STATE OF KARNATAKA AND ANR. v. K.K. MOHANDAS AND ETC

Citation: [2007] 8 S.C.R. 697

Court: Supreme Court of India

Bench: A.K. MATHUR, P.K. BALASUBRAMANYAN

Case summary

STATE OF KARNATAKA AND ANR. v. K.K. MOHANDAS AND ETC.pdf

Judgment text

- ' •... - -- ' instrument, that cannot be put in by resort to the remedy ofrectification. Here, the parties have entered into written contracts and admittedly no term is incorporated therein regarding enforcement Qf the ban on trade of toddy to STATEOFKARNATAKAv. K. K. MOHANDAS 699 --"I' the public in the District of Dakshina Kannada. Nor is there any case pleaded I in the plaint ofany mutual mistake in the matter ofsetting down the terms of the contract. There is also no plea of fraud on the part of the State in entering into the contract. On the terms of the contract, the plaintiffs had obtained the right to vend arrack for the Excise Year 1990-91 on their ob:igation to pay the bid amount in monthly instalments.

In the absence of :my foundation in the pleadings being laid by the plaintiffs establishing a ground for the grant of the relief of rectification, the mere adding of a prayer by way of an amendment could not be considered sufficient to grant them the relief of · rectification. ! Para 911708, B, C, D, El Hunt v. Rousmanier's Administrators 8 Wheaton 174, referred to. 2. The plaintiffs had not established that they had suffered any losses in view ofthe inability ofthe State Government to put down what the plaintiffs called the illegal tapping and sale of toddy in public as opposed to the fenny units as indicated in the Government order. There is also no evidence adduced to show that the sale oftoddyibas any direct connection with the sale ofarrack or has any influence on the quantum of the sale of arrack. The State has clearly pleaded that the tapping and sale of toddy has nothing to do with the sale ofarrack and that arrack drinkers do not generally take to toddy.

There is no material on the basis of which the stand adopted by the State can be found to be wrong or unsustainable. Thus, on facts, no case has been made out for rectification of the instrument only as regards the obligation of the plaintiffs to pay the Kist. At best, the plaintiffs may have a right to sue for damages against the State on establishing that they had suffered losses in view ofthe alleged failure of the Government to impose its policy of prohibition and sale oftoddy to the public and by establishing the quantum ofsuch losses. Even if any loss has been suffered, it does not grant the plaintiffs a right to have the instrument rectified and that too, to the effect that their obligation to pay the Kist should be based on their bids for the previous Excise Year 1989- 90.

There is no case for the plaintiffs that the State Government at any time held out to them that in case of its failure to enforce the ban on sale of toddy to the public, the plaintiffs need pay only the Kist amounts of the year 1989- 90. There was no such agreement or contract during any negotiation preceding the bids by the plaintiffs. In fact, it was a case ofopen auction on set down terms in the light ofa statute and the plaintiffs entered t~eir bids. There was t~terefore no occasion for mutual mistake as to terms or fraud in execution of the contracts. Thus, a grant of relief in the manner done by the courts below purporting to rectify a part ofthe contracts is totally unwarranted -t / and clearly unsustainable in law. That part of the decree has necessarily to -,.. _be set aside. (Paras 10, 12 and 13) (708-G; 709-E, F, G; 710-A, B, CJ ) 3. What is left is the case of promissory estoppel.

Here, the promise is said to be the budgetary speech of the Minister concerned that h"e proposes to ban the sale oftoddy to the public in the District of Dakshina Kannada. Firstly, the High Court in the Writ Petitions filed by some of the plaintiffs, while dismissing them, clearly held that no question of promissory estoppel would arise in these cases. The Petition for Special Leave to Appeal challenging the said decision was dismissed by this Court reserving liberty in the plaintiffs to approach the Civil Court. The right reserved for approaching the Civil Court does not clothe the plaintiffs with a right to approach the Civil Court with a plea of promissory estoppel already negatived in the writ petitions filed by some of the plaintiffs. Nor does it enable the court to go behind what has bee11 held by the High Court and proceed to accept a case of promissory estoppel.

