Supreme Court Addresses Refund of License Fees After Liquor Ban in Bihar: State of Bihar vs. Riga Sugar Co. Ltd. & Ors. (2019)

Introduction

Date of the Judgment: 18 October 2019

Citation: (2019)

Judges: L. Nageswara Rao, J., Hemant Gupta, J.

Can a state government refuse to refund license fees to liquor manufacturers when their operations are disrupted due to the government’s own actions, such as sealing premises or imposing a ban? The Supreme Court of India recently addressed this question in a series of appeals filed by the State of Bihar against various liquor manufacturers. The core issue revolved around whether the manufacturers were entitled to refunds of license fees and differential amounts for periods when their operations were suspended or their premises were sealed, due to alleged violations or policy changes. The bench consisted of Justices L. Nageswara Rao and Hemant Gupta.

Case Background

The State of Bihar issued a tender notice on 31 January 2014, inviting applications for the grant of Exclusive Privilege for the manufacture and supply of country liquor in PET bottles. The state was divided into 17 zones, with the lowest bidders being eligible for the Exclusive Privilege in their preferred zone.

M/s Riga Sugar Company Limited was awarded the Exclusive Privilege for Zone 11 (Muzzafarpur, Sitamarhi, and Sheohar districts) for the period between 1 April 2014 to 31 March 2019. The base rate for a 200 ML PET bottle was set at Rs. 5.78, with the difference between the base price and the bid price payable in advance every three months. The company was also required to obtain a license in Form 27, paying Rs. 1 per liter based on the Minimum Guaranteed Quantity (MGQ).

Riga Sugar was required to supply 5,25,220.786 LPL of country liquor per month. After obtaining the license, they established a bottling plant in Muzzafarpur and began supplying liquor to Bihar State Beverages Corporation Limited (BSBCL) on 1 February 2015. Due to insufficient supply, the company received a warning and was later penalized Rs. 1 lakh on 9 December 2015. Following an inspection report on 13 December 2015, their premises were sealed for not meeting the minimum supply quantity.

On 21 December 2015, the State announced a New Excise Policy, imposing a total ban on alcohol consumption in a phased manner, with no new licenses for manufacturing, trading, or consumption of country liquor to be granted from 1 April 2016. Riga Sugar challenged the sealing order, and the High Court allowed their writ petition on 25 January 2016, citing a lack of opportunity before the sealing order.

Subsequently, on 20 January 2016, the company’s license was suspended for 90 days under Section 42(3) of the Bihar and Orissa Excise Act, 1915, due to the liquor’s higher strength (70.8 degrees UP instead of the required 60 degrees UP). This suspension was later withdrawn on 4 February 2016. A notification on 4 February 2016, prohibited the production, sale, and utilization of all country liquor from 1 April 2016, ordering the destruction of remaining stocks.

Riga Sugar sought a refund of license fees and differential amounts for the period between 13 December 2015 and 4 February 2016, during which its unit was closed, amounting to Rs. 1,29,42,928. A notification on 31 March 2016, implemented the New Excise Policy, imposing a complete ban on manufacturing, bottling, distribution, sale, purchase, possession, and consumption of country liquor from 1 April 2016.

Timeline

Course of Proceedings

The High Court initially allowed the writ petition filed by M/s Riga Sugar Company Limited against the sealing order of 13 December 2015, on 25 January 2016, citing a lack of opportunity before the order was passed. Subsequently, the company’s license was suspended on 20 January 2016, due to the liquor’s higher strength, which led to another writ petition. This petition was withdrawn after the Excise Commissioner withdrew the suspension order on 4 February 2016. The High Court then heard the writ petition seeking a refund of license fees and differential amounts, along with three other similar petitions, and directed the State to refund the amounts, citing the earlier adjudication that the sealing of the premises was unjust.

Legal Framework

The case primarily involves the interpretation and application of the Bihar and Orissa Excise Act, 1915. Specifically, Section 42 of the Bihar and Orissa Excise Act, 1915, is relevant, which deals with the powers of the authorities to cancel or suspend licenses.

Section 42(3) of the Bihar and Orissa Excise Act, 1915, allows for the suspension of a license.

Section 42(4) of the Bihar and Orissa Excise Act, 1915, states that:

“the holder of a licence shall not be entitled to any compensation for its cancellation or its suspension nor to the refund of any fee or deposit made.”

Arguments

Appellant’s Arguments (State of Bihar):

• The State argued that the tender conditions were incorporated into the Exclusive Privilege, and the license was granted as per the scheme of the Bihar and Orissa Excise Act, 1915. The State had supervisory control over the activities of the Respondent.

• The sealing of the premises on 13 December 2015, was due to the non-supply of the prescribed quantity of country liquor, despite warnings and penalties.

