Holding

The monthly quota is obligatory, additional supply is discretionary, and Rule 6(26) precludes any claim for remission or abatement; thus the licensees have no enforceable right to additional quantities or related relief.

Summary

The Supreme Court examined disputes arising from the Kerala Abkari Shops (Disposal in Auction) Rules, 1974, where licensees of arrack shops claimed the State was contractually obliged to supply additional quantities of liquor beyond the statutorily mandated monthly quota. The Court held that the monthly quota is obligatory, but any extra supply is discretionary and not enforceable as a contractual right. Consequently, Rule 6(26) of the Rules bars any claim for remission or abatement of licence fees when additional supplies are not provided. Doctrines such as unjust enrichment, promissory estoppel, estoppel by conduct, legitimate expectation, and fairness were rejected as inapplicable to alter the express statutory terms. The licensees could not invoke Sections 55 and 56 of the Contract Act, nor claim frustration of contract. The State’s appeals were allowed and the licensees’ appeals dismissed.

Issues considered

The extent of the State's contractual obligation to supply additional arrack beyond the monthly quota.
Whether licensees can claim remission or abatement of licence fees under Rule 6(26) when additional supplies are not furnished.
Applicability of doctrines of unjust enrichment, promissory estoppel, estoppel by conduct, legitimate expectation, and fairness to statutory contracts.
Whether Sections 55 and 56 of the Contract Act can be invoked for relief.
Whether the contract is frustrated due to non‑supply of additional quantities.

Legislation cited

Indian Contract Act, 1872s. 55, s. 56
Kerala Abkari Act

Subjects

ExciseAbkariStatutory contractMonthly quotaAdditional supplyRemissionAbatementPromissory estoppelLegitimate expectationFairnessAdministrative law

Judgment

ASSISTANf EXCISE COMMISSIONER AND ORS. ETC. ETC. A
v.
ISSAC PETER AND ORS. ETC. ETC.
' FEBRUARY 22, 1994

[J.S. VERMA, YOGESHWAR DAYAL AND B
B.P. JEEVAN REDDY, JJ.]

Excise: Kera/a Abkari Act/Kera/a Abkari Shop (Disposal in Auction)
Rules, 1974-SectionslS-A, 21, 25, 28, 29,./Rules 6(26), (39), 8(1), (3)-Liquor

' vend-Supply of a"ack to licensees l1y State-State's obligation-Contract be-
tween State and licensees governed by statutory rules and conditions of
lice11ce-Supply of additional quantities demanded by licensees not obligatory
c
on State-Obligation only in respect of monthly quota-Rebate/remission or
adjustment cannot be claimed for non-supply/short supply of additional qua11-
tity-Executory contract'-Sections 55, 56 of Contract Act can11ot be invoked-
Doctrines of unjust enrichment,. promissiory estoppel, estoppel by conduct, D
legitimate expectation, fairness and reasonableness-Not attracted.
• ..
-{ Contract Ac4 1872: Sections 55 and 56-Frustation of contract-Con-
tract between State and contractor-Minimum guarantee quota of
goods-Supplied by State to Contractor-State unable to supply additional
E
quantity demanded by Contractor-Suoh supply being discretionary, contrac-
tor cannot invoke the provisions of Ss.55 and 56.
j Administrative law: Doctrines--Unjust-f'romissory estoppel-Estoppel
by conduct-Legitimate expectation-Fairness and reasonableness under
Natural justice-Applir:ability of in contracts between State and contractors F
for supply of additional quantity of goods which is discretionary and governed
"'
< by statutory prol'isions.

In Kerala the anction for the arrack shops for the excise year 1981-82
was held on 27.3.1981. The successful bidders commenced their business
after obtaining the necessary licences. The monthly quota of arrack an· G
nounced for the shops was regularly supplied by the Government. How-
ever, the Government could not supp!Y in full the additional quantities
applied for by the licensees from time to time. They tiled writ petitions
.,. before the High Court alleging that the authorities could not supply the
additional quantities requested by them and were at the same time, H
67
68 SUPREME COURT REPORTS [1994] 2S.C.R.

A demanding the instalments due. The Writ Petitions were allowed by a
Division Bench of the High Court. However, another Division Bench ef the
High Court took a diferent view mainly on the basis of Rule 6(26) and held
that the licensees cannot claim any remission or abatement In the amount
payable by them nor can they claim any damages for non-supply of
B additional quantitiesdemanded. The present appeals were preferred both
by the State of Kerala and the licensees.

C
On behalf of the State it was contended that under the Auction Rules
the Government was obiged to supply the monthly quota and the supply
of additional quantities was in the discretion of the authorities; that Rule
6(26) was a total bar to the claim for remission/abatement by the licesees;
•
that whatever additional quantities were available with the Government
had been issued to the licensees according to Rules; and that there was no
promissory estoppel on the part of the Government.

On behalf of the licensees it was contended that Rule 8(1) of the
D
Kerala Abkari Shops(Disposal iu Audion) Rules, 1974 read with the
conditions or licences created a statutory obligation upon tile Government
to supply the additional quantities to meet the requirements of the con-
suming public; that the Government was estopped from contending that
its obligation was only to supply the monthly quota and nothing more, that
E the monthly quota fixed was unrealistic and insufficient; that there was
legi\imale expedion on the part of the licensees; that the doctrine or
fairness was applicable; and that since the failure to supply additional
quantities resulted in partial frustration or the contract, the licensees were
entitled to claim abatement/remission of the amounts payable by them.
F
Allowing appeals by the State and dismissing the appeals preferred
by the licensees, this Court

HELD: 1. According to sub-rule(l) of Rule 8 of the Kerala Abkari
Shops (Disposal in Auction) Rules, 1974, supply of monthly quota Is
G obligatory upon the government while the supply of additional quan-
tity/q,uota is discretionary. The condition of licence Is however of am·
blguous nature. While the first Division Bench of the High Court
understood the said condition as saying that "the Assistant Commissioner ·~
would permit issue of arrack in •~xcess or the announced monthly quota",
H the latter Division Bench understood the said clause as saying "the Assis·
EXCISE COMMR. v. ISSAC PETER 69

tant Commissioner may permit issue of arrack in excess of "nnounced A
..,' monthly quota'. This difference of opinion has arisen because the original
licence form is in Malayalam language. Both Benches have translated It
defferently. In the face of such ambiguity, it would be proper to read the
said condition of licence consistent with Rule 8(1). It would not be
reasonable to presume that the rule-l'laking authority used the expression
B
'may' in the Rule but chosr to l\Se the expression 'would' in the Form or
licence. (82-F-H, 83-A]
'1 ,
' 2. The concept of monthly quota is a well-known one in excise
•
contracts all over the country. In several States it is called 'minimum
guarantee quota'. It is true that the expression 'minimum guarantee quota' c
is not used in Rule 8(1) which speaks of •monthly quota'. But If the said
expression is read along with the accompanying words it would be evident
that it means 'minimum guarantee quota' alone. The first sentence in Rule
8(1) says 'the mothly quota of arrack which shall be allowed for the shop'.
As against this, the next sentence says 'the Assistant Excise Commissioner D
may, however,pe1111it the issue arrack in excess of the announced monthly
quota.' The use of words 'may' and "permit' clearly indicate a discretion
" In the authority. In the race or the said language, It cannot be said that the
State Is under an obligation to supply all the quantity that is asked for b~
the licensee, or quantities equal to the previous years' supplies. Rule 8(3)
E
Is an independent power. Even where ample supplies are available, the
Board of Revenue can yet restrict the supply or additional quota to a shop
having regard to the local requirements. But Rule 8(3) cannot be relied
upon to say that unless the Board or Revenue places a restriction, the
Assistant Commissioner of Excise is bound to supply all that is demanded,
irrespective of the availability of arrack an the requirements of other F
' licensees. No such absolute right can be recognized.[83-B-E]

State of Rajastha11 v. Na11d/a/1 [1993] Snppl. 1 SCC 681, relied on.

