IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.BALAKRISHNAN NAIR & THE HONOURABLE MR. JUSTICE P.BHAVADASAN THURSDAY, THE 17TH DECEMBER 2009 / 26TH AGRAHAYANA 1931 WA.No. 1637 of 2009() --------------------- AGAINST THE JUDGEMENT/ORDER IN WPC.4685/2008 Dated 09/06/2009 .................... APPELLANT: -------------- M/S ALUKKAS TOURIST HOME, THRISSUR, REP. BY ITS PARTNER, SRI.V.A JOY, AGED 44 YEARS, S/O. V.J. ANTONY. BY ADV.C.C.THOMAS (SR) BY ADV. SRI.M.G.KARTHIKEYAN RESPONDENT(S): --------------- 1. STATE OF KERALA, REP. BY SECRETARY, TAXES (A), DEPT. OF GOVT. SECRETARIAT, THIRUVANANTHAPURAM. 2. THE COMMISSIONER OF EXCISE, EXCISE COMMISSIONERATE, PUBLIC OFFICE BUILDING, THIRUVANANTHAPURAM. 3. THE ASST. EXCISE COMMISSIONER, THRISSUR. 4. THE CIRCLE INSPECTOR OF EXCISE, THRISSUR. 5. A.V. PAUL, AGED 56 YEARS, S/O. A.J. VARGHESE (LATE), ALUKKA HOUSE, CHURCH LANDING ROAD, PALLIMUKKU, ERNAKULAM. BY ADV.GENERAL SHRI.C.P.SUDHAKARA PRASAD (SR) THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 17/12/2009, ALONG WITH WA 1571/09 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.BALAKRISHNAN NAIR & P.BHAVADASAN, JJ. ------------------------------------------------------------------------------- WA Nos.1571, 1636, 1637, 1638, 1639, 1640, 1646, 1647, 1656, 1657 and 1665 of 2009 ------------------------------------------------------------------------------- Dated 17th December 2009 Judgment Balakrishnan Nair, J. These appeals are filed by the writ petitioners, feeling aggrieved by the omission of the learned Single Judge, to declare that Sub-rule (ii) and the second proviso to Sub-rule (iv) of Rule 19 of the Foreign Liquor Rules, are ultra vires and unauthorised. By the Judgment under appeal, certain directions were issued in favour of the writ petitioners. The State has filed Writ Appeals against those directions. But, in these appeals, we are concerned, only with the correctness of the Judgment, to the extent, it is impugned by the appellants. WA No.1637/09 2. This Writ Appeal is treated as the main case for the purpose of referring to the parties and exhibits. The brief facts of the case are the following : The appellant is a partnership firm, which is having an FL- 3 licence. One of the partners of the firm Shri.A.V.Paul wanted WA No.1637/09 & connected cases. 2 to retire from the partnership firm. So, the partnership firm decided to modify the partnership deed, to give effect to his retirement. Before implementing that decision, permission was sought under Rule 19(i) of the Foreign Liquor Rules, from the Commissioner of Excise, by submitting Ext.P2 application on 31.01.2007. In fact, during the pendency of Ext.P2 application, the partnership was already reconstituted as proposed, on 16.08.2007. Therefore, before the Commissioner, apart from making the prayer to sanction Ext.P2, it was also prayed to condone their misconduct in reconstituting the partnership, without permission, by invoking the power for compounding offences, conferred under S.67(2) of the Abkari Act. According to the appellant, S.67(2) enables the Commissioner to regularise the action taken by it. But, the Commissioner of Excise, as per Ext.P10 order dated 05.01.2008, dismissed Ext.P2, for the reason that the hotel run by the appellant does not have Two-star classification. The motion for regularisation of the unauthorised reconstitution, made on,16.08.2007 was also rejected, holding that the same is not permissible under the Foreign Liquor Rules. So, the Writ Petition was filed, challenging Ext.P10 and also seeking consequential reliefs. Incidentally, the writ petitioner also prayed for a WA No.1637/09 & connected cases. 3 declaration that Rule 19(ii) and the second proviso to Rule 19(iv) of the Foreign Liquor Rules (hereinafter referred to as “the Rules”), introduced by SRO No.227/07 dated 13.03.2007 w.e.f. 01.04.2007, were ultra vires and unauthorised by the provisions of the Abkari Act. The learned Single Judge upheld the validity of the above mentioned Rules. Therefore, this Writ Appeal is filed, challenging the said view taken by the learned Single Judge. Certain reliefs were granted to the writ petitioners, with which, we are not concerned in this appeal and as mentioned earlier, they are under challenge in the appeal filed by the State. 3. Shri.C.C.Thomas, learned Senior Counsel, who appeared for the appellant submitted that S.29 of the Abkari Act, which enables the Government to make Rules, does not authorise framing of Rules, in the nature of the Rules impugned in this case. Special reference was made to Clause (r) of Sub-section (2) of S.29 of the Abkari Act, which enables the Government to frame Rules, concerning forfeiture, notwithstanding any contrary provisions contained in the Indian Contract Act 1872 or in any other law, of the whole or any portion of the kist amount deposited by the licensee, for breach of conditions of sale. The learned Senior Counsel pointed out that Sub- WA No.1637/09 & connected cases. 