Bar Case Judgment

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT:

THE HONOURABLE MR.JUSTICE K.SURENDRA MOHAN

THURSDAY, THE 30TH DAY OF OCTOBER 2014/8TH KARTHIKA, 1936

WP(C).No. 22195 of 2014 (Y) ----------------------------

PETITIONER(S):--------------------------

XAVIER'S RESIDENCY REPRESENTED BY ITS MANAGING PARTNER, D.RAJKUMAR THEVALLY, KOLLAM.

SRI.A.SUDHI VASUDEVANSMT.K.PUSHPAVATHI

RESPONDENTS:----------------------------

1. THE STATE OF KERALA REPRESENTED BY SECRETARY TO THE GOVERNMENT TAXES (G) DEPARTMENT, THIRUVANANTHAPURAM. 6950 001

2. EXCISE COMMISSIONER COMMISSIONERATE OF EXCISE, THIRUVANANTHAPURAM. 695 001

3. DEPUTY COMMISSIONER OF EXCISE KOLLAM. 695 001

SR. COUNSEL SRI KAPIL SIBAL SRI K P DANDAPANI, ADVOCATE GENERAL R1 to R3 BY SPL GOVERNMENT PLEADER SRI.TOM K.THOMAS

THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25-09-2014,ALONG WITH CONNECTED CASES, THE COURT ON 30.10.2014 DELIVERED THEFOLLOWING:

kkj

WP(C).No. 22195 of 2014 (Y) ----------------------------

APPENDIX

PETITIONER(S)' EXHIBITS -------------------------------------

P1 - A TRUE COPY OF THE ORDER DT. 08.6.11 ISSUED TO THE HOTEL OF THE PETITIONER CLASSIFYING IT UNDER 3 STAR CATEGORY.

P2 - A TRUE COPY OF THE GO(MS) NO. 56/2014/TD DT. 02.4.14.

P3 - A TRUE COPY OF THE FL3 LICENSE RENEWED IN FAVOUR OF THE 1ST PETITIONER UP TO 31.3.15.

P4 - A TRUE COPY OF IA 9160/14 FILED BY THE GOVERNMENT IN WPC NO. 10368/14ON THE FILE OF THIS HON'BLE COURT

P5 - A TRUE COPY OF THE COMMON ORDER DT. 14.8.14 PASSED BY THIS HON'BLE COURT IN WA NO. 1131/14. WA - 1129/14 AND CONNECTED WRIT APPEALS.

P6 - A TRUE COPY OF THE GO(MS) NO. 139/14 TD DT. 22.8.14 ISSUED BY THE GOVERNMENT OF KERALA.

P7: A TRUE COPY OF FOREIGN LIQUOR (THIRD AMENDMENT) RULES 2014 BROUGHT BY NOTIFICATION BEARING SRO NO 520/2014 DATED 27.08.2014 SAID TO BE ISSUED BY GOVERNMENT OF KERALA

RESPONDENTS' EXHIBITS---------------------------------------

NIL

// TRUE COPY //

PA TO JUDGE

C.R.

K.SURENDRA MOHAN, J.---------------------------------------------

Writ Petition Nos: 22195,22203,22219,22236,22237,22238,22239,22328,22367,22369,22383,22401,22403,22410,22411,22412,22413,22414,22415,22460,22528,22774,22776,22784,22785,22786,22941,22993,23030,23033,23034,23035,23036,23081,23091,23101,23134,23167,23178,23179,23212,23249,23262,23302,23317,23323,23340,23344,23345,23353,23391,23399,23403,23446,23467,23474,23495,23513,23521,23528,23538,23568,23569,23570,23579,23638,23729,23735,23738,23740,23856,23896,23900,23986,24048,24109,24128,

24838,24926,24940, and 24958 of 2014----------------------------------------------

Dated this the 30th day of October, 2014

J U D G M E N T

On 22.08.2014, as per GOMS.No.139/2014/TD dated

22.08.2014, the Government of Kerala notified its Abkari

Policy for the year 2014-15. As per the new Abkari

Policy, only hotels having Five Star classification and

above granted by the Ministry of Tourism, Government of

India are entitled to be granted Bar licences. Thereafter,

the Foreign Liquor Rules under the Abkari Act of 1077

has also been amended, to give effect to the Abkari

Policy. Since as per the new Abkari Policy, only hotels

classified as Five Star and above are entitled to be

-:2:-W.P.(C) Nos.22195/2014 & Conn. cases

granted bar licences, all existing bar attached hotels have

been issued with notices by the Excise Commissioner

informing them that, their bar licences would stand

cancelled on the expiry of 15days of the date of such

notices. The hotels that face cancellation of their Bar

licences (FL-3 licences) have filed these writ petitions

challenging the Abkari Policy, the consequential

amendments to the Foreign Liquor Rules and the notices

issued to them, terminating their bar licences.

2. The petitioners in these writ petitions are

mostly hotels having three star classification. Three writ

petitions, W.P.(C) Nos.23391 of 2014, 23528 of 2014 and

22460 of 2014 relate to two star hotels. The hotel in W.P.

(C) No.22785 of 2014 has no star classification. The

petitioners in W.P.(C).No.22203 of 2014, 22993 of 2014,

23081 of 2014, 23179 of 2014, 23262 of 2014, 23317 of

2014, 23446 of 2014, 23569 of 2014, 22219 of 2014,

23896 of 2014, 22776 of 2014, 24048 of 2014, 23167 of

2014, 22410 of 2014, 23399, and 24926 of 2014 are filed

by hotels having either Four Star or heritage category


certification. W.P.(C) No.24128 of 2014 is filed by the

Kerala Bar Hotels Association and two others. The

remaining writ petitions are filed by persons conducting

three star hotels. Irrespective of their categorization into

Three Star or Four Star, Heritage etc., all the petitioners

challenge the Abkari Policy of the State and the

consequential amendments. A wide spectrum of

arguments have been put forward, attacking the

constitutionality of the Abkari Policy, alleging violation of

the fundamental rights enshrined in Articles 14 and

19(1)(g) of the Constitution, besides violation of the

parent enactment, the Rule Making power conferred on

the State by the Abkari Act and even violation of the

Rules of Business of the Government. Before addressing

the contentions advanced before me, it is necessary to

have an overview of the scenario prevalent in the State of

Kerala in relation to the trade of liquor.

The Enactments applicable and control

measures adopted.

3. The Abkari Act, 1077 is a pre-constitutional

enactment, initially passed by His Highness the Maharaja


of the erstwhile State of Cochin on the 5th of August 1902

as Act 1 of 1077 (Malayalam Era). The Act was later on

extended to the entire State of Kerala by Act 10 of 1967.

The Foreign Liquor Rules enacted in exercise of the

powers conferred by Sections 10, 24 and 29 of the Abkari

Act deal exclusively with the grant of licences to vend,

what is described as the Indian Made Foreign Liquour

(IMFL). Apart from the Abkari Act of 1077, there is

another enactment by name, the Prohibition Act, 1950,

which prohibits import, export, transport or possession of

any liquor or intoxicating drug, its manufacture and

dealing, including tapping of toddy from any trees, in

short, imposing total prohibition in the State of Kerala.

However, Section 2 of the said enactment has conferred

power on the Government to suspend the operation

thereof by issuing a notification. Though the Abkari

Act,1077 is stated to have been repealed with effect from

the date of coming into force of the said enactment, in

view of the specific provision made in Section 3 thereof,

the said enactment would revive on the issue of a


notification under Section 2 of the said Act. The State

Government has accordingly issued a notification dated

28.04.1967 (S.R.O.No.104/67) under Section 2 of the

Prohibition Act suspending the operation of the

provisions of the said Act except Sections 1,7 and 11

thereof. Consequently, the Abkari Act and the Rules

thereunder have revived and are continuing to be in

operation ever since. The provisions that are not

suspended, deal with punishments for offences. Licences

for possession, use or sale of liquor are issued under Rule

13 of the Foreign Liqour Rules.

