Holding

Rule 12’s mandate to record reasons before any regrouping of shops is mandatory; the Collector’s failure to comply with this and the Commissioner’s instructions invalidated the auction.

Summary

The case concerned the auction of 78 arrack‑shops in Hyderabad and Secunderabad under the Andhra Pradesh Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969. The Collector, acting as auctioning authority, first auctioned the shops individually, then in two groups, and finally as a single lot, contrary to the pattern notified earlier and without recording any reasons for the regrouping. Seventeen lessees challenged the auction, arguing that Rule 12 required written reasons before any regrouping and that the Collector had exceeded his jurisdiction by ignoring the Commissioner’s administrative instructions. The High Court held the auction invalid and ordered a re‑auction; the appellants and the State appealed. The Supreme Court affirmed that the requirement to record reasons under Rule 12 is mandatory, that the Collector’s regrouping violated both the rule and the Commissioner’s instructions, and that the auction was therefore void. The appeals were dismissed and a re‑auction was ordered within three weeks.

Issues considered

The requirement of Rule 12 of the Andhra Pradesh Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969 to record reasons for regrouping shops – whether it is mandatory or directory.
Whether the Collector had authority to regroup the 78 shops into a single lot contrary to the Commissioner’s instructions and the auction notice.
Whether the failure to give bidders adequate time and to record reasons before the auction renders the auction invalid.

Legislation cited

Andhra Pradesh Excise Act, 1968s. 17, s. 29, s. 31, s. 63, s. 64, s. 72
Andhra Pradesh Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969s. 10, s. 12, s. 13, s. 16, s. 17, s. 18, s. 3, s. 4

Subjects

Excise lawPublic auctionLease of liquorRule 12Administrative instructionsMandatory provisionRegrouping of shopsRevenue protectionProcedural fairnessMonopoly

Judgment

794

A RAJA MALLAIAH AND ANR.
v.
AN!L KISHORE AND ORS.
April 25, 1980
B [0. CHINNAPPA REDDY AND A. P. SEN, JJ.]
•
..4ndhra Pradesh (Lease of Rigllt to sell Liquor in Retail) Rules. 1969-
Rule 12 read with Rules 3 and 4 and administrative instruction thereunder>
scope of-J¥hrther regrouping of 78 shops as a single lot for auctioning at
the postponed auction, without 'recording reasons therefor and holding of
•
such an auction within half an hour of the decision regarding regroup is con-
c trary to Rule 12.

Under Rule 4 of the Andhra Pradesh Excise (Lease of Right to sell
Liquor in Retail) Rules, 1969, made in exercise of the powers conferred upon
the Government by section 72 read with section 17, 29, 31 and 64 of the
Andhra Pradesh Excise Act, 1968, a notification dated August 20, 1979
was published in the District Gazette, Hyderabad, by the Commissioner of
D Excise Andhra Pradesh, giving a notice of a proposal to hold an auction from
September 1, 1979 to September 3, 1979, of the right to sell arrack, in retail
in respect of 78 arrack shops in the twin cities of Hyderabad and Secunderabad
during the Abkari year October 1, 1979 to September 30, 1980. The notifi-
cation mentioned that 22 out of 78 shops would be auctioned in ten groups
of two and three shc>ps, while the remaining 56 shops would be auctioned
individually. This was according to the pattern which obtained for the year
E 1978-79 for which year the auction fetched an aggregate monthly rental of
Rs. 32,99,537-72 np. On account of some representations made by Excise
Contractors in regard to some conditions regarding the bottling of arrack, the
auction was postponed to September 7, 1979. Auction was sought to be held
on September 7, 1979 and September 12, 1979 but there were no bids. On
September 21, 1979, the Collector (the auctioning authority) followed a
peculiar procedure. First he auctioned 34 arrack shops in Hyderabad City
I! individually and the bids fetched an aggregate of Rs. 6,49,700 (monthly
rental). Then he put the 34 shops to auction as a single lot but there was
no bid. Similarly he auctioned the 44 arrack shops of Secunderabad city
individually and they fetched an aggregate bid of Rs. 6,02,100 (monthly ren-
tal). He then put the 44 shops to auction as a single lot, but there was
no bid. Thereafter he put the entire lot of 78 shops to auction as a single
lot. There was no bid. The auction was postponed to September 22, 1979
G and on that 'day the same peculiar procedure was repea.ted. The highest bid
for all the 78 shops in one lot was Rs. 24,00,000/-, while there were two
tenders for Rs.~15.ll,111/11 ps and Rs. 25,55,555/55 ps. Therefore, the
tender for Rs. 25,55,555155 ps. was accepted.

Seventeen persons who were lessees of the arrack shops in the twin cities
during the year 1978-79 filed two writ petitions in the High Court of Andhra
n Pradesh questioning the auction held on September 21. 1979 and September
22, 1979 on the ground that the Collector had no jurisdiction to auction the
78 shops as one lot, thereby altering the entire pattern of the auction as
•
RAJ A MALLAIAH v. ANIL KISHORE 795

