INTERNATIONAL SPIRITS AND WINES ASSOCIATION OF INDIA versus STATE OF HARYANA AND OTHERS on 12 February 2019

234

SUPREME COURT REPORTS

[2019] 3 S.C.R.

AINTERNATIONAL SPIRITS AND WINES ASSOCIATION OFINDIA

v.

STATE OF HARYANA AND OTHERS

(Civil Appeal No. 9533 of 2018)

BFEBRUARY 12, 2019

[RANJAN GOGOI, CJI, NAVIN SINHA AND

K. M. JOSEPH, JJ.]

Haryana Liquor License Rules, 1970:

Cr. 24(i-eeee)(as amended) – L-1BF license to trade in foreignliquor – r. 24(i-eeee) providing for a single L-1BF license for theentire State to deal in imported foreign liquor, bottled outside Indiaand imported into the country in a bottled form (i.e. bottled inoriginal), if ultra vires the provisions of the 1914 Act – Held: r.24(i-eeee) is ultra vires the powers of the Financial Commissioner underDthe Act and is struck down – Financial Commissioner was notcompetent to amend the Rules with regard to grant of number oflicenses for the entire State, and which power was exclusive to theState Government u/s. 6 read with ss.13(a) and 58(2)(e) – To holdthat the power of Financial Commissioner u/s. 59(a) to regulateEsale of liquor, and that sale could be regulated through grant oflicense, the Financial Commissioner was vested with the power todetermine the number of licenses, is unreasonable as alsounsustainable – Amendment notified by the Excise Commissioneras a delegate of the Financial Commissioner was per se ultra viresthe powers of the latter u/ss. 6 and 13(a) r/w s. 58(2)(e) – While theFState Government would have the power to determine the numberof licenses and to issue licence for a local area only, the ExciseCommissioner would have a superior power to determine the numberof licenses and issue licenses for the entire State – Punjab ExciseAct, 1914 – ss. 8, 6, 13(a) and 58(2)(e) – Haryana Liquor LicenseG(Amendment) Rules, 2017 – Liquor.

Allowing the appeal, the Court

HELD: Per Navin Sinha, J. (for himself and Ranjan Gogoi, CJI):

1.1 Under Section 8 of the Punjab Excise Act, 1914 theHState Government exercises general superintendence and control234

of Excise Administration and Excise Officers. Section 9 providesfor vesting powers of the Financial Commissioner in the ExciseCommissioner by the State Government. The FinancialCommissioner is therefore, competent to delegate only suchpowers to the Excise Commissioner which the State Governmentcan delegate to the former under the Act, in view of the prohibitioncontained in Section 13(a). Under Section 58(2)(e) of the Act, theState Government alone has the power to regulate the number oflicenses which may be granted in any local area for wholesale orretail sale. In the scheme of the Act, the Haryana Liquor LicenseRules, 1970 and the Punjab Intoxicants License and Sales Orders,1956 read together it is apparent that a liquor license is to begranted for a local area only. The power to determine the numberof licences that may be granted in any category in a local area isexclusively vested in the State Government under Section 58(2)(e)of the Act. The delegation of this power by the State Governmentto the Financial Commissioner is prohibited by Section 13(a).This is only in consonance with the general power ofsuperintendence vested in the State Government under Section8. The Act maintains a clear distinction between a local area asthe unit for grant of licence, and the entire State for other purposes.The State government is the sole repository of these other powerswith regard to the entire State evident from Sections 5 and 6.The power to declare by notification that a licence granted shallbe applicable to the entire State is exclusively vested in the StateGovernment under Section 6(a) of the Act. [Paras 6, 10, 12][245-B, E; 248-A, E]

1.2 The High Court held that in contradistinction to Section58(2)(e) of the Act, which limits the powers of the StateGovernment to grant of licence for a local area, the ExciseCommissioner, as the delegatee of the Financial Commissioner,was competent under Section 59(a) to grant a single L-1BF licencefor the entire State. [Para 13][248-F]

1.3 The nature of powers conferred under Section 59 ofthe Act, make it manifest that it is but a regulatory power availableonly after a license is granted to the licensee for a local area, toensure supply, storage, sale or otherwise that the conditions of A

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Athe license are adhered to and necessary directions can also begiven for the purpose. [Para 14][250-E]

1.4 The Excise Commissioner, a sub-delegate of theFinancial Commissioner, in exercise of the powers conferredunder section 59 of the Act by virtue of the Haryana GovernmentBExcise and Taxation notification dated 01.04.2016, made theimpugned amendment to the Haryana Liquor License Rules, 1970.The same were notified on 29.03.2017. These rules were calledthe Haryana Liquor License (Amendment) Rules, 2017. Rule 1(2)stated that they shall come into force with effect from 01.04.2017.Rule 3 of the amendment substituted Rule 24 (i-eeee) whichCprovided that there shall be only one L-1BF license in the State.The amendment with regard to the number of licenses that couldbe issued for the entire State is in teeth of Sections 6 and 58(2)(e),delegation of which by the State Government is expresslyprohibited by Section 13(a). [Para 15][250-F-H]D

1.5 The distinction sought to be drawn by the High Courtwith regard to the term ‘local area’ under Section 58(2)(e) of theAct as being confined to small compact area only and that theFinancial Commissioner by virtue of the power to regulate supply,storage or sale of any intoxicant had the power to determine theEnumber of licenses to be granted for the entire State in a particularcategory, is not only unreasonable but also in teeth of the statutoryScheme and its provisions. To hold that the power of FinancialCommissioner under Section 59(a) of the Act to regulate sale ofliquor, and that sale could be regulated through grant of license,the Financial Commissioner was vested with the power toFdetermine the number of licenses, is not only unreasonable butalso unsustainable. Such an interpretation amounts to readingwords into the statute which the legislature itself never intended.The amendment notified by the Excise Commissioner as adelegate of the Financial Commissioner was per se ultra viresGthe powers of the latter under Section 6 and 13(a) read with Section58(2)(e) of the Act. The unreasonableness and incongruity in thereasoning by the High Court would vest wider powers in theExcise Commissioner than the State Government itself. Whilethe State Government would have the power to determine thenumber of licenses and to issue licence for a local area only, theHExcise Commissioner would have a superior power to determine the number of licenses and issue licenses for the entire State.[Para 16][251-A-E]

1.6 The Financial Commissioner was not competent toamend the Rules with regard to grant of number of licenses forthe entire state, and which power was exclusive to the StateGovernment under Section 6 read with Section 13(a) and 58(2)(e)of the Act. Rule 24(i-eeee) as amended by the FinancialCommissioner in exercise of powers under Section 59(a) of theAct is ultra vires the powers of the Financial Commissioner underthe Act and is therefore, struck down. [Para 18][251-H; 252-A-B]

Akadasi Padhan v. State of OrissaAIR 1963 SC 1047: [1963] Suppl. SCR 691; Khoday Distilleries Ltd. v.State of Karnataka (I) (1995) 1 SCC 574 : [1994] 4Suppl. SCR 477; Khoday Distilleries Ltd. v. State ofKarnataka (II) (1996) 10 SCC 304 : [1995] 6 Suppl.SCR 759; Association of Registration Plates v. Unionof India (2005) 1 SCC 679 : [2004] 6 Suppl. SCR 496;Deepak Theatre v. State of Punjab, (1992) Supp 1 SCC684 : [1991] 3 Suppl. SCR 242 – referred to.

