PETITIONER:
STATE OF MADHYA PRADESH & ORS.
Vs.
RESPONDENT:
NANDLAL JAISWAL & ORS.
DATE OF JUDGMENT24/10/1986
BENCH:
BHAGWATI, P.N. (CJ)
BENCH:
BHAGWATI, P.N. (CJ)
KHALID, V. (J)
CITATION:
1987 AIR 251 1987 SCR (1) 1
1986 SCC (4) 566 JT 1986 701
1986 SCALE (2)638
CITATOR INFO :
RF 1988 SC 268 (30)
RF 1990 SC 772 (26,32)
E&R 1990 SC1737 (6)
RF 1991 SC1420 (52)
D 1991 SC1676 (72)
R 1991 SC1947 (13)
RF 1992 SC 188 (8)
RF 1992 SC 488 (2,4)
ACT:
Madhya Pradesh Excise Act, 1915, sections 13, 14 and
62(2)(h) read with Rule XXII of the Madhya Pradesh Excise
Rules and Rules III to V of Distillery Warehouse Rules,
Scope of--Disposal of licences of manufacture or sale of
intoxicants--Whether it was obligatory on the part of the
competent authority to adopt the "tender method" failing
which the "auction", failing which again by fixed licence
fee method and so on as prescribed in Rule XXII.
Licences--Grant of D-2 licences as per the policy deci-
sion of the Government of Madhya Pradesh--Whether the li-
cence granted create a monopoly in favour of the licencees.
Policy decision of the State to privitise the liquor
distilleries after careful consideration of all the facts
emanating from the application of the Madhya Pradesh Dis-
tilleries Association--Whether the High Court could bifur-
cate it into two and strike down one part of the policy as
bad.
Industries (Development and Regulation) Act, 1951,
Section 11 Whether non-obtaining a licence from the Central
Government disentitled the setting up distilleries--Such a
plea not taken in the High Court--Supreme Court will not
consider a new plea in an appeal under Article 136 of the
Constitution.
Constitution of India, 1950, Article 14--Applicability
of--Whether will apply to grant of liquor licences.
Laches in filing writ petition after the implementation
of the policy decision dated 30.12.84--Seven licences acted
upon and spent at least 1 to 5 crores and altered their
position--Whether a writ could be granted.
Practice and Procedure--Judgment writing-Objectionable
remarks should be avoided--If any, be expunged.
HEADNOTE:
Madhya Pradesh Excise Act, 1915 regulates the manufac-
ture, sale and possession of intoxicating liquor in the
State of Madhya Pradesh.
2
Section 14 deals with the establishment or licensing of
distilleries and warehouses. The State Government has, in
exercise of the power conferre under section 62, made sever-
al sets of Rules. Rule II of the Rules of General Applica-
tion made inter alia under sub-section 2(h) of section 62
lays down "five years" as the maximum period for which
wholesale licences for the manufacture supply and sale of
liquor could be granted Rule XXII provides for the manner in
which licences for the manufacture or sale of intoxicants
shall be disposed.
There were at all material times in the State of Madhya
Pradesh nine distilleries for the manufacture of spirit
which were established long hack by the State Government
under a licence issued by the Excise Commissioner. These
nine distilleries were located at Gwalior, Ujjain, Dhar
Badwaha, Chhatisgarh, Bhopal, Seoni, Nowgaon (owned by
private individuals always) and Ratlure (owned by the Gov-
ernment). So far as the first seven distilleries are con-
cerned, the land and buildings in which they were housed
belonged to the State Government and originally the plant
and machinery also belonged to the State Government but in
course of time successive holders of the D-2 licences in
respect of these distilleries replaced the plant and machin-
ery. The practice followed by the Excise Department in
regard to the working of these distilleries was to invite
tenders for the wholesale supply of country liquor from
these distilleries and the tenderers were requested to quote
their rates for the wholesale supply of country liquor to
the State Government. Normally the lowest tenders were
accepted but at times the State Government used to accept
even higher tenders taking various relevant factors into
account. The State of Madhya Pradesh was divided in several
areas and a particular area was attached to each distillery
for the wholesale supply of country liquor in that area. The
person whose tender was accepted for any particular distill-
ery was given a D-2 licence for working the distillery and
also a D-1 licence for wholesale supply of country liquor
manufactured in that distillery to retail vendors in the
area attached to the distillery. These licences in Forms D-1
and D-2 were ordinarily issued for a period of five years.
Respondent Nos. 5 to 11 in the writ petition of Nandial
Jaiswal were the holders of D-1 and D-2 licences in respect
of these distilleries for the period ending 31st March,
1986. There were two districts, however, which were not
attached to any distillery, namely, Jabalpur and Betul and
so far as these two districts were concerned, a licence in
Form D-1(s) to make wholesale supply of country liquor to
retail vendors in these two districts was being given and
for the period ending 31st March, 1986 it was issued in
favour of Sagar Aggarwal. The country liquor required by
Sagar Agarwal for supply to retail vendors in Jabalpur and
Betul Dis-
3
tricts was being obtained by him from the Ratlam Alcohol
Plant at the rate of Rs.1.80 per proof litre but, the supply
of country liquor from Ratlam Alcohol Plant was wholly
inadequate and Sagar Agarwal was constrained to purchase
country liquor from other sources at higher price in order
to fulfil his commitment under D-1 (s) licence.
Since the land and buildings in which the distilleries
were housed belonged to the State Government the holder of
D-2 licence in respect of any particular distillery had to
pay rent for the land and buildings to the State Government
at a rate agreed upon from time to time. So far as the plant
and machinery of the distillery was concerned, originally it
was installed by the State Government at its own cost but in
course of time it had to be replaced and such replacement
was allowed to be made by the holder of the D-2 licence for
the time being. It was however a condition of D-2 licence
that on the expiry of the period of licence, if fresh D-2
licence was not issued in favour of the existing licence
holder, he would be bound to transfer the plant and machin-
ery in favour of the new licence holder at a price to be
determined by a Valuation Committee. Therefore, during the
period of D-2 licence, the plant and machinery belonged to
the licence holder for the time being. The licence holder
was bound to manufacture country liquor in the distillery
for which he was given D-2 licence and on the strength of
D-2 licence supply country liquor so manufactured to retail
vendors in the area attached to the distillery at the rate
quoted in the tender and accepted by the State Government.
The bottling and sealing charges were also fixed by the
State Government from time to time and they were payable to
the licence holder by the retail vendors.
The total capacity of all the nine distilleries were
only 203 lakhs proof litres but even this capacity of pro-
duction was not realised and the actual production fell
short of this capacity. The result was short supply on many
occasions leading to loss of licence fee as well as excise
duty by the State Government.
The State Government in order to meet the requirement of
the consuming public had actually to purchase liquor from
other States as a higher price. Moreover, the consumption of
liquor was growing from year to year and it was estimated
that by the year 1991, the total consumption of country
liquor would be likely to be in the neighbourhood of 482.36
lakhs of proof litres and by the turn of the century it was
expected to be in the neighbourhood of 1696.80 lakhs proof
litres. The existing nine distilleries were inadequate to
meet this growing demand for country liquor. Further more
the buildings in which these distil-
4
leries were housed has become old and were in a state of
disrepair and it was not easy for the State Government to
maintain them in good condition without incurring heavy
expenditure every year. The plant and machinery were also
old and antiquated and it was necessary to instal new and
modern plant and machinery having increased capacity to
manufacture country liquor. Moreover, of seems that though
the time of construction, these distilleries were away from
the city or town, what had happened was that with the growth
of population and haphazard and unplanned urban development,
these distilleries had now come to be in the heart of the
city or own and they created health hazards and pollution
problems. There was a demand from all sections of the public
living in surrounding area to move the distilleries away in
order to avoid water and environmental pollution. It was in
these circumstances, when the mind of the State Government
was already exercised in respect of these matters that an
application was made by M.P. Distillers' Association in July
1983 for transferring these distilleries to private owner-
ship. The members of the M.P. Distillers' Association who
were old distillers holding D-2 licence in respect of these
distilleries offered to invest their own funds in the con-
struction of new buildings and installation of latest plant
and machinery with capacity to produce more country liquor
in conformity with the standards laid down by M.P. Eradica-
tion of Pollution Board for Removal of Polluted water by
constructing lagoons, etc., provided they were assured D-1
licence for the area attached to their respective distiller-
ies.
This application of M.P. Distilleries Association was
examined by the State Government at different levels, cabi-
net sub-committees, special committee headed by Shri Vijaya-
vargi, spot inspections. The Cabinet, sub committee invited
representatives of the M.P. Distilleries Association, heard
them before taking filial decision in the matter. Finance
department'S objections and suggestions were taken note of.
At the cabinet meeting held an 30th December 1984, the
policy decision was taken to privitise liquor distilleries.
