Bar Case Judgment

IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE K.SURENDRA MOHAN
THURSDAY, THE 30TH DAY OF OCTOBER 2014/8TH KARTHIKA, 1936
WP(C).No. 22195 of 2014 (Y)
---------------------------PETITIONER(S):
-------------------------XAVIER'S RESIDENCY
REPRESENTED BY ITS MANAGING PARTNER, D.RAJKUMAR
THEVALLY, KOLLAM.
SRI.A.SUDHI VASUDEVAN
SMT.K.PUSHPAVATHI
RESPONDENTS:
---------------------------1. THE STATE OF KERALA
REPRESENTED BY SECRETARY TO THE GOVERNMENT
TAXES (G) DEPARTMENT, THIRUVANANTHAPURAM. 6950 001
2. EXCISE COMMISSIONER
COMMISSIONERATE OF EXCISE, THIRUVANANTHAPURAM. 695 001
3. DEPUTY COMMISSIONER OF EXCISE
KOLLAM. 695 001
SR. COUNSEL SRI KAPIL SIBAL
SRI K P DANDAPANI, ADVOCATE GENERAL
R1 to R3 BY SPL GOVERNMENT PLEADER SRI.TOM K.THOMAS
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25-09-2014,
ALONG WITH CONNECTED CASES, THE COURT ON 30.10.2014 DELIVERED THE
FOLLOWING:
kkj
WP(C).No. 22195 of 2014 (Y)

---------------------------APPENDIX
PETITIONER(S)' EXHIBITS
------------------------------------P1 -
A TRUE COPY OF THE ORDER DT. 08.6.11 ISSUED TO THE HOTEL OF THE
PETITIONER CLASSIFYING IT UNDER 3 STAR CATEGORY.
P2 -
A TRUE COPY OF THE GO(MS) NO. 56/2014/TD DT. 02.4.14.
P3 -
A TRUE COPY OF THE FL3 LICENSE RENEWED IN FAVOUR OF THE 1ST

PETITIONER UP TO 31.3.15.
P4 -
A TRUE COPY OF IA 9160/14 FILED BY THE GOVERNMENT IN WPC NO.

10368/14ON THE FILE OF THIS HON'BLE COURT
P5 -
A TRUE COPY OF THE COMMON ORDER DT. 14.8.14 PASSED BY THIS

HON'BLE COURT IN WA NO. 1131/14. WA - 1129/14 AND CONNECTED WRIT
APPEALS.
P6 -
A TRUE COPY OF THE GO(MS) NO. 139/14 TD DT. 22.8.14 ISSUED BY THE
GOVERNMENT OF KERALA.
P7:
A TRUE COPY OF FOREIGN LIQUOR (THIRD AMENDMENT) RULES 2014

BROUGHT BY NOTIFICATION BEARING SRO NO 520/2014 DATED 27.08.2014
SAID TO BE ISSUED BY GOVERNMENT OF KERALA
RESPONDENTS' EXHIBITS
--------------------------------------NIL
// TRUE COPY //
PA TO JUDGE
C.R.
K.SURENDRA MOHAN, J.
--------------------------------------------Writ Petition Nos:
22195,22203,22219,22236,22237,22238,22239,
22328,22367,22369,22383,22401,22403,22410,
22411,22412,22413,22414,22415,22460,22528,
22774,22776,22784,22785,22786,22941,22993,
23030,23033,23034,23035,23036,23081,23091,
23101,23134,23167,23178,23179,23212,23249,
23262,23302,23317,23323,23340,23344,23345,
23353,23391,23399,23403,23446,23467,23474,
23495,23513,23521,23528,23538,23568,23569,
23570,23579,23638,23729,23735,23738,23740,
23856,23896,23900,23986,24048,24109,24128,
24838,24926,24940, and 24958 of 2014
---------------------------------------------Dated this the 30th day of October, 2014
JUDGMENT
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
-:2:W.P.(C) Nos.22195/2014 & Conn. cases
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
arguments
amendments.
have
been
put
wide
forward,
spectrum
attacking
of
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
grounds.
Institutions,
Temple,
Church
or
burial
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 NonGovernmental 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.

already
adopted,
Statistics show that the measures
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.
alcoholic beverages with their
The consumption of
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
renewed, provisionally.
Rule
13(3)
were
also
Thereafter, the new Abkari
Policy has been formulated and on the basis thereof, the

present
notices
Commissioner
have
been
proposing
to
issued
cancel
by
the
the
Excise
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.
report
The One Man Commission has submitted its

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.

contended
that
this
is
clear
case
of
It is
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. VinayagaMurthy [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.
also
acquired
stocks
of
imported
They have
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.
above,
it is
pointed
out that,
Apart from the
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.

Prohibition Act, 1950.
The State has enacted the
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.
stipulate the quality of liquor
The conditions
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 cooperative 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
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.
Man
The terms of reference made to the One
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.
counsel is unconstitutional.
Section 69 according to the

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
circumstances
situations
justifying
where
there
are
such intervention.
compelling
In the
present
case,
there
circumstances.
are
no
such
compelling
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
frequent
who
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.

classification
was
only
adopted
as
The said
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.
confining
bars
to
only
hotels
having
five
By
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
petitioners is in order.
of
the
licences
of
the
Rule 26 of the Foreign Liquor
rules also confers power on the Excise Commissioner to

cancel the licence after giving 15 days notice.
notice has been given.
Such
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.
the
evil
Advocate Basil Attipetty has referred to
effects
of
excess
consumption
According to the counsel, the fact
of
alcohol.
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.
duty
It is for the said reason that the constitutional

in
Art.47
has
been
prohibition of consumption
limited
to
bring
about
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.
Entry 8, list II, the
As per the Seventh Schedule,
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.
above division of powers is clear from
The
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.

the
said
dictum
has
been
the
subject
Though
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
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:13.
A scrutiny of these decisions does not
support the contention that the courts held that

dealing in liquor was not business or trade.
They
were only considering the provisions of the various

Acts which conferred a restricted right to do
business.
None of them held that a right to do
business in liquor was not a fundamental right.

14. We, therefore, hold that clearing in liquor
is business and a citizen has a right to do business in
that commodity but the State can make a law
imposing reasonable restrictions on the said right, in

public interests.
In the case of Khoday Distilleries Ltd., a
68.
similar contention was advanced.
It was contended that,
a citizen has a fundamental right to trade or business in

liquor and that the State has power only to place
reasonable restrictions on the said right in the interests
of general public by law made under Art.19(6) of the
Constitution.
The State cannot therefore prohibit
completely the said trade or business under the guise of

regulating the trade.
Any regulation would have to pass
the test of reasonableness.
The Constitutional Bench
also considered whether the reasonable restrictions

contemplated by Art.19(6) could be imposed by an Act of
legislature only or by a subordinate legislation as well.
69. After a survey of the previous decisions on the
point, the Constitutional Bench has interpreted the
dictum in
K.K.Narula case, in the case of
Distilleries Ltd.
Khoday
at paragraph 54 of the judgment, as
follows:It will thus be obvious that all the

decisions except the decision in K.K.Narula

case have unanimously held as shown above
that there is no fundamental right to carry on
trade or business in potable liquor sold as a
beverage.
As pointed out
above,
the
proposition of law which is put in a different

language
K.K.Narula
in
case
has
been
explained by the subsequent decisions of this

Court including those of the Constitution
Benches.
The proposition of law laid down
there has to be read in conformity with the

proposition laid down in that respect by the
other decisions of this Court not only to bring
comity in the judicial decisions but also to
bring
the
provisions
fundamental
law
of
in
conformity
the
Constitution.
rights
conferred
Constitution are not absolute.