notified earlier. lt was pleaded that the action of the Collector was contrary A
to rule 12 of the A.P. (Lease of Right to sell Liquor in Retail) Rules, 1969
and the administrative instructions issued by the Excise Commissioner by
.J which the Collector was bound. A learned single Judge allowed the writ
petitions and directed a reauction to be held within __.?.. period of fifteen days.
The present appellants and some others, as well as the State of Andhra
Pradesh preferred appeals under clause 15 of the Letters Patent. The Divi-
sion Bench dismissed them on the ground that there was a contravention B
..,. oJ Rule 12 of the Rules as the auctioning authority failed to record reasons
for grouping the 78 shops in one lot.
Dismissing all the appeals by special leave, the Court
• HEW : I. The scheme of the Andhra Pradesh Excise Act sho\vs that
the Commissioner is at the apex, as it were, of the Excise Administrations
of the State. He is the Chief Controlling Authority for all matters connected c
, with the administration of the Excise Act and has the control of the adminis-
tration of the Excise Department The Collector who is invested with the
power to perform various functions under the Act is also subject to the
control of the Commissioner. Having regard to the scheme of the Act, it
may be presumed that such functions as are directly assigned to the Com-
missioner under the Rules are considered by the Legislative delegate to be
important functions for the purposes of the Act and if the Commissioner D
is authorised to issue instructions, those instructions are meant to be obeyed
by ¢.e other authorities constituted under the Act. [803 A-CJ
Under Rule 3 it is the Commissioner that is invested with the power to
fix th'e number of shops to be established in an area, their location and the
minimum guaranteed quantity that should be sold in each shop. These mat-
ters are required to be determined by the Commissioner before the auction E
notice is published under R. 4 so that the details may be incorporated in
the auction notice. The auction notice has to specify, among other parti-
culars, the shop or group of shops in respect of Which the lease to sell liquor
is proposed to be granted by public auction. The advance notice is obviously
meant to enable the intending bidder and tenderers to make the
necessary preparations including vital arrangements regarding finance,
since the successful bidder has to deposit one month's rental and two percent F
of the annual rental forthwith on acceptance of the bid or tender and an
""""~ ~ additional two months rental within fifteen days from the date of auction.
~- [803 D-F]
• The fixation of number of shops, the location of the shops and their
grouping is considered so important a matter that the power in regard to it
is vested in the apex authority, the Commissioner. If some changes have to
be made, as a measure of emergency such changes also can only be made G
in accordance with the administrative instructions issued on the subject by
the Commissioner. Even so, the emergency exercise can only be undertake
if reasons are recorded in writing. The freedom of the auctioning authority
to regroup and rearrange shops is thus deliberately circumscribed. It is not
for the aoctioning authority to make ad-hoc experiments on the spot if he
decid'es to regroup the shops. If he desires to regroup the shops, he has (1)
to act in accordance with the administrative instructions issued on the subject H
by the Commissioner, and (2) to record in writing the reasons for the change.
[803 G-H, 804 A)
796 SUPREME COURT REPORTS (1980] 3 S.C.R.

It is true that the Collector, as per the administrative instructions issued
on June 10, 1975, sought instructions from the Commissioner on September
20, 1979 over the phone and the Commissioner did give certain instructions
on September 21, 1979. All that was said in the instructions dated Septem-
ber 21. 1979 was that regrouping: n1ight be done to get n1aximum revenue.
It did not n1ean that the instructions previously in force were to be ignored
or thrown overboard of that complete freedom was given to the auctioning
B authorities to act at their discretion. All that it meant was that regrouping
might be done, if necessary, to get maximum revenue, but such regrouping
was naturally to be in accordance with the instructions already given from
tin1e to time. In the earlier instruction dated June 10, 1975, the Commis-
sioner pointed out that the shops and groups approved by the Board of
Revenue (Commissioner of Excise) and notified for auction should be
auctioned without disturbing the approved pattern. Bigger groups could be
"
c split intu smaller groups and auctioned if the highest rental offered wa.s
lo\ver than the current rental for the bigger group. It was strictly stipulated
that approved groups should not be enlarged under any circumstances and
where groups were re-form·ed reasons should be recorded in detail. The
en1phasis throughout v;•as on the splitting of bigger groups into smaller groups
but was never in the opposite direction i.e. forming bigger groups in the
place of smaller groups. The instructions were definitely against creation of
D nlonopoly. The instructions dated August 3, 1979 also emphasised this as-
pect and expressly mentioned that monopoly should be broken as that would
fetch better Revenue.. The specific instructions given on September 20, 1979,
i.e. on the eve of the adjourned auction wer'e that two to four groups might
be forn1ed in the case of the arrack shops of the twin cities.
[806 F-H, 8.07 A-C]
In the instant case, the regrouping of all 78 shops into a single group
E was clearly opposed to the instructions issued by the Commissioner of Excise
particularly the specific instruction issued on Septen1ber 20, 1979 with respect
to the very shops in the twin cities of Hyderabad and Secunderabad. It was
opposed to the earlier genertll instruction that 'approved groups should not
be enlarged under any circumstances' and monopoly should be avoided.
The accident that the regrouping fetched a higher bid is not sufficient justi-
fication of the departure from the administrative instructions which aim at
breaking a monopoly in regard to lease of excise shops. The result could
well have been otherwise and the bids lower. [807D-E] ~r
, .
The question.. whether a provision is mandatory or directory is not to be
resolved merely by reference to the emphatic or gentle language employed •
in the provision, nor even by the presence or absence of an express stipula-
tion regarding the consequences of a breach of the provision. These are
G circumstances of importance Which naturally have to be considered. But
one must give greater consideration to the statutory design and the impor-
tance of the provision in the context of that design. Generally one may say
a provision which insists upon recording of reasons before an action is taken
must prima facie be considered to be mandatory, ae it is aimed at preventing
arbitrariness. Where the rights of citizens are involved there can be no
question that such a provision should be regarded as mandatory. Where the
provision involves the public inte-rest also the provision must be regarded as
H mandatory.. Examined in that light the Andhra Pradesh Excise Act is an
Act intended to rafae and secure revenue to the State, without at the same
time sacrificing the public ·interest involved which requires the regulation of
RAJ A MALLAIAH v. ANIL KISHORE 797

