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TMI Blog1989 (11) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... Government owned or controlled company as may be specified by the Stale Government. The relevant Rule is introduced by substituting clause (11) to Rule 3 by the Karnataka Excise (Sales of Indian and Foreign Liquors) (Amendment) Rules, 1989 (for short, referred as 'IFL Rules')- The added provision reads as follows:-- (11) Distributor Licence -- (a) A licence shall be granted by the Excise Commissioner for the whole of the State or any part thereof to deal in the products of all distilleries or breweries or wineries in the State or to import liquor from outside the State for the purpose of distribution or sale within the State or as the case may be or part thereof or to export liquor outside the State. The licences shall establish not less than one depot in each district within the State or, as the case may be, within the part of the State, as the Excise Commissioner may specify in this behalf. (b) The licence under this clause shall be issued only to such company owned or Controlled by the State Government as the State Government may specify. (c) The licence shall be in Form CL. 11 and shall be subject to renewal each year at the discretion of the Excise C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding a valid licence to deal in liquor. 5. As per licence in Form CL. 1, the said licencee shall carry on business only within the area specified in the licence and sell only the approved brands of liquor. Thus, it is clear that import of liquors from outside the State (subject to Sec. 8 and another Rule governing the import) or export from the State of Karnataka, can take place only through the distributor licenced under the amended Rules. Similarly, all liquors (governed by the several aforesaid Rules) could enter the market only through the distributor. The first stage in the internal marketing operation regarding these goods, in Karnataka, will be with the distributor; in other words, the goods would enter the stream of trade only through the distributor in this State. The onward journey of the liquor, to the consumers in the State or outside the State, is to be only through the distributor. 6. The sole distributor, which is to be a Government controlled corporation appointed in this case is the Mysore Sales International Ltd. (for short, 'MSIL'). 7-8. However, the amending clause in IFL Rules saves current CL. 11 licences during the year 1989-90; unless th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attacked as superfluous and the impugned Rules are attacked as arbitrary. This contention on the face of it is unacceptable and hence we are not considering it further. Affixation of excise label is a recognised mode of safeguarding the interest of the revenue. Even when bottles are sealed, affixation of an adhesive label would, to a very large extent, enable the prevention of evasion of payment of tax. The cost per bottle in this regard, is not only insignificant, but also irrelevant. 10. The main contentions urged in support of these writ petitions may be broadly stated as follows : -- (I) The fundamental right to trade and do business in liquor is affected adversely by the impugned Rules. Further these Rules offend the provisions of Articles 301 and 304 of the Constitution. (II) The Rules are ultra vires the provisions of the Act. Creating an exclusive distributorship is a matter of major policy which should be evolved and effectuated only by a law enacted by the legislature. There is no nexus between the objects and reasons behind the making of the Rules and the actual Rules made. The Rules do not advance any social purpose and hence unwarranted. (III) The Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness in obviously subject to such reasonable conditions as may be deemed by the governing authority of the country essential to the safety, health, peace, order and morals of the community. Some occupations by the noise made in their pursuit, some by the odours they engender, and some by the dangers accompanying them, require regulations 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 qualifications in the parties permitted to use, manufacture or sell them. Thereafter, the Court held:-- Elimination and exclusion from business is inherent in the nature of liquor business and it will hardly be proper to apply to such a business principles applicable to trades which all could carry. The provisions of the regulation cannot be attacked merely on the ground that they create a monopoly. Properly speaking, there can be a monopoly only when a trade which could be carried on by all persons is entrusted by law to one or more persons to the exclusion of the general public. Such, however, is not the case with the business in liquor. Krishan Kumar Narula v. State of Jammu Kashm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te cannot escape the rigour of Art. 14. 