K. N. Guruswamy vs The State Of Mysore And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 212 of 1953

Decision Date: 24 May 1954

Coram: Vivian Bose, Mehar Chand Mahajan, B.K. Mukherjea, Natwarlal H. Bhagwati

K. N. Guruswamy filed a petition against the State of Mysore and other respondents, and the matter was heard by the Supreme Court of India on 24 May 1954. The bench that considered the case consisted of Justice Vivian Bose, Justice Mehar Chand Mahajan, Justice B.K. Mukherjea, and Justice Natwarlal H. Bhagwati. The citation of the decision is reported as 1954 AIR 592 and 1955 SCR 305, and it has been referenced in several subsequent reports. The appellant, identified as Guruswamy, and the fourth respondent, identified as T, were competing liquor contractors for the award of a liquor contract for the financial year 1953-54 in the State of Mysore. The contract was to be awarded by public auction under the authority granted to the Deputy Commissioner by the Mysore Excise Act of 1901. Guruswamy placed the highest bid at the auction, and the contract was initially knocked down in his favour, subject to formal confirmation by the Deputy Commissioner. The fourth respondent attended the auction but did not submit a bid; instead he approached the Excise Commissioner directly and offered a higher amount. The Excise Commissioner then cancelled the provisional award to Guruswamy and directed the Deputy Commissioner to proceed under rule II 10. Following that direction, the Deputy Commissioner accepted the tender offered by the fourth respondent and allocated the contract to him. Guruswamy challenged this outcome by seeking a writ of mandamus. The High Court dismissed his application, but it granted a certificate under article 133 (1) of the Constitution, allowing the matter to be taken to the Supreme Court. The Supreme Court held that Guruswamy’s request for a writ of mandamus could not be granted because the Excise Commissioner had acted within his authority, even though the procedure was somewhat irregular since the matter had not reached him through the normal channel. The Court further observed that the Deputy Commissioner’s subsequent decision to award the contract to the fourth respondent was erroneous because it involved an arbitrary, ad-hoc procedure devised in secrecy to address a particular situation, which could not be sanctioned. The Court emphasized that the legislature required any departure from the auction and tender methods prescribed in the Rules to be authorized by the Government and formally notified, and such departures could not be left to the unfettered discretion of a lower official. Consequently, the Court refused to grant the writ of mandamus sought by Guruswamy, noting that the relief would be ineffective given that only about two weeks remained before the contract’s expiry, rendering any injunction meaningless.

The Court held that a writ directing the grant of the contract to T could not be issued because only about two weeks remained before the contract’s expiry, rendering any such writ ineffective and meaningless. The judgment set out the relevant provisions of the Mysore Excise Act and the rules made thereunder, and it referred to the authorities State of Assam v. Keshab Prasad Singh and Others ([1953] S.C.R. 865) and Commissioner of Police, Bombay v. Gordhandas Bhanji (1952) S.C.R. 135.

The matter was presented as Civil Appeal No. 212 of 1953 under article 133(1) of the Constitution of India, challenging the judgment and order dated 10 July 1953 of the Mysore High Court in Civil Petition No. 116 of 1953. Counsel for the appellant, who was the Attorney-General for India, was assisted by two junior counsels. Counsel for respondents numbered one to three was the Advocate-General of Mysore, assisted by a junior counsel. Counsel for respondent number four also appeared. The judgment was delivered on 24 May 1954 by Justice Bose.

The appeal concerned the sale of a liquor contract for the fiscal year 1953-54 in the State of Mysore. The appellant, Guruswamy, and the fourth respondent, Thimmappa, were rival liquor contractors. The contract covering the City and Taluk of Bangalore was auctioned by the Deputy Commissioner on 27 April 1953. The appellant’s bid of Rs 1,80,000 per month was the highest, and consequently the contract was awarded to him, subject to formal confirmation by the Deputy Commissioner. The appellant subsequently deposited Rs 1,99,618-12-0 as required.

