IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE K.T.SANKARAN WEDNESDAY, THE 10TH DECEMBER 2008 / 19TH AGRAHAYANA 1930 WA.No. 1563 of 2002(B) AGAINST THE JUDGEMENTIN OP.35215/200, DATED 11.3.2002 APPELLANTS: PETITIONERS: ------------------------------------ 1. M.D. DHANESH, PROPRIETOR, HOTEL MEENUS, FL.3 LICENCEE, LICENCEE NO.5/2001-2002, KALOOR, ERNAKULAM DISTRICT. 2. M.D. DHANESH, MANAGING PARTNER, HOTEL BENHUR, FL-3 LICENCEE, LICENCE NO.3/2001-2002, POONITHURA, ERNAKULAM DISTRICT. BY ADV. SRI.GEORGE POONTHOTTAM RESPONDENTS: RESPONDENTS: --------------------------------------- 1. STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT (TAXES) DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 2. THE COMMISSIONER OF EXCISE, THIRUVANANTHAPURAM. 3. THE ASSISTANT COMMISSIONER OF EXCISE, ERNAKULAM. ADDL.ADVOCATE GENERAL SRI.VENGANOORE CHANDRASEKHARAN NAIR SENIOR GOVERNMENT PLEADER SRI.P.K.BABU THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 02/11/2007, ALONG WITH WA NO.942 OF 2002 AND CONNECTED CASES, THE COURT ON 10/12/2008 DELIVERED THE FOLLOWING: H.L.DATTU, C.J. & K.T.SANKARAN, J. ------------------------------------------------------------- W.A.NOS.1563, 942, 1164 & 960 OF 2002 and O.P.NOS.20977 & 27266 OF 2002 ------------------------------------------------------------- Dated this the 10th December, 2008 JUDGMENT K.T.Sankaran, J. The appellants in the Writ Appeals and the petitioners in the Writ Petitions challenge the validity of Foreign Liquor (Amendment) Rules, 2001 made as per SRO.No.920/2001 dated 8.10.2001, published in the Kerala Gazette Extra Ordinary, dated 8.10.2001. The learned single Judge dismissed the Writ Petitions and the four Writ Appeals were filed by the writ petitioners therein. Two other Writ Petitions which came up subsequently were posted before the Division Bench along with the Writ Appeals. The appellants in the Writ Appeals and the petitioners in the Writ Petitions are referred to hereinafter as the petitioners. Appellant No.4 in W.A.No.1164 of 2002 is Kerala Bar Hotels Association, represented by its General Secretary. There are 401 members in the said Association. The list of all the members were submitted and separate court fee was paid by all of them. As per the order dated 23.10.2007, appellant No.4 Association was permitted to prosecute the Writ Appeals on behalf of all the members of the Association as they had paid the necessary court fee and obtained leave of the Court. W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 2 :: 2. The petitioners own bar attached hotels having FL3 license issued under Rule 13(3) of the Foreign Liquor Rules. Licences were issued to the petitioners for the period from 1.4.2001 to 31.3.2002. Each of the petitioners were required to pay a sum of Rs.13 lakhs as annual rental/fee as provided in Rule 13(3) of the Foreign Liquor Rules. Rule 13 (3) of the Foreign Liquor Rules was amended and the annual rental of Rs.13 lakhs was enhanced to Rs.15 lakhs. By the same amendment Sub-Rule (15) was added to Rule 13. 3. The relevant portion of Rule 13(3) (before the amendment) was as follows: “(3) Foreign Liquor 3 Hotel (Restaurant) Licence: Licence in this Form may be issued by the Excise Commissioner under orders of Government in the interests of promotion of tourism in the State to Hotels or Restaurants conforming to the standard of Two Star and higher classifications, owned or run by the Kerala Tourism Development Corporation Limited (KTDC) and India Tourism Development Corporation Limited (ITDC) and also to hotels having rating of Three Stars and higher classifications, Heritage and Resort hotel as well as classified restaurants where the privilege of sale of foreign liquor in such Hotels or Restaurant, has been purchased on payment of an annual rental of Rs.13,00,000 (Rupees Thirteen lakhs only).” 