RESPONDENTS:

J U D G M E N T 

On 22.08.2014, as per GOMS.No.139/2014/TD dated 22.08.2014, the Government of Kerala notified its Abkari Policy for the year 2014-15. As per the new Abkari Policy, only hotels having Five Star classification and above granted by the Ministry of Tourism, Government of India are entitled to be granted Bar licences. Thereafter, the Foreign Liquor Rules under the Abkari Act of 1077 has also been amended, to give effect to the Abkari Policy. Since as per the new Abkari Policy, only hotels classified as Five Star and above are entitled to be granted bar licences, all existing bar attached hotels have been issued with notices by the Excise Commissioner informing them that, their bar licences would stand cancelled on the expiry of 15days of the date of such notices. The hotels that face cancellation of their Bar licences (FL-3 licences) have filed these writ petitions challenging the Abkari Policy, the consequential amendments to the Foreign Liquor Rules and the notices issued to them, terminating their bar licences.

2. The petitioners in these writ petitions are mostly hotels having three star classification. Three writ petitions, W.P.(C) Nos.23391 of 2014, 23528 of 2014 and 22460 of 2014 relate to two star hotels. The hotel in W.P. (C) No.22785 of 2014 has no star classification. The petitioners in W.P.(C).No.22203 of 2014, 22993 of 2014, 23081 of 2014, 23179 of 2014, 23262 of 2014, 23317 of 2014, 23446 of 2014, 23569 of 2014, 22219 of 2014, 23896 of 2014, 22776 of 2014, 24048 of 2014, 23167 of 2014, 22410 of 2014, 23399, and 24926 of 2014 are filed by hotels having either Four Star or heritage category certification. W.P.(C) No.24128 of 2014 is filed by the Kerala Bar Hotels Association and two others. The remaining writ petitions are filed by persons conducting three star hotels. Irrespective of their categorization into Three Star or Four Star, Heritage etc., all the petitioners challenge the Abkari Policy of the State and the consequential amendments. A wide spectrum of arguments have been put forward, attacking the constitutionality of the Abkari Policy, alleging violation of the fundamental rights enshrined in Articles 14 and 19(1)(g) of the Constitution, besides violation of the parent enactment, the Rule Making power conferred on the State by the Abkari Act and even violation of the Rules of Business of the Government. Before addressing the contentions advanced before me, it is necessary to have an overview of the scenario prevalent in the State of Kerala in relation to the trade of liquor. The Enactments applicable and control measures adopted.

3. The Abkari Act, 1077 is a pre-constitutional enactment, initially passed by His Highness the Maharaja of the erstwhile State of Cochin on the 5th of August 1902 as Act 1 of 1077 (Malayalam Era). The Act was later on extended to the entire State of Kerala by Act 10 of 1967. The Foreign Liquor Rules enacted in exercise of the powers conferred by Sections 10, 24 and 29 of the Abkari Act deal exclusively with the grant of licences to vend, what is described as the Indian Made Foreign Liquour (IMFL). Apart from the Abkari Act of 1077, there is another enactment by name, the Prohibition Act, 1950, which prohibits import, export, transport or possession of any liquor or intoxicating drug, its manufacture and dealing, including tapping of toddy from any trees, in short, imposing total prohibition in the State of Kerala. However, Section 2 of the said enactment has conferred power on the Government to suspend the operation thereof by issuing a notification. Though the Abkari Act,1077 is stated to have been repealed with effect from the date of coming into force of the said enactment, in view of the specific provision made in Section 3 thereof, the said enactment would revive on the issue of a notification under Section 2 of the said Act. The State Government has accordingly issued a notification dated 28.04.1967 (S.R.O.No.104/67) under Section 2 of the Prohibition Act suspending the operation of the provisions of the said Act except Sections 1,7 and 11 thereof. Consequently, the Abkari Act and the Rules thereunder have revived and are continuing to be in operation ever since. The provisions that are not suspended, deal with punishments for offences. Licences for possession, use or sale of liquor are issued under Rule 13 of the Foreign Liqour Rules.

4. Earlier licences to conduct retail sale in liquor (sale in bottles) were being auctioned by the State to private parties on payment of a fee. The system was subsequently changed and the privilege of conducting retail sale in liquor was granted exclusively to the Kerala State Beverages (Manufacturing and Marketing) Corporation Limited (hereinafter referred to as 'the Beverages Corporation' for short), the Kerala State Civil Supplies Corporation Limited and the Kerala State Co- operative Consumers Federation Limited. The Corporations referred to above sell the liquor in bottles through a wide network of retail shops located along the length and breadth of Kerala. The Beverages Corporation also enjoys monopoly in the wholesale business of liquor. This is for the reason that, an FL-9 licence that entitles the licensee to possess and sell foreign liquor in wholesale is granted only to the said Corporation. The persons who have been issued with a Foreign Liquor licence under any of the categories made mention of in Rule 13 of the Foreign Liquor Rules, can purchase the stock of Foreign Liquor required by them, only from the Beverages Corporation. Thus, apart from the holders of FL-3 licences or Bars, there are various other establishments conducting liquor business like the Beer and Wine Parlours that are operated only by the Kerala Tourism Development Corporation (a Government Company), recognized Clubs with licences to serve liqour to their members, Airport Transit Lounges licensees, Canteens and Messes attached to Military Units, Seamen and Marine Officers Clubs etc.

5. The consumption of liquor within the state has been on a phenomenal increase, over the past many years. The volume of liquor consumed became a cause for concern and have been engaging the attention of the State Government during the past few decades. The Government have been initiating measures for regulating the consumption of intoxicating liquor, for a number of years now. Initially, a Distance Rule was introduced prohibiting the location of Foreign Liquor retail shops as well as Bar attached Hotels, in the close proximity of Educational Institutions, Temple, Church or burial grounds. Since people belonging to the lower strata of the society including the labour class were found to be the persons frequenting the Arrack shops, arrack was banned in the state. The duty of excise on IMFL was steeply hiked. However, the following years showed only a tremendous spurt in the sale of liquor. The situation has been continuing without any change, showing a steady increase in the sale and consumption of liquor every year. The efforts undertaken by the State to reduce the consumption has failed to achieve any significant results. There has been a public outcry with the Prohibitionists, Women's Organisations, other Non- Governmental organizations and voluntary bodies joining in to blame the State Government, for not initiating effective measures to deal with the problem. However, the fact remains that the demand for intoxicating liquor within the State of Kerala is phenomenal and displays an increase with every passing year. Any attempt at curbing consumption would have to begin with a search for the reason for the increase in consumption. Unless the reason is identified and measures to remedy the same, put in place, it would not be possible to reduce the consumption in an effective manner. A sudden non availability of any article in demand would only induce people to search for other alternatives or avenues to satisfy the demand. Bootlegging, production of spurious liquor, alternative drugs or other substances that would satisfy the demand would appear in the market, taking the place of liquor. Statistics show that the measures already adopted, like the ban of Arrack and the enhancement of Excise Duty on liquor have not had any effect in stemming the demand.

6. The State of Kerala attracts a large number of tourists every year. The State Government has been taking efforts to develop tourism as an industry. Various measures have been adopted, with the object of attracting tourists, not only foreign but also domestic. It has been recognized by the State that, good and clean places for them to stay as well as healthy and tasty food are necessary to attract tourists. The consumption of alcoholic beverages with their food is a way of life in many foreign societies. Therefore, the State recognizes that serving of alcohol with food is necessary to promote tourism in the state. The above objective is discernible from the wordings of Rule 13(3) of the Foreign Liquor Rules also.

