TaxTMI 
TaxTMI 
2019 (2) TMI 930
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.... of Rs. 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 a private entity, to trade in liquor, is contrary to Article 19(6) of the Constitution of India. The impugned order acknowledges that it would lead to serious distortions in the market, yet erroneously declines interference holding that once the matter moves from State control into the hands of private enterprise, the restrictions applicable to the State cease to apply. Reliance was placed on Akadasi Padhan vs. State of Orissa, AIR 1963 SC 1047, to contend that if a monopoly is created by the State in its favour, the same cannot be constitutionally permitted if the private agents appointed pursuant thereto, act as independent entities. Sri Subramanium also relied on Khoday Distilleries Ltd. vs. State of Karnataka (I), (1995)1 SCC 574, to submit that once the State parts with its privilege to trade in liquor, in favour of private individuals, the rigours of Article 14 will continue to apply to provide equal opportunity to all desirous to do so. Alternatively, it was submitted that the absence of sufficient checks and balances g....
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.... are sufficient checks and balances in the excise license providing for cancellation also if the conditions of the license were not followed. The grant of a monopolistic license as the agent of the State Government was permissible in the law for trade in liquor. 5 5. We have considered the submissions on behalf of parties. The appellant assails the amended Rule 24(i-eeee) as ultra vires the provisions of the Act. Integral to the issue is whether the state government is competent to issue licences for a local area alone under Section 58(2)(e) of the Act, while the Excise Commissioner, a sub-delegate of the Financial Commissioner 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 powers under Section 58 by the State Government. The amended Rule 24(i-eeee) relevant to the controversy reads as follows: " (xiv) for clause (i-eeee), the following clause shall be substituted, 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 ....
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....rnment alone has the power to regulate the number of licenses which may be granted in any local area for wholesale or retail sale. 8. Relevant to the discussion are also Rules 3 and 4 which provide as follows : "3. The authority given by these rules to grant and renew licenses is, in each case, subject to the restrictions contained in the Punjab Intoxicants License and Sale Order as to the localities in which licenses may be granted and the number of licenses which may be granted in any local area, and to such reservations from the general superintendence of the Financial Commissioner as the State Government may notify under Section 8 of the Punjab Excise Act, 1914. 4. Every license shall be granted to a particular licensee in respect of particular premises/area." 9. Chapter D of the Punjab Intoxicants License and Sales Orders, 1956 (hereinafter referred to as 'the Order') provides for the number of licences 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 public only and drug shops, which may be licenced in any local area, shall be the number which the F....
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....e evident from Sections 5 and 6 which read: "5. Power of State Government to declare limit of sale by retail and by wholesale- The State Government may by notification declare with respect either to the whole of Punjab or to any local area comprised therein, and as regards purchasers generally or any specified class of purchasers, and generally or for any specified occasion, the maximum or minimum quantity or both of any intoxicant which for the purposes of this Act may be sold by retail and by wholesale. 6. Power to limit application of notifications, permits, etc., made under this Act.- Where under this Act any notification is made, any power conferred, any appointment made or any license, pass or permit granted, it shall be lawful to direct - (a) That it shall apply to the whole of Punjab or to any specified local area or areas; xxxxx" The power to declare by notification that a licence granted shall be applicable to the entire State is exclusively vested in the State Government under Section 6(a) of the Act. 13. The High Court has held that in contradistinction to Section 58(2)(e) of the Act, which limits the powers of the State Government to....
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....y be sold, and the notice to be exposed at such premises; (vii) the form of the accounts to be maintained and the returns to be submitted by license-holders; and (viii) the prohibition or regulation of the transfer of licenses; (g) (i) declaring the process by which spirit shall be denatured; (ii) for causing spirit to be denatured through the agency or under the supervision of its own officers; (iii) for ascertaining whether such spirit has been denatured; (h) providing for the destruction or other disposal of any intoxicant deemed to be unfit for use; (i) regulating the disposal of confiscated articles; (j) prescribing the amount of security to be deposited by holders of leases, licenses, permits or passes for the performance of the 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 a license is granted to the licensee for a local area, to ensure supply, storage, sale or otherwise that the conditions of the license are adhered to and necessary directions can also be given for the purpose. 15. Th....
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....nd scope of a regulatory power fell for consideration in Deepak Theatre vs. State of Punjab, 1992 Supp (1) SCC 684, "4. The power to regulate includes the power to restrain, which embraces limitations and restrictions on all incidental matters connected with the right to trade or business under the existing licence. Rule 12(3) regulated entry to different classes to the cinema hall and it was within the rule making power of the State Government to frame such rule. The court further held that fixing limit of rate of admission was an absolute necessity in the interest of the general public and the restriction so placed was reasonable and in public interest...." 18. The Financial Commissioner was therefore not competent to amend the Rules with regard to grant of number of licences for the entire state, and which power was exclusive to the State Government under Section 6 read with Section 13(a) and 58(2)(e) of the Act. In conclusion, we hold that Rule 24(i-eeee) as amended by the Financial Commissioner in exercise of powers under Section 59(a) of the Act is ultra vires the powers of the Financial Commissioner under the Act and is therefore struck down. In view of Rule 24(i....
