IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON FRIDAY, THE 19TH JUNE 2009 / 29TH JYAISHTA 1931 WP(C).No. 23870 of 2007(N) -------------------------------------- PETITIONER(S): --------------------- 1. P.A. RADHAKRISHNAN, JOINT MANAGING PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD, SHORNUR. 2. K.B. JAYADAS, JOINT MANAGING PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 3. SAJEEV A.ANTONY, JOINT MANAGING PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 4. STANLY A.ANTONY, PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 5. P.A. SANTHOSH, PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 6. SHAJU A.ANTONY, PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 7. SUNIL A.ANTONY, PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 8. K.B. PADMADAS, PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 9. K.B. HARIDAS, PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. 10. LOLA MOHANDAS, PARTNER, APSARA TOURIST HOME, RAILWAY STATION ROAD,SHORNUR. BY ADV. MR.GEORGE POONTHOTTAM RESPONDENT(S): ------------------------- 1. STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, DEPARTMENT OF TAXES, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. WP(C).No. 23870 of 2007(N) 2. THE COMMISSIONER OF EXCISE, COMMISSIONERATE OF EXCISE, THIRUVANANTHAPURAM. 3. THE ASST. EXCISE COMMISSIONER, PALAKKAD. R1 TO R3 BY MR.C.P.SUDHAKARA PRASAD, ADVOCATE GENERAL R1 TO R3 BY GOVERNMENT PLEADER MR.K.V. MANOJ KUMAR THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 13/03/2009, ALONG WITH WPC NO. 28698/2007 AND CONNECTED CASES, THE COURT ON 19/06/2009 DELIVERED THE FOLLOWING: WP(C) NO. 23870/2007-N APPENDIX PETITIONER'S EXHIBITS: EXT.P1: COPY OF THE DRAFT OF THE PARTNERSHIP DEED DATED 19/10/2006. EXT.P2: COPY OF THE PARTNERSHIP DEED EXECUTED ON 01/04/96. EXT.P3: COPY OF THE INTERIM ORDER IN WP(C) NO. 7494/2006 DATED 22/03/2006. EXT.P4: COPY OF THE COMMUNICATION NO.D2-10604/86/ABKARI DATED 26/04/2007. EXT.P5: COPY OF THE JUDGMENT IN WP(C) NO. 15534/2007 DATED 25/06/2007. EXT.P6: COPY OF THE G.O.(MS)NO.34/07/TD DATED 01/03/2007. EXT.P7: COPY OF THE CERTIFICATE NO.R6.1716/81 DATED 22/05/2008. EXT.P7(a): COPY OF THE CERTIFICATE NO.R6.2288/81 DATED 22/05/2008. RESPONDENT'S EXHIBITS: NIL //TRUE COPY// P.S. TO JUDGE rs. P.R. RAMACHANDRA MENON, J. ........................................................................ W.P.(C)Nos. 23870, 28457, 28698, 28699, 29815 OF 2007, 112, 1216. 4190, 4685, 6626, 12210, 14927 OF 2008 & 59 OF 2009 ......................................................................... Dated this the 19 th June, 2009 J U D G M E N T The common issue involved in almost all these cases is as to the right of the petitioners to get renewal of the FL3 licence which was valid and functional as on 31.03.2007, by virtue of the benefit provided under the 6th proviso to Rule 13(3) of the Foreign Liquor Rules (FLR in short), notwithstanding the requirements to be satisfied in view of the amendment to Rule 19 brought into effect from 1-4-2007. 2. The grievance of the petitioners is that the applications submitted for enabling them to continue the business, effecting necessary changes as to the 'death' or 'retirement' of some of the existing partners have been thrown down, stating that the petitioners do not satisfy the norms for approving the 'reconstitution' and to continue the business, for not having the mandatory requirement of 'two star' status brought into force W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 2 w.e.f. 01/04/2007 by amending Rule 19 of the FLR. In some cases, imposition of the prescribed charges for granting permission in tune with the amended Rules which came into operation from 01/04/2007 is also under challenge on the ground that the applications in this regard had been preferred much prior to coming into force of the said amendment. Most of the petitioners have challenged the 'vires' of the Rules as well, stating that it is beyond the rule making powers conferred under Section 29 of the Kerala Abkari Act and further when the offence with regard to the reconstitution of the Firm/Board of Directors of the Company without “prior approval” of the Excise Commissioner is very much compoundable under Section 67(2) of the Kerala Abkari Act. It is also contended that the petitioners are entitled to have their licence renewed as a matter of right, by virtue of the 6th proviso to Rule 13 of the Foreign Liquor Rules which stipulates that such licensees who were doing the business on the basis of the licences which were valid and functional as on 31/03/2007, are entitled for renewal; i.e., without satisfying any requirements under the amended Rule 19, brought in w.e.f. W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 3 01/04/2007. 