4. Earlier licences to conduct retail sale in liquor

(sale in bottles) were being auctioned by the State to

private parties on payment of a fee. The system was

subsequently changed and the privilege of conducting

retail sale in liquor was granted exclusively to the Kerala

State Beverages (Manufacturing and Marketing)

Corporation Limited (hereinafter referred to as 'the

Beverages Corporation' for short), the Kerala State Civil

Supplies Corporation Limited and the Kerala State Co-


operative Consumers Federation Limited. The

Corporations referred to above sell the liquor in bottles

through a wide network of retail shops located along the

length and breadth of Kerala. The Beverages Corporation

also enjoys monopoly in the wholesale business of liquor.

This is for the reason that, an FL-9 licence that entitles

the licensee to possess and sell foreign liquor in

wholesale is granted only to the said Corporation. The

persons who have been issued with a Foreign Liquor

licence under any of the categories made mention of in

Rule 13 of the Foreign Liquor Rules, can purchase the

stock of Foreign Liquor required by them, only from the

Beverages Corporation. Thus, apart from the holders of

FL-3 licences or Bars, there are various other

establishments conducting liquor business like the Beer

and Wine Parlours that are operated only by the Kerala

Tourism Development Corporation (a Government

Company), recognized Clubs with licences to serve liqour

to their members, Airport Transit Lounges licensees,

Canteens and Messes attached to Military Units, Seamen


and Marine Officers Clubs etc.

5. The consumption of liquor within the state has

been on a phenomenal increase, over the past many

years. The volume of liquor consumed became a cause

for concern and have been engaging the attention of the

State Government during the past few decades. The

Government have been initiating measures for regulating

the consumption of intoxicating liquor, for a number of

years now. Initially, a Distance Rule was introduced

prohibiting the location of Foreign Liquor retail shops as

well as Bar attached Hotels, in the close proximity of

Educational Institutions, Temple, Church or burial

grounds. Since people belonging to the lower strata of

the society including the labour class were found to be

the persons frequenting the Arrack shops, arrack was

banned in the state. The duty of excise on IMFL was

steeply hiked. However, the following years showed only

a tremendous spurt in the sale of liquor. The situation

has been continuing without any change, showing a

steady increase in the sale and consumption of liquor


every year. The efforts undertaken by the State to

reduce the consumption has failed to achieve any

significant results. There has been a public outcry with

the Prohibitionists, Women's Organisations, other Non-

Governmental organizations and voluntary bodies joining

in to blame the State Government, for not initiating

effective measures to deal with the problem. However,

the fact remains that the demand for intoxicating liquor

within the State of Kerala is phenomenal and displays an

increase with every passing year. Any attempt at curbing

consumption would have to begin with a search for the

reason for the increase in consumption. Unless the

reason is identified and measures to remedy the same,

put in place, it would not be possible to reduce the

consumption in an effective manner. A sudden non

availability of any article in demand would only induce

people to search for other alternatives or avenues to

satisfy the demand. Bootlegging, production of spurious

liquor, alternative drugs or other substances that would

satisfy the demand would appear in the market, taking


the place of liquor. Statistics show that the measures

already adopted, like the ban of Arrack and the

enhancement of Excise Duty on liquor have not had any

effect in stemming the demand.

6. The State of Kerala attracts a large number of

tourists every year. The State Government has been

taking efforts to develop tourism as an industry. Various

measures have been adopted, with the object of

attracting tourists, not only foreign but also domestic. It

has been recognized by the State that, good and clean

places for them to stay as well as healthy and tasty food

are necessary to attract tourists. The consumption of

alcoholic beverages with their food is a way of life in

many foreign societies. Therefore, the State recognizes

that serving of alcohol with food is necessary to promote

tourism in the state. The above objective is discernible

from the wordings of Rule 13(3) of the Foreign Liquor

Rules also.

7. Initially, bar licences used to be issued to hotels

having two star facilities. However, in the year 2007,


Rule 13(3) was amended to provide that, Bar licences

shall be granted to only hotels having a classification of

three star and above. At the same time, by adding a

proviso to the Rule, it was provided that all existing

licensees not having the requisite three star or above

classification, but who had been functioning as on

31.03.2007 were entitled to the renewal of their licences.

Later on, in 2011, Rule 13(3) was again amended,

disentitling three star hotels from seeking the issue of a

bar licence by providing that such licences would be

issued only to hotels classified as four star and above. At

the same time, the existing licensees were again saved by

incorporating a fresh proviso to the Rule permitting the

licences of the existing hotels to be regularised. The

policy of the Government in permitting the existing hotels

to continue though they were not maintaining the

standards of classification prescribed by the Rule and at

the same time denying fresh licences to new three star

hotels and two star hotels with proper facilities was the

subject matter of challenge before this Court. In


Surendra Das B. v. State of Kerala [2012(3) KHC 653]

(DB), a Division Bench of this Court held that the action

of the State in discriminating between hotels having the

same star classification (namely three star), by granting

bar licences to the existing ones and denying the same to

new hotels was discriminatory. However, on appeal, the

Hon'ble Supreme Court reversed the said decision on the

above aspect and held that, deletion of three star hotels

falls within the same genre as Two Star Hotels that were

excluded earlier. However, the action of the State in

stipulating that no new FL-3 licences shall be granted to

hotels located within a stipulated distance from an

existing hotel having FL-3 licence, that was also struck

down by this Court, was held to be bad. The Supreme

Court was informed by the State that, it had appointed a

One Man Commission for reviewing the Abkari Policy as

per a notification dated 23.01.2014. The Supreme Court

made it clear that the State Government would not deny

FL-3 licence to hotels with a classification of Four Star

and above, until the report of the one man Commission


was received. The One man Commission submitted its

report on 06.03.2014. The Government thereupon called

for a report from the Government Secretary, Taxation.

The said report is dated 02.04.2014. However, by that

time, the code of conduct declared by the Election

Commission on 05.03.2014, in view of the Lok Sabha

Elections that were notified, had come into force.

Therefore, the existing hotels that did not conform to the

specifications stipulated by Rule 13(3) were also

renewed, provisionally. Thereafter, the new Abkari

Policy has been formulated and on the basis thereof, the

present notices have been issued by the Excise

Commissioner proposing to cancel the licences

provisionally issued to the bar hotels, as stated above.

Contentions on behalf of the petitioners

8. According to Sri Aryama Sundaram, the learned

Senior Counsel, this is a case of deprivation of a right that

has already accrued to a citizen for the only reason that

there is a change in the Government Policy. It is pointed

out that, the nature of the right of a citizen with respect


to a business permitted by the State and the nature of a

right with respect to a business not permitted by the

State is different. If a particular trade or business is

completely prohibited, there cannot be any doubt that the

citizen would have no right to carry on the said business.

However, if a business is not prohibited, but permitted

either with or without regulations, every citizen has a

right to engage in such business, under Article 19(1)(g)

of the Constitution. Thus, in cases where a business is

permitted either partially or subject to regulations, every

citizen has a right to participate in the business activity.

This is for the reason that, the State has no intention to

prohibit the trade altogether. In the present case, as far

as the State of Kerala is concerned, the Preamble of the

Abkari Act shows that the enactment is intended to

consolidate and amend the law regulating import, export,

transport, manufacture, sale and possession of

intoxicating liquor and intoxicating drugs in the State of

Kerala and not prohibition. Since the object of the

enactment is only to consolidate and amend the law


relating to the trade in liquor, the petitioners in these

writ petitions have in addition to their fundamental right

under Article 19(1)(g), a statutory right under the Abkari

Act to conduct trade or business in liquor, subject of

course to the restrictions contained in the Act. It is the

said right that has been taken away by the present Abkari

Policy as well as the amendment that has been effected.