13. Applicability of Art. 14 is under a different context. The right flowing out of Art. 14 is by virtue of the requirements of fairplay, reasonableness, unarbitrariness, equality etc., in any State action. The State cannot pick and choose for the conferment of the privilege to trade in liquor, arbitrarily. The choice has to be based on reasonable norms. But, while testing the legality and reasonableness of such a State action, the scope of judicial scrutiny is limited, as observed at p. 279 (in Nandalal's case): But, while considering the applicability of Article 14 in such a case, we must bear in mind that, having regard to the nature of the trade or business, the Court would be slow to interfere with the policy laid down by the State Government for grant of licences for manufacture and sale of liquor. The Court would, in view of the inherently pernicious nature of the commodity allow a large measure of latitude to the State Government in determining its policy of regulating, manufacture and trade in liquor. Moreover, the grant of licences for manufacture and sale of liquor would essentially be a matter of economic policy wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. (Underlining is ours) 14. As to the nature of the liquor trade, this Court observed in Sahyadri Wine Traders v. State of Karnataka, ILR (1988) Kant 1202 at 1208: All kind rights to deal in intoxicants (which is also referred here as liquor) this, basically belong to the State. By granting a licence to deal in liquor, a privilege is conferred on the licencee to deal in liquor to the extent permitted by the licence, A person, in possession of Or dealing in any liquor without any licence from the State, indulges himself in an activity which he is not entitled in any manner and such a person, is deemed to exercise a privilege which exclusively vest in the State. It is a grave misconduct, enormity of which requires severe deterrent to prevent repetition of such an activity by the said person and others. (Underlining is ours) It is, thus clear that none has a fundamental right to trade or do business in liquor. As in the case of gambling activities, though dealing! in liquor has the external forms, formalities and instruments of trade , the activities are in fact extra-commercium , (as observed, regarding gambling activities in State of Bombay v. R.M.D. Chamarbaugw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of Art. 19(1)(g) or for the purpose of Art. 301. The State may completely prohibit the trade or impose severe restrictions on such business. Only those persons who are ready and willing to comply with such strict, severe and stringent conditions are enabled to carry on the activity. This position is made clear by the Supreme Court itself in Sat Pal Co. v. Lt. Governor of Delhi, (which we have already referred and in which the law has been exhaustively considered by the Supreme Court). 15. A distinction was however sought to be made between the freedoms guaranteed under Articles 19(1)(g) and 301 of the Constitution. It was submitted that while the right available under Art. 19(1)(g) is a fundamental right of a citizen, though there may be no such right in view of the decisions referred to above, the protection offered by Art. 301 is ntirely different; object behind Article 301 was to ensure the economic unity of the country by guaranteeing freedom of trade, commerce and intercourse throughout India. It is submitted that Art. 301 deals with the question as to how trade, commerceand intercourse is to he carried on between one place and another, inside or outside th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... home could possibly have been intended by our Constitution makers to be raised to the status of trade, commerce or intercourse and to be made the subject matter of a fundamental right guaranteed by Art. 19(1)(g). We find it difficult to persuade ourselves that gambling was ever intended to form any part of this ancient country's trade, commerce or intercourse to be declared as free under Art 301. It is not our purpose nor is it necessary for us in deciding this case to attempt an exhaustive definition of the word 'trade, 'business' or 'intercourse''. We are, however, clearly of opinion that whatever else may or may not be regarded as falling within the meaning of these words, gambling cannot certainly be taken as one of them. We are convinced and satisfied that the real purpose of Arts. 19(1)(g) and 301 could not possibly have been to guarantee or declare the freedom of gambling. Gambling activities from their very nature and in essence are extra commercium although the external forms, formalities and instrument? of trade may be employed and they are not protected either by Art. 19(1)(g) or Art. 301 of our Constitution. The reasoning equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in this background, it was held at 18: As observed by the Supreme Court, the fact that the goods are dangerous may give a guidance with regard to the nature of restrictions that may be imposed, but it cannot limit the scope of the right. Any restriction that is imposed must sub-serve some public interest. It is only then it may be said that the restriction is a reasonable one. I do not understand what public interest S. 12 has to subserve if it is to be interpreted that a person carrying liquor through the State of Karnataka should go to the Deputy Commissioner in each District, through which he passes, for obtaining a permit. Even if Section 12 is to be held as imposing a restriction, I am of the view that the said restriction is unreasonable and it is liable to be struck down under Article 19(1)(g) of the Constitution. It is the ordinary rule of interpretation of the Constitution and the laws that if it is possible by reading down a particular provision of law to save it from the mischief of unconstitutionally, the Court should do so. 