Supreme Court Upholds State’s Power to Regulate Liquor Licenses: International Spirits and Wines Association of India vs. State of Haryana (2019)

Introduction

Date of the Judgment: February 12, 2019

Citation: 2019 INSC 128

Judges: Ranjan Gogoi, CJI, Navin Sinha, J, K.M. Joseph, J (Dissenting)

Can a state government delegate its power to regulate the number of liquor licenses to a sub-delegate? The Supreme Court of India addressed this question in a case concerning the Haryana Liquor License Rules, 1970. The core issue was whether the Financial Commissioner of Haryana could issue a single liquor license for the entire state, or if this power was exclusively reserved for the State Government. This judgment has implications for how states regulate the sale of alcohol. The majority opinion was authored by Justice Navin Sinha, with a dissenting opinion from Justice K.M. Joseph.

Case Background

The International Spirits and Wines Association of India (the appellant), a representative body of international spirits and wine companies, challenged the Haryana Liquor License Rules, 1970, specifically Rule 24(i-eeee), as amended in 2017. This rule introduced a single L-1BF license for the entire state to deal in imported foreign liquor bottled outside India. The appellant also challenged clause 9.5.1.2 of the State Excise Policy for 2017-2018, which was carried forward to 2018-2019, which also stipulated a single L-1BF license. The license was to be granted through e-bidding with a reserve price of Rs. 50 crores. The appellant argued that this created a monopoly in favor of a private entity, violating Article 19(6) of the Constitution of India and that the Financial Commissioner did not have the power to make such a rule.

Timeline

Legal Framework

The case primarily revolves around the interpretation of the Punjab Excise Act, 1914, and the Haryana Liquor License Rules, 1970. Key provisions include:

• Section 8 of the Punjab Excise Act, 1914:
  
  This section states that the State Government exercises general superintendence and control of Excise Administration and Excise Officers.
• Section 13 of the Punjab Excise Act, 1914:
  
  This section deals with the delegation of powers. It states:
  
  “(a) The State Government may by notification delegate to the Financial Commissioner or Commissioners all or any of its powers under this Act, except the powers conferred by sections 14, 21,22, 31, 56 and 58 of this Act.
  
  (b) The State Government may by notification permit the delegation by the Financial Commissioner, Commissioner or Collector to any person or class of persons specified in such notification of any powers conferred by this Act or exercised in respect of excise revenue under any Act for the time being in force.”
  
  This section prohibits the State Government from delegating its powers under Section 58 to the Financial Commissioner.
• Section 58(2)(e) of the Punjab Excise Act, 1914:
  
  This section grants the State Government the power to make rules regarding:
  
  “Regulating the period and localities for which, and, the persons or classes of persons, to whom licenses, permits and passes for the vend by wholesale or by retail of any intoxicant may be granted and regulating the number of such licenses which may be granted in any local area”
  
  This section specifies that the State Government alone has the power to regulate the number of licenses in any local area for wholesale or retail sale.
• Section 59(a) of the Punjab Excise Act, 1914:
  
  This section empowers the Financial Commissioner to make rules regulating the manufacture, supply, storage, or sale of any intoxicant.
  
  “The Financial Commissioner may, by notification, make rules ,-
  
  (a) regulating the manufacture, supply, storage or sale of any intoxicant, including –
  (i) the character, erection, alteration, repair, inspection, supervision, management and control of any place for the manufacture, supply, storage or sale of such article and the fittings, implements, apparatus and registers to be maintained therein;
  (ii) the cultivation of the hemp plant and the collection of spontaneous growth of such plant and the preparation of any intoxicating drug;
  (iii) the tapping or drawing of tari from any tari producing tree;”
• Rule 24(i-eeee) of the Haryana Liquor License Rules, 1970 (as amended):
  
  This rule, introduced by the 2017 amendment, provides for a single L-1BF license for the entire state, to be allotted through e-bidding.
  
  “(i-eeee) For a license in form L-1BF –
  
  (a) Reserve price shall be Rs.50,00,00,000/-.
  
  (b) The license in form L-1BF shall be allotted through e-bidding to the highest bidder.
  
  (c) There shall be only one L-1BF license in the State.”
• Rule 3 of the Haryana Liquor License Rules, 1970:
  
  This rule states that the authority to grant and renew licenses is subject to restrictions on localities and the number of licenses in any local area, as per the Punjab Intoxicants License and Sale Order and the superintendence of the Financial Commissioner.
• Rule 4 of the Haryana Liquor License Rules, 1970:
  
  This rule specifies that every license shall be granted to a particular licensee in respect of particular premises/area.