The fourth respondent, Thimmappa, attended the auction but did not place a bid. Instead he approached the Excise Commissioner directly, without informing the appellant, and offered Rs 1,85,000 per month. On 11 May 1953 the Excise Commissioner issued an order stating that the highest bid recorded in the recent auction was Rs 1,80,000 per month, but because Sri Thimmappa had now offered Rs 1,85,000 per month, the sale conducted by the Deputy Commissioner was cancelled. The Commissioner directed the Deputy Commissioner to take further action under rule 10 of the Rules regulating the sale of excise privileges and enclosed the tender offered by Sri Thimmappa.

On the same day the Deputy Commissioner notified the appellant that the sale had been cancelled by the Excise Commissioner. A copy of the Commissioner’s order was supplied to the appellant on 16 May 1953. Earlier, on 12 May 1953, the Deputy Commissioner issued his own order confirming the cancellation of the 27 April sale and stating that, in view of the higher tender of Rs 1,85,000 per month received from Sri Thimmappa, the tender of Sri Thimmappa was accepted.

The appellant lodged protests and filed appeals before various authorities, but these efforts proved futile. Consequently, on 19 June 1953 the proceedings continued as recorded.

The appellant sought a writ of mandamus from the High Court at Mysore, challenging the cancellation of the licence sale. The High Court dismissed the petition, but subsequently granted the appellant a certificate of appeal under article 133(1) of the Constitution, thereby permitting the present appeal before this Court. The statutory framework governing the dispute is the Mysore Excise Act of 1901 together with the Rules promulgated under that Act. Section 15 of the Act makes it unlawful to sell liquor without first obtaining a licence issued by the Deputy Commissioner. Section 16 provides that the Government may, at its discretion, grant any person or persons an exclusive or other privilege to sell, by retail, any country liquor within a specified locality, subject to the condition that the grantee may not exercise the privilege until a licence has been issued by the Deputy Commissioner. Section 29 empowers the Government to make rules for the purpose of giving effect to the provisions of the Act.

The notification containing those Rules is headed by the statement that the Government of His Highness the Maharaja of Mysore is pleased to frame rules to regulate the disposal of the privilege of retail vending of intoxicating liquors. Rule I.1 declares that the privilege of retail vending of excisable articles shall be disposed of either by auction or by any other method that may be notified by the Government. Rule I.2, which is also pertinent, requires that when the Government permits the right of retail vending to be disposed of by calling for tenders, a notification calling for such tenders must be published by the Excise Commissioner in three successive issues of the Mysore Gazette, after obtaining prior approval of the Government for the same.

Among the subsequent auction rules, Rule II.8 is particularly relevant. It provides that the shops shall be awarded to the highest bidder, but the sale shall be subject to formal confirmation by the Deputy Commissioner, who may, at his discretion, accept or reject any bid. Such formal confirmation shall be deemed to constitute acceptance of the bid unless the Excise Commissioner revises it for special reasons. Rule II.10 further states that any shop remaining unsold at the first auction, or any shop whose sale has not been confirmed and is subsequently cancelled, shall ordinarily be disposed of by re-auction, by tender, or by any other method that the Deputy Commissioner may, at a later stage, deem appropriate.

The Court observed, citing the decision in State of Assam v. Keshab Prasad Singh and Others, that the sale of these licences generates a substantial source of revenue, and consequently State Legislatures have been cautious not to leave the matter to unfettered executive discretion. Accordingly, legislation has been enacted in most parts of India to regulate and control the licensing of such trades, and detailed Rules have been drawn up under those Acts. This legislative scheme demonstrates a clear policy purpose and indicates that the constraints imposed by the Act and the Rules cannot be set aside at the whim of the Government or its officers. The Act and the Rules plainly make it evident that liquor licensing in the State of Mysore may be carried out only in the specified manners, and any discretion remaining with the authorities is strictly circumscribed by the statutory provisions and the Rules.