7. Initially, bar licences used to be issued to hotels having two star facilities. However, in the year 2007, Rule 13(3) was amended to provide that, Bar licences shall be granted to only hotels having a classification of three star and above. At the same time, by adding a proviso to the Rule, it was provided that all existing licensees not having the requisite three star or above classification, but who had been functioning as on 31.03.2007 were entitled to the renewal of their licences. Later on, in 2011, Rule 13(3) was again amended, disentitling three star hotels from seeking the issue of a bar licence by providing that such licences would be issued only to hotels classified as four star and above. At the same time, the existing licensees were again saved by incorporating a fresh proviso to the Rule permitting the licences of the existing hotels to be regularised. The policy of the Government in permitting the existing hotels to continue though they were not maintaining the standards of classification prescribed by the Rule and at the same time denying fresh licences to new three star hotels and two star hotels with proper facilities was the subject matter of challenge before this Court. In 

Surendra Das B. v. State of Kerala [2012(3) KHC 653] (DB)

a Division Bench of this Court held that the action of the State in discriminating between hotels having the same star classification (namely three star), by granting bar licences to the existing ones and denying the same to new hotels was discriminatory. However, on appeal, the Hon'ble Supreme Court reversed the said decision on the above aspect and held that, deletion of three star hotels falls within the same genre as Two Star Hotels that were excluded earlier. However, the action of the State in stipulating that no new FL-3 licences shall be granted to hotels located within a stipulated distance from an existing hotel having FL-3 licence, that was also struck down by this Court, was held to be bad. The Supreme Court was informed by the State that, it had appointed a One Man Commission for reviewing the Abkari Policy as per a notification dated 23.01.2014. The Supreme Court made it clear that the State Government would not deny FL-3 licence to hotels with a classification of Four Star and above, until the report of the one man Commission was received. The One man Commission submitted its report on 06.03.2014. The Government thereupon called for a report from the Government Secretary, Taxation. The said report is dated 02.04.2014. However, by that time, the code of conduct declared by the Election Commission on 05.03.2014, in view of the Lok Sabha Elections that were notified, had come into force. Therefore, the existing hotels that did not conform to the specifications stipulated by Rule 13(3) were also renewed, provisionally. Thereafter, the new Abkari Policy has been formulated and on the basis thereof, the present notices have been issued by the Excise Commissioner proposing to cancel the licences provisionally issued to the bar hotels, as stated above. 

Contentions on behalf of the petitioners 

8. According to Sri Aryama Sundaram, the learned Senior Counsel, this is a case of deprivation of a right that has already accrued to a citizen for the only reason that there is a change in the Government Policy. It is pointed out that, the nature of the right of a citizen with respect to a business permitted by the State and the nature of a right with respect to a business not permitted by the State is different. If a particular trade or business is completely prohibited, there cannot be any doubt that the citizen would have no right to carry on the said business. However, if a business is not prohibited, but permitted either with or without regulations, every citizen has a right to engage in such business, under Article 19(1)(g) of the Constitution. Thus, in cases where a business is permitted either partially or subject to regulations, every citizen has a right to participate in the business activity. This is for the reason that, the State has no intention to prohibit the trade altogether. In the present case, as far as the State of Kerala is concerned, the Preamble of the Abkari Act shows that the enactment is intended to consolidate and amend the law regulating import, export, transport, manufacture, sale and possession of intoxicating liquor and intoxicating drugs in the State of Kerala and not prohibition. Since the object of the enactment is only to consolidate and amend the law relating to the trade in liquor, the petitioners in these writ petitions have in addition to their fundamental right under Article 19(1)(g), a statutory right under the Abkari Act to conduct trade or business in liquor, subject of course to the restrictions contained in the Act. It is the said right that has been taken away by the present Abkari Policy as well as the amendment that has been effected.

9. According to the learned Senior Counsel, a Constitutional Bench of the Hon'ble Supreme Court has in 

Narula v. State of Jammu & Kashmir [AIR 1967 SC 1368] 

held that every citizen has a right under Article 19 (1)(g) to conduct trade or business, even in intoxicating liquor, subject of course to the reasonable restrictions that the State is empowered to place on the said right under Article 19(6) of the Constitution. It is therefore contended that, the petitioners in these cases are also entitled to put forward a claim to carry on business in intoxicating liquor, subject to the restrictions contained in the Abkari Act. The Act being one intended to regulate such trade in liquor cannot proceed to the extent of altogether prohibiting the trade. Any such attempt would amount to an unreasonable restriction under Article 19(6). It is therefore contended that, the present Abkari Policy as well as the amendment now introduced constitute unreasonable restrictions on the fundamental right of the petitioners under Article 19(1)(g).

10. It is further contended that, the State in the present case has not introduced a total prohibition. Nor has it excluded private participation in the business entirely. No monopoly in favour of the State has also been created. Therefore, the exclusion of a section of the members of the public from conducting trade in liquor is discriminatory, under Article 14 of the Constitution. Conferring the eligibility to apply for bar licences only on hotels having classification of 5 star and above, actually identifies the said category of hotels for conferring a benefit, to their advantage over the others doing business in the field. The said classification bears no nexus to the proclaimed object of achieving prohibition, for the reason that, liquor is available freely in the FL-1 shops and other establishments owned by the State.

11. The petitioners are all existing licensees. They were being granted renewal of their licences over the past many years. There are no complaints or allegations against them as licensees. They have a right of renewal granted by the Statute, provided the conditions necessary for the purpose are satisfied. A non licence holder has a right to apply for licence and not to be discriminated in the matter of grant. In the present case, the existing licensees are being discriminated in the matter of granting renewal, by providing that, only the licensees of hotels classified as 5 star and above would be granted renewal. The said classification is, according to the counsel, violative of the guarantee of equality enshrined in Article 14 of the Constitution. The State has over the years followed a consistent policy of renewing the licences of the all existing licensees. Fresh applicants as well as the existing licensees were therefore being treated as two separate classes. By the present policy, the existing licensees are again classified into hotels having a classification of 5 star and above and those who do not have the said classification. The said classification, according to the learned Senior Counsel, is unsustainable and liable to be set aside.

12. The sequence of events leading up to the formulation of the present Abkari Policy shows that, the State was awaiting the report of the One Man Commission that was appointed to go into the question of making a Comprehensive revision of the Abkari Policy and the issue of renewals to the Bar licences already granted. The One Man Commission has submitted its report containing various recommendations The Government had thereafter sought for the report of the Government Secretary for Taxation on the question of implementing the recommendations of the One Man Commission. However, while formulating the Abkari Policy 2014-15, the Government has discarded all the recommendations of the One Man Commission as well as the Taxation Secretary. Absolutely no reasons are stated for not accepting the recommendations of the One Man Commission. In fact, the recommendations have not even been referred to or considered. The One Man Commission had recommended an evaluation of the facilities available in the hotels that were not maintaining required standards and permitting them to upgrade their facilities within a specified time. Having informed the Hon'ble Supreme Court that action would be taken against the non Standard bar hotels on the basis of the report of the One Man Commission, the present turn around without any reason whatsoever is, according to the counsel, nothing but malafides in law. The present policy, according to the learned Senior Counsel, is also bad, not only for the reason that it is discriminatory but for the further reason that it has not considered the relevant materials. In fact, the policy has omitted to consider such materials without any reason. It is contended that this is a clear case of imposing unreasonable restrictions under Article 19(6) on the right under Article 19(1)(g) of the Constitution, besides being discriminatory. The object sought to be achieved being prohibition, the classification of hotels into those having certification of five star and above and those not having such certification, has no nexus to the object sought to be achieved.

13. Apart from the above, it is contended that, even assuming the policy to be valid, the action now initiated ought to have been taken by a Plenary Legislation and not by a Subordinate Legislation, as done in the present case. Section 29 of the Abkari Act confers on the State, the power to make Rules but only for the purposes of the Act. Since prohibition is not one of the purposes of the Act, the power under Section 29 is not available for making a Rule to achieve prohibition. Section 69 of the Act provides that the Rule made in accordance with the power conferred by Section 29 of the Act shall, on publication in the Gazette have the force of law and shall be read as part of the Act itself. Therefore, it is contended that, the Rule making power conferred by Section 29 of the Act has to be strictly construed so as to limit it to the making of Rules for carrying into effect the objects of the Act alone. It is also contended by the learned Senior Counsel that, any restriction under Article 19(6) of the Constitution can be made only by a Legislation and not by Subordinate Legislation.

14. It is further contended that, the right to renewal of the licence is a statutory right that is conferred on the petitioners by Sub Rule 3 of Rule 13B of the Foreign Liquor Rules, provided the conditions therein are satisfied. Therefore, the petitioners have a subsisting right to claim renewal of their licence, since the said Rule has not been amended pursuant to the Abkari Policy 2014-15. In other words, in spite of the present Abkari Policy, the right to claim renewal under Rule 13B continues unscathed. The above is a right that is available to licence holders alone in contradistinction to the applicants for fresh licence. The above right is capable of being enforced at law.

15. The report of the One Man Commission shows that, after an elaborate overview of the situation in the State as far as liquor trade is concerned, a retired Judge of this Court, Justice M.Ramachandran, has recommended measures to bring down consumption of intoxicating liquor and to impose regulations on the manner in which the trade is being conducted. What has been recommended is to retain the policy of issuing bar licences to hotels with a classification of three star and above. With respect to the hotels that do not have the requisite standards, they have been recommended to be given time to upgrade their facilities and to attain the standards of three star hotels. In the event of such opportunity not being utilized, it has been recommended that, their licences be revoked. In the case of existing licencees, the recommendation is to permit them to continue operations for the current financial year and to refuse renewal from the coming year onwards. The report of the Taxation Secretary has also recommended the grant of sufficient time to a licensee to upgrade their facilities. However, without even considering the said recommendations, the present Abkari Policy has ignored the recommendations. It is pointed out that, the One Man Commission being not one appointed under the Commissions of Enquiry Act, 1952, the principle that the recommendations are not binding on the Government cannot apply in the present case. The present One Man Commission had been appointed in the wake of the decision of the Division Bench of this Court in Surendra Das B. v. State of Kerala (Supra). It was also undertaken by the State Government before the Hon'ble Supreme Court that no fresh licence would be issued until the report of the One Man Commission was received. The above submission has been noticed and recorded in 

State of Kerala v. Surendra Das [2014(1) KLT 948 (SC)]. 