to be read as a whole.
with
the
The
by
our
Article 19 has
The fundamental
rights enumerated under Article 19(1) are

subject
to
the
restrictions
mentioned
in
clauses (2) to (6) of the said article. Hence,

the correct way to describe the fundamental
rights under Article 19(1) is to call them
qualified fundamental rights.
The Court has further observed as follows in the same

paragraph:The correct way, therefore, to read the
fundamental rights enumerated under Article 19
(1) of our Constitution is to hold that the citizens
do not possess the said rights absolutely.
They

have the said rights as qualified by the respective
clauses (2) to (6) of Article 19.
That is apart
from the fact that Article 47 of the Constitution

enjoins upon the State to prohibit consumption of
intoxicating drink like liquor, which falls for
consideration in the present case and, therefore,
the right to trade or business in potable liquor is
subject also to the provisions of the said article.
Whether one states as in K.K.Narula case that the
citizen has a fundamental right to do business but
subject to the State's powers to impose valid
restrictions under clause (6) of Article 19 or one
takes the view that a citizen has no fundamental
right to do business but he has only a qualified
fundamental right to do business, the practical
consequence is the same so long as the former
view does not deny the State the power to
completely prohibit, trade or business in articles
and products like liquor as a beverage, or such
trafficking as in women and slaves.
70.
The further contention that if the citizen does
not have a fundamental right to carry on trade or

business in potable liquor the State is also interdicted
from carrying on such trade has been considered and
negatived in paragraph 55 of the judgment which reads
as follows:The contention that if a citizen has no
fundamental right to carry on trade or business in

potable liquor, the State is also injuncted from
carrying on such trade, particularly in view of the
provisions
of
Article
attractive, is fallacious.
47,
though
apparently
The State's power to
regulate and to restrict the business in potable

liquor impliedly includes the power to carry on
such trade to the exclusion of others.
Prohibition
is not the only way to restrict and regulate the

consumption of intoxicating liquor.
The abuse of
drinking intoxicants can be prevented also by

limiting and controlling its production, supply and
consumption.
The State can do so also by
creating in itself the monopoly of the production

and supply of the liquor.
When the State does so,
it does not carry on business in illegal products.

It carries on business in products which are not
declared illegal by completely prohibiting their
production but in products the manufacture,
possession and supply of which is regulated in the
interests of the health, morals and welfare of the
people.
It does so also in the interests of the
general
public
under
Article
19(6)
of
the
Constitution.
The Court has further held that even if a prohibition has

not been imposed a citizen has no fundamental right to
carry on trade or business in potable liquor.
Paragraphs
56 and 57 have concluded the above issue, as under:56.

prohibition
The contention further that till

is
introduced,
citizen
has

fundamental right to carry on trade or business
in potable liquor has also no merit.
All that the
citizen can claim in such a situation is an equal

right to carry on trade or business in potable
liquor as against the other citizens.
He cannot
claim equal right to carry on the business

against the State when the State reserves to
itself the exclusive right to carry on such trade
or business.
When the State neither prohibits
nor monopolises the said business, the citizens

cannot be discriminated against while granting
licences to carry on such business.
But the
said equal right cannot be elevated to the

status of a fundamental right.
57.
It is no answer against complete or
partial prohibition of the production, possession,

sale and consumption etc. of potable liquor to
contend that the prohibition where it was
introduced earlier and where it is in operation
at present, has failed.
The failure of measures
permitted by law does not detract from the

power of the State to introduce such measures
and implement them as best as they can.
(Emphasis supplied)
71.
In
view
of
the
above
authoritative
pronouncement of the law by the Constitutional Bench

there cannot be any doubt that a citizen has no
fundamental right to carry on trade or business in liquor.
The conclusions have been summarized as follows in

paragraph 60 of the said judgment as under:60.
We may now summarise the law on the
subject as culled from the aforesaid decisions:

a) The rights protected by Article 19(1) are not
absolute but qualified.
The qualifications are stated
in clauses (2) to (6) of Article 19.
The fundamental
rights guaranteed in Article 19(1)(a) to (g) are,

therefore,
to
be
read
along
with
the
said
qualifications. Even the rights guaranteed under the

Constitutions of the other civilized countries are not
absolute
but
are
read
limitations on them.
subject
to
the
implied
Those implied limitations are
made explicit by clauses (2) to (6) of Article 19 of our

Constitution.
b) The right to practise any profession or to
carry on any occupation, trade or business does not
extend to practising a profession or carrying on an
occupation, trade or business which is
inherently
vicious and pernicious, and is condemned by all

civilised societies.
It does not entitle citizens to
carry on trade or business in activities which are

immoral and criminal and in articles or goods which
are obnoxious and injurious to health, safety and
welfare
of
the
general
public,
commercium (outside commerce).
i.e.,
res
extra
There cannot be
business in crime.
c)
Potable
liquor
as
beverage
is
an
intoxicating and depressant drink which is dangerous

and injurious to health and is, therefore, an article

which is res extra commercium being inherently
harmful.
A citizen has, therefore, no fundamental
right to do trade or business in liquor.
Hence the
trade or business in liquor can be completely

prohibited.
d) Article 47 of the Constitution considers
intoxicating drinks and drugs as injurious to health
and impeding the raising of level of nutrition and the
standard of living of the people and improvement of
the public health. It, therefore, ordains the State to
bring
about
prohibition
of
the
consumption
of
intoxicating drinks which obviously include liquor,

except for medicinal purposes. Article 47 is one of the
Directive Principles which is fundamental in the
governance of the country. The State has, therefore,
the power to completely prohibit the manufacture,
sale, possession, distribution and consumption of
potable liquor as a beverage, both because it is
inherently a dangerous article of consumption and
also because of the Directive Principle contained in
Article 47, except when it is used and consumed for
medicinal purposes.
e) For the same reason, the State can create a
monopoly either in itself or in the agency created by
it
for
the
manufacture,
possession,
sale
and
distribution of the liquor as a beverage and also sell

the licences to the citizens for the said purpose by
charging fees. This can be done under Article 19[6] or
even otherwise.
f) For the same reason, again, the State can
impose limitations and restrictions on the trade or
business in potable liquor as a beverage which

restrictions
are
in
nature
different
from
those
imposed on the trade or business in legitimate

activities and goods and articles which are res
commercium. The restrictions and limitations on the
trade or business in potable liquor can again be both
under Article 19[6] or otherwise. The restrictions and
limitations can extend to the State carrying on the
trade or business itself to the exclusion of and
elimination of others and/or to preserving to itself the
right to sell licences to do trade or business in the
same, to others.
g) When the State permits trade or business in
the potable liquor with or without limitation, the
citizen has the right to carry on trade or business
subject to the limitations, if any, and the State cannot
make discrimination between the citizens who are
qualified to carry on the trade or business.
h) The State can adopt any mode of selling the
licences for trade or business with a view to maximise
its revenue so long as the method adopted is not
discriminatory.
i) The State can carry on trade or business in
potable
liquor
notwithstanding
that
it
is
an
intoxicating drink and Article 47 enjoins it to prohibit

its consumption. When the State carries on such
business,
it
does
so
to
restrict
and
regulate
production, supply and consumption of liquor which is

also an aspect of reasonable restriction in the interest
of general public. The State cannot on that account
be said to be carrying on an illegitimate business.
j) The mere fact that the State levies taxes or
fees on the production, sale and income derived from