trade in intoxicants. Th'e administration of the Act is, therefore, vested pri- A
1narily and centrally in the Commisioner of Excise who is expected to take
a decision on all vital matters. The fixation of the number of shops, their
location and grouping are considered by the legislative delegate to be mat-
ters of such vital importance in Excise administration that the power in re-
gard to these matters is vested in the Excise Commissioner. In that setting,
the object of the rule is clearly seen to be to secure strict compliance with
• the arrangen1ent already made by the Commissioner of Excise, the highest B
authority, and to permit no departure from the arrangement save in excep-
tional cases, on the clearest of grounds. What is involved is the protection
• of re\'enue and \Vhat is to be prevented is lid hoc improvisation which jeopar-
dises the revenue. That a particular improvisation yielded better results may

f be the exception which proves the rule. The public interest is thus seen
to be served in two ways by the recording of reasons, first by protecting the
public revenue· and next by making public authOrities not to function arbitrarily c
and also not appear to function arbitrarily. [807 G-H, 808 A-E]

It is true that the Government is the exclusive owner of all rights and
privileges in regard to intoxicants and no citizen has any right in regard to
them. Here, the question is wheth'er the Government having invited mem..
bers of the public to participate in a public auction on certain terms and
conditions, it is open to the officer entrusted with the task of conducting the D
auction to vary the terms and conditions publicly announced earlier, with..
out assigning any reasons when the statutory rules require the recording of
reasons. Departure from the rules and failure to record the reasons is imper~
1nissib1e · merely because no citizen has any right in the sale of intoxicants.
The situation changes aS soon as statutory provision and rules are made and
the public is invited to participate in the auctions to be held as provided by
rules. Therefore, the requirement regarding recording of reasons contained E
in Ruic 12 of the Andbra Pradesh Excise (Lease of Right to Sell Liquor ia
Retail) Rules. 1969 is mandatory. [808 E-H, 809 A]

To record the reasons contemporaneously. that is to say, soon after the
auction was h~ld is not proper. The object of the insistence upon the record-
ing of reasons is to eliminate <brbitrariness. Reasons, if given, substitute
objectivity for subjectivity. When reasons are set down in writing gr'eater F
thought goes into it and greater objectivity is attained. Where the action to
be taken involves a departure from what ha.-. already been decided by the apex
::i.uthority and the public interest is involved, the reasons required to be
recorded must be recorded before and not ofter the action is taken. [809 A-Cl

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3427-3432fof 1979.
From the Judgment and Order"'dated 22-11-1979 of the Andhra
?radesh High Court in Writ Appeal Nos. 367, 368, 397 and 398/79
;espectively.
V. M. Tarkunde, P. N. Ramalingam and A.T.M. Sampath for the
Appellants in CA Nos. 3429-3432/79.
H
K. K. Venugopal and B. Parthasarathy for the Appellants in CA
Nos. 3427-3428/79 and for the State in CA Nos. 3429-3432/79.
798 SUPREME COURT REPORTS [1980] 3 S.C.R.

A S. N. Kacker, P. R. Mridul, R. Salish, V. K. Pandita and E. C.
Aggarwal for the Respondents I, 3, 4 and 7 in CA Nos. 3427-3432/
79.
The Judgment of the Court was delivered by
CHINNAPPA REDDY, J.-Apparently there is big money in the
liquor business. When, at the close of the hearing on Friday 18th
April, 1980, we asked M/s. Kacker and Mridul whether their clients
were prepared to deposit or furnish security in a sum of Rs. 35 lakhs
in order to guarantee that the bids at a reauction, if so ordered, would
so start that their aggregate would be not less than Rs. 35 lakhs, they
c agreed with alacrity. We asked the question as we wanted to satisfy
ourselves about their bonaftdes. On a request made on April 21, 1980,
we have given them a week's time to give security to the satisfaction of
the Commissioner of Excise, Hyderabad.

On August 20, 1979, a notification was published in the District
Gazette, Hyderabad, by the Commissioner of Excise, Andhra Pradesh,
D giving notice of a proposal to hold an auction, from September I, 1979
to September 3, 1979, of the right to sell arrack in retail in respect of
78 arrack shops in the twin cities of Hyderabad and Secunderabad
dnring the Abkari year, October I, 1979 to September 30, 1980. The
notification was published under Rule 4 of the Andhra Pradesh Excise
(Lease of Right to Sell Liquor in Retail) Rules, 1969, made in exercise
E of the powers conferred upon the Government bys. 72 read with ss. 17,
29, 31 and 64 of the Andhra Pradesh Excise Act, 1968. The notifi-
cation mentioned that 22 0 ut of the 78 shops would be auctioned in
ten groups of two and three shops, while the remaining 56 shops would
be auctioned individually. This was according to the pattern which
obtained for the year 1978-79 for which year the auction fetched, an
aggregate monthly rental of Rs. 32,99,537 ·72 ps. On account of ,.J,'
F
'
some representations made by excise contractors in regard to some
conditions regarding the bottling of arrack, the auction was postponed
to September 7, 1979. The first auction was held on September 7,
1979, when no bids were received for the arrack shops. A second
G auction was held on September 12, l979 and again there were no bids.
On September 19, 1979, no auction could be held as all the bidders
walked out. On September 21, 1979, the Collector (the auctioning
authority) followed a peculiar procedure. First he auctioned 34
arrack shops in Hyderabad city individually and the bids fetched an
aggregate of Rs .. 6,49,700 (monthly rental). Then he put the 34 shops
H to auction as a single lot but there was no bid. Similarly he auctioned
the 44 arrack shops of Secunderabad city individually and they fetched
an aggregate bid of Rs. 6,02, 100 (monthly rental). He then put the
RAJA MALLAIAH '" ANIL KISHORE (Chinnappa Reddy, J.) 799

