 1970 and 41/71 and
CiviI AppeaI Nos. 1855-1863, 2091/72 and 1802/74.
Appeals by Certificate/Appeals by Special Leave from the
Judgments and Orders dated 7-5-1971, 3-2-1971 and 28-3-1974
of the
814
Orissa High Court in O.J.C. Nos. 1185-1190, 1223, 1224 and
1226/ 70, 850/70, 589/72 and
Civil Appeals Nos. 1892-1893 of 1971, 1302, 2071 and
12351236 of 1972.
Appeals from the Judgment and Orders dated 15-5-1970,
16-41971, and 6-9-1971 of the Orissa High Court in O.J.C.
Nos. 329 and 357/70, 786/.70, 242/67, 859 and 863/70.
Vinoo Bhagat for the Appellants in CAs. 351-359/72 and
RR. in CAs. 1859-1862/72.
Gobind Das and G.S. Chatterjee for the Appellants in
rest of the Appeals, except 1802/74 and RR. in CAs. 351-
359/72.
R.K. Garg and S.C. Agarwal for Appellants in CA 1802/74
and B.P. Maheshwari and Suresh Sethi for Respondents in CAs.
12351236/72.
B. Parthasarthy for RR in CA. 1802/74.
The Judgment of the Court was delivered by
J.---These appeals by certificate or special
leave are directed against judgments of the Orissa High
Court dated May 15, 1970, February 3, 1971, April 16, 1971,
May 7, 1971, September 6, 1971 and March 28, 1974. They
arise out of several writ petitions. The facts which gave
rise to the petitions changed from time to time largely
because of amendments in the law, and that was the reason
for the filing of separate writ petitions resulting in the
impugned judgments of the High Court, but we have heard them
together at the instance of the learned counsel for the
parties and will dispose them of by a common judgment. The
nature of the controversy in these cases is such that it
will be enough to state the basic facts for the purpose of
appreciating the arguments of counsel for the parties.
The Collector of Mayurbhanj issued a notice on February
3, 1970 by which he invited tenders for the grant of li-
cences for establishing 70 outstill shops for 1970-71.
Ajodhya Prasad Shah gave the highest bid for a group of
seven shops, in one lot, for Rs. 34,000/-per month. His bid
was accepted and his name was entered in the prescribed
register, and the entry was signed by the successful bidder
and the Collector. Ajodhya Prasad accordingly deposited Rs.
68,000/- on account of two months’ "fees", in ad-
vance, as required by rule 103 of the Board’s Excise
Rules, 1965. Raghunandan Saha, who was the unsuccessful
bidder, felt aggrieved and filed an appeal, but it was
dismissed by the Excise Commissioner on March 16, 1970. The
Board of Revenue also refused to interfere. Ajodhya Prasad
claimed that in the mean time he made arrangements for
establishing his shops and incurred an expenditure of about
Rs. 1,50,000/-. He therefore approached the authorities
concerned for the issue of the licenses for running the
shops from April 1, 1970. He approached , the Superintend-
ent of Excise for depositing Rs. 34,000/- for the month of
April, but the Superintendent did not pass the deposit
challan. Ajodhya Prasad thereupon filed a writ petition
(O.I.C. No. 329 of 1970) in the High Court with the allega-
tion that the Collector
815
was not acting according to the law as the State Government
had issued instructions to him not to. issue the licenses.
Ajodhya Prasad prayed in his petition for the issue of
directions for’ the issue of licenses and quashing the State
Government’s instructions to the contrary. Raghunandan Saha
also filed a petition (O.J.C. No. 357 of 1970) on April 13,
1970. The Collector issued a notice for reauction on May 1,
1970 and Ajodhya Prasad amended his petition for quashing
the notice also.
