Supreme Court clarifies CS-1 license eligibility in Madhya Pradesh liquor case (2019)

LEGAL ISSUE: Whether a CS-1 license for manufacturing, bottling, and wholesale supply of country spirit can be denied for non-participation in tender process.

CASE TYPE: Excise Law

Case Name: Gwalior Distilleries Pvt. Ltd. vs. The State of Madhya Pradesh & Ors.

Judgment Date: 15 February 2019

Date of the Judgment: 15 February 2019

Citation: [Not Available in Source]

Judges: L. Nageswara Rao, J., M.R. Shah, J.

Can a state deny a liquor manufacturing license to an applicant solely because they did not participate in a tender process? The Supreme Court of India addressed this question in a recent case involving Gwalior Distilleries, clarifying the conditions for obtaining a CS-1 license in Madhya Pradesh. The core issue revolved around whether participation in a tender is a mandatory prerequisite for obtaining a license to manufacture and supply country liquor. The Supreme Court bench comprising Justices L. Nageswara Rao and M.R. Shah delivered the judgment.

Case Background

Gwalior Distilleries Pvt. Ltd. (the Appellant) is a manufacturer of spirits, holding a D-1 license since 2017. In 2018, the State of Madhya Pradesh issued a tender for the supply of country spirit in sealed bottles. A condition for participation in the tender was that the tenderer must possess a CS-1 license for manufacturing, bottling, and wholesale supply of country spirit. The Appellant challenged this condition, arguing that under the Madhya Pradesh Country Spirit Rules, 1995 (the Rules), a CS-1 license could only be granted after a successful tender and allotment of an area for supply.

The Appellant’s initial challenge to the tender condition was dismissed by the High Court, which stated that neither the Excise Act, 1915 (the Act) nor the Rules required allotment of an area for grant of a CS-1 license. Following this, the Appellant applied for a CS-1 license, which was rejected on the grounds that they had not participated in the tender process. This rejection led to another writ petition, which was also dismissed by the High Court, leading to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The Appellant initially challenged Clause 2(i) of the tender notice dated 03.02.2018 in the High Court of Madhya Pradesh, arguing that the requirement of a CS-1 license for participation was contrary to the Rules. The High Court dismissed this petition, observing that the Act and Rules did not mandate area allotment as a prerequisite for a CS-1 license. Subsequently, when the Appellant’s application for a CS-1 license was rejected for not participating in the tender, they filed another writ petition, which was also dismissed. The High Court held that area allotment was a prerequisite for a CS-1 license, contradicting its earlier observation. This led to the appeal before the Supreme Court.

Legal Framework

The Supreme Court examined Section 18 of the Excise Act, 1915 and Rule 3 of the Madhya Pradesh Country Spirit Rules, 1995. Section 18 of the Act empowers the State Government to lease the right to manufacture, supply, and sell liquor. Rule 3 of the Rules outlines the procedure for granting a CS-1 license.

Section 18 of the Excise Act, 1915 states:

“18. Power to grant lease of right to manufacture, etc. — (1) The State Government may lease to any person, on such conditions and for such period as it may think fit, the right— (a) of manufacturing, or of supplying by wholesale or of both; or (b) of selling by wholesale or by retail; or (c) of manufacturing or of supplying by wholesale, or of both, and selling by retail; and liquor or intoxicating within any specified area.”

Rule 3 of the Madhya Pradesh Country Spirit Rules, 1995 states:

“3. Grant of Licence. – (1) (a) A licence in Form C.S.1 for manufacture, bottling and wholesale supply of country spirit may be granted by the Excise Commissioner after approval of the State Government. It shall commence on such date as may be specified therein and be in force for such period as the State Government may decide and shall be for such area or areas as may be determined by the Excise Commissioner from time to time. (b) [Licence in Form C.S. 1 shall be granted by the Excise Commissioner as aforesaid on payment of fee in advance at the rate of one lakh rupees for a period of one year’s licence or such proportional amount of fees for the period of licence to be granted.] The licensee shall be required to deposit additional amount of Rs.5 lacs as security in cash or in any other form as may be directed by the Excise Commissioner for the due observance of conditions of licence, provisions of the Act and the rules made thereunder and orders issued by State Government or Excise Commissioner. The Excise Commissioner may ask for additional sum as security amount not exceeding Rs.10 lacs as and when he deems it necessary in circumstances of repeated breaches of conditions of increase in area of supply and the licensee shall comply with such order within 15 days of its communication to him.”