44 shops to auction as a single lot but there was no bid. Thereafter A
he put the entire lot of78 arrack shops to auction as a single lot. There
was no bid. There was a tender but the tender had to be rejected as
the tenderer was not present in the auction hall even after an announce-
ment was made on the microphone and the auctioning authority waited
for a considerable time. The auction was then postponed to Septem-
ber 22, 1979 and on that day, the same peculiar procedure was repeated. B
The 34 shops of Hyderabad city when auctioned individually fetched
. bids aggregating to Rs. 6,75,000. There were also tenders. The
aggregate of the highest bid or tender for the different shops came to
Rs. 7,78,060/55 ps. The 44 shops in Secunderabad city were then
f auctioned individually. The aggregate of the bids came to Rs. 8,30,000.
There were tenders also. The aggregate of the highest bid or tender
c
for the different shops came to Rs. 10,82,885 ·27. Thereafter 34 shops
of Hyderabad city were auctioned as one lot and there was a bid for
Rs. 8,00,000 and a tender for Rs. 10,55,229. Similarly the 44 shops
in Secunderabad city were auctioned as one lot and the maximum bid
was Rs. 13,50,000 while two tenders were received, the highest of which D
was Rs. 14,11,111. The Collector then auctioned all the 78 shops as
one lot. The highest bid was Rs. 24,00,000 while there were two
tenders for Rs. 15,11,111/11 and Rs. 25,55,555/55. The tender for Rs.
25,55,555/55 for all 78 shops was accepted.

17 persons who were lessees of the arrack shops in the twin cities
E
during the year 1978-79 filed two Writ Petitions in the High Court of
Andhra Pradesh questioning the auction held on September 21, 1979,
and September 22, 1979 on the ground that the Collector had no juris-
diction to auction the 78 shops as one lot, thereby altering the ;entire
pattern of the auction as notified earlier. It was pleaded that the
action of the Collector was contrary to R. 12 of the Andhra Pradesh p
(Lease of Right to Sell Liquor in Retail) Rules, 1969, and the adminis-
trative instructions issued by the Excise Commissioner by which the
Collector was bound.

Amareswari, J., who heard the Writ Petitions in the first instance,
in a careful and well-considered judgment held ; 1. The action of the G
auctioning authority grouping all the 78 shops into one group was
opposed to the administrative instructions issued by the Excise Com-
missioner and hence contrary to R. 12 ; (2) the action of the auctioning
authority was contrary to the rule also because the auctioning autho-
rity failed to record reasons, as he was required to do under the rule
before he could regroup the shops; and, (3) the petitioners were not B
given sufficient time to make preparations to bid at the auction of 78
shops as a single lot since half an hour's time only was given to them.
soo SUPREME COURT REPORTS (1980) 3 S.C.R.

A On those findings Amareswari J., allowed the Writ Petitions and direc-
ted a reauction to be held within a period of 15 days.

The present appellants and some others, as well as the State of
Andhra Pradesh preferred appeals under Clause 15 of the Letters
Patent. The Appellate Bench consisting of Kuppuswamy and P. A.
B Chaudhary, JJ., did not agree with Amareswari J's view that the auction
was contrary to R. 12 read with the administrative instructions or that
the petitioners in the Writ Petition were not given sufficient time to make
preparations for participating in the auction of the 78 shops as a single
lot. They, however, upheld the judgment of Amareswari J., on the
_ground that there was a contravention of R.12 of the Rules as the
c auctioning authority failed to record reasons for grouping the 78
.shops into one lot.

It was argued by Shri V. M. Tarkunde, learned counsel for the
successful bidder-appellants and Shri K. K. Venugopal, learned coun-
sel for the State of Andhra Pradesh that the rule requiring recording
D of reasons was not mandatory and, in any case, recording of reasons
was not a condition precedent. The rule was sufficiently complied by
reasons being recorded immediately after the auction. Shri Kacker
and Shri Mridul, learned counsel for the respondents, urged that the
rule was mandatory and that. recording of reasons was a condition
precedent to regrouping of shops. They also contended the view
E
expressed by Amareswari J., on the other two questions was the better
view.

A brief reference to some of the provisions of the Andhra Pradesh
Excise Act and the Andhra Pradesh Excise (Lease of Right to Sell
Liquor in Retail) Rules, 1969, is necessary here. S ·3 of the Act pro-
vides for the appointment of the Commissioner of Excise for the State
who is to be the Chief Controlling authority in all matters connected
with the administration of the Act. He is to have the control of the
administration of the Excise Department. S. 4 provides that the
Collector shall excercise the powers and perform the functions assigned
G ·to him under the Act, subject to the general ·control° of the CommiS'.'
skner. Chapter IV of tl1e Act deals with the manufacture, possession,
and sale of liquor. S. 17 in particular empowers the Government to ·
grant leases for the supply, manufacture or sale of any intoxicant.
Chapter VI deals with licences and permits. Chapter IX deals with
'Appeals and Revisons'. S. 63 provides that any person aggrieved by
H an order passed by any Officer other than the Commissioner or Collec-
tor may appeal to the Deputy Commissioner and any person aggrieved
by an order passed by the Deputy Commissioner or Collector may
RA.IA MALLAIAH v. ANIL KISHORE (Chinnappa Reddy, J.) 801

appeal to the Commissioner. S. 72 empowers the Government to A
make rules for carrying out all or any of the purposes of the Act.