The State Government and the other respondents traversed
the claim in Ajodhya Prasad’s writ petition and pleaded,
inter alia, that the bids at the auction were not satisfac-
tory and, in the interest of the State revenue, the State
Government had passed the orders for not accepting Ajodhya
Prasad’s bids. The High Court examined the questions
whether Ajodhya Prasad was entitled to the issue of the
licenses for the seven shops and whether the State Govern-
ment had the authority to direct the withholding and reauc-
tioning of the licenses, and held, inter alia, that the
State Government had no power to interfere with the auction
held by the Collector after it had "become final in appeal
and revision", and could not direct a reauction. The High
Court examined the nature of the realisation at the auction
and held that it was a tax which was not contemplated by
section 38 of the Bihar and Orissa Excise Act, 1915, herein-
after referred to as the Act, and that rule 103(1) of the
Board’s Excise Rules in regard to the fees for the licenses
was not authorised by the Act and was in excess of the
rule-making power of the Board. The High Court also held
that the "auction price for a license is not excise duty
within the meaning of Entry 51 of List II of the Seventh
Schedule to the Constitution" and it was not open to. the
Collector "to follow the process of auctioning for deter-
mining the license fee" which was really a tax in the garb
of a fee. It held that the aforesaid rule 103 was incompe-
tent and ultra vires the Act. On the question of grant of
the "exclusive privilege" under section 22 of the Act, the
High Court held that what was purported to be given under
the sale notice was not the grant of .an exclusive privi-
lege. In taking that view the High Court stated that
notice had not been issued under section 22 (1) of the Act
and the Collector had no authority to issue such a notice In
that view of the matter, the High Court did not express any
final opinion as to whether the licence was to be granted
for an exclusive privilege to manufacture and sell ’liquor.
The High Court accordingly quashed the direction of the
State Government dated April 15, 1970 for reauctioning the
license and declared that rule 103(1) of the Board’s Excise
Rules was ultra vires the Act. Appeals Nos. 1892 and 1893
of 1971 are directed against that judgment of the High
Court dated May 15, 1970, on certificates.
The State Government issued the Bihar and Orissa Excise
(Orissa Amendment) Ordinance of 1970 and the State Govern-
ment issued a fresh order dated August 19, 1970 under the
provisions of the amended section 29(2) of the Act for fresh
settlement of the shops, and wrote to the Collector of
Mayurbhanj to call for tenders in accordance with that
order. The Collector called for tenders within a week.
816
Ajodhya Prasad thereupon filed another writ petition
(O.J.C. ’No. 850 of 1970) for quashing the Collector’s
tender notices and for a direction to the authorities con-
cerned to grant a license to him on the basis of the earlier
auction.
The Bihar and Orissa Excise (Orissa Amendment) Act, 1970
was passed on October 5, 1970 and the ordinance was re-
pealed. That was followed by the Orissa Excise (Exclusive
Privilege) Rules, 1970, which were made under section 89 of
the Act.
The respondents in Ajodhya Prasad’s writ petition No.
850 of 1970 pleaded that the amendments to the Act were
valid and that the State Government had the right to grant
an exclusive privilege for the purposes mentioned in section
22 of the Act. The money so realised was consideration for
the exclusive privilege under section 22 and was neither an
excise duty nor a tax nor a fee. It was also pleaded that
the tender was in accordance with the rules as the authority
to accept the tender was the State Government.
The High Court examined Ajodhya Prasad’s writ petition
(No. 850 of 1970 in its Judgment dated February 3, 1971. It
held that the order of the State Government dated August 19,
1970 for inviting tenders was invalid as the authorities for
fixing the procedure under the amended section 29(2)(b) had
not been specified, the Government had "appropriated for
itself absolute and naked and arbitrary power’ to accept any
tender or reject any tender for any reason whatsoever or
without any rhyme or reason" and the order left it to the
uncontrolled discretion of the authority concerned to
determine the adequacy of the amount offered in the tender.
As regards the claim for the issue of a license under sec-
tion 6, the High Court held that as the petitioner was the
highest bidder on February 20, 1970 and his name was entered
in the bid register and the entry was signed, the petition-
er was entitled to the grant of the exclusive privilege
under section 22 by virtue of section 6(a) of the Amending
Ordinance irrespective of the validity of rule 103 (1) of
the Board’s Excise Rules. The High Court accordingly held
that section 6(a) of the Amending Ordinance was valid and
the grant of seven’ shops to the petitioner, for the manu-
facture and retail sale of country liquor was therefore
validated "as the grant of an exclusive privilege under
section 22 of the Act" and he was entitled to license under
sub-section (2) of that section.. The Order of the State
Government dated August 19, 1970 and the Collector’s tender
notice were quashed and the Collector was directed to issue
the license for the seven shops to him.