3. It is seen that the applications preferred by the concerned petitioners have been turned down by the Excise Commissioner, referring to the fact that the applicants do not satisfy the requirements under the amended Rules (Rule 19 of (ii) and 19(iv) of the FLR) for not having the “two star” status. In other cases, necessary sanction has been given, imposing the prescribed charges for effecting the reconstitution of the Partners of the Firm or that of the Board of Directors of the Company and also the amount prescribed for effecting the change in name of the licensee. 4. The impugned action on the part of the respondents is being defended by them stating that the Rules have been made well within their power and competence and hence intra vires to the Constitution. It is pointed out that the right to conduct trade in liquor, not being any fundamental right in view of the authoritative pronouncement of law by the Apex Court and further since the applications submitted by the petitioners are to be considered on the basis of the law as it exists on the date of W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 4 consideration, the petitioners are not entitled to get any relief. It is also the contention of the State/Department, that the establishments of the petitioners were lying defunct for more than six months after 31.03.2007 and hence, by virtue of the 5th proviso to Rule 13 of the FLR, the licences are not liable to be renewed under any circumstances. 5. For ascertaining the scope and ambit of the relevant provisions of law, it is very much necessary to have a look at Rule 13(3) of the FLR, which is extracted below: “ 13(3) Foreign Liquor 3 Hotel (Restaurant) licence: licence in this Form may be issued by the Excise Commissioner under the orders of Government in the interest of promotion of tourism in the State to Hotels which have obtained 3 star, 4 star, 5 star, 5 star deluxe, heritage, heritage grand or heritage classic classification from Ministry of Tourism, Govt. of India , where the privilege of sale of Foreign Liquor in such hotel have been purchased on payment of an annual rental of Rs.22,00,000 (Rupees twenty two lakhs only). But no such licence shall be issued to Hotels which are located within 200 metres from an Educational W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 5 Institution, Temple, Church, Mosque or Burial Ground. Hotels other than those in the private sector having 4 star, 5 star, 5 star deluxe classification will be exempted from the distance restrictions in the interest of promotion of tourism in the State. In the case of hotels in the private sector of the above categories and hotels having heritage, heritage grand and heritage classic classification issued by Ministry of Tourism, Govt. of India, no such licence shall be issued if located within 50 metres (Fifty metres only) from any Educational Institutions, Temple, Church, Mosques, Burial Grounds or Scheduled Caste/Scheduled Tribe Colonies. The applicant shall produce from the Abkari Workers Welfare Fund Inspector a certificate to the effect that he has remitted before the date of application for the licence/renewal of licence, the arrears of contributions, if any, payable upto the 31st day of December of the preceeding year. The existing licensees who do not maintain two star standards will be allowed time up to 31.03.2007 to upgrade their standards to two star. Their licence will be renewed till that date. Failure to upgrade the W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 6 standard of those hotels would lead to cancellation of licence and forfeiture of rental paid by them. licensees shall have no claim for compensation. The applicant shall produce from the Abkari Worker's Welfare Fund Inspector a Certificate to the effect that he has remitted before the date of application for the licence/renewal of licence, the arrears of contributions, if any, payable upto 31st day of December preceeding year. The question whether a hotel or restaurant conforms to the standard of Two Star Hotel shall be determined in accordance with the specifications for classification of star Hotels issued by the Department of Tourism and in case of doubt or dispute, the decision of the Excise Commissioner shall be final. The cost of liquor shall be billed along with the cost of meals. The cost of liquor shall be shown separately in the bill and the duplicate copies thereof shall be retained for inspection by the officers of the Excise Department. The licensee shall purchase his supplies of Foreign Liquor only from such FL9 licensees in the State as may be permitted by the Excise Commissioner. W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 7 Provided that where the Commissioner is satisfied that the condition specified in this sub- rule are not capable of being imposed