potable liquor whether the production, sale or income
is legitimate or illegitimate, does not make the State
a party to the said activities. The power of the State
to raise revenue by levying taxes and fees should not
be confused with the power of the State to prohibit or
regulate the trade or business in question. The State
exercises its two different powers on such occasions.
Hence the mere fact that the State levies taxes and
fees on trade or business in liquor or income derived
from it, does not make the right to carry on trade or
business in liquor a fundamental right, or even a legal
right when such trade or business is completely
prohibited.
k) The State cannot prohibit trade or business
in medicinal and toilet preparations containing liquor
or alcohol. The State can, however, under Article 19
[6] place reasonable restrictions on the right to trade
or business in the same in the interests of general
public.
l) Likewise, the state cannot prohibit trade or
business in industrial alcohol which is not used as a
beverage
but
used
legitimately
for
industrial
purposes. The State, however, can place reasonable

restrictions on the said trade or business in the
interests of the general public under Article 19[6] of
the Constitution.
m) The restrictions placed on the trade or
business in industrial alcohol or in medicinal and
toilet preparations containing liquor or alcohol may
also be for the purposes of preventing their abuse or
diversion for use as or in beverage.
72.
The
Constitutional
Bench
decision
in
K.K.Narula having been interpreted and understood by

the Constitutional Bench in the case of Khoday Distilleries
in
the
manner
reproduced
above,
different
interpretation is neither possible nor permissible for, the

interpretation of the Constitutional Bench binds this
Court. In view of the above it is held that a citizen has no
fundamental right to conduct trade or business in potable
liquor, as contended.
73.
The further contention as to whether it is
permissible for the State to prohibit the trade in potable

liquor altogether, has also been decided conclusively by
the Constitutional Bench as evident from paragraph 60
clause (d).
It has further been held that it shall be open
to the State to create a monopoly either in itself or in an

agency created by it for the manufacture, possession, sale
and distribution of liquor as a beverage and also to sell
licenses to the citizen for the said purpose by charging
fees. The restrictions to be imposed on trade or business
in potable liquor could be different from those imposed
on a trade or business in other trades or businesses that

are res
commercium.
The restrictions and limits on
the trade or business in potable liquor can be both under

Art.19(6) or otherwise.
It has also been categorically
held that the State while carrying on a business in

potable liquor by itself, cannot be said to carry on an
illegitimate business,
in view of Art.47.
It has further
been held that the State can adopt any mode of selling
the licences for trade or business with a view to maximise
its revenue so long as the method adopted is not
discriminatory.
However, the only restriction is that,
where the State permits trade or business in potable

liquor with or without limitation, the citizen has a right
not to be discriminated against.
In other words, the
State would have no right to pick and choose.

74. With respect to the question as to whether the
restrictions to be imposed by the State should be by way
of a legislative enactment, the Constitutional Bench has
held as follows:64.
The last contention in these groups of
matters is whether the State can place restrictions and

limitations
under
Article
19[6]
by
subordinate
legislation. Article 13[3][a] of the Constitution states

that law includes "any ordinance, order, bye-law, rule,
regulation, notification, custom or usage having in the
territory of India the force of law". Clauses [2] to [6] of
Article 19 make no distinction between the law made by
the Legislature and the subordinate legislation for the
purpose of placing the restrictions on the exercise of the
respective fundamental rights mentioned in Article 19
[1](a) to (g). We are concerned in the present case with
Clause [6] of Article 19. It will be apparent from the
said clause that it only speaks of "operation of any
existing law in so far as it imposes... "from making any
law imposing" reasonable restrictions on the exercise of
the rights conferred by Article 19[1](g). There is
nothing
in
this
provision
which
makes
it
imperative to impose the restrictions in question

only by a law enacted by the Legislature. Hence
the restrictions in question can also be imposed by
any
subordinate
legislation
so
long
as
such
legislation is not violative of any provisions of the

Constitution. This is apart from the fact that the
trade or business in potable liquor is a trade or
business in res extra commercium and hence can
be regulated and restricted even by executive
order provided it is issued by the Governor of the
State.
We,
therefore,
answer
the
question
accordingly.
(Emphasis supplied)
It is clear from the above that, it is permissible for the
State to impose restrictions on trade or business in

potable liquor even by subordinate legislation, provided
it is issued by the Governor of the State.
The
Constitutional Bench decision in the case of Khoday

Distilleries Ltd. therefore, contains the answers to the
questions raised by the counsel for the petitioners on the
basis of Art.19(1)(g), 19(6) and Article 47.
except
for
the purpose
of examining
Therefore,
whether
the
restrictions imposed have the effect of discriminating the

citizens unreasonably in the manner of granting licences
or permissions to carry on trade or business in potable
liquor, the other contentions have to fail. It is so held.
Scope of the challenge under Article 14
75. As already noticed above, while emphatically
laying down that the citizen has no fundamental right to
trade in liqour under Article 19(1)(g) of the Constitution,
the Supreme Court has, as in the previous decisions on
the point, taken care to put a limitation on the State
power
to
impose
regulations
by
providing
that
regulatory measure would have to satisfy the rigour of
Article 14. Thus in paragraph 56 of the judgment in

Khoday Distilleries (already quoted above) it has been
held
that,
when
the
State
neither
prohibits
nor
monopolizes the business in liquor, the citizens cannot be

discriminated against, while granting licences to carry on
such business. The above aspect has been summarized
as clauses (g) and (h) of paragraph 60 of the said
judgment (already quoted above).
Consequently, while
the State has sufficient powers to monopolize and to

permit subject to regulations, trade in liquor, the grant of
such
permission
discrimination.
or
licence
should
be
free
from
Therefore, wherever and whenever an
allegation of discrimination is raised against a regulatory

measure of the State, the same would have to be
subjected
to
judicial
scrutiny
for
the
purpose
of
ascertaining whether it is discriminatory, as alleged. If it

is found to be discriminatory, the regulatory measure
certainly would have to be set aside. That the said action
would be subject to Article 14 of the Constitution has
been the consistent view of the Supreme Court in all the
decisions on the point.

76. In State of Kerala v. Kandath Distilleries
[2013(6) SCC 573], the question as to whether the High
Court could issue a Writ of Mandamus under Article 226
of the Constitution directing the State to part with its
exclusive privilege in the matter of granting a licence to
establish a distillery had come up for consideration. That
was a case in which the Kandath Distilleries had applied
for a licence to establish a distillery in Palakkad District
under the Kerala Foreign Liqour (Compounding, Blending
and Bottling) Rules, 1975 read with Section 14 of the
Kerala Abkari Act. The application was rejected. Though
this Court had directed the matter to be reconsidered,
the application was repeatedly rejected.
Finally, this
Court directed the State to issue the licence by the issue

of a Writ of Mandamus.
Though the judgment of the
Single Bench was confirmed by the Division Bench, the

Hon'ble Supreme Court set aside both the judgments
holding that this Court had no power to issue any such
direction. The Supreme Court has incidentally held in the
said case also that, a citizen has no fundamental right to

conduct trade or business in liquor. However, the court
has held that the power of the State would limited by the
rigour of the Article 14 of the Constitution. Speaking for
the Court, Radhakrishnan, J has held as follows in
paragraph 32 of the judgment.
It is trite law that, though, no citizen has a legal
right to claim a distillery licence as a matter of right and
the Commissioner or the State Government is entitled to
either not to entertain or reject the application, they
cannot enter into a relationship by arbitrarily choosing
any person they like or discriminate between persons
similarly circumscribed.
The State Government, when
decides to grant the right or privilege to
others, of
course, cannot escape of the rigour of Article 14, in the

sense that it can act arbitrarily.
77. In the present cases, it is the Abkari Policy,