In exercise of the powers vested in the Government under s. 72
of the Act, the Government has made the Andhra Pradesh Excise
(Lease of Right to Sell Liquor in Retail) Rules. R. 2(vi) defines
• "Excise Year" as a period of 12 months commencing from !st October B
-0f a year and ending with the 30th September of the succeeding year.
R. 2 (viii) defines "Highest Bidder" as the person who offers the highest
II' price by bid or tender. R. 2(ix) defines "Rental" as rent payable in
respect of a shop or group of shops in consideration of the grant of
lease for the sale of liquor. R. 3(1) prescribes that every lease of right
to sell liquor in retail shall be granted by auction ordinarily for a c
period or one excise year. The Commissioner is, however, empowered
to grant a lease in any other manner, with the prior approval of the
Government if he considers it necessary to do so. R.3(2) is important
and it is as follows :
"3(2) The Commissioner shall be, before the publication of D
auction notice nnder rule 4, competent to fix the number of
shops to be established in an area, their location,the total number
of excise trees to be earmarked to each shop, the assignment of
trees for tapping, and the minimum guaranteed quantity that
should be sold in the case of the arrack shops in every excise
year". E

R. 4 is also important. It is as follows :
"4. Auction Notice:-(!) Whenever it is proposed to grant
the lease for sale ofliquor in retail in respect ofa shop or a group
of shops, a notice of the proposed auction containing the parti- F
culars mentioned in sub rule (2) shall be published, atleast ten
.. days in advance of the date of auction, by the Collector of the
district in the Andhra Pradesh Gazette or in the District Gazette
or in such other manner as the Collector may deem fit :
(Provided that the time limit of 10 days shall not be
applicable in the case of postponed auctions). G

(2) The auction notice shall contain the following parti-
culars, namely-
(i) the name or locality of a shop or group of shops which
sell liquor in the area;
(ii) the place of auction with time and date; H

(iii) the last date, time and place for receipt of tenders;
802 SUPREME COURT REPORTS [1980] 3 s.c.R.

A (iv) the conditions governing the auction:
(v) the period of lease; and
(vi) any other matter which may be considered by the
auctioning authority necessary for the information of
bidders and tenderers".
B R. 10 empowers the Collector or any other Gazetted Officer not
below the rank of a Deputy Collector authorised by the Collector in
that behalf to conduct the auction. There are some provisos with
which we are not concerned. R. 12 is vital for the purposes of these ..
appeals and it is as follows :
"12. Auction of.Shops:-(]) The right to sell liquor may
c ordinarily be auctioned shopwise or groupwise according to the
list of shops approved by the Commissioner of Excise under Rule
3. The auctioning authority may for reasons to be recorded in
writing, either regroup any shop or split any group of shops and
re-arrange them in accordance with the administrative instruc-
tions issued on the subject by the Commissioner at the
D
commencement of the auction or at any time before the sale is
knocked down.
(2) The Commissioner may withdraw any shop from the
auction before the auction is commenced.
(3) The auctioning authority may, for sufficient cause,
E postpone the date of auction of a shop or group of shops."
R. 13 regulates the manner of submission of tenders and bids.
A tender is to be opened only if the auctioning authority decides
that the highest bid offered for a shop or group of shops is
satisfactory. The tender may then be considered alongwith the
highest bid offered. If the auctioning authority considers that the bid
F
is not satisfactory and decides to postpone the auction the tender is to
be opened at the postponed auction after the bidding is over. It
shall be at the discretion of the auctioning authority to accept or reject
any tender or bid but he shall record his reasons therefor. R. 16 stipn-
lates that the auction purchaser shall pay two per cent of the annual ...
G rental as earnest money together with one month's rental on the day
of the auction immediately after the acceptance of the tender or bid
as the case may be. The earnest money and one month's rental are
to be in addition to the further deposit, required to be made by R. 18,
of two months' rental in cash or any fixed deposit certificates within
fifteen days from the date of auction. R. 17 enables the Commissioner
H suo moto or on an application made by an aggrieved party within seven
days from the. date of acceptance of bid or tender, for reasons to be
recorded by him in writing, and after giVing an opportunity to the·
RAJA MALLAIAH v. ANIL KISHORE (Chinnappa Reddy, J.) 803

party concerned, to cancel the auction of any shop or group of shops A
and order a reauction.
The scheme of the Act shows that the Commissioner of Excise
is at the apex, as it were, of the Excise Administration of the State.
He is the Chief Controlling Authority for all matters connected with the
administration of the Excise Act and has the control of the adminis- B
tration of the Excise Department. The Collector who is invested
with the power to perform various functions under the Act is also
subject to the control of the Commissioner. Having regard to the
scheme of the Act, we may presume that such functions as are directly

f assigned to the Commissioner under the Rules are considered by the
legislative delegate to be important functions for the purposes of
the Act and if the Commissioner is authorised to issue instructions,
c
those instructions are meant to be obeyed by the other authorities
constituted under the Act.