4 rule (ii) of Rule 19 of the Rules has the effect of modifying or varying the provisions of the Indian Partnership Act and the Companies Act. In the absence of any specific authorisation, as found in S.29(2)(r) of the Abkari Act, the State cannot frame any rule, which will have the effect of modifying the provisions of the aforementioned Acts. Regarding the second proviso to Sub-rule (iv) of Rule 19, it is pointed out by the learned Senior Counsel that the retirement of a partner or the induction of a partner in a partnership firm, will not have the effect of sale, transfer or sub-renting of a licence of the existing partnership firm to a new partnership firm. In the case of a Company, it is submitted that it is a legal person and whatever be the change in the constitution of the shareholders or the Board of Directors, the Company remains the same and therefore, the change in the personnel, managing the company, cannot be described as having the effect of sale, transfer or sub-renting of the licence. It is further submitted that the Government have saved all the existing licences in the existing premises without insisting for Two-star facilities. In the case of death of a partner also, the legal heirs can step in as partners without the burden of providing Two-star facilities. But, in the case of retirement of a partner, such a condition is imposed, WA No.1637/09 & connected cases. 5 invoking the provisions of the second proviso to Rule 19(iv) mentioned above. The same is highly arbitrary and irrational. The learned Senior Counsel also relied on the decision of the Apex Court in K.S.C.T.U. v. State of Kerala (2006(2) KLT 270), to support the first point mentioned above, that is lack of power of the State Government to modify the provisions of the Indian Partnership Act and the Companies Act. Special reference was made to paragraphs 16 to 20 of the said decision. 4. The learned Advocate General, on the other hand, submitted that the appellants do not have any fundamental right to engage in the trade of liquor. It is the exclusive privilege of the State and the State can part with the said privilege, subject to the terms and conditions fixed by it. Reference was made to S.18A of the Abkari Act and also S.24(c) thereof, in support of the above submission. The learned Advocate General further pointed out that the condition that hotels, for which FL-3 licences are granted, should have Two-star classification, was introduced on 18.02.1992. On 12.09.1994, there was a further amendment to the said stipulation, providing that Hotels with Four-star facilities alone will be granted FL- 3 licence. On 31.03.1997 and again on 31.03.2002, amendments WA No.1637/09 & connected cases. 6 were made to the aforementioned stipulation. The present position is that for a fresh applicant, atleast Three-star facilities should be there, to get an FL-3 licence. The learned Advocate General also pointed out that the amendments introduced from time to time did not affect the existing licensees. He further submitted that the Government have the power and authority to change its abkari policy from time to time. The Government are proposing to ensure that all the licensees should have at least Two-star facilities. The same is being implemented in a phased manner. With that objective, the second proviso to Rule 19(iv) was introduced. The learned Advocate General further submitted that Rule 19(ii) does not seek to amend the Indian Partnership Act or the Companies Act. It only contains a deeming provision that even though the reconstitution of a partnership in certain circumstances may not have the effect of transfer of licence, the same shall be deemed to be a transfer for the purpose of Rule 19 (i) of the Rules, so that the permission of the Excise Commissioner is necessary for such reconstitution. The same is the case of reconstitution of the Director Board of a Company. The intention of the Government is to ensure that the licence does not fall into the hands of undesirable persons, under the cover of a partnership or WA No.1637/09 & connected cases. 7 Company. The learned Advocate General relied on the decision of the Apex Court in Khoday Distilleries Ltd. v. State of Karnataka (1995(1) SCC 574), to contend that the appellants do not have any fundamental right to deal in liquor. To buttress the argument that in policy matters, especially in the field of sale of liquor, the Government should be conceded freedom to change its policy and Courts should not interfere with the same, the learned Advocate General relied on the decisions of the Apex Court in Principal, Madhava Institute of Technology and Science v. Rajendra Singh Yadav (2000) 6 SCC 608), Javed v. State of Haryana (2003) 8 SCC 369) and M/s.Dhampur Sugar (Kashipur) Ltd. v. State of Uttaranchal (JT 2007 (11) SC 209). 