Holding

Cancellation of the bid under Rule 18(1) automatically makes the deposit liable to forfeiture; the Government has no discretion to refuse forfeiture.

Summary

The State of Karnataka auctioned the right to retail vend arrack and declared Saveen Kumar Shetty the highest bidder. He deposited the required amount under Rule 13 but failed to furnish security under Rule 17 and to execute the lease deed required by Rule 16. After extending his temporary licence, the Government cancelled his bid under Rule 18(1) and forfeited the deposit. The Karnataka High Court held that forfeiture was not automatic and ordered a fresh hearing. The Supreme Court reversed this, holding that once a bid is cancelled under Rule 18, forfeiture of the deposit is a statutory consequence with no discretion, and no further hearing is required. The appeal was allowed, setting aside the High Court’s decision and dismissing the respondent’s writ petition.

Issues considered

Whether the State Government has discretion to forfeit the security deposit after cancelling a bid under Rule 18 of the Karnataka Excise (Lease of Right of Retail Vend of Liquors) Rules, 1969.
Whether forfeiture of the deposit is automatic upon cancellation of the bid or requires a separate exercise of discretion.
Whether the respondent is entitled to a hearing before the forfeiture of the deposit can be effected.

Legislation cited

Sea Customs Act, 1878s. Section 167(12A)

Subjects

auctionliquor licencelease of retail vendsecurity depositforfeitureadministrative discretionstatutory interpretationKarnataka Excise Rules

Judgment

STATE OF KARNATAKA AND ORS. A
v.
SA VEEN KUMAR $HETTY

FEBRUARY 26, 2002

[B.N. KIRPAL, SHIVARAJ V. PATIL AND B
BISHESHWAR PRASAD SINGH, JJ.]

Karnataka Excise (Lease of Right of Retail Vend of Liquors) Rules,
1969:
c
Rule/8(/)-Secuirty deposit-Forfeiture of-Highest bidder failed to
execute lease deed and furnish security deposit under R.17(/)(b)-State
Government accordingly cancelled the bid and forfeited the bidder's deposit
made under R.13(2)-Correctness of-Held: Once Government has exercised
its discretion under R.18 to cancel the bid forfeiture of the amount deposited D
is a consequence to the said act ofcancellation-Government has no discretion
whether to exercise the right offorfeiture or not-Hence, State Government
is right is cancelling the bid and forfeiting the deposit made under R. 13(/).

Words and Phrases:
E
'"Shall be liable lo beforfeited"-Meaning of-In the context ofR.18(1)
of the karnataka Excise (Lease of Right oi Retail Vend of Liquors) Rules,
1969.

The respondent was given a temporary licence for retail vend of arrack
under the Karnataka Excise (Lease of Right of Retail Vend of Liquors) Rules, F
1969 for which the respondent ,deposited a certain amount under Rule 13(1).
But the respond.en! failed to make the deposit under Rule 17(l)(b) and also
did not execute the lease deed under Rule 16. However, the appellant extended
the temporary licence up to a certain period and thereafter the appellant,
exercising power under Rule 18(1), cancelled the respondent's bid and G
forfeited the an.aunt deposited under Rule 13(1). But the High Court allowed
the respondent's writ petition on the ground that the appellant-State had the
discretion whether to exercise the right of forfeiture or not under Rule 18
. and directed the appellant to pass a fresh order after giving an opportunity
of hearing to the respondent. Hence this appeal.
H
49
50 SUPREME COURT REPORTS [2002] 2 S.C.R.

A Allowing the appeal, the Court
'f
HELD: 1. The respondent was under an obligation to make the deposit
under Rule 17(1)(b) of the Karnataka Excise (Lease of Right of Retail Vend
of Liquors) Rules, 1969 and also execute the lease deed under Rule 16. When
the respondent failed to do so, the Government under the first part of Rule
B 18(1) exercised the jurisdiction in not cancelling the bid but extended· the
temporary licence. When there was further default and non-compliance with
Rules 16 and 17, it is only thereafter that the Government exercised its
discretion in cancelling the bid. Once the bid was cancelled, then the latter
part of Rule 18(1) comes into play and the deposit made by such person was
~
c liable to be forfeited. Nothing more was required to be done. (55-B-C]

Indo-China Steam Navigation Co. Ltd v. Jasjit Singh, Additional Collector
of Customs., (1964] 6 SCR 595, followed.

Superintendent and Remembrancer ofLegal Affairs to Government of West
Bengal v. Abani Maity, (1979] 4 SCC 85 and Chern Taong Shang v. Commander
D
S.D. Baijal., (1988) 1 SCC 507, relied on.