Now under R. 3 it is the Commissioner that is invested with the
power to fix the number of shops to be established in an area, their D
location and the minimum guaranteed quantity that should be sold in
each shop. These matters are required to be determined by the Com-
missioner before the auction notice is published under R. 4 so that the
details may be incorporated in the auction notice. The auction notice
has to specify, among other particulars, the shop or group of shops
in respect of which the lease to sell liquor is proposed to be granted by E
public auction. The auction notice with all these particulars has to
be published in the Andhra Pradesh Gazette or in the District Gazette
atleast ten days in advance of the date of the auction. The advance
notice is obviously meant to enable the intending bidders and tenderers
to make the necernary preparations including vital arrangements
regarding finance, since the successful bidder has to deposit one month's F
rental and two percent of the annual rental forthwith on acceptance of
the bid or tender and an additional two months' rental within fifteen
days from the date of auction.

From the scheme of the Act and the rules it appears that the fixation
of the number of shops, the location of the shops and their grouping G
is considered so important a matter that the power in regard to it is
vested in the apex authority, the Commissioner. If some changes have
to be made, as a measure of emergency such changes also can only be
made in accordance with the administrative instructions issued on the
subject by the Commissioner. Even so, the emergency exercise can
only be undertaken if reasons are recorded in writing. The freedom of B
the auctioning authority. to regroup and rearrange shops is thus deli-
berately circumscribed. It is not for the auctioning authority to make
804 SUPREME COURT REPORTS [1980] 3 S.C.R.

adhoc experiments on the spot if he decides to regroup the shops.
Ifhe desires to regroup the shops, he has (I) to act in accordance with
the administrative instructions issued on the subject by the Commi-
ssioner, and (2) to record in writing the reasons for the change. The
case of the respondents is that both these conditions were not fulfilled
by the auctioning autho~ity in the present case.
B
We may now refer to the administrative instructions issued by
the Commissioner from time to time in connection with the group-
ing and regrouping of arrack shops. The earliest of the instructions ..
was issued on June 10, 1975 and it is common ground that it is still in ..~
force. It will be useful to extract these instructions in their entirety. ~
c The instructions were as foll 0 ws :
"Collectors are being advised every year of the policy of
Government regarding formation of groups of toddy and arrack
shops. Accordingly, Collectors are submitting proposals for
approval of the Commissioner. After scrutiny of their pro-
D posals, approval is being communicated to them for notification
and auction accordingly.
But it has been noticed that at times soine changes in the grouping
of shops, are being made by the Collectors without assigning reasons,
on the eve of auction, apparently, in exercise of the powers given in
Rule 12 of Andhra Pradesh Excise (Lease of Right to Sell Liquor in
Retail) Rules 1969. This procedure is not in keeping with the
instructions.
In many cases this exercise of power has only led to formation of
bigger groups, thereby encouraging monopolistic tendencies, loss
in revenue and defeat of the policy aims of the Government. Such
F · an exercise of powers under Rule 12 of Andhra Pradesh Excise (Lease
of Right to Sell Liquor in Retail) Rules, 1969 with the object of obtain-
ing highe(rentals, has also ;received severe criticism on. the floor of •the
Legislative Assembly.

The following instructions are therefore, renewed once again for
G strict compliance :
(I) The shops and groups approved by the Board of Revenue
and notified for auction should be auctioned without dis-
turbing the approved pattern.
(2) The rentals offered or tenders received should be com-
H pared with the current rentals. If the auctioning autho-
rity is satisfied that there is no collusion among bidders for
the slightly and lower bid than that of last year the bid
RAJA MALl.ATAH v. ANIL KISHORE (Chinnappa Reddy,!.) 805

ultimately received is regarded as the best available one, A
the auction should be finalised recording the reasons.
(3) In case the highest rental offered is considerably lower than
the current rental and the auctioning authority has reasons
to believe that extraneous factors are im1uencing the bids
he may exercise the discretion vested in him under Rule 12
B
and split any group of shops or rearrange them into
smaller groups and auction them.

.. It may be noted for strict compliance that approved
groups should not be enlarged under any circumstances .
V- Where approved groups are re-formed otherwise, the

t reasons for such action must be recorded in detail and the
facts of the case reported to the Commissioner within
c
10 days from the date of auction.
(4) lnspite of splitting the notified groups and re-arranging
them as discussed at (3) above the bids offered for them
are lower than the current rentals they may be dis-
posed of on the best available bid. Auctions should not
be postponed beyond September of the year in which
auctions are held.

Sd/- Anil De E
Con1missioner of Excise".

On August 3, 1979 the Excise policy for the Excise year 1979-80 was
announced and the grouping policy was enunciated in these terms :
"Grouping of toddy and arrack shops : F'
The grouping policy for toddy and arrack shops followed
for the Excise Year 1978-79 shall continue for the ensuring
Excise Year 1979-80 with the following modifications.

,, The arrack shops which have been monopolised by certain
persons, if they are fetching low rentals and are contiguous, may G
be grouped together provided the shops are located within a
radius of 8 kms. The auctioning authority after recording
reasons may split a group, re-arrange groups or regroup any
shops at the time ofauction under Rule 12 of the Auction Rules
with a view to breaking monopoly and to achieving more revenue
or for other admi.nistrative reasons. Under no circumstances n:
should the groups be split or regrouped or re-arranged and
auctioned if there is any likelihood of loss of rentals hitherto
806 SUPREME COURT REPORTS (1980] 3 S.C.R.

secured. No shops given to existing Tappers Cooperative
Society and under Trees for Tapper Scheme shall be clubbed
with the Group shops even if they are within 8 Kms. radius".