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....970 Rules introduced by the amending Rules. The said Rule reads as follows: "3. In the said rules, in rule 24, - i (xiv) for clause (i-eeee), the following clause shall be substituted, 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-bidding to 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 is received for the lone L-1BF license, the same shall be allotted exclusively to a Government owned entity on the terms and conditions as decided by the Government. The permit and brand label fee shall be levied as under to procure Stock of liquor by the L-1BF licensee." 4.The ground which failed to persuade the Division Bench of the High Court but which has found acceptance at the hands of my learned Brother Sinha J. is that the impugned rule is ultra vires, the power of the Finance Commissioner under Section 59 of the Punjab Excise Act, 1914 (hereinafter referred to as "the Act"). The argument of the appellant is that the power to make....
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....sorderly conduct in or near any licensed premises and the meeting or remaining of persons of bad character in such premises; (l) prohibiting the printing, publishing or otherwise displaying or distributing any advertisement or other matter commending or soliciting the use of, or offering any intoxicant calculated to encourage or incite any individual or class of individuals or the public generally to commit an offence under this Act, or to commit a breach or evade the provisions of any rule or order made there under, or the conditions of any license, permit or pass obtained there under:- (m) prohibiting within the State the circulation, distribution or sale ofany newspaper, book, leaflet, booklet, or other publication printed and published outside the State which contains any advertisement or matter of the nature described in clause (1); (n) declaring any newspaper, book, leaflet, booklet or other publication, wherever printed or published, containing any advertisement or matter [of the nature described in clause (1)] to be forefeited to the State Government; and (o) implementing generally the policy of prohibition. (3) Previous publicat....
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.... (vi) The specification of the nature of the premises in which any intoxicant may be sole, and the notice to be exposed at such premises; (vii)The form of the accounts to be maintained and the return to be submitted by license holders; and (viii) The prohibition or regulation of the transfer of licenses; (g-i) declaring the process by which spirit shall be denatured; (ii) for causing spirits to be denatured through the agency or under the supervision of its own officers; (iii) for causing spirits to be denatured through the agency or under the supervision of its own officers; (h) providing for the destruction or other disposal of any intoxicant deemed to be unfit for use; (i) regulating the disposal of confiscated articles; (j) prescribing the amount of security to be deposited by holders of leases, licenses, permits or passes for the performance of the conditions of the same." 5.The case of the appellant is built around the provisions contained in Section 58(2)(e) of the Act. 6.The Punjab Excise Act, 1914 as extended to the State of Haryana contains the following provisions inter alia: Section 5 of th....
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....n the Financial Commissioner by this Act." 9.In terms of the notification vesting powers of the finance Commissioner apparently under Section 59 it is that the Excise Commissioner has made the rules "Haryana Liquor Licence Rules 1970. It is undoubtedly true that Section 13 forbids delegation of power under Section 58 inter aliaon 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 be granted, - (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 made by the Financial Commissioner under the powers conferred by this Act, the Collector ma....
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....ssion given by the State of Haryana, a definite case is set up that the State in its wisdom can conclude that a particular local area owing to the special conditions should be protected from the harmful effects of alcohol consumption. An example of tribal sub plan area is enlisted where the State may be carrying on a special programme. I would think that this view finds support also from another circumstance in the form of Rule 3 of Haryana Liquor Licence Rules, 1970. The said Rule reads as under: "3. The authority given by these rules to grant and renew licenses is, in each case, subject to the restrictions contained in the Punjab Intoxicants License and Sale Order as to the localities in which licenses may be granted and the number of licenses which may be granted in any local area, and to such reservations from the general superintendence of the financial commissioner as the State government may notify under Section 8 of the Punjab Excise Act, 1914. (emphasis supplied) 14.Thus, the said rule reinforces the view that the expression "number of licences" which may be granted in the local area is within the exclusive domain of the State Government and reliance p....
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....mind that the power to regulate conferred by Sections 13(1)and15(1)is not only with respect to the grant of licences and leases mentioned in those sub-sections but is also with respect to "purposes connected therewith", that is, purposes connected with such grant." 16.No doubt it is true that Section 13 of the Mines and Minerals (Regulation & Development) Act, 1957 which was considered by the Court inter aliaread as follows: "13. Power of Central Government to make rules in respect of minerals. - (1) The Central Government may, by notification in the Official Gazette, make rules for regulation the grant of prospecting licences and mining leases in respect of minerals and for purposes connected therewith. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely :- **** (i) the fixing and collection of dead rent fines, fees or other charges and the collection of royalties in respect of - (i) prospecting licences, (ii) mining leases, (iii) minerals mined, quarried, excavated or collected; **** (r) ....