2014-15 and the consequential amendments effected to
the Rules that are under challenge. The question as to
whether the policy of the Government could be the
subject matter of challenge before this Court is a
connected issue that arises for consideration. The law on
the point is well settled that, it is the exclusive
prerogative of the State to formulate policies.
Policies
are to be formulated on the basis of social as well as

empirical data, the assessment of which fall within the
exclusive
domain
administration.
of
the
persons
who
are
in
Policies are not framed on the basis of
legal principles. The State has to be conceded sufficient

freedom to formulate its policies periodically, taking into
account, the needs of the people as well as the social
mores.
Such policy decisions are not interfered with,
lightly or as a matter of course. The Supreme Court in

State of Kerala v. Kandath Distilleries (Supra) has
observed as follows while considering the challenge in
the said case against the policy of the Government.
It is trite law that a court of law is not expected to
propel into 'the unchartered ocean' of the State's policies.
The State has the power to frame and reframe, change
and rechange, adjust and readjust policy, which cannot be
declared as illegal or arbitrary on the ground that the
earlier policy was better and suited to the prevailing
situations.
78. In State of Kerala v. Surendradas (Supra),

the legality and validity of two amendments introduced by
the State of Kerala pursuant to its Abkari Policy 2011-12

to the Foreign Liqour Rules framed under the Abkari Act
was the issue. The amendments had been struck down by
this Court and the State had carried the matter to the
Supreme Court. In paragraph 37 of the said judgment,
referring to the scope of the challenge under Article 14 of
the Constitution, this Court held as follows:37. In the circumstances, although we do not
dispute the power of the State Government to bring about
the necessary reform, by modifying the rules, it has got to
be justified on the touchstone of the correlation between
the provision and the objective to be achieved.
If that
correlation is not established, surely the rule will suffer

from the vice of arbitrariness, and therefore will be hit by
Art.14.
79. In view of the authoritative pronouncement

noted above, it is beyond doubt that a restriction or
regulation imposed on a trade or business conducted in
potable liquor is open to challenge on the ground that the
same is arbitrary or discriminatory. Therefore, the above
aspect of the matter would have to be considered vis-a-vis
the Abkari Policy 2014-2015 and the amendments made
to the Foreign Liquor Rules in implementation thereof,
that are under challenge. But before I proceed to do so,

there are few other contentions that require to be dealt
with.
Contention on the basis of 'Occupied Field'
80. According
to
Senior
Counsel
Smt.
Indira
Jaisingh, the field of prohibition is occupied by the

Prohibition Act, 1950 and it is by suspending the
operation of the provisions thereof that the provisions of
the Abkari Act have been revived.
Section 8 of the
Prohibition Act has brought in prohibition.
With the
coming into force of the said Act, the Abkari Act and its
provisions had been repealed.
However, in exercise of
the power under Section 2 of the said Act, the State

Government has issued a notification suspending the
provisions of the said enactment.
Consequently, the
provisions of the Abkari Act that stood repealed have

been revived.
According to the counsel, while the
Prohibition Act deals with prohibition, the Abkari Act

deals with only regulation.
The legislature having
enacted a specific law bringing about prohibition, the
present policy that aims at complete prohibition in a

phased manner is outside the scope of the object of the
Abakri Act. Section 29 of the Act confers power on the
Government to make rules only to give effect to the
objects of the enactment.
Prohibition being not one of
the objects of the enactment, an amendment to attain the

same cannot be supported by the power to frame Rules
conferred by the Act.
81. It is true that, the object of the Abkari Act is
regulation and not prohibition. It is also true that there is
already an enactment, the Prohibition Act, 1950 that can
be revived by withdrawing the notification issued by the
Government,
suspending
the
provisions
thereof.
However, according to the State, the time is not yet ripe

for complete prohibition.
Until the appropriate time,
there has to be proper regulation. Since the State has a

duty under Article 47 to strive towards achieving
prohibition no law made in implementation thereof could
be found fault with.
It is well settled that, regulation
includes prohibition also.
82. The State can in exercise of its power to

regulate limit the number of persons participating in the
trade. Such limitation can even extend to prohibiting any
person from conducting trade in potable liquor.
Such
regulation, unless it offends Article 14 has been held to

be reasonable under Article 19(6) of the Constitution also.
The
Constitutional
Distilleries
case
Bench
(Supra),
has
in
held,
in
Paragraph
Khoday
12,
while
considering the nature of restrictions that could be

placed by the State on a right under Article 19(1)(g),
under Article 19(6), as follows:Thus Article 19(1)(g) read with Article 19(6) spells
out a fundamental right of the citizens to practise any
profession or to carry on any occupation, trade or
business so long as it is not prohibited or is within the
framework of the regulation, if any, if such prohibition or
regulation has been imposed by the State by enacting a
law in the interests of the general public. It cannot be
disputed that certain professions, occupations, trades or
businesses which are not in the interests of the general
public may be completely prohibited while others may be
permitted with reasonable restrictions on them. For the
same purpose, viz., to subserve the interests of the
general
public,
the
reasonable
restrictions
on
the
carrying on of any profession, occupation, trade, etc.,

may provide that such trade, business etc., may be
carried on exclusively by the State or by a Corporation
owned or controlled by it. The right conferred upon the
citizens under article 19(1)(g) is thus subject to the
complete or partial prohibition or to regulation, by the
State. However, under the provisions of the Article 19(6)
the prohibition, partial or complete, or the regulation,
has to be in the interests of the general public.
83. It is clear from the above that, regulation could

extend to prohibition also even in the case of a
fundamental right enumerated in Article 19(1)(g) of the
Constitution. A fortiori, therefore, in the case of trade or
business in liquor also, the power to regulate
could
extend to complete prohibition of the trade or business

itself.
84. Apart from the above, prohibition is inherent in
the mechanism of licensing itself. It is not in dispute that,
the petitioners have been conducting their businesses on
the strength of licences issued to them and renewed
periodically, for conducting bars. The mechanism of
licensing regulates an activity by first prohibiting the
same altogether. Thereafter, the activity is permitted in a
restrictive
manner
by
issuing
licences
to
some.
Therefore, when the petitioners admit that they are

permitted to carry on their business activities on the
strength of licences issued to them and renewed from
time to time, it follows that they are only being permitted
to engage in a prohibited activity, subject to the
conditions governing the terms of the licence.
In the
present case, the Prohibition Act is remaining suspended

while the State is trying to achieve the object of
prohibition in a phased manner by imposing regulations
on the trade or business in potable liquor.
Even under
the Abkari Act, trade in liquor is completely prohibited

but permitted in a regulated manner by the issue of
licences to the eligible persons. There is no question of
the field being occupied by the Prohibition Act denuding
the State of its power to progress towards prohibition
though regulation.
85. The object of the Abkari Act being to regulate
trade or business in potable liquor and the expression
regulation having been interpreted to include the power
to prohibit also, it has to be held that the power to frame
rules for the purpose of the enactment would include

prohibition also.
In view of the above, the contention
regarding lack of power to frame rules, is rejected.

86. According
to
Senior
Counsel
Sri
O.V.Radhakrishnan, the Governor of the State of Kerala

had resigned on 25.08.2014. The resignation according
to the counsel comes into effect immediately. Therefore,
as on 27.08.2014, the date on which amended rules were
published in the gazette, there was no Governor in office.
Though the publication expresses that it has been made
in the name of the Governor, there was in fact, no
Governor in office.
Therefore, it is contended that, the
said amendment is unconstitutional.

