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2017 DIGILAW 429 (KER)

State of Kerala v. Polsons Distillery

2017-02-28

K.SURENDRA MOHAN, MARY JOSEPH

body2017
JUDGMENT : Surendra Mohan, J. The State is in appeal against the judgment of the learned Single Judge dated 3.6.2016 in W.P.(C) No. 21351 of 2005 allowing the writ petition. The writ petitioner is the respondent herein. 2. The respondent is conducting a distillery manufacturing Indian made foreign liquor. The distillery has been granted necessary licenses under the Abkari Act and the Rules thereunder. It is stated that the distillery has been conducting its operations from 1973 onwards. The present dispute arose when the Managing Partner of the partnership firm that is conducting the distillery expired and an application was made for substituting the new Managing Partner who had taken charge after reconstitution of the firm. Thereupon, the Excise Commissioner insisted on payment of additional security under Rule 27 of the Kerala Distillery and Warehouse Rules, 1968 (hereinafter referred to as 'the Rules' for short) as per Ext. P10 order. Accordingly, the security amount was fixed at Rs. 20,00,000/-. According to the counsel for the respondent, the security already furnished by the firm is Rs. 50,000/-. 3. Ext.P10 was the subject matter of challenge before this Court in W.P.(C) No. 10232 of 2005 at the instance of the respondent. As per Ext.P16 judgment, the writ petition was allowed and the Excise Commissioner was given the liberty of passing fresh orders in the matter. Pursuant to Ext.P16, the respondent was heard. Ext.P18 argument note was submitted. Thereafter, Ext.P19 order dated 11.5.2005 was passed finding that the security amount of Rs. 20,00,000/- that was demanded was reasonable. On the question of waiver of security deposit, as per Ext.P19, the matter was referred to the Government for appropriate orders. As per Ext.P20, the request to waive the additional security amount of Rs. 20,00,000/- was rejected by the Government. Exts. P19 and P20 were the subject matter of challenge in W.P. (C) No. 21351 of 2005. The learned Single Judge has set aside both the orders. 4. According to Sri. V. Manu, the learned Senior Government Pleader, the learned Single Judge has seriously erred in holding that no security under Rule 27 of the Rules could be insisted upon, since the distillery building, stock, stills etc., have already been hypothecated to the Government under Rule 28. It is contended that, the said interpretation would render Rule 27 nugatory. V. Manu, the learned Senior Government Pleader, the learned Single Judge has seriously erred in holding that no security under Rule 27 of the Rules could be insisted upon, since the distillery building, stock, stills etc., have already been hypothecated to the Government under Rule 28. It is contended that, the said interpretation would render Rule 27 nugatory. It is pointed out by the learned Senior Government Pleader that, Rules 27 and 28 operate in different fields. Under Rule 27, the security that is insisted upon is for the due observance of the conditions of licence. Whereas under Rule 28, the security is for payment of all sums which may become due to the Government. Since both Rule 27 and Rule 28 are part of the statute book, it is contended that, security under both the Rules could be insisted upon by the authorities. However, the above vital distinction has been missed by the learned Single Judge. 5. Adv. M.G. Karthikeyan, who appears for the respondent, on the other hand contends that, the security that is contemplated by Rule 28 is intended both for securing due observance of the terms of licence as well as for payment of all dues to the Government. In view of the above, there is no scope for insisting on a further security, in addition to what is contemplated by Rule 28. Our attention is drawn to Ext. P19 to point out that, the additional security has been demanded on the basis of the production capacity of the distillery, for which there is no power available to the appellants. It is in the said context that, the learned Single Judge has interfered with the impugned orders and set them aside. Therefore, there are absolutely no grounds for interference with the judgment of the learned Single Judge, it is contended. 6. Heard. The question that is involved, is dependent entirely on the interpretation of Rules 27 and 28 of the Rules. The said Rules are extracted hereunder for convenience of reference : "27. Distillers and warehouse keepers to give security.- Every distiller and warehouse-keeper shall make a deposit of such amount as may be fixed by the Commissioner but in no case not less than Rs. 5,000 with the Commissioner as security for the due observance of the conditions of the licence. Distillers and warehouse keepers to give security.- Every distiller and warehouse-keeper shall make a deposit of such amount as may be fixed by the Commissioner but in no case not less than Rs. 5,000 with the Commissioner as security for the due observance of the conditions of the licence. The deposit may be in cash, stock notes, savings bank accounts or Government Promissory Notes, pledged in the name of the Assistant Excise Commissioner. 28. Distillers and warehouse keepers to hypothecate their buildings, stock of liquor, etc.