9. According to the learned Senior Counsel, a

Constitutional Bench of the Hon'ble Supreme Court has in

Narula v. State of Jammu & Kashmir [AIR 1967 SC

1368] held that every citizen has a right under Article 19

(1)(g) to conduct trade or business, even in intoxicating

liquor, subject of course to the reasonable restrictions

that the State is empowered to place on the said right

under Article 19(6) of the Constitution. It is therefore

contended that, the petitioners in these cases are also

entitled to put forward a claim to carry on business in

intoxicating liquor, subject to the restrictions contained in

the Abkari Act. The Act being one intended to regulate

such trade in liquor cannot proceed to the extent of


altogether prohibiting the trade. Any such attempt

would amount to an unreasonable restriction under

Article 19(6). It is therefore contended that, the present

Abkari Policy as well as the amendment now introduced

constitute unreasonable restrictions on the fundamental

right of the petitioners under Article 19(1)(g).

10. It is further contended that, the State in the

present case has not introduced a total prohibition. Nor

has it excluded private participation in the business

entirely. No monopoly in favour of the State has also

been created. Therefore, the exclusion of a section of the

members of the public from conducting trade in liquor is

discriminatory, under Article 14 of the Constitution.

Conferring the eligibility to apply for bar licences only on

hotels having classification of 5 star and above, actually

identifies the said category of hotels for conferring a

benefit, to their advantage over the others doing business

in the field. The said classification bears no nexus to the

proclaimed object of achieving prohibition, for the reason

that, liquor is available freely in the FL-1 shops and other


establishments owned by the State.

11. The petitioners are all existing licensees. They

were being granted renewal of their licences over the

past many years. There are no complaints or allegations

against them as licensees. They have a right of renewal

granted by the Statute, provided the conditions necessary

for the purpose are satisfied. A non licence holder has a

right to apply for licence and not to be discriminated in

the matter of grant. In the present case, the existing

licensees are being discriminated in the matter of

granting renewal, by providing that, only the licensees of

hotels classified as 5 star and above would be granted

renewal. The said classification is, according to the

counsel, violative of the guarantee of equality enshrined

in Article 14 of the Constitution. The State has over the

years followed a consistent policy of renewing the

licences of the all existing licensees. Fresh applicants as

well as the existing licensees were therefore being

treated as two separate classes. By the present policy,

the existing licensees are again classified into hotels


having a classification of 5 star and above and those who

do not have the said classification. The said

classification, according to the learned Senior Counsel, is

unsustainable and liable to be set aside.

12. The sequence of events leading up to the

formulation of the present Abkari Policy shows that, the

State was awaiting the report of the One Man

Commission that was appointed to go into the question of

making a Comprehensive revision of the Abkari Policy

and the issue of renewals to the Bar licences already

granted. The One Man Commission has submitted its

report containing various recommendations The

Government had thereafter sought for the report of the

Government Secretary for Taxation on the question of

implementing the recommendations of the One Man

Commission. However, while formulating the Abkari

Policy 2014-15, the Government has discarded all the

recommendations of the One Man Commission as well as

the Taxation Secretary. Absolutely no reasons are stated

for not accepting the recommendations of the One Man


Commission. In fact, the recommendations have not even

been referred to or considered. The One Man

Commission had recommended an evaluation of the

facilities available in the hotels that were not maintaining

required standards and permitting them to upgrade their

facilities within a specified time. Having informed the

Hon'ble Supreme Court that action would be taken

against the non Standard bar hotels on the basis of the

report of the One Man Commission, the present turn

around without any reason whatsoever is, according to

the counsel, nothing but malafides in law. The present

policy, according to the learned Senior Counsel, is also

bad, not only for the reason that it is discriminatory but

for the further reason that it has not considered the

relevant materials. In fact, the policy has omitted to

consider such materials without any reason. It is

contended that this is a clear case of imposing

unreasonable restrictions under Article 19(6) on the right

under Article 19(1)(g) of the Constitution, besides being

discriminatory. The object sought to be achieved being


prohibition, the classification of hotels into those having

certification of five star and above and those not having

such certification, has no nexus to the object sought to be

achieved.

13. Apart from the above, it is contended that, even

assuming the policy to be valid, the action now initiated

ought to have been taken by a Plenary Legislation and not

by a Subordinate Legislation, as done in the present case.

Section 29 of the Abkari Act confers on the State, the

power to make Rules but only for the purposes of the Act.

Since prohibition is not one of the purposes of the Act,

the power under Section 29 is not available for making a

Rule to achieve prohibition. Section 69 of the Act

provides that the Rule made in accordance with the

power conferred by Section 29 of the Act shall, on

publication in the Gazette have the force of law and shall

be read as part of the Act itself. Therefore, it is

contended that, the Rule making power conferred by

Section 29 of the Act has to be strictly construed so as to

limit it to the making of Rules for carrying into effect the


objects of the Act alone. It is also contended by the

learned Senior Counsel that, any restriction under Article

19(6) of the Constitution can be made only by a

Legislation and not by Subordinate Legislation.

14. It is further contended that, the right to

renewal of the licence is a statutory right that is

conferred on the petitioners by Sub Rule 3 of Rule 13B of

the Foreign Liquor Rules, provided the conditions therein

are satisfied. Therefore, the petitioners have a subsisting

right to claim renewal of their licence, since the said Rule

has not been amended pursuant to the Abkari Policy

2014-15. In other words, in spite of the present Abkari

Policy, the right to claim renewal under Rule 13B

continues unscathed. The above is a right that is

available to licence holders alone in contradistinction to

the applicants for fresh licence. The above right is

capable of being enforced at law.

15. The report of the One Man Commission shows

that, after an elaborate overview of the situation in the

State as far as liquor trade is concerned, a retired Judge


of this Court, Justice M.Ramachandran, has

recommended measures to bring down consumption of

intoxicating liquor and to impose regulations on the

manner in which the trade is being conducted. What has

been recommended is to retain the policy of issuing bar

licences to hotels with a classification of three star and

above. With respect to the hotels that do not have the

requisite standards, they have been recommended to be

given time to upgrade their facilities and to attain the

standards of three star hotels. In the event of such

opportunity not being utilized, it has been recommended

that, their licences be revoked. In the case of existing

licencees, the recommendation is to permit them to

continue operations for the current financial year and to

refuse renewal from the coming year onwards. The

report of the Taxation Secretary has also recommended

the grant of sufficient time to a licensee to upgrade their

facilities. However, without even considering the said

recommendations, the present Abkari Policy has ignored

the recommendations. It is pointed out that, the One


Man Commission being not one appointed under the

Commissions of Enquiry Act, 1952, the principle that the

recommendations are not binding on the Government

cannot apply in the present case. The present One Man

Commission had been appointed in the wake of the

decision of the Division Bench of this Court in Surendra

Das B. v. State of Kerala (Supra). It was also

undertaken by the State Government before the Hon'ble

Supreme Court that no fresh licence would be issued until

the report of the One Man Commission was received. The

above submission has been noticed and recorded in State

of Kerala v. Surendra Das [2014(1) KLT 948 (SC)]. The

State having undertaken before the Hon'ble Supreme

Court to abide by the recommendations of the One Man

Commission, it cannot be permitted to ignore the said

report altogether. Even if the recommendations were not

acceptable, the policy should have contained reasons for

the rejection thereof.

