State of Kerala Vs Kandath Distilleries

Court: Supreme Court of India.

Citation: AIR 2013 SC 1812.

Case No: 1642 of 2013.

Case Type:  Civil Appeal arising out of SLP (Civil) No. 9098 of 2009.

Appellant: State of Kerala and others.

Respondent: Kandath Distilleries.

Bench: 

• Justice K.S. Radhakrishnan.
• Justice Dipak Misra.

Cases referred:

• Bihar Distillery and Another v. Union of India and Others.
• Comptroller and Auditor-General of India and Anr. v. K.S. Jagannathan and Anr. (1986) 2 SCC 679.
• Harigovind Yadav v. Rewa Sidhi Gramin Bank and Ors (2006) 6 SCC 145.
• RBF Rig Corporation, Mumbai v. The Commissioner of Customs (Imports), Mumbai (2011) 3 SCC 573.
• Vithal Dattatraya Kulkarni and Others v. Shamrao Tukaram Power SMT and Others (1979) 3 SCC 212.
• P. N. Kaushal & Others v. Union of India & Others (1978) 3 SCC 558.
• The state of Maharashtra v. Nagpur Distilleries (2006) 5 SCC 112.
• State of Madhya Pradesh v. Nandlal Jaiswal (1986) 4 SCC 566.

Statutes referred:

• Foreign Liquor (Compounding, Blending and Bottling) Rules, 1975. (for short, ‘the 1975 Rules)
• Abkari Act. (for short, ‘the Act’)
• Constitution of India.

Facts:

• Kandath Distilleries, the respondent in the case, claimed to have submitted an application dated 12/01/1987 before the Commissioner of Excise for a licence to establish a compounding, blending and bottling unit in the district of Palakkad. The respondent was directed to seek the approval of the Government of India and approach the state government.
• In a previous judgement, the Supreme Court had held that the power to permit or prohibit the manufacture of portable liquor and the power from regulating the manufacture, production, sale and transport of such liquor vested with the respective state governments.
• In the 1998, four companies- Amrut Distilleries at Kanjkode Village in Palakkad District, Empee Distilleries at Kanjkode Village in Palakkad District, K.S. Distilleries at Kannaur and Elite Group of Companies at Trichur were permitted by the State Government of Kerala to set up distilleries.
• The respondent noticed that its application filed in 1987 was not considered and thus filed a Revision Petition before the Minister of Excise on 22/11/1998. The respondent did not raise any concerns about the two other distillery units that were given the licence to set up units in the Palakkad district.
• Since the Excise Commissioner/the State Government received many applications for licences for setting up distilleries in various districts of Kerala, the Government constituted a Scrutiny/Selection Committee to shortlist the applications.
• The Government reviewed the Committee’s recommendations and took a policy decision on 29/9/1999 to not grant any more licences for setting up distillery units across the State.
• The Joint Excise Commissioner communicated the Government Order to the respondent through a letter on 11/11/1999.
• The respondent then filed the O.P. no. 7727 of 2000 before the High Court to quash the Government Order dated 11/11/1999, contending that its application should also have been considered with the four applications granted the licences in the year 1998. The respondent did not challenge the licences granted for establishing unites in the Palakkad district, where it had applied for a licence.
• In the judgement dated 23/6/2004, a single judge bench quashed the order dated 11/11/1999 and ordered the respondent’s application to be considered along with the conditions prevalent in 1998.
• The Excise Commissioner heard the respondent’s representative on 18/10/2006 and, after consulting with the State Government, rejected the respondent’s application based on the government order dated 29/9/1999.
• The respondent then filed for a Representation before the State Government on 20/2/2005, which was rejected by the Government vide order dated 1/9/2005.
• The respondent then filed a writ petition (no. 29092 0f 2005) against the abovementioned order.
• On 25/1/2006, the single judge bench quashed the government’s orders and passed an order stating that the decision taken by the Government based on the 1999 order was unsustainable. The judge ordered that the respondent’s application be reconsidered within two months after the Government received this judgement.
• The Government passed an order on 16/3/2006 holding that the Government makes individual assessment of all the licence applications. The decision taken in each application is based on the facts and circumstances of that application. A number of other licences were also rejected for a variety of reasons. The granting of licenses for Distillery and Compounding (blending and bottling) Units is a prerogative of the Government and not a right of the respondent. The application was thus rejected.
• The respondent noticed that the Government had not followed the directions given by the High Court while passing the order on 16/3/2006, filed a Contempt Case (C) no. 521 of 2006 before the High Court.
• The single-judge bench felt that the State Government could have considered the respondent’s application based on the conditions prevalent in 1998 and either accepted or rejected it. Still, instead, the Government referred to irrelevant matters. The judge felt that the State Government had prima facie committed contempt of court by ignoring its judgement in O.P. no. 29092 of 2005 and passed an order dated 29/06/2006, placing the matter before the Division Bench of the High Court.
• The Secretary of Government appeared before the Division Bench of the High Court on 9/8/2006, apologised and submitted that the order dated 16/3/2006 would be withdrawn and fresh orders, compliant with the judgement in O.P. no. 29092 of 2005, would be passed. The contempt case was thus closed on 12/9/2006.
• The Government passed a detailed order on 11/10/2006, rejecting the respondent’s application. The Government Order stated that the application put forth by Kandath Distilleries on 12/01/1987 cannot be treated as an application put in by the firm based on a partnership deep which came into existence on 10/4/1991 as per clause 3 of the Partnership Deed.
• The respondents-Kandath Distilleries, challenged this order by filing a writ petition (no.2708 of 2007) in the High Court.
• The single Judge took the view that no reason other than the constitution of the firm and the date of its effect was noticed in the impugned order dated 11.10.2006 for refusing the licence and that the Government found no other ground to refuse the licence. Consequently, learned single Judge quashed the Government order dated 11.10.2006 and directed the State Government to grant a licence applied for vide application dated 12.1.1987.
• The State Government, aggrieved by the judgement, filed a Writ Appeal No. 716 of 2008.
• The Division Bench held that there was no illegality in the directions given by the single judge. The appeal filed by the State Government was thus dismissed.
• Aggrieved by the decision of the Division Bench, the State Government filed an appeal to the Supreme Court.