87. Article 156 of the Constitution deals with term
of office of Governor, which reads as follows:156. Term of office of Governor.--(1) The Governor
shall hold office during the pleasure of the President.
(2) The Governor may, by writing under his hand
addressed to the President, resign his office.
(3) Subject to the foregoing provisions of this Article, a
Governor shall hold office for a term of five years from
the date on which he enters upon his office:
Provided that a Governor shall, notwithstanding the

expiration of his term, continue to hold office until his
successor enters upon his office.
As per the above provision, even if the term of office of

the Governor expires, the person in office shall hold office
until his successor takes charge.
The above provision
ensures that, no administrative vacuum is created by the

contingency, pointed out by the petitioners. Article 160
empowers
the
President
to
act
in
an
unforeseen
emergency not provided for by the Constitution. Article

160 reads as follows:160. Discharge of the functions of the Governor in
certain contingencies.--
The President may make such provision as he thinks fit

for the discharge of the functions of the Governor of a
State in any contingency not provided for in this Chapter.
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
subordinate Officers.
with
the
endorsement
of
the
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
or
noticed
above,
absolutely
no
materials
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
consideration the above aspect.
have
not
taken
into
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.
Liquor
This is because, licences under the Foreign
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
Government.
of
G.O(MS)56/2014
issued
by
the
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
Commission.
of the One Man
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.
Government
Order
produced
as
Ext.P2
The above
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
without any basis.
is also
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
establishments,
even
crores
securing
of
rupees
funds
in
from
their
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
made
the
position,
the
licensees
have
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.
present
case,
it
is
contended
that,
the
In 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,

contended.
petitioners,
For the above reason,
according
it is
to the
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.
every
year restrictions
Accordingly,
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:It is well settled that the courts, in exercise
of their power of judicial review, do not ordinarily
interfere with the policy decisions of the executive
unless the policy can be faulted on grounds of mala
fide, unreasonableness, arbitrariness or unfairness
etc.
and
Indeed, arbitrariness, irrationality, perversity

mala
fide
unconstitutional.
will
render
the
policy
However, if the policy cannot be
faulted on any of these grounds, the mere fact that

it would hurt business interests of a party, does not
justify invalidating the policy.
In tax and economic
regulation cases, there are good reasons for judicial

restraint, if not judicial deference, to judgment of
the executive.
The courts are not expected to
express their opinion as to whether at a particular

point of time or in a particular situation any such
policy should have been adopted or not.
It is best
left to the discretion of the State.
It is clear from the above that, a policy can be challenged

only
on
grounds
of
malafides,
unreasonableness,
arbitrariness, unfairness etc.

100. In Union of India and others v. Dinesh
Engineering Corporation [(2001) 8 SCC 491]
the
Supreme Court has reiterated the above position
in
paragraph 12 of the judgment in the following words:On behalf of the appellants, it has been very
seriously contended before us that the decision vide
letter dated 23.10.1992 being in the nature of a
policy decision, it is not open to courts to interfere
since policies are normally formulated by experts on
the subjects and the courts not being in a position to
step into the shoes of the experts, cannot interfere
with such policy matters.
There is no doubt that
this Court has held in more than one case that

where the decision of the authority is in regard to a
policy matter, this Court will not ordinarily interfere
since these policy matters are taken based on expert
knowledge of the persons concerned and courts are
normally not equipped to question the correctness of
a policy decision.
But then this does not mean
that the courts have to abdicate their right to

scrutinise whether the policy in question is
formulated keeping in mind all the relevant
facts and the said policy can be held to be
beyond
the
pale
unreasonableness,
of
discrimination
bearing
in
mind
or
the
material on record.
(Emphasis supplied)
To the same effect is the dictum in State of Kerala v.
Surendra
Das
(supra)
already
quoted
above.
Therefore, what needs to be examined is whether the
present policy of the State is liable to be interfered with

by this Court, on any of the grounds referred to above.
Two Star and Three Star hotels
101.
From the year 1992 onwards, only hotels
having two star and above were entitled to the grant of

an FL3 licence. There were a lot of complaints regarding
the manner of functioning of the two star hotels which
according to the report of the Comptroller and Auditor
General (CAG) were functioning without proper facilities.
Therefore, by the Abkari Policy for the year 2011-2012
hotels with three star classification were also held not
eligible to be granted Bar licences.
restricted the grant of Bar
The policy further
licences to a hotel located
within one kilometer in Municipal areas and within 3

kilometers in Panchayat areas of another Bar attached
hotel.
The above policy was the subject matter of
challenge before this Court in a number of writ petitions

and writ appeals.
All the cases were disposed of by a
Division Bench of this Court holding that the policy in so

far as it prohibited issue of fresh Bar licences to new
three star hotels was discriminatory.
The restriction
based on the distance from another Bar hotel was also

held to be
unsustainable by the decision in Surendra
Das v.State of Kerala (supra).
The state of Kerala
challenged the said decision before the Supreme Court.

The Supreme Court after considering the entire issue set
aside the judgment of the Division Bench on all points,
except to the extent of sustaining the setting aside of the
restriction imposed on the basis of distance from other
Bar hotels.
The Supreme Court held that though
licences were being issued for the purpose of promoting

tourism, the promotion of tourism should be balanced
with general public interest.
Concluding the issue the
Supreme Court has held in paragraph 33 as follows:In
paragraph
30
this
Court
held
that
promotion of tourism should be balanced with

general public interest.
Paragraph 31 permits a
periodical reassessment of policy, and holds that if

policy is not open to challenge the amendment of
the rules to effect the policy can also not be
challenged
This
being
the
position
the
grievances made by the hoteliers with respect to

the deletion of three star hotels, and to insist on a
Bar licence, cannot be sustained, on this ground.

Deletion of three star hotels falls in the same
genre as the deletion of two star hotels, which
was done earlier.
This Court has upheld the
deletion
star
of
judgment.
two
hotels
in
the
said
This being the position the State
cannot be faulted for deletion of three star

hotels
after
periodical
revision
of
the
policy.
(Emphasis supplied)
102.
The Court has thereafter allowed the
appeals filed by the State with the following directions:41.
For the reasons stated above we
allow these appeals in part and hold as follows:i) The judgment rendered by the Division
Bench is set-aside to the extent it interferes with
the amendment brought in the year 2011.
The
deletion of three star hotels from the category

of hotels eligible for FL3 licenses under R.13(3)
is held valid.
ii) As far as the amendment brought in
2012 introducing the distance rule by way of
addition of Rule (3E) in Rule 13(3) is concerned,
the same is held to be bad in law.
The
judgment of the High Court is confirmed to that

extent.
iii) The State Government will not proceed
to
deny
FL3
licenses
to
hotels
with
classification of four star and above by resorting

to their deletion under R.13(3) until the report

of the one-man commission is received, and until
it
takes
action
against
the
non-standard
restaurants which have been permitted under

the sixth and seventh proviso of Rule 13(3).
iv) No order is necessary on the contempt
Petitions and they stand disposed of.
v) All parties will bear their own costs.
103.
The resultant position therefore is that, the
Supreme Court has already found that the deletion of two

star and three star hotels from the classes of hotels
eligible to be granted FL3 licences was perfectly in order.
Of course, the said decision concerned the grant of
licences to fresh applicants.
However, since the licences
to conduct Bars are being granted annually, to be

renewed on the expiry thereof it cannot be said that the
existing licensees have any subsisting right to claim
renewal thereof.
Rule 14 of the Foreign Liquor Rules
which is extracted hereunder, further clarifies the above

aspect:14. 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.
104.
The position therefore is that, a Bar
licence issued to an existing hotel expires at the end of

the financial year.
Thereupon, the licencee would have
to seek renewal of the licence.

granted
on
the
applicant
The licence is to be
satisfying
the
conditions
stipulated by Rule 13(3) of the Foreign Liquor Rules.
In
view of the above provisions, it cannot be said that

existing two star and three star hotels have
a vested
right to renewal of the licences granted to them.
The
contention that the classification made is discriminatory

and violative of Article 14 of the Constitution is no longer
res integra in view of the dictum of the Supreme Court,
referred to above.
Four Star Hotels
105.
The remaining question to be decided is
whether exclusion of hotels with four star classification

by the present Abkari Policy amounts to an unreasonable
classification and whether it is arbitrary and violative of
Article 14 of the Constitution.
An examination of the
Abkari Policy, an English translation of which has been

provided by the counsel for the petitioners, apart from
the original in vernacular, is necessary for the purpose.