The State having undertaken before the Hon'ble Supreme Court to abide by the recommendations of the One Man Commission, it cannot be permitted to ignore the said report altogether. Even if the recommendations were not acceptable, the policy should have contained reasons for the rejection thereof.

16. On the basis of the above contentions it is pointed out that, the policy is bad not only for not having considered relevant materials that were available to the Government but also for not disclosing proper or cogent reasons. The same is therefore alleged to be arbitrary, and discriminatory and violative of Article 14 of the Constitution, apart from being an unreasonable restriction on the fundamental right of the petitioners to carry on trade or business.

17. The counsel appearing for other petitioners, apart from endorsing the above contentions of the learned Senior Counsel have put forward a slew of other contentions which are also required to be noticed.

18. According to Senior Counsel Sri.C.C.Thomas, the present policy in so far as it has decided not to renew the licences of existing licence holders is arbitrary and liable to be set aside. In 

Secretary to Government, T.N. v. K. Vinayaga Murthy [2002 (7) SCC 104]

the Government order by which a provision providing for renewal of liquor vending licences was repealed, was set aside and the Government directed the question of renewal of licence to be considered. The existing licences were being treated separately, as a distinct class by the previous Abkari Policies. Therefore, it is contended that the present attempt to deny renewal of their licences is arbitrary and liable to be set aside. The respective licences of the petitioners having been renewed for the current Abkari year and licence fee having been paid in full, in advance, it is contended that there is no justification for terminating the privilege during the term of the licence.

19. Learned Senior Counsel Sri.K.Ramkumar contends that, even a policy can be interfered with, where it is arbitrary or discriminatory. Reliance is placed on various decisions of the Hon'ble Supreme Court in support of the above contention. Drawing analogy from the case in which prohibition of dancing in bars in Bombay was found to be unsustainable, it is contended that the liquor sold in five star hotels as well as the hotels with lesser classification is the same. Therefore, the classification made in the present cases for the purpose of grant of bar licences is unreasonable. 

20. The learned Senior Counsel also contends that a perusal of the impugned order shows that the cancellation of the licences of the petitioners have been made on the orders of the Government. The Excise Commissioner being the authority empowered to cancel the licence, the present action is a clear case of the authority acting under dictation.

21. With reference to the provision under which the impugned orders have been issued, cancelling the licences already granted, it is contended that Section 26 (e) is not attracted to the fact situation in the present case. The conditions subject to which licences had been granted are part of the Rules. A perusal of the conditions would show that, there is no condition permitting cancellation of any licence, 'at will'. It is further contended that, since Section 26 has not been amended, no fresh ground could be granted by an executive action. In the absence of a condition in the licence permitting cancellation thereof, 'at will' no such condition could also be incorporated by an executive action. It is further pointed out that the licences in these cases have been renewed subject to the liquor policy to be formulated. However, the said condition does not authorize cancellation of the licence that has been granted for the entire financial year. The petitioners are entitled to continue their businesses till the expiry of the terms of their licences. Relying on the licence that has already been issued, the petitioners have upgraded the facilities in their hotels expending crores of rupees. They have also acquired stocks of imported foreign liquor anticipating the sale in their hotels. The expectations of the petitioners that they would be permitted to continue their activity for the entire period of their licence was legitimate. Therefore, the impugned action is also hit by the principle of legitimate expectation. Apart from the above, it is pointed out that, Article 163 of the Constitution has been violated, inasmuch as, the present Abkari Policy was not recommended by the Council of Ministers. The Council of Ministers only ratified the policy ex post facto. 

22. According to Senior Counsel Sri. O.V.Radhakrishnan, the preamble of the Abkari Act,1077 clearly states that, the Act is intended only to regulate trade in liquor. There is no provision in the Act permitting or authorising imposition of total prohibition. Therefore, the proclaimed object of the present Abkari Policy as well as the measures adopted for attainment thereof are unsustainable, being not supported by any of the provisions of law. A perusal of Section 29 of the Abkari Act that confers power on the Government to frame rules shows that, all the purposes mentioned therein relate to regulation. There is no provision that empowers the Government to frame rules for the purpose of imposing total prohibition. In the absence of a specific power, the present amendment to Rule 13(3) is unsustainable and liable to be set aside.

23. The learned Senior Counsel further points out that, amended rules were published in the Government Gazette on 27.08.2014. As on the said date, the State had no Governor for the reason that, the Governor had resigned and had ceased to hold office. The resignation takes effect instantaneously. The notification in the gazette is purported to be issued in the name of the Governor. Therefore, the said notification is invalid. No ex post facto ratification is permissible in such matters. Nor is any such ratification constitutionally recognized. Therefore, it is contended that the explanation of the State that the policy has been ratified, cannot be sustained. Since Article 163 mandates that the Governor should act only on the aid and advice of the Council of Ministers, the present policy that was not supported by a decision of the Council of Ministers suffers from a constitutional illegality that is not capable of being rectified. Apart from the above, it is contended that, the manner in which the decision was taken, in post haste manner justifies a presumption of malafides against the State.

24. It is further contended that, the Rules of Business of Government of Kerala issued under Article 166 of the Constitution have been violated. Rule 58 stipulates that the draft should be referred to the Law Department, for opinion, which was not done. Rule 59(1) has also been violated. In the absence of a valid policy decision, the impugned action of cancelling the licence of the petitioners cannot be sustained and is therefore liable to be struck down.

25. The learned Senior Counsel also contends that, the restriction contemplated by Article 19(6) could be imposed only by means of legislation. In the present case, the restriction is imposed by an executive action which is not permissible. The impugned action is vitiated by violation of the principles of Natural Justice, it is contended. No notice was issued to the petitioners before the licences were cancelled. The petitioners have invested substantial sums of money acting on the strength of the licence issued. Consequently, the principle of promissory estoppel applies against the action of the State in revoking the licence.

26. According to Senior Counsel Smt Indira Jaisingh, Kerala is a state where there is already a Prohibition Act in force. The State has enacted the Prohibition Act, 1950. Section 8 of the said enactment prohibits the manufacture, traffic in and consumption of liquors and intoxicating drugs. The punishment for violation of the said provision has also been provided. Section 9 makes even being found in a state of intoxication, punishable. With the coming into force of the said Act, the Abkari Act 1077 stood repealed. However, Section 2 confers power on the Government to suspend the operation of the Act, by a notification in the Kerala Government Gazette, with effect from a date to be specified therein, with respect to all or any of the local areas to which the same should supply. In exercise of the power under Section 2 of the said Act, the Government has issued a notification dated 28.04.1967 (SRO 104/67) suspending the operation of the provisions of the Prohibition Act, except Sections 1,7 and 11 in all areas to which the said provisions were to apply. As per Section 3 of the Prohibition Act, upon issue of a notification under Section 2, the enactments mentioned in the first schedule to the said Act, along with the Rules and notifications made thereunder would become operative and would be in force. The Abkari Act, 1077 is one of the enactments made mention of in the first schedule to the Prohibition Act. Therefore, it is pursuant to the notification issued under Section 2 of the Prohibition Act, that the Abkari Act, 1077 has revived and is continuing to be in force. In the above scheme of things, therefore, the field of prohibition is occupied by the Prohibition Act, 1950 whereas, the field of regulation of trade in liquor is occupied by the Abkari Act, 1077. If the State wanted to bring in prohibition, it could have done so, by simply cancelling the notification under Section 2 of the Prohibition Act. That has not been done. Therefore, the intention of the State is not to impose prohibition, but to permit trade in liquor in a regulated manner. The power to impose regulations is contained in Abkari Act, 1077. The provisions of the said Act therefore cannot be employed to impose prohibition. The power to frame Rules under the Act is conferred, for the purpose of giving effect to the objects of the enactment. Any Rule made for the purpose of imposing prohibition would be ultra vires the rule making power as well as the scope of the Act itself for the reason that, the object of the Act is only to regulate and not to prohibit. The present Abkari Policy that proclaims the object of imposing prohibition cannot therefore be introduced in exercise of the Rule making power under the Abkari Act, 1077.