Siba Prasad Saha who filed the writ petition (No. 786 of
1970) in August 1970, after the first judgment of the High
Court dated May 15, 1970 for refund of the license fee and
for non-payment of any fee in the future, as he was a licen-
see for several liquor shops, amended it in the light of the
subsequent developments. The High Court took the view in
its judgment dated April 16, 1971 that sections 2 to 5 of
the Amending Ordinance, or the Amending Act (17 of 1970)
were not made retrospective. It took note of this Court’s
817
decision in Krishna Kumar Narula etc. v. The State of
Jammu and Kashmir and others(1) that a citizen had the
fundamental right to carry on business in liquor and all
that the State could do. was to impose reasonable restric-
tion thereon. It also held that in so far as section 29(2)
of the Act provided that the sum payable under sub-section
(1) thereof shall be determined "otherwise" than by
calling tenders or by auction, it was unconstitutional
That portion ,of sub-section (2)(a) was therefore struck
off. The High Court held further that what was realised by
the State was not a fee or tax, as the primary purpose of
the Act was to. restrict the manufacture and sale of country
liquor. It accordingly held as follows,---
"We are, therefore, satisfied that the provi-
sion in Section 22 of the Act for grant to any
person of the exclusive privilege of manufac-
ture and sale of country liquor for a sum, the
method of determination of which is provided
in Section 29, are provisions which are calcu-
lated to restrict and control trade in liquor
although incidentally revenue is earned for
the State thereby and that Entry in List II
of the Seventh Schedule confers power on the
State Legislature to enact such a regulatory
measure and consequently the State Legislature
has legislative competence to enact Sections
22 and 29."
The High Court accordingly held that section
22 and section 29 without the expression "or
otherwise" in clause (a) of sub-section 2 were
valid and constitutional. The High Court then
examined the effect of section 6 of the Amend-
ing Act of 1970, and held that as retrospec-
tive effect was not given to sections 2 to 5
of that Act, the validity of the money rea-
lised by the State had to be judged with
reference to the unamended provisions, and
held as follows,--
"It, therefore, follows that by reason of the
fact that Sections 2 to 5 of the Amending Act
were not made retrospective in operation, the
effect of Section 6 is that thereby the Legis-
lature had directed the State to disregard the
decision given by this Court in Ajodhya Pra-
sad’s case (I.L.R. 1971 Curt. 51 ) that the
amount realised by the auction is illegal.
This virtually amounts to judicial exercise of
power by the legislature a power which the
Legislature does not possess. We, therefore
hold that Sections 2 to 5 of the Amending Act
having not been made retrospective, Section 6
is ultra vires the powers of the Legislature."
The High Court however held that although the’ license fee
collected by the State was illegal, the petitioner had
already enjoyed the benefit under the license and had volun-
tarily participated in the auction, and was not entitled to
an order for its refund.
A similar view was taken in the judgment dated April
16,1971 in O.J.C. No. 242 of 1967 and the judgment dated May
7, 1971 in
(1) [1967] 3 S.C.R. 50.
818
O.J.C. NOS. 1185-1190, 1223, 1224 and 1226 of 1970. Those
judgments have given rise to civil appeals Nos. 2071, 1855-
1863 and 351-359 Of 1972 (cross-appeals). O.J. Cs. Nos. 859
and 863 of 1970 were diposed of by separate judgments
dated September 6, 1971 which followed the earlier judgment
dated April 16, 1971 in Siba Prasad Saha’s case and that has
given rise to appeals Nos. 1235 and 1236 of 1972.
The Bihar and Orissa Excise (Orissa Second Amendment)
Act, 1971 (10 of 1971) was passed to set right the defects
in the law. Stated briefly that Act made the amendments to
sections 2, 7, 29, 37’ and 90 retrospective and validated
the earlier acts.
A writ petition (O. J.C. No. 589 of 1972) was filed to
challenge the vires of section 22 and 29 of the Act. The
main judgment in the matter was delivered in O.J.C. No. 1036
of 1971, on January 3, 1974. In that judgment the High
Court examined the challenge to the vires of sections 22 and
29 of the Act and the claim for refund of the money already
paid with reference to the amendments to the Act. It fol-
lowed the earlier decision in Siba Prasad Saha’s case of
April 16, 1971 (I. L.R.1971 Cuttack 777) and dismissed the
writ petitions and that/ms led to the filing of civil ap-
peals Nos. 1235 and 1236 of 1972.