Issue:

Can the High Court can issue a Writ of Mandamus under Article 226 of the Constitution of India, directing the State to part with its exclusive privilege, in the matter of granting licence for establishing distilleries under the Foreign Liquor (Compounding, Blending and Bottling) Rules, 1975 read with Section 14 of the Abkari Act?

Contentions by the Appellant:

• The Single Judge bench and the Division Bench of the High Court had committed a grave error while exercising their jurisdiction under Article 226 of the Constitution in passing a direction that granted the distillery licence to the respondent.
• A citizen has no fundamental right to engage in the trade or business in liquor.
• The matter relating to the grant of licence for setting up a distillery unit is within the exclusive domain of the State.
• The application submitted by the respondent was invalid.
• The Government had stated cogent reasons in its order dated 11/10/2006 while rejecting the respondent’s application.

Contentions by the Respondent:

• There was a conjunct effort on the part of the State Government not to consider the application of the respondent for a licence for starting a distillery unit in the Palakkad district.
• Based on the policy which was in force in 1998, 4 application were granted the licence while the respondent was discriminated against.
• The High Court had found the Secretary to the Government had committed contempt by not complying with the directions passed by the High Court.
• The order dated 11/10/2006 was similar to the earlier orders, which were held to be non-compliant with the directions passed by the High Court.
• The Supreme Court, to prevent injustice, has the power to compel an authority to perform a duty in a lawful manner.

Obiter Dicta:

• The state has the power to completely prohibit the manufacture, sale, possession, distribution and consumption of liquor as a beverage because it is inherently dangerous to human health. Consequently, it is the privilege of the State, and it is for the State to decide whether it should part with that privilege, which depends upon the liquor policy of the State. The state has, therefore, the exclusive right or privilege in respect of portable liquor. A citizen has, therefore, no fundamental right to trade or business in liquor as a beverage and the activities, which are res extra commercium, cannot be carried on by any citizen and the State can prohibit completely trade, or business in portable liquor and the State can also create a monopoly in itself for the trade or business in such liquor.
• The state has the power to frame and reframe, change and re-change, adjust and readjust policy, which cannot be declared as illegal or arbitrary on the ground that the earlier policy was better and suited to the prevailing situations. A situation which exited in the year 1998 had its natural death and cannot be revised in the year 2013 when there is a total ban.
• The permissive language used by the Statute in Section 14 and the rulemaking authority in Rule 4 gives the State Government and the Commissioner no mandatory duty or obligation to grant the licence except perhaps to consider the application if the liquor policy permits so. The expressions used in Section 14 and Rule 4 confer discretionary powers on the Commissioner and the State Government, not a discretionary power coupled with duty.
• Court cannot impede the exercise of discretion of an authority acting under the Statute by the issuance of a Writ of Mandamus.
• The State Government, while deciding to grant the right or privilege to others, cannot escape the rigor of Article 14 of the Constitution of India.

Judgement:

• Leave Granted.
• The Judgements by the Single Judge Bench and the Division Bench of the High Court were set aside.
• The High Court cannot issue a writ of Mandamus under Article 226 of the Constitution directing the State to part with its exclusive privileges.

Rationale:

• Monopoly in the trade of liquor is with the State, and it is only a privilege that a licensee has in the matter of manufacturing and vending in liquor.
• The satisfaction of the conditions laid down in 1975 Rules would not entitle an applicant as a matter of right to claim a distillery licence which is within the exclusive privilege of the State.
• Court would not interfere with or probe into the merits of decision made by an authority while exercising its discretion.
• The State cannot act in an arbitrary manner.
• The respondent could lay a claim only if it establishes that preferential treatment was given to Amrut Distilleries and Empee Distilleries while granting them a licence to set up distillery units in the district of Palakkad. However, the respondent has never challenged the licences granted to the other two companies.
• Citizens cannot claim to have a fundamental right to carry on trade or business in the properties or rights belonging to the state, nor can there be any infringement of Article 14 of the licence is granted to one citizen and not to the other unless the applicant can prove such preferential treatment.

Conclusion:

• When the Legislature confers a discretionary power on an authority, the power to be exercised by it in its discretion and the decision ought to be that of the authority concerned and not that of the Court. The writ of Mandamus can only be issued in favour of an applicant who has established a legal right and is issued against an authority with a legal duty to perform but has failed to do so. Majesty of law is to be upheld not by bending or breaking the law but by strengthening the law.

Prepared by Mihir Pooojary.