on the restaurants situated in airports, railway stations and such other places, he may, with the previous sanction of Government, relax any of the said conditions or impose any new conditions. Note:-(1) “Church” means a public place where prayer is offered by Christians. “Educational Institutions” means schools or colleges under the control of the State Education Department or Central Board of Education and which has been duly recognized by the Government. “Mosque” means public place where prayer is offered by Muslims. “Temple” means a place of public and religious worship by Hindus were deity is installed under a building and includes a mutt also; Provided that any structure on the road side pavement or in a compound of a private building with or without deity shall not be considered as a Temple, Church, Mosque. Provided further that if any Educational Institution/Temple/Church/Mosque or Burial Ground comes into existence subsequent to the W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 8 grant of licence it shall not disentitle such bar attached hotels for continuance. Note(2) : In calculating the distance the basis will be shortest pathway/lance/street/road generally used by the public and the same will be measured from gate to gate. Provided also that such bar licences, having disputes on distance rules and shifting outside Municipal Corporation area, including those of Approved Restaurants, existing as on 1st April 2004 shall be regularized. Provided also that the licences of any bar hotel that remain defunct for more than six months either during the period of validity of the licence or after its expiry, shall not be renewed. Provided further that all existing licences not having the above classification and are functional as on 31st March, 2007 shall be regularized. ” 6. The sixth proviso to the above Rule which was brought into effect from 01.04.2007, simultaneously amending Rule 19 incorporating certain terms/conditions for granting renewal of 'reconstitution' of the Firm/Board of Directors of the Company W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 9 and prescribing “two star” status as essential, clearly states that all existing licences not having the above classification (“two star” classification) and were functional as on 31.03.2007 shall be regularized. This means irrespective of the status of the establishment, the licensees who were continuing as on 31.03.2007 were giving an 'enblock green card' to have their licences renewed, notwithstanding the absence of “two star” status prescribed under Rule 19 for granting approval to effect reconstitution of the Firm or the Board of Directors of the Company. 7. It is true that the 'fifth proviso' to Rule 13 (3) places an embargo in granting renewal, if the licence was lying defunct for six months or more after 31.03.2007. But to attract the said stipulation, there has necessarily to be some lapse, failure or inaction on the part of the licensee to make him ineligible. To put it more clear, if the licensee had approached the departmental authorities seeking for renewal of the licence well on time, simultaneously meeting the requirements as it existed then and if the matter was kept pending by the department or if W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 10 it was wrongly rejected for some or other ground, thereby making the licence defunct for six months or more, it cannot be a ground to deny the benefit of renewal referring to the mandate under the 'fifth proviso' to Rule 13(3) and hence the reliance placed by the State/Department to the said provision in the cases herein cannot be of any significance or consequence. 8. To understand the scope of the respective clauses brought in by way of amendment to Rule 19, it is very much necessary to go through the relevant provisions “before the amendment” and “after the amendment”, simultaneously analyzing the other relevant provisions in the Statute. Rule 19, as it existed earlier, is extracted below: Rule 19: “Under no circumstance shall any licence obtained under this notification, be sold, transferred or sub-rented without the previous sanction of the Excise commissioner”. The words “without the previous sanction of the Excise Commissioner” were subsequently omitted as per SRO 257/03 w.e.f 25/3/2003, thus stipulating a blanket prohibition. Probably, on wiser thoughts, the permissive stipulation was brought back W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 11 by virtue of the amendment to the Rule w.e.f. 01.04.2005 enabling sale, transfer or subrenting of the licence with the 'previous sanction' of the Excise Commissioner, simultaneously adding some other conditions as well, as required to be met on 'reconstitution' of a partnership Firm or of the Board of Directors of the Company, resulting in change of ownership and also prescribing the requisite fees payable for recording the 'reconstitution' and also for changing the name of the licensee. Later, the prescribed fees were enhanced simultaneously stipulating the necessity to satisfy “Two Star” status for recognizing the constitution/re-constitution, by virtue of the 'second proviso' to Rule 19(iv) added w.e.f. 01.04.2007. 