Per K.M. Joseph, J. (Dissenting):

1.1 In terms of the notification vesting powers of the financeCommissioner apparently under Section 59 it is that the ExciseCommissioner has made the rules “Haryana Liquor LicenceRules 1970. Section 13 forbids delegation of power under Section58 inter alia on the Financial Commissioner or Commissioner.[Para 9][258-H; 259-A]

1.2 Section 58(2)(e) states that the State Government hasthe power to frame rules to regulate the periods of licences,permits and passes either wholesale or retail; to regulate thelocalities for which wholesale or retail licences, permits or passesmay be granted, and to regulate the persons or classes of personsto whom the licences, permits or passes may be granted eitherby way of a wholesale or retail licence. The latter part of Section58(2)(e) on the other hand also permits the Government toregulate by rules, the number of such licences which may be AB

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Agranted in any local area. Therefore, it is clear that it is in respectof the licences which are referred, be it wholesale or retailmentioned earlier in the provision which can be regulated buthowever limited to any local area. As against this and immediatelyfollowing Section 58 in Section 59, legislature has also empoweredthe financial Commissioner to make rules inter alia to regulateBthe manufacture, supply, storage or sale or any intoxicant. [Paras11, 12][259-F-H; 260-A-B]

1.3 The expression “local area” has been designedlyemployed and it has to be given full play. It certainly cannot meanthe whole of the State. Any other interpretation would render theCword ‘local area’ in Section 58(2)(e) meaningless and, in fact, itwould involve doing complete violence to the plain meaning ofthe words “local area”. It may be true that the whole may includethe part (maxim-Omne Majus Continet in Se Minus) but theconverse namely the part would include the whole could not hold Dgood. Thus, the expression “local area” as used in Section58(2)(e) would appear to convey the impression that thelegislature intended to confer power on the State to placerestrictions on the number of licences which are to be given quaany local area. In fact, in the written submission given by the State of Haryana, a definite case is set up that the State in itsEwisdom can conclude that a particular local area owing to thespecial conditions should be protected from the harmful effectsof alcohol consumption. An example of tribal sub plan area isenlisted where the State may be carrying on a special programme.This view finds support also from another circumstance in theFform of Rule 3 of the 1970 Rules. [Para 13][260-C-F]

1.4 Rule 3 reinforces the view that the expression “numberof licences” which may be granted in the local area is within theexclusive domain of the State Government and reliance placedby the appellant on the number of licences which may be grantedGin Section 58(2)(e) to strike at the impugned rule which isotherwise sourced under Section 59 is without any basis. In otherwords going through both the Act and the Rules, a distinction ismade between the whole of the State and the local area. In regardto rule making power, undoubtedly, the legislature has specificallyconferred rule making power qua the number of licences in anyHlocal area upon the State. Unless it can be reasoned that the

powers to regulate sale of liquor within the meaning of Section59 which is undoubtedly placed on the shoulders of the financialCommissioner would not include the power to make rules inregard to the number of licences for the State as a whole, theargument of the appellant cannot be accepted. [Para 14][261-A-C]

1.5 Having regard to the connotation of the word ‘regulate’it would include power to control the sale of liquor under the Act.Control of sale is possible by providing for licences as it is throughlicencing that the authority can provide for conditions under whichthe sale could be best controlled. If the power to regulate includethe power to stipulate licences it undoubtedly also would includepower to provide for number of licences qua the State as a whole,which does not fall under Section 58(2)(e) of the Act. [Para17][262-G-H]

1.6 The finding by the Division Bench of the High Courtthat the Financial Commissioner has power to decide upon thenumber of licenses is upheld. [Para 20][263-D-E]

1.7 The appellant is an association of companies. Article19 provides for various fundamental freedoms. However, unlikeArticle 14 and 21, these freedoms are not conferred on non-citizens. In other words, Article 19 is confined to citizens. It iswell settled that a company though a juristic person but not beinga natural person is not a citizen within the meaning of Article 19.The writ petition is filed without joining any shareholder who is acitizen. Therefore reliance placed on Article 19 may not hold good.Judicial review of policy is justified only if the policy is arbitraryor unfair or violative of fundamental rights. Courts must be loatheto venture into an evaluation of State policy. [Paras 24, 25][266-H; 267-A-C]

1.8 The guarantee of Article 14 against the Stateundoubtedly embraces all spheres of its activities. If the actionfalls foul of the mandate of Article 14 it is vulnerable, thoughdifferent yardsticks may operate. Undoubtedly the expression‘state’ would also include within its sweep an instrumentality ofthe State as it would fall under the expression “other authorities”in Article 12 of the Constitution. The principles have been culledout with sufficient clarity and there is no occasion or any reason A

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Ato dwell more upon the same as the appellant even does not havea case that the licensee would be an instrumentality of the Statewithin the meaning of Article 12 of the Constitution. An effort atbringing a body within Article 12 must originate specifically inthe pleadings, which is absent. [Paras 28, 29][270-A-C]

B1.9 It is noticed that many of the contentions of the appellantare in the form of apprehensions about what may happen in future.In fact there is a case for the respondents that no complaint assuch was moved against the licensee during the period. Thelicensee is duty bound under the terms and conditions of licenceto submit pricing of each brand at the time of approval of theCbrand. The department is bound to approve the maximum salesprice factoring in various elements. The licensee must indicateamong other things, the landing price, expenses, profit margin.The price is also determined based on the prevalent rates of thesame and equivalent rate at the neighboring states and theDGovernment levies. [Para 31][270-G-H; 271-A]

1.10 The exclusive licensee is under the condition requiredto keep sufficient stock of all brands as are demanded by theprocuring licensees and all such brands as were registered withthe department in 2016-17. Thus, at least two restrictions existEas in built safeguards which operate against the exclusive licensee.The licensee is obliged to keep sufficient number of stock of allbrands which are demanded by the procuring licensees. In theinstant case, the members of the appellant would fall within theexpression ‘procuring licensees’. Secondly, there is a regulationof the maximum price which the exclusive licensee can demandFas the price is to be fixed by the State itself. A question as regards,as to what would happen if the exclusive licensee himself alsooperates retail outlets and he promotes certain brands and/ ordampens the trade in others. Ordinarily on the principle that aperson would act in his own self interest there would be no reasonGfor the licensee to deny himself the proceeds of the higherturnover based on more sales as by seeking to dampen the saleof certain brands it is the licensee who would suffer a loss. It isassumed, however that he is placed in a situation where there isa conflict of interest and by suppressing the sale of certain brandsand permitting the sale of other brands the exclusive licensee isH

placed in a more advantageous position, and therefore, he prefersit. The complaint of the individual company would be that brandwhich it wishes to import and deal in is not made available. Quiteclearly if there is any such concrete incident, it would be aninfraction of the condition of the license. Certainly it would giverise to power with the authorities to take suitable action asavailable in law including in appropriate cases, cancellation ofthe license. If such provisions are not already there it would beobserved that the State may devise suitable provisions so that anindividual who acts as the licensee of the State would not do whatthe State itself would be forbidden from doing under theConstitution. At the same time, the State has apparently gainedby way of enhanced collection of revenue by the new regime putin place. The State’s power to experiment in economic mattersshall not suffer invalidation at the hands of the Court. Such powermust be premised solely on State action falling foul of theConstitution and the laws. State would however, do well to providefor a suitable mechanism by which it can provide appropriatesafeguards so that there is fair dealing by the exclusivelicensee.[271-B-H; 272-A]

The Kerala Bar Hotels Association & Another v. Stateof Kerala & Others AIR 2016 SC 163 : [2015] SCR256 – distinguished.

D.K. Trivedi and Sons v. State of Gujarat(1986) Suppl.SCC 20 : [1986] SCR 479; Khoday Distilleries Ltd.and Others v. State of Karnataka and Others(1996) 10SCC 304 : [1995] 6 Suppl. SCR 759;KhodayDistilleries Ltd and Others v. State of Karnataka andOthers (I) (1995) 1 SCC 574 : [1994] 4 Suppl. SCR477; Maninderjit Singh Bitta v. Union of India andothers (2005) 1 SCC 679 : [2004] 6 Suppl. SCR 496;Krishna Kumar Narula v. State of Jammu & KashmirAIR 1957 SC 1368;Cooverjee B. Bharucha Vs. ExciseCommissioner and the Chief Commissioner, Ajmer andOthersAIR 1954 SC 220 : [1954] SCR 873 – referredto.

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ACase Law Reference

In the Judgment of Navin Sinha, J.[1963] Suppl. SCR 691 referred toPara 2[1994] 4 Suppl. SCR 477referred toPara 2[1995] 6 Suppl. SCR 759 referred toPara 2B[2004] 6 Suppl. SCR 496referred toPara 3[1991] 3 Suppl. SCR 242referred toPara 17In the Judgment of K.M. Joseph, J.[1986] SCR 479 referred toPara 15C[1995] 6 Suppl. SCR 759referred toPara 18[1994] 4 Suppl. SCR 477referred toPara 21[2004] 6 Suppl. SCR 496referred toPara 22[2015] SCR 256distinguished Para 25AIR 1957 SC 1368referred toPara 23D[1954] SCR 873 referred toPara 25

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9533of 2018.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9533of 2018.

From the Judgment and Order dated 26.05.2017 of the High CourtEof Punjab and Haryana at Chandigarh in Civil Writ Petition No. 6870 of2017.

Gopal Subramanium, Sr. Adv., Aashish Gupta, Aditya Mukharji,Anirudh Lekhi, Ravinder Nijhawan, S. S. Shroff , Advs. for the Appellant.

Ms. Pinky Anand, ASG, Ms. Nidhi Gupta, AAG, Sumit Teterwal,FVishwa Pal Singh, Sanjay Singh, M. K. Dutta, Ugra Shankar Prasad,Advs. for the Respondents.