27. In view of the fact that, there is no prohibition in the State or a monopoly in favour of the Sate, the citizen also has a right to carry on trade in liquor. The said right has been recognized by the Hon'ble Supreme Court. It is further contended by the learned Senior Counsel that the right of a citizen under Article 19(1)(g) has to be understood as being subject to the reasonable restrictions that the State has been permitted to impose under Article 19(6), in the context of the duty cast on it by Article 47, to bring about the prohibition of consumption of intoxicating drinks and drugs which are injurious to health. Since the State has not imposed prohibition nor created a monopoly in the trade for itself, the policy of selective permission to private individuals, presupposes a corresponding right in the citizen to claim opportunity to carry on the trade. The said right has been denied by the present Abkari Policy. In the present case, the restrictions imposed have no nexus to the object that is sought to be achieved, namely to raise the health of the people. The policy classifies the citizens on the basis of their paying capacity. A person who has the financial capacity to pay is permitted to consume intoxicating liquor which is available only in 5 star hotels, there is no justification for the said classification. The One Man Commission report has recommended grant of FL-3 licence to hotels with a classification of 3 star and above. The object of the Abkari Act being only to permit and regulate the trade, cannot justify the imposition of total prohibition.

28. With respect to the power under Section 26(e) of the Abkari Act, the provision has to be read down by construing the same ejusdem generis. Reliance is placed on the Constitutional Bench decision of the Supreme Court in 

Olga Tellis v. Bombay Municipal Corporation [AIR 1986 SC 180] 

to contend that, the restriction imposed, to be sustainable should satisfy the test of being, just, fair and reasonable, the soul of natural justice being fair play in action. The present policy does not satisfy the above vital requirement. It is further contended that, the Abkari Policy is arbitrary though it proclaims that it is to promote tourism, the policy is in fact against tourism. The rule proclaims tourism as its objective, but restricts the facility of bar only to five star hotels. The statistics show that, the bulk of the tourists frequenting the State do not belong to the five star category. There is a total lack of application of mind to any of the above aspects, by the framers of the policy, rendering the same arbitrary and liable to be set aside.

29. Senior Counsel Sri.P. Ravindran referred to the provisions of the Abkari Act to contend that Section 15A, 15B and 15C only seeks to impose restrictions on the manner in which the trade in liquor is to be carried on. Section 24 mandates that every licence or permit granted under Act shall be in the prescribed forms. The form of FL-3 licence incorporates the conditions subject to which the licence is granted. Clause 1 specifically provides that sale of foreign liquor is permissible only to the residents of the hotels, for the use of such residents or their guests or casual visitors partaking in meals. The conditions stipulate the quality of liquor to be sold, prohibits drunkardness, rioting or gambling within the premises and provides that no liquor shall be sold for removal outside the hotel. The liquor is permitted to be sold only along with meals. Restrictions are imposed with respect to the timings during which the Bar could be kept open. Section 18A empowers the State to grant exclusive privilege for the manufacture of liquor. No restriction has been imposed on any of the above powers. The manufacture, wholesale trade as well as retail sale through Beverages Corporation are permitted to be continued without any restriction.

30. It is further contended that, the power to grant a licence to an applicant stands exhausted on the grant of the licence. The power to cancel a licence is contained in Section 26 of the Act. The said power can be exercised only on one of the grounds specified therein. All the grounds mentioned in Section 26 refer to violation of one or the other conditions of the licence. Only sub clause 'e' provides for cancellation or suspension of the licence 'at will'. The above provision has to be read down, in the context of the other grounds that are mentioned. In the present case, the notice of termination has been issued, acting under dictation. It is pointed out that, Rule 13(3) even after the present amendment proclaims that bar licences are issued, for the promotion of tourism. The said object would not be served by limiting the grant of bar licences to five star hotels alone.

31. Senior Counsel Sri Ramesh Babu concedes that no citizen has a fundamental right under Article 19(1)(g) of the Constitution to trade in liquor. The right is only a qualified right subject to Article 19(6). However, according to the counsel, the present policy is violative of Article 14 of the constitution not only because the classification made is unreasonable, bearing no nexus to the object sought to be achieved, but for the further reason that the policy is arbitrary. Though the State has proclaimed its intention to impose prohibition, while proposing to cut down the number of outlets of the Beverages Corporation at the rate of 10% every year, there is no proposal to reduce the number of five star hotels. Apart from five star hotels, there are other categories of Foreign liquor licencees, like Beer and Wine Parlour licencees, club licenees etc. There is no proposal to restrict the grant of licences to any of the said categories. Therefore, the effect of the policy is only to create a monopoly in liquor trade in favour of five star hotels. Creation of such a monopoly, in favour of private parties is neither permissible nor sustainable in law. The policy has not been fully carried over to the amended Rule 13(3) of the Foreign liquor Rules for the reason that, there is no provision even in the amended Rule to phase out the outlets of the Beverages Corporation. According to the counsel, the object sought to be achieved being safeguarding of the health of the persons who frequent the bars, confining the same to five star hotels alone would not achieve the said objective. The decision of the Supreme court in the case of Bombay Dancing Bars is relied upon to contend that there is no difference in the nature of activity carried on in five star hotels and in hotels having lesser star classifications.

32. Senior Counsel Sri. K.P.Satheesan points out that, the Kerala Consumer Federation ('Consumerfed' for short) to which FL-I retail licences are granted is a co- operative society. Therefore, there is no justification for not granting such licences to other private parties. According to the Senior Counsel, sale and consumption of foreign liquor within the precincts of a bar hotel are subjected to closer regulation than a similar sale from a retail shop conducted by the Beverages Corporation. In a bar hotel, liquor is permitted to be sold only along with the food. It is stipulated that the cost of liquor be billed along with the food. Closure of such establishments would leave the consumers free to purchase liquor in bottles and to consume it indiscriminately and without any control, wherever they may choose to consume the same. The said course would only lead to more law and order problems. It would not in any case result in a reduction in the consumption of liquor, since the same is freely available for purchase from the FL-1 shops. The restriction now imposed would therefore be only counter productive.

33. Senior Counsel Sri T.A. Shaji contends that, no action under article 47 has been initiated by the State in the present Abkari Policy. This is for the reason that, the consumption of liquor has in no way been restricted. A restriction has been placed only on the trade in liquor through bar hotels. The said restriction does not and cannot achieve the object of reducing consumption, in any manner.

34. Senior Counsel Sri. S.Sreekumar representing the four star hotels points out that there are only 33 four star hotels in the state, whereas five hotels number only 20. The four star hotels are frequented only by the financially well to do sections of the society. Four star and five star hotels are grouped together for the purposes of classification by the Ministry of Tourism, Government of India. The only difference between a five star hotel and a four star hotel is the existence of a swimming pool, with marginal variations in the dimensions of the rooms. The sale of liquor through four star and five star hotels within the state accounts only for a small, miniscule percentage of the total liquor sold in the state. There has never been any complaint against the functioning of four star hotels or with respect to the manner in which liquor was sold or consumed in the premises of such hotels at any time. Nor was the category of four star hotels targeted for any type of restriction, at any time by the State. At no time was there any proposal to impose restrictions on the four star hotels. Therefore, the present policy of not granting bar licences to four star hotels is without any justification whatsoever.

35. According to the counsel, four star, five star and heritage hotels form a class by themselves. Therefore, the present policy that singles out five star hotels alone for the purposes of conferring a benefit is arbitrary and discriminatory. The decision in State of Kerala v. Surendra Das (supra) is relied upon to contend that the Hon'ble Supreme Court has proceeded on the basis that two star and three star hotels stand on a different footing in comparison to the four star and other higher classification hotels under the Tourism Policy of the Government of India. All the restrictions that were sought to be imposed at that time concerned two star and three star hotels. Therefore, the petitioners as well as other four star hotels expected that their licences would be renewed. The terms of reference made to the One Man Commission by G.O.(MS) 12/13/T.D. dated 23.01.2013 also related only to the manner of functioning of two star hotels, with no reference to the higher category hotels like four star and five star. The report of the One Man Commission, particularly paragraph 44 is relied upon to contend that there is no justification whatsoever for denying bar licences to hotels with four star classification. It is contended that, the classification on the basis of which bar licences have been denied to four star hotels is discriminatory and violative of Article 14 of the Constitution.