16. On the basis of the above contentions it is

pointed out that, the policy is bad not only for not having


considered relevant materials that were available to the

Government but also for not disclosing proper or cogent

reasons. The same is therefore alleged to be arbitrary,

and discriminatory and violative of Article 14 of the

Constitution, apart from being an unreasonable

restriction on the fundamental right of the petitioners to

carry on trade or business.

17. The counsel appearing for other petitioners,

apart from endorsing the above contentions of the

learned Senior Counsel have put forward a slew of other

contentions which are also required to be noticed.

18. According to Senior Counsel Sri.C.C.Thomas,

the present policy in so far as it has decided not to renew

the licences of existing licence holders is arbitrary and

liable to be set aside. In Secretary to Government,

T.N. v. K. VinayagaMurthy [2002(7) SCC 104], the

Government order by which a provision providing for

renewal of liquor vending licences was repealed, was set

aside and the Government directed the question of

renewal of licence to be considered. The existing licences


were being treated separately, as a distinct class by the

previous Abkari Policies. Therefore, it is contended that

the present attempt to deny renewal of their licences is

arbitrary and liable to be set aside. The respective

licences of the petitioners having been renewed for the

current Abkari year and licence fee having been paid in

full, in advance, it is contended that there is no

justification for terminating the privilege during the term

of the licence.

19. Learned Senior Counsel Sri.K.Ramkumar

contends that, even a policy can be interfered with,

where it is arbitrary or discriminatory. Reliance is placed

on various decisions of the Hon'ble Supreme Court in

support of the above contention. Drawing analogy from

the case in which prohibition of dancing in bars in

Bombay was found to be unsustainable, it is contended

that the liquor sold in five star hotels as well as the hotels

with lesser classification is the same. Therefore, the

classification made in the present cases for the purpose

of grant of bar licences is unreasonable.


20. The learned Senior Counsel also contends that

a perusal of the impugned order shows that the

cancellation of the licences of the petitioners have been

made on the orders of the Government. The Excise

Commissioner being the authority empowered to cancel

the licence, the present action is a clear case of the

authority acting under dictation.

21. With reference to the provision under which the

impugned orders have been issued, cancelling the

licences already granted, it is contended that Section 26

(e) is not attracted to the fact situation in the present

case. The conditions subject to which licences had been

granted are part of the Rules. A perusal of the conditions

would show that, there is no condition permitting

cancellation of any licence, 'at will'. It is further

contended that, since Section 26 has not been amended,

no fresh ground could be granted by an executive action.

In the absence of a condition in the licence permitting

cancellation thereof, 'at will' no such condition could also

be incorporated by an executive action. It is further


pointed out that the licences in these cases have been

renewed subject to the liquor policy to be formulated.

However, the said condition does not authorize

cancellation of the licence that has been granted for the

entire financial year. The petitioners are entitled to

continue their businesses till the expiry of the terms of

their licences. Relying on the licence that has already

been issued, the petitioners have upgraded the facilities

in their hotels expending crores of rupees. They have

also acquired stocks of imported foreign liquor

anticipating the sale in their hotels. The expectations of

the petitioners that they would be permitted to continue

their activity for the entire period of their licence was

legitimate. Therefore, the impugned action is also hit by

the principle of legitimate expectation. Apart from the

above, it is pointed out that, Article 163 of the

Constitution has been violated, inasmuch as, the present

Abkari Policy was not recommended by the Council of

Ministers. The Council of Ministers only ratified the

policy ex post facto.


22. According to Senior Counsel Sri.

O.V.Radhakrishnan, the preamble of the Abkari Act,1077

clearly states that, the Act is intended only to regulate

trade in liquor. There is no provision in the Act

permitting or authorising imposition of total prohibition.

Therefore, the proclaimed object of the present Abkari

Policy as well as the measures adopted for attainment

thereof are unsustainable, being not supported by any of

the provisions of law. A perusal of Section 29 of the

Abkari Act that confers power on the Government to

frame rules shows that, all the purposes mentioned

therein relate to regulation. There is no provision that

empowers the Government to frame rules for the purpose

of imposing total prohibition. In the absence of a specific

power, the present amendment to Rule 13(3) is

unsustainable and liable to be set aside.

23. The learned Senior Counsel further points out

that, amended rules were published in the Government

Gazette on 27.08.2014. As on the said date, the State had

no Governor for the reason that, the Governor had


resigned and had ceased to hold office. The resignation

takes effect instantaneously. The notification in the

gazette is purported to be issued in the name of the

Governor. Therefore, the said notification is invalid. No

ex post facto ratification is permissible in such matters.

Nor is any such ratification constitutionally recognized.

Therefore, it is contended that the explanation of the

State that the policy has been ratified, cannot be

sustained. Since Article 163 mandates that the Governor

should act only on the aid and advice of the Council of

Ministers, the present policy that was not supported by a

decision of the Council of Ministers suffers from a

constitutional illegality that is not capable of being

rectified. Apart from the above, it is contended that, the

manner in which the decision was taken, in post haste

manner justifies a presumption of malafides against the

State.

24. It is further contended that, the Rules of

Business of Government of Kerala issued under Article

166 of the Constitution have been violated. Rule 58


stipulates that the draft should be referred to the Law

Department, for opinion, which was not done. Rule 59(1)

has also been violated. In the absence of a valid policy

decision, the impugned action of cancelling the licence of

the petitioners cannot be sustained and is therefore liable

to be struck down.

25. The learned Senior Counsel also contends that,

the restriction contemplated by Article 19(6) could be

imposed only by means of legislation. In the present

case, the restriction is imposed by an executive action

which is not permissible. The impugned action is vitiated

by violation of the principles of Natural Justice, it is

contended. No notice was issued to the petitioners

before the licences were cancelled. The petitioners have

invested substantial sums of money acting on the

strength of the licence issued. Consequently, the

principle of promissory estoppel applies against the

action of the State in revoking the licence.

26. According to Senior Counsel Smt Indira

Jaisingh, Kerala is a state where there is already a


Prohibition Act in force. The State has enacted the

Prohibition Act, 1950. Section 8 of the said enactment

prohibits the manufacture, traffic in and consumption of

liquors and intoxicating drugs. The punishment for

violation of the said provision has also been provided.

Section 9 makes even being found in a state of

intoxication, punishable. With the coming into force of

the said Act, the Abkari Act 1077 stood repealed.

However, Section 2 confers power on the Government to

suspend the operation of the Act, by a notification in the

Kerala Government Gazette, with effect from a date to be

specified therein, with respect to all or any of the local

areas to which the same should supply. In exercise of the

power under Section 2 of the said Act, the Government

has issued a notification dated 28.04.1967 (SRO 104/67)

suspending the operation of the provisions of the

Prohibition Act, except Sections 1,7 and 11 in all areas to

which the said provisions were to apply. As per Section 3

of the Prohibition Act, upon issue of a notification under

Section 2, the enactments mentioned in the first schedule


to the said Act, along with the Rules and notifications

made thereunder would become operative and would be

in force. The Abkari Act, 1077 is one of the enactments

made mention of in the first schedule to the Prohibition

Act. Therefore, it is pursuant to the notification issued

under Section 2 of the Prohibition Act, that the Abkari

Act, 1077 has revived and is continuing to be in force. In

the above scheme of things, therefore, the field of

prohibition is occupied by the Prohibition Act, 1950

whereas, the field of regulation of trade in liquor is

occupied by the Abkari Act, 1077. If the State wanted to

bring in prohibition, it could have done so, by simply

cancelling the notification under Section 2 of the

Prohibition Act. That has not been done. Therefore, the

intention of the State is not to impose prohibition, but to

permit trade in liquor in a regulated manner. The power

to impose regulations is contained in Abkari Act, 1077.