The Judgments of the Court were delivered by NAVIN SINHA, J. 1. The appellant having been unsuccessfulin its challenge to Rule 24(i-eeee) of the Haryana Liquor License RulesG1970 (as amended by the Haryana Liquor License (Amendment) Rules2017), (hereinafter referred to as ‘the Rules’) as being ultra vires thePunjab Excise Act, 1914 (hereinafter referred to as ‘the Act’), is inappeal before this Court. The amended Rule provides for a single L-1BFlicense for the entire State to deal in imported foreign liquor, bottled H

outside India and imported into the country in a bottled form (i.e. bottledin original). Under challenge is also clause 9.5.1.2 of the State ExcisePolicy for the year 2017-2018 to that extent, carried forward to the year2018-2019 also. The procedure for grant of the single license under theamended Rule is through tender by e-bidding, with a reserve price ofRs. 50 crores.

2. Sri Gopal Subramanium, learned senior counsel for the appellant,submitted that the creation of a monopoly by the State in favour of aprivate entity, to trade in liquor, is contrary to Article 19(6) of theConstitution of India. The impugned order acknowledges that it wouldlead to serious distortions in the market, yet erroneously declinesinterference holding that once the matter moves from State control intothe hands of private enterprise, the restrictions applicable to the Statecease to apply. Reliance was placed on Akadasi Padhan vs. State ofOrissa, AIR 1963 SC 1047, to contend that if a monopoly is created bythe State in its favour, the same cannot be constitutionally permitted ifthe private agents appointed pursuant thereto, act as independent entities.Sri Subramanium also relied on Khoday Distilleries Ltd. vs. State ofKarnataka (I), (1995)1 SCC 574, to submit that once the State partswith its privilege to trade in liquor, in favour of private individuals, therigours of Article 14 will continue to apply to provide equal opportunityto all desirous to do so. Alternatively, it was submitted that the absenceof sufficient checks and balances gives untrammeled and uncanalisedpowers to the sole licensee which again is constitutionally impermissible.Sri Subramanium further relied on Khoday Distilleries Ltd. vs. State ofKarnataka (II) (1996) 10 SCC 304, to submit that the interpretation ofSection 58 (2)(e) and 59(a) of the Act by the High Court was flawed.Rule 24 (i-eeee) was ultra vires the Act. The interpretation put by theHigh Court grants wider powers to the Financial Commissioner, than theState Government itself. The single monopolistic L-1BF license wasalso discriminatory and violative of Article 14 of the Constitution in sofar as no such requirement was stipulated for wholesale trade in Indianmade foreign liquor or country liquor in the State. There was no rationalor reasonable classification for this distinction between licensees, havingany rationale or nexus with any object to be achieved.

3. Ms. Pinky Anand, learned Additional Solicitor General, submittedthat the appellant never participated in the bidding process for the L-1BF license. A mere apprehension that a single L-1BF license for the A

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Aentire State may affect market dynamics, when the reality was otherwise,resulting in rise of revenue, negates the challenge laid out by the appellant.The issue of monopoly in the hands of a private entity is devoid of meritas the process is through public auction, open to participation by all, andnot tailored to suit any particular person or activated by malafides, relyingon Association of Registration Plates vs. Union of India, (2005) 1BSCC 679. Trade in original bottled foreign liquor was only a fraction ofthe entire liquor trade in the State, ranging between 0.64 percent to 1.98per cent. The aim and object of the amendment was to increase revenue,curb pilferage, control illicit trade in the State of Indian made foreignliquor and bottled in original bottled foreign liquor. The FinancialCCommissioner was competent under Section 59(a) read with Section 13to amend Rule 24 by incorporation of Rule 24 (i-eeee) providing for asingle L-1BF license for the entire State, as the competence of the Statefor issuance of license under Section 58(2)(e) was limited to a local areaonly.

D4. Sri M.K. Dutta, learned counsel for the sole L-1BF licenseefor 2017-2018, submitted that the appellant was not even a bidder. Thequestion of any apprehension on its part simply does not arise. There aresufficient checks and balances in the excise license providing forcancellation also if the conditions of the license were not followed. The grant of a monopolistic license as the agent of the State GovernmentEwas permissible in the law for trade in liquor.

5. We have considered the submissions on behalf of parties. Theappellant assails the amended Rule 24(i-eeee) as ultra vires the provisionsof the Act. Integral to the issue is whether the state government iscompetent to issue licences for a local area alone under Section 58(2)(e)Fof the Act, while the Excise Commissioner, a sub-delegate of the FinancialCommissioner is competent under Section 13(b) read with Section 59(a)to issue L-1BF licence for the entire state under the amended rule,notwithstanding the prohibition in Section 13(a) to the delegation of powersunder Section 58 by the State Government. The amended Rule 24(i-Geeee) relevant to the controversy reads as follows:

“ (xiv)for clause (i-eeee), the following clause shall besubstituted, namely: - (i-eeee) For a license in form L-1BF –

(a) Reserve price shall be Rs.50,00,00,000/-.

(b) The license in form L-1BF shall be allotted through e-biddingto the highest bidder.

(c) There shall be only one L-1BF license in the State.”

6. Under Section 8 of the Act, the State government exercisesgeneral superintendence and control of Excise Administration and ExciseOfficers. Section 9 provides for vesting powers of the FinancialCommissioner in the Excise Commissioner by the State Government.Section 13 dealing with delegation of powers provides:

“Delegation:

(a) The State Government may by notification delegate to theFinancial Commissioner or Commissioners all or any of its powersunder this Act, except the powers conferred by sections 14, 21,22,31, 56 and 58 of this Act.

(b) The State Government may by notification permit the delegationby the Financial Commissioner, Commissioner or Collector to anyperson or class of persons specified in such notification of anypowers conferred by this Act or exercised in respect of exciserevenue under any Act for the time being in force.”

The Financial Commissioner is therefore competent to delegateonly such powers to the Excise Commissioner which the StateGovernment can delegate to the former under the Act, in view of theprohibition contained in Section 13(a) of the Act.

7. Section 58 of the Act, in its relevant extract reads as follows:

“Power of State Government to make Rules:

(1) The State Government may by notification make rules for thepurpose of carrying out the provisions of this Act or any other lawfor the time being in force relating to excise revenue.

(2) In particular and without prejudice to the generality of theforegoing provisions, the State Government may make rules:

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(e) Regulating the period and localities for which, and, the personsor classes of persons, to whom licenses, permits and passes for A

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Athe vend by wholesale or by retail of any intoxicant may be grantedand regulating the number of such licenses which may be grantedin any local area;

(3) Previous publication of rules: - The power conferred by thissection of making rules is subject to the condition that the rules beBmade after previous publication; Provided that any such rules may be made without previouspublication if State Government consider that they should bebrought into force at once.”

Under Section 58(2)(e) of the Act, the State Government aloneChas the power to regulate the number of licenses which may be grantedin any local area for wholesale or retail sale.

8. Relevant to the discussion are also Rules 3 and 4 which provideas follows :

D“3. The authority given by these rules to grant and renew licensesis, in each case, subject to the restrictions contained in the PunjabIntoxicants License and Sale Order as to the localities in whichlicenses may be granted and the number of licenses which maybe granted in any local area, and to such reservations from thegeneral superintendence of the Financial Commissioner as theEState Government may notify under Section 8 of the Punjab ExciseAct, 1914.

4. Every license shall be granted to a particular licensee in respectof particular premises/area.”

9. Chapter D of the Punjab Intoxicants License and Sales Orders,F1956 (hereinafter referred to as ‘the Order’) provides for the number oflicences and reads as under :

“6. The number of liquor vends except vends licenced in form L-2 for the wholesale and retail sale of foreign liquor to the publiconly and drug shops, which may be licenced in any local area,Gshall be the number which the Financial Commissioner, subject tothe control of the State government considers necessary. Thenumber of L-2 vends, which may be licenced in any local area,shall be the number of such licences granted by the Collectorunder the rules.”

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10. In the scheme of the Act, the Rules and the Order read togetherit is apparent that a liquor license is to be granted for a local area only.The power to determine the number of licences that may be granted inany category in a local area is exclusively vested in the State Governmentunder Section 58(2)(e) of the Act. The delegation of this power by theState Government to the Financial Commissioner is prohibited by Section13(a). This is only in consonance with the general power ofsuperintendence vested in the State Government under Section 8.

11. In Khoday Distilleries vs. State of Karnataka (II) (supra), asimilar provision under the Karnataka Excise Act 1965 fell forconsideration therein:

“71(1):The State Government may, by notification and afterprevious publication, make Rules to carry out the purposes of thisAct.