State of M.P. v. Sunder Lal Jaiswal, (1976) M.P.LJ. 254 at 263, G
approved.

Churchward v. The Queen, (1865) 66(1) Q.B.D. 173, referred to.
lllterpretation of Statutes by Lewison. Chapter V - 'Implied Te1111s' ·pages 97
- Para 3.02 and para 5.07 at page 106, referred to. H
70 SUPREME COURT REPORTS [1994) 2 S.C.R.

A 3.1. Rule 6(26) says that no remission or abatement in the licence fee
·shall he "claimable" by the licensee "on any account whatsoever'. This
sub-tole should no doubt he read alongwith Rule 8(1), which sets out the
only situation In which the duty and commission payable wilf be adjusted,
· ' Not only the conditions are statutory in this case but they are formally
B · drawn In the shape of statutory Rules. In such a situation, it would not he
permissible to say that there was some other condition or term agreed
upon or Implied between the parties which Is not found therein. Moreover
any Implied term should he consistent witlt the express terms of the
coatract and not othenrise. [83-G-H, 84·A·BJ

C · 3.2. 'There is no right in the licensees to compel the government to
supply what all they demand nor has the State the right to compel the
licenseei to purcl.ase all that it proposes to sell to them. In the absence of
a statutory right in the licensee to get additional supplies there is no basis
in law for the claim of remission or rebate.[8S·A, BJ
D
Panna Lal and Others v. State of Rajasthan and Others, [1973J 2
S.C.C. 633, relied on. \

4. Not only monthly·quota was supplied in full for the whole of the
.year, additional qnantltes were also supplied to a substantial extent. So
.· · E there Is no question of the licensees n.ot being able to observe the require-
ment of Rule 6(14). There is also no room in the facts or these cases for
Importing the plea or frustration of contract or for that matter, the
principle of Section 55. In the absence of a legal right to claim additional
supplies, the claims based on sectlnns 55 and 56 of the Co11tract Act cannot
F he countenanced. {86·C, DJ
Union Territory of Pondicherry and Ors. v. P. V. Suresh etc. etc. & Ors.,
J.T. {1993) S.C. 410, distinguished.

G 5. The government had made e\•erytbing clear. If the licensees offered
their bl.ds with their eyes open they cannot blame anyone else tor the loss,
If imy, sustained by them, nor are they entlUed ·to say that licence fee
should he reduced proportionate to the.actual supplies made. [89-EJ

6. It is well known that In executory contracts there is always an
H element or risk. Many an unexpected development may occur which may
EXCISECOMMR. v. ISSAC PETER 71

either cause loss to the contractor or result in large profit. Such contracts A
,; did not imply a warranty • or a guarantee • or profit to the contractor. It
is a business for him • Profit and loss being normal incidence of a business.
There is no room for Invoking the doctrine of unjust enrichment in such
a situation. The said doctrine has never been invoked In such business
transactions. The remedy provided by Article 226, or for that matter, suits, . -13.
cannot be· resorted to wriggle out or the contractual obligations entered
into by the licensees. (89-H, 90-A-C]

·.: 7. Rules of promissory estoppel and estoppel by conduct can not ·be
Invoked to alter or amend specific terms of contract or against statutory
provisions. (90-D] C
8. The Role of legitimate exrectatiu11 cannot 111•0 be invoked to
modify or vary the express terms or contract, more so when they are
statutory in nature. (90-E]

9. Doctrine or fairness or the duty to act fairly and reasonably is a D
doctrine developed in the adm:uistratlve law field to ensure the Rule or
Law and to prevent failure or justice where the action is administralve in
nature. Just as principles of natural justice ensure fair decision where the
function is qnasi-judiclal, the doctrine u: :aimess is evolved to ensure fair
action where the function is administrative. But it can certainly not be E
invoked to amend, alter or vary t;;e express terms or the contract between
the parties. This is so, even if the contract Is governed by statutory
provisions. It is one thing to say that a contract must be construed
reasonable having regard to its language. But this is not what the licenliees
say. They seek to create an obligation on the other party to the contract, F
just because it happens to be the State. They are not prepared to apply the·
very same rule In a converse case, i.e., where the State ha8 abundant
supplies and wants the licensees to lift all the stocks. The licensees will
undertake no obligation to lift all those stocks even lftbe State suffers loss.
It is difficult to appreciate the one-sided obligation, in modification or G
express terms orthe contract, in the name or duty to act falrly.(91-D-G]

Issac Peter v. The Assistant Excise Commissioner, Calicu{ & Ors.,
reversed.

Dwarkadas Maefatia v. Board of Tnistees of the Port of Bombay, (1989] H
72 SUPREME COURT REPORTS (1994] 2 S.C.R.

A 3 SSC 293; Kumari Shrilekha Vidyanhi and Others v. State of U.P. and
Others, [1991] 1 S.C.C. 212 and Mahabir Auto Stores and Othm v. lndian
Oil Corporation and Others, [1990] 3 S.C.C. 752, distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3442·
B 60/84.

From the Judgment and Order dated 14.11.83 qf the Hight Court of
Kerala, in O.P. No. 2325/81.
\
V.B. Nambiar, Santosh Hegde, G.Ramaswamy, V M. Tarkunde, C.S.
C Vaidyanathan, EMS Anam, J.P. Verghese, S.P. Sharma, Sdnjay Kumar,
R.M. Keshwani, M.T. George, Viswanathan, Praiap Venugopal and KJ.
John for the appearing parties.

The Judgment of the Court was deli'"';re<l by

D B.P. JEEVAN REDDY, J. Leave franted i11 the S.L.Ps.

In this batch of appeals, some are preferred by the Stat" and some
by tD.e licencees/contractors. The matters arise under the Kerata Abkari
Act. All of them pertain to the excise, year 1981-82. The que.stion is
E whether there was a failure on the part of the State in supplying the arrack
undertaken by it to supply and whether the licenceesi are entitled to any
I
rabate/remission in the amounts payable by them under the contracts, on
account of such failure, if any. The earliest decision is in O.P.No. 23)5 of
198i ' I (Issac Peter v. The Assistant Excise Commissioner, Calicllt and
F Ors.). It was a writ petition filed by the licencee. It was allowed by a
Division Bench of the Kerala High Court on 14th Nove!"ber, 1983 against .>
which the State of Kerala and its officers have filed C.ANo.3442 (NT) of
1984. Several other matters were allowed following the said decision
against which the State has filed appeals. Another Division Bench of the
High Cour1, however, took a contrary view in A.S. No. 293 of 1983 and
G batch disposed of on 26th October, 1980. By ibis judgment, the suits filed
by licencees/contractors were dismissed. following the said judgment,
several other appeals were disposed of in favour of the State. The licencees
have filed appeals against those judgments.