The last judgment was delivered on March 28, 1974 in
O.J.C. No. 589 of 1972, in Siba Prasad saha’s case. The
petitioner there was the grantee of the exclusive privilege
for sale of country liquor: during the year 1972-73 for some
shops in Mayurbhanj district. The’ petitioner challenged the
vires of sections 22 and 29(2) as amended, and prayed for
the consequential reliefs. The High Court held that the
case was completely covered by its decision dated January
3, 1974 in O.J.C. No. 1036 of 1971 and dismissed the peti-
tion.
It will tires appear that these appeals are inter-con-
nected and that is why we have thought it desirable to
examine them in a common, judgment.
As has been stated, Civil Appeals Nos. 1892 and 1893 of
1971 arise out of’ O.J. Cs. Nos. 392 and 357 of 1970 which
have been decided by the judgment of the High Court dated
May 15, 1970. It has been argued by Mr. Govind Das on
behalf of the appellants that the High Court erred in hold-
ing that the sale notice issued by the Collector was not for
the grant of an exclusive .privilege under subsection (1) of
section 22 of the Act because the Collector had no authority
to issue a notice under that sub-section, as the power of
the’ State Government in that respect had been delegated to
the Board of Revenue.
Sub-section (1) of section 22 of the Act provides that
the State Government may grant to any person, On such condi-
tions and for such periods as it may think fit, the exclu-
sive privilege, inter alia, of manufacturing or selling
retail any country liquor. The proviso to the sub-section
requires that public notice shall be given of the intention
819
to grant any exclusive privilege of that nature and that a.
decision would be taken after considering the objections
made in that respect. Once a decision is taken under ,sub-
section (1) to grant the exclusive privilege within any
specified area, sub-section (2) provides that no grantee of
such a privilege shall exercise the same "unless or until he
has received a license in that behalf from the Collector or
the Excise Commissioner." It has been stated at the Bar by
Mr. Govind Das, and has not been controverted that, as. had
been averted in’ the memorandum of appeal, the requirement
of sub-section (1) of section 22 had already been complied
with by the State Government, and that the Collector was
not concerned and did not in fact issue any public notice
for purposes of sub-section (1) of section 22. A reading
of the Collector’s notice, which admittedly was in Form G.L.
10, shows that it related to the auction of the right to
open a shop at the site named in the notice and the payment
of the license fee therefor. The High Court therefore went
wrong in holding that the issue of the notice in Form G.L.
10 negatived the contention that what was proposed to be
given was the exclusive privilege to manufacture and sell
country liquor. By virtue of section 7(1), the administra-
tion of the Excise Department and the collection of excise
revenue within the district vested in the Collector, and we
are unable to think, that his notice in Form G.L. 10 was
sufficient to show that the exclusive privilege for retail
sale of country liquor, under the outstill system, was not
proposed to be given to the successful bidders at the auc-
tion.
The true nature of the proceeds of the auction held by
the Collector in such a case has been examined by this Court
in Nashirwar etc. etc. v. The Slate of Madhya Pradesh, C)
Har Shankar and others v. The Dy. Excise and Taxation Com-
missioner and others(2) and Thakur Prasad Sao and others v.
The Member, Board of Revenue and others etc.(?’). In Na-
shirwar’s case (supra) this Court examined the constitution-
al validity of the provisions in the Central Provinces
Excise Act for granting leases in respect of liquor by
public auction, and of the Abkari Act of the Kerala State
placing restrictions on the manufacture and sale etc. of
liquor. After considering all the decided cases includ-
ing Narula’s case (supra) in which it was held that a
citizen had a fundamental right to. do business and deal in
liquor, this Court referred to its decision in State of
Orissa and others v. Harinarayan Jaiswal and others(4) in
which Narula’s case was explained, and held as follows,-
"For these reasons we hold that the
State has the exclusive right or privilege of
manufacturing and selling liquor. The State
grants such right or privilege in the shape of
a licence or a lease. The State has the power
to hold a
(1) [1975] 2 S.C.R. 861.
(2) [1975] 3 S.C.R. 254.
(3) [1976] 2 S.C.C. 850.
(4) [1972].3 S.C.R. 784.