5. Before considering the rival submissions, we will refer to the relevant statutory provisions. S.18A(1) of the Abkari Act, which deals with grant of privilege of manufacture and sale of liquor on payment of rentals, reads as follows : “18A. Grant of exclusive or other privilege of manufacture etc., on payment of rentals :- (1) It shall be lawful for the Government to grant to any person or persons, on such conditions and for such period as they may deem fit, the exclusive or other privilege - WA No.1637/09 & connected cases. 8 (i) of manufacturing or supplying by wholesale ; or (ii) of selling by retail ; or (iii) of manufacturing or supplying by wholesale and selling by retail, any liquor or intoxicating drugs within any local area on his or their payment to the Government of an amount as rental in consideration of the grant of such privilege. The amount of rental may be settled by auction, negotiation or by any other method as may be determined by the Government, from time to time and may be collected to the exclusion of, or in addition to the duty or tax leviable under Sections 17 and 18.” Section 24 of the Abkari Act reads as follows : “24. Forms and conditions of licences, etc. : Every licence or permit granted under this Act shall be granted - (a) on payment of such fees, if any ; (b) for such period ; (c) subject to such restrictions and on such conditions ; and (d) shall be in such form and contain particulars - as the Government may direct either generally or in any particular instance in this behalf.” Sub-section (c) of the above quoted Section provides that every grant of licence shall be subject to such restrictions and conditions contained therein. Rule 19 of the Foreign Liquor Rules reads as follows : WA No.1637/09 & connected cases. 9 “19. (i) Under no circumstances shall any licence obtained under this notification be sold, transferred or sub rented without the previous sanction of the Excise Commissioner. (ii) Reconstitution of partnership by addition or deletion of members or reconstitution of Directors in a Company, resulting in change of ownership which owns/manages or operates any licence issued under this rule shall be deemed to be transfer of licence. (iii) Reconstitution of partnership/Directors of a company may be allowed on payment of Rs.50,000/- (Rupees Fifty Thousand only). (iv) Change of name of licensee may be allowed on payment of Rs.2 lakhs (Rupees Two Lakhs only). Provided that such change shall be allowed only if the incumbent in whose name the licence is to be granted is eligible otherwise for obtaining a licence under these rules. Provided further that constitution/reconstitution of partnership deed/Director Board of a Company will be allowed only if the hotel is having two star classification certificate issued by Ministry of Tourism, Government of India.” (emphasis supplied) Sub-rule (i) of Rule 19 mandates that previous sanction of the Excise Commissioner is necessary before a licence obtained under the Rules, is sold, transferred or sub-rented. Sub-rule (ii) provides that certain transactions, which may not normally come under transfer, shall also be deemed to be transfer and therefore, require previous WA No.1637/09 & connected cases. 10 sanction of the Commissioner. The said sub-rule says that if, by reason of addition or deletion of members, a partnership is reconstituted, there will be a deemed transfer of licence from the original partnership to the reconstituted partnership. Same is the case of a Company, where there is a change of Directors. When a transfer covered by Sub-rule (ii) is sanctioned by the Commissioner, it can be done only if the premises in respect of which the FL-3 licence is issued, is having Two-star classification, in view of the second proviso to sub-rule (iv). 6. The point to be considered is whether the deeming provision under Sub-rule(ii) and the additional burden introduced under the second proviso to Sub-rule (iv) of Rule 19 of the Rules, are within the rule making powers of the State. The grounds available for impugning a statutory rule are very limited. They have been succinctly stated by a Division Bench of this Court in Pankajaksy v. George Mathew (1987(2) KLT 723). The relevant portion of the said Judgment reads as follows : “Thus, the rule made under a statute by an authority, delegated for the purpose can be challenged on the ground (1) that it is ultra vires of the Act; (2) it is opposed to the Fundamental rights; (3) it is opposed to other plenary WA No.1637/09 & connected cases. 