H The Kerala Abkari Act (1 of 1077-corresponding to 1902 AD) was
EXCJSECOMMR v. ISSACPE1ER[JEEVANREDDY,J.] 73

enacted to consolidate and amend the law relating to Import, Export, A
Transport, Manufacture, Sale and possession of intoxicating liquors and of
intoxicating drugs in the State. Section 15 says that no liquor of intoxicating
drug shall be sold without a licence from the Commissioner. Section 18A
provides for grant of exclusive of other privilege of manufacture and sale
of liquor. Sub-section (1) says: "it shall be lawful for the Government to B
grant to any person or persons, on such conditions and for such period as
they may·deem fit,'the exclusiv.e or other privilege (i) of manufacturing ac
supplying of wholesale or (ii) of selling by retail or (iii) of manufacturing
'j
' or supplying by wholesale and selling by retail, any liquor or intoxicating
drugs within any local area on his or their payment to th~ Government of C
an amount as rental in consideration of the grant of such privilege. The
amount of rental may be sett!~d by audio•, regotiation or by any other
method as may be determined by the Government, from time to time, and
may be .::ollected to the exclusion of, or in addition to, th~ duty or tax
. leviable under sections 17 and 18." Section 24 prescribes the forms and
conditions of licence. Section 25 prescribes the counterpart agreement to D
be executed by licenree. Section 28 says that all duties, taxes, fines and fees
payable to the Government under any of the provisions of tlie Act or of
any licence or permit issued thereunder may be reoovered as if they are
arrears of Land Revenue. S~cticn 29 empowers the Government to make
rules for carrying out the purposes of the Act. It is not necessary to notice E
other prO\isions of the Act.

Rules have been made by the Government governing the mode of
grant of licencees,called the Kerala Abkari Shops (Disposal in Auction),

•. Rules 1974. Rufe 6 prescribes the general conditions applicable to licen-
cees or arrack shops, both retail and wholesale. Sub-rule (26) of Rule 6 F
which constitutes thC basis or the later judgment of the Division Bench of
the High Court reads: "No remission or abatement of the rental shall be
claimable by the licencee on any account whatsoever." Sub-rule (39) says
that "the licencee shall be bou'ld by all the. rules which have been passed
under the Abkari Act and which may hereafter be made under the said G
Act or under any law relating to Abkari Revenue which may hereafter be
made.' Rule 8 prescribes the special conditions applicable tolicenceesfor
the privilege of vending arrack in independent shops. Having regard to
their crucial relevance, sub-rules (1), (2) and (3) of Rule 8 may be extracted
H
74 SUPREMECOURTREPORTS [1994) 2 S.C.R.

A here:

"8. (1) The monthly quota of Arrack which shall be allowed for
the shop that is put up to auction shall be announced by the
auctioning officer. The Assistant Excise Commissioner may how-
B ever permit the issue of arrack in excess of the announced monthly
quota on realisation of commissioner at a rate to be fixed by the
Board of Revenue. The- Assistant Excise Commissioner shall be
competenc to permit the issue of the undrawn quantity in any
quarter for any shop in the next quarter. The Range Inspectors ~I
shall be competent to issue the lapsed quota of arrack of a mouth
c during the succeeding month of the same quarter. In case the duty
and commission had been remitted by the contractor for the
additional quota of arrack for the last quarter of the contract
period and the quantity in full or part thereof could not be issued
before the completion of the contract, the Assistant Excise Com-
D missioner shall be competent to adjust the duty and commission
on the quantity of arrack which could not be issued, towards the
abkari dues of the contractor.

(2) All Arrack kept or offered for sale shall be unadulterated
E and undiluted and it shall be of the same quality and strength as
issued from the distillery or Wllrehouse by the supply contractor.
Nothing shall be added to it to increase its intoxicating power or
for any other purpose.

F (3) If a Iicencee's demand for Arrack at any time be found in ·•
excess of the total requirements of the shop it shall be competent r
to the Board of Revenue to restrict such demand to whal it
considers to be necessary for the purpose of sale in the shop. The ,
Board of Revenue is also competent to fix the quantity of Arrack
G that may be sold in any shop or locality.'

An analysis of rule 8(1) discloses the following features: (i) the Rule
contemplates a monthly quota of arrack 'which shall be allowed for the
shop' and which shall be announced by the auctioning officer at the time
H of the auction.
EXCISE COMMR. v. ISSAC PETER [JEEVAN REDDY, J.) 75

(ii) Additional supplies of arrack which the Assistant Excise Com- A
misioner 'may ...... pennit in excess of .the announced monthly quota on
realisation of commission at a rate to be fixed by the Board of Revenue.'

(iii) Any undrawn quantity in any quarter can be allowed to be drawn
in the next quarter by the Assistant Excise Commissioner. Similarly, Range B
Inspectors are competent to issue !be lapsed quota of arrack of a month
during the subsequent month of the same quarter.

(iv) In case the Government is unable in the last quarter to supply
• wholly or partlyany additional quota for which the contractor has r~:-Uttecl
the duty and commission, the Assistant Excise Commissioner shail be C
competent to adjust the duty and commission on the arrack. not issued
towards the Abkari dues of !be contractor.

Sub-rule (3) empowers !be Board of Revenue to restrict the addi-
tional demand in respect of any shop if it finds that !be demand in respect
of any shop is in excess of the total requirements of !bat shop. D
The e,xcise year in Kerala corresponds to the financial year. The
auctions are normally conducted before the commencement of !be excise
year. For !be excise year 1981-82, with which we are concerned in this
batch of appeals, auctions were notified to be held in the month of March. E
For !be sake of convenienee, we shall take !be facts in C.,'\.:3442184 as
broadly representative of !be facts in all the other matters. It concerns 18
shops \OU! of 28 in Sultan Battery range and 15 out of .18 shops in Kalpetta
range. The first date of auction notified was 18th March, 19$1. There
were no bidders on !bat day and no auction could take place. The reason
for this is stated to be the scarcity of arrack !bat had developed during , the F
last two months of the previous excise year, i.e., February and March 1981.
The auction was adjourned to 26.3.1981. It is stated by !be licencees that
on 19th March, 1981 !be Minister for Excise, Kerala made a statement to
!be effect that steps will be taken by the Government to supply requisite
quantities of arrack to the licencees. Even so, no bidders were present on G
26th March, 1981, whereupon the auction was adjourned to the next day,
i.e., 27th March, 1981. At !bat auction the bid of Issac Peter, (respondent
in Civil Appeal 3442 of 1984), being !be highest, was accepted in respect
of the aforesaid shop& in the two ranges. The particulars of the shops
obtained by the respondent are as follows : H
76 SUPREME COURT REPORTS [1994] 2 S.C.R.