820
public auction for grant of such right or
privilege and accept payment of a sum in
consideration of grant of lease."
While taking this view this Court held that
the State Legislature was authorised to make a
provision for public auction by reason of the
power contained in Entry 8 List II of the
Seventh Schedule to the Constitution and
that there was "no fundamental right of citi-
zens to carry on trade or to do business in
liquor."
The matter again came up for consideration in Har
Shankar’s case (supra) with reference to the provisions of
sections 27 and 34 of the Punjab Excise Act, 1914, where the
appellants gave bids at public auctions. It was held that
the amount payable by them, as licensees, was neither a fee
in the technical sense nor a tax, but was in’ the nature of
"price of a privilege" and that auctions were only a mode or
medium for ascertaining the best price obtainable therefor.
Thakur Prasad’s (supra)was a case directly under the
provisions of the Act. It also related to the outstill
system. It was held that "the State has the exclusive
right and privilege of manufacturing and selling liquor" and
that it has the "power to hold a public auction for the
grant of such a right or privilege and to accept payment of
a sum therefor." It was accordingly held that the right
granted to the appellants by public auction and the li-
censes issued to them was "clearly an exclusive privilege
within the meaning of section 22(1) of the Act" and that it
has expressly been provided in section 29 that it would be
permissible for the State Government to accept payment of a
sum in "conSideration" of the exclusive privilege under
section 22.
There can be no doubt therefore that the High Court
erred in taking a contrary view.
The High Court has tried to support its view by refer-
ring to the condition stated in Form G.L. 10 for the opening
of additional shops during the currency of the license, and
has stated that an exclusive privilege under section 22
"cannot comprehend exercise o[ such power once it is
granted for a specified period." This was clearly an
erroneous view because it is not disputed before us that no
such condition was inserted in the license at all. What the
licensee therefore received under the license was an exclu-
sive privilege of manufacturing and selling liquor under
the outstill system within the meaning of section 22 of the
Act.
The High Court has held that after the acceptance of the
bid all that remained was to issue a license and that the
Collector committed an illegality in ordering a reauction
under the directions of the State Government. Such a view
presupposes that a binding, obligation had come into
existence in favour of the bidder by accepting a deposit
from him even though this was done on the express condition
that it was tentative and was not an acceptance of his bid.
We do not think that what the High Court held to be an
"acceptance of the bid" at the "auction", even after the
announcement of an express condition
821
attached to it that the knocking down of the bid would not
really be an acceptance of it by the Government, could be an
acceptance of the bid at all. In the peculiar facts and
circumstances of the auction, the bids were, apparently,
nothing more than offers in response to invitation to make
tenders, and such auctions were the mode of ascertaining the
highest offers. The basic conditions for the emergence of
rights through offers or conditions made and accepted, and
acted upon, by paying any specified or agreed price as
consideration, were thus wanting in this case. In fact the
express and advertised terms of the auction made it clear
that the money tendered was to be deemed to be deposited
tentatively, pending the acceptance of the bid. So what we
have before us are neither offers nor acceptance by the
Government. There were only offers by the bidders to pur-
chase the rights, subject expressly to their acceptance or
rejection by the State Government. The essentials of any
agreement and the mutuality of obligations were thus absent
altogether.
Moreover it was not an ordinary auction where binding
agreement could be deemed to be concluded at the fall of the
hammer, creating mutually enforceable obligations. Those
were only so called auctions, adopted as means for ascer-
taining the highest offers for the exclusive privileges
which the Government alone could grant for carrying on a
trade or business. considered noxious, under the law and
which, because of its special character, could be regulated
in any way, or even prohibited altogether, by the Govern-
ment. This special character of the trade or business would
appear from the power of the State Government to grant the
exclusive privilege to. carry on trade in the manufacture
and sale of liquor. It will be recalled that section 22(1)
provides that the State Government "may grant to any person,
on such conditions and for such periods as it may think fit,
the exclusive privilege" in question: Sub-section (2) of
section 22 enacts that a grantee of such a privilege shah
not exercise it "unless or until he has received a license
in that behalf from the Collector or the Excise Commission-
er."