Pursuant to the policy decision dated 30th December,
1984 a Letter of Intent dated 1st February 1985 was issued
by the State Government in favour of each of respondent Nos.
5 to 11 for grant of D-2 licence for the construction of a
distillery at a new site for the purpose of manufacturing
country liquor with effect from 1st April 1986 in lieu of
the existing distillery in respect of which such respondent
held D-2 and D- 1 licences for the period ending 31st March
1986. The Letter of Intent set out various conditions sub-
ject to which D-2 licence was to be granted in favour of
each of respondent Nos. 5 to 11 in W.P. No. 3718/85 before
5
the High Court. The licencee to whom the Letter of Intent
was issued was required under cl. 2 of the Letter of Intent
to construct the distillery on the land approved by the
State Government and the M.P. Pollution Board. It was pro-
vided by cl. 12 of the Letter of Intent that the licensee
shall make proper arrangements for treatment of effluents
discharge under a scheme duly approved by the M.P. Pollution
Board and that any direction issued by the excise Commission
in this regard shall be binding on the licensee. Clause 14
of the Letter of Intent stipulated that the licensee shall
he bound to complete construction of distillery and instal-
lation of plant and machinery as required by the Excise
Commissioner well before 1st April 1986.
The Letter of Intent was followed by a Deed of Agreement
dated 2nd February 1985 executed by and between the Governor
of Madhya Pradesh acting through the Excise Commissioner and
each of respondent Nos. 5 to 11. The Deed of Agreement
recited that the Letter of Intent has been issued by the
State Government for grant of D-2 licence for construction
of distillery for manufacture of spirit with effect from 1st
April 1986. CI. 1 of the Deed of Agreement provided that the
licensee shall he bound to take land on lease for a period
of 30 years from the State Government, but this clause is
not material because ultimately none of respondent Nos. 5 to
11 took land on lease from the State Government and each of
them purchased his own land, the site of course being ap-
proved by the State Government.
Pursuant to the Letter of Intent and the Deed of Agree-
ment each of respondent Nos. 5 to 11 selected with the
approval of the State Government the new site at which the
distillery should be located, purchased land at such new
site, started constructing buildings for housing the dis-
tillery and placed orders for purchase of plant and machin-
ery to be installed in the distillery.
This policy decision was challenged by Nandial Jaiswal
by filing W.P. No. 3718/85, by Sagar Agarwal by filing his
W.P. No. 335/86 and by a firm called M/s Doongaji & Co.
during the course of the arguments in the two writ peti-
tions. All the three writ petitions were disposed of by a
common judgment delivered by a Division Bench of the High,
Court consisting of Acting Chief Justice J.S. Verma and
Justice B.M. Lal. Both the learned Judges, by separate
judgments, substantially set aside the policy decision dated
30th December, 1984. Since the decision of the High Court
for all practical purposes sent against the respondents,
they preferred Civil Appeals No. 1622 to 1639 of 1986 before
the Supreme Court by special leave. M/s Doongaji & Co. and
Nand Lal
6
Jaiswal also, to the limited extent that they are not suc-
ceed, filed special leave petitions Nos.6206 and 7440 of
1986.
Allowing CA Nos. 1622 to 1639/86 and dismissing the
special leave petitions, the Court,
HELD: I. I On a plain reading of Rule XXII that a li-
cence for manufacture or sale of country liquor may be
disposed of in any one of four different modes, viz., ten-
der, auction fixed licence fee or such other manner as the
State Government may by general or special order direct.
These four different modes are alternative to one another
and anyone of them may be resorted to for the purpose of
disposing of a licence. It is not necessary that the mode of
disposal by tender must first be resorted to and if that
cannot be acted upon, then only the mode of disposal by
auction and falling that and not otherwise, the third mode
of disposal by fixed licence fee and only in the event of it
not being possible to adopt the first three modes of dispos-
al, the last mode namely, "such other manner as the State
Government may by general or special order direct" should be
adopted. This is plain and incontrovertible. [17B-D]
1.2 On a plain grammatical construction of Rule XXII, it
is obvious that the Collector or an Officer authorised by
him in that behalf can choose anyone of the four modes set
out in that Rule. There is nothing in the language of Rule
XXII to justify the interpretation that an earlier mode of
disposal set out in the Rule excludes a latter mode or that
-reasons must be specified where a latter mode is adopted in
preference to an earlier one. The language of Rule XXII in
fact militates against such construction. It is impossible
to subscribe to the proposition that it is only when an
earlier mode is not possible to be adopted for reasons to be
specified, that a latter one can be followed. The Collector
or an Officer authorised by him can adopt anyone of the four
modes of disposal of licence set out in Rule XXII, but, of
course, whichever mode be adopted, the equality clause of
the Constitution should not be violated in its application.
[17F-H]
1.3 It is also clear from Rules III, IV and V that there
are two purposes for which a licence in Form D-2 for con-
struction and working of a distillery may be granted. It may
be granted as an adjunct to the licence in Form D-1 under
Rule IV or it may be granted as an independent licence under
Rule V irrespective whether the grantee holds a licence
under Rule V irrespective whether the grantee holds a li-
cence in Form D-1 or not. There are also two types of li-
cences for wholesale
7
supply of country liquor to retail vendors, namely, licence
in Form D-1 and licence in Form D-1 (s). The licence in Form
D-1 in clause 5 clearly contemplated that the holder of such
licence must also have a licence in Form D-2. No one can
have a licence in Form D-2. He must have a distillery in
which he distils country spirit in order that he should be
able to make wholesale supply of country liquor to retail
vendors. If for any reason he is unable to obtain licence in
Form D-2 for working a distiller, no licence in Form D-1 can
be given to him and if he has such licence, it would become
ineffective. It is for this reason that when a person is
granted a licence in Form D-1 by the Excise Commission under
Rule-III, he is also simultaneously granted a licence in
Form D-2 under Rule IV and the period of both the licences
is co-terminus. But, though a person cannot be granted a
licence in Form D-1 unless he also obtains licence in Form
D-2 the converse does not hold true. A licence in Form D-2
can be granted to a person under Rule V even though he does
not hold a licence in Form D-1. Where a person is granted a
licence in Form D-2 for working a distillery under Rule V,
without having a licence in Form D-1 for wholesale supply of
country liquor to retail vendors, he cannot make wholesale
supply of country liquor manufactured by him to retail
vendors but he can supply such country liquor to a person
holding licence in Form D-1(s) or he can manufacture recti-
fied spirit, denatured spirit or foreign liquor as contem-
plated in condition 3 of the licence in Form D-2. It is not
necessary that a person a licence in Form D-2 must also
simultaneously have a.licence in Form D-1. [18A-F]
2. It is undoubtedly true that the recommendations of
the Cabinet Sub-Committee which were accepted by the Cabinet
in the policy decision dated 30th December 1984 provided
that in the beginning, D-2 licence shall be granted for a
period of 5 years and thereafter there shall be a provision
for its renewal and for this purpose, necessary amendment in
the M.P. Excise Act, 1915 or the Rules made under the Act
shall be made. But, in fact no such amendment in the Act or
the Rules was made by the State Government and when the
Letter of Intent was issued and the Deed of Agreement was
executed and even thereafter, the provisions of the Act
remained unamended and Rule II of the Rules of General
Application also continued to stand in its unamended form.
It is obvious that without an amendment of Rule II of the
Rules of General Application the maximum period for which
D-2 licence could be granted to respondent Nos. 5-11 was
only 5 years and there could be no provision for automatic
renewal thereafter from year to year. It is therefore clear
that whatever might have been the original intention. it was
not effectuated by carrying out necessary amendment in the
provi-
8
sions of the Act or in Rule II of the Rules of General
Application and the ultimate decision of the State Govern-
ment was to grant D-2 licence for a limited period of 5
years. The provision of renewal every year was to operate
within the span of 5 years itself and every year, the li-
cence would be renewable on payment of licence fee of
Rs.5,000 and due fulfilment of the conditions of the licence
and the provisions of the Act and the Rules. It is not
possible to spell out from clause that the licence was to be
granted for an initial period of 5 years and thereafter it
was liable to be renewed from year to year. The so called
concession made on behalf of the State Government and re-
spondent Nos. 5 to 11 was, therefore, really not a conces-
sion at all but it was a stand taken in recognition of the
correct position in regard to the grant of D-2 licence. The
High Court, was in the circumstances, right in holding the
grant of D-2 licence to respondent Nos. 5-11 was for a
maximum period of 5 years and it did not operate to create
monopoly in their favour for an indefinite period of time.