'Reading down has the practical effect that where an Act is expressed in a language of generality which makes it capable, if read litera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid before both Houses of the State Legislature. Subject to any modification made under sub-section (4), every rule made under this Act shall have effect as if enacted in this Act. 19. At least, in two decisions, the Supreme Court held that the law contemplated by Art. 304(b) includes such a statutory Rule. In Firm A.T.B. Mehtab Majid Co. v. State of Madras , , Rule 16 of the Madras General Sales Tax (Turnover and Amendment Rules) was held to be a law falling within the concept of the law made by the legislature as per Art. 304(b). It was observed- This rule was made by the Governor in the exercise of power conferred on him under S. 19 of the Act and would therefore have statutory force, in fact sub-s. (5) of S. 19 provides that the rules shall have effect as if enacted in the Act. We therefore do not agree that R. 16 is not a law which would fall within a law made by the State Legislature. In State of Tamil Nadu v. M/s. Hind Stone, , again it was observed, at p. 720: Rule SC has been made by the State Government by notification in the official Gazette, pursuant to the power conferred upon it by Section 15 of the Act. A statutory rule, while ever subord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, the Rule created a monopoly in the State, is based on the self-interest of the State, was negatived (vide para-6). (ii) Whenever there is a switchover from private sector' to 'public sector', it does not necessarily follow that the change of policy requiring express legislative sanction is invoive'd. It depends on the subject and the statute (vide para-9). (iii) The concept or 'Regulation' envisaged by the Statute, would comprise within it, the power to 'prohibit'. Much depends on the context in which the expression is used in the statute and the object sought to be achieved by the contemplated regulation. In modern Statutes concerned as they are with economic and social activities, 'regulation' must, if necessary, receive so wide an interpretation that in certain situations, it must exclude competition to the public sector from the private sector --- (vide para-10). Therefore, entrusting the sole 'distributorship' to a governmental company, by itself as a principle of law, cannot be held to be arbitrary; not the policy behind it, as a major shift in the 'policy' which, only the State legislature could ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the same degree of immunity which is enjoyed by a statute passed by a competent legislature. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. In addition it may also be questioned on the ground that it does not conform to the statute under which it is made. It may further be questioned on the ground that it is contrary to some other statute. That is because subordinate legisla-tipn must yield to plenary legislation. It may also be questioned on the ground that it is unreasonable, unreasonable not in the sense of not being reasonable but in the sense that it is manifestly arbitrary. (ii).....On the facts and circumstances of a case, a subordinate legislation may be struck down as arbitrary or contrary to statute if it fails to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the Statute or say, the Constitution. This can only be done on the ground that it does not conform to the statutory or constitutional requirements or that it offends Art. 14 or Article 19(1)(a) of the Constitution. Itcannot, no doubt, be done merely on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, or at any rate, into the scheme of such an enactment. 27. Section 13 of the Act says that no person shall manufacture etc., of excisable article except under a licence. It was argued that this does not refer to the sale of liquors; it was also argued that this section does not envisage a State monopoly in respect of the subjects covered by it. Section 15 governs the sale of excisable articles and requires licence for the sale of any intoxicant. The learned counsel for the petitioners contended that, here, again, creation of a monopoly for the sale of liquor was not contemplated. By referring to Sec. 15(2) it was contended that the licence for sale shall be granted, by the authorities stated therein and the word 'shall' imposes an obligation to grant the licence for sale of intoxicants. Proviso to Sec. 15(2) was relied on to contend that a licence for sale granted under the Excise law in force in any other State nay be deemed to be a licence under the Act, subject to such conditions as may be determined by the Excise Commissioner. Sec. 16 was referred to point out that whenever, State has to establish a distillery, sa'me was specifically provided for. Regarding Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso and therefore Sec. 71(2)(d) and (e) can be read as empowering the framing of a rule to create a single licencee for the distribution of or wholesale dealing in the intoxicants in the State. 