The approach to the Civil Court was for the purpose of suing for damages on establishing that they had suffered loss because ofthe expectations raised by the speech in the Assembly and the failure of the State to enforce the prohibition it had envisaged as a policy. ! Para 14] (710-C, D, E, F) Express Newspapers Pvt. Ltd & Ors. v. Union ofIndia & Ors. , (1986] 1 S. C. C. 133; Union ofIndia & Ors. v. Ganesh Rice Mills & Anr. , J:T (1998) 9 SC 51 and Mis Pine Chemicals Ltd & Ors. \". Assessing Authority & Ors. , [1992) 2 S. C. C. 683, referred to. 4. It is not the case of the plaintiffs that the sale of toddy to the public was permitted. Their case is that a subsequent notification was issued proposing to have the purchase of toddy through Cooperatives and for being supplied to fenny units. It is not seen that the Government had resiled even ---+--· from its policy objective.

But the case of the plaintiffs appears to be that the Government could not fully implement the policy it had evolved of preventing sale of toddy by toddy tappers to the public. This, at best would only give a right to the plaintiffs to claim damages from the State on establishing that they had suffered damages by virtue of such failure of the Government. (Para 17) (711-C, D, EJ . • 5. The plaintiffs are all experienced Excise contractors who are bidding for the right to vend liquor at open auctions. It is notorious that these auctions >are highly competitive and every attempt is made by an existing contractor to preserve his bastion. It is also notorious that the prices fetched in these STATEOFKARNATAKAv. K. K. MOHANDAS 701 auctions show a tendency to go up because ofcompetition. The State has pointed out that the increase in the figures for various other centres even exceeded by 300% the amounts for the year 1989-90.

There is nothing to show that the bids by the plaintiffs were not based on their calculations and with a view to ward off competition to preserve their right to vend arrack in their respective areas. (Para 181 (711-E, F, G) 6. What the plaintiffs have gone for was a commercial venture with attendant risks. Ifthey felt that the risk could not be taken, it was for him to repudiate the contract as a whole. In fact, when the Government apparently tried to terminate the contracts because ofthe failure of the plaintiffs to remit the Kist amounts as agreed to for the months of July and August 1990, the plaintiffs obtained interim orders from the High Court interdicting such termination and went ahead with vending arrack in exercise of their right under the agreements. Having insisted on performance of the contract and having exercised their rights under it, the plaintiffs are not entitled to repudiate their obligations under the contract.

No case of estoppel, conventional or promissory, would arise here. The finding on estoppel is based merely on the promise made or the proposal made by the Minister concerned in his speech in the Assembly and the failure ofthe Government to implement the policy of prohibition of sale of toddy in public. The plea raised by the plaintiffs does not lay an adequate foundation for accepting the plea ofestoppel justifying their being relieved of the obligation undertaken by them based on their bids and as contained in the written contracts entered into by them with the Government. There is no case that the contract contains any term which is a mistake or that it contains any term that casts an obligation on the State which obligation the State had failed to fulfil. (Paras 19 and 20) (711-G, H; 712-A, B, C, DJ CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 7102-7105 of 2002. · From Judgment & Order 23. 02. 200 l of the High Court of Kamataka at Bangalore in R. S. A. Nos. 892-895of1998.

Sanjay R. Hegde, Anil K. Mishra, Vikrant Yadav and Sashidhar for the Appellants. S. N. Bhat, D. P. Chaturvedi, N. P. S. Panwar, Krishnendu Datta, Rohit Priya Ranjan, Dr. S. K. Verma and Tanya Sharma for the Respondents. The Judgment of the Court was delivered by P. K. BALASUBRAMANYAN, J. 1. In all these appeals, the defendants, the State ofKamataka and the Deputy Commissioner (Excise) are the appellants. The four appeals arise from four suits being O. S. No. 1261, 1262, 1263 and 1264 of 1990 on the file ofthe court ofthe First Additional Munsif, Mmgalore. The suits were decreed in favour ofthe plaintiffs who were excise contractors and bidders of the right to vend arrack in various taluks of Dakshina Kannada District of the State of Karnataka for the Excise Year 1990-91 covering the period 1. 7. 1990 to 30. 6. 1991. Aggrieved by the decrees, the appellants filed four appeals in the court of the Additional Civil Judge Senior Division, Mangalore.