[37A-H]
3.1 The High Court was not at all justified in splitting
the policy decision dated 30th December 1984 into two parts
and in striking down the second part, while sustaining the
first. The policy decision dated 30th December 1984 was a
single integrated decision arrived at by the State Govern-
ment taking a holistic view of all the aspects involved in
the decision and it is difficult to appreciate how the High
Court could sustaining one part of the policy and strike
down the other. Either the policy as a whole could be sus-
tained or as a whole, it could be declared to be invalid,
but certainly one part could not be sustained, whatever be
the ground and the other pronounced invalid. That would be
making a new policy for the State Government which it was
not competent for the High Court to do. Once the High Court
came to the conclusion that on account of delay or laches in
the filing of the writ petitions or the creation of third
party rights in the meanwhile, the Court would not interfere
with one part of the policy decision, the court could not
interfere with the second part of the policy decision as
well. The consequence of sustaining one part of the policy
decision and striking down the other would not only be to
create a new policy for the State Government but it would
also cause considerable hardship and injustice to the licen-
sees and also result in public mischief and inconvenience
detrimental to the interest of the State. Since the peti-
tioners were guilty of enormous delay in filing the writ
petitions and in the intervening period, the rights of
respondents Nos. 5-11 were created in that they spent con-
siderable amount of time, energy and resources and incurred
huge expenditure in setting up the new distilleries, sus-
taining one part of the policy decision while striking down
the other would amount to
9
creating a new policy for the State Government and would
also entail considerable hardship and inconvenience to
respondent Nos. 5-11 and would also be detrimental to the
interest of the State. [48H, 45F-46D]
4. The policy decision dated 30th December 1984
can be given effect to without any new Rules being made by
the State Government. There is nothing in the policy deci-
sion dated 30th December 1984 which is contrary to time
Rules made under the Act. It is true that D-2 licence in
its existing form does not contemplate construction of a
distillery and that the Rules do not seem to have prescribed
the form for a licence for constructing a distillery. But,
merely because the form of a licence for constructing a
distillery is not prescribed by the Rules, it does not mean
that such licence cannot be granted by the Excise Authoriti
es. If the form of a licence is prescribed, then, of course,
such form has to be followed, but if no form is prescribed,
the only consequence is that the licence to be granted by
the Excise Authorities need not conform to any particu-
lar form. Section 14 (c) of the Act clearly provides that
the Excise Commissioner may license the construction and
working of a distillery and there was, therefore nothing
contrary to the Act or the Rules in the Excise Commissioner
issuing Letter of Intent in favour of each of res
pondent Nos. 5-11 granting licence for construction of a new
distillery. Rule XXII permits any one of four modes of
disposal of licence to be adopted by the Excise Authorities
and it does not prescribe that the fourth mode denoted by
the words "such other manner as the State Government may by
general or special order direct" can be resorted to
only if the first three modes fail. Here in the present
case, the policy decision dated 30th December 1984 provided
that respondent Nos. 5-11 who were the existing contractors,
should be granted licence to construct new distilleries and
D-1 and D-2 licences should be given to them for a period
of five years. for manufacturing liquor in such new distil
leries and making wholesale supply of it to retail vendors
in the areas attached to those distilleries. This manner of
disposal of licences was clearly covered by the fourth mode
of disposal set out in Rule XXII. [50B-F]
State of Orissa & Ors. v. Harinarayan Jaiswal & Ors.,
[1972] 3 SCR 784; L.G. Chaudhari v. Secretary, L.S.G. Deptt.
Govt. of Bihar & Ors., AIR 1980 SC 383, referred to.
5. Supreme Court cannot permit any new plea as in this
case, that non-obtaining a licence under the Industries
(Development and Regulation) Act, disentitles setting up
distilleries. The foundation for this contention should have
been laid in the writ petitions and the necessary facts
should have been pleaded in support of it. No such plea
having
10
been raised and no such facts having been pleades in the
writ petitions, the court cannot allow this contention to he
raised. Moreover, it is clear from s. 11 read with the
definitions of "factory" and "industrial undertaking" con-
tained in sub-sections (c) and (d) of s.3 of this Act that
licence from the Central Government for setting up new
distilleries would be necessary only if 50 or more workers
were petitions. There is nothing to show that 30 or more
workers were going to he employed in the new distilleries.
In fact old distilleries were also working without any
licence from the Central Government, presumably because less
than 50 workers were employed in such distilleries. [52E-G]
6. It is well settled that the power of the High Court
to issue an appropriate writ under Art. 226 of the Constitu-
tion is discretionary and the High Court in the exercise of
its discretion does not ordinarily assist the tardy and the
indolent or the acquiescent and the lethargic. If there is
inordinate delay on the part of the petitioner in filing a
writ petition and such delay is not satisfactory explained,
the High Court may decline to intervene and grant relief in
the exercise of its writ jurisdiction. The evolution of this
rule of laches or delay is premised upon a number of fac-
tors. The High Court does not ordinarily permit a belated
resort to the extra ordinary remedy under the writ jurisdic-
tion became it is likely to cause confusion and public
inconvenience and brings in its train new injustices. The
lights of third parties my intervene and if the writ juris-
diction is exercised on a writ petition filed after unrea-
sonable delay, it may have the effect of inflicting not only
hardship and inconvenience but also injustice on third
parties. When the writ jurisdiction of the High Court is
invoked, unexplained delay coupled with the creation of
third party rights in the meanwhile is an important factor
which always weighs with the High Court in deciding whether
or not to exercise such jurisdiction. However, this rule of
laches or delay is not a rigid rule which can be cast in a
straight jacket formula, for there may he cases where de-
spite delay and creation of third party rights the High
Court may still in the exercise of its discretion interfere
and grant relief to the petitioner. But such cases where the
demand of justice is so compelling that the High Court would
he inclined to interfere inspire of delay or creation of
third party rights would by their very nature he few and far
between. Ultimately, it would he a matter within the discre-
tion of the Court. Ex-hypothese every discretion must he
exercised fairly and justly so as to promote justice and not
to defeat it. [41H-42C, F-G]
Here, the petitioners were guilty of enormous delay in
filing the writ petitions inasmuch as during the intervening
period the rights of third parties had intervened and re-
spondent Nos. 5-11 acting on the
11
basis of the policy decision dated 30th December, 1984, had
incurred to expenditure towards setting up the distilleries.
If the policy decision dated 30th December 1984 were now be
set aside at the instance of the petitioners it would work
immense hardship on the seven licensees and cause grave
injustice to them, since enormous amount of time, money and
energy spent by them in setting up the distilleries would be
totally wasted. [41F-G, 45B]
Ramanna Daygram Shetty v. International Airport Authori-
ty of India & Ors., [1979] 3 SCR 1014; Ashok Kumar Mishra &
Anr. v. Collector Raipur & Ors., [1980] 1 SCR 491, referred
to.
7. There is no fundamental right in a citizen to carry
on trade or business in liquor. The State under its regula-
tory power has the power to prohibit absolutely every form
of activity in relation to intoxicants-its manufacture,
storage, export, import, sale and possession. No one can
claim as against the State the right to carry on trade or
business in liquor and the State cannot be compelled to part
with its exclusive right or privilege of manufacturing and
selling liquor. But when the State decided to grant such
right or privilege to others the State cannot escape the
rigour of Art. 14. It cannot set arbitrarily or at its sweet
will. It must comply with the equality clause while granting
the exclusive right or privilege of manufacturing or selling
liquor. It is, therefore, not possible to uphold the conten-
tion of the State Government and respondent Nos. 5-11 that
Art. 14 can have not application in a case where the licence
to manufacture or sell liquor is being granted by the State
Government. The State cannot ride roughshod over the re-
quirement of that Article. [53G-54B]
7.2 But while considering the applicability of Art. 14
in such a case, the court must bear in mind, that having
regard to the nature of the trade-or business the court
would be slow to interfere with the policy laid down by the
State Government for grant of licences for manufacture and
sale of liquor. The Court would in view of the inherently
pernicious nature of the commodity allow a large measure of
latitude to the State Government in determining its policy
of regulating manufacture and trade in liquor. Moreover, the
grant of licences for manufacture and sale of liquor would
essentially be a matter of economic policy where the court
would hesitate to intervene and strike down that the State
Government has done, unless it appears to be plaintly arbi-
trary, irrational or mala fide. In complex economic matters
every decision is necessarily empiric and it is based on
experimentation or what one may call "trial and error meth-
od" and therefore, .its validity
12
cannot be vested on any rigid a "priori" considerations or
on the application of any straight jacket formula. The Court
must while adjudging the constitutional validity of an
executive decision relating to economic matters grant a
certain measure of freedom or "play in the joints" to the
executive. [54C-55C]
7.3 It is clear from c1.2 of the policy decision that
the State Government envisaged the possibility of other
liquor contractors making similar applications for licences
to construct new distilleries and to manufacture and supply
liquor from such new distilleries and hence provided that if
any such applications are made, they should be disposed of
by the Excise Department on merits on the basis of the
principles "recommended by the sub-committee", that is on
the basis of the same principles on which the licences were
decided to be granted to the existing contractors. If any
liquor contractor makes an application for a licence to
construct a new distillery on the same terms on which li-
cences are granted to the existing contractor his applica-
tion would have to be considered on merits by the Excise
Authorities and the Excise Authorities may, if they find the
proposal suitable, grant to such liquor contractor licence
to construct a new distillery along with D-2 licence on the
same basis. The Excise Authorities may, in such event,
either (i) direct such liquor contractor to manufacture
ractified spirit, denatured spirit or foreign liquor in the
new distillery for the remaining period of the D- 1 and D-2
licences of the existing contractors and thereafter consider
him along with other liquor contractors for grant of D-1 and
D-2 licences in respect of the new distillery or (ii) reduce
and/or alter the area of supply of any of the existing
contractors and grant D- 1 license to such liquor contractor
in respect of the carved out area. If the Cabinet decision
dated 30th December 1984 while granting licences to the
existing contractors leave it open to other liquor contracts
to.come in and apply for similar licences, it cannot be said
that Art. 14 is violated. [56C-G]
7.4 When the State Government is granting licence for
putting up a new industry, it is not at all necessary that
it should advertise and invite offers for putting up such
industry. The State Government is entitled to negotiate with
those who have come up with an offer to set up such indus-
try. [60C]
Har Shankar & Ors. etc. v. Deputy Excise & Taxation
Commissioner & Ors., [1975] 3 SCR 254; R.K. Garg etc. v.