4. The relevant portion of the Amendment Rules 2001, is the following: “2, Amendment of the Rules:- (2) In the Foreign Liquor Rules, in rule 13,- W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 3 :: (a) in sub-rule (3), for the words, brackets and figures, “Rs.13,00,000 (Rupees thirteen lakhs only)” the words, brackets and figures “Rs.15,00,000 (Rupees fifteen lakhs only)” shall be substituted; (b) after sub-rule (14) the following sub-rule shall be added, namely:- (15) Notwithstanding anything contrary contained in these rules, if the Government are satisfied that the annual rental/fee prescribed for the licenses issued under rule 13 is not reasonable, they may enhance the annual rental/fee at any time during the course of a financial year and on such enhancement all licensees are liable to remit the difference between the amount of annual rental/fee already remitted and the enhanced rental/fee.” 5. The contentions raised by the petitioners are the following: (1) Amendment of Rule 13 is beyond the rule making power of the Government. (2) Sections 18A, 24 and 29 of the Abkari Act do not empower the Government to make the impugned rules which are in effect and substance having retrospective effect. (3) The subordinate delegated authority has no power to frame a rule which has retrospective effect. (4) The rental/fee was settled on 31.3.2001 and the petitioners having paid the same for continuing to hold the licence for the period from 1.4.2001 to 31.3.2002, the rental/fee cannot be enhanced modifying or altering the terms of contract. 6. The question to be considered is whether the rental/fee could W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 4 :: enhanced during the currency of an abkari year, i.e., from 1.4.2001 to 31.3.2002. 7. The learned counsel for the petitioners, Sri.K.Ramakumar, Sri.C.C.Thomas and Sri.George Poonthottam would rely on the decisions in 2003 (1) KLT 984, 1982 KLT 166, ILR 1979 (1) Kerala 344, (2006) 5 SCC 702, (2007) 6 SCC 317 and (2006) 4 SCC 327. Learned Additional Advocate General would place reliance on (1995) 1 SCC 574. He also distinguished the decisions in 2003 (1) KLT 984, contending that in that decision this Court was dealing with Rule 13(3) regarding issue of new license. Sri.K.Ramakumar laid emphasis on the expression “permit and license” and contended that wherever permit is intended it is specifically provided in the Act and Rules. He referred to the various provisions of the Act and Rules including Sections 18A, 24, 26, 27 and 29. 8. In the counter affidavit filed by the Commissioner of Excise, it is stated that the license fee was fixed at Rs.13 lakhs as per the Excise Policy of the year 1999-2000 issued as G.O.(MS) No.18/99 dated 1.2.1999. No change in the payment of license fee was effected during the year 2000-01. Due to a ban to arrack in the State, there was much demand for Indian Made Foreign Liquor (IMFL). In the budget speech for the year 2001-02 presented before the Legislative Assembly on W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 5 :: 19.7.2001 by the Minister of Finance, it was declared that the license fee for bar hotels would be enhanced from Rs.13 lakhs to Rs.15 lakhs and thereby expected to raise an additional revenue of Rs.9.5 crores. S.R.O.No.920/2001 amending the Foreign Liquor Rules by the Amendment Rules, 2001 was issued in the above circumstances. No enhancement of bar license fee/rental was effected during the year 2000- 01 and the ban of arrack in the State has resulted in much increase in the demand of IMFL in the State. In view of the peculiar situation prevailing due to the ban of arrack the owners of bar hotel would be in a position to remit the increased rental without incurring much difficulty. It is further contended that the when the amendment was introduced, the period of licence was not over and therefore, it cannot be said that there was retrospective enhancement of rental. It was felt that the FL3 licence fee was not reasonable and that was one of the main reasons for enhancing the rental so as to raise and additional revenue of Rs. 9.5 crores. 9. The Abkari Act is a consolidating and amending Act of law relating to import, export, transport, manufacture, sale and possession of intoxicating liquor and of intoxicating drugs in the State of Kerala. Section 3(1) of the Act defines ‘abkari revenue` as thus: “(1) Abkari Revenue:- “Abkari Revenue” means revenue derived or derivable from any duty, fee, tax, fine or W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 6 :: confiscation, imposed or order under the provisions of this Act, or of any other law for the time being in force relating to liquor or intoxicating drugs.” Section 18A of the Abkari Act provides for grant of exclusive or other privilege of manufacture, etc., on payment of rentals. It 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:-- (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. (2) No grantee of any privilege under sub-section (1) shall exercise the same until he has received a licence in that behalf from the Commissioner. (3) In such cases, if the Government shall by notification so direct, the provisions of Section 12 