Monthly quota of
Bid Amount
Range Arrack announced
Rs. Liters
Sultan Battery
50,43,000.00 1,350.00
(18 shopsi
B
Kalpetta (15 shops) 51,11,000.00 2,353.00

The respondent deposited 30 percent of the bid amount (Rs.
15,12,900) as required by Rules and also executed the counterpart agree-
C ments on the same day. He took out licences and commenced the business.
The monthly quota announced for the shops was regularly supplied. There
is no complaint on that score. The complaint is only about non-supply of
additional quantities applied for by the respondent flam time to time which
could not be fully met by the Government. The Reepondent has filed a
D statement showing particulars of licence fee, monthly quota, additional
supplies demanded and supplied for the previous two years, for the year
1981-82 as well as for the subsequent year. It is, however, necessary to
mention that the Su!tan Battery range comprfaes 28 shops out of which the
respondent had taken only 18 shops; similarly Kalpetta range comprises of
18 shops, out of which the respondent had obtained only 15. ·The par-
E ticulars in the following table are furnished for all the 28 shops in Sultan
Battery and all the 18 shops in Kaipetta:
Monthly Add\. Addi.
Range of
Year Bid amount quota quota quota
F shops
supplied supplied supplied
1979-80 Kalpetta
(13 shops) 45,%,000 34,:100 1,45500 1,45,500
S.Battery
(9 shops) 60,01,000 25,:!00 1,52,700 1,52,700
G 1,05,97,000 60,1100 2,98,200 2,98,200
1980-81 Kalpetta
50,76,000 34,800• 40,000 1,29,650
(13 shops)
S.Battery
70,01,000 25,150 50,000 1,51,400
(9 shops)
1,20,77,000 59,950 2,81,050
H
•For Feb. & March applica-
tion for add!. quota was
Ka\petta Battery Supply nil.
EXCISE COMMR. v. ISSAC PETER [JEEVAN REDDY, J.] 77

i981-82 Kalpetta A
64,23,000 34,800 4,58,200 1,04,200
(18 shops)
1981-82 S. Battery
(28 shops) 77,03,000 25,200 4,10,000 77,250
1,41,26,000 60,000 868,200 1,81.450 B
1982-83 Kalpetta
42,01,000 34,800 2,05,864
(18 shops)
1982-83 S. Battery

•
52,01,000 25,200 2,28,205
(28 shops)
94,02,000 60,000 4,34,069 c

(The in~rease in the number of shops in each range, it is stated,
makes no difference, since the area remains the same. Only the number of D
shops has gone up.)

The particulars mentioned above disclose that for Kalpetta range,
the additional supplies during the previous excise year (1980-81) were
1,29,650 liters whereas for the relevant excise year (1981- 82), they totalled E
1,04,200 liters, for Sullal1 Battery, the additional supplies in the previous
excise year were l,Sl,400 whereas for 1981-82 the supplies were 77,250
liters. A fact worth noticing is the very high level of demand by the
Respondent during 1981-82 as compared to the previous year 1979-80.
(Particulars of demand for the excise year 1980-81 are not furnished.) Be
that as it may, the fact remains that the additional quantities supplied by F
the Government during the excise· year 1981-82 were less than those
' supplied during the previous year for both these ranges. The respondent
has, of collfse, not furnished particulars relating to his shops separately. In
that sense, correct picture with respect to his shops is not available.
G
The respondent filed the writ petition in the Kerala High Court even
during the currency of the excise year, i.e. on 11th May, 1981. His grievance
in the writ petition was that during the months of April and May the.
authorities could not supply the additional quantities requested for by him
and at the same time they were demanding the instalments due. He sought H
78 SUPREME COURT REPORTS (1994}2 S.C.R.
A the following reliefs in the writ petition:
(a) to declare Rule 6(26) of the Auction Rules as ultra vires;

(b) to direct the respondents to supply additional quantity of arrack
B as requested by the petitioners;
(c) to direct the respondents not to enforce monthly payments due
except that amount as is payable on tlie basis of mack actually supplied;
and f
C (d) to prevent the Government from conducting the re-auction or
from terminating his licence.

The writ petition was allowed by the Division Ben:h on 14th Novem-
ber, 1983. Several other matters were disposed of following the said
decision. Several suits were also filed by licencees against the Government
D for similar reliefs in addition to claim for damages against the government
for its failure to supply additional qwllltities demanded. Some suits were \,
decreed while some were dismissed. All of them reached the High Court
by way of appeals. On this occasion, however, another Division Bench took
a different view mainly on the basis of Rule 6(26). It held that by virtue of
E the said Rule the licencees cannot claim any remi5sion or abatement in the
amount payable by them nor can they claim ;my damages for non-supply
of additional quantities demanded.

Shrl V.R. Reddy the learned Additional Solicitor General appearing
F for the State of Kerala urged the following contentions. ..,. .

(1) Under the Auction Rules the only obligation of the Government .
is to supply the monthly quota. Supply of additional quantities over and
above the monthly quota is in the discretion of the authorities. If sufficient
arrack is available, additional quantities will be supplied. In the absence of
G availability ·of arrack there is no obligation upon the Government to supply
the additional quantities demanded. Indeed. the Government cannot be
expected to supply whatever quantity is demanded by the licencees. The
licencees have no statutory right to supply of additional quantities. Nor can
they seek any remission/abatement in the commission arid other amounts
H payable on account of non-supply of any of the additional quantitities
EXCISECOMMR. v. ISSACPElER[JEEVANREDDY,J.] 79

demanded. A
(2) Rule 6(26) is a total bar to the claim for remission/abatement by
the licencees .. Rule 8(1) specifies that the only situation in which the
Iicencee can ask for adjustment of the amount remitted by him. Except in
the situation provided in Rule 8(1), no other claim for remission/abatement
can be made in !Rw. B
(3) There is no complaint by any of the licencees herein that the
Government did have supplies and yet it did not supply ailditional quan-
tities to the licencees. Nor is there any complaint ot inequitable distribu-
tion. Whatever additional quantities were available with the Government C
have been issued to the licencees as and when they asked and paid for it
according to Rules. There is no further or other obligation upon the
Government.

(4) The writpetitionsfiled by the licencees are not maintainable in D
law. The remedy under Article 226 cannot be resorted to either for
enforcing or for avoiding contractual obligations.

(5) The Auctioning authorities made no promise nor did they give
any assuranee .that whatever quantities were demanded wiU be. issued nor
did they hold out any promise or assurance that ad.ditional quantities equal E
. to. the previous year's· supplies will be maintained during the excise year
1981-82.

(6) The ar~~ent of the licencees that inasmuch ·as they were selling
arrack at the rate of Rs. 25 to Rs, 30 per liter they ·must be supplied
additional arrack in such quantities as to ·enable them to realise the F
' amounts payable tothc Government by the~ - in addition to their expenses
and profit - is wiaccel'table for the re~son _that there is no such statutory
.... obligation cast upon the 11overnment. Indeed, the previous year's supply
does not mee.t tbe said test. lo _case of Sultan Battery, for the excise year
1980-81, while the total bid amount payable was Rs. 70,01,000, the total G
quantity of arrack issued was 1,76,550 liters which means that they had to
sell the liquor at the raise of Rs. 40 per ·liter _in order to pay the licence
fee a/011e, let alone meet their ·establishment charges, other expenses and
profits. The said basis put forward by the licencees is, ·therefore, unaccep-
table. H
80 SUPREME COURT REPORTS (1994) 2 S.C.R.