Union of India & Ors. etc. [1982] 1 SCR 1947, referred to.
Kasturi Lal Lakshmi Reddv v. State of J & K, [1980] 3
SCR 1338, followed.
13
Metropolis Theatre Company v. State of Chicago, 57
Lawyers Edition 730, quoted with approval.
8. Judges should not use strong and carping language
while criticising the conduct of parties or their witnesses.
They must act with sobriety, moderation and restraint. They
must have the humility to recognise that they are not infal-
lible and any harsh and disparaging strictures passed by
them against any party may be mistaken and unjustified and
if so, they may do considerable harm and mischief and result
in injustice. Here, in the present case, the observations
made and strictures passed by B.M. Lal J. were totally
unjustified and unwarranted and they ought not to have been
made. [66G-H]
In the instant case, the words used in paras 1,9, 17 to
19 and 34 of Lal J.'s judgment are undoubtedly strong and
highly disparaging remarks attributing mala fides, corrup-
tion and underheard dealing of the State Government which
are not justified by the record. [62B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1622-
39 of 1986
From the Judgment and Order dated 28.3.86 of the High
Court of M.R. at Jabalpur in Misc. Petition Nos. 3718/85,335
& 785 of 1986.
K. Parasaran, Attorney General, A.M. Mathur and S.L.
Saxena, Adv. Genl/Dy. Adv. Gent. of the State of M.P., G.L.
Sanghi, F.S. Nariman, N.A. Modi, V.M. Tarkunde, A.B. Divan,
Dr. L.M.Singhvi, Soli J. Sorabji, L.N. Sinha, S.N. Kacker,
Narayan Nittar, G.S. Narayan, Pramod Swarup, D.P. Sri-
vastava, V. Ravindra Srivastava, S.L. Athley, R.F. Nanman,
A. Subba Rao, V.K. Munshi, I.B. Dadachanji, D.N. Misra, Shri
Narain, S. Salve, L.S. Diwani, Mrs. A.K. Verma, K.K- Sinha,
A. Mishra, A. Sapre, R.S. Singh and S.K. Singh for the
appearing parties.
C.L. Sahu and Bharat Brewris for the Intervenor.
The judgment of the Court was delivered by
BHAGWATI, C J: These appeals by special leave are
directed against a judgment of the Madhya Pradesh High Court
in what has come to be known as, M.P. Liquor case, brought
before the High Court by way of three writ petitions under
article 226 of the Constitution. Writ Petition No.3718 of
1985 was filed by one Nandial Jaiswal
14
on 28the November 1985 while writ petition No.335 of 1986-
was filed by one Sagar Agarwal on 24th-January 1986. Both
these writ petitions were directed against the policy deci-
sion of the State of Madhya Pradesh contained in the Cabinet
decision dated 30th December, 1984. The third writ petition,
viz., writ petition No. 785 of 1986 was also filed challeng-
ing the same policy decision of the State of Madhya Pradesh
by a firm called M/s Doongaji & Co. but it was filed much
later at a time when arguments were actually going on in
court in the first two writ petitions. The respondents in
the first two writ petitions were not aware at that time
that it was a writ petition which was filed by M/s Doongaji
& Co. They thought that it was merely an intervention appli-
cation since no notice was served upon them and they had
also no opportunity of filing an affidavit in reply to that
writ petition. All these three writ petitions were disposed
of by a common judgment delivered by a Division Bench of the
High Court consisting of Acting Chief Justice J.S. Verma and
Justice B.M. Lal. Both the learned Judges, by separate
judgments, substantially set aside the policy decision dated
30th December, 1984. Since the decision of the High Court
for all practical purposes went against the respondents,
they preferred Civil Appeals Nos. 1622 to 1639 of 1986
before this Court by special leave. M/s Doongaji & Co. and
Nand Lal Jaiswal also, to the limited extent that they did
not succeed, filed special leave petitions Nos. 6206 and
7440 of 1986. That is how the present appeals and special
leave petitions have come up before us. The facts giving
rise to these appeals and special leave petitions are mate-
rial and need to be stated in some detail.
But, before we advert to the facts, it is necessary to
set out the relevant provisions of Madhya Pradesh Excise
Act, 1915 which is the statute regulating manufacture, sale
and possession of intoxicating’ liquor in the State of
Madhya Pradesh. Originally, this Act was enacted for the
former Province of C.P. and Berar but subsequently, after
the coming into force of the Constitution, it was extended
to the State of Madhya Pradesh by M.P. Extension of Laws
Act, 1958 and it was rechristened as M.P. Excise Act 1915.
Section 2(13) of the Act defines ‘liquor’ to mean ‘intoxi-
cating liquor’ and to include “spirits or wine, taft, beer,
all liquid consisting of or containing alcohol, and any
substance which the State Government may, by notification,
declare to be liquor for the purpose” of the Act. The term
“manufacture” is defined in Section 2(14) to include “every
process, whether natural or artificial, by which any intoxi-
cant is produced or prepared and also redistillation and
every process for the rectification, flavouring, blending or
coloring of liquor”. There is also the definition of ‘spi-
rit’ in section
15
2(17) which provides that “spirit” means any liquor contain-
ing alcohol obtained by distillation whether it is denatured
or not. Chapter IV of the Act is headed ‘Manufacture, Pos-
session and Sale’ and that is the chapter with which we the
concerned in the present appeals. Section 13 provides, inter
alia, that no distillery or brewery shall be constructed or
worked and no person shall use, keep or have in his posses-
sion any material, still utensil, implement or apparatus
whatsoever for the purpose of manufacturing any intoxicant
other than taft, except under the authority and subject to
the terms and conditions of a licence granted in that be-
half. It is also obligatory under this section to have a
licence for manufacture of intoxicant and for bottling
liquor for sale and no intoxicant can be manufactured and no
liquor can be bottled for sale without such licence. Section
14 is a material section and it may, therefore, be repro-
duced in extenso:
14. Establishment or licensing of distilleries
and warehouses
(a) establish a distillery in which spirit may
be manufactured under a licence granted under
section 13 on such conditions as the State
Government may impose;
(b) discontinue any such distillery;
(c) licence, on such conditions as the State
Government may impose, the construction and
working of a distillery or brewery;
(d) establish or licence a warehouse, wherein
any intoxicant may be deposited and kept
without payment of duty, but subject to pay-
ment of such fees as the State Government may
direct; and
(e) discontinue any such warehouse
We may then refer to section 17 which provides
inter alia that no intoxicant shall be sold
except under the authority and subject to the
terms and conditions of a licence granted in
that behalf. The State Government obviously
has the monopoly in regard to manufacture,
possession and sale of liquor as held in
several decisions of this Court. Section 18
recognises the power of the State Government
to “lease to any person, on such conditions
and for such period as it may think fit the
right–(a) of manufacturing or of supplying by
wholesale, or of both, or (b) of selling by
wholesale or by retail, or (c) of manufactur-
ing or of supplying by wholesale, or of both,
and selling by retail, any
16
liquor or intoxicating drug within any speci-
fied area.” There are no other sections in the
Act material for our purpose until we come to
section 62 which confers on the State Govern-
ment the power to make Rules for the purpose
of carrying out the provisions of the Act.
Subsection 2(h) of section 62 provides that
the State Government may make Rules prescrib-
ing the authority by, the form in which, and
the terms and conditions on and subject to
which, any licence, permit or pass shall be
granted and by such rules, among other mat-
ters, fix the period for which any licence,
permit or pass shall continue in force.
