Liquor licence classification for SC/ST-owned hotels was struck down for arbitrariness and lack of rational nexus.

The Karnataka High Court examined whether Rule 3(7-D) and the corresponding amendment to Rule 8 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968, creating a special licence category for hotels and boarding houses owned by Scheduled Caste and Scheduled Tribe persons, complied with Articles 14 and 19(1)(g) read with Article 19(6). The Court accepted the State's rule-making power under Section 71 of the Karnataka Excise Act, 1965, but held that subordinate legislation in the liquor trade must apply equally to qualified applicants unless a classification is supported by intelligible differentia and rational nexus. It found the impugned provision arbitrary because the alleged relaxation imposed an additional ownership burden and lacked material showing that it would advance the stated upliftment objective.

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Issues: Whether the amendment inserting Rule 3(7-D) and the corresponding amendment to Rule 8 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968, creating a special licence category for hotels and boarding houses owned by persons belonging to Scheduled Castes and Scheduled Tribes, was constitutionally valid.

Analysis: The State's rule-making power under Section 71 of the Karnataka Excise Act, 1965 was accepted, but the subordinate legislation had to satisfy Articles 14 and 19(1)(g) read with Article 19(6) of the Constitution of India. The existing general licence condition under Rule 3(7) applied uniformly to all applicants, whereas the impugned Rule 3(7-D) created a separate class within the same licensing field and imposed an ownership requirement in addition to reduced room criteria. The Court held that a restriction imposed in the public interest for liquor trade must operate equally upon all qualified citizens, and a special relaxation or differential treatment must rest on an intelligible differentia having a rational nexus with the object sought to be achieved. The Court further held that the alleged relaxation was not a relaxation, because ownership of the hotel or boarding house could require greater investment than obtaining premises on lease or other possession basis under the general rule. The State also failed to show a rational study or adequate material demonstrating that the classification would advance the object of upliftment of Scheduled Castes and Scheduled Tribes, especially when the policy choice did not address the comparatively lower participation in other licence categories where entry costs were lower.

Conclusion: The impugned amendment was held to be unconstitutional and void as arbitrary and lacking a rational nexus with the object claimed, and the challenge to the notification failed for the State.

Ratio Decidendi: A subordinate licensing rule that creates differential treatment in liquor trade must satisfy equality requirements by showing an intelligible differentia and rational nexus with the object, and a purported special provision cannot stand if it imposes a more onerous burden while failing to achieve the stated social advancement objective.

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