K. A. Sobhanadas v. State of Kerala — 1984 DIGILAW 232 (KER)

JUDGMENT P.C. Balakrishna Menon, J. 1. Eventhough this second appeal at the instance of the 1st plaintiff is admitted on questions 1 to 3 formulated in the Memorandum of Second Appeal, learned counsel for the appellant has urged only one point relating to the validity of the revenue recovery proceedings taken by the defendant State against the plaintiffs. The suit is for a permanent injunction to restrain the defendant State from continuing the revenue recovery proceedings taken against the plaintiffs for recovery of damages for the alleged breach of agreements entered into between the plaintiffs and the State, as unauthorised, without jurisdiction and beyond the powers of the State and its Officers. 2. The two plaintiffs were joint contractors for the sale of toddy in three toddy shops Nos. 17, 19 and 25 of Chavakkad Range for the year 1969-70. They started functioning with effect from 5-4-1969 after executing temporary agreements Exts. B1 to B3 with the Government of Kerala. The plaintiffs had deposited 10% of the bid amount on the date of the temporary agreements and the balance amount was to be paid in ten equal monthly instalments as per sub-r.(25) of R.6 of the, Kerala Abkari Shops (Disposal in Auction) Rues, 1974. The plaintiffs carried on trade in the three shops till 29-10-1969 and on that day surrendered the shops to the Government. According to the plaintiffs they were not able to carry on trade due to large scale illicit distillation and also due to labour troubles. The Government took over the shops and continued the trade under Departmental Management. The plaintiffs have paid the lists in monthly instalments for the period they had been conducting the shops. There was no payment after the shops were surrendered to the Government. The suit was occasioned on account of revenue recovery proceedings initiated by the State against the plaintiffs for realisation of the defaulted instalments. Ext. A1 is a copy of the notice under S.80 CPC. issued to the Chief Secretary to the Government of Kerala. According to the plaintiffs there are no valid agreements between the parties. The contracts even if held valid had become impossible of performance and the defendant is not entitled to recover the balance kist amounts from the plaintiffs. 3. The defendant State contended that there is no valid notice under 3 S.80 CPC., the agreements produced as Exts. According to the plaintiffs there are no valid agreements between the parties. The contracts even if held valid had become impossible of performance and the defendant is not entitled to recover the balance kist amounts from the plaintiffs. 3. The defendant State contended that there is no valid notice under 3 S.80 CPC., the agreements produced as Exts. B1 to B3 are perfectly valid and binding on the plaintiffs and for their default in conducting the three shops, they are liable in damages to the defendant and the defaulted kist amounts are recoverable as damages for breach of contract. 4. The Trial Court found the suit defective for want of a proper notice under S.80, CPC. The question as to whether the plaintiffs are guilty of breach of contract and whether they are liable in damages to the defendant was not considered by the Trial Court. The Trial Court did not also consider the question as to whether the defendant is entitled to recover the balance kist amounts as damages for breach of contract. The suit was dismissed based on the finding relating to the validity of the notice under S.80, CPC. In appeal by the plaintiffs the lower appellate court found that Ext. A1 evidences a proper notice under S.80, CPC. and the suit is not defective for want of notice. The lower appellate court however confirmed the decree of the Trial Court and dismissed the appeal holding that the defendant is entitled to recover the balance amounts due to the defendant under the agreements between the parties by resorting to revenue recovery proceedings. 5. Ext. B4 is the file relating to the revenue recovery proceedings, produced by the defendant. The requisition by the Assistant Excise Commissioner, Trichur to the District Collector, Trichur under S.69(2) of the Revenue Recovery Act for recovery of the amounts due from the 1st plaintiff in respect of toddy shop No. 17 is at page 9 of the file. The requisition shows the total amount due as Rs. 5437.50 made up of kist amounts, Rs. 3254.00 tree tax Rs. 1780.00, D. N. fee Rs. 3.50, interest on kist upto 31-3-1970 Rs. 264.00 and interest on tree tax upto 31-3-1970 Rs. 136.00. The requisition further states that future interest at 9% per annum on Rs. 5034.00 is also recoverable from 1-4-1970. Page 13 of Ext. 5437.50 made up of kist amounts, Rs. 3254.00 tree tax Rs. 1780.00, D. N. fee Rs. 3.50, interest on kist upto 31-3-1970 Rs. 264.00 and interest on tree tax upto 31-3-1970 Rs. 136.00. The