The State Government has, in exercise of
the power conferred under section 62, made
several sets of Rules. Rule II of the Rules of
General Application made inter aria under
sub-section 2(h) of section 62, lays down the
period of licence and clause (2) of this Rule
provides: “Wholesale licences for the manufac-
ture, supply and sale of liquor may be granted
for any number of years not exceeding five, as
the State Government may in each case decide.”
Rule XXII also framed under sub-section 2(h)
of section 62 provides for the manner in which
licences shall be granted and it reads as
follows:
“XXII. Disposal of licences– (1) Licence for
the manufacture or sale of intoxicants shall
be disposed of by tender, auction, fixed
licence fee or in such other manner as the
State Government may, by general or special
order, direct.
Except where otherwise prescribed,
licence shall be granted by the Collector or
by an Officer authorised by him in that be-
half.”
Rules III to V of the Distillery and Warehouse Rules also
made inter alia under sub-section 2(h) of section 62 deal
with the subject of grant of licence and provide, in the
following terms, for different kinds of licences which may
be issued, viz., licences in Forms D-1, D-1(s) and D-2:
“III. Subject to the sanction of the State
Government, the Excise Commissioner may grant
a licence in Form D-1 and Form D-1(s) for the
wholesale supply of country spirit to retail
vendors.
IV. The Collector may issue, on payment of a
fee of Rs. 1000 a licence in Form D-2 for the
construction and working of a distillery to
any person to whom a wholesale supply licence
has been issued.
17
V. Subject to sanction of the State Government
the Excise Commissioner may issue a licence in
Form D-2 for the construction and working of a
distillery on payment of a fee of Rs. 1000.”
It is clear on a plain reading of Rule XXII that a
licence for manufacture or sale of country liquor may be
disposed of in any one of four different modes, viz., ten-
der, auction, fixed licence fee or such other manner as the
State Government may by general or special order direct.
These four different modes are alternative to one another
and any one of them may be resorted to for the purpose of
disposing of a licence. It is not necessary that the mode of
disposal by tender must first be resorted to and if that
cannot be acted upon, then only the mode of disposal by
auction and failing that and not otherwise, the third mode
of disposal by fixed licence fee and only in the event of it
not being possible to adopt the first three modes of dispos-
al, the last mode, namely, ‘such other manner as the State
Government may by general or special order direct’. This
would seem to be plain and incontrovertible but Mr. Justice
B.M. Lal has rather curiously in his judgment held that
these four modes of disposal are inter-related and “failing
in one of the clauses, the next is to be acted upon and for
applying the fourth clause, it is incumbent for the State to
specify the manner by general or special order and this also
includes “specifying how and why the other three clauses are
not possible to be acted upon which compels to take resort
to the fourth clause”. This view taken by Mr. Justice B.M.
Lal in regard to the interpretation of Rule XXII is obvious-
ly unsustainable. It is indeed surprising how such a view
could possibly be taken. On a plain grammatical construction
of Rule XXII it is obvious that the Collector or an Officer
authorised by him in that behalf can choose any one of the
four modes set out in that Rule. There is nothing in the
language of Rule XXII to justify the interpretation that an
earlier mode of disposal set out in the Rule excludes a
latter mode or that reasons must be specified where a latter
mode is adopted in preference to an earlier one. The lan-
guage of Rule XXII in fact militates against such construc-
tion. It is impossible to subscribe to the proposition that
it is only when an earlier mode is not possible to be adopt-
ed for reasons to be specified, that a latter one can be
followed. The Collector or an Officer authorised by him can
adopt any one of the four modes of disposal of licence set
out in Rule XXII, but, of course, whichever mode be adopted,
the equality clause of the Constitution should not be vio-
lated in its application.
18
It is also clear from Rules III, IV and V which we have
set out above, that there are two purposes for which a
licence in Form D-2 for construction and working of a dis-
tillery may be granted. It may be granted as an adjunct to
the licence in Form D-1 under Rule IV or it may be granted
as an independent licence under Rule V irrespective whether
the grantee holds a licence in Form D- 1 or not. There are
also two types of licences for wholesale supply of country
liquor to retail vendors, namely, licence in Form D-1 and
licence in Form D-1(s). The licence in Form D-1 in clause 5
clearly contemplates that the holder of such licence must
also have a licence in Form D-2. No one can have a licence
in Form D-1 unless he has simultaneously a licence in Form
D-2. He must have a distillery in which he distils country
spirit in order that he should be able to make wholesale
supply of country liquor to retail vendors. If for any
reason he is unable to obtain licence in Form D-2 for work-
ing a distillery, no licence in Form D-1 can be given to him
and if he has such licence, it would become ineffective. It
is for this reason that when a person is granted a licence
in Form D-1 by the Excise Commissioner under Rule III, he is
also simultaneously granted a licence in Form D-2 under Rule
IV and the period of both the licences is co-terminus. But,
though a person cannot be granted a licence in Form D-1
unless he also obtains licence in Form D-2, the converse
does not hold true. A licence in Form D-2 can be granted to
a person under Rule V even though he does not hold a licence
in Form D-1. Where a person is granted a licence in Form D-2
for working a distillery under Rule V, without having a
licence in Form D-1 for wholesale supply of country liquor
to retail vendors, he cannot make wholesale supply of coun-
try liquor manufactured by him to retail vendon but he can
supply such country liquor to a person holding licence in
Form D-1(s) or he can manufacture ractified spirit, dena-
tured spirit or foreign liquor as contemplated in condition
3 of the licence in Form D-2. It is not necessary that a
person holding a licence in Form D-2 must also simultaneous-
ly have a licence in Form D- 1.
It is in the context of these provisions of the Act and
the Rules that we must consider the facts of this case.
There were at all material times in the State of Madhya
Pradesh nine distilleries for the manufacture of spirit,
which were established long back by the State Government
under a licence issued by the Excise Commissioner. The names
and other particulars of these distilleries are set out in
the following table:-
19
Name of Production Production Distillery capacity in 81-82 82-83 proof litres 1. Gwalior 15 lacs -- 9 lacs 2. Ujjain 13 lacs 10 lacs 10 lacs 3. Dhar 15 lacs 9 lacs 12 lacs 4. Badwaha 20 lacs 12 lacs 14 lacs 5. Chhatisgarh 30 lacs 29 lacs 25 lacs 6. Bhopal 12 lacs 9 lacs 11 lacs 7. Seoni 20 lacs 18 lacs 19 lacs 8. Nowgaon (owned 8 lacs 3 lacs 4 lacs by private individual) Total: 133 lacs 90 lacs 104 lacs 9. Ratlam Alcohol 70 lacs 39 lacs 67 lacs Plant (owned by Govt. Total: 203 lacs 129 lacs 17 1 lacs
We are concerned in these appeals with only the first seven
distilleries since the Nowgaon Distillery has always been
owned and worked by a private firm and the Ratlam Alcohol
Plant is owned by the State Government and is managed by the
M.P. State Industries Corporation and the impugned policy
decision dated 30th December, 1984 does not concern these
last two distilleries. So far as the first seven distiller-
ies are concerned, and hereafter whenever we refer to dis-
tilleries we shall be referring only to these seven distill-
eries, the land and-buildings in which they were housed
belonged to the State Government and originally the plant
and machinery also belonged to the State Government but in
course of time successive holders of the D-2 licences in
respect of these distilleries replaced the plant and machin-
ery. The practice followed by the Excise Department in
regard to the working of these distilleries was to invite
tenders for the wholesale supply of country liquor from
these distilleries and the tenderers were requested to quote
their rates for the wholesale supply of country liquor to
the State Government. Normally the lowest tenders were
accepted but at times the State Government used to accept
even higher tenders taking various relevant factors into
account. The State of Madhya Pradesh was divided in several
areas and a particular area was attached to each
20
distillery for the wholesale supply of country liquor in
that area. The person whose tender was accepted for any
particular distillery was given a D-2 licence for working
the distillery and also a D-1 licence for wholesale supply
of country liquor manufactured in that distillery to retail
vendors in the area attached to the distillery. These li-
cences in Forms D-1 and D-2 were ordinarily issued for a
period of five years. Respondent Nos.5 to 11 in the writ
petition of Nandlal Jaiswal were the holders of D-1 and D-2
licences in respect of these distilleries for the period
ending 31st March, 1986. There were two districts, however,
which were not attached to any distillery, namely, Jabalpur
and Betul and so far as these two districts were concerned,
a licence in Form D-1(s) to make wholesale supply of country
liquor to retail vendors in these two districts was being
given and for the period ending 31st March, 1986 it was
issued in favour of Sagar Aggarwal. The country liquor
required by Sagar Agarwal for supply to retail vendors in
Jabalpur and Betul Districts was being obtained by him from
the Ratlam Alcohol plant at the rate of Rs. 1.80 per proof
litre but, as will be presently seen, the supply of country
liquor from Ratlam Alcohol Plant was wholly inadequate and
Sagar Agarwal was constrained to purchase country liquor
from other sources at higher price in order to fulfil his
commitment under D-1(S) licence.