106.
The Abkari
Policy opens by referring to
the concern of the Government to the increasing demand

for alcohol in the society and the spread of the habit of
drinking indiscriminately and without any restriction in
the society.
Reference has been made to the litigation
that followed the announcement of the Abkari Policy for

the year 2011-2012, the appointment of the One Man
Commission manned by a retired Judge of this Court,
Justice M.Ramachandran, the orders of the Supreme
Court as well as the need to formulate the Abkari Policy
urgently so as to comply with the directions issued by this
Court.
Thereafter, the various measures undertaken
have been set out.
The policy as contained in G.O.(MS)
No:139/2014/Taxes Department dated 22.8.2014, in so

far as it is relevant for the present purpose is reproduced
hereunder:6. The Government has convinced that in spite
of the various measures adopted by the Government to
reduce the production and availability of liquor, still
liquor continues as a social evil in the Kerala Society.
This adversely affects our nation, family and individuals

in various manners.
Government feels that more
actions are necessary at this juncture.
Therefore,
abkari policy has to be declared considering the orders

of Hon'ble Supreme Court, High Court and Human
Rights Commission and also the recommendations in
report of Justice M.Ramachandran Commission.
7.
The Government being convinced the fact that in
order to achieve the goal of Liquor- Free Kerala,

strict and urgent measures are to be adopted, the
Abkari policy 2014-15 is hereby declared subject to the
following criteria.
1.
Hereinafter Bar licenses will be
issued only to 5 star hotels.

of
existing
bar
hotels
The licenses
which
are
functioning on the basis of provisional

renewal of licenses except the licenses of 5
star
hotels
will
be
cancelled.
The
Government has decided not to renew the

licenses of 418 non standard bar hotels
mentioned in the judgment of the Supreme
Court.
2.
outlets
10% of outlets out of 338 FL-1

of
Kerala
State
Beverages
Corporation and 46 outlets of Consumer

Fed will be closed each year from 2nd
October, 2014 onwards.
3. The sale of high strength alcoholic
liquor through Beverages Corporation will
be gradually reduced.
4.
In
order
to
rehabilitate
the
employees who lose their job due to the

closing of bar and to rehabilitate the

persons who are addicted to alcohol a
special plan namely punarjani 2030 will
be commenced.
For that purpose, 5% cess
will be imposed on the liquor sold through

the K.S.B.C.
5.
The Liquor Free propaganda
programme will be strengthened in the

society
at
large
and
especially
in
educational institutions.
6.
All Sundays will be declared as
dry-days.
This will be implemented from
the Sunday of 5th October, 2014.

7.
The traditional toddy tapping
business will be protected and job security

will be ensured for toddy tappers.
8.
In order to rehabilitate the
employees of closing Bars and employees

engaged in the job of affixing stickers,
measures will be adopted.
Education
Research,
Kerala Alcohol
Rehabilitation
&
Compensation Fund (KAERCF) Fund will be

formed in order to protect the retrenched
employees.
The said fund will be utilized
for the following purposes such as making

propaganda against drinking of alcohol, for
collection of data regarding this matter, to
protect those who destroyed themselves by
alcohol consumption, rehabilitation of the
persons who lost job.
The fund for this
purpose will also be found out from public.

9.
the
To implement the order urgently
Excise
Commissioner,
K.S.B.C

Managing Director have to take measures
to submit the recommendations urgently to
the Government.
107.
A perusal of the above shows that the first
paragraph merely contains a statement to the effect that

Bar licences could be issued only to five star hotels and
that all hotels except five star hotels, functioning on the
basis of provisional renewals granted by the Government
would be cancelled.
The licences of 418 non-standard
Bar hotels would not be renewed.

108.
considered
According to the policy the materials

for
formulating
the
same
included
the
judgments of this Court,the Supreme Court, the report of

the
One
Man
Commission
as
well
as
the
recommendations of the Secretary (Taxation) on the

report of the One Man Commission.
As per the above
policy, only hotels with five star classification are

presently
entitled
to
apply
for
Bar
licence.
Consequently, hotels having classification of four star

and heritage (Grand & Classic) categories have become
ineligible to apply for Bar licences.
The question to be
considered
is
whether
the
above
classification
is
reasonable or not.
It is settled law that, a classification in order to be
reasonable must satisfy two conditions viz.,
i)
The
classification
must
be
founded
on
an
intelligible differentia which distinguishes persons or

things that are grouped together from the others left out
of the group;
ii) The differentia must have a rationale nexus to the
object sought to be achieved.
109.
In the present cases, the contention is that
there is no substantial
difference
between hotels that
enjoy four star or heritage classification from those

categorized as five star and above.
It is also contended
that there are only 20 Five Star hotels within the State of
Kerala and 33 hotels in the Four Star and Heritage
categories.
All the other categories of Bar hotels
numbering more than 700 have been denied their

licences.
conducted
There would in addition be Beer/Wine parlours

by
the
Kerala
Tourism
Development
Corporation and Clubs selling liquor in retail.
Only 10%
of the FL1 retail outlets are proposed to be shut down

each year.
Since hotels belonging to the four star, five
star and heritage categories form a single, homogeneous

class
by
themselves,
conferring
preference
or
advantage on five star hotels alone violates the principle

of equality enshrined under Art.14 of the Constitution, it
is contended.
It is also pointed out that, the only
materials on the basis of which the State has formulated

the policy, viz., the report of the One Man Commission,
the judgments of this Court and the Supreme Court, as
well as the report of the Secretary (Taxation) do not
support the denial of FL3 licences to hotels with Four star
and Heritage categories.
The files leading up to the
formulation of the policy also do not contain any material

to justify the classification, according to the petitioners.
Therefore, it is contended that the classification is also
arbitrary.
Reliance is placed by all the counsel
appearing for the petitioners on the decision of the

Supreme Court in State of Maharashtra and another v.
Indian Hotel and Restaurants Association
(the
Dance Bars Case) (supra).

110.
In the Dance Bars case the Supreme Court
had to consider whether the prohibition imposed by

Sections 33A and 33B of the Bombay Police Act, 1951 by
which a prohibition was imposed on dancing of any kind
in eating houses, permit rooms or beer Bars having
classification of less than three star was violative of
Article 14 of the Constitution.
The new provisions had
been introduced by the Bombay Police (Amendment) Act,

2005.
It was contended that, the classification made on
the basis of the star category of the hotels was

unconstitutional.
The Supreme Court has in the said
case, after a survey of the authorities on the point

summarized the principles on the basis of which it has to
be
examined
whether
particular
violative of Article 14 or not.

