[S.29 Karnataka Excise Act] Partnership Firm's Bar License Can Be Cancelled Over Unpaid Fees Following Change In Partners: High Court

A single judge bench of Justice Suraj Govindaraj dismissed a petition filed by Cohiba Club and upheld the order of the Deputy Commissioner cancelling the license issued to the partners of the Club.

The bench said “The transfer having occurred and not having been brought to the notice of the Deputy Commissioner, there being a breach of the licence, 1st respondent would be entitled to exercise his powers of Sub-Clause (a) of Sub-Section (1) of Section 29 of the Act.”

Seeking to quash the order and direct authorities to renew its license the petitioner contended that there is no violation of either Rule 17(b) of the Karnataka Excise Licences (General Conditions) Rules, 1967 or Section 29 of the Karnataka Excise Act, 1965. Therefore, the powers under Section 29 of the Act could not be exercised by 1st respondent to cancel the valid excise licence in the name of the petitioner.

It was argued that name of the firm continues to be Cohiba club and mere change of partners would not amount to a transfer of license so long the name of the licensee continues to be the same, even if at all there is a deemed transfer which has occurred, then at the most respondent authority should have called upon the petitioner to make payment of the transfer fee and/or penalty thereon instead of cancelling the same under Section 29 of the Act.

The plea was opposed by authorities saying initially the licence was issued in the name of P.Lava Kumar and E.Ranjith Kuruvilla, who retired from the partnership and in their place Thirtha Kumar Swamy and Mohith Kumar Swamy entered as partners and subsequently Kapila Saigal had been inducted into the partnership with an understanding that Thirtha Kumar Swamy and Mohit Kumar Swamy would be retiring from the partnership.

The issue came to the notice of the Excise Department only upon a complaint being filed by Kapila Saigal stating that Thirtha Kumar Swamy and Mohit Kumar Swamy were seeking to cheat Kapila Saigal by not complying with the terms of the agreement entered into between them.

This aspect not having been brought to the notice of the Excise Department and no transfer fee having been paid after seeking for permission to transfer would attract the provision of Section 29 of the Act, the State argued. Reliance was place on the coordinate bench judgement in the case of M/S.Shankar Wines v. Commissioner of Excise in Karnataka & Another.

The bench on going through the records noted that it is not in dispute that when the licence was issued, the partners were P.Lava Kumar and E.Ranjith Kuruvilla. Subsequently thereto, these two partners exited from the partnership and in their place Thirtha Kumar Swamy and Mohit Kumar Swamy became partners.

“The entire constitution of the firm has changed, in essence, the partners who have applied for and obtained the licence are no longer the partners and in their place, there are new partners.”

Relying on the judgment of the coordinate bench the court said,

“It is clear that even if there is a 50% change in the constitution of the partnership, then the same would amount to a transfer. In the present case, at the first instance, both the partners having exited, and two new partners being inducted, there is a 100% change in the partnership firm. Even the inducted partners wanted to induct a new partner which has not been given effect to though a reconstituted partnership deed has been executed.”

It added, “I am of the considered opinion that once a reconstituted partnership deed has been executed it would amount to a change in the constitution of the partnership and the same comes within the mischief as enumerated in M/S.Shankar Wines case supra and as such it would fall foul of Rule 17B of the Rules entitling the 1st respondent-Deputy Commissioner to exercise powers under Section 29 of the Act.”

Noting that even if any duty or fee payable by the holder is not duly paid, then, the powers under Section 29 of the Act could be used. The bench said “When the initial partners exited and Thirtha Kumar Swamy and Mohit Kumar Swamy were inducted as partners, there being a transfer, there was a transfer fee, which was required to be paid, which has not been paid, therefore, entitling the 1st respondent to exercise powers in terms of Sub-Clause (a) of Sub-Section (1) of Section 29 of the Act.”

Rejecting the contention of the petitioners that discretionary powers ought to have been exercised in terms of levy of penalty or fine on the petitioner and continuation of the licence, the bench said, “When the petitioner has kept quiet for such a long length of time suppressing the transfers, which have occurred, I am of the considered opinion that no such discretion was required to be exercised in favour of the petitioner.”

Case Title: Cohiba Club And Deputy Commissioner & Others

Case No: WRIT PETITION NO.31185 OF 2018

Citation: 2023 LiveLaw (Kar) 78

Date of Order: 25-01-2023

Appearance: Advocate S. Venkateshwaran for petitioner.

HCGP Jyothi Bhat for respondents.