Supreme Court Upholds Liquor License Allotment, Dismisses Challenge Based on Locus Standi: Suresh Chandra vs. Joga Singh Bisht (26 October 2020)

Date of the Judgment: 26 October 2020
Citation: 2020 INSC 777
Judges: L. Nageswara Rao, Hemant Gupta, and Ajay Rastogi, JJ.
Can a High Court interfere with a government contract based on a claim of potential revenue loss by a party who did not even participate in the bidding process? The Supreme Court of India recently addressed this question in a case concerning the allotment of a liquor license. The Court held that a person who did not participate in the bidding process lacks the locus standi to challenge the allotment. The judgment was delivered by a three-judge bench comprising Justices L. Nageswara Rao, Hemant Gupta, and Ajay Rastogi.

Case Background

The case revolves around the allotment of a foreign liquor shop license in Pithoragarh, Uttarakhand. Initially, on 23rd March 2020, the license was granted to Mr. Balkar Singh for the period from 1st April 2020 to 31st March 2021. However, Mr. Singh did not operate the shop and subsequently requested cancellation of the allotment on 12th May 2020. The authorities directed Mr. Singh to surrender the license after depositing the required amount. As Mr. Singh failed to comply, his license was cancelled, and the deposited amount was confiscated under Section 34 of the Excise Act.

Following this, the District Excise Officer, Pithoragarh, issued an advertisement on 2nd June 2020 for the resettlement of the license for the remaining period of the financial year 2020-2021, fixing the revenue at Rs. 7,70,62,471/-. When no one responded, a second advertisement was issued on 6th June 2020. Mr. Suresh Chandra, the Appellant, participated in this process and was declared the successful bidder with his bid of Rs. 3,46,78,112/-. The license was allotted to him on 9th June 2020.

The First Respondent, Mr. Joga Singh Bisht, filed a writ petition challenging the allotment to Mr. Chandra, claiming that the state suffered a significant revenue loss because the allotment was made for less than the fixed revenue. The High Court initially dismissed the petition, stating that Mr. Bisht lacked locus standi as he had not participated in the bidding process. However, a Division Bench of the High Court stayed the allotment, observing that there was a potential loss of revenue and that the matter was of public interest. The Appellant then approached the Supreme Court against the interim order of the High Court.

Timeline

Course of Proceedings

The First Respondent, Mr. Joga Singh Bisht, initially filed a writ petition in the High Court of Uttarakhand at Nainital, challenging the allotment of the FL 5 Shop Pithoragarh No.1 B in favor of the Appellant, Mr. Suresh Chandra. The learned Single Judge dismissed the writ petition on the ground that Mr. Bisht lacked locus standi, as he had not participated in the resettlement process.

Aggrieved by the order of the Single Judge, Mr. Bisht filed a special appeal before a Division Bench of the same High Court. The Division Bench stayed the operation and execution of the settlement in favor of Mr. Chandra, observing that there was a potential loss of revenue to the government, which was an issue of public interest. The Appellant filed an application to vacate the interim order, which was also dismissed by the High Court. The High Court noted that the State could not have allotted the shop for a lesser amount and that there was a likelihood of a higher amount being offered in re-settlement.

Legal Framework

The judgment refers to the following legal provisions:

• Section 34 of the Excise Act: This section deals with the cancellation of a license and confiscation of the amount deposited by the licensee. The court noted that the amount deposited by the original licensee, Mr. Balkar Singh, was confiscated, and the allotment of the foreign liquor shop license in his favour was cancelled under this provision.
• Section 36 of the Excise Act: This section pertains to the surrender of a license. The authorities had directed Mr. Balkar Singh to surrender his license in accordance with this section.
• Uttarakhand Excise Rules 2020-21 and the Uttarakhand Excise (Administration of Licensees of Domestic/Foreign Liquor and Beer Retail Sale) Rules, 2011: These rules govern the resettlement of liquor licenses in Uttarakhand. The court noted that the process for resettlement was carried out according to these rules.