judgment
is
reproduced
classification
is
Paragraph 107 of the
hereunder,
for
clarity
of
reference:107. The aforesaid principles have been consistently

adopted and applied in subsequent cases. In Ram Krishna

Dalmia, this Court reiterated the principles which would
help in testing the legislation on the touchstone of Article 14
in the following words:
a) that a law may be constitutional even
though it relates to a single individual if, on account
of some special circumstances or reasons applicable
to him and not applicable to others, that single
individual may be treated as a class by himself;
b) that there is always a presumption in favour
of the constitutionality of an enactment and the
burden is upon him who attacks it to show that there
has been a clear transgression of the constitutional
principles;
c) that it must be presumed that the legislature
understands and correctly appreciates the need of its
own people, that its laws are directed to problems
made
manifest
by
experience
and
that
its
discriminations are based on adequate grounds;

d) that the legislature is free to recognise
degrees of harm and may confine its restrictions to
those cases where the need is deemed to be the
clearest;
e) that in order to sustain the presumption of
constitutionality
consideration
the
matters
Court
of
may
common
take
into
knowledge,
matters of common report, the history of the times

and may assume every state of facts which can be
conceived existing at the time of legislation; and
f) that while good faith and knowledge of the
existing conditions on the part of the legislature are
to be presumed, if there is nothing on the face of the
law or the surrounding circumstances brought to the

notice of the court on which the classification may
reasonably be regarded as based, the presumption of
constitutionality cannot be carried to the extent of
always holding that there must be some undisclosed
and
unknown
individuals
reasons
or
for
subjecting
corporations
to
certain
hostile
or
discriminating legislation.
These principles were reiterated by this Court in Shashikant
Laxman Kale.
The relevant observations have already been
noticed in the earlier part of the judgment
111.
In the said case, the measure was adopted
for the reason that the State had received a lot of

complaints regarding the manner of functioning of the
dance Bars.
It was alleged that, the dresses worn by the
dancers were revealing and provocative and, the dances

vulgar.
There was an unhealthy practice of the
customers showering money on the dancers during the

performance.
There were also allegations that, such
dance Bars were functioning as pick up joints for traffic

in women and girls besides, being a haven of criminals.
It was contended on behalf of the State that, the ban was
imposed,
considering
the
authorities in this regard.
reports
obtained
by
the
The Supreme Court has, on a
consideration of the materials in the case, held that the
materials were insufficient to justify the classification

made. Paragraphs 120 and 121 of the said decision read
as follows:120. The next justification given by the
learned counsel for the appellants is on the
basis of degree of harm which is being caused
to
the
atmosphere
establishments
and
in
the
the
banned
surrounding
areas.
Undoubtedly as held by this Court in Ram

Krishna Dalmia case, the legislature is free to
recognise the degrees of harm and may confine
its restrictions to those cases where the need is
deemed to be the clearest.
We also agree with
the observations of the US Court in Patsone

case that the State may direct its law against
what it deems the evil as it actually exists
without covering the whole field of possible
abuses, but such conclusion have to be reached
either on the basis of general consensus shared
by the majority of the population or on the
basis of empirical data.
In our opinion, the
State
empirical
neither
conclude
had
that
the
dancing
in
the
establishment necessarily leads
data
to
prohibited
to depravity
and corruption of public morals nor was there

general consensus that such was the situation.
The three reports presented before the High
Court
in
viewpoints.
fact
have
presented
divergent
Thus, the observations made in
Patsone are not of any help to the appellant.

We are also conscious of the observations made
by this Court in Mohd. Hanif Quareshi, wherein
it was held that there is a presumption that the
legislature understands and appreciates the
needs of its people and that its laws are
directed
to
problems
made
manifest
by
experience and that its discriminations are

based on adequate grounds.
In the present
case, the appellant has failed to give any details

of any experience which would justify such
blatant discrimination, based purely on the
class or location of an establishment.
121. We are of the opinion that the State
has failed to justify the classification between
the exempted establishments and prohibited
establishments on the basis of surrounding
circumstances, or vulnerability.
Undoubtedly,
the legislature is the best judge to measure the

degree
of
harm
and
make
reasonable
classification but when such a classification is

challenged the State is duty-bound to disclose
the reasons for the ostensible conclusions.
In
our opinion, in the present case, the legislation

is based on an unacceptable presumption that
the so-called
would
have
elite i.e rich and the famous

higher
standards
morality or strength of character
of
decency,
than their
counterparts who have to content themselves

with lesser facilities of inferior quality in the
dance Bars. Such a presumption is abhorrent
to
the
resolve
in
the
Preamble
of
the
Constitution to secure the citizens of India

equality of status and opportunity and dignity
of the individual.
The State Government
presumed that the performance of an identical

dance
item
facilities
less
in
the
than
establishments
three
stars
having
would
be
derogative to the dignity of women and would

be likely to deprave, corrupt or injure public
morality or morals; but would not be so in the
exempted
establishments.
These
are
misconceived notions of a bygone era which

ought not to be resurrected.
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.
Surendra
Government
In the wake of the decision of this Court in

Das
by
v.
State
of
G.O.(Ms)
Kerala
(Supra)
No.12/2013/TD
the
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.
4. Review of the yardstick/criteria for issue of FL-3
license for the promotion of tourism, in the context of the
guidelines issued by the Government of India, and the
present structure of classification of hotels.
5. Review of the FL3 licences currently in operation
without 2 star classifications, and suggest measures for
streamlining
the
procedures
for
renewal/transfer
of
licences/reconstitution of partnership and shifting of

these bars.
114.
Therefore, the Government had directed a
review of the yardstick for issue of FL-3 licence for the

promotion of tourism as well as review of the FL-3
licences
currently
in
operation
without
two
star
classification. It is therefore clear that, the objective of

promotion of tourism for the purpose of granting FL-3
licences was very much in the mind of the Government
while making the reference.
115.
After going into the terms of reference in
detail, the One Man Commission has submitted an

elaborate report recommending that, after the term of
expiry of the present licences issued, renewal be granted
only to those hotels having eligibility of at least 3 star or
four star classification. As a measure of sympathy, it has
been recommended that the licences of hotels having
lesser standards be kept in hibernation and reissued only
on their securing the requisite certification from the
competent authority. It has also been noticed by the One
Man Commission that, the crowds frequenting the three
star and four star categories of hotels were in general,

orderly and disciplined.
In other words, the One Man
Commission did not find any reasons to be apprehensive

of the activities of the hotels with higher classification,
namely three star and above. The recommendation of the
Government Secretary (Taxes) is to the effect that
licences of bars having two star standards and above
could be renewed on condition that such hotels provide
Two Star classification certificates at the time of renewal
of their licences for 2014-15. Therefore, both the One
Man Commission as well as the Taxation Secretary had
recommended the grant of licences to hotels having
sufficient facilities. However, three star hotels had been
held to be ineligible to be granted fresh FL-3 licences, by
the Abkari Policy of 2011-12. The said exclusion has been
found to be proper by the Supreme Court.
116.
It is necessary to notice here that in
paragraph 37 of the Judgment in State of Kerala v.

Surendra Das (Supra), the Supreme Court has laid down
as follows:-

37. In the circumstances, although we do not dispute the
power of the State Government to bring about the
necessary reform, by modifying the rules, it has got to be
justified on the touchstone of the correlation between the
provision and the objective to be achieved.
If that
correlation is not established, surely the rule will suffer

from the vice of arbitrariness, and therefore will be hit by
Art.14.
117.
Thus, the Supreme Court has made it clear
in the above passage that, any rule made, if it was not

sustainable under Article 14 of the Constitution, would be
bad.
118.
It is clear from the above that, nowhere in
any of the materials that were before the Government,

was any proposal to exclude Four Star and Heritage
category hotels from the criterion of eligibility to apply
for bar licences, either contemplated or recommended.
The Government files made available to me for perusal
also do not contain any material to justify the exclusion of
hotels of Four Star and Heritage categories.
The
measure has surfaced for the first time, all on a sudden,

in the Abkari Policy 2014-15.
As laid down by the
Supreme Court in the Dance Bars case, though the
Government is presumed to have full knowledge of the

social aspects of the controls proposed, in the absence of
any materials on record, from which some justification
could
be
found
out
to
support
the
measure,
the
presumption cannot be pushed to the extent of presuming

that the State could have been possessed of some
undisclosed and unknown reason or material to justify its
action.
In the present case, the materials available on
record are in fact, supportive of the contra.
Both the
report of the One Man Commission as well as the report