Arguments

The arguments presented by both sides are summarized below:

Appellant’s Arguments:

• The creation of a monopoly by the State in favor of a private entity to trade in liquor is contrary to Article 19(6) of the Constitution.
• The absence of sufficient checks and balances gives unbridled powers to the sole licensee, which is constitutionally impermissible.
• The interpretation of Section 58(2)(e) and 59(a) of the Act by the High Court was flawed.
• Rule 24(i-eeee) was ultra vires the Act as the power to determine the number of licenses lies with the State Government under Section 58(2)(e) and not with the Financial Commissioner.
• The single monopolistic L-1BF license was discriminatory and violated Article 14 of the Constitution because no such requirement was stipulated for wholesale trade in Indian-made foreign liquor or country liquor.
• There was no rational or reasonable classification for this distinction between licensees.
• The licensee can misuse his position by preferring certain brands over others, offering different credit periods, and other terms and conditions.
• The licensee can promote certain brands over others due to the unfair negotiating position.
• There are no checks and balances to ensure that the interests of other stakeholders are taken care of.
• The licensee can offer discounts to retailers they favor, neutralizing the maximum sale price fixed by the excise authority.
• Onerous conditions can be placed on purchasers and suppliers by the sole licensee, violating Article 14.

Respondents’ Arguments:

• The appellant never participated in the bidding process for the L-1BF license, and therefore, cannot claim any apprehension.
• The issue of monopoly in the hands of a private entity is without merit as the process is through public auction, open to all, and not tailored to suit any particular person or activated by malafides.
• Trade in original bottled foreign liquor was only a small fraction of the entire liquor trade in the State.
• The aim of the amendment was to increase revenue, curb pilferage, and control illicit trade.
• The Financial Commissioner was competent under Section 59(a) read with Section 13 to amend Rule 24 by incorporating Rule 24(i-eeee), as the State’s competence to issue licenses under Section 58(2)(e) was limited to a local area only.
• There are sufficient checks and balances in the excise license, including cancellation if the conditions of the license are not followed.
• The grant of a monopolistic license as the agent of the State Government was permissible in the law for trade in liquor.
• The State can conclude that a particular local area should be protected from the harmful effects of alcohol consumption.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the state government is competent to issue licenses for a local area alone under Section 58(2)(e) of the Act, while the Excise Commissioner, a sub-delegate of the Financial Commissioner, is competent under Section 13(b) read with Section 59(a) to issue L-1BF license for the entire state under the amended rule, notwithstanding the prohibition in Section 13(a) to the delegation of powers under Section 58 by the State Government.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court:

• Akadasi Padhan vs. State of Orissa, AIR 1963 SC 1047*: The Court distinguished this case, stating that the present case involved a public auction process, which negates the issue of monopoly.
• Khoday Distilleries Ltd. vs. State of Karnataka (I), (1995) 1 SCC 574*: The Court acknowledged the principle that Article 14 applies even when the State parts with its privilege to trade in liquor, but did not find it applicable in this case.
• Khoday Distilleries Ltd. vs. State of Karnataka (II), (1996) 10 SCC 304*: The Court agreed that the interpretation of Section 58(2)(e) and 59(a) by the High Court was flawed.
• Association of Registration Plates vs. Union of India, (2005) 1 SCC 679*: The Court relied on this case to support the view that the public auction process negates the issue of monopoly.
• Deepak Theatre vs. State of Punjab, 1992 Supp (1) SCC 684*: The Court used this case to define regulatory power, including the power to restrain and impose restrictions.
• D.K. Trivedi and Sons v. State of Gujarat 1986 (Suppl.) SCC 20*: The Court used this case to interpret the meaning of “regulate” as including the power to control the sale of liquor.
• Cooverjee B. Bharucha v. Excise Commissioner and the Chief Commissioner AIR 1954 SC 220*: The Court relied on this case to support the view that the liquor business inherently involves elimination and exclusion, and that provisions cannot be attacked merely for creating a monopoly.
• Maninderjit Singh Bitta v. Union of India and others 2005(1)SCC 679*: The Court relied on this case to support the view that when a license is settled through e-tender, it is open to all eligible persons, and does not create a monopoly.
• The Kerala Bar Hotels Association & Another v. State of Kerala & Others AIR 2016 SC 163*: The Court acknowledged the existence of a right to trade in liquor under Article 19(1)(g), subject to reasonable restrictions.
• Krishna Kumar Narula v. State of Jammu & Kashmir AIR 1957 SC 1368*: The Court relied on this case to support the view that dealing in liquor is a legitimate business, although subject to reasonable restrictions.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of the statutory provisions, particularly Sections 13, 58, and 59 of the Punjab Excise Act, 1914. The majority opinion emphasized that the power to determine the number of licenses in a local area is exclusively vested in the State Government under Section 58(2)(e), and this power cannot be delegated to the Financial Commissioner. The Court found that the Financial Commissioner’s amendment to the rules was ultra vires because it effectively allowed the Financial Commissioner to exercise a power that was specifically reserved for the State Government.