Since the land and buildings in which the distilleries
were housed belonged to the State Government, the holder of
D-2 licence in respect of any particular distillery had to
pay rent for the land and buildings to the State Government
at a rate agreed upon from time to time. So far as the plant
and machinery of the distillery was concerned, originally it
was installed by the State Government at its own cost but in
course of time it had to be replaced and such replacement
was allowed to be made by the holder of the D-2 licence for
the time being. It was however a condition of D-2 licence
that on the expiry of the period of licence, if fresh D-2
licence was not issued in favour of the existing licence
holder, he would be bound to transfer the plant and machin-
ery in favour of the new licence, holder at a price to be
determined by a Valuation Committee. Therefore, during the
period of D-2 licence, the plant and machinery belonged to
the licence holder for the time being. The licence holder
was bound to manufacture country liquor in the distillery
for which he was given D-2 licence and on the strength of
D-2 licence supply country liquor so manufactured to retail
vendors in the area attached to the distillery at the rate
quoted in the tender and accepted by the State Government.
The bottling and sealing charges were also fixed by the
State Government from time to time and they were payable to
the licence holder by the retail vendors. It may be
21
pointed out that at the material time the bottling and
sealing charges were fixed at 80 paise per bottle which came
to Rs.3.40 per proof litre.
Now, the total capacity of all the 9 distilleries in-
cluding Nowgaon Distillery and Ratlam Alcohol Plant was only
203 lacs proof litres but even this capacity of production
was not realised and the actual production fell for short of
this capacity. The total production of country liquor from
all the 9 distilleries in the year 81-82 came to only 129
lacs proof litres and though in the year 1982-83 there was
some improvement, the total production did not go beyond 171
lacs proof litres. The result was short supply on many
occasions leading to loss of licence fee as well as excise
duty by the State Government. The State Government, in order
to meet the requirement of the consuming public, had actual-
ly to purchase liquor from other States at a higher price.
Moreover, the consumption of liquor was growing from year to
year and it was estimated that by the year 1991, the total
consumption to country liquor would be likely to be in the
neighbourhood of 482.36 lacs proof litres and by the turn of
the century it was expected to be in the neighbourhood of
1696.80 lacs proof litres. Obviously, the existing 9 dis-
tilleries were totally inadequate to meet this growing
demand for country liquor. Furthermore, the buildings in
which these distilleries were housed had become old and were
in a state of disrepair and it was not easy for the State
Government to maintain them in good condition without incur-
ring heavy expenditure every year. The plant and machinery
were also old and antiquated and it was necessary to instal
new and modern plant and machinery having increased capacity
‘to manufacture country liquor. Moreover, it seems that
though at the time of construction, these distilleries were
away from the city or town, what had happened was that with
the growth of population and haphazard and unplanned urban
development, these distilleries had now come to be in the
heart of the city or own and they created health hazards and
pollution problems. There was a demand from all sections of
the public living in surrounding area to move the distiller-
ies away in order to avoid water and environmental pollu-
tion. It was in these circumstances, when the mind of the
State Government was already exercised in respect of these
matters that an application was made by M.P. Distillers’
Association in July 1983 for transferring these distilleries
to private ownership. The members of the M.P. Distillers’
Association who were old distillers holding D-2 licence in
respect of these distilleries offered to invest their own
funds in the construction of new buildings and installation
of latest plant and machinery with capacity to produce more
country liquor in conformity with the standards laid down by
M.P. Eradication of Pollution Board for
22
Removal of Polluted water by constructing lagoons, etc.,
provided they were assured D-1 licence for the area attached
to their respective distilleries.
This application of M.P. Distillers Association was
examined by the State Government at different levels. The
Excise Commissioner submitted his opinion to the Separate
Revenue Department stating that “it would be more appropri-
ate to hand over the Government distilleries to private
ownership because thereby the Government will get additional
income from the sale of buildings, land, etc., of the dis-
tilleries and at the same time the distillers will pay more
heed to the distilleries buildings, etc., due to transfer of
the distilleries to private ownership and they will instal
the latest machinery and implements as a result of which
there will be an increase in liquor production and supply of
liquor as per requirement of the State Government and at the
same time they will be liable for solving the problem of
pollution.” The Revenue Department, after obtaining the
Report from the Excise Commissioner examined the matter
carefully from various aspect. But since several points
required consideration such as whether the distilleries
should be transferred to private ownership during the period
of the subsisting contracts, and if so, what would be the
legal consequences and whether the distilleries should be
allowed to continue at the same place or should be trans-
ferred to new sites in view of the problem of pollution and
the question of transfer of distilleries to private owner-
ship was itself an important policy issue, the Separate
Revenue Department referred the matter to the Chief Minister
with a suggestion that a high level committee should be
appointed for the purpose of examining the various issues.
The State Government accordingly under the orders of the
Chief Minister constituted a Cabinet SubCommittee consisting
of Ministers of Separate Revenue Department, Major and Minor
Irrigation Department, Commerce and Industry Department and
Rehabilitation and Environment Department and four highly
placed officers, namely, Chief Secretary, Secretary, Sepa-
rate Revenue Department, Secretary Finance Department and
Excise Commissioner were directed to assist the Cabinet
SubCommittee. The Separate Revenue Department submitted a
note for the consideration of the Cabinet Sub-Committee and
this note formulated various issues arising for considera-
tion and set-out various aspects relating to these issues so
as to form the basis for. discussion. These issues may be
summarised as follows:
(1) Whether the transfer of ownership of
Government distilleries should be made during
the present contract period only or on the
commencement of new contract?
23
(2) Necessity of spot inspection of distiller-
ies and survey of buildings and change of
their place?
(3) Policy to be adopted for transfer of
buildings and lands of distilleries?
(4) Establishment of proper machine and imple-
ments for manufacture of liquor in the dis-
tilleries for use of Mahuwa product in the
State?
(5) Determination and question of fixing
prices of liquor under the new management?
The Cabinet Sub-Committee at its meeting held on 27th June
1984 considered these issues and after discussion came to
the conclusion that in view of the problem of pollution, it
should first of all be examined “as to which distillery is
to be transferred from the existing site and which distill-
ery is to be maintained at the present site” and in order to
determine this question, the Cabinet Sub-Committee consti-
tuted a Committee headed by Shri Vijayvargi Special Secre-
tary, Separate Revenue Department. The Vijayvargi Committee
was also authorised to select new sites for the distilleries
which in its opinion required to be removed from the exist-
ing sites on account of the problem of pollution. The Vijay-
vargi Committee thereafter made spot inspection of all the 9
distilleries in the State and submitted its report to the
Cabinet Sub-Committee on 18th July 1984. This Report was a
detailed and exhaustive Report and it was pointed out in
this Report that 5 distilleries, namely, Bhopal, Ujjain,
Badwaha, Seoni and Bhilai were required to be removed to new
sites on account of the problem of pollution, but so far as
the remaming two distilleries at Gwalior and Dhar were
concerned, it was not necessary to remove them from their
present sites, though in regard to Dhar Distillery, it was
necessary to fix lagoon plant for removing pollution. The
Vijayvargi Committee also stated in its Report that it was
necessary to make arrangement in regard to polluted water
thrown out from Nowgaon and Ratlam Distilleries.
The Cabinet Sub-Committee at its meeting held on 21st
July 1984 considered the Report of the Vijayvargi Committee
and decided to accept it wholly. The Cabinet Sub-Committee
directed that an estimate of the cost involved in setting up
the Bhopal, Ujjain, Badwaha, Seoni and Bhilai distilleries
at the new sites should be worked out by the Excise Commis-
sioner as also by the M.P. Consultancy Organisa-
24
tion and the valuation of the lands and buildings of Gwalior
and Dhar distilleries, which according to the Vijayvargi
Report, were not necessary to be shifted to new sites,
should also be got done by the Collectors concerned on the
basis of prevailing market rates. It was also directed by
the Cabinet Sub-Committee that an estimate of sales of
country liquor projected in the next 20 years should be got
made and it should also be examined whether such future
demand could be met by the present distilleries and on this
basis how many’ distilleries in the public cooperative and
private sectors would be necessary to be established. Pursu-
ant to this direction, an estimate of the cost likely to be
incurred in establishment of Bhopal, Ujjain, Badwaha, Seoni
and Bhilai distilleries at the new sites including purchase
of land, construction of buildings, setting up of modern
plant and machinery and arrangement for lagoon for polluted
water thrown out by the distilleries, was prepared by the
Excise Commissioner and the Report made by the Excise Com-
missioner showed that, according to this estimate, the
likely cost would be in the neighbourhood of Rs.20 crores 60
lakhs. The Excise Commissioner also estimated the likely
increase in consumption of liquor in the next 20 years and
in his Report gave figures showing that at the end of 20
years the annual requirement of liquor in the State would be
2967 lacs proof litres and that the total established capac-
ity of all the 9 distilleries taken together would not be
sufficient to meet this growing requirement of liquor con-
sumption. So far as the valuation of the land and buildings
of Gwalior and Dhar distilleries was concerned, no report
was submitted by the concerned Collectors until the next
meeting of the Cabinet Sub-Committee.