36. Advocate N.N.Madhu takes strong exemption to the action of the Government in not accepting and not even referring to the opinions of the Taxation Secretary as well as the report of the One Man Commission. The Taxation Secretary has recommended that hotels having three and four star classifications could be granted renewal of licence. With respect to the bars that do not conformed to the standards, the recommendation was that, they should be given time to upgrade their facilities. The recommendations of the Excise Commissioner are also on similar terms. The recommendation regarding refusal to grant licence was limited to those hotels that do not have two star classification. According to the counsel, as stated in the reply affidavit filed by the petitioner represented by him, the total sales have only increased after the closure of the bars. Apart from bar hotels there are about five thousand toddy shops vending toddy in the State. There are other categories of establishments to which licences for sale of liquor are granted. Therefore, the policy cannot achieve the desired objective. It is further contended that, no mass cancellation of licences, as done in the present case, is envisaged under Section 26(e) of the Abkari Act.

37. Sri. George Poonthottam, Advocate, points out on behalf of a four star hotel that, closure of bars has not resulted in any reduction in the consumption of liquor, as the statistics show. The bars constitute only 33% of the outlets vending liquor within the state. By closure of the bars, what has happened is that the sale has shifted to FL-1 retail outlets. According to the counsel, there are 17 manufacturing units producing liquor within the state. One unit is owned by the state. No attempt has been made to reduce production. The entire sale of liquor both wholesale and retail is conducted through outlets run by the Beverages Corporation. There is no restriction on the production or sale of liquor. Therefore, the availability of liquor within the state is in no way affected by the present policy. Consequently, the consumers are left free to satisfy their requirements by taking recourse to the other outlets. A further contention raised is that, even as per the amended provision, the FL-3 licences are issued with the object of promoting tourism. The said object has been lost sight of while formulating the present policy. The middle class tourists who patronize the State and form the bulk of the tourist inflow, cannot afford bars that are available in five star hotels. It is therefore pointed out that, there is no nexus between the present policy and the object, being promotion of tourism, that is sought to be achieved.

38. Yet another contention raised is that, the policy has not been framed after proper consideration of the relevant issues or after due deliberations. It is contended that a decision had been taken initially to renew all the licences but, the same was subsequently given the go by. The above aspect would be revealed by the Government files. The Rules of business made under Article 166 of the Constitution has not been complied with. As per Rule 44 of the Rules, a proposal has to originate from the Department concerned and the Finance Ministry has to consent. In the present case the procedure has not been complied with.

39. It is further contended that the Tourism sector accounts for a total inflow of Rupees four thousand crores annually, to the State. Considering the potential for the growth of tourism in the State, investments of crores of Rupees have been made by various persons. Financing Agencies have also funded many of the projects. The State Bank of India has disbursed a whopping Rupees Nine hundred crores to various establishments while the Kerala Financial Corporation has advanced Rs.570 crores. The establishments that received the funds would run into problems and would have to be eventually closed down. Corporate meetings and conferences both national and international that were expected to be conducted at various scenic locations within the State have started getting cancelled. They are shifted to other places like Goa and Sree Lanka. The above vital aspect has not engaged the attention of the policy makers. The policy to confine bar licences to only five star hotels has come as a bolt out of the blue to the entire tourism industry, wreaking havoc and losses.

40. Advocate P. Chandrasekhar places reliance on the Prohibition Act, 1950 and the Notification of 1967 suspending the provisions thereof, to point out that the situation that was recognized, taken note of and accepted by the State Government continues to exist till this date. The situation has not changed in any manner. Prohibition can be imposed only under the said Act, after withdrawing the notification of 1967.

41. The trade in liquor is subject to two types of controls in the State namely, regulation of the provisions of the Abkari Act, 1077 and prohibition by the Prohibition Act, 1950. Though the Prohibition Act has repealed the regulatory enactment, the provisions thereof have been revived by the notification of 1967 that has suspended the Prohibition Act. The present attempt to introduce prohibition through regulation, is according to the counsel, unsustainable. The further contention of the counsel is that, the licencee had a legitimate expectation that the privilege granted to him by the licence would continue at least till the expiry of the term thereof. Therefore, the present cancellation of the licence before the expiry of the term is absolutely unwarranted. The legitimate expectation of the petitioner should have been taken into account as a relevant factor by the authority while arriving at the decision. Only where there is an overriding public interest can the legitimate expectation be superseded. In the present case, there is no overriding public interest. Nor, is there any urgency in the present case, since the professed object of the State is only to impose prohibition over a period of ten years.

42. It is the case of the counsel that, the present policy is unsustainable applying proportionality principle also. The Court is the primary reviewing authority as regards proportionality. The Courts in India have been employing both the Proportionality Test as well as the Wednesbury Principle in judicial review. In the light of the above principles, what has to be proved is whether the measure imposed was really necessary, whether it has a legitimate nexus to the object and whether there was a lesser measure that could have been adopted to achieve the same result. A process of balancing would have to be undertaken where the hardship as well as the benefits are balanced to arrive at a conclusion as to whether the impugned action could be sustained.

43. It is contended by the counsel that, the legitimate expectation is only one facet of unfairness. In the present case, the report of the One Man Commission has arrived at its conclusions after a study in depth of the situation prevailing in the State. The State Government was waiting for the report of the One Man Commission as well as the recommendations of the Taxation Secretary, to formulate its Abkari Policy. The Abkari Policy does not evidence a consideration of the said documents. There is no evidence that prohibition is necessary. The report of the One Man Commission has been simply ignored. None of the stake holders have been consulted or taken into confidence. Therefore, it is contended that the policy document is a total contradiction in terms.

44. Advocate Saiby Jose Kidangoor has put forward a further contention that, production of wine in the State has been treated separately and is permitted by a separate set of rules that govern such activity. With the existence of toddy shops and various other establishments not only producing but also selling liquor, the proclaimed object of prohibition cannot be achieved by the measures now adopted.

45. Advocate Roy Chacko contends that Rule 36 of the Foreign Liquor Rules confers unguided and unchannelised powers on the authorities. As per the said rule, the Excise Commissioner has been empowered to revoke any licence after giving 15 days notice. The said provision according to the counsel is arbitrary. While formulating the present Abkari Policy, no provision has been made for rehabilitation of the section of workers who would be rendered jobless, consequent upon the implementation thereof. It is further contended that, the present amendment made pursuant to the Abkari Policy is ultra vires the Rule making power of the State under Section 29 of the Abkari Act. According to the Counsel, there is no justification for permitting a bar in a five star hotel, when it is permissible for five star classification to be granted to a hotel even if it does not have a bar.

46. According to Sri. R.Harikrishnan, there is no substantial difference between the facilities offered by four star and five star hotels. The rates at which liquor is sold in both the categories of hotels also vary only marginally. Both the categories of hotels have all along been grouped together as homogenous class. There is no justification for treating them separately for the purpose of denying to four star hotels the facility of a bar licence. It is also pointed out that, the report of the One Man Commission has taken note of the problem of migrant workers and referred to the orderly behavior of people within the premises of bar hotels. However, the report has not been considered while formulating the policy.

47. According to Senior Counsel Sri. C.Ramesh Chander, the present policy is arbitrary and liable to be set aside. It is pointed out that five star hotels are available only in a few districts of the State of Kerala. At the same time, tourist destinations of importance are spread all over the state. Confining bar facility only to five star hotels would adversely affect the future prospects of development of tourism in the State. The consequence would be to render jobless not only the persons working in the liquor trade but also people working in the tourism sector. Substantial loss of Revenue to the State Exchequer is also a certain consequence.

48. Advocate Sivan Madathil points out that the present Abkari policy is in direct conflict with Section 13A of the Abkari Act. Section 24 describes the forms and conditions of licence. Section 29 confers power on the State to frame rules. Section 69 according to the counsel is unconstitutional. Rule 36 confers unguided power on the Excise Commissioner to revoke a licence and is unconstitutional, according to the counsel. The present cancellation of licence is violative of Article 14. It is contended that, the present Abkari Policy has been framed without any consultation with the stake holders. Strong exception is taken by the counsel to the manner in which the policy has been formulated, without the aid and advice of the Council of Ministers. There is no provision to ratify a decision as purportedly done in the present case. Ratification of a policy issued by the Government, ex post facto, is unsustainable. 

Contentions on behalf of the State 

49. The contentions made on behalf of the petitioners are refuted on behalf of the State by pointing out in the first place that, the question as to whether bar licences should be issued to the petitioners or to any other persons is a matter of policy of the Government. Judicial interference with matters of policy is limited and confined to situations where there are compelling circumstances justifying such intervention. In the present case, there are no such compelling circumstances. According to Senior Counsel Sri.Kapil Sibal who represents the State, the State has a duty, which is a fundamental duty under Article 47 of the Constitution, to bring about prohibition of the consumption of intoxicating drinks and drugs which are injurious to health. In the face of the constitutional duty cast on the state, the present State action cannot be characterized as unjustified or uncalled for. The State is only striving to discharge its fundamental duty. According to the learned Senior Counsel, no citizen has a fundamental right to trade in liquor. Article 19(1)(g) read with Article 19(6) and Article 47 of the Constitution obligates the State to initiate action with a view of reduce consumption of liquor.