9. The said Rule (Rule 19) after the concerned amendment is extracted below: Rule(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 W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 12 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.10,000/- (Rupees ten thousand only) (iv) Change of name of licensee may be allowed on payment of Rs.10,000/- (Rupees ten thousand 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, Govt. of India”. 10. While bringing about the conscious change to Rule 19, it is also to be borne in mind that 'Rule 19A' which was inserted by SRO 334/04 w.e.f 06/04/2004 was deleted. Rule 19A which W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 13 disappeared from the statute book from 01/04/2005 is very much relevant herein which hence is extracted below: 19A.Notwithstanding anything contained in rule 19, (a) where a company registered under the Companies Act, 1956 (Central Act 1 of 1956) or a firm makes a request in writing for change in the name of the personnel in whose name the licence of the Company or the firm is issued, consequent upon change in the name of such persons other than by way of change in the constitution of the firm, the Excise Commissioner may allow such request upon payment of a fee of Rs.10,000 (Rupees ten thousand only) and make appropriate endorsements in the licence and the agreement if any. (b) where upon death of a licensee a request is made from the legal heirs of the deceased licensee for change in the name of the licence holder to such legal heir or heirs as they nominate the Excise Commissioner may also allow such request upon payment of Rs.10,000 (Rupees ten thousand only). Provided that any such changes in the W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 14 name of the licence holder will not be deemed to be a transfer of licence. Provided further that such change shall be allowed only if the incumbent whose name the licence is to be granted is eligible otherwise for obtaining a licence under these rules.” 11. Sub Rule (b) of Rule 19(A) as it stood earlier clearly shows that, upon the death of a licensee, the legal heir of the deceased licensee was entitled to have effected change of name upon payment of the prescribed sum of Rs.10,000/- and the “first proviso” thereunder stipulated in unequivocal terms that such changes in the name of the licence holder will not be deemed to be a transfer of licence. 12. That part, even as per the amended provisions (Rule 19(i) of the Rule), transfer or sub renting is made permissible with 'previous sanction' of the Excise Commissioner. In the instant cases, no sale or sub renting is involved and the only question is whether there is any mode of 'transfer'. The word 'transfer' has been clarified by Sub Rule (ii) of Rule 19 stating that reconstitution of partnerships by addition or deletion of W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 15 members or reconstitution of directors in a company resulting in change of ownership which owns/manages or operates any licence issued under the Sub Rule shall be deemed to be transfer of licence. To put it more clear, mere reconstitution of the firm or board of directors of a company will not, by itself, attract the transfer of licence contemplated therein and for attracting the same, such reconstitution should invariably result in change of ownership. 13. In three cases (W.P.C. Nos.28698, 28699 and 23870 of 2007) admittedly, the reconstitution of the partnership is only on the death of some of the partners and the rights and liabilities have been redistributed among the surviving partners, in tune with the terms of the Deed. In other words, the privilege under the licence is continued to be enjoyed by such persons who were already enjoying the same along with the deceased partners and there is no question of any 'addition or deletion' of partners involving any 'transfer' of the privilege. Almost same is the position with regard to the case involved in WP(c) No.6626/2008 as well, where the reconstitution was W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 16 sought for, pursuant to retirement of some partners. The rights and liberties to the surviving/remaining partners are clearly discernible from the relevant partnership deeds which reveal that the partnerships were 'at will' and that 'death' or 'retirement' of a partner would not dissolve the Firm and that the surviving/remaining partners could very well proceed with the trade/business. This being the position, absolutely no question of transfer of the licence as contemplated under Rule 19(ii) is involved in the above four cases and hence the petitioners therein are hereby declared as entitled to have their licence renewed in view of the admitted fact that their licence was valid and functional as on 31/3/2007 and very much entitled to the benefit of the '6th proviso' to Rule 13(3) of the Foreign Liquor Rules. 