State of MP v. Azad Bharat Finance Company., [1966) Supp. SCR.473,
held inapplicable.

2. Once a discretion has been exercised by the Government under Rule
E
18 to cancel the bid then a forfeiture of the amounts deposited is a consequence
to the said act of cancellation and there is no discretion in the Government
whether to exercise the right of forfeiture or not. This being so, the question
of affording an opportunity to the respondent before effecting the forfeiture
,.
~-
cannot arise. Opportunity was granted before cancelling the bid. Admittedly,
F there was a default in non-compliance with the provisions of Rules 16 and
17. This being so, the appellant-State was right in its decision to cancel the
bid and to forfeit the amount deposited under Rule 13(1). (56-D-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1673 of
2002.
G
From the Judgment and Order dated 26. 7.2001 of the Kamataka High
Court in W.A. No. 7312 of 2000.

Harish N. Salve, Solicitor General and N. Ganpathy for the Appellants.

H A.K. Ganguly, Padmanabha Mahale and Rajesh Mahale for the
STATE v. SA VEEN KUMAR SHETTY [KIRPAL, J.] 51
Respondent. A
The Judgment of the Court was delivered by

KIRP AL J. Special leave granted.

On 4th May, 1999, auction for retail vend of arrack for the year 1999- B
2000 in respect of272 shops in Mangalore Taluka took place. The respondent
was declared successful bidder on 12th May, 1999 and thereafter this bid was
confirmed.

Pursuant to the confirmation of the bid on 12th May, 1999, a temporary
licence was given to the respondent on 28th June, 1999 and the licence was C
extended upto 15th August, 1999. According to the Karnataka Excise (Lease
of Right of Retail Vend of Liquors) Rules, 1969 (hereinafter referred to as
"Rules"), when the bid is made it is provisionally accepted and thereafter the
confirmation takes place. On the provisional acceptance of bid certain money
is required to be deposited and thereafter under Rule 17 security has to be D
.... furnished and a lease deed executed. In the instant case, the respondent
admittedly failed to furnish the security amount under Rule 17 and also did
not execute the lease deed. As a consequence thereof, on 14th October, 1999,
the Government passed an order cancelling the confirmation of the bid and
forfeited the deposit of Rs. 1,25, 10,000 which had been made by the respondent
under Rule 13(1) when his provisional bid had been accepted. E
The cancellation of the bid was first challenged by the respondent by
way of filing a Writ Petition bearing No. 38779/1999. This writ petition was
dismissed as withdrawn reserving liberty to the respondent to pursue his
remedies in accordance with law. On a representation being filed, the
Government of Karnataka by its order dated !st June, 2000, came to the F
conclusion that Rule 20 of the aforesaid Rules did not provide for refund or
adjustment of the forfeited deposit and the amount which had been deposited
was liable to forfeiture under Rule l 8.

This decision was again challenged but a Single Judge of the High G
Court dismissed the writ petition by coming to the conclusion that the amount
had been rightly forfeited and the respondent was not entitled to refund of the
same.

The Division Bench of the High Court, in an appeal filed by the
respondent against the dismissal of the writ petition, came to the conclusion H
52 SUPREME COURT REPORTS [2002] 2 S.C.R.

A that the forfeiture contemplated by Rule 18 was not automatic. It set aside the
order of the Government and directed it to pass a fresh order after giving an
opportunity of hearing to the respondent. Hence, this appeal.

In the instant case, the licenses were to be given by auction held under
Rule 11 of the said Rules. The said Rule contemplates that the intending
B bidders in respect of each shop or group of shops are to be short-listed and,
if they are not otherwise disqualified, they can take part in the auction. Each
bid which is given is to be signed and the bid is not allowed to be withdrawn.
Under sub-rule (7) of Rule 11 the Deputy Commissioner or the Divisional
Commissioner after recording the bids is to provisionally accept the highest
C bid and make the said announcement.

It is not in dispute that in the instant case the highest bid of the respondent
was provisionally accepted under sub-rule (7) of Rule 11.

Rule 13 which requires deposit to be made reads as follows:
D
"13. Deposits to be made:

(I) The person whose tender, offer or bid is accepted provisionally
under Rules 9, 10, ll and 12 shall, immediately on the day such
acceptance is announced, make a deposit of an amount which together
E with the earnest money deposited under sub-rule (6) of rule 5 is equal
to one month's rent of the shop, or group of shops or the area or areas
for which his tender, offer or bid is provisionally accepted.