(2) In particular and without prejudice to the generality of theforegoing provision, the State Government may make Rules –

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(e) regulating the periods and localities in which and the personsor classes of persons to whom, licenses for the wholesale or retailsale of any intoxicant may be granted and regulating the numberof such licenses which may be granted in any local area:

(f) ……

(g) ……

(h) prescribing the authority by which, the form in which and theterms and conditions on and subject to which any license or permitshall be granted, and may, by such Rules, among other matters.”

This Court held as follows :-

“11. ….The Act itself provides that the number of licenses can beregulated by the State. If the State chooses to regulate licensesby providing that the license shall be granted only to a companyowned by the State, it cannot be said that such a license issomething which is outside the purview of the Act or the rule-making authority of the State under the Act.”

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A12. The Act maintains a clear distinction between a local area asthe unit for grant of licence, and the entire State for other purposes. TheState government is the sole repository of these other powers with regardto the entire State evident from Sections 5 and 6 which read:

“5. Power of State Government to declare limit of sale byBretail and by wholesale- The State Government may bynotification declare with respect either to the whole of Punjab orto any local area comprised therein, and as regards purchasersgenerally or any specified class of purchasers, and generally orfor any specified occasion, the maximum or minimum quantity orboth of any intoxicant which for the purposes of this Act may beCsold by retail and by wholesale.

6. Power to limit application of notifications, permits, etc.,made under this Act.- Where under this Act any notification ismade, any power conferred, any appointment made or any license,pass or permit granted, it shall be lawful to direct –

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(a) That it shall apply to the whole of Punjab or to any specifiedlocal area or areas; xxxxx”

The power to declare by notification that a licence granted shallEbe applicable to the entire State is exclusively vested in the StateGovernment under Section 6(a) of the Act.

13. The High Court has held that in contradistinction to Section58(2)(e) of the Act, which limits the powers of the State Government togrant of licence for a local area, the Excise Commissioner, as the delegateeFof the Financial Commissioner, was competent under Section 59(a) togrant a single L-1BF licence for the entire State.

“59. Powers of Financial Commissioner to make rules:- The Financial Commissioner may, by notification, make rules,- G(a) regulating the manufacture, supply, storage or sale of anyintoxicant, including-

(i) the character, erection, alteration, repair, inspection,supervision, management and control of any place for themanufacture, supply, storage or sale of such article and the H

fittings, implements, apparatus and registers to be maintainedtherein;

(ii) the cultivation of the hemp plant and the collection ofspontaneous growth of such plant and the preparation ofany intoxicating drug;

(iii) the tapping or drawing of tari from any tari productingtree; (b) regulating the bottling of liquor for purposes of sale;

(c) regulating the deposit of any intoxicant in a warehouse andthe removal of any intoxicant from any warehouse or fromany distillery or brewery; (d) prescribing the scale of fees or the manner of fixing the feespayable in respect of any license, permit or pass or in respectof the storing of any intoxicant; (e) regulating the time, place and manner of payment of any dutyor fee; (f) prescribing the authority by, the restrictions under, and theconditions on, which any license, permit or pass may be granted,including provisions for the following matters-

(i) the prohibition of the admixture with any intoxicant of anysubstance deemed to be noxious or objectionable;

(ii) the regulation or prohibition of the reduction of liquor by alicensed manufacturer or licensed vendor from a higher toa lower strength;

(iii) the strength at which intoxicant shall be sold, supplied orpossessed; (iii-a) the fixing of the price below and above which anyintoxicant shall not be sold or supplied by the licenced vendor.

(iv) the prohibition of sale of any intoxicant except for cash;

(v) the fixing of the days and hours during which any licensedpremises may or may not be kept open, and the closure ofsuch premises on special occasions;

(vi) the specification of the nature of the premises in which A

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Aany intoxicant may be sold, and the notice to be exposed atsuch premises;

(vii) the form of the accounts to be maintained and the returnsto be submitted by license-holders; and

(viii) the prohibition or regulation of the transfer of licenses; B

(g) (i) declaring the process by which spirit shall be denatured;

(ii) for causing spirit to be denatured through the agency orunder the supervision of its own officers;

(iii) for ascertaining whether such spirit has been denatured; C(h) providing for the destruction or other disposal of any intoxicantdeemed to be unfit for use;

(i) regulating the disposal of confiscated articles; (j) prescribing the amount of security to be deposited by holdersDof leases, licenses, permits or passes for the performance ofthe conditions of the same.”

14. The nature of powers conferred under Section 59 of the Act,make it manifest that it is but a regulatory power available only after alicense is granted to the licensee for a local area, to ensure supply, storage,Esale or otherwise that the conditions of the license are adhered to andnecessary directions can also be given for the purpose.

15. The Excise Commissioner, a sub-delegate of the FinancialCommissioner, in exercise of the powers conferred under section 59 ofthe Act by virtue of the Haryana Government Excise and TaxationFnotification dated 01.04.2016, made the impugned amendment to theHaryana Liquor License Rules, 1970. The same were notified on29.03.2017. These rules were called the Haryana Liquor License(Amendment) Rules, 2017. Rule 1(2) stated that they shall come intoforce with effect from 01.04.2017. Rule 3 of the amendment substitutedRule 24 (i-eeee) which provided that there shall be only one L-1BFGlicense in the State. The amendment with regard to the number oflicenses that could be issued for the entire State is in teeth of Sections 6and 58(2)(e), delegation of which by the State Government is expresslyprohibited by Section 13(a).

16. The distinction sought to be drawn by the High Court withregard to the term ‘local area’ under Section 58(2)(e) of the Act asbeing confined to small compact area only and that the FinancialCommissioner by virtue of the power to regulate supply, storage or saleof any intoxicant had the power to determine the number of licenses tobe granted for the entire State in a particular category, in our view, is notonly unreasonable but also in teeth of the statutory Scheme and itsprovisions. To hold that the power of Financial Commissioner underSection 59(a) of the Act to regulate sale of liquor, and that sale could beregulated through grant of licence, the Financial Commissioner was vestedwith the power to determine the number of licences, to our mind is notonly unreasonable but also unsustainable. Such an interpretation amountsto reading words into the statute which the legislature itself never intended.The amendment notified by the Excise Commissioner as a delegate ofthe Financial Commissioner was per se ultra vires the powers of thelatter under Section 6 and 13(a) read with Section 58(2)(e) of the Act.The unreasonableness and incongruity in the reasoning by the High Courtwould vest wider powers in the Excise Commissioner than the StateGovernment itself. While the State Government would have the powerto determine the number of licences and to issue licence for a local areaonly, the Excise Commissioner would have a superior power to determinethe number of licences and issue licences for the entire State.

17. The meaning and scope of a regulatory power fell forconsideration in Deepak Theatre vs. State of Punjab, 1992 Supp (1)SCC 684, “4. The power to regulate includes the power to restrain, whichembraces limitations and restrictions on all incidental mattersconnected with the right to trade or business under the existinglicence. Rule 12(3) regulated entry to different classes to the cinemahall and it was within the rule making power of the StateGovernment to frame such rule. The court further held that fixinglimit of rate of admission was an absolute necessity in the interestof the general public and the restriction so placed was reasonableand in public interest….”

18. The Financial Commissioner was therefore not competent toamend the Rules with regard to grant of number of licences for theentire state, and which power was exclusive to the State Governmentunder Section 6 read with Section 13(a) and 58(2)(e) of the Act. In AB

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Aconclusion, we hold that Rule 24(i-eeee) as amended by the FinancialCommissioner in exercise of powers under Section 59(a) of the Act isultra vires the powers of the Financial Commissioner under the Act andis therefore struck down. In view of Rule 24(i-eeee) itself having beenstruck down, it is not considered necessary to discuss or consider theother grounds of challenge raised.B

19. The appeal is allowed.

K.M. JOSEPH, J. 1. Having perused the judgment authored bybrother Justice Navin Sinha notwithstanding the highest respect that Imaintain for him, I express my inability to accept the reasoning given inCsupport of the conclusion on the point which has been dealt with by himand the consequent verdict.