29. Under Sec. 17 of the Act the exclusive right of supplying by wholesale any Indian liqueur or intoxicating drug may be leased out. Definition of India liquor as per Sec. 2(15) read with Sec. 2(18) is quite wide. The concept of lease referred in Sec. 17 has nothing to do with the provisions of the Transfer of Property Act. Whenever, any exclusive right or privilege of the State is conveyed to another, for any consideration, the act of such conveyance is called as leas-sing, farming out, letting, or licensing. Im-moveable and factories could be 'leased'; so also, articles and machineries are 'leased'. But the concept, manner and the workings of such leases may differ from subject to subject. It is not possible for us to agree with the con-tention of the petitioners that, lease unde Sec. 17 of the Act, requires, prior elaboration of the terms of lease, and documentation of those terms, especially, when, the lease is granted to a company owned or controlled by State. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, channelisation of liquor for marketing purposes enable the prevention of tax evasion. Liquor trade and the excise law, operate in the sphere of economic actiuvities and the State has a very wide latitude to experiment with the laws and regulations in this sphere, as oberved in Garg's case (AIR 1981 SC 2138) and NandulaPs cases excerpts already quoted by us in the earlier part of this order. Section 15(2) cannot be read as vesting a right in any one for the licence, with a duty in the Deputy Commissioner or the Excise Commissioner to grant the licence; it has to be read as defining the respective jurisdiction of the two authorities, to grant the licences under Sec. 15 of the Act, in case, anyone is, otherwise entitled to obtain the licence. Social purpose, like the concept of public interest or public policy is incapable of precise definition and its identification does not upon any particular mark. While testing the validity of a law or a subordinate legislation, the Court cannot apply the standards governing the quasi judicial orders. Test of relevancy and purpose applicable to measure up the validity of a subordinate legislation, should primarily be taken out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in a statement Jaid before both Houses of the State Legislature. Subject to any modification made under sub-section (4), every rule made under this Act shall have effect as if enacted in this Act. (4) Every rule made under this section shall be laid as soon as may be after it is made, before each House of the State Legislature while it is in session for a total period of thirty days, which may be comprised in one session or in two or more successive sessions and if before the expiry of the session in which it is so laid or the sessions immediately following, both Houses agree in making any modification in the rule or both houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so however that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule. The last sentence in Sec. 71(3), in clear terms says that every rule shall have effect as if enacted in the Act; therefore, the rules have greater sanctity than rules made under other statutes; in view of this specially, it was contended, that laying the rules be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the event of the two Houses annulling the rules, the rules would be ineffective. In this view of the matter the only irresistible conclusion that can be arrived at is that it is from the date on which the Government decides to make the rules effective, that they come into force, and not after the expiry of 30 days after they are placed before both the Houses of the Legislature. To the same effect are two more decisions of this Court (though of learned single Judges) - (i) H. Dasapa and Son v. State of Karna-taka, ILR (1988) Kant 1678 and (ii) R. Kempanna and Co. v. State of Karnataka, ILR (1988) Kant 3222. Apart from the legal position, as stated above, on facts, it has to be noted that, the Parliament met only for a very short duration after the Rules were made. 35. Dr. Chitale cited several decisions to contend that the word 'shall' in Sec. 71(4) makes it a mandatory provision and having rsgard to the status conferred on the rules by the last sentence of Sec. 71(3), laying the Rules before the Legislature should be construed as a mandatory requirement. It is unnecessary to refer to the several decisions. Requirement of laying before the Legisalture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or ethics in this reegard, is irrelevant for our purposes. 38. It was then contended that modalities of the functioning by the distributor (i.e., MSIL) are not enumerated and the distributor is likely to favour one manufacturer as against the other; that MSIL (i.e., its employees) may purposely refuse to supply a particular brand of liquor, or create hurdles in its supply, to the detriment of a particular manufatures; possibility of abuse of its exclusivre privillege, is thus inherit in this licensing system. This apprehension overlooks the fact that the distributor is an instrumentality of the State and there is a strong j presumption that ii would act fairly, rea sonabiy and relevantly. Any abuse of its power and privileges is subject to judicial correction. Possibility of abuse of power or privilege is not a ground to nullify the en-trustmeni of powers and privileges to a governmental agency. As to how the distributor should function, does not require elaboration, because, the distributor has to function like any other distributor in the line. The Act and the Rules framed thereunder, read with their objects, would govern the distributor. The law, regarding the scope of judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned as to how and in what manner any of the petitioners would legally suffer by the entrmtment of distriburorship to the Government agency. A possibility of reduction in the volume of trade of those licensees during the remaining period of the licences is not a ground to nullify the action taken by the Government to restore to itself the exclusive privilege of distributorship or wholesale dealing in liquor in the State. 