(2) If the deposit as required by sub-rule (1) is not made, the
provisional acceptance of the tender, offer or bid shall stand cancelled,
F the earnest money shall be forfeited and the Deputy Commissioner or
the Divisional Commissioner may either accept provisionally the next
highest tender, offer or bid or dispose of the right of retail vend of
liquors afresh. In the latter case, the disposal shall be at the risk of
the defaulter who shall not be entitled to any excess amount realised
but shall be liable for the losses sustained by the State Government
G shall be entitled to assess such loss and recover it from the defaulter
as if it were an arrear of land revenue.

(3) A defaulter shall not be entitled to tender, offer or bid at the
auction held under sub-rule (2)."

H According to rule 15, whenever the Deputy Commissioner or the
STATE v. SAVEEN KUMAR SHETTY [KIRPAL, J.] 53
Divisional Commissioner has provisionally accepted the bid, he has to forward A
the proceedings to Excise Commissioner who then has the authority to
recommend to the State Government for confirmation of the bid. It is also
admitted that the bid of the respondent was so confirmed.

According to Rule 16, a person whose bid is accepted and confirmed
is required to enter into an agreement of lease with the State Government B
within 15 days of the confirmation order. Rule 17 which deals with the
application for license and contemplates furnishing of security, reads as
follows:

"17. Application for license an conditions to be fulfilled:
c
(i) The person in whose favour the disposal of the right of retail vend
of liquors is confirmed shall-

(a) within fifteen days from the date of communication of the order

. of confirmation make an application together with a list of sites with
its boundaries selected for locating the shop or shops, or the area or
areas for a licence in respect of each shop or group of shops or the
D
area or areas,

(i) to the Deputy Commissioner of the district where the disposal is
of shops or group of shops within that district;
E
(ii) to the Excise Commissioner where the disposal is of shop or
group of shops situated in more than one district;

(b) within fifteen days from the date of communication of the order
of confirmation furnish security for an amount equal to three and one
tenths of the monthly rent in the form of cash deposit, Government F
' securities or other securities recognised by the Government or an
irrevocable guarantee given by a Scheduled Bank.

(2) On the provisions of sub-rule (i) and rule 16 being complied with
the Deputy Commissioner, or the Excise Commissioner as the case
may be, shall issue licenses in Form AS-I in respect of each shop. G
(3) No lessee shall be entitled to exercise the right of retail vend of
liquors until the licensee under sub-rule (2) is issued to him."

The consequence of failure to execute lease agreement is provided by
Ru le 18 which reads as follows: H
54 SUPREME COURT REPORTS [2002] 2 S.C.R.
..
A "18. Failure to execute lease agreement, etc.:- ,,
Where the person in whose favour the disposal is confirmed fails
to comply with the provisions of rules 16 and 17, the disposal of the
right of retail vend of liquors may be cancelled by the govt. at its
discretion and if it is cancelled, the deposite made by such person
B shall be liable to be forfeited to the State Government and the right
of retail vend of liquors shall be disposed of afresh in such manner
as the State Government may direct.

Provided that till such disposal is made and fresh licenses are
granted, the Deputy Commissioner may continue the licence of the
c previous licensee in respect of the same shop or shops.

(2) The disposal under sub-rule (1) shall be at the risk of the defaulter,
who shall, however, be not entitled to any excess amount realised
from such disposal but shall be liable for the losses sustained by the
State Government. The Excise Commissioner shall be entitled to assess·
D such loss and recover it as if it were an arrear of land revenue." ..
~
It is not in dispute that there were two defaults committed by the
respondent in the instant case, Firstly, it did not execute the lease deed under
Rule 16 and secondly it did not make the deposit of security under Rule·
17(1 )(b). It is for these defaults that the impugned order of first June, 2000,
E was passed cancelling the bid of the respondent.

The High Court on a construction of the Rules came to the conclusion
that while forfeiture was mandatory under Rule 13(2) the same was not the ~
consequence which would follow on an interpretation of Rule 18. According
to the High Court, the Government had the discretion whether to exercise the
F right of forfeiture or not under the said Rule 18.

In our opinion, he High Court erred in coming to the aforesaid
conclusion. Rule 13(2) is in two parts. It first deals with the situation where
a deposit is required to be made under sub-rule ( l) is not made. Rule 13(2)
~
provides that in such an event the tender, offer or bid shall stand cancelled
G
and the earnest money shall be forfeited. Therefore, the non-deposit results
in automatic cancellation and forfeiture, but the authorities have the right at
that time to either provisionally accept the next highest bid or offer or to
dispose of the right of retail vend of liquors afresh, Where however, the
deposit under rule 13(1) has been make, the question of exercising right
H under rule 13(2) does not arise. But in the event of failure of complying with
STATE v. SA VEEN K.UMAR SHETTY [KIRPAL, J.] 55

the provisions of Rules 16 and 17, the Government under rule 18 has a A
discretion whether to cancel the bid or not. But once it is cancelled, Rule
18(1) provides that "the deposit made by such persons shall be liable to be
forfeited to the State Government."