On September 20, 1979, the District Collector appears to have sought,
on the telephone, specific instructions with regard to the auction of
B arrack shops in the twin cities. The instructions received were noted
in the note-file and they are as follows : "Received certain instructions •
from the Commissioner of Excise for regrouping of entire twin city
arrack shops into two to fonr groups. As per the above instructions
groups may be formed". On September 21, 1979 the Commissioner
of Excise addressed a communication, apparently to all the Collectors
c in the State, to the following effect :
"The Government in the reference first cited have informed
that the auctions of arrack and toddy shops should be com-
pleted by 27th instant positively as 29th and 30th happen to be
Public holidays. The Government have further directed that
D the remaining shops should be disposed off at the best
available bids.
Regarding auction of shops, where bottling is proposed
to be introduced, where contractors are not offering reasonable
bids inspite of Government having given them maximum con-
E cessions the auctioning authorities may regroup the shops, if !
necessary, to get best available bids". ·

Now, it will be seen that in the instructions dated June 10, 1975,
· the Commissioner of Excise expressly drew attention to the circum-
stance that changes in the grouping of shops were being made by the
Collectors without assigning reasons and that such a procedure was
F
not in keeping with the instructions given. He pointed out that
the shops and groups approved by the Board of Revenue (Commissioner
of Excise) and notified for auction should be auctioned without dis- .
turbing the approved pattern. Bigger groups could be split into smal-
ler groups and auctioned if the highest rental offered was lower than
G rthe current rental for the bigger group. It was strictly stipulated that
approved groups should not be enlarged under any circumstances
and where groups were re-formed reasons should be recorded in detail.
The emphasis throughout was on the splitting of bigger gtoups into
smaller groups but was never in the opposite direction i.e. forming
bigger groups in the place of smaller groups. The instructions were
B definitely against creation of monopoly. The instructions dated
August 3, 1979 also emphasised this aspect and expressly mentioned
that monopoly should be broken as that would fetch better Revenue.
RAJ,\ MAlLA!AH v. ANIL K!SIIORE (Chinnappa Reddy, J.) 807

The specific instructions given on September 20, 1979, i.e. on the eve A
of the adjourned auction were that two to four groups might be formed
in the case of the arrack shops of the twin cities. Some argument was
advanced to the effect that the instructions dated September 21. 1979
altered the position and that liberty was given to the auctioning autho-
rities to regroup the shops in any manner they liked to get maximum
revenue. The instructions do not warrant any such conclusion. All ll
that was said in the instructions dated September 21, 1979 was that
regrouping might be done to get maximum revenue. It did not mean
that the instructions previously in force were to be ignored or thrown
" overboard or that complete freedom was given to the auctioning autho-
rities to act at their discretion. All that it meant was that regrouping
might be done, if necessary, to get maximum revenue, but such re-
c
grouping was naturally to be in accordance with the instructions
already given from time to time.
In the instant case the regrouping of all 78 shops into a single group
was clearly opposed to the instructions issued by the Commissioner of
Excise particularly the specific instruction issued on September 20, D
1979 with respect to the very shops in the twin cities of Hyderabad and
Secunderabad. It was opposed to the earlier general instruction that
"approved groups should not be enlarged under any circumstances"
and monopoly should be avoided. The accident that the regrouping
fetched a higher bid is not sufficient justification of the departure from E
the administrative instructions which aim at breaking a monopoly in
regard to lease of excise shops. The result could well have been other-
wise and the bids lower.
Shri Tarkunde and Shri Venugopal argued that the object of the re-
quirement that reasons should be recorded under R. 12 was to enable
the Commissioner of Excise to exercise appropriate supervisory powers F
over the auctioning authority. It was not intended to vest any right in
the contractors participating in the auction and so, if reasons were
not given the contractors could not complain. They urged that the
Government is the exclusive owner of all rights and privileges in
regard[to intoxicants andjno citizen had any justiciable right in thorn.
Viewed in that light, they submitted, the rule had been sufficiently G
complied with as reasons were recorded first on the 21st and again
after the auction on the 22nd September, 1979.
We are unable to agree with the submission that the requirement
regarding the recording of reason is directory. The question whether
a provision is mandatory or directory is not to be resolved merely by H
reference to the emphatic or gentle language employed in the provision,
nor even by the presence or absence of an express stipulation regarding
808 SUPREME COURT REPORTS [1980] 3 S.C.R.