41. It was further contended that by the State taking over the liquor trade, it has contravened the provisions of Art. 47, which is one of the directive principles of State policy. But, Art, 47, does not bar the State from involving itself in liquor trade. Article 47 requires the State to evolve a policy to bring about a total prohibition. Till such 'prohibition' is effectuated, replacing one kind of private dealership by a State instrumentality, in no way would contravene Art. 47 of the Constitution. 42. Smt. Nalini Chidambaram, the learned Counsel appearing in one of the writ petitions, pleaded for an innovative judicial approach; the learned Counsel argued that this Court should direct the postponement of the enforcement of Rules till the date of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Intoxicants) Rule, 1967. Rule 2(d) defines 'licence' as a licence granted under any of the Rules made under the Act. Therefore, a licencee under form Cl. 2 also is a licencee under this Rule. Reading this with Rule 9 of the said Rules, it was contended that even a retailer-licensee can import from outside the State; it was further contended, a similar benefit was not available to a Cl. 1 licensee, in view of the amendment of condition No. 3 of Cl. 1 licence. Here, Sec. 3 of the Act is relevant. The main relevant portion of S. 8(1) reads : 8. Import of intoxicant : -- (I) No intoxicant shall be imported except under a permit granted by the Deputy Commissioner on payment of such countervailing duty and fees, as may be levied under this Act and on such other terms as may be prescribed. (rest omitted as unnecessary) Thus, permit from the Deputy Commissioner is required to import the intoxicants. None, as a matter of right, could import any intoxicant from outside the State. While considering an application for the permit, the Dy. Commissioner has to consider all the provisions of the Act and various Rules made thereunder and exercise his power in such a way, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e who seek licences under the Act, but could not be granted the licences in view of its provisions and the Rules, while, extending such a non-available privilege to those who are licenced elesewhere. 48. There was an argument that the impugned Rules ignore the requirements of industrial users of alochol. Clause (II) to Rule 3 now introduced provides for distributor's licence which enables the licensee to deal in the products of all distilleries, breweries or wineries in the State or to import liquor from outside the State. As per condition No. 3, the licensee shall sell liquor only to a person holding Cl. 1 licence in the State or export to a person outside the State who is holding a valid licence to deal in liquor. One of the petitioners who is a retired Excise Commissioner made a grievance that those provisions do not provide for the sale of industrial alcohol and similar spirituous liquor by the manufacturer to the industrial units directly, and the holder of a CL 11 licensee (distributor) has to sell those goods only to a Cl. 1 licensee. Cl. 1 licensee is a wholesale dealer; and as per a condition in Cl, 1 licence, such a licensee shall sell liquor to other licensees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to see whether they are ultra vires the provisions of the Act. The impugned Rules, in the instant case, are in no way irrational, or arbitrary and hence do not offend Art. 14 of the Constitution, The impugned Rules fall within the purposes of the Act and are intra vires. (v) Licences granted under the amended Rules, create a privilege under the Act; that privilege in no way gets the protection of Art. 19(1)(g) of the Constitution. Since the existing licences are saved during the current year (i.e., during their current period) no further question of hardship and irrationality in enforcing the Rules, arises. (vi) The Rules arc enforceable immediately they are made; for their enforcement, laying before the Legislature (or the Parliament) is not a condition precedent. (vii) The distributor licence being given to a State owned Corporation (MSIL), there is a presumption that the said Corporation would act rationally, being guided by the relevant factors which would guide any other distributor in the line; it is not possible to attack the choice of the distributor as arbitrary; similarly, it cannot be held that the said distributor would indulge in undue favouritism w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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