Arguments

The arguments presented before the Supreme Court were as follows:

• Appellant’s Argument:
  • The Appellant contended that the High Court erred in interfering with the license granted to him as the highest bidder.
  • The Appellant argued that the First Respondent lacked locus standi to challenge the allotment, as he did not participate in the resettlement process.
  • The Appellant submitted that there was no loss to the government, as the shortfall in revenue was being recovered from the original allottee, Mr. Balkar Singh.
  • The Appellant emphasized that the High Court’s interim order had unjustly prevented him from conducting his business despite complying with all terms of the license.
• First Respondent’s Argument:
  • The First Respondent argued that the allotment of the liquor shop to the Appellant for Rs. 3,46,78,112/- was improper, as the revenue fixed for the remaining period was Rs. 7,70,62,471/-.
  • The First Respondent claimed that the State had suffered a loss of approximately Rs. 5 crores due to the allotment of the license to the Appellant for a lesser amount.
  • The First Respondent asserted that the issue of loss of revenue was a matter of public interest, justifying the High Court’s intervention.
  • The First Respondent, through his counsel, initially indicated a willingness to offer a higher amount than the Appellant, but later clarified that he was not willing to deposit Rs. 8 crores, but would be willing to pay something more than the offer made by the Appellant.

The innovativeness of the argument was on the part of the First Respondent, who tried to invoke public interest to challenge the allotment despite not participating in the bidding process.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues that the Court addressed can be summarized as follows:

1. Whether the First Respondent, who did not participate in the resettlement process, had the locus standi to challenge the allotment of the liquor license to the Appellant?
2. Whether the High Court was justified in staying the allotment of the liquor license based on the claim of potential loss of revenue to the government?

Treatment of the Issue by the Court

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

Authorities

The Supreme Court did not explicitly cite any case laws or books in its judgment. However, it did refer to the following legal provisions:

• Section 34 of the Excise Act: This section was referred to in the context of the cancellation of the license of Mr. Balkar Singh and the confiscation of his deposit.
• Section 36 of the Excise Act: This section was mentioned in relation to the procedure for surrendering a license.
• Uttarakhand Excise Rules 2020-21 and the Uttarakhand Excise (Administration of Licensees of Domestic/Foreign Liquor and Beer Retail Sale) Rules, 2011: These rules were referred to as the basis for the resettlement process.

The Court considered these provisions to determine the legality of the actions taken by the authorities and the validity of the claims made by the parties involved.

Judgment

The Supreme Court allowed the appeal, setting aside the orders of the High Court. The Court held that the First Respondent lacked locus standi to challenge the allotment as he did not participate in the resettlement process. The Court also found that the High Court was not justified in staying the allotment based on the claim of potential revenue loss, especially when the government was recovering the shortfall from the original allottee.

The authorities were viewed by the Court as follows:

• Section 34 of the Excise Act: The Court relied on this section to justify the cancellation of Mr. Balkar Singh’s license and the confiscation of his deposit.
• Section 36 of the Excise Act: The Court referred to this section to show that the authorities had directed Mr. Balkar Singh to surrender his license as per the procedure.
• Uttarakhand Excise Rules 2020-21 and the Uttarakhand Excise (Administration of Licensees of Domestic/Foreign Liquor and Beer Retail Sale) Rules, 2011: The Court noted that the resettlement process was conducted as per these rules, thereby validating the allotment to the Appellant.

What weighed in the mind of the Court?

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

• Locus Standi: The Court emphasized that the First Respondent did not participate in the resettlement process, and therefore, had no right to challenge the allotment. This was a critical factor in the Court’s decision to set aside the High Court’s order.
• No Loss to the Government: The Court took note of the fact that the government was recovering the shortfall in revenue from the original allottee, Mr. Balkar Singh. This negated the First Respondent’s claim of loss to the government.
• Interference with Valid License: The Court found that the High Court’s interim order had unjustly prevented the Appellant from continuing his business despite complying with all terms of the license. The Court viewed this interference as unwarranted.
• Frivolous Petition: The Court deemed the writ petition filed by the First Respondent as frivolous, especially given his lack of participation in the bidding process and his misleading offer to pay a higher amount.

The Court’s reasoning was based more on the legal principles of locus standi and the validity of the allotment process rather than on the specific facts of the case.

Logical Reasoning

The Court rejected the alternative interpretation that the High Court could interfere based on public interest, as the First Respondent had no standing to bring the matter before the Court.