relating to toddy and toddy producing trees shall not apply.” Section 24 of the Act provides for the forms and conditions of licenses. It reads as follows: W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 7 :: “24. Forms and conditions of licenses, etc:- Every license 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.” Section 29 confers the rule making power on the Government. Sub- section (1) of Section 29 provides that the Government may make rules for the purpose of carrying out the provisions of the Act. Sub –section (2) states that in particular and without prejudice to the generality of the foregoing provision, the Government may make rules in respect of items mentioned therein. 10. Section 18A(1) (iii) confers power on the Government to settle the rental by auction, negotiation or by any other method. Section 24 confers power to prescribe the fee to be paid and the restrictions or conditions to be imposed. These substantive provisions confer power on the rule making authority and such power is traceable to Section 29(1) of the Act. Section 69 of the Act provides that all rules made and notifications issued under the Act shall be made and issued by publication in the Gazette and all such rules and notifications shall thereupon have W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 8 :: the force of law and read as part of the Act and may in like manner be varied, suspended or annulled. 11. In exercise of the powers conferred by Sections 10, 24 and 29 of the Cochin Abkari Act 1 of 1077 (ME), as subsequently amended and as continued in force by the Travancore-Cochin State Administration and Application of Laws Act, Act VI of 1125 (ME), the Government, in supercession of the Government notification dated 2.6.1949 as subsequently amended, prescribed Foreign Liquor Rules for the issue of licence for the possession, use or sale of foreign liquor. Rule 13 of the Rules provides for licences for possession and sale of foreign liquor and for possession or use of foreign liquor. Rule 13(3) has already been quoted above. The licence shall be issued by the Excise Commissioner. The Rule also provides for restrictions in the matter of issue of licence. Rule 14 states that if any of the licences referred to in Rule 13 is granted in the course of a financial year, the full annual fee shall be paid and the licence shall expire at the end of the financial year. Except in the case of FL-1 shops, the rental or the fee, as the case may be, shall be paid in full to the Government Treasury before the issue of licence, as provided in Rule 18. Rule 36 empowers the Excise Commissioner, upon giving fifteen days’ notice, to revoke any licence. On such revocation, a proportionate part of the fee paid by the licencee shall be refunded to him. W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 9 :: The conditions for the issue of FL-3 licence also provide for the same. 12. We will now examine whether the decision of the Division Bench in B.Six Holiday Resorts (P) Ltd. V. State of Kerala (2003 (1) KLT 984) would cover the issue involved in the case. According to the petitioners, the decision in B.Six Holiday Resorts (P) Ltd.’s case would clinch the issue, while, according to the learned Advocate General, it would not. The facts stated in B.Six Holiday Resorts (P) Ltd.’s case would indicate the following: On 11.12.2000, the petitioner therein applied for FL-3 licence which would permit it to serve liquor in its restaurant. The application was not processed expeditiously. Several Writ Petitions were filed by the petitioner therein at various stages where the application was rejected by several orders. On 20.2.2002, the Government of Kerala, in exercise of its powers under Section 18A read with Sections 24 and 29 of the Abkari Act, amended Rule 13 (3) by adding a proviso that no new licence under the Rules shall be issued. The amendment to Rule 13(3) came into effect from 1.7.2001. On the basis of the amendment, the application for FL-3 licence was rejected by the Excise Commissioner. That order was challenged in the Writ Petition by B.Six Holiday Resorts (P) Ltd.. On the question of law whether the authority exercising subordinate legislative functions can make a Rule with retrospective effect, it was held as follows: W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 10 :: “11. Ground (D): The learned counsel appears to be on firmer ground when he contends that the notification dated 20.2.2002 is bad to the extent it gives retrospective effect to the proviso added to rule 13(3) of the Rules. In I.T.O. Alleppey v. M.C.Ponnoose ((1969) 2 SCC 351 (paragraph 5), the Supreme Court observed: “The Parliament can delegate its legislative power within the recognised limits. Where any rule or regulation is made by any person or authority to whom such powers have been delegated by the Legislature it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the courts that the persons or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect. (See in this connection Dr.Indramani Pyarelal Gupta v. W.R.Nathu & Ors., (1963) 1 SCR 721, Modi Food Products Ltd. V. Commissioner of Sales Tax, U.P.