The Cabinet Sub-Committee thereafter met on 10th August
1984 and at this meeting the Cabinet Sub-Committee consid-
ered the report of the Excise Commissioner in regard to the
estimated cost of establishing Bhopal, Ujjain, Badwaha,
Seoni and Bhilai distilleries at new sites as also the
estimated increase in consumption ,of liquor over the next
20 years and after discussing all the various related
issues, the Cabinet Sub-Committee arrived at certain deci-
sions which are set out in paragraph 3 of the proceeding of
this meeting which form part of the record. It is not neces-
sary here to set out these decisions, because ultimately
they culminated in the recommendations made by the Cabinet
Sub-Committee to which we shall presently make reference.
But at this meeting the Cabinet Sub-Committee decided to
invite representatives of the M.P.Distillers Association and
to give them a hearing before taking final decision in the
matter.
The representatives of the M.P. Distillers Association met
the
25
members of the Cabinet Sub-Committee at the meeting held on
31st August 1984. These representatives made various sugges-
tions to the Cabinet Sub-Committee and these suggestions
included inter alia the suggestion that even Gwalior and
Dhar distilleries should be transferred to new sites since
the problem of pollution, though not pressing at the present
moment, was bound to arise after 5 or 7 years, but if the
existing lands and buildings of these two distilleries were
to be transferred, such transfer should be made on the basis
of their book value and not at the market price. It was also
pleaded by these representatives that if the distilleries
were going to be transferred to private ownership, such
transfers should be effected in favour of the existing
contractors and not outsiders. Some suggestion was also made
on behalf of these representatives that compensation should
be paid by the State Government, to the existing contractors
for the expenditure incurred by them in construction of
roads, molasses collection pits, wharehouses etc. These
suggestions were considered and examined by the Cabinet
Sub–Committee.
Before the next meeting of the Cabinet Sub-Committee was
held on 20th September 1984, a letter dated 10th Sept. 1984
was submitted by the Finance Department in which two points
were raised by the Finance Department. One was that “trans-
fer of distilleries should be made by getting the compara-
tive bids offered and it should be given to the highest
bidder” and the other was whether on transfer to private
ownership the distillers “would be required to obtain any
permission under the Industries Development and Regulation
Act and if permission is not granted, whether any problem
would arise out of it.” The Cabinet Sub-Committee at the
meeting held on 20th September 1984 discussed these two
points and so’far as the first point was concerned, the
Cabinet Sub-Committee came to the conclusion that “the
transfer of distilleries should be made only to the present
contractors and their present supply area should be attached
with them” and with regard to the second point, the Cabinet
Sub-Committee felt that since the distilleries which were
going to be established at the new sites were in lieu of the
present distilleries, it may not be necessary to obtain
fresh licence under the Industries Development and Regula-
tion Act but if fresh licence was required, it should be the
responsibility of the distillers to obtain the same. The
Cabinet Sub-Committee also took various other decisions
which are set out in paragraph 4 of the proceedings of this
meeting held on 20th September 1984. It is not necessary to
reproduce these decisions, but it may be pointed out that
the request of the representatives of the M.P. Distillers
Association that the land and buildings of the Gwalior and
Dhar distilleries may be transferred at
26
book value and not at market value was rejected and the
Cabinet Sub-Committee decided that the transfer should be at
the prevailing market price. The Cabinet Sub-Committee,
however, agreed that “if any distiller wants a change of
place in the future, the decision about it would be taken by
the Separate Revenue Department”. The Cabinet Sub-Committee
also recommended that an agreement should be executed in
writing between the distillers and the Excise Department in
which it should be provided that on the construction of the
distillery and the installation of the plant and machinery,
the distiller shall be entitled to obtain D-2 licence in
respect of the distillery. It was decided at this meeting
that the draft Report of the Cabinet Sub-Committee shall be
finalised in accordance with the decisions taken at the
various meetings of the Cabinet Sub Committee.
The Report of the Cabinet Sub-Committee was thereafter
finalised and after setting out the history of the discus-
sions that preceded the preparation of the Report, it pro-
ceeded in paragraph 17 to make the following recommenda-
tions:
A. Transfer of ownership of distilleries
(1) All the Government distilleries should be
transferred to the contractors concerned whose
contracts are current for the periods from
1.7.1981 to 31.3.1986.
(2) The present buildings, lands of Gwalior
and Dhar Distilleries should be transferred as
per the price of the present market rates
reported by the Committees formed under the
Chairmanship of the Regional Commissioners
after receiving the same from the distilleries
and no concession should be given therein.
(3) There should be an agreement with the
Distillers who are allotted lands for estab-
lishing distilleries at the new sites to the
effect that the Government will be bound to
‘issue them D-2 licence after the construction
of buildings and fitting of plant, on fulfill-
ing all terms and conditions.
B. Allotment of lands for construction of
distilleries at the new places
(4) Generally a principle should be
accepted in connection with the price of land
to be allotted to the distillers at those
27
five places whose distilleries are to be
transferred at any other place that if the
land to be allotted is a Government land, its
market value plus 20% of its market price and
the amount so arrived at should be treated as
the premium of that land and on that basis
ground rent should be fixed as per rules. The
land should be given on 30 years’ lease.
(5) If the land to be allotted is a non-Gov-
ernment land and if it is to be allotted after
acquisition, then as a result of acquisition
the compensation to be paid plus 20% and the
amount that would be arrived at should be
treated as premium of that land and after
taking ground rent as per rules the land
should be given on 30 years’ lease.
(6) The directions of the Industries Depart-
ment in connection with allotment of land
should also be kept in view.
(7) No financial aid should be given by the
Government to the distillers for payment of
premium, etc., of the land.
(8) If the land allotted is used for any other
purpose than the purpose for which it is
allotted, the land would auto matically stand
diverted to the State Government. Such a
provision should be made in the terms and
conditions of the lease deed.
C. Letter of Intent, for grant of D. 2 Li-
cences
(1) D-2 licences should be granted alongwith
letter of intent only to those distillers to
whom land is allotted for construction of
distilleries. The Sub-Committee also feels
that the distilleries to be constructed at the
new sites shall be in lieu of the present
distillery. Therefore, this will not be neces-
sary to obtain licences from the Central
Government. But, for any other reason, if any
licence is compulsory under the rules, Acts of
the Government of India or the State Govern-
ment, the distiller shall be liable to obtain
it. The State Government will send their
applications with recommendations to the
Government of India.
D. Construction of Lagoon, etc., for making
arrangement for passing water from distiller-
ies
28
(11) It will be obligatory for the distillers
while constructing the distilleries to observe
the standards fixed by the M.P. Eradication of
Pollution Board for removing the polluted
water and the environment clean and to con-
struct Lagoon, etc. for the same.
(12) It should also be mentioned in the letter
of intent that the distillers shall make
similar arrangement in the distilleries that
would be transferred to the distillers at
their present site only. Without such arrange-
ment D-2 licence should not be given to the
distillers.
E. Construction of Laboratories for Liquor
test
(13) The distillers shall be compulsorily
required to construct- a laboratory for exami-
nation of liquor in the distillery. It will
also be compulsorily required to construct a
laboratory for examination of liquor in the
distillery. It will be compulsory to construct
laboratory for liquor test in the distilleries
which are to be transferred to the distillers
at the existing spot only.
F. Arrangement for manufacturing liquor from
Mahuwa
(14) The plants for manufacturing liquor from
Mahuwa also should be established by the
distillers for manufacturing liquor from
Mahuwa in all the distilleries in the State so
that, if it is necessary, liquor should be
manufactured from Mahuwa and the Mahuwa pro-
duced in the State should be properly used
within the state only and they should get
reasonable ,price for the Mahuwa purchased by
them at the support price of MARPED or Vano
Upaj Vyaper Sangh. For each distillery 71/2%
liquor should be manufactured from Mahuwa of
its total productive capacity and it should be
mentioned in D-2 licence.
G. Period of D-2 licences
(15) In the beginning D-2 licence (Distillery
Licence) should be granted for five years and
thereafter there should be a provision for its
renewal. Necessary amendment in the Excise Act
or Rules for the same should be made.