2. The appellant is the writ petitioner before the High Court inwrit petition No.6870 of 2017 which came to be decided along withanother writ petition. Appellant is a company registered under SectionD25 of the Companies Act. It claims to be a representative body ofInternational spirits and wines companies doing business in India. On06.03.2017, the excise policy for the State of Haryana came to beannounced for the period 01.04.2017 to 31.03.2018. Under clause 9.5.1.1,a wholesale licence in the form of L-1BF for imported foreign liquor(BIO) was prescribed. The licensee was authorized to import IFL (BIO)Eincluding beer from other countries and supply it to L-1s, L-4 and L-5s,L-12Cs and L-12Gs of the State. Clause 9.5.12, however, provided thatthere will be only one wholesale licence in the form of L-1BF in theState. It was contemplated that licence was to be settled by e-tendersthrough the Departmental Portal in a completely secure and transparentFmanner. The reserve price was fixed at Rs.50 crores. Under the generalconditions provisions for L-1BF it was provided as follows:

“(vi) The licensee will have to submit pricing of each brands atthe time of approval of the brand and department will approve hismaximum sale price factoring in the landing price, expenses, profitGmargin, prevalent rates of same or equivalent brands in theneighboring States and the Government levies. The licensee shalldo this preferably in the first quarter of the financial year.”

3. Originally Clause 9.5.1.2 was challenged. The third respondenthad been appointed as exclusive licensee and declaration was soughtthat the appointment was invalid. While the Writ Petition was pending,H

INTERNATIONAL SPIRITS AND WINES ASSOCIATION OFINDIA v. STATE OF HARYANA [K. M. JOSEPH, J.]

the Haryana Liquor License (Amendment) Rules, 2017 was introduced.The rules came into effect on 01.4.2017. Thereupon the appellantchallenged Rule 24 (i-eeee) of the 1970 Rules introduced by the amendingRules. The said Rule reads as follows:

“3. In the said rules, in rule 24, -

…....

(xiv) for clause (i-eeee), the following clause shall besubstituted, namely:- “(i-eeee) For a license in form L-1BF - (a) Reserve price shall be Rs. 50,00,00,000/- (b) The license in form L-1BF shall be allotted through e-biddingto the highest bidder (b) There shall be only one L-1BF license in the State.

(d) In case no eligible bid equal to or above the reserve price isreceived for the lone L-1BF license, the same shall be allottedexclusively to a Government owned entity on the terms andconditions as decided by the Government. The permit and brandlabel fee shall be levied as under to procure Stock of liquor bythe L-1BF licensee.”

4. The ground which failed to persuade the Division Bench of theHigh Court but which has found acceptance at the hands of my learnedBrother Sinha J. is that the impugned rule is ultra vires, the power of theFinance Commissioner under Section 59 of the Punjab Excise Act, 1914(hereinafter referred to as “the Act”). The argument of the appellant isthat the power to make a rule regarding number of licenses is with theState Government and it is said power which has been usurped by theFinancial Commissioner in purported exercise of the power under Section59 of the Act. To put it differently, the question would be whether thepower is vested with the State Government under Section 58 or with theFinancial Commissioner under Section 59 of the Act. It is but naturalthat I set out the provisions of Section 58 and 59 of the Act.

“58. Power of State Government to make Rules – (1) The StateGovernment may by notification make rules for the purpose ofcarrying out the provisions of this Act or any other law for thetime being in force relating to excise revenue.

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A(2) In particular and without prejudice to the generally of theforegoing provisions, the State Government may make rules: - (a) prescribing the duties of excise officers; (b) regulating the delegation of any power by the FinancialBCommissioner, Commissioner or Collector, under Section 13,Clause (b);

(c) prescribing the time and manner of presenting and the procedurefor dealing with appeals from orders of excise officers; (d) regulating the import, export, transport or possession of anyintoxicant or Excise bottle and the transfer, price or use of anytype of description of such bottle.

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(e) regulating the period and localities for which, and, the personsor classes of persons, to whom licenses, permits and passes forDthe vend by wholesale or by retail of any intoxicants may be grantedand regulating the number of such licenses which may be grantedin any local area; (f) prescribing the procedure to be followed and the matters to beascertained before any license is granted for the retail vend ofliquor for consumption on the premises; E

(g) for the prohibition of the sale of any intoxicant to any personor class of persons; (h) regulating the power of excise officers to summon witnessesform a distance; F

(I) regulating the grant of expenses to witnesses and compensationto persons charged with offences under this Act and subsequentlyreleased, discharged or acquitted.

(j) for the prohibition of the employment by a license holder ofany person or class of persons to assist in his business in anycapacity what so ever; G

(k) for the prevention of drunkness, gambling and disorderlyconduct in or near any licensed premises and the meeting orremaining of persons of bad character in such premises; H

(l) prohibiting the printing, publishing or otherwise displaying ordistributing any advertisement or other matter commending orsoliciting the use of, or offering any intoxicant calculated toencourage or incite any individual or class of individuals or thepublic generally to commit an offence under this Act, or to commita breach or evade the provisions of any rule or order made thereunder, or the conditions of any license, permit or pass obtainedthere under:- (m) prohibiting within the State the circulation, distribution or saleof any newspaper, book, leaflet, booklet, or other publication printedand published outside the State which contains any advertisementor matter of the nature described in clause (1); (n) declaring any newspaper, book, leaflet, booklet or otherpublication, wherever printed or published, containing anyadvertisement or matter [of the nature described in clause (1)] tobe forefeited to the State Government; and (o) implementing generally the policy of prohibition.

(3) Previous publication of rules – The power conferred by thissection of making rules is subject to the condition that the rules bemade after previous publication.

Provided that any such rules may be made without previouspublication if State Government consider that they should bebrought into force at once.

59. Powers of Financial Commissioner to make rules – TheFinancial Commission may, by notification, make rules.

(a) regulating the manufacture, supply, storage or sale of anyintoxicant, including:-

(i) the character, erection, alteration, repair, inspection,supervision, management and control of any place for themanufacture, supply storage or sale of such article and thefittings, implements apparatus and registers to be maintainedtherein;

(ii) the cultivation of the hemp plant and the collection ofspontaneous growth of such plant and the preparation of anyintoxicating drug.

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(iii) the tapping of drawing of tari from any tari productingtree.

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(b) regulating the bottling of liquor for purposes of sale.

(d) regulating the deposit of any intoxicant in a warehouse andthe removal of any intoxicant from any warehouse or fromBany distillery or brewery.

(e) prescribing the scale of fees or the manner of fixing the feespayable in respect of any license, permit or pass or in respectof the storing of any intoxicant; (f) regulating the time, place and manner of payment of any dutyor fee; C

(g) prescribing the authority by, the restrictions under, and theconditions on which any license, permit or pass may be grantedincluding provision for the following matters: - D(i)The prohibition of the admixture with any intoxicant of anysubstance deemed to be noxious or objectionable;

(ii) The regulation or prohibition of the reduction of liquor by alicensed manufacture or licensed vendor from a higher to alower strength; E(iii) [the strength at which intoxicant shall be sold], supplied orpossessed; (iii-a) the fixing of the price below and above which anyintoxicant shall not be sold or supplied by the licensed vendors;

(iv) The prohibition of sale of any intoxicant except for cash; F

(v) The fixing of the days and hours during which any licensedpremises may or may not be kept open, and the closure ofsuch premises on special occasions;

(vi) The specification of the nature of the premises in whichany intoxicant may be sole, and the notice to be exposed atsuch premises; G

(vii) The form of the accounts to be maintained and the returnto be submitted by license holders; and

(viii) The prohibition or regulation of the transfer of licenses; H

(g-i) declaring the process by which spirit shall be denatured;

(ii) for causing spirits to be denatured through the agency orunder the supervision of its own officers;

(iii) for causing spirits to be denatured through the agency orunder the supervision of its own officers; (h) providing for the destruction or other disposal of any intoxicantdeemed to be unfit for use;

(i) regulating the disposal of confiscated articles; (j) prescribing the amount of security to be deposited by holdersof leases, licenses, permits or passes for the performance of theconditions of the same.”

5. The case of the appellant is built around the provisions containedin Section 58(2)(e) of the Act.

6. The Punjab Excise Act, 1914 as extended to the State ofHaryana contains the following provisions inter alia:

Section 5 of the said Act reads as follows:

“5. Power of State Government to declare limit of sale by retailand by wholesale. –

The [State] Government may by notification declare with respecteither to the whole of [Haryana] or to any local area comprisedtherein, and as regards purchasers generally or any specified classof purchasers, and generally or for any specified occasion, themaximum or minimum quantity or both of any [intoxicant] whichfor the purposes of this Act may be sold by retail and by wholesale.”

The expression “any local area” stands out in the said statutoryprovision as distinct from the whole of Haryana. It is to be noted thatSection 5 does not deal with the rule making power of the State. In fact,it relates to the maximum and minimum quantity or both of any intoxicantswhich may be sold by retail and by wholesale. Similarly, Section 6(a)reads as follows:

“6. Power to limit application of notifications, permits,etc., made under this Act.- Where under this Act any notification A

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Ais made, any power conferred, any appointment made or anylicense, pass or permit granted, it shall be lawful to direct –

(a) that it shall apply to the whole of [Haryana] or to anyspecified local area or areas; (b) …..