In the instant case within 15 days of the confirmation, the respondent
was under an obligation to make the deposit under Rule I 7(1)(b) and also B
execute the lease deed under Rule 16. When the respondent failed to do so,
the Government under the first part of the Rule 18(1) exercised the jurisdiction
in not cancelling the bid but extended the temporary licence. When there was
further default and non-compliance with Rules 16 and 17, it is only thereafter
that the Government exercised its discretion in cancelling the bid by its order C
dated 14th October, 1999. Once the bid was cancelled, then the latter part or
Rule 18(1) comes into play and the deposit made by such person was liable
to be forfeited. Nothing more was required to be done.

A Constitution Bench of this Court in Indo-China Steam Navigation
Co. Ltd v. Jasjit Singh, Additional Collector of Customs and Ors., [1964] 6 D
SCR 595 was required to construe the phrase "shall be liable to confiscation"
occurring in Section 167 (12A) of the Sea Customs Act, 1878 (No. 8 of
1878). It came to the conclusion that once an offence had been committed the
vessel had to be confiscated and there was no discretion with the Adjudicating
officer in this behalf. In other words, such a phrase indicated that confiscation E
was a statutory corollary in the event of contravention of Section 52A and
that it was not open to the Customs Authorities not to confiscate the vessel.
To the same effect are the two other decisions of this Court in Superintendent
and Remeb.rancer of Legal Affairs to Government of West Bengal v. Abani
Maity, [1979) 4 SCC 85 and Chern Taong Sang and Ors. v. Commander S.D.
Baijal and Ors., [1988) I SCC 507. F

Somewhat contrary ·view has been expressed by a Two Judges Bench
of this Court in State of MP. v. Azad Bharat Finance Company and Anr.,
[1966) Suppl. SCR 473. Dealing with the provisions of Section 11 of the
(Madhya Bharat Amendment) Act, the Court came to the conclusion that G
where there was a truck found carrying opium, then confiscation of the same
was not mandatory, though the said Section 11 had used an expression "shall
be confiscated". As pointed out by this Court in Abani Maity's case (supra),
what appears to have influenced the decision in Azad Bharat Finance Co. 's
case was the fact that the owner of the truck was not even aware that the
same was being used for transporting opium. It is also to be seen that the H
56 SUPREME COURT REPORTS [2002) 2 S.C.R.

A attention of the Court in Azad Bharat Finance Co. 's case was apparently not
drawn to the binding decision of the Constitution Bench in lndo-China 's
which was followed as a precedent in the subsequent decision-Abani Maity
and Chern Taong Shang and Ors. (supra).

It can, therefore, be said to be settled law that where the expression
B used is "shall be liable to confiscation" it means that there is no discretion
with the Adjudicating Authority but to impose such a penalty. Where, however, i
the option is given like in A bani Maity 's case under Section 64 of the Bengal
Excise Act, 1909, either to order confiscation or give the owner of the vehicle
an option to pay fine in lieu of confiscation, then that is the only discretion
C which is available with the Magistrate. The Magistrate could not waive the
penalty completely. He either has to order confiscation under Section 63 read
with Section 64 or in lieu of confiscation impose such fine as he thought fit.
Once an offence was established, one of the two consequences contemplated
by Section 64 had to follow.

D On the interpretation of Rule 18 in the instant case, it is clear that once
a discretion has been exercised by the Government under Rule 18 to cancel
the bid then a forfeiture of the amounts deposited is a consequence to the said
act of cancellation and there is no discretion in the Government whether to
exercise the right of forfeiture or not. This being so, the question of affording
an opportunity to the respondent before effecting the forfeiture cannot arise.
E Opportunity was granted before cancelling the bid. Admittedly, there was a
default in non-compliance w~th the provisions of Rules 16 and 17. This being
so, the appellant-State was right in its decision h' cancel the bid and to forfeit
the amount deposited under Rule 13(1 ).

For the aforesaid reasons, this appeal is allowed and the decision of the
F
Division Bench of the High Court is set aside and the writ petition filed by
the respondent before the High Court would consequently stand dismissed.
The appellant would be entitled to costs.

v.s.s. Appeal ·allowed.