11 laws. To ascertain whether a rule is ultra vires of the Act, the Court can go into the question (a) whether it contravenes expressly or impliedly any of the provisions of the statute; (b) whether it achieves the intent and object of the Act; and (c) whether it is 'unreasonable' to be manifestly arbitrary, unjust or partial implying thereby, want of authority to make such rules.” Those grounds have been referred to and restated by a Division Bench of this Court recently in Suresh v. State of Kerala (2009(3) KLT 315). 7. Going by the above decisions, a subordinate legislation can be nullified, only if it is in conflict with the parent Act or with any other plenary statutory or constitutional provision. It can also be nullified, if it is found that its provisions are highly arbitrary and oppressive, which will persuade courts to say that the legislature cannot be intended to have conferred power to frame such arbitrary provisions and therefore, they are ultra vires and unauthorised. In this case, we find that no such ground has been raised. The main contention taken by the learned Senior Counsel for the appellant is that sub-rule (ii) of Rule 19 of the Rules, has the effect of amending the Indian Partnership Act and the Companies Act. The said contention is plainly untenable. The rule making authority only said, if certain changes in the partnership firm or the company take place, they shall WA No.1637/09 & connected cases. 12 be treated as having the effect of transferring the licence and therefore, if the newly constituted partnership firm or Company with reconstituted Board wants to continue the business in foreign liquor, they should seek the permission of the Excise Commissioner. Such a provision cannot be described as amending the provisions of the Partnership Act or the Indian Companies Act. The learned Senior counsel pointed out that even the retirement of a partner is not permitted. But, going by S.32(4) of the Partnership Act, the retirement of a partner will have the effect of reconstitution of the partnership. So, if the remaining partners, after the retirement of one of them, want to carry on the business, they have to comply with Sub-rule (i) of Rule 19 of the Rules. The intention of the Rule is to ensure that the licence does not fall into undesirable hands. If such a provision is not there, the right to vend liquor will reach the hands of abkari offenders, without the knowledge of the Excise Commissioner. We, therefore, find nothing illegal or irrational about such a stipulation introduced by a statutory rule. When such a constitution or reconstitution takes place in the partnership or the Board of Directors of a Company, permission under the said Rule will be granted if only the hotel is having Two-star classification, issued by WA No.1637/09 & connected cases. 13 the Ministry of Tourism, Government of India. We find nothing arbitrary or irrational about the said stipulation. If the Government think that in a phased manner, more and more hotels should be compelled to get two-star classification, the same cannot be said to be arbitrary or irrational. It is a matter of policy, as rightly pointed out by the learned Advocate General. This Court cannot sit in appeal over the wisdom of such policy. If the policy, when translated into an Act or Rule, transgresses any of the legal or constitutional limits, then only this Court can interfere. This Court is not concerned with the propriety or otherwise of the policy of the Government in such matters. In other words, even if this Court feels that the policy of the Government is not a wise policy, it is not authorised to interfere with it, under our Constitutional scheme. In view of the above well settled principles, we think, the challenge raised against Rule 19(ii) and the second proviso to Rule 19(iv) of the Rules is unsustainable. We find no reason to interfere with the decision of the learned Single Judge on the above point. In the decision cited by the learned Senior counsel for the appellant in K.S.C.T.U. v. State of Kerala (supra), the validity of Rule 4(2) of the Abkari Shops Disposal Rules 2002 was considered. It was held in the said decision that the said Rule WA No.1637/09 & connected cases. 14 does not fall within the rule making power of the Government, under the Abkari Act and it also runs counter to the object and policy of the said Act. For the same and other reasons, the said Rule, which deals with the condition to employ retrenched abkari workers in toddy shops, was held to be ultra vires and unauthorised by the parent Act. We think, the principle laid down in that decision cannot have any application to the facts of this case. In this case, an artificial meaning has been given to transfer of licence to partake within its fold, the change in the personnel of Partnership or Board of Directors of the Company, which are holders of FL-3 licence. As found by us earlier, to prevent undesirable persons coming into possession of an FL-3 licence, through partnership and companies, the present Rule has been enacted. The same will definitely fall within the purview of the power of the State Government to frame rules. Since we have already accepted the contentions raised by the State regarding the validity of the impugned Rules, it is not necessary to deal with the decisions relied on by the learned Advocate General. 