A the consequences of a breach of the provision. These are circum-
stances of importance which naturally have to be considered. But
one must give greater consideration to the statutorY. design and the
importance of the provision in the context of that debgn. Generally
one may say a provision which insists upon recording of reasons before
an action is taken must prima facie be considered to be mandatory,
B as it is aimed at preventing arbitrariness. Where the rights of citizens
are involved there can be no question that such a provision should
be regarded as mandatory. Where the provision involves the public
interest also the provision must be regarded as mandatory. Examined
in that light the Andhra Pradesh Excise Act is an Act intended to raise
and secure revenue to the State, without at the same time sacrificing the
c public interest involved which requires the regulation of trade in intoxi-
cants. The administration of the Act is, therefore, vested primarily
and centrally in the Commissioner of Excise who is expected to take a
decision on all vital matters. The fixation of the number of shops,
their location, and grouping are considered by the legislative delegate
to be matters of such vital importance in Excise administration that the
D power in regard to these matters is vested in the Excise Commissioner.
In that setting, the object of the rule is clearly seen to be to
secure strict compliance with the arrangement already made by the
Commissioner of Excise, the highest authority, and to permit no de-
parture from the arrangement save in exceptional cases, on the clearest
of grounds. What is involved is the protection of revenue and what
E
is to .be prevented is adhoc improvisation which jeopardises the re-
venue. That a particular improvisation yielded better results may be
the exception which proves the rule. The public interest is thus seen t':';
to be served in two ways by the recording of reasons, first by protecting
the public revenue and next by making public authorities not to func-
F tion arbitrarily and also not appear to function arbitrarily. It is true
that the Government is the exclusive owner of all rights and privileges
in regard to intoxicants and no citizen has any right in regard to them.
That is not in question here. The question is whether the Government
having invited members of the public to participate in a public auction
on certain terms and conditions, it is open to the officer entrusted with
G the task of conducting the auction to vary the terms and conditions·
publicly announced earlier, without assigning any reasons when the
statutory rules require the recording of reasons. We do not see how a
departure from the rules and failure to record the reasons is permissible
merely because no citizen has any right in the sale of intoxicants. The
situation changes as soon as statutory provision and rules are made
H and the public is invited to participate in the auctions to be held as
provided by rules. We do not doubt that the requirement regarding
recording of reasons contained in R. 12 of the Andhra Pradesh Excise
. RAJA MALLAIAH v. ANIL KISHORE (Chinnappa Reddy, J.) 809

(Lease of Right to Sell Liquor in Retail) Rules, 1969, is mandatory.
It was argued that even if the recording of reasons was mandatory it
was not a condition precedent. It was said that the reasons could be
recorded contemporaneously, that is to say, soon after the auction
was held. We have grave doubt about the propriety of such a pro-
cedure. The object of the insistence upon the recording of reasons is
to eliminate arbitrariness. Reasons, if given, substitute objectivity for
subjectivity. It is common experience that when reasons are set down
in writing greater thought goes into it and greater objectivity is attained.
Where the action to be taken involves a departure from what has al-
ready been decided by the apex authority and the public interest is
involved, we cannot but hold that the reasons required to be recorded c
must be recorded before and not after the action is taken. The lan-
guage of the rule also supports this conclusion.

Let us examine if any reasons have been recorded at all. The note
file has been produced before us. On September 20, 1979, the note
file refers to a telephone message to the effect that the Commissioner
was appraised of the situation and that he had instructed that the twin
city arrack shops should be grouped into two to four groups. There
is then a note that viable groups may be formed as per the guidelines
given by the Commissioner. On September 21, 1979 the note file
begins with the statement that 'viable groups are formed as per the
guidelines given by the Commissioner of Excise'. There is then a. E
narration of events that took place that day, written by the Excise
Superintendent, signed by him and countersigned by the Collector..
The note refers to the fact that the arrack shops were first put to auction
individtlally, then in two and then in a single lot. The aggregate of the
bids 'is noted. It is then mentioned that the auction is adjourned tQ
September 22, 1979. There is nothing to indicate why a departure F
was made from the grouping that was announced in the original notice.
of auction. The note made on September 22, 1979 was admittedly
written (it is typed) after the auction on September 22, 1979. This
note also merely narrates what took place. It is mentioned that the
shops. were put to auction first individually, then in two groups, am'·
finally as one group. The last paragraph of the note is as follows :
"As the prospects to achieve reasonable bids on small ten
groups and (56) individual shops and also on 2 groups called
Hyderabad and Secunderabad were not foreseen then all the (78)
shops were grouped in one group and called as Twin Cities group.
The bids amount offered was Rs. 24,00,000/- and the 2 tenders H
received offered Rs. 15,11,l l l/ll and of Rs. 25,55,555/55.
The highest tender of Rs. 25,55,555/55 is considered as the
l )--463SCI/80
810 SUPREME COURT REPORTS (1980] 3 S.C.R.

A best available bid and !ht auction of the Twin Cities Group
consisting (78) shops is finalised by me in favour of Sri Raja-
malJaiah and others on 22-9-1978".
Thus it is seen that no reasons at all were mentioned on September 21,
1979 and even on September 22, 1979, such reason as had been given
B was ex-post facto and was not in accordance with the administrative
instructions issued by the Commissioner of Excise. The general instruc-
tions given earlier on June 10, 1975 and August 3, 1979 that 'approv<;d
groups should not be enlarged under any circumstances' was flouted.
The instruction given on September 20, 1979, with express reference
to the arrack shops of the twin cities though mentioned in the note file
-C both on September 20, 1979 and September 21, 1979 that the shops
may be grouped into two to four groups' was ignored on September
22, 1979.
We also notice that the allegation of the respondents that they were
given but half an hour's time on September 22, 1979, to prepare for the
D auction of the shops as a single group was not controverted. Having
regard to the fact that the rules required large deposits to be made it is
impossible to hold that half an hour's time could be considered suffi-
cient by any stretch of imagination.
We have already recorded the undertaking given by the respondents
that they would give security of Rs. 35 lakhs within one week from
E
April 21, 1980 and that they would start the bids at the re-auction in
such a way that the aggregate of the bids wonld not be less than
Rs. 35 lakhs.
For the aforesaid reasons we confirm the decision of the Andhra ·
Pradesh High Court and dismiss all the appeals with costs. The
re-auction will be held within three weeks from today and until the new
auction purchasers take over the present appellant will continue to
run ~he shops.

S.R. Appeals dismissed.