The appeals were dismissed affirming the decrees of the trial court. Four Second Appeals filed by the appellants in the High Court of Karnataka met with the same fate. These Appeals by Special Leave thus challenge the decrees granted in the four suits. 2. The State of Karnataka every year auctions the right to vend liquor • in various taluks of the State. Among them is included trade in arrack. The plaintiffs in -the suits, Excise Contractors on their own showing, had bid the right to vend_liquor from the concerned taluks earlier and even for the Excise Year 1989-90. On 16. 3. 1990, the MinisterofFinance, GovemmentofKamataka, during his Budget Speech in the Assembly, made the following statement. "The State has been following a policy of banning the sale of toddy in a phased manner. At present, the sale of toddy has been banned in seven districts. I propose to extend the ban to the entire State with effect from 1. 7. 1990. The expected loss in revenue is Rs. 60 crores.

It is hoped that a ,portion of this loss would be made good by higher arrack rentals and Better enforcement of rules and regulations. " The Budget Speech was marked Exhibit P-1 in the suits which were jointly tried. According to the plaintiffs, a decision was also taken by the Government in a meeting ofthe Cabinet on 2. 5. 1990 to implement the policy thus announced. But, illegal tapping and sale of toddy was not put down. On 28. 5. 1990, the right to vend arrack in the taluks of Kundapur, Udupi, Bantawal, Sullia, Puttur and Belthangadi was held for the Excise Year l9'lJQ-9l. The plaintiffs were the highest bidders in the respective auctions a'lf\the respective bids were knocked down in their favour. On 29. 6. 1990, forma1 contracts were entered into by the plaintiffs with the defendants. The formal contracts were marked in the suits as defence Exhibits D-6 etc.. Meanwhile, the toddy- tappers took up cudgels and even defied the attempted ban. This resistance had started even ....

STATEOFKARNATAKAv. K. K. MOHANDAS[BALASUBRAMANYAN,J. ] 703 ;-- --t- Division Bench. A case of promissory estoppel was also put forward against the Government in support of the prayers in the Writ Petitions. The Division Bench noticed that what was complained ofwas nothing more than hazardness ofany business. On the plea ofpromissory estoppel put forward, the Division Bench stated : "The promissory estoppel cannot arise because where it is a matter of policy, and Government of Karnataka by filing statement of objections has stated that it has been doing whatever is possible - ~ is notorious that these auctions are highly competitive and every attempt is made by an existing contractor to preserve his bastion. It is also notorious that the prices fetched in these auctions show a tendency to go up because of competition. The State has pointed out that the increase in the figures for various other centres even exceeded by 300% the amounts for the year 1989- 90.

There is nothing to show that the bids by the plaintiffs were not based on their calculations and with a view to ward offcompetition to preserve their right to vend arrack in their respective areas. ----\ 19. What the plaintiffs have gone for was a commercial venture with attendant risks. If they felt that the risk could not be taken, it was for him to repudiate the contract as a whole. In fact, when the Government apparently tried to terminate the contracts because ofthe failure of the plaintiffs to remit the Kist amounts as agreed to for the months of July and August 1990, the plaintiffs obtained interim orders from the High Court interdicting such termination and went ahead with vending arrack in exercise of their right under the agreements. Having insisted on performance of the contract and having exercis. cd their rights under it, the plaintiffs are not entitled to repudiate their obligations under the contract. No case of estoppel, conventional or promissory, would arise here.

20: The finding on estoppel is based merely on the promise made or the proposal made by the Minister concerned in his speech in the Assembly· and the failure of the Government to implement the policy of prohibition of sale of toddy in public. We are of the view that the plea raised by the plaintiffs does not lay an adequate foundation for accepting the plea of estoppel justifying their being relieved of the obligation undertaken by them based on their bids and as contained in the written contracts entered into by them with the Government. There is no case that the contract contains any term which is a mistake or that it contains any term that casts an obligation on the State which obligation the State had failed to fulfil. 21. In this situation, we do not think that it is necessary to discuss all those decisions on promissory estoppel, its ambit and whether in a case like the ones before us, detriment need not be shown before the plea could.

be upheld to relieve one of the parties alone of its obligation. We are satisfied that no foundation for sustaining the prayers made in. these cases has. been laid and no case in support established. Hence, we refrain from further discussing the question of promissory estoppel and its availability in these cases. Suffice it to say that the finding that the appellants are estopped from claiming the Kist amounts in terms of the contracts between the parties is found to be wholly unsustainable. 22. For the reasons stated above, we· allow the appeals; set . aside. the· judgments and decrees of the courts below and 9ismiss the suits filed ·with costs throughout. The costs· payable in each of these appeals by the respondents to the appellants is quantified at Rs. ·50,000/-. D. G. Appeals allow~d.