50. The present policy is one intended to reduce consumption of liquor in public places. It is for the said reason that, the consumption of liquor in bar hotels have been banned. The policy would put pressure on the persons who frequent the bars to restrict their consumption to the confines of their homes, thereby subjecting their activity to the influence of their family members. The said restriction is absolutely in tune with the object of prohibition which the State wants to ultimately achieve.

51. Reliance is placed on the Constitutional Bench decision of the Supreme Court 

Khoday Distilleries Ltd v. State of Karnataka [(1995) 1 SCC 574] 

to contend that trade in liquor is objectionable and no citizen has a fundamental right to trade in liquor. The power of control of the State is intended to protect the society. Any State law made with the object of imposing prohibition has to be viewed as a legislation made in discharge of the fundamental duty of the Sate under Article 47 of the constitution. The right to conduct trade or business varies in scope and content depending on the substance in which such trade is proposed to be undertaken. In the case of a substance that is res commercium, the citizen would have greater freedom. Whereas his right would be considerably restricted, if the substance in which the trade is proposed, is res extra commercium. The State has a duty to protect the public from deleterious substances. Intoxicating liquor being a substance that is res extra commercium, it is contended that, any restriction on a trade in the said substance would have to be viewed as a restriction made in discharge of the Constitutional duty under Article 47.

52. With respect to the contentions put forward alleging discrimination against the petitioners, it is pointed out by Senior Counsel Sri. Kapil Sibal that, the Abkari Act does not classify hotels into two star, three star or four star. The classification is made by the Ministry of Tourism, Government of India. The said classification was only adopted as a method of differentiation among the various categories of hotels by the State. Initially, the two star hotels were excluded. The action was challenged before the Courts, but was found to be in order. Thereafter, three star hotels were excluded, the said action was also sustained. By confining bars to only hotels having five star classification, the opportunities to consume intoxicating liquor available to youngsters and students are reduced substantially. The major consumption of liquor takes place in hotels classified as two, three and four stars. As a consequence of the present policy, the consumption of liquor in public places would be limited to five star hotels alone. The people who frequent five star hotels form a very limited category and the consumption of such establishments also is not substantial.

53. The fact that the liquor is available freely in the retail outlets does not militate against the policy for the reason that, no measure to curtail the sale of liquor in bottles has been adopted. The restriction is limited to consumption of intoxicating liquor in public places. For the only reason that, liquor is being sold in bottles from retail shops, the validity of the present policy is not affected in any way.

54. The refusal of the State to renew licenses of the bar hotels does not affect their business in any manner. It is only their bars that would have to be closed down. Their hotels with the other avenues of business like restaurants, lodging etc, could be continued without any restriction. If their contention is that, the bars were the major source of their income, the said fact would justify the State action, for the reason that closure of such bars would definitely reduce liquor consumption. If the bars were not their main source of revenue, they are not seriously affected by the closure of their bars. Either way, their complaint lacks substance.

55. With respect to the decision of the Hon'ble Supreme Court in the Bombay Dancing Bars case, relied upon by the counsel for the petitioners, it is pointed out that the dictum in the said case has no application to the facts of the present case. The ban in the said case was to find a solution to the malady of obscene dancing and other criminal activities. Attempt to ban such activity had prevented all types of dance performances. It was the unqualified ban that was found to be unsustainable by the Supreme Court. The dictum in the said case has no application to the facts of the present case for the reason that it is only the consumption of intoxicating liquor in public places that include bars, that has been stopped. According to the counsel, the present policy is only part of a consistent policy that was being pursued by the State from 2002 onwards. Therefore, the present measure is not a sudden decision but a decision at which, the State has arrived in a phased manner, over a period of 12 years. Since the petitioners do not have a right to trade in liquor, they cannot question the present policy. The fundamental right to conduct trade or business or the freedom of industrial trade and commerce constitutionalised by Article 301 to 304 are not applicable in respect of a trade in liquor. It is for the said reason that the various restrictions imposed by the State on the trade have been sustained by the Apex Court over the years.

56. It is the further contention of the learned Senior Counsel that, Section 29 of the Abkari Act confers power on the State to frame rules. Section 69 provides that such rules would have the force of law. In other words, the rules so made would become part of the enactment. Therefore, the amendment presently made also has become the part of the enactment by the force of Section 69. Section 26(e) confers power on the Excise Commissioner to cancel the licence where the conditions thereof permitting such cancellation, apply. The provisions of the FL-3 licence contains such a condition. Therefore, the cancellation of the licences of the petitioners is in order. Rule 26 of the Foreign Liquor rules also confers power on the Excise Commissioner to cancel the licence after giving 15 days notice. Such notice has been given. Therefore, the cancellation in these cases is proper.

57. The learned Senior Counsel further points out that the FL-3 licenses issued to the petitioners had been renewed only provisionally. Though the Abkari Policy was being formulated at the beginning of each financial year, the present Abkari Policy could not be formulated at that time for the reason that, the Lok Sabha elections had been notified and the Model Code of Conduct promulgated by the Election Commission was in force. In view of the above peculiar situation, as per Government Order dated 02.04.2014, permission was granted for renewal of the existing bar licenses, provisionally and subject to the Abkari Policy to be formulated later. It was in accordance with the said Government Order that the licenses of the petitioners were renewed. It is specifically stipulated that the licenses were renewed only provisionally and subject to the Abkari Policy to be formulated. Though the petitioners had paid the licence fee for the entire financial year and the State had received such payment, the petitioners very well knew that the renewal was only provisional and subject to the Abkari Policy that was awaited. Therefore, they very well knew that they had no right to continue their operations for the entire financial year. For the above reason, it cannot be said that they were taken by surprise. The provisional licence that was granted, was liable to be cancelled, on the basis of the stipulations contained in the Abkari Policy that has come into force. Therefore, the present cancellation is not on any one of the grounds that are mentioned in Section 26. Since the power of cancellation is available to the Excise Commissioner in view of Section 26(e) and also in view of the conditions subject to which the licence was provisionally granted, the same was cancelled after complying with the mandate of Rule 36 of Foreign liquor Rules. The action is fully justified.

58. The learned Senior Counsel further submits that the recommendations of the One Man Commission as well as those of the Taxation Secretary were not binding on the Government. They were only recommendatory in nature and the Government was at liberty to take its own decision while formulating the policy. It was not necessary for the Government to justify its policy with reasons for the reason that, what is framed was its policy. The policy is one that has been made mention of in its Election Manifesto. Therefore, according to the learned Senior Counsel, the contentions of the petitioners are only to be rejected and the writ petitions dismissed. 

Reply on behalf of the petitioners 

59. In reply, Senior Counsel Sri Aryama Sundaram points out that, since the Government Policy is aimed at prohibiting drinking in public places, it has to be examined whether the policy can achieve the said purpose. There are absolutely no allegations in the policy that any problems are created by the hotels classified as two, three and four star. The production and availability of liquor in the market remains unaltered. There is also no restriction in increasing the production of liquor on the basis of demand. Only one avenue has been singled out for closure that is the bar hotels. The bar hotels represents the smallest avenue of consumption of liquor. The major avenues are retained and left untouched. The citizen has a right to carry on business in liquor, he also has a right not to be discriminated in the manner of placing restrictions on the exercise of the said right.

60. A perusal of the policy shows that the same is silent with respect to the mischief that is sought to be remedied. The issue has not even been addressed though it is claimed that the policy is intended to achieve prohibition. The materials obtained by the State for the purpose of formulating its policy have neither been referred to or considered. On the contrary, the materials available in the present case viz, the report of the One Man Commission as well as the report of the Taxation Secretary do not justify the policy. Therefore, the policy is arbitrary.

61. According to the counsel, the petitioners have been subjected to discrimination in the matter of enforcing controls on their trade. The classification does not protect any public interest, in view of the fact that, even on implementation of the policy, the availability of liquor would continue unaffected. Therefore, there is no justification for the classification. It is the further contention of the counsel that, an executive action cannot enforce the restriction contemplated by Article 19(6) of the constitution. A fundamental right can be denied only by a plenary legislation and not by an executive action. The petitioners being existing hotels had right of renewal of their licences that has been denied to them without any justification. Therefore, according to the learned Senior Counsel, the writ petitions are only to be allowed. 