A On the other side, S/Shri Vaidyanathan, V.B.Nambiar, Tarkunde,
VJ. Francis and G. Ramaswamy urged the following rnbmissions:

(1) Rule 8(1) read with the co.aditions of licences cr<ated a statut01y
obligation upon the Government to supply the additioual quantities to meet
the requirements of the consuming public of the concerned area.
B
(2) The monthly quota, announced for each of the shops/groups is
wholly unrealistic, which would be evident from the level of supplies made
during the previous excise years as also during the subsequent excise years.
For example, if confined to the monthly quota alone in the case of Sultan
C Battery, the licencee would have had to sell each. liter of arrack at the price
of not less than Rs. 310 in order to pay the licence fee alone due to the
Government, which was an impossibility. Th~ eupply of additional quan-
tities was, therefore, implicit in the circumstances. The past conduct
coupled with the assurances given by the Minister of Excise and the
D Auctioning Authorities obligated the authorities to supply additional quan-
tities at least at the level of the previous year's additional supplies. The
Government is estopped from contending that its' obligation is only to
supply the monthly quota and nothing more.

(3) The Board ol Reve.nue has not passed any orders as con-
E templated by Rule 8(3) holding that the additional supplies demanded by
the licencees are not really required nor has it fixed the quantity of arrack
to be sold in each shop. If so, the Assistant Excise Commissioner was
bound to supply additional quantities as may have been demanded by the
licencees - at any rate, to the extent of the additional quantity supplied
F during the previous excise year.

(4) Sub-rule (14) of Rule 6 obliges the licencee to keep available
arrack in quantities sufficient to meet the local requirements on any given
day. This obligation cannot be discharged by the licencee unless he is
G supplied additional quantities. The monthly quota fJXed by the Rules is
hardly sufficient for a day in any shop.

(5) Having regard to the past practice over the several years, the
licencees entertained a legitimate expectation that supplies consistent with
the previous year's supplies' will be maintained during 1981-82 as well. Had ·
H they been told that they would not be entitled to any supplies over and
EXCISECOMMR. v. ISSACPEIBR [ffiEVANREDDY,J.] 81

above, the monthly quota, they would never have offered such huge bids as A
has been done by them.

(6) While interpreting the Government contracts, which involve State
power, the doctrine of fairness has necessarily to be brought in, as has been
held by this Court on more than one decision. When the State entered into
the contracts with the licen• :ees herein, it postulated that sufficient quan- B
tities of arrack were availal le and will be supplied as usual. While inter-
preting rnch contracts, it is permissible to fook to the surrounding
circumstances including the circumstances. obtaining during the previous
years.

(7) The failure to supply the additional quantities resulted in partial
c
frustration of the contract, on which basis the licencee would be entitled
to claim aba<ement/rembsion of the amount payable under sections 55 and
56 of the Contract Act.

(8) Where the mjustice and inequity is glaring, the Court should step D
in to do justice between the parties. The Goverrunent cannot be allowed
to make capitai out of the misery of the licencees. If the contract between
the parties is understood in the sense urged by the Government, it would
be an impossible contract. It would be a contract in which Joss is inherent
and implicit. There can be no such contract. The Court should mould the E
relief in such situations to suit the circumst.ances, as has been done by it
in similar matters.

The contract between the parties is governed by statutory provisions,
i.e., provisioris of the Act, the rules, the conditions of licence and the.
counter-part agreement. They constitute the terms and conditions of the F
contract. They are binding both upon the Government and the licencee.
Neither of them can depart from them. It is not open to any officer of the
Government to either modify, amend or alter the said term& and condi-
tions, not even to the Minister for Excise. It is, therefore, not really
necessary for our purpose to examine what precisely was the statement G
made by the Minister for Excise on 19.3.1981 or by the auctioning
authorities at the time of auction. Even according to the licencee, the
Minister me(ely stated that steps will be taken in the coming days to supply
requisite quantities. The statement is sought to be proved by producing a
newspaper report, Deshabhimani, dated 19.3.81. On the basis of this
newspaper report, ii is difficult lo record a finding as to what exactly did H
82 SUPREME COURT REPORTS (1994] 2 S.C.R.

A the Minister say. In any event, even the newspaper report does not say that
he held out an assurance to supply all such additional quantities as may be
demanded by the licencees or additional quantities equal to previous year's
· supply. All he said was that 'steps will be taken" to supply requisite
· · quantities to arrack shops - a general declaration of intent and no more.
B Siniilarly we do not know what precisely was the assurance held out by the
auctioning authorities, namely, the ·District .Collector and the Assistant
Excise. of Cbmmissioner who conducted the auction relating to Sultan
Battery and Kalpetta ranges. According to the respondent (para 5 ofW.P.),
they 'assured that necessary ·~xcess quantity of arrack should be supplied
as in the previous year'. The respondents in the Writ Petition (appellants)
C have denied the said averment. The High Court has accepted the
•
respondents' averment in the writ petition on the ground that neither the
Collector nor the .Assistant Excise Commissioner filed affidavits denying
the said averments. Learned Additional Solicitor General criticized the
High Coiirt's view on the ground that the Collector was not obliged to file
D his affidavit unless he was impleaded as a respondent es nomine. In any
event, he say$, itwas not competent to any of the authorities to make any
pro~ or. give. any assurance over and aoove those contained in the
)
statutory provisions inCludiDg the Rules and conditions of licencee. We
· agree with the littler part of the submission of the learned Solicitor
· General. We do nc>t wish to go into the disputed question whether any such
E · statement was indeed made by the said officials: It is enough to note that
they were not competent to hold out any such' promise nor any such
promise ean'clothe the iicencees with any legitlly enforceable rights. We
shall, therefore, go strictly by what is contained in the Statutory provisions.

F . ··. S~b-iules (i) to (3) of Rule 8 have already been set out by us.
According to sub-rule (1), suply of rnollthly quota is oblkigiitory upon the
goverilriient while the suppiy of acldiitional quantity/quota is discretionary.
T~e conditi<)n of licence upon which reliance is placed by the appellants
appears to be of an ambiguous natme. While the first Devision Bench
understood the said condition as saying that 'the Assistant Commissioner-
G would permit issue ofarrack fu excess of the anno~nced monthly quota",
the latter Division Bellch understood th,e said clause as saying 'the Assis-
tant Commissioner may permit issue of arrack in excess of announced
monthly quota': This difference of opinion has arisen because the original
licence form is in Malayalam language. Both Benches have translated it
H differently. In the face of such ambiguity, it would be proper to read the
EXCISE COMMR. v. ISSAC PETER [JEEVAN REDDY, J.] 83

said condition of licence consistent with Rule 8(1). It would not be A
reasonable to presume that the rule-making authority used the expression
'may' in the Rule but chose to use the expression ~muld' in the Form of
licence.