- Every distiller and warehouse-keeper shall also execute an agreement binding himself, his heirs, legal representatives and asignees to observe the conditions of the licence and hypothecating, in the case of a distiller, the distillery building and the stills and other permanent apparatus therein, and in the case of a warehouse-keeper, the warehouse and the permanent apparatus there in together in both cases, with the stock of liquors, etc., as security for the payment of all sums which may become due to Government. In case of neglect or refusal to make the deposit or to execute the agreement as aforesaid within ten days of the date on which the approval of the application for licence has been communicated to him, such approval may be withdrawn and the fee already deposited shall be forefeited. In lieu of executing the hypothecation deed, the distillery of warehouse-keeper may deposit such amount of security as may be fixed by the Government either in the form of 12 year or 7 year National Savings Certificate or of Government Promissory Notes endorsed to the Commissioner." 7. A perusal of Rule 27 above, shows that, it is mandatory for every distiller and warehouse keeper to make such deposit of amount as fixed by the Excise commissioner. The word 'shall' used in the opening part of Rule 27 makes it clear that such deposit is mandatory. It is further clear that, the deposit contemplated is in no case to be less than Rs. 5,000/- and that, such security is due for the observance of the conditions of licence. The security deposit that is contemplated by Rule 27 has no connection with the production capacity of the distillery. It is true that, the Rule does not offer any indication as to how or on what basis the amount of security should be arrived at. 5,000/- and that, such security is due for the observance of the conditions of licence. The security deposit that is contemplated by Rule 27 has no connection with the production capacity of the distillery. It is true that, the Rule does not offer any indication as to how or on what basis the amount of security should be arrived at. However, the fact that the Rule mandates the security amount to be not less than Rs. 5,000/- sufficiently indicates the amount to be not a substantial sum. Any how, the Rule does not confer any power on the authority to link the security with the production capacity of the distillery. According to the counsel for the respondent, they have already deposited an amount of Rs. 50,000/- and that, there is no power to demand the additional security, once the deposit is made. It is clear from the wording of the provision that, the power that is conferred on the Commissioner is to fix the security amount, which has already been done and the deposit has already been made. Such deposit is intended to bind the distiller and to ensure that he duly observes the conditions of the licence. 8. A perusal of Rule 28 shows that, the said Rule contemplates the execution of an agreement binding himself, his heirs, legal representatives and assignees to observe the conditions of the licence. In addition, he has to hypothecate, if he is a distiller, the distillery building, the stills and other permanent apparatus therein and in the case of a warehouse keeper, the warehouse and the permanent apparatus therein together in both cases, with the stock of liquor, as security for the payment of all sums which may become due to the Government. Rule 28 therefore casts an obligation on the distiller- i. to execute an agreement binding himself, his heirs, legal representatives and assignees to observe the conditions of the licence, and ii. hypothecating, in the case of a distiller, the distillery building, stills and other permanent apparatus therein, and in the case of a warehouse keeper, the warehouse and the permanent apparatus together with stock of liquor in both the cases as security for payment of all sums that may become due to the Government. 9. hypothecating, in the case of a distiller, the distillery building, stills and other permanent apparatus therein, and in the case of a warehouse keeper, the warehouse and the permanent apparatus together with stock of liquor in both the cases as security for payment of all sums that may become due to the Government. 9. In other words, Rule 28 contemplates both cases, namely, due observance of the conditions of the licence as well as security for the sums due to the Government. It is true that, both the aspects are contemplated by Rule 28 and are sought to be secured by the execution of the agreement and hypothecation that is stipulated. However, the opening words of Rule 28 employs the words 'shall also execute', which makes it clear that the stipulations in Rule 28 are in addition to the security that is contemplated by Rule 27 of the Rules. Therefore, according to us, it is necessary for the distiller to comply with both Rule 27 and Rule 28. The above being the position, the contention of the counsel for the respondent that, no security under Rule 27 could be insisted upon, since the hypothecation as stipulated by Rule 28 has already been made cannot be sustained. At the same time, we hasten to add that the security that is contemplated by Rule 27 appears to us only to be of a nominal sum, taking cue from the indication offered by the amount that is made mention of in Rule itself, namely, that the security shall not be less than Rs. 5,000/-. At any rate, there is nothing in Rule 27 to indicate that the security has to be fixed, linking it to the production capacity of the distillery. Therefore, the security that has been stipulated in Ext.P19 on the basis of the production capacity of the distillery cannot be sustained. The learned Single Judge has therefore rightly set aside Exts.P19 and P20. 10. For the foregoing reasons, this appeal fails and it is accordingly dismissed.