The Court noted that neither Section 18 of the Excise Act, 1915 nor Rule 3 of the Rules specifies that a CS-1 license can only be granted to those who participate in a tender process.

Arguments

Appellant’s Submissions:

• The Appellant contended that the requirement of possessing a CS-1 license to participate in the tender was flawed because the Rules stipulate that a CS-1 license is granted after the allotment of an area for supply, which is determined through the tender process.
• The Appellant argued that the rejection of their application for a CS-1 license was arbitrary and discriminatory, as other distillers similarly situated were allowed to participate in the tender process without holding a CS-1 license.
• The Appellant relied on the High Court’s earlier observation that the Act and Rules do not require area allotment as a condition for issuing a CS-1 license.
• The Appellant argued that the rejection of their application for a CS-1 license violated Articles 14 and 19(1)(g) of the Constitution of India, which guarantee equality and the right to practice any profession or carry on any occupation, trade, or business.

Respondent’s Submissions:

• The Respondents argued that the allotment of an area is a pre-condition for the grant of a CS-1 license.
• The Respondents contended that there is no fundamental right to trade in liquor.
• The Respondents justified the rejection of the Appellant’s application on the ground that the Appellant did not participate in the tender process.

Innovativeness of the argument: The Appellant innovatively argued that the tender condition requiring a CS-1 license was self-defeating because the license itself was contingent on the tender process, creating a circular and exclusionary system.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section but addressed the following key questions:

1. Whether the High Court was correct in holding that allotment of an area is a pre-condition for the issuance of a CS-1 license.
2. Whether the rejection of the Appellant’s application for a CS-1 license was arbitrary and discriminatory.
3. Whether participation in the tender process is a mandatory condition for obtaining a CS-1 license under Section 18 of the Excise Act, 1915 and Rule 3 of the Madhya Pradesh Country Spirit Rules, 1995.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following legal provisions and case laws:

Legal Provisions:

• Section 18 of the Excise Act, 1915: This section grants the State Government the power to lease the right to manufacture, supply, and sell liquor. The court noted that this section does not mention that a CS-1 license can only be granted to a person who has participated in the tender process.
• Rule 3 of the Madhya Pradesh Country Spirit Rules, 1995: This rule outlines the procedure for granting a CS-1 license for manufacturing, bottling, and wholesale supply of country spirit. The court observed that this rule does not specify that a CS-1 license can only be granted to a person who participated in the tender process.

Case Laws:

• State of M.P. & others v. Nandlal Jaiswal & others [1986] 4 SCC 566: The Supreme Court referred to this case to emphasize that while the State has exclusive privilege in the matter of liquor trade, it cannot act arbitrarily while granting such rights to others and must comply with Article 14 of the Constitution.

Judgment

How each authority was viewed by the Court?

✓ The Court examined Section 18 of the Excise Act, 1915 and found that it does not impose a condition that a CS-1 license can only be granted to someone who participated in a tender process.

✓ Similarly, the Court examined Rule 3 of the Madhya Pradesh Country Spirit Rules, 1995 and found no condition that a CS-1 license can only be granted to a person who participated in the tender process.

✓ The Court relied on State of M.P. & others v. Nandlal Jaiswal & others [1986] 4 SCC 566, to emphasize that while the State has exclusive privilege in the matter of liquor trade, it cannot act arbitrarily while granting such rights to others and must comply with Article 14 of the Constitution.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Absence of Legal Basis: The Court found no explicit provision in Section 18 of the Excise Act, 1915 or Rule 3 of the Madhya Pradesh Country Spirit Rules, 1995 that mandates participation in a tender process as a prerequisite for obtaining a CS-1 license.
• Arbitrariness and Discrimination: The Court noted that the rejection of the Appellant’s application was arbitrary, especially since other similarly situated distillers were allowed to participate in the tender without possessing a CS-1 license. This highlighted a violation of Article 14 of the Constitution.
• High Court’s Inconsistency: The Court pointed out that the High Court contradicted itself by first stating that area allotment is not a prerequisite for a CS-1 license and then later holding that it is, which influenced the Supreme Court’s decision to set aside the High Court’s judgment.