The powers of the Government to reject a bid were thus
reserved both under the provisions of law and by the express
declarations made before the auction. At any rate we do not
find any basis for the creation of a right merely by making
a bid. The extent of the powers of the government in such
matters has been indicated by this Court in State of Orissa
and others vs..Harinarayan Jaiswal and others (supra). So
long as these powers are not used in an unreasonable or mala
fide manner, their exercise cannot be questioned. In the
cases before us, it could not be said that either the Gov-
ernment or any of its officers abused the power by acting
either unreasonably or in a mala fide manner, and we find
no justification for the argument that it was not permissi-
ble for the State Government to issue.the directions for
reauction even when it found that the bids at the auction
were unsatisfactory.
The High Court has taken the view that rule 103(1) of
the Board’s Excise Rules regarding the manner of fixation
and realisation
822
of the consideration for the grant of a license for the
exclusive privilege of retail vend of country spirit was
"incompetent and ultra vires the act." The High Court took
that view under the mistaken impression that the State was
not entitled to collect a tax "under the garb of a fee" and
the "auction price for a license is not duty within the
meaning of Entry 51 of List 11 of the Seventh Schedule to
the Constitution." But, as has been shown, what was sought
to be raised was consideration and not "fee". The use of
the expression "fees" in the rule is therefore inaccurate,
but that cannot detract from the real nature of the recov-
ery. Mr. S.C.. Agarwal has challenged the validity of rule
103 on another ground, and we shall deal with it when we
come to the judgment of the High Court dated April 16, 1971.
The next judgment of the High Court is that dated
February 3, 1971, in O.J.C. No. 850 of 1970, which has given
rise to civil appeal No. 209/of 1972 by the State of Orissa.
We have already stated the findings of the High Court in
regard to it.
It has been argued by Mr. Govind Das that even if the
State Government failed to specify the authority which was
to determine the mode of determining the sum payable under
sub-section (1) of section 29, that could not be said to
matter because it was the Collector, who was incharge of the
administration of the Excise Department and Collection of
the excise-revenue under section 7 of the Act, who took the
action to issue the auction notice for the grant of the
license. for the retail sale of country liquor. Moreover,
the State Government did not object to his authority to do
so. and, on the other hand, directed him to make a reauction
merely on the ground of the insufficiency of the bids. The
Collector called for fresh. tenders. It was not in dispute
before the High Court that the State Government issued a
special order under section 29 by which it nominated itself
to be the authority to determine the sufficiency of the
sum payable under section 29(1) of the Act. There is
nothing in sub-section (2)(b) to show that that was not
permissible.
The other question in this respect is whether the fol-
lowing direction in the State Government’s order dated
August 19, 1970 was valid, ---
"It shall be at the discretion of the
State Government to accept or reject any
tender without assigning any reason therefor
to order for calling of fresh tender or other-
wise as the case may be."
It will be recalled that the High Court has taken the view
that the order dated August 19, 1970 and the tender notice
issued in pursuance thereof were bad in law and were liable
to be quashed. The High Court has taken the view that
section 29(2)(a) did not authorise the exercise of "such
absolute and naked power in determining the sum of money" as
was sought to be done by the order dated August 19, 1970.
It appears to us however that the power to accept or reject
a tender without assigning any reason cannot be said to be
823
arbitrary as section 29(2) (which has been amended with
retrospective effect) itself provides. that (i) it shall be
exercised in the interest of the Excise revenue", (ii) by
the specified authority, and (iii) under such control as
may be specified. As has been stated, the State Govern-
ment retained the power of accepting or rejecting the
tender, or for calling of a fresh tender, to itself, and
such an order cannot be said to be an "absolute" or "naked"
power of the nature apprehended by the High Court. Refer-
ence in this connection may be made to the decision in
Jaiswal’s case (supra) mentioned above. Moreover it is
not disputed before us that the power to accept or not to
accept the highest or any bid was expressly reserved under
the impugned sale notification. Sub-section (2) of section
79 of the Act was also amended by the Bihar and Orissa
Excise (Second Orissa Amendment) Act 1971 (Act 10 of 1971)
with full retrospective effect. Section 17 of the Act
validated both the licenses granted and amounts paid or
payable therefor, and its validity has not been challenged
before us.