The Court observed that the Rules were formulated under the authority of the Act, reflecting a deliberate policy and purpose enacted by the legislature. It further noted that the restrictions imposed by legislation could not be discarded merely at the discretion of the Government or any of its officers. The binding effect of the Rules extended both to the State and to every individual or entity subject to the licensing scheme. According to the Act and the accompanying Rules, the issuance of liquor licences in the State of Mysore could be carried out only by the specific procedures enumerated therein. Any discretionary power left to the licensing authorities was expressly limited and was to be exercised in strict accordance with the statutory provisions and the Rules. Rule I.1 presented two permissible methods: licences could be sold through a public auction or by any other method that the Government might formally notify. The Court emphasized that the phrase “such other method as may be notified” required an actual notification, not a subjective choice of the Government, because the matter concerned public revenue.

The requirement of formal notification was deemed essential because the licensing process affected public interest and generated considerable revenue for the State. Consequently, the Court held that the method chosen by the Government had to be published in the Mysore Gazette so that all interested parties could be aware of the procedure. The Gazette, being a weekly public journal, could also be issued as a special edition on short notice when circumstances demanded rapid action. The Court observed that the possibility of urgency did not justify bypassing the statutory notification requirement, since the Gazette could accommodate swift publication. Rule I.2 listed one of the alternative methods as the invitation of tenders, and it imposed additional safeguards to ensure transparency. Specifically, the Rule demanded that a call for tenders be announced in at least three consecutive issues of the Mysore Gazette and that prior governmental approval be obtained. This detailed elaboration, according to the Court, prevented any executive officer from arbitrarily ignoring or circumventing the statutory procedure. Thus, the statutory framework created a chain of checks that required both Gazette publication and explicit governmental consent before an alternative tender process could proceed.

While the authorities were not compelled to use auction or tender exclusively, they retained the discretion under Rule I.1 to adopt any other method that the Government formally authorized. However, the Court stressed that any departure from the prescribed auction or tender mechanisms must still be sanctioned by the Government through a proper Gazette notification. The requirement of notification ensured that the deviation could not be left to the arbitrary judgment of a lower official without oversight. The Court pointed out that the weekly Gazette could be supplemented by a special issue issued at short notice, thereby eliminating any claim that urgency excused non-compliance with the Rules. In the instant case, the Court found that no Gazette notification had been issued to activate the “otherwise” provision contemplated by Rule I.1. Moreover, the authorities had not published any call for tenders in the manner prescribed by Rule I.2, nor had they secured the requisite governmental approval. Accordingly, the Court concluded that the only valid method remaining for the sale of the licences was the public auction prescribed by the Rules.

Since the only method allowed by Rule I.2 was unavailable, the Court turned to the ordinary method of disposal prescribed by the Rules, which is a public auction. The record showed that the contract had indeed been put up for auction on 27 April 1953. It was also accepted that the appellant had offered a bid of Rs 1,80,000, that this amount constituted the highest bid, and that the auctioneer had declared the contract awarded to the appellant. Nevertheless, the award was not final because Rule II.8 expressly made the sale dependent on the formal confirmation of the Deputy Commissioner, who possessed a discretion to either accept or reject any bid. The Deputy Commissioner neither gave his sanction nor exercised his discretion to reject the bid. The Court regarded this omission as an irregularity, but held that even if the Deputy Commissioner had sanctioned the award, the sanction would still have been subject to a possible revision by the Excise Commissioner for “special reasons”. This circumstance set the present case apart from the earlier decision in Commissioner of Police, Bombay v. Gordhandas Bhanji(1). The Excise Commissioner later exercised his authority over the matter; although the Commissioner’s involvement was somewhat irregular because the matter had not reached him through the proper procedural channel, the Court concluded that such irregularity did not warrant interference by way of a writ. The Court noted that the High Court, being not a court of appeal, could not be called upon to correct a mere technical error in the exercise of a jurisdiction that remained otherwise valid. It was further emphasized that the Excise Commissioner was not a court of law whose jurisdiction depended upon the filing of a regular appeal. The sale was consequently cancelled, and a reason was supplied: the Government would be able to obtain an additional revenue of Rs 5,000 per month, which the Court regarded as a satisfactory justification. Accordingly, the cancellation was upheld. Since the appellant had not acquired any right to the licence merely because the contract had been knocked down in his favour – the acceptance of the award was still subject to formal sanction – the appellant’s first prayer for a mandamus directing confirmation of his right to the licence for the year 1953-54 could not be granted.