J The concept of monthly quota is a well'knowit one iri excise contracts
all over the country. In several States it is called 'minimum guarantee B
quota'. It is true that the.expression 'minimum guaraniee quota' is not used
in Rule 8(1). Rnle 8(1) speaks of 'monthly quota'. But if the said expression
is read along with the accompanying words it would be evident that it
means 'minimum guarantee quota' alone. This first sentence in Rule 8(1)
says "the monthly quota of arrack which shall be allowed for the shop'. As C
against this, the next sentence says "the Assistant Excise Commissioner may
however, pennit the issue of arrack in excess of the announced monthly
quota ...... ". The use of words "may" and "permit" clearly indicate a discre-
tion in the authority. In the face of the said language, it is difficult for us
to accept ihe contention that the State is under an obligation to supply all · D
that quantity that is asked for by the licencee, 01 quantities equal to the
previous years' supply on for that matter, equal to the average of previous
three years supplies. Reliance upon Rule 8(3) is of not help. Rule 8(3) is
an independent power. Even where ample supplies arc available, the Board
of Revenue can yet restrict the supply of additional quota to a shop having E
regard to the local requirements. But Ruic 8(3) cannot be relied upon to
say that unless the Board of Revenue places a restriction, the Assistant
Commissioner of Excise is bound to supply all that is demanded, irrespec-
tive of the availability of arrack and the requirements of oilier licencees.
No such absolute right can be recognized. This is also the view taken by
this Court in State of Rajasthan v. Nandla~ (1993] Suppl 1 SCC 681 and F
this is how it has been understood all these years. See State of M.P. v.
Sunder Lal /a1$w~(1976)M.P.LJ. 254 .at 263. Now, coming to the licencees'
right to claim rebate/remission/abatement, RUie 6(26) says that no remis-
sion or abatement in the lincence fee shall be 'claimable' by the licencee
'on any account whatsoever'. This sub-rule should no doubt be read G
alongwith Rule 8(1), which sets out the only situation in which the duty and
comission payable will be adjusted. (Of course, where the government fails
to perform its statutory obiligation e.g., if it fails. to supply the monthly
quota referred to in Rule 8(1) it may not be open to ihe government io
84 SUPREME COURT REPORTS (1994] 2 S.C.R.
0

A invoke Rule 6(26).) In such a situation, it is not possible to say that in
addition to the situation contemplated by Rule 8(1) there are other situa-
tions also wherein such rebate/remission o_r adjustment is permissible. Not
only the conditions are statutory in this case but they are formally drawn
in the shape of statutory Rules. In such a situation, it would not be
B permissible to say that there was some other condition or term agreed upon
or implied between the parties which is ~ot found therein. Moreover any
implied term should be consistent with the express terms of the Contract
and not otherwise. 'This principle was affirmed as far back as 1865 by
Cockburn, CJ., in Churr:hward v. The Queen, [1865-66] 1 Q.B.D. 173. Tiie
C learned Chief Justice said:
"Where a <:0ntract is silent, the court or jury who are called .
upon to imply an obligation on the other side which does not
appear in the terms of the contract, must take great care· that they
do not make the contract speak where it was intentionally silent;
D and, above all, that they do not make it speak entirely contrary to
what, as may be gathered from the whole terms and tenor of the
contract, was the intention of the. parties. 'rhis I take to be a sound .,
)
and safe rule of construct:ion with regard to implied covenants and
agreements which are not expressed in the contract.~ ,.
E
Also see !Interpretation of Statutes by Lewison. Chapter V - 'Implied
Terms', pages 97 - para 3.02 and para 5.07 at page 106. If the express term
says that the Assistant Commissiciner of Excise 'may permit', an implied
term cannot be inferred and read into the contract to read it as 'shall
permit''. Even otherwise, having regard to the context and the object
F underlying, there.is no w;irrant for holding that the words 'may permit' in
,.
Rule 8(1) should be read as 'shall permit". 'The fallacy in the contention
advanced by the liceneees can be demonstrated by taking a converse case.
Suppose in a given year, the production of arrack is abundant. Tbe
government has huge stocks of arrack, and they are piling up. Can the
G government force and compel the licencees to lift additional quantities to
clear its own stocks? Would not tbe licencees say in such a case that they
cannot be forced to lift quantities whch they are not able to sell? If they
cannot be so forced, on what parity of reasoning is it claimed that even if
there are no supplies with the go,rernment, it must somehow supply the
H additional quantities demanded and if it cannot so supply, it is not entitled
EXCISE COMMR. v. ISSAC PE'IER (JEEVAN REDDY,J.) 85

to demand the monies as per the contract? All this demonstrate amply that A
there is no right in the licencees to compel the government to supply what
all they demand nor has the State the right to compel the licencees to 1
purchase all that it proposes to sell to them. We see unreasonableness in
this statement. We are of the opinion that in the absence of a statutory
right in the licencee to get additional supplies demanded by him, there is B
no basis in law for the claim of remission or rebate. As stated by this Court
in Panna Lal and Others v.. State of Rajasthan and others, [1975) 2 S-.C.C.
"""i< 633 the onerous nature of the terms is no ground for the licencees to resile
from the express obligations undertaken by them. The Court observed:

'The licenses in the present case are contracts between the c
parties. The licensees voluntarily accepted the contracts. They fully
exploited to their advantge the contracts to the exclusion of others.
The High Court rightly said that it was not open to the appellants
to resile from the contracts on the ground that the terms of
payment were onerous. The reasons given by the High Court were D
that the licensees accepted the license by excluding their com·
-t petitors 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."
E
May be that the monthly quota fixed in these cases is unrealistic in
the sense that with that quantity it is not possible for the liceneees to do
the business and pay the amount agreed to be paid by them. We may also
agree that the discretion vested in the Assistant Excise Commissioner by
Rule 8(1)has to be exercised in a fair and reasonable manner. But all that
~·

only means that the available supplies will be distributed equitably among
F
the licencees. The said sub-rule can in no event be read as creating an
obligation upon the State to supply the quantities demanded by the licen-
cee even if no such supplies are available. In this case the stale has not
contented itself by supplying the monthly quota alone; it supplied whalever
additional quantities it could. There is no grievance on this score. It is ·not G
the case on any licencee that the State did not supply arrack to them even
though it was available with it nor is there any complaint of inequitable
• distribution in any of these cases. If we look at the fi_gures relating to the
1981-82, this fact becomes evident. As against the supply of 1,29,650 liters
of additional supplies for Kalpetta range during the previous excise year H
86 SUPREME COURT REPORlS [1994] 2 S.C.R.

A (1980-81} the Government supplied 1,04,200 liters (in addition to the full
monthly qu0!3) during the year in question (1981-82} - the shortfall is only
about 25,000 liters for the whole range. In the case of Sultan Battery as
against the previous years' additional supplies of 1,51,400, the supplies
during the relevant year were 77,250 (in addition to the full monthly quota).
B We do not, however, know what portion of this additional supplies were
made to the 18 'shops of the respondent in Sultan Battery since the
particulars furnished relate to the entire 28 shops in that range and not ,..,.
(
separately to the 18 shops of the respondent. Even so the additional }.

supplies (in addition to the full supply of dlonthly quota) are half that of
C previous year. In such state of facts, reliance upon Rule 6(14) is of no avail.
Not only monthly quota was supplied in full for the whole of the year,
additional quantities were also supplied to a substantial extent. If so, there
is no question of the licencees not being able to observe the requirement
of Rule 6 (14}. Nor is there any room in the above facts for importing the
plea of frustration of contract or for that matter, the principle of Section
D 55. In the absence of a legal right to claim additional supplies, the argu-
ments based on sections 55 and 56 of Contract Act cannot be coun-
tenanced; In this context, It appears relevant to note that the demand of
the respondent for additional quota during the excise year 1981-82 has
been highly exaggerated, as the particulars in the Table (supra) would
E indicate. This was done probably 'l'l~th the full knowledge that there is
shortage of availability of arrack. lit is reasonable to assume that the
respondent hilted up his demand artificially to create a case, and to create
evidence in support of bis case, in the writ petition. Otherwise there is no
explanation for the said excessive demand - three times the previous year's
p demand. Be that as it may, the indisputable factual position is that the
Government has supplied whatever it could. The question that arises is
w~ther in such a situation the licencees are entitled to any remission or
abatement in the licence fee and ot.her amounts payable under the Con-
tract. The answer must be in the negative.