The provisions of the said Act therefore cannot be

employed to impose prohibition. The power to frame

Rules under the Act is conferred, for the purpose of


giving effect to the objects of the enactment. Any Rule

made for the purpose of imposing prohibition would be

ultra vires the rule making power as well as the scope of

the Act itself for the reason that, the object of the Act is

only to regulate and not to prohibit. The present Abkari

Policy that proclaims the object of imposing prohibition

cannot therefore be introduced in exercise of the Rule

making power under the Abkari Act, 1077.

27. In view of the fact that, there is no prohibition

in the State or a monopoly in favour of the Sate, the

citizen also has a right to carry on trade in liquor. The

said right has been recognized by the Hon'ble Supreme

Court. It is further contended by the learned Senior

Counsel that the right of a citizen under Article 19(1)(g)

has to be understood as being subject to the reasonable

restrictions that the State has been permitted to impose

under Article 19(6), in the context of the duty cast on it

by Article 47, to bring about the prohibition of

consumption of intoxicating drinks and drugs which are

injurious to health. Since the State has not imposed


prohibition nor created a monopoly in the trade for itself,

the policy of selective permission to private individuals,

presupposes a corresponding right in the citizen to claim

opportunity to carry on the trade. The said right has

been denied by the present Abkari Policy. In the present

case, the restrictions imposed have no nexus to the object

that is sought to be achieved, namely to raise the health

of the people. The policy classifies the citizens on the

basis of their paying capacity. A person who has the

financial capacity to pay is permitted to consume

intoxicating liquor which is available only in 5 star hotels,

there is no justification for the said classification. The

One Man Commission report has recommended grant of

FL-3 licence to hotels with a classification of 3 star and

above. The object of the Abkari Act being only to permit

and regulate the trade, cannot justify the imposition of

total prohibition.

28. With respect to the power under Section 26(e)

of the Abkari Act, the provision has to be read down by

construing the same ejusdem generis. Reliance is placed


on the Constitutional Bench decision of the Supreme

Court in Olga Tellis v. Bombay Municipal

Corporation [AIR 1986 SC 180] to contend that, the

restriction imposed, to be sustainable should satisfy the

test of being, just, fair and reasonable, the soul of natural

justice being fair play in action. The present policy does

not satisfy the above vital requirement. It is further

contended that, the Abkari Policy is arbitrary though it

proclaims that it is to promote tourism, the policy is in

fact against tourism. The rule proclaims tourism as its

objective, but restricts the facility of bar only to five star

hotels. The statistics show that, the bulk of the tourists

frequenting the State do not belong to the five star

category. There is a total lack of application of mind to

any of the above aspects, by the framers of the policy,

rendering the same arbitrary and liable to be set aside.

29. Senior Counsel Sri.P. Ravindran referred to the

provisions of the Abkari Act to contend that Section 15A,

15B and 15C only seeks to impose restrictions on the

manner in which the trade in liquor is to be carried on.


Section 24 mandates that every licence or permit granted

under Act shall be in the prescribed forms. The form of

FL-3 licence incorporates the conditions subject to which

the licence is granted. Clause 1 specifically provides that

sale of foreign liquor is permissible only to the residents

of the hotels, for the use of such residents or their guests

or casual visitors partaking in meals. The conditions

stipulate the quality of liquor to be sold, prohibits

drunkardness, rioting or gambling within the premises

and provides that no liquor shall be sold for removal

outside the hotel. The liquor is permitted to be sold only

along with meals. Restrictions are imposed with respect

to the timings during which the Bar could be kept open.

Section 18A empowers the State to grant exclusive

privilege for the manufacture of liquor. No restriction

has been imposed on any of the above powers. The

manufacture, wholesale trade as well as retail sale

through Beverages Corporation are permitted to be

continued without any restriction.

30. It is further contended that, the power to grant


a licence to an applicant stands exhausted on the grant of

the licence. The power to cancel a licence is contained in

Section 26 of the Act. The said power can be exercised

only on one of the grounds specified therein. All the

grounds mentioned in Section 26 refer to violation of one

or the other conditions of the licence. Only sub clause 'e'

provides for cancellation or suspension of the licence 'at

will'. The above provision has to be read down, in the

context of the other grounds that are mentioned. In the

present case, the notice of termination has been issued,

acting under dictation. It is pointed out that, Rule 13(3)

even after the present amendment proclaims that bar

licences are issued, for the promotion of tourism. The

said object would not be served by limiting the grant of

bar licences to five star hotels alone.

31. Senior Counsel Sri Ramesh Babu concedes that

no citizen has a fundamental right under Article 19(1)(g)

of the Constitution to trade in liquor. The right is only a

qualified right subject to Article 19(6). However,

according to the counsel, the present policy is violative of


Article 14 of the constitution not only because the

classification made is unreasonable, bearing no nexus to

the object sought to be achieved, but for the further

reason that the policy is arbitrary. Though the State has

proclaimed its intention to impose prohibition, while

proposing to cut down the number of outlets of the

Beverages Corporation at the rate of 10% every year,

there is no proposal to reduce the number of five star

hotels. Apart from five star hotels, there are other

categories of Foreign liquor licencees, like Beer and Wine

Parlour licencees, club licenees etc. There is no proposal

to restrict the grant of licences to any of the said

categories. Therefore, the effect of the policy is only to

create a monopoly in liquor trade in favour of five star

hotels. Creation of such a monopoly, in favour of private

parties is neither permissible nor sustainable in law. The

policy has not been fully carried over to the amended

Rule 13(3) of the Foreign liquor Rules for the reason that,

there is no provision even in the amended Rule to phase

out the outlets of the Beverages Corporation. According


to the counsel, the object sought to be achieved being

safeguarding of the health of the persons who frequent

the bars, confining the same to five star hotels alone

would not achieve the said objective. The decision of the

Supreme court in the case of Bombay Dancing Bars is

relied upon to contend that there is no difference in the

nature of activity carried on in five star hotels and in

hotels having lesser star classifications.

32. Senior Counsel Sri. K.P.Satheesan points out

that, the Kerala Consumer Federation ('Consumerfed' for

short) to which FL-I retail licences are granted is a co-

operative society. Therefore, there is no justification for

not granting such licences to other private parties.

According to the Senior Counsel, sale and consumption of

foreign liquor within the precincts of a bar hotel are

subjected to closer regulation than a similar sale from a

retail shop conducted by the Beverages Corporation. In a

bar hotel, liquor is permitted to be sold only along with

the food. It is stipulated that the cost of liquor be billed

along with the food. Closure of such establishments


would leave the consumers free to purchase liquor in

bottles and to consume it indiscriminately and without

any control, wherever they may choose to consume the

same. The said course would only lead to more law and

order problems. It would not in any case result in a

reduction in the consumption of liquor, since the same is

freely available for purchase from the FL-1 shops. The

restriction now imposed would therefore be only counter

productive.

33. Senior Counsel Sri T.A. Shaji contends that, no

action under article 47 has been initiated by the State in

the present Abkari Policy. This is for the reason that, the

consumption of liquor has in no way been restricted. A

restriction has been placed only on the trade in liquor

through bar hotels. The said restriction does not and

cannot achieve the object of reducing consumption, in

any manner.

34. Senior Counsel Sri. S.Sreekumar representing

the four star hotels points out that there are only 33 four

star hotels in the state, whereas five hotels number only


20. The four star hotels are frequented only by the

financially well to do sections of the society. Four star

and five star hotels are grouped together for the purposes

of classification by the Ministry of Tourism, Government

of India. The only difference between a five star hotel

and a four star hotel is the existence of a swimming pool,

with marginal variations in the dimensions of the rooms.