It will be remembered that Siba Prasad Saha had filed
O.J.C. No. 786 of 1970 after the first judgment of the High
Court dated May 15,1970, for refund of the license fee and
for non-payment of the fee in future. The State of Orissa
feels aggrieved against the decision of the High Court in
that case dated April 16,1971 that a citizen has a fundamen-
tal right to deal in liquor. In taking that view the High
Court relied on this Court’s decision in Narula’s case
(supra). The decision in Narula’s case was considered and
explained by this Court in Nashirwar’s care (supra) and it
has been held as follows,--
"It is not correct to read in the deci-
sion in Narula’s case that there is a funda-
mental right to do business in liquor. The
decision is that dealing in liquor is busi-
ness and a citizen has a right to do business
in that commodity and the State can impose
reasonable restrictions on the right in
public interest. If the State can prohibit
bussiness in liquor as is held in State of
Bombay and Another v.F.N. Balsara (1951
S.C.R.682) this establishes that the State
has exclusive right of privilege of manufac-
ture, possession, sales of intoxicating liquor
and therefore the Slate grants such a right of
privilege to persons in the shape of license
or lease."
In reaching this conclusion this Court took note of the
decision in Bharucha’s case(1) that there was no inherent
right in a citizen to sell intoxicating liquors by retail,
and that it is not a privilege of a citizen of the State,
and observed that as Bharucha’s case was a Constitution
Bench decision like Narula’s case, the latter could not be
said to have overruled the former. As has been stated, the
matter again came up for consideration in Har Shankar’s case
(supra) with specific reference to Narula’s case, and it was
reiterated that "there is no fundamental right to do trade
or business in intoxicants" and that "in all their mani-
festations, these rights are vested in the State and indeed
without such vesting there can be no effective regulation of
824
various forms of activities in relation to intoxicants."
The contrary view of the High Court in impugned judgment is
incorrect and must be set aside.
The other grievance of the appellant State is that the
High Court struck down the expression "or otherwise" from
clause (a) of subsection (2) of 29 of the Act as unconstitu-
tional. We have given our reasons for the contrary view,
and the High Court therefore went wrong in striking down the
expression "or otherwise".
The High Court has also held that as sections 2 to 5 of
the Amending Act of 1970 were not made retrospective in
operation, the effect of section 6 amounted to a direction
by the Legislature to the State to disregard the decision in
Ajodhya Prasad’s case that the amount realised by auction
was illegal and that section 6 was therefore ultra vires the
powers of the Legislature. It will be sufficient to say in
this connection that the Bihar and Orissa Excise (Second
Orissa Amendment) Act, 1971 (Act 10 of 1971) has made good
the deficiency, if any, by stating that the amending provi-
sions shall be deemed always to have been so added or
inserted or substituted. In this respect also, the impugned
judgment of the High Court must be rectified.
Mr. S.C. Agarwal has argued that the amount realised by
the State for grant of the exclusive privilege under sec-
tions 22 and 29 was nothing but a tax and no such tax was
permissible under Entries 45 to 63 of List II of the Seventh
Schedule to the Constitution and that it was not excise duty
within the meaning of Entry 51 or a fee under Entry 66. It
has also been argued that Entry 8 embodying the Police
powers of the State could not be invoked to sustain such an
imposition. Mr. Bhagat has also argued that the collection
was in the nature of a tax and section 29 was therefore
ultra vires the Constitution. Mr. Bhagat has also urged
that the State was not the owner of the exclusive privilege
to manufacture or sell liquor and that the Act did not
empower it to part with that right on payment. We have given
our reasons already for taking a contrary view, with refer-
ence to. the decisions in Nashirwar’s case and Har Shankar’s
case. The State has the exclusive right or privilege to
manufacture, store and sell liquor and to grant that right
to its license holders on payment of consideration, with
such conditions and restrictions for its regulation as may
be necessary in the public interest. The argument to the
contrary is futile and is rejected.
It has been argued by Mr. Agarwal that although the
Amending Act of 1970 (Act 17 of 1970) was enacted for the
purpose of getting over the High Court’s declaration in
O.J.C.No. 357 of 1970 that rule 103 of the Board’s Excise
Rules, 1965, in so far as it directs that fees for license
for the retail vend of excisable articles shall be fixed by
auction, was ultra vires the Act, rule 103 continued to
remain invalid even after the promulgation of that Act
because. such a rule could not be made under section 90(7)
of’ the Act. Counsel has argued that as the rule was in-
valid, it was not permissible to hold the impugned public
auction because that was not permissible under any other
provision of the Act. This argument is also futile because
section 5 of the Bihar and Orissa Excise (Second Orissa
Amendment)
825
Act, 1971 (Act 10 of 1971) has substituted a new sub-section
(2) for the old sub-section as follows, providing for
auction, and it has been stated that it shall be "deemed
always to have been substituted".-
"(2) The sum payable under sub-section
(1) shall be determined as follows,-
(a) by auction or by calling tenders or other-
wise as the State Government may, in the
interest of excise revenue by general or
special order direct."