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...., in favour of a private party and it is contrary to the guarantee embedded under Article 19(1)(g) of the Constitution. The High Court has repelled this argument also. It relied upon the judgment of this Court reported in Khoday Distilleries Ltd. and Others Vs. State of Karnataka and Others; 1995(1) SCC 574 wherein this Court in paragraph 22 held as follows : "22. In Cooverjee B. Bharucha v. Excise Commissioner and the Chief Commissioner AIR 1954 SC 220, where the vires of Excise Regulation I of 1915 was under challenge on the ground of violation of Article 19(1)(g), the Constitution Bench of five learned Judges, among other things, held that: (a)In order to determine the reasonableness of restrictions, envisaged by Article 19(6), regard must be had to the nature of the business and the conditions prevailing in that trade. These factors would differ from trade to trade and no hard and fast rule concerning all trades can be laid down. It cannot also be denied that the State has the power to prohibit trades which are illegal or immoral or injurious to the health and welfare of the public. Laws prohibiting trades in noxious or dangerous goods or trafficking in women ....
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....is purpose relied upon the following observations of Lord Porter in Commonwealth of Australia v. Bank of New South Wales; 1950 AC 235 : (1949) 2 AII ER 755: "Yet about this, as about every other proposition in this field, a reservation must be made, for their Lordships do not intend to lay it down that in no circumstances could the exclusion of competition so as to create a monopoly either in a State or Commonwealth agency, or in some other body, be justified. Every case must be judged on its own facts and its own setting of time." (c)When the contract is thrown open to public auction, it cannot be said that there is exclusion of competition and thereby monopoly is created. (Emphasis supplied) 22.I may also refer to the judgment of this Court in Maninderjit Singh Bitta v. Union of India and others reported in 2005(1)SCC 679. In this case undoubtedly the rule provided that there will be only one license of the nature concerned. However, the right to the license was settled by way of e-tender. It was open to any person who is otherwise eligible to participate in the e-tender. Undoubtedly the guarantee of fairness of the State action and the taboo against....
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....ments discussed with regard to Article 14,it cannot 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 dimension in this regard. The appellant is an association of companies. Article 19 provides for various fundamental freedoms. However, unlike Article 14 and 21, these freedoms are not conferred on non-citizens. In other words, Article 19 is confined to citizens. It is well settled that a company though a juristic person but not being a natural person is not a citizen within the meaning of Article 19. The writ petition is filed without joining any shareholder who is a citizen. I would also take the view that therefore reliance placed on Article 19 may not hold good. 25.Judicial review of policy is justified only if the policy is arbitrary or unfair or violative of fundamental rights. Courts must be loathe to venture into an evaluation of State policy. I have noticed the principles enunciated in paragraph 25 and also noted the view taken by this Court in paragraph 27 of the Kerala Bar Hotel Cases Supra. I may also notice that the question which actually fell for consideration wa....
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.... the appointment of a sole wholesaler in respect of an L-1BF Licence would adversely affect the commercial interests of those who he deals with or those who must deal with him, such as, the petitioners is not well founded. As we noted earlier, theoretically it is possible that the commercial interests of certain dealers and manufacturers will be affected, in as much as, the sole wholesaler will have the choice of who it would deal with. The sole wholesaler would also be entitled to grant better facilities to some of the dealers. That, however, would not render the policy illegal. A private party is entitled to deal with any person or enterprise. The State, absent special circumstances, cannot do so. We will presume it cannot do so, even in so far as the trade and business of liquor is concerned. However, once a matter moves from the control of the State or the instrumentalities of the State into the hands of private enterprises, the restrictions applicable to the State and its instrumentalities cease to be applicable. This is invariably the case in auctions and tenders. Take for instance, a case where the State decides to construct a building or a group of buildings. It can do so i....
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....no means by which the actual demand can be ascertained. It is further pointed out that it is open to the licensee to offer discounts to the retailers it seeks to favour. This results in neutralizing the condition relating to the maximum sale price being fixed by the excise authority. Onerous conditions can be placed upon purchasers as well as suppliers by the sole licensee and the lack of checks and balances renders the same violative of Article 14. 28.The guarantee of Article 14 against the State undoubtedly embraces all spheres of its activities. If the action falls foul of the mandate of Article 14 it is vulnerable, though different yardsticks may operate. Undoubtedly the expression 'state' would also include within its sweep an instrumentality of the State as it would fall under the expression "other authorities" in Article 12 of the Constitution. The matter relating to which authorities fall under Article 12 has been the subject matter of a catena of decisions of this Court. The principles have been culled out with sufficient clarity and I do not see any occasion or any reason to dwell more upon the same as the appellant even does not have a case that the licensee would be ....