G We are Unable to appreciate the argument of loss put forward by
· the licencees. It is pointed cut that the selling price of arrack during that
year ranged between Rs.25 and Rs.30 and that they had to sell arrack in
such quantity as not only to be able to pay the amount due to the .>
Government 'but also to meet th1!ir establishment and other expenses
H
EXCISECOMMR. v. ISSACPETER[JEEVANREDDY,J.) 87

besides making some profit. It is pointed out that by selling the arrack A
actually supplied the licencees would not be able to pay even the amount
due to the Government let alone meet the expenses and make profit. But
as pointed out by the learned Additional Solicitor General this argument
breaks down even with respect to the previous year if we take the figures
relating lo Sultan Battery or even for th~t matter Kalpetta. To wit, for the B
excise year 1980-81, while the licence fee for the Sultan Battery was
70,01,000 the total quantity supplied including the monthly quota. was
1,76,550 liters. For paying the aforesaid licence fee alone, the licencee had

' to sell liquor at the rate of not less than Rs.40. If we apply the same
calculation to Kalpetta range for the year 1981·82, the rate at which the
licencee had to sell the arrack, ju." fo'I' p•yin11: the amounts due to govern- C
ment, would be about Rs 32 per litre - the position is better than that of
previous year. This only shows that the basis put forward by the licencees
• for establishing loss is not acceptable. May be there are some other reasons
which impel the licencees to stick on to a particular shop of group of shops.
I
It may be to maintain the continuity of their business or to prevent any new
person entering that areQ. May be, there are other reasons.
D

We may at this stage deal with the decision in Union Territory of
Pondichel1)' and Ors. v. P.V. !;:.;resh etc. etc. and Ors., J.T. (1993) S.C. 410 -
a decision rendered by a Bench comprising one of us (Jeevan Reddy, J.) E
and S.P. Bharucha, J. - upon which strong reliance is placed by Sri
Vaidyanathan. According to the learned counsel, the facts of that e&Se are
similiar to .the present cases and, therefore, a relief similiar .to the one
granted therein must also be granted to the licencees herein. In our
opinion, the learned counsel is not right in his submission that the facts of
1 both the cases are similar. In that case, the Administration had kept back F
• did not disclose • one basic term of the Contract. For the preceding year,
the supply of arrack was fixed at one decalitre a day for an annual bid
amount of Rs.18,000. At the time of auction, it was not disclosed by the
authroities that they have changed the rate of suply to one decalitre to the
annual bid of Rs.40,000 • a very substantial reduction of supply. The said G
change in rate of supply was disclosed to the licencees for the first time
after they commenced their business. II was thus found by the High Court
and this Court that the Adiministration was al fault in suddenly changing
the rate of supply at th~ very inception of the contract. The second
distinguishing feature is that in that case the sale price (at the hands of the
H
88 SUPREME COURT REPORTS [1994] 2 S.C.R.

A licencees) was fixed by the Administration itself. No licencee could charge
more. Whereas in this case, neither any term of contract - much less, an
essential term - bas been kept back from the licencees nor is the sale price
. of arrack fixed by the government. Mr. Vaidyanathan, however, relied
&pon the following observations in the said judgment:

B "In the circumstances of this case, otlr enquiry is limited to the
,question whether the contract was so constructed that loss Vias
inherent and implicit 'in it; if so, it ought to be modified. Otherwise,

c
the Court has no jurisdiction to alter the terms or rewrite the
contract between the parties." '·
In our opinion, the said query wa:; posed in the partcular facts and
circumstances of that case, which were found to be "exceptional and
unusual". It cannot be torn from the context, nor can it be reduced to a
general proposition that if a person freely enters into a contract, which is
D bound to cause loss to him, such a contract is not enforceable. The
paragraph relied upon starts with ihe words 'in the circumstances of this
case', which..:i\ieans and refers to the peculiar facts of that case including
the two b~ic facts mentioned above. More important, it was a case where
the government was found to be at fault; hence the formula evolved therein.
E The said ·observations cannot, therefore, be read or understood in an
absolute ~ense dissociated from the facts of that case. It is for that reason
that the Bench took care to caution - "We must reiterate that the formula
evolved by us is peculiar to the facts of this case and has been evolved in
view of the exceptional facts and circumstances of this case, and shall not
be treated a precedent." The said decision cannot, therefore, be cited as a
F precedent.

There is yet another reason which militates against the licencees
herein. Even according to them there was scarcity of arrack during the
months of February and March 1981, i.e., towards the end of the previous
G excise year. It is also their case that auctions had to be postponed repeated-
ly because no bidders were coming forward in view of the said scarcity and
that half the shops in the State coul<j not be sold during that excise year
for the ifery same reason. It is equally clear that the intending bidders were
not prepared· to implicitly believe the statement of the Minister for Excise
H made on 19th March, which is evident from the fact that no bedders were
EXCISE COMMR. v. ISSAC PETER [JEEVAN REDDY, J.] 89

p•~sent on the adjourned date of auction, viz., is 26th March, 1982. We do A
not know what circumstances weighed with the respondent in offering his
bids on the third date of auction (27.3.82). The respondent attributes it to
the assurance held out by the auctioning authorities. If he was not prepared
to act upon the statement of the Minister for Excise, it is rather curious
that he claims to have believed and acted upon the alleged assurance of B
the auctioning authorities. Having regard to the number of shops and the
amounts of bids offered by the Respondent, we would be justified in
presuming that the respondent was an experienced businessman. It is
unlikely that he - or for that matter, other licencees - believed implicitly ''
the alleged assurance or the Excise Officers. As experienced businessmen C
they must have anticipated that tbr•e wquJd b...problems in supply since
such things can not be rectified overnight. In any event, the only assurance
was that the authorities would take steps to ensure additional supplies as
in the previous year. It cannot be understood as a firm promise - assuming
for the sake of argument that they were not competent to hold out such
promise (which we have ~'und, they were not competent to). As a matter D
of fact, they did whatever they could. Whatever they could supply, they did
supply. It is not a case where any essential term of contract was kept back
or kept undisclosed. The gove•n'!lent had. placed all their cards on the
table, if we can use that expression. If the licencees offered their bids with
their eyes open· in the above circumstances they cannot blame anyone else E
for the loss, if any, sustained by them, nor are they entitled to say that
licence fee should be reduced proportionate to the actual supplies made.
Question may arise, proportionate to what ? Proportionate to their
demand, proportionate to previous year's supply or proportionate to the
average of previous three years' supplies ? F

There cases cannot be equated to cases of persons buying airline
tickets, where certain conditions are printed in small print. These are cases
of formal contracts arrived at pursuant to a public auction or submission
of tenders, and in some cases, by negotiation.
G
May be these are cases where the licencees took a calculated risk.
May be they were not wise in offering their bids. But in law. there is no
basis upon which they can be relieved of the obligations undertaken by
them under the contract. It is well known that in such contracts - Which
may be called executory contracts - there is always an element of risk. Many H
90 SUPREME COURT REPORTS [1994] 2 S.C.R.