Then follow other clauses with which we are not concerned.
Moreover section 17 of that Act has validated all grants
made by way of licenses for manufacture and retail sale of
country liquor in respect of any place on or after the
7th day of August, 1965, on which date the Board’s Excise
Rules (including rule 103) admittedly came into force. In
this view of the matter, it is not necessary for us to
examine the other arguments of Mr. Agarwal Which have been
adopted by Mr. Bhagat regarding the invalidity of rule 103.
It is not necessary to deal separately with the judgment
of the High Court dated April 16, 1971 in O.J.C. No. 242 of
1967, which has given rise to civil appeal No. 2071 of 1972,
or with its decision dated May 7, 1971 in O.J.Cs. No. 1185-
1190, 1223, .1224 and 1226 of 1970 (which has given rise to
civil appeals Nos. 1855-1863 of 1972 and cross-appeals
Nos. 351-359 of 1972) because they are based on the afore-
said decision dated April 16, 1971 in O.J.C. No. 786 of
1970. So also, it is not necessary to deal separately with
the decision dated September 6,1971 in O.J.C.No. 859 of 1970
and 863 of 1970 which have given rise to civil appeals Nos.
1235 and 1236 of 1972, for the same reason.
This takes us to the judgment of the High Court dated
March 28, 1974 in O.J.C.No.589 of 1972 which has given rise
to civil appeal No. 1802 of 1974. That decision is based on
the decision dated January 3,1974 in O.J.C.No. 1036 of 1971.
The petitioner in that case was a licensee for the retail
sale of country liquor in Mayurbhanj district. He chal-
lenged the vires of sections 22 and 29 of the Act and
claimed that the monthly consideration for the license was
not due from him and that he was entitled to a refund of
the money already paid by him. The High Court followed
that decision and dismissed the writ petition. In doing so
it relied on its decision dated April 16, 1971 in Siba
Prasad Saha v. State of Orissa and other (I.L.R. 1971 Cut-
tack 777) and the decision of this Court in Jaiswal’s case
(supra) and dismissed the petition. We have already dealt
with the points which arise for consideration in this case
while examining the earlier cases and we see nothing wrong
with the impugned judgment of the High Court by which the
writ petition has been dismissed.
In the result, we order as follows,-
Civil Appeals Nos. 1892 and 1893 of 1971 are allowed,
the impugned judgment of the High Court dated May 15,1970 is
set aside and writ petitions Nos. O.J.C. 329 and 357 of 1970
are dismissed.
826
Civil Appeal No. 2091 is allowed, the impugned judgment
of the High Court dated February 3, 1971 is set aside and
the writ petition No. 850 of 1970 is dismissed.
Civil Appeal No. 1302 of 1972 is allowed, the ’impugned
judgment of the High Court dated April 16, 1971 is set aside
and the writ petition No. 786 of 1970 is dismissed.
Civil Appeal No. 2071 of 1972 is allowed, the impugned
judgment of the High Court dated April 16, 1971 is set aside
and the writ petition No. O.J.C. 242 of 1967 is dismissed.
Civil Appeals Nos. 1855-1863 of 1972 are allowed, the
impugned judgments of the High Court dated May 7, 1971 are
set aside and O.J. Cs. Nos. 1185-1190, 1223, 1224 and 1226
of 1970 are dismissed. Cross-appeals Nos. 351-359 of 1972
are dismissed.
Civil Appeals Nos. 1235 and 1236 of 1972 are allowed,
the impugned judgments of the High Court dated September 6,
1971 are set aside and O.J. Cs. Nos. 859 and 863 of 1970 are
dismissed.
Civil Appeal No. 1802 of 1974 fails and is dismissed.
In the circumstances of these cases there will be no
order as to he costs.
P.B.R.
827