The sale of liquor through four star and five star hotels

within the state accounts only for a small, miniscule

percentage of the total liquor sold in the state. There has

never been any complaint against the functioning of four

star hotels or with respect to the manner in which liquor

was sold or consumed in the premises of such hotels at

any time. Nor was the category of four star hotels

targeted for any type of restriction, at any time by the

State. At no time was there any proposal to impose

restrictions on the four star hotels. Therefore, the

present policy of not granting bar licences to four star

hotels is without any justification whatsoever.

35. According to the counsel, four star, five star


and heritage hotels form a class by themselves.

Therefore, the present policy that singles out five star

hotels alone for the purposes of conferring a benefit is

arbitrary and discriminatory. The decision in State of

Kerala v. Surendra Das (supra) is relied upon to

contend that the Hon'ble Supreme Court has proceeded

on the basis that two star and three star hotels stand on a

different footing in comparison to the four star and other

higher classification hotels under the Tourism Policy of

the Government of India. All the restrictions that were

sought to be imposed at that time concerned two star and

three star hotels. Therefore, the petitioners as well as

other four star hotels expected that their licences would

be renewed. The terms of reference made to the One

Man Commission by G.O.(MS) 12/13/T.D. dated

23.01.2013 also related only to the manner of functioning

of two star hotels, with no reference to the higher

category hotels like four star and five star. The report of

the One Man Commission, particularly paragraph 44 is

relied upon to contend that there is no justification


whatsoever for denying bar licences to hotels with four

star classification. It is contended that, the classification

on the basis of which bar licences have been denied to

four star hotels is discriminatory and violative of Article

14 of the Constitution.

36. Advocate N.N.Madhu takes strong exemption to

the action of the Government in not accepting and not

even referring to the opinions of the Taxation Secretary

as well as the report of the One Man Commission. The

Taxation Secretary has recommended that hotels having

three and four star classifications could be granted

renewal of licence. With respect to the bars that do not

conformed to the standards, the recommendation was

that, they should be given time to upgrade their facilities.

The recommendations of the Excise Commissioner are

also on similar terms. The recommendation regarding

refusal to grant licence was limited to those hotels that

do not have two star classification. According to the

counsel, as stated in the reply affidavit filed by the

petitioner represented by him, the total sales have only


increased after the closure of the bars. Apart from bar

hotels there are about five thousand toddy shops vending

toddy in the State. There are other categories of

establishments to which licences for sale of liquor are

granted. Therefore, the policy cannot achieve the desired

objective. It is further contended that, no mass

cancellation of licences, as done in the present case, is

envisaged under Section 26(e) of the Abkari Act.

37. Sri. George Poonthottam, Advocate, points out

on behalf of a four star hotel that, closure of bars has not

resulted in any reduction in the consumption of liquor, as

the statistics show. The bars constitute only 33% of the

outlets vending liquor within the state. By closure of the

bars, what has happened is that the sale has shifted to

FL-1 retail outlets. According to the counsel, there are

17 manufacturing units producing liquor within the state.

One unit is owned by the state. No attempt has been

made to reduce production. The entire sale of liquor both

wholesale and retail is conducted through outlets run by

the Beverages Corporation. There is no restriction on the


production or sale of liquor. Therefore, the availability of

liquor within the state is in no way affected by the

present policy. Consequently, the consumers are left free

to satisfy their requirements by taking recourse to the

other outlets. A further contention raised is that, even as

per the amended provision, the FL-3 licences are issued

with the object of promoting tourism. The said object has

been lost sight of while formulating the present policy.

The middle class tourists who patronize the State and

form the bulk of the tourist inflow, cannot afford bars that

are available in five star hotels. It is therefore pointed

out that, there is no nexus between the present policy and

the object, being promotion of tourism, that is sought to

be achieved.

38. Yet another contention raised is that, the policy

has not been framed after proper consideration of the

relevant issues or after due deliberations. It is contended

that a decision had been taken initially to renew all the

licences but, the same was subsequently given the go by.

The above aspect would be revealed by the Government


files. The Rules of business made under Article 166 of

the Constitution has not been complied with. As per Rule

44 of the Rules, a proposal has to originate from the

Department concerned and the Finance Ministry has to

consent. In the present case the procedure has not been

complied with.

39. It is further contended that the Tourism sector

accounts for a total inflow of Rupees four thousand crores

annually, to the State. Considering the potential for the

growth of tourism in the State, investments of crores of

Rupees have been made by various persons. Financing

Agencies have also funded many of the projects. The

State Bank of India has disbursed a whopping Rupees

Nine hundred crores to various establishments while the

Kerala Financial Corporation has advanced Rs.570

crores. The establishments that received the funds would

run into problems and would have to be eventually closed

down. Corporate meetings and conferences both national

and international that were expected to be conducted at

various scenic locations within the State have started


getting cancelled. They are shifted to other places like

Goa and Sree Lanka. The above vital aspect has not

engaged the attention of the policy makers. The policy to

confine bar licences to only five star hotels has come as a

bolt out of the blue to the entire tourism industry,

wreaking havoc and losses.

40. Advocate P. Chandrasekhar places reliance on

the Prohibition Act, 1950 and the Notification of 1967

suspending the provisions thereof, to point out that the

situation that was recognized, taken note of and accepted

by the State Government continues to exist till this date.

The situation has not changed in any manner. Prohibition

can be imposed only under the said Act, after

withdrawing the notification of 1967.

41. The trade in liquor is subject to two types of

controls in the State namely, regulation of the provisions

of the Abkari Act, 1077 and prohibition by the Prohibition

Act, 1950. Though the Prohibition Act has repealed the

regulatory enactment, the provisions thereof have been

revived by the notification of 1967 that has suspended the


Prohibition Act. The present attempt to introduce

prohibition through regulation, is according to the

counsel, unsustainable. The further contention of the

counsel is that, the licencee had a legitimate expectation

that the privilege granted to him by the licence would

continue at least till the expiry of the term thereof.

Therefore, the present cancellation of the licence before

the expiry of the term is absolutely unwarranted. The

legitimate expectation of the petitioner should have been

taken into account as a relevant factor by the authority

while arriving at the decision. Only where there is an

overriding public interest can the legitimate expectation

be superseded. In the present case, there is no

overriding public interest. Nor, is there any urgency in

the present case, since the professed object of the State

is only to impose prohibition over a period of ten years.

42. It is the case of the counsel that, the present

policy is unsustainable applying proportionality principle

also. The Court is the primary reviewing authority as

regards proportionality. The Courts in India have been


employing both the Proportionality Test as well as the

Wednesbury Principle in judicial review. In the light of

the above principles, what has to be proved is whether

the measure imposed was really necessary, whether it

has a legitimate nexus to the object and whether there

was a lesser measure that could have been adopted to

achieve the same result. A process of balancing would

have to be undertaken where the hardship as well as the

benefits are balanced to arrive at a conclusion as to

whether the impugned action could be sustained.

43. It is contended by the counsel that, the

legitimate expectation is only one facet of unfairness. In

the present case, the report of the One Man Commission

has arrived at its conclusions after a study in depth of the

situation prevailing in the State. The State Government

was waiting for the report of the One Man Commission as

well as the recommendations of the Taxation Secretary,

to formulate its Abkari Policy. The Abkari Policy does not

evidence a consideration of the said documents. There is

no evidence that prohibition is necessary. The report of


the One Man Commission has been simply ignored. None

of the stake holders have been consulted or taken into

confidence. Therefore, it is contended that the policy

document is a total contradiction in terms.

44. Advocate Saiby Jose Kidangoor has put forward

a further contention that, production of wine in the State

has been treated separately and is permitted by a

separate set of rules that govern such activity. With the

existence of toddy shops and various other

establishments not only producing but also selling liquor,

the proclaimed object of prohibition cannot be achieved

by the measures now adopted.