The Supreme Court’s decision was clear: the High Court’s interference was unwarranted. The Court emphasized that the First Respondent had no right to challenge the allotment, and the government was not suffering any loss. The Court stated, “Interference with a valid license granted in accordance with rules is unwarranted.” The Court also noted, “The First Respondent has misled the High Court by contending that he is willing to offer a higher amount. Such an offer should not have been entertained as he did not participate in the resettlement process.” The Court further added, “If such petitions are encouraged, there will be no finality to any license or permission granted by the Government, especially when there is no complaint of any malafides, favoritism or nepotism.”

There were no majority and minority opinions in this case. The three-judge bench was unanimous in its decision.

The Court’s reasoning was based on the principles of locus standi, the validity of the allotment process, and the absence of any loss to the government. The Court’s decision ensures that government contracts are not interfered with by parties who do not have a direct interest in the matter and that validly granted licenses are protected.

The implications of this judgment are that it reinforces the principle of locus standi in challenging government contracts and licenses. It also ensures that government contracts are not interfered with by parties who do not have a direct interest in the matter and that validly granted licenses are protected.

No new doctrines or legal principles were introduced by the court in this judgment. The court simply applied the established principle of locus standi.

Key Takeaways

• Locus Standi: A person who did not participate in a bidding process lacks the locus standi to challenge the outcome.
• Government Contracts: Courts should not interfere with validly granted government contracts unless there is clear evidence of malafide, favoritism, or nepotism.
• Revenue Loss: A claim of potential revenue loss is not sufficient to justify interference with a government contract if the government is taking steps to recover the shortfall.
• Interim Orders: Courts should be cautious in issuing interim orders that disrupt business activities, especially when the license has been granted as per rules.

Directions

The Supreme Court directed that the Appellant be permitted to continue with the business activity of running the foreign liquor shop forthwith, subject to compliance with the terms of resettlement. The Court also directed that the First Respondent pay costs of Rs. 1,00,000 to the Appellant within four weeks.

Development of Law

The ratio decidendi of this case is that a person who did not participate in a bidding process lacks the locus standi to challenge the outcome, and courts should not interfere with validly granted government contracts unless there is clear evidence of malafide, favoritism, or nepotism. This judgment reinforces the existing principles of law.

Conclusion

The Supreme Court allowed the appeal, setting aside the orders of the High Court. The Court held that the First Respondent lacked locus standi to challenge the allotment of the liquor license to the Appellant, as he did not participate in the resettlement process. The Court also found that the High Court was not justified in staying the allotment based on the claim of potential revenue loss, especially when the government was recovering the shortfall from the original allottee. The Supreme Court’s decision upholds the validity of the license granted to the Appellant and reinforces the principle of locus standi in challenging government contracts.

Category

• Contract Law
  • Government Contracts
• Excise Law
  • Licensing
  • Section 34, Excise Act
  • Section 36, Excise Act
• Constitutional Law
  • Locus Standi

FAQ

Q: What is locus standi?
A: Locus standi refers to the right or capacity of a person to bring a legal action before a court. In simple terms, it means that the person must have a direct interest in the matter to be able to challenge it in court.

Q: Why did the Supreme Court rule against the First Respondent?
A: The Supreme Court ruled against the First Respondent because he did not participate in the bidding process for the liquor license and therefore lacked the locus standi to challenge the allotment. The Court also noted that there was no loss to the government, as the shortfall in revenue was being recovered from the original allottee.

Q: What does this judgment mean for government contracts?
A: This judgment means that courts should not interfere with validly granted government contracts unless there is clear evidence of malafide, favoritism, or nepotism. It also emphasizes that those who did not participate in the process do not have the right to challenge the outcome.

Q: What should I do if I believe a government contract is not fair?
A: If you believe a government contract is not fair, you should first ensure that you have locus standi to challenge it. This usually means that you must have participated in the bidding process or have a direct interest in the matter. If you meet these criteria, you can seek legal advice on how to proceed.

Q: What was the cost imposed on the First Respondent?
A: The Supreme Court imposed a cost of Rs. 1,00,000 on the First Respondent, to be paid to the Appellant within four weeks.