requisition further states that future interest at 9% per annum on Rs. 5034.00 is also recoverable from 1-4-1970. Page 13 of Ext. B4 is a notice dated 22-10-1973 for sale of immovable property belonging to the 1st plaintiff for realisation of a sum of Rs. 9472.52. Page 27 of Ext. B4 file relates to the proceedings of the Assistant Commissioner of Excise, Trichur, requesting the District Collector, Trichur to take revenue recovery proceedings against the 1st plaintiff, for realisation of a sum of Rs. 4035.02 due in respect of toddy shop No. 25, made up of kist amount Rs. 3339.27, tree tax Rs. 480.00, interest on kist Rs. 198.00 interest on tree tax Rs. 16.00 and demand notice fee Rs. 1.75. The proceedings of the Assistant Excise Commissioner adverted to above show that the demands relate to the balance kist amounts, tree tax and interest thereon. These amounts are fixed as due from the plaintiffs without notice to them and without giving them an opportunity to make out a case against the demand. In other words, there was no adjudicatory process before the amounts due from the plaintiffs were determined. There is a clear admission in Para.3 of the written statement that on surrender of the three shops by the plaintiffs, the Government took over the same on department/management and continued the trade. There is a definite plea in Para.6 of the plaint that the defendant is not entitled to recover the balance kist amounts. 6. In Chellappan v. Executive Engineer ( 1979 KLT 53 ) Subramonian Poti J. (as he then was) stated at page 56: "5. The further question for examination here concerns the propriety of the proceedings for recovery under the Revenue Recovery Act on a unilateral determination of the quantum of damages. Assuming that the petitioner has made himself liable in damages by committing breach of the contract, it gives rise to a cause of action for claiming damages for breach. The right to sue for damages accrues to the party against whom default is committed. This right to sue is not transferable property. Assuming that the petitioner has made himself liable in damages by committing breach of the contract, it gives rise to a cause of action for claiming damages for breach. The right to sue for damages accrues to the party against whom default is committed. This right to sue is not transferable property. It is a right which can be put in action by making an appropriate claim for determination of damages and until such damages are determined no amount could be said to be due. It may be that parties may contemplate in the contract the amount of liquidated damages in the event of breach. But there is no subtle distinction in India between liquidated and unliquidated damages, for, even where parties to a contract agree in the contract itself as to the quantum of damages payable by the party in C the event of the breach the question as to the amount of damages is still a matter for determination by Court, for, in spite of such agreement whether the amount would be reasonably due and therefore for that reason the covenant for liquidated damages is enforceable is a question which would call for examination. That is the reason why even the stipulation for liquidated damages would not render the defaulting party liable ipso facto by reason of the default to answer for the sum agreed upon as damages. The position therefore would be that on the breach only a right to sue for damages may accrue. But so long as the sum due remains undetermined it cannot be said that any amount is due. If it is not due it is not recoverable under the Revenue Recovery Act, for S.68(1) enables recovery only of amounts due under contracts where the contract stipulates resort to revenue recovery process as one of its terms. To invoke the said provision it is necessary that the amount should have become due. For reasons indicated, I am of the view that in spite of the breach and in spite of the fact that normally such breach may entitle the party against whom that breach is committed to claim damages at that stage what arises is only a claim for unliquidated damages and until that is determined no amount could be said to be due." 7. The decision of a Division Bench of this Court in State of Kerala v. Universal Marine Agencies ( 1980 KLT 187 ) related to the validity of revenue recovery proceedings initiated by the State against its lessee of an ice plant storage and freezing plant for his failure to comply with the terms of the agreement of lease. The agreement itself provided all disputes between the parties to be adjudicated upon and decided by the Government. Construing the terms of the agreement, Gopalan Nambiar, C.J. in the appeal against the decision of Vadakkel J. in 1977 KLT 949 , stated on behalf of the Division Bench, thus, at page 190: "4. We now turn to Clause.17 extracted supra. That gives the Government the right of deciding the amount