Contentions of the Prohibitionists

62. Apart from the above contentions raised by the petitioners and the respondent State, the protagonists of prohibition who have got themselves impleaded, pro bono publico, have also addressed the Court supporting the Abkari Policy. Advocate Basil Attipetty has referred to the evil effects of excess consumption of alcohol. According to the counsel, the fact that investments running to crores of rupees have been made does not confer any right on a person to conduct trade in liqour. It is the settled position of law that no citizen has a right to trade in liquor. The counsel referred to the liquor tragedies that had occurred in the State, in the past and contended that only complete prohibition could root out the malady of consumption of alcohol. The licences of the petitioners were renewed only on provisional basis and subject to the Abkari Policy. Therefore, the cancellation thereof cannot be found fault with.

63. Advocate Johnson Manayani also draws my attention to the evil effects of the use of alcohol. The social problems created by excess drinking, of families driven to the streets by the profligacy of the bread winner also was narrated in justification of the present policy.

64. Advocate Kaleeswaram Raj justifies the termination of the Bar licences by pointing out that, since the action was on the basis of the policy that has been formulated, no notice was necessary. In view of the amendments made, incorporating the policy into the amended Rule 13(3), the policy has acquired the status of a legislation. Therefore, the principles of Natural Justice have no application. According to the counsel, therefore, no interference with the Abkari Policy is either called for or necessary. The writ petitions are only to be dismissed. 

Does the citizen have a right to trade in potable liquor?

65. Since it has been argued before me that the petitioners have a fundamental right to trade in liquor, I shall address the same first. Potable Alcohol is nothing but diluted ethyl alcohol having a chemical formula C2H5OH. Ethyl Alcohol is a versatile chemical, capable of being put to a wide variety of uses in the field of industry as well as medicine. Of course it is also capable of being consumed as an intoxicant, in its diluted form. The fact that Ethyl Alcohol is capable of being put to a variety of uses, has been recognized in our Constitution itself. It is for the said reason that the constitutional duty in Art.47 has been limited "to bring about prohibition of consumption" of intoxicating drinks, "except for medicinal purposes". Thus, consumption for medicinal purposes has been exempted. The power to legislate on Ethyl Alcohol has been divided among the Centre and the States. As per the Seventh Schedule, Entry 8, list II, the States have been conferred with legislative competence only over intoxicating liquors that is to say production, manufacture, possession, transport, purchase and sale of intoxicating liquors. Similarly as per Seventh Schedule, Entry 51, list II, the power to levy duties of excise on alcoholic liquors for human consumption alone is conferred on the states. The above division of powers is clear from Entry 84, list 1 Seventh Schedule, by which the Centre has been conferred with power to levy duties of excise on tobacco and other goods manufactured in India except, inter alia, alcoholic liquors for human consumption. Therefore, the power of the State to legislate in respect of alcohol is confined to alcoholic liquor capable of human consumption. The above position has been settled by the Constitution Bench in 

Synthetics and Chemicals Ltd. v. State of Uttar Pradesh [(1990)1 SCC 109]. 

Inasmuch as the legislative competence of the State does not extend to any substance other than potable liquor, the scope of the enquiry here is also limited to whether the citizen has a right to trade in liquor capable of human consumption.

66. According to the Senior Counsel Shri.Aryama Sundaram, a Constitutional Bench of the Supreme Court has held in 

K.K.Narula v. State of Jammu and Kashmir [AIR 1967 SC 1368] 

that the citizen has a fundamental right to trade in potable liquor. Though the said dictum has been the subject matter of consideration of a subsequent Constitutional Bench of equal strength, in 

Khoday Distilleries Ltd. v. State of Karnataka [(1995) 1 SCC 574]

since the earlier Constitutional Bench has not been overruled, the petitioners are entitled to take the benefit of the said dictum. The resultant position therefore is that, the citizen has a fundamental right to trade in potable liquor as held in the case of K.K.Narula, it is contended. The said right is of course subject to reasonable restrictions that the State may impose under Art.19(6) of the Constitution. It is also contended that, the Constitutional Bench in the case of Khoday Distilleries has not held that a citizen has no fundamental right to trade in liquor. Though it cannot be denied that the State is at liberty to prohibit the trade altogether under Art.19(6) of the Constitution, where it permits such trade, the courts would examine whether the restrictions imposed are reasonable or not. In the above perspective it is contended that the petitioners herein have a fundamental right to trade in liquor along with the State which does not enjoy a monopoly. Consequently, the petitioners who are licence holders are entitled to claim renewal of their licences, as of right, provided they satisfy all the other conditions.

67. In the context of the above contention, it is necessary to note that, the Constitutional Bench has, in the decision in K.K.Narula considered the scope of the right available to a citizen to trade in liquor, analysed the dicta laid down by the previous decisions on the point and has concluded the issue in paragraphs 13 and 14 in the following words:- 

Since sufficient provisions are available in the Constitution to remedy the situation created by the resignation of the Governor and to ensure continuity in office, I do not consider it necessary to dwell on the above aspect in any further detail. No material or evidence is placed before me to justify a conclusion that any contingency of the nature pointed out was actually in existence. On the contrary, the presumption as to official acts under Section 114 of the Evidence Act, only supports the conclusion that the amendments were enacted and published properly. A further contention has been put forward regarding violation of the Rules of Business in Government. According to the counsel for the petitioners, the Abkari Policy was issued without the backing of a decision of the Council of Ministers. It is pointed out, by placing reliance on the statements in Paragraph 7 of the counter affidavit filed, that the Council of Ministers had ratified the decision on 27.08.2014. According to the counsel, such a procedure, of the Council of Ministers ratifying a decision is unknown to the Constitutional Law.

88. It is true that, Article 163 mandates the existence of a Council of Ministers to aid and advice the Governor in the exercise of his functions. The case of the State is that, the policy had been ratified 27.08.2014 by the Council of Ministers. The said statement only shows that, the formal decision of the Council of Ministers though taken subsequently, the policy had the tacit approval of the Council of Ministers. Otherwise, the Council of Ministers would not have ratified the same. Procedural intricacies in the manner of functioning of a Government machinery need not be scrutinized with a hawk's eye to cull out lapses for the purpose of invalidating them. The practical difficulties in the working of the Government has to be given a sufficient elbow room, without which the smooth functioning of the Government would become impossible. No materials have also been placed before me to justify the conclusion that the policy announced on 22.08.2014 was not supported by a decision of the Council of Ministers. In the absence of any such materials, the said contention is also negatived.

89. It is further contended that, as per the Rules of Business in Government, a proposal has to originate from the lower level of the Administrative machinery and has to proceed upwards with the endorsement of the subordinate Officers. In matters involving financial implications, a draft has to be approved by the Law Department and sanctioned by the Finance Ministry, it is contended that, the above provisions have not been complied with. However, no materials or evidence have been placed before me in support of the above contention. The stand of the State in the counter affidavit filed is that, the action of the Government is strictly in accordance with law and that the policy has been issued after complying with all the statutory formalities. As already noticed above, absolutely no materials or evidence are available before me to doubt the above submissions in the counter affidavit. 

Legitimate Expectation 

90. According to Sri. P.Chandrasekhar, Advocate, the present policy is violative of the legitimate expectation of the petitioners that, the privilege granted to them would continue, provided the conditions for renewal of the licence were satisfied. It is contended that, the authorities had a duty to take into account the legitimate expectation of the petitioners while taking a decision. The authorities have not taken into consideration the above aspect. Legitimate expectation can be denied only in cases where there is an overriding public interest. The counsel has placed reliance on a number of decisions to drive home his point. The counsel has also contended that, this is a case in which the Proportionality principle as well as the Strict Scrutiny Test should be applied. Employing the said principles, it is canvassed that it is open for this Court to examine the entire record leading up to the present policy. This Court would thereupon have to be satisfied as to whether the measure adopted was really necessary, whether there was a legitimate nexus to the object and was there a lesser measure that could have been adopted to achieve the same result. According to the counsel, this Court has to undertake an act of balancing the hardship and the benefit flowing from the measure adopted. If the hardship is more than the benefit, the measure would have to be struck down. It is contended by the counsel that, in the present case, the examination of the relevant files would reveal that all the materials available to the Government therein are in favour of granting licences to the petitioners. However, a policy has been framed ignoring all the available material. Therefore, it is contended that the policy is violative of the principle of legitimate expectation of the citizen.