Logical Reasoning:

The Court rejected the argument that area allotment is a pre-condition for the issuance of a CS-1 license, stating that “To our understanding, Rule 3 (1) provides for allotment of an area to a person who is given a CS-1 licence.” The Court also emphasized that there was no basis in law for the rejection of the Appellant’s application on the ground that they did not participate in the tender process, noting that “There is no condition either in Section 18 or Rule 3 that CS-1 licence will be granted only to a person who participated in the tender process.” The Court further stated, “The order passed by the Respondent No.2 is arbitrary and contrary to Section 18 of the Act and Rule 3 of the Rules.”

The Court did not find any alternative interpretations that could support the High Court’s view that tender participation was a mandatory pre-condition for CS-1 license. The court also noted that the High Court had contradicted itself by first stating that area allotment is not a prerequisite for a CS-1 license and then later holding that it is.

The Court concluded that the Respondents should consider the Appellant’s application for a CS-1 license strictly in accordance with the law. The Court also held that the Respondents should not insist on the condition that the Appellant should have participated in a tender and should have been allotted an area of operation.

There was no dissenting opinion in this case.

Key Takeaways

• A CS-1 license for manufacturing, bottling, and wholesale supply of country spirit in Madhya Pradesh cannot be denied solely on the ground that the applicant did not participate in a tender process.
• The requirement of tender participation as a prerequisite for obtaining a CS-1 license is not supported by Section 18 of the Excise Act, 1915 or Rule 3 of the Madhya Pradesh Country Spirit Rules, 1995.
• State authorities must adhere to the principles of equality and non-arbitrariness when granting licenses for liquor trade.
• The judgment clarifies that area allotment is not a pre-condition for the grant of a CS-1 license but rather a subsequent step for a licensee.

Directions

The Supreme Court directed the Respondents to consider the Appellant’s application for a CS-1 license in accordance with the Act and the Rules, without insisting on the condition that the Appellant should have participated in a tender and should have been allotted an area of operation.

Development of Law

The ratio decidendi of this case is that participation in a tender process is not a mandatory requirement for obtaining a CS-1 license under the Madhya Pradesh Excise Act and Rules. This judgment clarifies the legal position and ensures that the State cannot arbitrarily deny licenses based on extraneous conditions not found in the law. This ruling ensures that the State adheres to the principles of equality and non-arbitrariness while granting licenses.

Conclusion

The Supreme Court’s judgment in Gwalior Distilleries Pvt. Ltd. vs. The State of Madhya Pradesh & Ors. clarifies that a CS-1 license cannot be denied solely for non-participation in a tender process. The Court emphasized that the State must act within the bounds of the law and cannot impose arbitrary conditions not supported by the relevant statutes and rules. This decision ensures a fairer and more transparent licensing process for liquor manufacturers in Madhya Pradesh.

Category:

Excise Law

Madhya Pradesh Excise Act, 1915

Section 18, Madhya Pradesh Excise Act, 1915

Madhya Pradesh Country Spirit Rules, 1995

Rule 3, Madhya Pradesh Country Spirit Rules, 1995

FAQ

Q: What is a CS-1 license?

A: A CS-1 license is a license for the manufacture, bottling, and wholesale supply of country spirit in Madhya Pradesh.

Q: Can the government deny a CS-1 license if I didn’t participate in the tender process?

A: No, according to the Supreme Court, the government cannot deny a CS-1 license solely on the ground that you did not participate in the tender process.

Q: What does the Supreme Court say about the requirement of area allotment for a CS-1 license?

A: The Supreme Court clarified that area allotment is not a pre-condition for obtaining a CS-1 license. It is a subsequent step for a licensee.

Q: What should I do if my application for a CS-1 license was rejected because I did not participate in the tender?

A: You can rely on this Supreme Court judgment to argue that your application should be considered without the condition of tender participation.

Q: Does this judgment apply to other states?

A: This judgment specifically addresses the Madhya Pradesh Excise Act and Rules. However, the principles of equality and non-arbitrariness apply to all states, and this judgment may have persuasive value in similar cases.