due to the Government by reason of the operation of the agreement in case of dispute between the lessor and the lessee as to the said amount. The Government's decision is to be final and conclusive and binding on the lessee. This clause again is vide and comprehensive, and approximates to the clause that was construed by this Court in the Division Bench ruling in State of Kerala v. Joseph ( 1975 KLT 551 ). In the presence of this clause, we are not prepared to agree with the learned Judge that there was no provision or machinery provided in Ext. P1 to adjudicate on the amount due by reason of the working of the provisions of the agreement. The learned Judge was inclined to view the clause as acting in terrorem and as penal in nature, in so far as it concedes to one party to the contract a right of deciding against the other. The learned Judge apparently failed to note or to appreciate the ratio of the Division Bench ruling in Joseph's case ( 1975 KLT 551 ). That decision construed a similar clause and found it conferred a power similar to what is sought for in this case. The basis of treating as valid the conferral of such a power was explained (in detail in the said decision. The learned Judge referred to General Manager, N.E.F. Ry. v. Chakraborty (1978 (1) SCWR 392), but an examination of the decision will show that there was no right on the controller to quantify the liability of the subscriber and seek to deduct the same. The learned Judge referred to General Manager, N.E.F. Ry. v. Chakraborty (1978 (1) SCWR 392), but an examination of the decision will show that there was no right on the controller to quantify the liability of the subscriber and seek to deduct the same. In M. R. Breweries v. Union of India (AIR 1975 Delhi 248) again, referred to by the learned Judge, the relevant clause did not confer a power of adjudication, and was so construed by the Delhi High Court. But in this case we are of the opinion that Clause.17 confers such a power. We are unable to follow the learned Judges comment that there was no argument before the Division Bench in 1975 KLT 551 that the power of adjudication was not conferred by the contract. We are afraid the learned Judge has missed the ratio of the decision." If therefore the agreement between the parties contains a clause for adjudication by the Government or by any of its officers, there is nothing wrong in the Assistant Excise Commissioner adjudicating upon the quantum of damages recoverable from the plaintiffs. Exts. B1 to B3 agreements produced in this case do not however contain a provision for adjudication of any question arising between the parties by the Government or its Officers. 8. The decision in Masum Hussain v. State of Madhya Pradesh and Others ( AIR 1981 SC 1680 ) related to the validity of revenue recovery proceedings initiated by the Collector for the breach of the terms of an. agreement of lease. The Supreme Court stated thus at Para.3: -- "3. The Collector who started recovery proceedings assumed that once a lessee committed breach of the agreement the loss suffered by the State would be equal to the amount of rent payable by the lessee as represented by the amount of bid, at which auction was knocked down. An identical contention was negatived by this Court in Civil Appeal No. 228 of 1979 (Kali Das Aggarwal v. The State of Madhya Pradesh) decided on January 22, 1979, observing that in such a situation the Collector must, in the first instance, adjudicate on the question as to the quantum of, loss suffered by the Government of Madhya Pradesh by reason of the default, if any, on the part of the lessee who committed breach of the agreement of lease. This Court struck down the order by which coercive process was resorted to by the Collector without a preliminary adjudication and directed that the Collector should adjudicate the loss, if any, after giving an opportunity to the appellant to participate in the proceedings. The facts in the present case are identical with the facts in the appeal referred to above and the decision will mutatis mutandis apply in this case." 9. It is clear from these decisions that proceedings by way of revenue recovery can be resorted to only after a proper adjudication of the liability of the defaulter. In the present case, I am satisfied there has been no determination of liability after a proper adjudication in accordance with law. 10. The result, therefore, is there will be a decree granting a permanent injunction restraining the defendant from resorting to revenue recovery proceedings against the plaintiffs for recovery of amounts due from them for the alleged breach of agreements Exts. B1 to B3, until after the quantum of damages due from them is adjudicated and determined in accordance with law. The judgments and decrees of the courts below are set aside and the second appeal is allowed. There will be no order as to costs.