(AIR (1956) All.35), India Sugar Refineries Ltd. V. State of Mysore (AIR (1960) Mysore 326 and General S.Shivdev Singh and Anr. V. The State of Punjab and Ors. (1959 PLR 514).” 12. In Hukam Chand v. Union of India, (1972) 2 SCC 601, (vide Paragraph 8), the Supreme Court pointed out that the underlining principle is that, unlike sovereign legislature, which has power to enact laws with retrospective operation, the authority vested with the power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. The difference between subordinate legislation and the statute laws lies in the fact that a subordinate law-making body is bound by the terms of its delegated or derived authority and that court of law, as a general rule, will not give effect to the rules, thus made, unless satisfied that all the conditions precedent to the validity of the rules have been fulfilled. W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 11 :: 13. In R.T.O. V. Associated Transport Madras, (1980) 4 SCC 597 (paragraph 4), the Supreme Court observed: “The legislature has no doubt a plenary power in the matter of enactment of statutes and can itself make retrospective laws subject, of course, to the constitutional limitations. But it is trite law that a delegate cannot exercise the same power unless there is special conferment thereof to be spelled out from the express words of the delegation or by compelling implication”. To same effect is the judgment of a Full Bench of this Court in R.K.V.Motors & Timbers v. R.T.O. (1982 KLT 166).” After holding thus, the Division Bench considered the contention of the learned Advocate General and held thus: “14. With this formidable array of precedents the learned Advocate General found it difficult to sustain the retrospective effect given to the proviso added by the amendment notified on 20.2.2002, since there is no provision in the Kerala Abkari Act, which empowers the rule making authority to make rules retrospectively. The learned Advocate General, therefore, frankly conceded that he would not be able to sustain the validity of the retrospective effect given to the proviso in R.13(3).” 13. Learned counsel for the petitioners would submit that the Division Bench held that there is no provision in the Kerala Abkari Act which empowers the rule making authority to make rules retrospectively. Learned Advocate General conceded that he could not sustain the validity of the retrospective effect given to the proviso in Rule 13(3). There cannot be any dispute that if the Act does not empower the rule making authority to make rules retrospectively, a rule cannot be made with retrospective operation. We are in respectful agreement with the W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 12 :: dictum laid down by the Division Bench in paragraphs 11 to 13 of the decision in B.Six Holiday Resorts (P) Ltd.’s case. 14. In State of Kerala v. V.M.Koya (ILR 1979 (1) Kerala 344), the fact situation can be seen from paragraph 2 of the judgment which is quoted below: “2. The question raised in W.A.No.32 of 1976 is regarding the quantum of licence fee payable for the year 1975-76 (that is for the period from 1st April 1975 to 31st March 1976) in respect of foreign liquor 3 licence which was applied for by the writ petitioner for that year. The application was made on 27th March 1975. At that time the licence fee which was current and in force was Rs.4,000. By Ext.P1 letter dated 2nd April 1975 sent by the Excise Inspector, the writ petitioner was informed, enclosing a copy of the Board of Revenue’s order (Ext.P1), that the differential rental (licence fee) had to be remitted within 24 hours. The enclosed order of the Board of Revenue stated that the rental in respect of foreign liquor 3 licence had been enhanced to Rs.12,000 per year. The writ petitioner claims that he was issued permit for the transport of the liquor