45. Advocate Roy Chacko contends that Rule 36 of

the Foreign Liquor Rules confers unguided and

unchannelised powers on the authorities. As per the said

rule, the Excise Commissioner has been empowered to

revoke any licence after giving 15 days notice. The said

provision according to the counsel is arbitrary. While

formulating the present Abkari Policy, no provision has

been made for rehabilitation of the section of workers


who would be rendered jobless, consequent upon the

implementation thereof. It is further contended that, the

present amendment made pursuant to the Abkari Policy

is ultra vires the Rule making power of the State under

Section 29 of the Abkari Act. According to the Counsel,

there is no justification for permitting a bar in a five star

hotel, when it is permissible for five star classification to

be granted to a hotel even if it does not have a bar.

46. According to Sri. R.Harikrishnan, there is no

substantial difference between the facilities offered by

four star and five star hotels. The rates at which liquor is

sold in both the categories of hotels also vary only

marginally. Both the categories of hotels have all along

been grouped together as homogenous class. There is no

justification for treating them separately for the purpose

of denying to four star hotels the facility of a bar licence.

It is also pointed out that, the report of the One Man

Commission has taken note of the problem of migrant

workers and referred to the orderly behavior of people

within the premises of bar hotels. However, the report


has not been considered while formulating the policy.

47. According to Senior Counsel Sri. C.Ramesh

Chander, the present policy is arbitrary and liable to be

set aside. It is pointed out that five star hotels are

available only in a few districts of the State of Kerala. At

the same time, tourist destinations of importance are

spread all over the state. Confining bar facility only to

five star hotels would adversely affect the future

prospects of development of tourism in the State. The

consequence would be to render jobless not only the

persons working in the liquor trade but also people

working in the tourism sector. Substantial loss of

Revenue to the State Exchequer is also a certain

consequence.

48. Advocate Sivan Madathil points out that the

present Abkari policy is in direct conflict with Section

13A of the Abkari Act. Section 24 describes the forms

and conditions of licence. Section 29 confers power on

the State to frame rules. Section 69 according to the

counsel is unconstitutional. Rule 36 confers unguided


power on the Excise Commissioner to revoke a licence

and is unconstitutional, according to the counsel. The

present cancellation of licence is violative of Article 14. It

is contended that, the present Abkari Policy has been

framed without any consultation with the stake holders.

Strong exception is taken by the counsel to the manner in

which the policy has been formulated, without the aid and

advice of the Council of Ministers. There is no provision

to ratify a decision as purportedly done in the present

case. Ratification of a policy issued by the Government,

ex post facto, is unsustainable.

Contentions on behalf of the State

49. The contentions made on behalf of the

petitioners are refuted on behalf of the State by pointing

out in the first place that, the question as to whether bar

licences should be issued to the petitioners or to any

other persons is a matter of policy of the Government.

Judicial interference with matters of policy is limited and

confined to situations where there are compelling

circumstances justifying such intervention. In the


present case, there are no such compelling

circumstances. According to Senior Counsel Sri.Kapil

Sibal who represents the State, the State has a duty,

which is a fundamental duty under Article 47 of the

Constitution, to bring about prohibition of the

consumption of intoxicating drinks and drugs which are

injurious to health. In the face of the constitutional duty

cast on the state, the present State action cannot be

characterized as unjustified or uncalled for. The State is

only striving to discharge its fundamental duty.

According to the learned Senior Counsel, no citizen has a

fundamental right to trade in liquor. Article 19(1)(g) read

with Article 19(6) and Article 47 of the Constitution

obligates the State to initiate action with a view of reduce

consumption of liquor.

50. The present policy is one intended to reduce

consumption of liquor in public places. It is for the said

reason that, the consumption of liquor in bar hotels have

been banned. The policy would put pressure on the

persons who frequent the bars to restrict their


consumption to the confines of their homes, thereby

subjecting their activity to the influence of their family

members. The said restriction is absolutely in tune with

the object of prohibition which the State wants to

ultimately achieve.

51. Reliance is placed on the Constitutional Bench

decision of the Supreme Court Khoday Distilleries Ltd

v. State of Karnataka [(1995) 1 SCC 574] to contend

that trade in liquor is objectionable and no citizen has a

fundamental right to trade in liquor. The power of

control of the State is intended to protect the society.

Any State law made with the object of imposing

prohibition has to be viewed as a legislation made in

discharge of the fundamental duty of the Sate under

Article 47 of the constitution. The right to conduct trade

or business varies in scope and content depending on the

substance in which such trade is proposed to be

undertaken. In the case of a substance that is res

commercium, the citizen would have greater freedom.

Whereas his right would be considerably restricted, if the


substance in which the trade is proposed, is res extra

commercium. The State has a duty to protect the public

from deleterious substances. Intoxicating liquor being a

substance that is res extra commercium, it is contended

that, any restriction on a trade in the said substance

would have to be viewed as a restriction made in

discharge of the Constitutional duty under Article 47.

52. With respect to the contentions put forward

alleging discrimination against the petitioners, it is

pointed out by Senior Counsel Sri. Kapil Sibal that, the

Abkari Act does not classify hotels into two star, three

star or four star. The classification is made by the

Ministry of Tourism, Government of India. The said

classification was only adopted as a method of

differentiation among the various categories of hotels by

the State. Initially, the two star hotels were excluded.

The action was challenged before the Courts, but was

found to be in order. Thereafter, three star hotels were

excluded, the said action was also sustained. By

confining bars to only hotels having five star


classification, the opportunities to consume intoxicating

liquor available to youngsters and students are reduced

substantially. The major consumption of liquor takes

place in hotels classified as two, three and four stars. As

a consequence of the present policy, the consumption of

liquor in public places would be limited to five star hotels

alone. The people who frequent five star hotels form a

very limited category and the consumption of such

establishments also is not substantial.

53. The fact that the liquor is available freely in the

retail outlets does not militate against the policy for the

reason that, no measure to curtail the sale of liquor in

bottles has been adopted. The restriction is limited to

consumption of intoxicating liquor in public places. For

the only reason that, liquor is being sold in bottles from

retail shops, the validity of the present policy is not

affected in any way.

54. The refusal of the State to renew licenses of the

bar hotels does not affect their business in any manner.

It is only their bars that would have to be closed down.


Their hotels with the other avenues of business like

restaurants, lodging etc, could be continued without any

restriction. If their contention is that, the bars were the

major source of their income, the said fact would justify

the State action, for the reason that closure of such bars

would definitely reduce liquor consumption. If the bars

were not their main source of revenue, they are not

seriously affected by the closure of their bars. Either way,

their complaint lacks substance.

55. With respect to the decision of the Hon'ble

Supreme Court in the Bombay Dancing Bars case, relied

upon by the counsel for the petitioners, it is pointed out

that the dictum in the said case has no application to the

facts of the present case. The ban in the said case was to

find a solution to the malady of obscene dancing and

other criminal activities. Attempt to ban such activity had

prevented all types of dance performances. It was the

unqualified ban that was found to be unsustainable by the

Supreme Court. The dictum in the said case has no

application to the facts of the present case for the reason


that it is only the consumption of intoxicating liquor in

public places that include bars, that has been stopped.

According to the counsel, the present policy is only part

of a consistent policy that was being pursued by the State

from 2002 onwards. Therefore, the present measure is

not a sudden decision but a decision at which, the State

has arrived in a phased manner, over a period of 12

years. Since the petitioners do not have a right to trade

in liquor, they cannot question the present policy. The

fundamental right to conduct trade or business or the

freedom of industrial trade and commerce

constitutionalised by Article 301 to 304 are not applicable

in respect of a trade in liquor. It is for the said reason

that the various restrictions imposed by the State on the

trade have been sustained by the Apex Court over the

years.

