Haryana’s single L-1BF license rule for imported foreign liquor struck down in a 2:1 majority verdict

Supreme Court: Rule 24(i-eeee) of the Haryana Liquor License Rules 1970 that provides for a single L-1BF license for the entire State to deal in imported foreign liquor, bottled outside India and imported into the country in a bottled, has been struck down by a 2:1 majority verdict by the 3-judge bench of Ranjan Gogoi, CJ, Navin Sinha and KM Joseph, JJ.

It was argued before the Court that the creation of a monopoly by the State in favour of a private entity, to trade in liquor, is contrary to Article 19(6) of the Constitution of India. Also, the single monopolistic L-1BF license was discriminatory and violative of Article 14 of the Constitution in so far as no such requirement was stipulated for wholesale trade in Indian made foreign liquor or country liquor in the State. There was no rational or reasonable classification for this distinction between licensees, having any rationale or nexus with any object to be achieved.

The State on the other hand argued that the aim and object of the amendment was to increase revenue, curb pilferage, control illicit trade in the State of Indian made foreign liquor and bottled in original bottled foreign liquor. The Financial Commissioner was competent under Section 59(a) read with Section 13 to amend Rule 24 by incorporation of Rule 24 (i-eeee) providing for a single L-1BF license for the entire State, as the competence of the State for issuance of license under Section 58(2)(e) was limited to a local area only.

Majority verdict by Sinha, J for himself and CJ Gogoi:

Sinha, J, writing down the majority verdict for himself and CJ Gogoi, held that the Financial Commissioner was not competent to amend the Rules under Section 59 of the Punjab Excise Act, 1914 with regard to grant of number of licences for the entire state, and which power was exclusive to the State Government under Section 6 read with Section 13(a) and 58(2)(e) of the Act as the nature of powers conferred on the Financial Commissioner under Section 59 of the Act, make it manifest that it is but a regulatory power available only after a license is granted to the licensee for a local area, to ensure supply, storage, sale or otherwise that the conditions of the license are adhered to and necessary directions can also be given for the purpose.

It was held that the amendment notified by the Excise Commissioner as a delegate of the Financial Commissioner was per se ultra vires the powers of the latter under Section 6 and 13(a) read with Section 58(2)(e) of the Act.

“To hold that the power of Financial Commissioner under Section 59(a) of the Act to regulate sale of liquor, and that sale could be regulated through grant of licence, the Financial Commissioner was vested with the power to determine the number of licences, to our mind is not only unreasonable but also unsustainable. Such an interpretation amounts to reading words into the statute which the legislature itself never intended. … While the State Government would have the power to determine the number of licences and to issue licence for a local area only, the Excise Commissioner would have a superior power to determine the number of licences and issue licences for the entire State.”

Rule 24(i-eeee) as amended by the Financial Commissioner in exercise of powers under Section 59(a) of the Act was hence, struck down for being ultra vires the powers of the Financial Commissioner under the Act.

Dissenting Opinion by Joseph, J:

Noticing that in Section 59, legislature has also empowered the financial Commissioner to make rules inter alia to regulate the manufacture, supply, storage or sale or any intoxicant, Joseph, J said:

“In regard to rule making power, undoubtedly, the legislature has specifically conferred rule making power qua the number of licences in any local area upon the State. Unless it can be reasoned that the powers to regulate sale of liquor within the meaning of Section 59 which is undoubtedly placed on the shoulders of the financial Commissioner would not include the power to make rules in regard to the number of licences for the State as a whole, the argument of the appellant must fail.”

He further emphasised on the connotation of the word ‘regulate’ and said:

“having regard to the connotation of the word ‘regulate’ it would include power to control the sale of liquor under the Act. Control of sale is possible by providing for licences as it is through licencing that the authority can provide for conditions under which the sale could be best controlled. If the power to regulate include the power to stipulate licences it undoubtedly also would include power to provide for number of licences qua the State as a whole a matter which I have reasoned does not fall under Section 58(2)(e) of the Act.”

[International Spirits and Wines Association of India v. State of Haryana, 2019 SCC OnLine SC 183, decided on 12.02.2019]

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