Dealing with an unequal partner

Out Of Court

 In a judgement delivered by the Supreme Court recently, it was the turn of the manufacturers of rectified spirit in Bihar who had to fight the might of the government.

 However, the court protected them, stating that the government could not impose penalty on companies without hearing them and adjudicating upon the disputes. The government cannot take action against a company merely on the basis of an audit report showing that there was a shortfall in the output expected from the company.

 In this case (State of Bihar vs Industrial Corporation), the state government imposed a penalty on manufacturers of spirit for loss or wastage of molasses. It sent demand notices directing them to compensate the loss to the government through the payment of penalty. The companies objected to it.

 While carrying on the business of manufacture of spirit under licence from the controller of molasses, some loss had occurred in the quantity of molasses supplied by the controller. The Comptroller and Auditor General, in his report, found out a potential loss of revenue by reason of such loss or wastage of molasses.

 The report had quantified the loss of revenue in relation to each of the licencees. The government, therefore, issued notices to all such companies, levying penal duty. It suspected that the companies had diverted molasses towards manufacture of country liquor.

 It pointed out that one of the terms of the tender provided that in the event of any shortfall in recovery of spirit from molasses allotted, the licensees would be liable for it. The companies then challenged the government action in the high court. They held that the government has no power to impose a penalty. The state moved the Supreme Court, which reaffirmed the high court view more vehemently.