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(c) …..

(d) …..”

Equally Section 6 also does not deal with the power to make rules.C7. It is apparent that the legislature has maintained a distinctionbetween the whole and a part and the part is what is captured in theexpression “local area”. Further Section 8 of the said Act reads asfollows:

D“8. Superintendence and control of excise administration andexcise officers. - (a) Subject to the control of the [State] Government and unlessthe [State] Government shall by notification otherwise direct,the general superintendence and administration of all mattersErelating to excise shall vest in the Financial Commissioner.”

(b) ….

(c) ….”

F8. Section 9 of the said Act provides for appointment of an Excisecommissioner and it reads as follows:

“9. Excise Commissioner. - The State Government may bynotification appoint an Excise Commissioner, and, subject to suchconditions and restrictions as it may deem fit, may invest him withGall or any of the powers conferred on the Financial Commissionerby this Act.”

9. In terms of the notification vesting powers of the financeCommissioner apparently under Section 59 it is that the ExciseCommissioner has made the rules “Haryana Liquor Licence Rules 1970.

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It is undoubtedly true that Section 13 forbids delegation of power underSection 58 inter alia on the Financial Commissioner or Commissioner.Section 34 comes under Chapter VI and is relevant. It reads as follows:

“34. Fee for terms, conditions and form of, and duration of licenses,permits and passes. –

(1) Every licence, permit or pass granted under this Act shall begranted, - (a) On payment of such fees, if any; (b) Subject to such restrictions and on such conditions;

(c) In such form and containing such particulars; (d) For such period; as the Financial Commissioner may direct.

(2) …..

(3) …..”

10. Section 35 speaks about grant of licences for sale. Sub-section(1) of the said provision reads as follows:

“35. (1)Grant of lincenses for sale. - Subject to the rules madeby the Financial Commissioner under the powers conferred bythis Act, the Collector may grant licenses for the sale of any[intoxicant] within his district.”

11. Coming to Section 58 undoubtedly what is pressed before usby the appellant is a specific provision contained in Section 58(2)(e).Breaking down the said sub-section, in my view produces the followinginevitable result. The State Government has the power to frame rules.

1) To regulate the periods of licences, permits and passes eitherwholesale or retail;

2) To regulate the localities for which wholesale or retail licences,permits or passes may be granted.

3) To regulate the persons or classes of persons to whom thelicences, permits or passes may be granted either by way of awholesale or retail licence; A

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A12. The latter part of Section 58(2)(e) on the other hand alsopermits the Government to regulate by rules, the number of such licenceswhich may be granted in any local area. Therefore, it is clear that it is inrespect of the licences which are referred, be it wholesale or retailmentioned earlier in the provision which can be regulated but howeverlimited to any local area. As against this and immediately followingBSection 58 in Section 59, legislature has also empowered the financialCommissioner to make rules inter alia to regulate the manufacture,supply, storage or sale or any intoxicant.

13. It is relevant to notice that the High Court in the impugnedjudgment has specifically dealt with the expression “local area” byCadverting to a judgment of this Court reported in 1995 (1) SCC 351. Theexpression “local area” has been designedly employed and it has to begiven full play. It certainly cannot mean the whole of the State. Anyother interpretation would render the word ‘local area’ in Section 58(2)(e)meaningless and, in fact, it would involve doing complete violence to theplain meaning of the words “local area”. It may be true that the wholeDmay include the part (see in this regard the maxim in Brooms LegalMaxims Omne Majus Continet in Se Minus) but I do not think that theconverse namely the part would include the whole could hold good. Thus,the expression “local area” as used in Section 58(2)(e) would appear toconvey the impression that the legislature intended to confer power onEthe State to place restrictions on the number of licences which are to begiven qua any local area. In fact, in the written submission given by theState of Haryana, a definite case is set up that the State in its wisdomcan conclude that a particular local area owing to the special conditionsshould be protected from the harmful effects of alcohol consumption.An example of tribal sub plan area is enlisted where the State may beFcarrying on a special programme. I would think that this view finds supportalso from another circumstance in the form of Rule 3 of Haryana LiquorLicence Rules, 1970. The said Rule reads as under:

“3. The authority given by these rules to grant and renew licensesis, in each case, subject to the restrictions contained in the PunjabGIntoxicants License and Sale Order as to the localities in whichlicenses may be granted and the number of licenses which maybe granted in any local area, and to such reservations from thegeneral superintendence of the financial commissioner as the Stategovernment may notify under Section 8 of the Punjab Excise Act,1914.H

14. Thus, the said rule reinforces the view that the expression“number of licences” which may be granted in the local area is withinthe exclusive domain of the State Government and reliance placed bythe appellant on the number of licences which may be granted in Section58(2)(e) to strike at the impugned rule which is otherwise sourced underSection 59 is without any basis. In other words going through both theAct and the Rules, a distinction is made between the whole of the Stateand the local area. In regard to rule making power, undoubtedly, thelegislature has specifically conferred rule making power qua the numberof licences in any local area upon the State. Unless it can be reasonedthat the powers to regulate sale of liquor within the meaning of Section59 which is undoubtedly placed on the shoulders of the financialCommissioner would not include the power to make rules in regard tothe number of licences for the State as a whole, the argument of theappellant must fail.

15. The word ‘regulate’ in fact came to be considered by thedecision of this Court in D.K. Trivedi and Sons v. State of Gujarat1986 (Suppl.) SCC 20. The matter arose under Section 13 inter alia ofthe Mines and Minerals (Regulation & Development) Act, 1957. ThisCourt went on to hold inter alia as follows :

“30. Bearing this in mind, we now turn to examine the nature ofthe rule-making power conferred upon the State Governments bySection 15(1). Although under Section 14, Section 13 is one ofthe sections which does not apply to minor minerals, the languageof Section 13(1) is in pari materia with the language of Section15(1). Each of these provisions confers the power to make rulesfor “regulating”. The Shorter Oxford English Dictionary, ThirdEdition, defines the word “regulate” as meaning “to control, govern,or direct by rule or regulations; to subject to guidance orrestrictions; to adapt to circumstances or surroundings”. Thus,the power to regulate by rules given by Sections 13(1) and 15(1)is a power to control, govern and direct by rules the grant ofprospecting licences and mining leases in respect of minerals otherthan minor minerals and for purposes connected therewith in thecase of Section 13(1) and the grant of quarry leases, mining leasesand other mineral concessions in respect of minor minerals andfor purposes connected therewith in the case of Section 15(1) andto subject such grant to restrictions and to adapt them to the A

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Acircumstances of the case and the surroundings with reference towhich such power is exercised. It is pertinent to bear in mind thatthe power to regulate conferred by Sections 13(1) and 15(1) isnot only with respect to the grant of licences and leases mentionedin those sub-sections but is also with respect to “purposes connectedtherewith”, that is, purposes connected with such grant.”B

16. No doubt it is true that Section 13 of the Mines and Minerals(Regulation & Development) Act, 1957 which was considered by theCourt inter alia read as follows:

“13. Power of Central Government to make rules in respectof minerals. - C

(1) The Central Government may, by notification in the OfficialGazette, make rules for regulation the grant of prospecting licencesand mining leases in respect of minerals and for purposesconnected therewith.

(2) In particular, and without prejudice to the generality of theDforegoing power, such rules may provide for all or any of thefollowing matters, namely :- *

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(i) the fixing and collection of dead rent fines, fees or other chargesand the collection of royalties in respect of -E

(i) prospecting licences,

(ii) mining leases,

(iii) minerals mined, quarried, excavated or collected; *

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F (r) any other matter which is to be, or may be, prescribed underthis Act.”

17. However, having regard to the connotation of the word‘regulate’ it would include power to control the sale of liquor under theAct. Control of sale is possible by providing for licences as it is throughlicencing that the authority can provide for conditions under which theGsale could be best controlled. If the power to regulate include the powerto stipulate licences it undoubtedly also would include power to providefor number of licences qua the State as a whole a matter which I havereasoned does not fall under Section 58(2)(e) of the Act.

18. In the judgment of this court in Khoday Distilleries Ltd. andOthers v. State of Karnataka and Others reported in 1996 (10) SCC304, the issue arose under the Karnataka Excise Act, 1965. Undoubtedly,there is a provision therein which is pari materia with Section 58(2)(e)of the Punjab Excise Act in the Karnataka Excise Act, 1965 which hasbeen extracted at para 8 of the said judgment. The case in fact relatedto a distributor licence and not wholesale or retail licence which is whatthe provision speaks of.