to his place of business. The relevant Government notification enhancing the licence fee was issued only on 10th April 1975 (Ext.P2). It was the petitioner’s case that as the application for the licence had been made on 27th March 1975, before the issuance of the notification enhancing the licence fee, he was entitled to the grant of licence at the rate in force on the date of the application, and not at the enhanced rate. He accordingly prayed to declare section 24 of the Kerala Abkari Act, 1077 M.E unconstitutional, and to quash Exts.P1 and P2. The learned Judge quashed Exts.P1 and P2 and directed a renewal of the petitioner’s foreign liquor 3 licence with effect from 1st April 1975. It was ordered that the Government was entitled to get the annual fee as per Ext.R2 notification dated 10th April 1975 only on and from that date; and that in regard to the renewal of the licence asked for W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 13 :: before 1st April 1975 the Government was bound to renew the licence in accordance with the law then existing. The Fixed Deposit handed over to the authorities by the writ petitioner as per the direction of this Court was directed to be handed back to him.” The Division Bench allowed the Writ Appeal filed by the State holding thus: “From these provisions, we are unable to see any right on the part of the petitioner to have the licence fee levied and collected only at the rate prevailing on the date of the application or on the commencement of the financial year for which the application was made. Indeed, the provisions of rules 14 and 18, which we have extracted seem to militate against any such construction. And neither the provisions of the statute and the rules, nor the nature of the right to obtain a licence justify our applying in this region, the principle applicable else where, that an application made before an amendment of the substantive law is to be dealt with according to the law in force on the date of the application, unless express or implied provision is found to the contrary. The decisions of this court which have sustained the provisions of the Abkari Act and the validity of the impost levied thereby, have explained the nature of the licence fee levied and collected by the Act. (See Madhavan v. Assistant Excise Commissioner, Palghat (ILR 1969 (2) Ker. 71) confirmed on appeal in Damodaran v. State of Kerala (ILR 1969(2) Ker.95). See also Nashirwar v. State of M.P. (A.I.R. 1975 S.C.360) where the first noted decision was referred to with approval. In the light of these decisions, we are unable to sustain the direction given by the learned Judge that the petitioner is entitled to renewal of the Foreign Liquor 3 Licence for 1975-76 at the rate prevailing on the date of the application, and that the enhanced licence fee will have application only from 10th April 1975. The licence applied for by the writ petitioner had not been granted. Before that, he had approached this court with the writ petition. In the circumstances, he was not entitled to the relief granted by the learned Judge.” W.A.NO.1563 OF 2002 AND CONNECTED CASES :: 14 :: The Division Bench also did not agree with the view taken by the learned single Judge that the enhancement of the rate of licence fee on 10.4.1975 cannot take effect on the pending applications for the licence for the same year. 15. In Kuldeep Singh v. Govt. of NCT of Delhi ((2006) 5 SCC 702), the Supreme Court considered a case where the Government, after inviting applications for the grant of licence to vend liquor and before the disposal of the applications, took a decision not to grant any new licence. Applications for the grant of licences for the sale of Indian Made Foreign Liquor were rejected on the basis of the decision of the Government, which was challenged in writ petitions. The High Court allowed the Writ Petitions and directed the State to grant the licences. Letters patent appeals filed against the decision in the Writ Petitions were allowed. The writ petitioners challenged the decision before the Honourable Supreme Court. In that context, it was held in paragraphs 30, 33 and 36 as follows: “30. Unless, therefore, an accrued or vested right had been derived by the appellants, the policy decision could have been changed. .......... 33. The question again came up for consideration in Howrah Municipal Corpn. V. Ganges Rope Co. Ltd. ((2004) 1 SCC 663) wherein this Court categorically held: (SCC p.680, para 37) W.A.NO.1563 OF 2002 AND CONNECTED