A an unexpected development may occur which may either cause loss to the
contractor or re.suit in large profit. Take the very case of arrack contrac-
tors. In one. year.. there may be abundance of supplies accompanied by
good crops induc~d by favourable weather conditions; the contractor will
make subsiantial profits during the year. In another year, the conditions
B may be unfavourable and supplies scarce. He may incur loss. Such con-
tracts do not imply a warranty - or a guarantee - of profit to the contractor.
It is a busine$ for him - profit and loss being -normal incidents of a ~·
. business. Ther¢ js· no room for invoking the doctrine of unjust enrichment
in such a situation. The said doctrin•: has never been invoked in such
C business transactions. The remedy pmvided by Article 226, or for that
matter, suits, cannot be resorted to wriggle out or the contractual obliga-
tions entered into by the licencees.

Learned coilnsel for the Respondents sought to invoke the Ruic of
Promissory estoppel and estoppel by counduct. The attempt is a weak one
D for the said Rules cannot be invoked to alter or amend specific terms or
contract nor cali. they avail against statutory provisions. Here, all the
terms and conditions .of contract, being contained in the statutory Rules,
prevail.

E Learned counsel for the Respondents also sought to rely upon the
Rule of legitimate expectation which lhe licencees entertained in view of
the practice during previous years. firstly, the Rule cannot be invoked to
modify or vary the express terms or contract, more so when they are
statutory in nature. No decision has be1:n brought to our notice supporting
the said proposition. Secondly, in view of the scarcity that had developed
F during the last two months of the previous excise year (i.e., during February
and March, 1981), the plea of legitimate expectation sounds quite weak.
Th&t lhe bidders were apprehensive and highly sceptical of alleged official
assurances is proved by the repeated adjournment of auction and the fact
pleaded by the licencees themselves that during the said excise year (1981-
G 82} half the shops in the State remained unsold. It is inconceivable that the
licencees yet expected legitimately that additional supplies equal to the
previous year's additional supplies would be supplied during this year. The
plea is unacceptable

H Learned counsel for Responde1~ts then submitted that doctrine of
EXCISE COMMR. v. ISSAC PETER [JEEVAN REDDY, J.] 91

... fairness and reasonableness must be read into contracts to which State is A
a party. It is submitted that the State cannot act unreasonably or unfairly
even while acting under a contract involving State power. Now, let us see,
what is the purpose for which this argument is addressed and what is the
implication? The purpose, as we can see, is that though the contract says
that supply of additional quota is discretionary, it must be read as
B
obligatory - at least to the extent of previous year's supplies - by applying
the said doctrine. It is submitted that if this is not done, the \icencees would

' suffer monetarily. The other purpose is to say that if the State is not able
to so supply, it would be unreasonable on its part 10 demand the full
amount d.ue to it under the contract. In short, the duty to act fairly is sought
to be imported into the contract to modify and alter its terms and to create c
an obligation upon the State which is not there in the contract. We must
confess, we are not aware of any such doctrine of fairness or reasonable-
ness. Nor could the learned counsel bring to our notice any decision laying
down such a proposition. Doctrine of fairness of the duty to act fairly and
reasonably is a doctrine developed in the administrative law field to ensure D
t the Rule of Law and to prevent failure of justice where the action is
administrative in nature. Just as principles of natural justice ensure fair
decision where the function is quasi-judicial, the doctrine of fairness is
evolved to ensure fair action where the function is administrative. But it
can certainly not be invoked to amend, alter or vary the express terms of E
the contract between the parties. This is so, even if the contract is governed
by statutory provisions, i.e., where it is a statutory contract - or rather more
so. It is one thing to say that a contract - every contract - must be
construed reasonably having regard to its language. But this is not what the
..,' licencees say. They seek to create an obligation on the other party to the F
contract, just because it happens to be the Btate. They are not prepared to
apply the very same rule. in a converse case, i.e., where ihe State has
abundant sl'lpplies and wants the licencees to lift all that stocks. The
licencees will undertake no obligation to lift all those stocks even if the
State suffers· loss. This one-sided obligation, in modification of express
terms of the contract, in the name of duty to act fairly, is what we rue
G
unable to appreciate. The decisions cited by the learned. counsel for the
... licencees do not support their proposition. In Dwarkadas Maifatia v. Board
.
of Tntstees of tlte Port of Bombay, [1989] 3 SCC 293, it was ,held that where
a public authority is exempted from the operation of a Statute like Rent
"· H
92 SUPREME COURT REPORTS [1994] 2 S.C.R.

A Control Act, it must be presumed that such exemption from the statute is
coupled with the duty to act fairly and reasonably. The decision does not
.
say that the terms and conditions of c-0ntract can be varied, added or
altered by importing the said doctrine. It may be noted that though the said
priuciple was affirmed, no relief was given to the appellant in that case.
B Kumari Shri/ekha Vidyarthi And Others Y. State of U.P. and Others, [1991]
1 S.C.C. 212 was a case of mass termination of District Government
Counsel in the State of U .P: It was a case of termination from a post
involving public element. It was a case non-government servant holding a
public office, on account of which it was held to be a matte.r within the
public law field: This decision too does not affirm the principle now
'
c canvassed by the learned counsel. We are, therefore, of the opinion that in
case of contracts freely entered into with the Stele, like the present ones,
there is no room for invoking the doctrilne of fairness and reasonableness
against one party to the contract (State), for the purpose of altering or
adding to the terms conditions of the contract, merely because it happens "
D to be the State. In such cases, the mutual rights and liabilities of the parties
are governed by the terms of the contracts (which may be statutory in some
)
cases) and the laws relating to contracts. It must be remembered ., that these
contracts are entered into pursuant to public auction, floating of tenders
or by negotiation. There is no compulsion on auyone to enter into these
E contracts. It is voluntray on both sides. There can be no question of the
State power being involved in such contracts. Jt bears repetition to say that
the State does no guarantee profit to the licencees in such contracts. There
is no W!lfranty against incurrinr; losses. It is a businesss for the licencees.
Whether they make profit or incur loss is no concern of the State. In law,
F it is entitled to its money under the Contract. It is not as if the licencees
'
are goiug to pay more to the State in •::ase they make substantial profits. "'
We reiterate that what we have said hereinabove is in the context of
contracts entered into between the State and its citizens pursuant to public
auction, floating of tenders or by negotiation. It is not necessary to say more
than this for the purpose of these cases. What would be the position in the
G case of contracts entered into otherwise than by public auction, floating of
tenders or negotiation, we need not express any opinion herein.

Counsel for Respondents also relied upon the decision in Mahabir
Auto Store and Others v. Indian Oil Corporation and Others, [1990] 3 S.C.C.
H

-
EXCISE COMMR. v. ISSAC PETER [JEEVAN REDDY, J.] 93

7~. But that case turned on its peculiar facts. All that was done was to A
advise the 1.0.C. to take the appellant into confidence before putting an
end to his long-enjoyed right. The observations in the judgment are
confined to the particular facts of that case. It is significant to note that is
was not a case where the,rightsof the parties were governed by a contract.
This decision cannot, therefore, support the contention of the Respon- B
dents.

• For the above reasons, the appeals preferred by the State are allowed
and the appeals preJerred by the licencees - contractors are dismissed. No
costs.

G.N. Appeals allowed.