91. In 

Kuldeep Singh v. Government of NCT of Delhi, [(2006) 5 SCC 702] 

the Hon'ble Supreme Court had to consider whether rejection of the applications of the petitioners therein while granting licences to others was proper or not? The reason for denying licences to the petitioners was that there was a change in the policy. It was contended that, the principle of legitimate expectation applied to such cases and that, for the said reason, the impugned action was unsustainable and liable to be set aside. Sinha J. has in paragraph 25 of the said judgment, negatived the contention in the following words:- It is, however, difficult for us to accept the contention of the learned Senior Counsel Mr Soli J. Sorabjee that the doctrine of "legitimate expectation" is attracted in the instant case. Indisputably, the said doctrine is a source of procedural or substantive right. (See R.v.North and East Devon Health Authority, ex p Coughlan6) But, however, the relevance of application of the said doctrine is as to whether the expectation was legitimate. Such legitimate expectation was also required to be determined keeping in view the larger public interest. Claimant's perceptions would not be relevant therefor. The State actions indisputably must be fair and reasonable. Non-arbitrariness on its part is a significant facet in the field of good governance. The discretion conferred upon the State yet again cannot be exercised whimsically or capriciously. But where a change in the policy decision is valid in law, any action taken pursuant thereto or in furtherance thereof, cannot be invalidated. [6-2001 QB 213] 

92. Therefore, wherever a change of policy decision is valid in law, any action taken pursuant to such changed policy cannot be attacked or invalidated on the ground of legitimate expectation. It is not the expectation of the claimant that is relevant. A claimant cannot have an expectation that is impermissible. In view of the above, it would have to be decided whether the policy in the present case is valid or not. It has also to be borne in mind that, in the context of the business with respect to which the petitioners have raised the claim of legitimate expectation, what is important to be noted is that, a citizen has no right to claim that he should be permitted to conduct business in a substance that is res extra commercium. At the same time, the State has the exclusive right or privilege in respect of potable liquor either to restrict or prohibit trade in the said article. Therefore, it is held that the principle of legitimate expectation is not available to the petitioners to challenge the Abkari Policy in these cases.

93. According to Senior Counsel Shri. K.Ramkumar, Senior Counsel Shri. Ramesh Babu and Adv.George Poonthottam the FL3 licences in favour of the petitioners having been renewed under the provisions of the Act and the Rules, they are entitled to continue operations for the full term of the licence i.e., up to 31.3.2015. This is because, licences under the Foreign Liquor Rules are granted for the financial year concerned. The licence fee is also stipulated for the entire year. Accordingly, the petitioners have paid the entire licence fees. Having received the full licence fee, it is contended that it is not open to the Government to cancel the licences, as done in these cases. Though the licences have been renewed stating that the renewal was only provisional and subject to the Abkari Policy to be announced, since no provisional renewal is contemplated by the Act or the Rules, the action of the Government can only be considered to be a renewal in accordance with the rules, for the full term. According to the Senior Counsel Shri.S.Sreekumar it was for the said reason that the renewal though provisional was not challenged earlier. It was expected that, the petitioners would be permitted to conduct their Bars for the entire financial year.

94. The Senior Counsel Shri. K.Ramkumar further points out that the renewal having been granted, the licence granted to the petitioners could be cancelled only on one of the grounds mentioned under Section 26 of the Act. All the grounds mentioned therein relate to violation of the terms and conditions of the licence or the provisions of the Abkari Act. Therefore Section 26(e) has to be read down and restricted to apply only to similar violations. Otherwise, the power granted by Section 26 (e) would be unguided and arbitrary.

95. The above contentions have to fail for the reason that, the renewal was granted to the petitioners on the basis of G.O(MS)56/2014 issued by the Government. As per the Government Order it has been specifically stipulated that the renewal shall be purely provisional or ad interim, subject to its cancellation or withdrawal before its date of completion. It has further been provided that, the renewal shall be subject to the decision to be taken by the Government as a matter of policy on the recommendations of the One Man Commission. It is a further condition that the full rental shall be collected, with the rider that the licensees shall be entitled for proportionate reduction with respect to the unexpired portion of the licence period. The above Government Order produced as Ext.P2 in WPC 23569/2014 was not objected to or challenged by any of the petitioners at that time (the said G.O is also under challenge in these proceedings). Instead, the petitioners accepted the renewal of their FL3 licences without demur. They have also been conducting their Bars on the strength of the renewed FL3 licences issued to them and subject to the conditions stipulated in Ext.P2. It is only upon realising that the policy of the Government was not in favour of renewal of their licences that they have mounted the present challenge against the Government Order. Therefore, it is held that the petitioners were fully aware of the fact that, their licences had only been renewed provisionally, as an ad interim measure "subject to its cancellation or withdrawal before its date of completion." Therefore, they cannot now turn around and contend that they are entitled to carry on their business for the entire term of the licence. The contention that they have stocked large quantities of liquor anticipating that they would be permitted to conduct business for the entire financial year is also without any basis. Such contentions are only put forward for the purpose of attacking the present policy of the Government.

96. It is further contended that the owners of the hotels have invested crores of rupees in their establishments, even securing funds from financial institutions all of which would be lost, because of the present policy adopted by the Government. It is worth noticing that, the licences were being issued under the Foreign Liquor Rules, for periods of one year duration. The Abkari policies were also being announced by the Government each year. Therefore, the petitioners were fully aware that the right to claim renewal of their licences was dependent on and subject to the policy of the Government for the particular year. The above being the position, the licensees have made the investments taking into account the stark reality that they had no vested right of renewal. The non-standard hotels had been issued with directions sufficiently in advance requiring them to upgrade their facilities. Therefore, nothing turns on the fact that, the petitioners have made substantial investments to upgrade their hotels, in some cases even by borrowing funds. It is held that they had done so, with the full knowledge that they had no right or guarantee for the renewal of their licences on the expiry thereof. 

The challenge on the basis of Article 14

97. The next contention of the petitioners is that, though the challenge in these cases is against the policy of the Government, even policy can be interfered with in appropriate cases. Policy can also be scrutinised by courts for the purposes of ascertaining whether the rigour of Article 14 has been satisfied or not. In the present case, it is contended that, the dichotomy between existing Bar hotels and applicants for fresh licences was being maintained over the past many years. This is for the reason that, existing licensees constitute a class by themselves. Since they are establishments already issued with licences, they have a right of renewal of their licences on the conditions for such renewal being satisfied. The parameters that would apply in the case of renewal as well as in the case of grant of a fresh licence are different. Fresh licences could also be denied for the reason that there were sufficient number of Bar hotels already in existence. Reliance is placed on the decision of the Supreme Court in 

State of Maharashtra and others v. Indian Hotel Restaurants Association and others (Dance Bar Cases) [2013(8) SCC 519] 

to contend that the quality of services rendered by two star hotels or three star hotels as well as five star hotels is the same. In all the establishments referred to above, liquor is being sold for consumption within the premises. The present policy makes a distinction on the basis of star classification, which according to the counsel is in fact a classification of the society itself. Consequently, the people belonging to the higher strata of the society or the affluent section are conferred with a privilege, without any basis. Such classification has been found to be bad by the Supreme Court in the Dance Bars cases, it is contended. For the above reason, according to the petitioners, the present policy is discriminatory and violative of Article 14 of the Constitution.

98. On behalf of the Government, the explanation is that, it has been the consistent policy of the Government traceable to its Election Manifesto, to bring about prohibition in a phased manner. Accordingly, every year restrictions were being imposed in the manner of issuing licences. It was decided that no new licences for three star hotels would be permitted from 31.3.2012 onwards and four star hotels would be permitted only up to 31.3.2013. No new FL1 licences are issued to the Beverages Corporation or the Consumerfed for opening additional outlets in the State. The timings of Bar hotels have also been reduced by three hours. It is as part of the said progressive implementation of prohibition that, the present restrictions have been imposed. Reliance is placed on the dictum of the Supreme Court in various decisions to contend that judicial interference with policy is impermissible.

99. In 

Ugar Sugar Works Ltd. v. Delhi Administration and others {(2001)3 SCC 635} 

the Supreme Court has laid down as follows in paragraph 18:- 

112. In the light of the above principles it has to be examined whether the State had sufficient material to justify the classification made, treating five star hotels alone as eligible for the grant of FL3 licences. As already noticed above, the materials referred to and made mention of in the Abkari Policy are the reports of the One Man Commission and the Secretary (Taxation) of the Government, apart from the decisions of this Court and the Supreme Court. It has to be examined whether the said materials justify the impugned action.

113. In the wake of the decision of this Court in Surendra Das v. State of Kerala (Supra) the Government by G.O.(Ms) No.12/2013/TD dated 23.01.2013 constituted a One Man Commission for recommending the parameters for formulating future Abkari Policies. The said Government Order states that the decision to appoint the One Man Commission is for the purpose of recommending comprehensive changes in the Abkari Policy including renewal of FL-3 licences already granted. It has been further stated that the Government have already taken a conscious policy decision not to grant any more bar licences till such time the Government considers the recommendations of the One Man Commission and takes a final policy decision. Thereafter, the terms of reference were incorporated in G.O.(M.S) No.28/2013/TD dated 04.03.2013 reference Nos. 4 and 5, relevant for the present purpose are extracted hereunder.