19. The Court was not dealing with the specific question which isposed before us as is clear from the judgement. I have in fact, gonethrough the Karnataka Excise Act and I find that while Section 71 conferspower on the State Government to make rules there is no provision akinto Section 59 of the Punjab Excise Act which confers power on anyother authority in which case it could not possibly be contended that sub-section (2) of Section 71 would in any manner cut down the width of thegeneral power of Section 71(1) for the State Government to make rulesfor the purpose of the Act.

20. In such circumstances, I would respectfully disagree with themajority view as expressed in the judgment of my learned Brother JusticeNavin Sinha. I would confirm the finding by the learned Division Benchof the High Court that the Financial Commissioner has power to decideupon the number of licenses.

21. Having expressed my disagreement with regard to the findingof the sole issue which has been dealt with in the majority judgment Imust necessarily proceed to consider the two other contentions whichhas been raised by the appellant. The appellant has contended that therule leads to the creation of a monopoly and what is really objectionable,in favour of a private party and it is contrary to the guarantee embeddedunder Article 19(1)(g) of the Constitution. The High Court has repelledthis argument also. It relied upon the judgment of this Court reported inKhoday Distilleries Ltd. and Others Vs. State of Karnataka andOthers; 1995(1) SCC 574 wherein this Court in paragraph 22 held asfollows :

“22. In Cooverjee B. Bharucha v. Excise Commissioner and theChief Commissioner AIR 1954 SC 220, where the vires of ExciseRegulation I of 1915 was under challenge on the ground of violationof Article 19(1)(g), the Constitution Bench of five learned Judges,among other things, held that:

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(a) In order to determine the reasonableness of restrictions,envisaged by Article 19(6), regard must be had to the nature ofthe business and the conditions prevailing in that trade. Thesefactors would differ from trade to trade and no hard and fast ruleconcerning all trades can be laid down. It cannot also be deniedthat the State has the power to prohibit trades which are illegal orimmoral or injurious to the health and welfare of the public. Lawsprohibiting trades in noxious or dangerous goods or trafficking inwomen cannot be held to be illegal as enacting a prohibition andnot a mere regulation. The nature of the business is, therefore, animportant element in deciding the reasonableness of the restrictions.The right of every citizen to pursue any lawful trade or business isobviously subject to such reasonable conditions as may be deemedby the governing authority of the country essential to the safety,health, peace, order and morals of the community. Someoccupations by the noise made in their pursuit, some by the odoursthey engender, and some by the dangers accompanying themrequire regulation as to the locality in which they may be conducted.Some, by the dangerous character of the articles used,manufactured or sold, require also special qualification in the partiespermitted to use them, manufacture or sell them. The Court inthis connection referred to the observations of Field, J. in P.Crowley v. Henry Christensen; 34 L ED 620 : 137 US 86 (1890)a part of which is as follows:

“The sale of such liquors in this way has, therefore been, at alltimes, by the courts of every State, considered as the propersubject of legislative regulation. ... Their sale in that form maybe absolutely prohibited. It is a question of public expediencyand public morality and not of federal law. The police powerof the State is fully competent to regulate the business tomitigate its evils or to suppress it entirely. There is no inherentright in a citizen to thus sell intoxicating liquors by retail; it isnot a privilege of a citizen of the State or of a citizen of theUnited States. As it is a business attended with danger to thecommunity, it may, as already said, be entirely prohibited, or bepermitted under such conditions as will limit to the utmost itsevils. ... It is a matter of legislative will only.”

(b) The elimination and exclusion from business is inherent in thenature of liquor business and it will hardly be proper to apply tosuch a business principles applicable to trade which all could carryon. The provisions of the law cannot be attacked merely on theground that they create a monopoly. Properly speaking, there canbe a monopoly only when a trade which could be carried on by allpersons is entrusted by law to one or more persons to the exclusionof the general public. Such, however, is not the case with thebusiness of liquor. The Court for this purpose relied upon thefollowing observations of Lord Porter in Commonwealth ofAustralia v. Bank of New South Wales; 1950 AC 235 : (1949) 2AII ER 755:

“Yet about this, as about every other proposition in this field, areservation must be made, for their Lordships do not intend tolay it down that in no circumstances could the exclusion ofcompetition so as to create a monopoly either in a State orCommonwealth agency, or in some other body, be justified.Every case must be judged on its own facts and its own settingof time.”

(c) When the contract is thrown open to public auction, it cannotbe said that there is exclusion of competition and thereby monopolyis created.

(Emphasis supplied)

22. I may also refer to the judgment of this Court in ManinderjitSingh Bitta v. Union of India and others reported in 2005(1)SCC679. In this case undoubtedly the rule provided that there will be onlyone license of the nature concerned. However, the right to the licensewas settled by way of e-tender. It was open to any person who isotherwise eligible to participate in the e-tender. Undoubtedly the guaranteeof fairness of the State action and the taboo against arbitrariness mustinform the State action once it decides to permit trade in liquor. It is tobe noticed that the introduction of the rule was primarily to earn maximumprofits. The case of the state is that introduction of the rule has enabledcollection of greater amounts by way of revenue. This cannot be said tobe entirely an irrelevant consideration. Going too far in these mattersmay involve the court making a foray into the ordinarily forbidden territoryof policy.

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A23. No doubt, the appellant draws our attention to the recentdecision of this Court in The Kerala Bar Hotels Association & Anotherv. State of Kerala & Others AIR 2016 SC 163. In fact, one thecontentions of the appellants was that the state had 3 options. The firstis prohibition, the second is State monopoly in manufacture or trade andthe third was to allow private players into the business in which everyoneBhas a right to partake in the business. The court went on to hold interalia as follows:

“24. We disagree with the submissions of the Respondents thatthere is no right to trade in liquor because it is res extraCcommercium. The interpretation of Khoday put forward by Mr.Sundaram is, in our opinion, more acceptable. A right under Article19(1)(g) to trade in liquor does exist provided the State permitsany person to undertake this business. It is further qualifiedby Article 19(6) and Article 47. The question, then, is whetherthe restrictions imposed on the Appellants are reasonable.”D

The Court found support from the judgment of this Court in theConstitution Bench in Krishna Kumar Narula v. State of Jammu &Kashmir AIR 1957 SC 1368 which took the view that dealing in liquor isa legitimate business although the State could impose reasonablerestriction. The court however noted that in Khoday’s case (supra), theEconcept of res extra commercius came to be applied on the business ofmanufacture and trade of potable liquor.

I may also notice paragraph 27 of The Kerala Bar HotelsAssociation case (supra) which reads as below:

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F“27. We now move to the arguments predicated on Article 19 ofthe Constitution. We have already noted that the business in potableliquor is in the nature of res extra commercium and would thereforebe subject to more stringent restrictions than any other trade orbusiness. Thus while the ground of Article 19(1)(g) can be raised,in light of the arguments discussed with regard to Article 14, itGcannot be said that the qualification on that right is unreasonable.”

(Emphasis supplied)

24. I would not lose sight of in the facts of this case one dimensionin this regard. The appellant is an association of companies. Article 19H

provides for various fundamental freedoms. However, unlike Article 14and 21, these freedoms are not conferred on non-citizens. In otherwords, Article 19 is confined to citizens. It is well settled that a companythough a juristic person but not being a natural person is not a citizenwithin the meaning of Article 19. The writ petition is filed without joiningany shareholder who is a citizen. I would also take the view that thereforereliance placed on Article 19 may not hold good.

25. Judicial review of policy is justified only if the policy is arbitraryor unfair or violative of fundamental rights. Courts must be loathe toventure into an evaluation of State policy. I have noticed the principlesenunciated in paragraph 25 and also noted the view taken by this Courtin paragraph 27 of the Kerala Bar Hotel Cases Supra. I may also noticethat the question which actually fell for consideration was in a differentfactual matrix. I do not think that the earlier view taken by this Courtboth in Cooverjee B. Bharucha Vs. Excise Commissioner and theChief Commissioner, Ajmer and Others AIR 1954 SC 220 andKhodays’ case (supra) in relation to the effect of throwing open theright to obtain an exclusive privilege not flowering into a monopoly hasnot been overridden.