8. The contention raised by the learned Senior Counsel for the appellant that the violation of Rule 19(i) of the Rules could be regularised under S.67(2) of the Abkari Act, is also untenable. S.67 of the Abkari Act reads as follows : WA No.1637/09 & connected cases. 15 “67. Power to compound offences in certain cases : (1) The Commissioner may impose a fine of Rs.10,000/- (Rupees Ten Thousand only) each on any person or persons holding a licence or permit under the Act, for the offences under Section 56(b) of the Act for variation of strength of foreign liquor beyond the prescribed limit as may be fixed from time to time. (2) The Commissioner may impose a fine of Rs.25,000/- (Rupees Twenty Five Thousand only) each on any person or persons holding a licence or permit under this Act for the violation by way of reconstitution, alteration or modification without the permission of the Commissioner of any deed on the strength of which any licence is granted.” For violation of Rule 19 of the Rules, the offender can be prosecuted under the Act. On compounding under the above quoted section, he can escape from criminal prosecution. But, compounding does not have the effect of regularising the illegal transfer, if any, made in violation of Rule 19. So, the Commissioner of Excise has rightly held that reconstitution of partnership without permission, cannot be regularised. In the result, the Writ Appeal fails and it is dismissed. WA Nos.1636,1639,1640,1646,1647,1656,1657 & 1665 of 2009 9. The point raised by the appellants in these Writ Appeals is covered by the Judgment in WA No.1637/09. Accordingly, these appeals are also dismissed. WA No.1637/09 & connected cases. 16 WA No.1638/09 10. In this case, the appellant submits, there is no change in the partners, constituting the partnership firm, which is an FL-3 licensee. Hitherto, the partnership was being represented by Mr.Mathew Philip, Managing Partner. Now, Mr.Sunoj Kurian is also nominated as a Joint Managing Partner to represent the licensee. That means, hereafter, there will be two joint Managing Partners to represent the licensee. The same is also treated as reconstitution of the partnership by the Commissioner and the amounts payable under Sub-rules (iii) and (iv) of Rule 19 of the Foreign Liquor Rules, have been demanded. It is submitted that the payment as demanded, has been made, subject to the result of the Writ Appeal. The learned Senior Counsel for the appellant submitted that there is no change in the constitution of the partnership. The same partners continue even now. But, instead of one partner, two partners are authorised to manage the affairs of the partnership firm. The same cannot be described as a reconstitution. Even going by the deeming provision under Sub-rule (ii) of Rule 19 of the Rules, it is submitted, the direction to pay the amount under Rule 19(iii), is unsustainable. The learned Senior Counsel also submitted that there is no change of WA No.1637/09 & connected cases. 17 name of the licensee. The name of the licensee continues to be M/s.Panamootil Investments, Kadavanthra, Kochi-20. So, the demand made for payment of the amount under sub-rule (iv) of Rule 19 is also unjustified, it is submitted. 11. The learned Advocate General submitted that the earlier licence was granted in the name of Mr.Mathew Philip and now, it is sought to be granted in the joint names of M/s.Mathew Philip and Sunoj Kurian. So, according to the learned Advocate General, the demand for the amount was rightly made under Ext.P3. 12. Going by the facts of the case, we find that the licence has been granted in favour of a partnership firm called Panamootil Investments, Kadavanthra, Kochi-20. It was being represented by Mr.Mathew Philip, Managing Partner. Now, the firm has requested that hereafter, it will be represented by Joint Managing Partners M/s.Mathew Philip and Sunoj Kurian. Permission for the same is sought from the Commissioner, so that hereafter, the names of these persons can be shown in the licence. We think, in this case, neither the partnership is reconstituted nor the name of the licensee is changed. So, Sub-rule (iii) of Rule 19 and the main part of Sub-rule (iv) under Rule 19 of the Rules have no application to the facts of this WA No.1637/09 & connected cases. 18 case. Therefore, the direction to collect Rs.50,000/- (Rupees Fifty Thousand only) and Rs.2,00,000/- (Rupees Two Lakhs only) respectively under Sub-rules (iii) and (iv) of Rule 19 of the Foreign