• The suspension of the license on 20 January 2016, was due to the liquor’s higher strength, which was a separate violation of the license conditions.

• The State relied on Clause 22 of the license, stating that the Respondent is not entitled to any compensation.

• The State also cited Section 42(4) of the Bihar and Orissa Excise Act, 1915, which states that the licensee is not entitled to compensation or refund for cancellation or suspension of the license.

• The State contended that the High Court erred in clubbing all four writ petitions together, as the facts were different in each case.

• The State questioned the High Court’s finding that a show-cause notice was necessary before a suspension order could be passed.

Respondent’s Arguments (M/s Riga Sugar Co. Ltd.):

• The Respondent argued that the sealing order dated 13 December 2015, was set aside by the High Court on 25 January 2016, and this judgment has become final. Therefore, the Respondent is entitled to a refund of the license fee and differential amount for the period between 13 December 2015 and 20 January 2016.

• The order of suspension on 20 January 2016, was not brought to the notice of the High Court when the writ petition against the sealing order was heard.

• No notice was given before the suspension order was passed. The writ petition challenging the suspension order was withdrawn due to the revocation of the suspension.

• The Respondent argued that it is entitled to a refund of the license fee and differential amount even for the period between 20 January 2016 and 4 February 2016.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the Respondent is entitled to a refund of the license fee and the differential amount for the period during which the unit was sealed.

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

Judgment

The Supreme Court upheld the High Court’s decision, stating that the Respondent was entitled to a refund of the license fee and differential amount for the period during which its unit was sealed.

What weighed in the mind of the Court?

The Court’s decision was primarily influenced by the procedural lapses in the actions of the State authorities. The fact that the sealing order was set aside by the High Court in an earlier proceeding weighed heavily in favor of the Respondent. Furthermore, the lack of a show-cause notice before the suspension order was passed was a significant factor. The Court emphasized the punitive nature of orders of cancellation and suspension, requiring that the licensee be given an opportunity to be heard before such orders are passed.

The Court’s reasoning was based on the principle of natural justice, which requires that a person be given a fair opportunity to be heard before an adverse order is passed against them. The Court did not delve into the merits of the allegations against the Respondent but focused on the lack of due process.

Logical Reasoning:

The Court did not consider alternative interpretations of the law that would deny the refund. The Court’s focus was on the procedural lapses, which were sufficient to decide the case in favor of the Respondent.

The Court’s decision is clear and accessible. It emphasizes the importance of due process in administrative actions.

The reasons for the decision are:

• The sealing order was set aside by the High Court.
• No show-cause notice was given before the suspension order.
• Orders of cancellation and suspension are punitive and require an opportunity to be heard.

The Court quoted the following from the judgment:

“Admittedly, the closure for the period between 13.12.2015 and 20.01.2016 was the subject matter of the judgement in CWJC No.1364 of 2016 which was allowed by the High Court and the judgment has become final.”

“We are also of the opinion that the Respondent is entitled for refund of the licence fee and differential amount even for the period of suspension i.e. 20.01.2016 to 04.02.2016 for the reason that no show-cause notice was given before the order was passed.”

“Since orders of cancellation and suspension are punitive, the licensee should be given an opportunity before the licence is cancelled or suspended.”

There were no dissenting opinions in this case.

Key Takeaways

• State authorities must follow due process when suspending or canceling licenses.
• Licensees are entitled to a refund of fees for periods during which their operations are illegally suspended or their premises are sealed.
• A show-cause notice is mandatory before any punitive action, such as suspension or cancellation of a license, is taken.
• The principle of natural justice must be followed in administrative actions.

Directions

The Supreme Court directed the State of Bihar to refund the license fee and the differential amount to M/s Riga Sugar Co. Ltd. for the period during which its unit was sealed.

Specific Amendments Analysis

Not applicable as the judgment does not discuss any specific amendment.

Development of Law

The ratio decidendi of this case is that a licensee is entitled to a refund of license fees for the period during which their operations are illegally suspended or their premises are sealed, especially when there is a lack of due process, such as not issuing a show-cause notice before suspension. The Court emphasized the importance of following natural justice principles. This case reinforces the principle that administrative actions must be fair and transparent, and that licensees cannot be penalized without being given an opportunity to be heard.

Conclusion

In conclusion, the Supreme Court upheld the High Court’s decision, directing the State of Bihar to refund the license fee and differential amount to M/s Riga Sugar Co. Ltd. for the period during which its unit was sealed. The Court emphasized the importance of due process, particularly the requirement of a show-cause notice before suspending a license. This judgment underscores the need for administrative actions to be fair and transparent, ensuring that licensees are not penalized without an opportunity to be heard.