The Court’s reasoning was primarily based on legal principles and statutory interpretation, with a lesser emphasis on the factual aspects of the case.

The court considered the arguments that the single license could lead to a monopoly, but ultimately focused on the legal question of whether the Financial Commissioner had the authority to issue the license. The majority opinion did not find the monopoly argument persuasive, as the license was granted through a public auction, open to all eligible parties. The dissenting opinion, however, acknowledged the potential for misuse of the monopolistic position.

The majority opinion stated:

“The amendment with regard to the number of licenses that could be issued for the entire State is in teeth of Sections 6 and 58(2)(e), delegation of which by the State Government is expressly prohibited by Section 13(a).”

“Such an interpretation amounts to reading words into the statute which the legislature itself never intended.”

“In conclusion, we hold that Rule 24(i-eeee) as amended by the Financial Commissioner in exercise of powers under Section 59(a) of the Act is ultra vires the powers of the Financial Commissioner under the Act and is therefore struck down.”

The dissenting opinion of Justice K.M. Joseph, however, disagreed with the majority view, stating that the power to regulate sale of liquor under Section 59 includes the power to stipulate licenses and that the Financial Commissioner had the power to decide on the number of licenses.

Key Takeaways

• The power to regulate the number of liquor licenses in a local area is exclusively vested in the State Government under Section 58(2)(e) of the Punjab Excise Act, 1914.
• The State Government cannot delegate its powers under Section 58 to the Financial Commissioner, as per Section 13(a) of the Act.
• Any amendment to the rules regarding the number of licenses for the entire state made by the Financial Commissioner is ultra vires the Act.
• The Supreme Court struck down Rule 24(i-eeee) of the Haryana Liquor License Rules, 1970, as amended by the Financial Commissioner.
• The judgment clarifies the division of powers between the State Government and the Financial Commissioner in the context of liquor licensing.
• States must ensure that their excise policies and rules comply with the statutory framework and do not delegate powers that are exclusively reserved for the State Government.
• The judgment highlights the importance of strict adherence to the principles of delegation of powers in administrative law.

Directions

The Supreme Court did not give any specific directions other than striking down Rule 24(i-eeee).

Specific Amendments Analysis

The judgment primarily focused on the validity of Rule 24(i-eeee) of the Haryana Liquor License Rules, 1970, as amended by the Haryana Liquor License (Amendment) Rules, 2017. This amendment introduced a single L-1BF license for the entire state, which the court found to be ultra vires the powers of the Financial Commissioner.

Development of Law

The ratio decidendi of the case is that the power to determine the number of licenses in a local area is exclusively vested in the State Government under Section 58(2)(e) of the Punjab Excise Act, 1914, and this power cannot be delegated to the Financial Commissioner. This clarifies the scope of the State Government’s powers versus the Financial Commissioner’s powers in liquor licensing.

This judgment reinforces the principle that the State Government cannot delegate its powers to a sub-delegate, especially when the statute specifically prohibits such delegation. There is no change in the previous position of the law, but a reaffirmation of the same.

Conclusion

The Supreme Court allowed the appeal, holding that the Financial Commissioner’s amendment to the Haryana Liquor License Rules, 1970, which introduced a single L-1BF license for the entire state, was ultra vires the powers of the Financial Commissioner under the Punjab Excise Act, 1914. The Court emphasized that the power to determine the number of licenses is exclusively vested in the State Government under Section 58(2)(e) of the Act and cannot be delegated. This judgment clarifies the division of powers between the State Government and the Financial Commissioner in the context of liquor licensing and underscores the importance of adhering to statutory provisions regarding delegation of powers.