14. Before proceeding with the merits of the other cases, it is necessary to deal with the challenge raised by the petitioners against the rules; particularly Rule 19(ii) and Rule 19(iv) of the Foreign Liquor Rules as amended w.e.f 01/04/2007. The first contention of the concerned petitioners with regard to Rule 19(ii) W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 17 is that the restriction has been placed only in respect of a Partnership Firm and a Company while the same is not made applicable to a Co-operative society or such other institutions who stand on the same footing. It is further stated that such restriction has been brought in, contrary to the right to reconstitute the Firm/Board of Directors in tune with the relevant provisions of the Indian Partnership Act/Companies Act 1956 and hence that the amended rule is not within the rule making power of the State under Section 29 of the Kerala Abkari Act. The petitioners have also placed reliance on Section 67(2) of the Kerala Abkari Act, wherein it is provided to compound the offence of reconstituting the Firm/Board of Directors of the Company without 'prior approval' of the Excise Commissioner, on payment of the prescribed amount in this regard and as it stands so, it is contended there is no power or competence to prescribe a 'prohibitory clause' under the Rules, without any regard to the mandate under the Act. 15. As already discussed hereinbefore, Rule 19 as it stood earlier provided for sale, transfer or sub renting of the licence W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 18 with the 'prior approval' of the Commissioner, which was subsequently taken away, bringing about an absolute ban as per the amendment brought into force from 06/04/2004; which however was reversed later, followed by the impugned amendment brought into effect from 01/04/2007 stipulating the specific instance and the manner in which the licence and the approval for such institutions are to be dealt with. The amended rule, in no way offends the specific provisions under the Act. Same is the position with regard to the prescription brought in by the Government stating that, for considering the reconstitution of the Firm/Board of Directors of the Company, it was necessary that the establishment should have had “two star” status, which is very much with due regard to the other relevant provisions under the Act and Rules as in existence on the date of bringing about the amendment for granting FL3 licence. 16. It is of course true that any Partnership Firm or the Board of Directors of a Company can be reconstituted under the relevant provisions of the Indian Partnership Act or the Companies Act 1956, as the case may be. But it does not mean W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 19 that all such reconstitution should be blindly recognized and accepted by the State/Department for issuing or to renew the licence for trading liquor, which is not at all a fundamental right, in view of the settled position of law. The privilege to vend liquor is always subject to the 'Abkari Policy' formulated and notified by the Government and the administrative wisdom in giving shape to such policy is not liable to be scrutinized by this Court, when there is no violation of any statutory prescriptions or the fundamental right. That apart, there is no plea of malafides, arbitrariness or discrimination in dealing with the case of the petitioners and that such cases have been considered and dealt with by the State/Departmental authorities using the same magnifying glass. As pointed out by the State/Department in the counter affidavits filed, the impugned stipulations are very much in tune with the 'Abkari Policy' of the State and the Abkari Act is a special statute applicable to the whole State, enacted with the assent of the President of India. The law declared by the Apex Court in 2007(2) KLT 270 stands entirely on a different pedestal (on encroachment into the arena specifically covered by the ID W.P.(C) Nos. 23870 OF 2007 AND CONNECTED CASES. 20 Act), having rendered when the rules under challenge stipulated to provide employment to one of the erstwhile Arrack workers who lost their employment pursuant to the ban of manufacture and sale of arrack, by compelling the auction bidders