56. It is the further contention of the learned

Senior Counsel that, Section 29 of the Abkari Act confers

power on the State to frame rules. Section 69 provides

that such rules would have the force of law. In other


words, the rules so made would become part of the

enactment. Therefore, the amendment presently made

also has become the part of the enactment by the force of

Section 69. Section 26(e) confers power on the Excise

Commissioner to cancel the licence where the conditions

thereof permitting such cancellation, apply. The

provisions of the FL-3 licence contains such a condition.

Therefore, the cancellation of the licences of the

petitioners is in order. Rule 26 of the Foreign Liquor

rules also confers power on the Excise Commissioner to

cancel the licence after giving 15 days notice. Such

notice has been given. Therefore, the cancellation in

these cases is proper.

57. The learned Senior Counsel further points out

that the FL-3 licenses issued to the petitioners had been

renewed only provisionally. Though the Abkari Policy

was being formulated at the beginning of each financial

year, the present Abkari Policy could not be formulated at

that time for the reason that, the Lok Sabha elections had

been notified and the Model Code of Conduct


promulgated by the Election Commission was in force. In

view of the above peculiar situation, as per Government

Order dated 02.04.2014, permission was granted for

renewal of the existing bar licenses, provisionally and

subject to the Abkari Policy to be formulated later. It was

in accordance with the said Government Order that the

licenses of the petitioners were renewed. It is specifically

stipulated that the licenses were renewed only

provisionally and subject to the Abkari Policy to be

formulated. Though the petitioners had paid the licence

fee for the entire financial year and the State had

received such payment, the petitioners very well knew

that the renewal was only provisional and subject to the

Abkari Policy that was awaited. Therefore, they very well

knew that they had no right to continue their operations

for the entire financial year. For the above reason, it

cannot be said that they were taken by surprise. The

provisional licence that was granted, was liable to be

cancelled, on the basis of the stipulations contained in the

Abkari Policy that has come into force. Therefore, the


present cancellation is not on any one of the grounds that

are mentioned in Section 26. Since the power of

cancellation is available to the Excise Commissioner in

view of Section 26(e) and also in view of the conditions

subject to which the licence was provisionally granted,

the same was cancelled after complying with the mandate

of Rule 36 of Foreign liquor Rules. The action is fully

justified.

58. The learned Senior Counsel further submits

that the recommendations of the One Man Commission as

well as those of the Taxation Secretary were not binding

on the Government. They were only recommendatory in

nature and the Government was at liberty to take its own

decision while formulating the policy. It was not

necessary for the Government to justify its policy with

reasons for the reason that, what is framed was its policy.

The policy is one that has been made mention of in its

Election Manifesto. Therefore, according to the learned

Senior Counsel, the contentions of the petitioners are

only to be rejected and the writ petitions dismissed.


Reply on behalf of the petitioners

59. In reply, Senior Counsel Sri Aryama Sundaram

points out that, since the Government Policy is aimed at

prohibiting drinking in public places, it has to be

examined whether the policy can achieve the said

purpose. There are absolutely no allegations in the policy

that any problems are created by the hotels classified as

two, three and four star. The production and availability

of liquor in the market remains unaltered. There is also

no restriction in increasing the production of liquor on

the basis of demand. Only one avenue has been singled

out for closure that is the bar hotels. The bar hotels

represents the smallest avenue of consumption of liquor.

The major avenues are retained and left untouched. The

citizen has a right to carry on business in liquor, he also

has a right not to be discriminated in the manner of

placing restrictions on the exercise of the said right.

60. A perusal of the policy shows that the same is

silent with respect to the mischief that is sought to be

remedied. The issue has not even been addressed though


it is claimed that the policy is intended to achieve

prohibition. The materials obtained by the State for the

purpose of formulating its policy have neither been

referred to or considered. On the contrary, the materials

available in the present case viz, the report of the One

Man Commission as well as the report of the Taxation

Secretary do not justify the policy. Therefore, the policy

is arbitrary.

61. According to the counsel, the petitioners have

been subjected to discrimination in the matter of

enforcing controls on their trade. The classification does

not protect any public interest, in view of the fact that,

even on implementation of the policy, the availability of

liquor would continue unaffected. Therefore, there is no

justification for the classification. It is the further

contention of the counsel that, an executive action cannot

enforce the restriction contemplated by Article 19(6) of

the constitution. A fundamental right can be denied only

by a plenary legislation and not by an executive action.

The petitioners being existing hotels had right of renewal


of their licences that has been denied to them without any

justification. Therefore, according to the learned Senior

Counsel, the writ petitions are only to be allowed.

Contentions of the Prohibitionists

62. Apart from the above contentions raised by the

petitioners and the respondent State, the protagonists of

prohibition who have got themselves impleaded, pro bono

publico, have also addressed the Court supporting the

Abkari Policy. Advocate Basil Attipetty has referred to

the evil effects of excess consumption of alcohol.

According to the counsel, the fact that investments

running to crores of rupees have been made does not

confer any right on a person to conduct trade in liqour. It

is the settled position of law that no citizen has a right to

trade in liquor. The counsel referred to the liquor

tragedies that had occurred in the State, in the past and

contended that only complete prohibition could root out

the malady of consumption of alcohol. The licences of the

petitioners were renewed only on provisional basis and

subject to the Abkari Policy. Therefore, the cancellation


thereof cannot be found fault with.

63. Advocate Johnson Manayani also draws my

attention to the evil effects of the use of alcohol. The

social problems created by excess drinking, of families

driven to the streets by the profligacy of the bread winner

also was narrated in justification of the present policy.

64. Advocate Kaleeswaram Raj justifies the

termination of the Bar licences by pointing out that, since

the action was on the basis of the policy that has been

formulated, no notice was necessary. In view of the

amendments made, incorporating the policy into the

amended Rule 13(3), the policy has acquired the status of

a legislation. Therefore, the principles of Natural Justice

have no application. According to the counsel, therefore,

no interference with the Abkari Policy is either called for

or necessary. The writ petitions are only to be dismissed.

Does the citizen have a right to trade in

potable liquor?

65. Since it has been argued before me that the

petitioners have a fundamental right to trade in liquor, I

shall address the same first. Potable Alcohol is nothing


but diluted ethyl alcohol having a chemical formula

C2H5OH. Ethyl Alcohol is a versatile chemical, capable

of being put to a wide variety of uses in the field of

industry as well as medicine. Of course it is also capable

of being consumed as an intoxicant, in its diluted form.

The fact that Ethyl Alcohol is capable of being put to a

variety of uses, has been recognized in our Constitution

itself. It is for the said reason that the constitutional

duty in Art.47 has been limited to bring about

prohibition of consumption of intoxicating drinks,

except for medicinal purposes. Thus, consumption for

medicinal purposes has been exempted. The power to

legislate on Ethyl Alcohol has been divided among the

Centre and the States. As per the Seventh Schedule,

Entry 8, list II, the States have been conferred with

legislative competence only over intoxicating liquors that

is to say production, manufacture, possession, transport,

purchase and sale of intoxicating liquors. Similarly as per

Seventh Schedule, Entry 51, list II, the power to levy

duties of excise on alcoholic liquors for human


consumption alone is conferred on the states. The

above division of powers is clear from Entry 84, list 1

Seventh Schedule, by which the Centre has been

conferred with power to levy duties of excise on tobacco

and other goods manufactured in India except,

inter alia, alcoholic liquors for human consumption.

Therefore, the power of the State to legislate in respect of

alcohol is confined t

Bar Case Judgment

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