26. The third complaint of the appellant is this. The assumption ofthe monopolistic position by the licensee would lead to arbitrary andunfair practices which would leave the members of the appellant withoutredress. The High Court, it is pointed out has rejected the contention byessentially reasoning that the licensee as long as it confirms to theconditions and law is a free agent and shut out the prospect of judicialreview. This is what the High Court finds:-

“32. There may be some safeguards within the policy whichprotect the rights of the upstream licenses such as manufacturersas well as the downstream licenses i.e. the purchasers, such as,retailers and holders of licences for bars, clubs and restaurants.There is no doubt, however, that a sole wholesaler can pick andchoose the parties that he wishes to deal with and, in effect, refuseto deal with those he does not wish to deal with including by devisingvarious strategies. In doing so, the sole wholesaler can alsoeffectively promote and encourage a particular brand or brandsin preference to others. For instance, he may grant a particulardealer or a dealer in particular brands different payment facilities AB

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and not grant the same to others or others who deal in certainother brands. There is nothing that stops him from doing so. Thequestion is whether that would render the appointment of a solewholesaler illegal.

33. The State, we will presume, even in the trade and business ofliquor must act fairly and impartially and not arbitrarily. We willpresume that in granting liquor licences and permits the Statecannot adopt a pick and choose policy and must throw the fieldopen to all those who are otherwise eligible. In the present excisepolicy, the State has permitted every eligible party to bid. It hasnot discriminated against or in favour of any party. The essentialcriteria for the appointment of the wholesaler is the value of thebid.

34. The challenge to the policy and to the rule on the ground thatthe appointment of a sole wholesaler in respect of an L-1BFLicence would adversely affect the commercial interests of thosewho he deals with or those who must deal with him, such as, thepetitioners is not well founded. As we noted earlier, theoreticallyit is possible that the commercial interests of certain dealers andmanufacturers will be affected, in as much as, the sole wholesalerwill have the choice of who it would deal with. The sole wholesalerwould also be entitled to grant better facilities to some of thedealers. That, however, would not render the policy illegal. Aprivate party is entitled to deal with any person or enterprise. TheState, absent special circumstances, cannot do so. We will presumeit cannot do so, even in so far as the trade and business of liquoris concerned. However, once a matter moves from the control ofthe State or the instrumentalities of the State into the hands ofprivate enterprises, the restrictions applicable to the State and itsinstrumentalities cease to be applicable. This is invariably thecase in auctions and tenders. Take for instance, a case wherethe State decides to construct a building or a group of buildings. Itcan do so itself to the exclusion of all others. It is also entitled toengage private parties to do so. The State cannot pick and choosewho to deal with. Absent any special circumstances, the Statewould be bound to consider the claim of every party that isotherwise eligible to undertake the work. However, once the

State parts with its rights to construct a building and hands it overto a private enterprise, the matter ends there so far as it concernsthe work that it has contracted to the private party. The contractoris not bound to call for tenders in respect of every item involved inthe construction. The contractor is not bound to consider theapplication of every party for the supply of material required forthe construction of the buildings. The contractor is entitled toobtain the material from such parties as it desires and on suchterms and conditions that the contractor desires. The suppliers ofthe material would not be entitled to compel the contractor toafford them an opportunity of supplying the material. The rulesof the game that apply to a State or an instrumentality of the Statedo not apply to such contractors.”

27. In this case, in fact, Mr. Gopal Subramanium, learned seniorcounsel for the appellant drew our attention to the fact that the figureswould show that the licensee has indeed being acting unfairly. It is thecase of the appellant that the sole licensee can misuse his position in atleast three ways. It is contended that it is possible that the licenseeprefers certain brands to others inasmuch as it concerns negotiation,longer credit period and other terms and conditions. BIO suppliers wouldbe at the mercy of the licensee and they would have no option but toreconcile with the terms and conditions which would be laid down by thelicensee. Secondly, it is contended that failure to adhere with the termsand conditions set out may result in a situation where a particular brandwould not be made available in the State of Haryana. It is furthercontended that in view of the monopolistic position enjoyed by the licenseeit may choose to promote certain brands over others on account of unfairnegotiating position made available to it by the license. There are nochecks and balances to ensure that interest of other stake holders istaken care of. Though the conditions provide that the licensee will haveto supply goods demanded there are no means by which the actualdemand can be ascertained. It is further pointed out that it is open to thelicensee to offer discounts to the retailers it seeks to favour. This resultsin neutralizing the condition relating to the maximum sale price beingfixed by the excise authority. Onerous conditions can be placed uponpurchasers as well as suppliers by the sole licensee and the lack ofchecks and balances renders the same violative of Article 14.

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A28. The guarantee of Article 14 against the State undoubtedlyembraces all spheres of its activities. If the action falls foul of the mandateof Article 14 it is vulnerable, though different yardsticks may operate.Undoubtedly the expression ‘state’ would also include within its sweepan instrumentality of the State as it would fall under the expression “otherauthorities” in Article 12 of the Constitution. The matter relating toBwhich authorities fall under Article 12 has been the subject matter of acatena of decisions of this Court. The principles have been culled outwith sufficient clarity and I do not see any occasion or any reason todwell more upon the same as the appellant even does not have a casethat the licensee would be an instrumentality of the state within theCmeaning of Article 12 of the Constitution. It is a trite law that an effortat bringing a body within Article 12 must originate specifically in thepleadings.

29. Pleadings in this case on this point is conspicuous by its absence.D30. The appellant would point out that in fact, after the new regimehas been put in place, 5 star hotels were not being provided sufficientstocks of BIO products being supplied by the members of the appellant.Further it is pointed out that immediately upon grant of the licence in2017, there has been a sudden decline in the sales of BIO productssupplied by the members of the appellant. The reason for this decline isEsought to be placed at the door step of the sole licensee. The appellanthas pointed out that there has been sudden decline of 25% in the supplyof BIO brands of United Spirits Ltd.. There is a reference of 30%decline of BIO products of Pernod Ricard as well. There has beensignificant rise of the product of Pernod Ricard in the neighboring statesFof Rajasthan and Delhi, it is pointed out.

31. I would notice that many of the contentions of the appellantare in the form of apprehensions about what may happen in future. Infact, there is a case for the respondents that no complaint as such wasmoved against the licensee during the period. The licensee is duty boundGunder the terms and conditions of licence to submit pricing of each brandat the time of approval of the brand. The department is bound to approvethe maximum sales price factoring in various elements. The licenseemust indicate among other things, the landing price, expenses, profitmargin. The price is also determined based on the prevalent rates of the H

same and equivalent rate at the neighboring states and the Governmentlevies.

H

same and equivalent rate at the neighboring states and the Governmentlevies.

32. Furthermore, the exclusive licensee is under the conditionrequired to keep sufficient stock of all brands as are demanded by theprocuring licensees and all such brands as were registered with thedepartment in 2016-17. Thus at least two restrictions exist as in builtsafeguards which operate against the exclusive licensee. The licenseeis obliged to keep sufficient number of stock of all brands which aredemanded by the procuring licensees. In this case, the members of theappellant would fall within the expression ‘procuring licensees’. Secondly,there is a regulation of the maximum price which the exclusive licenseecan demand as the price is to be fixed by the State itself. A questionhowever, no doubt, arises as to what would happen if the exclusivelicensee himself also operates retail outlets and he promotes certainbrands and/ or dampens the trade in others. In the first place I wouldthink that ordinarily on the principle that a person would act in his ownself interest there would be no reason for the licensee to deny himselfthe proceeds of the higher turnover based on more sales as by seekingto dampen the sale of certain brands it is the licensee who would suffera loss. Let me assume however that he is placed in a situation wherethere is a conflict of interest and by suppressing the sale of certain brandsand permitting the sale of other brands the exclusive licensee is placedin a more advantageous position, and therefore, he prefers it. I mustremind myself that the complaint of the individual company would bethat brand which it wishes to import and deal in is not made available.Quite clearly if there is any such concrete incident which is pointed out,it would be an infraction of the condition of the licence. Certainly itwould give rise to power with the authorities to take suitable action asavailable in law including in appropriate cases, cancellation of the licence.If such provisions are not already there I would observe that the Statemay devise suitable provisions so that an individual who acts as thelicensee of the state would not do what the State itself would be forbiddenfrom doing under the Constitution. I must also remind myself that at thesame time, the State has apparently gained by way of enhanced collectionof revenue by the new regime put in place. The State’s power toexperiment in economic matters shall not suffer invalidation at the handsof the Court. Such power must be premised solely on State action fallingfoul of the Constitution and the laws. State would however do well toprovide for a suitable mechanism by which it can provide appropriate A

BCDE

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Asafeguards so that there is fair dealing by the exclusive licensee. Subjectto the above observations I would dismiss the appeal with no order as tocosts.

BNidhi Jain

Appeal allowed.

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