The discussion then moved to the later action of the Deputy Commissioner in allocating the contract to a person named Thimmappa. It was contended that the Deputy Commissioner had acted within his statutory powers because Rule II.10 confers upon him an absolute discretion either to conduct a re-auction or to proceed “otherwise”, and that no limitation was placed on the “otherwise” option. It was further argued that the Rules preceding Rule II.10 dealt only with the initial stages of the process, requiring either an auction or the issuance of a tender by notification under Rule I.2, or any other method that had been duly notified. Once an auction had taken place and subsequently been cancelled under Rule II.8, it was submitted that the authorities were no longer bound by any of the Rules and therefore possessed an unrestricted and unfettered discretion. The urgency of the situation at that stage was also urged as a justification for the Deputy Commissioner’s conduct.

The Court stated that it could not agree with the submission that the word “otherwise” should be given a different meaning in the present case. It observed that when the same word appears in the same section of the same set of Rules, it must be given the same meaning unless there is clear indication to the contrary. The Court noted that the complete definition of the term “otherwise” is contained in Rule I.1 and that this definition must be applied in the same way to Rule II.10. However, the Court expressed the view that interpreting the term in this manner would clash with the policy of the Legislature, which requires that matters affecting State revenue not be handled arbitrarily or in secrecy. It further held that any action affecting revenue must be taken either under the prescribed Rules or under a duly issued notification that provides the same level of public notice and legal force. The Court warned that the creation of an ad-hoc procedure to meet the exigencies of a particular case constitutes arbitrary improvisation and is therefore unacceptable. Consequently, the Court concluded that the grant of the contract to Thimmappa was improper.

The next issue considered was whether the appellant could challenge this act by filing a writ of mandamus. The Court opined that in an ordinary circumstance the appellant would have been entitled to seek such a writ. It pointed out that the appellant, being interested in the contracts, possessed a statutory right to be treated alike and to receive the same opportunity as any other applicant. The Court observed that Thimmappa had been present at the auction and that he did not place a higher bid, an omission that would not have altered the outcome because the appellant would have increased his own bid had Thimmappa attempted to outbid him. It stated that the tender process in the present case was not open, since no public notification was issued and the matter was dealt with in a furtive manner, thereby depriving other interested parties of a fair chance to compete. The Court added that this clandestine approach would have caused a loss to the State, as the appellant’s vigorous pursuit of the writ demonstrated that he would have offered a higher price. Beyond financial loss, the Court emphasized that deeper considerations such as the elimination of favouritism, nepotism and corruption were at stake, noting that while it does not allege such misconduct here, allowing the present conduct would open the door to the evils the Legislature sought to prevent. The Court affirmed that these concerns form an integral part of the Legislature’s policy and cannot be ignored. Accordingly, the Court said that, in the ordinary course, it would have granted the writ sought by the appellant. However, the Court observed that the proceedings had taken an inordinate amount of time to reach this stage, a delay for which the appellant bore no responsibility because he had sought an early hearing. It further noted that only about two weeks remained in the life of the contract, which was scheduled to terminate in early June for the excise year 1953-54.

The Court observed that issuing the writ at this stage would be ineffective because the remaining period of the contract was almost exhausted, and because the Court does not issue writs that have no practical effect, the appeal had to be dismissed, leaving the appellant only with a declaration of the legal principle involved. Nevertheless, the Court recognized that the appellant had in substance won his case and that his inability to enjoy the full fruits of that victory was due to circumstances for which he was not responsible. Accordingly, the Court directed that the first respondent, identified as the State of Mysore, together with the fourth respondent, named Thimmappa, were required to pay the appellant his costs incurred both in these proceedings and in the earlier High Court proceedings. The Court further clarified that each of the remaining respondents would bear their own costs. This order on costs was intended to compensate the appellant for the expenses he had incurred in enforcing his right, given that the substantive relief could not be granted because of the imminent expiry of the contractual period. In light of these considerations, the Court formally dismissed the appeal.