of the Secretary (Taxation) have recommended grant of
licences to hotels with sufficient facilities.
As already
found above, since the fate of both two star and three star
hotels have been concluded by the previous decision of
the Supreme Court in State of Kerala v. Surendra Das
(Supra), the challenge against the said exclusion can no
longer survive. However, in the case of hotels with Four
Star and Heritage classification, there is absolutely no
material to justify a conclusion that there were any
complaints with respect to their functioning. It has been
noticed by the Hon'ble Supreme Court in paragraph 34 of

the decision in State of Kerala v. Surendra Das
(Supra) that three star, four star and five star hotels form
a different class. Paragraph 34 reads as follows:34. We must as well note that the two star and three
star hotels stand on a different footing as against the hotels
with four star and higher classification under the tourism
policy of the Government of India. It is relevant to note that
the Ministry of Tourism (H&R Division) of the Government
of
India
has
issued
the
amended
guidelines
for
classification/re- classification of hotels on 28.6.2012. The

classification of the hotels into star categories and heritage
categories is done thereunder, and it is a voluntary scheme.
Annexure-2
contains
the
provisions
concerning
classification/re-classification of operational hotels. Para 8

(f) thereof provides as follows:
8(f). Bar License (necessary for four star, five star,
five star deluxe, heritage classic & heritage grand
categories). Wherever bar license is prohibited for a
hotel as per local law, the bar will not be mandatory
and wherever bar is allowed as per local laws, then
the hotel will have to obtain bar license first and then
apply for classification to the Ministry of Tourism.
This being the position, it is not necessary for a three star
hotel to have a bar licence. In fact as can be seen the para
8(f) above also states that if a local law prohibits the
issuance of a bar licence to four star, five star, five star

deluxe, heritage classic and heritage grand categories,
which is otherwise necessary, such local law will prevail. In
any case three star hotels will have to be placed in a
different category as against the hotels with four star and
higher classification, since it is not necessary for three star
hotels to have an FL-3 licence.
119.
It is also common knowledge that, hotels
with classification of four star and above are not

frequented by the youth, students or the less affluent
sections of the society.
The One Man Commission has
noticed that the customers frequenting such hotels are

more responsible and orderly in their behavior and that
the ambience in such establishments were also conducive
to such orderly conduct.
It is also worth noticing, as
rightly contended by the counsel appearing for the

petitioners that, the above aspect has received legislative
recognition also inasmuch as in Rule 13(3) of the Foreign
Liquor
Rules,
distinction
is
maintained
while
prescribing the distance from educational and religious

institutions.
Hotels with classification of four star and
above have to maintain only a distance of 50 meters.

There is nothing on record to indicate that, the above
aspects have received the attention of the Government

while formulating the Abkari Policy, 2014-15. As already
noticed above, with the present Abkari Policy, all other
bars in the state would be closed down leaving only the
limited number of higher category hotels in the field.
Though the Abkari Policy proclaims that it has been
issued considering the One Man Commission Report and
the report of the Secretary (Taxation), except for a
passing
reference,
no
consideration
of
the
recommendations of the Commission is available in the

policy.
It is no doubt true that, the Government is not
bound
by
the
Commission.
recommendations
of
the
One
Man
However, the Government should have at
least stated that it was rejecting the recommendations.

The Abkari Policy 2014-15 ignores the recommendations
of the One Man Commission altogether. Therefore, it has
to be held that there was absolutely no material before
the Government for the classification that has been
adopted,
of
classification
picking
and
out
above
hotels
for
the
having
five
purpose
of
star
the
preferential treatment of granting FL-3 licences or bar

licences. The said action therefore is held to be arbitrary
and violative of Article 14 of the Constitution.
In the result, it is ordered as follows:1. The challenge against the Abkari Policy 20142015, by the hotels classified as two star, three
star and by hotels having no classification fails.
The writ petitions filed by them are therefore
dismissed.
2. The Abkari Policy 2014-15, to the extent, it
excludes hotels having Four Star and Heritage
category hotels from the eligibility to be granted
FL-3 licences under the Foreign Liquor Rules is
set aside, being arbitrary and violative of Article
14
of
the
Constitution.
The
consequential
amendments to the Foreign Liquor Rules as well

as the proceedings of the Excise Commissioner
cancelling the licences of such hotels are also set
aside. The writ petitions filed by them are allowed
as above.
3. The Abkari Policy 2014-2015 is sustained in all

other respects, except to the extent indicated
above.
Sd/K.SURENDRA MOHAN
JUDGE
kkj

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

WP(C).No. 22195 of 2014 (Y)

A TRUE COPY OF THE GO(MS) NO. 56/2014/TD DT. 02.4.14.

A TRUE COPY OF THE FL3 LICENSE RENEWED IN FAVOUR OF THE 1ST

A TRUE COPY OF IA 9160/14 FILED BY THE GOVERNMENT IN WPC NO.

A TRUE COPY OF THE COMMON ORDER DT. 14.8.14 PASSED BY THIS

A TRUE COPY OF FOREIGN LIQUOR (THIRD AMENDMENT) RULES 2014

As per the new Abkari

Policy, only hotels having Five Star classification and

-:2:W.P.(C) Nos.22195/2014 & Conn. cases

granted bar licences, all existing bar attached hotels have

amendments to the Foreign Liquor Rules and the notices

The petitioners in these writ petitions are

mostly hotels having three star classification. Three writ

petitioners in W.P.(C).No.22203 of 2014, 22993 of 2014,

-:3:W.P.(C) Nos.22195/2014 & Conn. cases

W.P.(C) No.24128 of 2014 is filed by the

Kerala Bar Hotels Association and two others.

remaining writ petitions are filed by persons conducting

constitutionality of the Abkari Policy, alleging violation of

The Abkari Act, 1077 is a pre-constitutional

enactment, initially passed by His Highness the Maharaja

-:4:W.P.(C) Nos.22195/2014 & Conn. cases

of the erstwhile State of Cochin on the 5th of August 1902

Apart from the Abkari Act of 1077, there is

another enactment by name, the Prohibition Act, 1950,

Though the Abkari

Act,1077 is stated to have been repealed with effect from

-:5:W.P.(C) Nos.22195/2014 & Conn. cases

notification under Section 2 of the said Act.

Government has accordingly issued a notification dated

provisions of the said Act except Sections 1,7 and 11

The provisions that are not

suspended, deal with punishments for offences. Licences

Earlier licences to conduct retail sale in liquor

(sale in bottles) were being auctioned by the State to

The system was

subsequently changed and the privilege of conducting

Corporation Limited (hereinafter referred to as 'the

-:6:W.P.(C) Nos.22195/2014 & Conn. cases

Corporations referred to above sell the liquor in bottles

persons who have been issued with a Foreign Liquor

establishments conducting liquor business like the Beer

Company), recognized Clubs with licences to serve liqour

-:7:W.P.(C) Nos.22195/2014 & Conn. cases

and Marine Officers Clubs etc.

The consumption of liquor within the state has

been on a phenomenal increase, over the past many

Government have been initiating measures for regulating

Initially, a Distance Rule was introduced

prohibiting the location of Foreign Liquor retail shops as

Since people belonging to the lower strata of

the society including the labour class were found to be

The duty of excise on IMFL was

steeply hiked. However, the following years showed only

has been continuing without any change, showing a

-:8:W.P.(C) Nos.22195/2014 & Conn. cases

efforts undertaken by the State to

reduce the consumption has failed to achieve any

reason is identified and measures to remedy the same,

availability of any article in demand would only induce

-:9:W.P.(C) Nos.22195/2014 & Conn. cases

the place of liquor.

Statistics show that the measures