29
H. Fixation of liquor price
(16) The Sub-Committee was apprised of the
system of fixation of cost of liquor in the
State of U.P., West Bengal and Maharashtra
States. Prices fixed in Uttar Pradesh by
calling tenders whereas in Maharashtra under
Eythule Alcohol Price Control Order on the
recommendation of the State Government, the
prices of liquor are fixed by the Government
of India. In West Bengal, for fixation of
prices a Committee is formed consisting of a
Chartered Accountant a cost Accountant and a
Senior Officer of the Excise Department. In
the opinion of the committee, prima facie, the
system being adopted in the West Bengal was
found more scientific and appropriate and it
was recommended to adopt this method. Action
be taken after obtaining necessary details in
connection with this system and after the
distilleries are transferred to private owner-
ship, the prices should be fixed every year.”
(17) On transfer to private ownership, the
rates proposed by the Committee to be brought
into effect from 1.4. 1986 should be fixed
finally after discussing the same between the
State Government and the distillers. Till the
final rates are not fixed the present rates of
the distilleries shall be maintained as they
are and after that only it should be adjusted
against the new rates.
(18) The present system of connecting the area
of supply for each distillery shall be main-
tained in future also as it is. It would be
proper to maintain the present right of reduc-
tion or increase in the supply regions of any
distillery which is with the State
Government/Excise Commissioner, as it is.
I. Control of Excise Department on the Dis-
tilleries
(12) Even after the transfer of distillaries
to private ownership, there should be control
of the Excise Department over them as per the
present system and for this purpose if any
amendment is found necessary, it should be
made in the Excise Act/Rules.
The Finance Department, however, submitted a Report raising
5
30
points against the recommendations made in the Report of
the Cabinet Sub-Committee. These points were answered by the
General Administration Department in the summary prepared by
it for submission to the Cabinet. These points together with
the answers given by the General Administration Department
may be reproduced as follows:
“Point No.1
The distilleries which are to be
transferred to the private distilleries on
account of the problem of pollution, it is not
proper to transfer to them the land and build-
ings.
Answer
In this connection it is pertinent
to note that the Cabinet Sub-Committee has
only reommended transfer of Gwalior and Dhar
distilleries to the existing distillers.
Looking to the problem of pollution, other
five distilleries have been recommended to be
transferred at the new sites and their con-
struction and establishment in the private
ownership. Hence, the question of transfer of
land and buildings of these distilleries does
not arise. It is clear that the lands and
buildings of the present five distilleries
will be of the State Government and they can
be used for Government purposes. So far as the
transfer of Gwalior and Dhar distilleries and
their lands and buildings are concerned, the
said distillers have made applications to the
State Government that they also intend to
establish distilleries at the new sites. If
the State Government decides to establish
these distilleries at other places, the ques-
tion of transfer of lands and buildings of
these distilleries does not arise.
Point No. 2
A serious thought should be given to the
question that the State Government should give
an undertaking to the distillers that the
State Government shall purchase liquor from
them for ever and for that purpose no tender
will be invited.
Answer
With regard to this point, it would be proper
to make
31
mention of the fact that the distillers whom
the land will be allotted for the construction
of new distilleries, they will only be granted
D-2 licence and letters of intent will be
issued in that regard. D-2 licence is granted
for the manufacture of liquor. D- 1 licence
relates to the supply and rates of the same.
According to the present arrangement, the
State Government purchase liquor from those
contractors who are granted licences for the
same and in case of any short supply on ac-
count of some reason, liquor is imported from
other States. This arrangement should also be
made for future also. As far as the ceiling of
tender is concerned, it is with regard to
rates of liquor. On this point, a note has
been given against point Nos.4 and 5.
Point No. 3
As there is a possibility of increases of
consumption of liquor in future, and the
increased quantity of liquor will have to be
purchased by the State Government from the
present contractors, that will amount to
monopoly system and the contractors may put
the State Government into trouble at any time.
For this purpose. the State Government should
possess a right of granting D-2 licence to any
other distiller.
Answer
In this connection, it should be
mentioned that during the existence of the
contract. if there is an increase in the
consumption of liquor the supply of the same
is done by the
contractors or from outside. This arrangement
shall be continued in future also. As for as
grant of D-2 licence to other distillers is
concerned, it will be given to them according
to the requirement. The Sub-Committee has not
made such a recommendation that apart from the
existing distillers, no other person should be
granted D-2 licence.
Here a question may arise that on
the conferral of private rights on the dis-
tilleries and in case of absence of favourable
conditions or difference of opinion about the
fixation of prices of liquor. the distillers
taking advantage of their proprietory rights
may not close the distilleries? Ordinarily, no
such imagination can be made because after
32
investing such a huge amount the intention of
the distillers is to gain profits. For that
purpose, their effort would be to constantly
run the distilleries and for meeting such an
eventuality some arrangement should be made in
the agreement that could be entered with the
distillers so that the distilleries can be
taken over the State Government.
Point No. 4
The Sub-Committee has recommended that for the
supply of liquor the rates of the same may be
fixed by a Committee consisting of a Chartered
Accountant, a cost accountant and a senior
Officer of the Excise Department. The Finance
Department has suggested that in this Commit-
tee, representatives of the Finance Department
and the Separate Revenue Department and the
representative of the Separate Department
should be its Chairman which would fix the
rates on the basis of principles.
Answer
This suggestion is capable of being
accepted. It may be pertinent to mention here
that the Sub-Committee was apprised of the
different systems adopted by different States
with regard to supply rates. The Sub-Committee
has recommended the system prevalent in West
Bengal because the Sub Committee felt that
this system is more scientific and fit. The
Sub Committee has also mentioned that after
obtaining further information about this
system, action should be taken and after
transfer of the distilleries into private
ownership the prices should be fixed every
year. Presently, the prices of liquor are
fixed for a period of five years.
Point No. 5
There should be competition which
can be achieved through tender system. Hence,
for fixing prices, tender system should be
adopted and nobody should be given to say that
the rates have been fixed arbitrarily.
Answer
As mentioned in recommendation No. 17 of
the”Sub
33
Committee dated 1.4.86, the rates to be made
effective from 1.4.86 will be proposed by a
Committee which will be given effect to after
discussion (negotiations) with the State
Government and the distillers. The Sub Commit-
tee has also made a recommendation that till
the time the final rates are not fixed, till
that period the respective distilleries will
maintain their existing rates and after that
they will adjust against the new rates. Hence,
it will be clear that according to the new
system fixation of prices will be fixed by
calling tenders. For the present supply rates,
tenders are invited and on that basis after
negotiations with the distillers the final
rates are fixed.”
The summary alongwith the Report of the Cabinet Sub
Committee and all other papers and proceedings leading upto
the making of the Report were all placed before the Cabinet
at the meeting held on 30th December 1984 when the following
decision was taken:
“1. Looking to different angles of the sub-
ject, the recommendations of the Cabinet Sub-
Committee should be endorsed.
2. If some such similar matters are put up,
the department on the basis of the principles
should take decisions.”
Pursuant to this policy decision dated 30th December
1984 a Letter of Intent dated 1st February 1985 was issued
by the State Government in favour of each of respondent Nos.
5 to 11 for grant of D-2 lincence for the construction of a
distillery at a new site for the purpose of manufacturing
country liquor with effect from 1st April 1986 in lieu of
the existing distillery in respect of which such respondent
held D-2 and D- 1 licences for the period ending 3 1st March
1986. The Letter of Intent set out various conditions sub-
ject to which D-2 licence was to be granted in favour of
each of respondent Nos. 5 to 11. Clause (1) of the Letter of
Intent prescribed the following condition:
1. (a) The licence shall be granted for
a period of five years commencing from 1-4-
1986, subject to the payment of licence fees
of Rupees Twenty Five thousand in advance and
such security as may be prescribed by the
Excise Commissioner for due observance of
rules, and conditions of licence.
(b) It will be the responsibility of the
licensee to obtain
34
a licence/permission, if any required by the
State Government or Government of India.
(c) The licence shall be further sub-
ject to renewal every year’ on payment of a
licence fees of Rs. Five thousand in advance
and subject to due observance of the provi-
sions of the Excise Act and rules made there-
under and conditions of the licence.
The licensee to whom the Letter of Intent was issued was
required under Clause 2 of the Letter of Intent to construct
the distillery on the land approved by the State Government
and the M.P. Pollution Board. It was provided by Clause 12
of the Letter of Intent that the licensee shall make proper
arrangements for treatment of effluents discharge under a
scheme duly approved by the M.P. Pollution Board and that
any direction issued by the Excise Commissioner in this
regard shall be binding on the licensee. Clause 14 of the
Letter of Intent stipulated that the licensee shall be bound
to complete construction of distillery and installation of
plant and machinery as required by the Excise Commissioner
well before 1st April 1986.
The Letter of Intent was followed by a Deed of Agreement
dated 2nd February 1985 executed by and between the Governor
of Madhya Pradesh acting through the Excise Commissioner and
each of respondent Nos. 5 to 11. The Deed of Agreement
recited that the Letter of Intent has been issued by the
State Government for grant of D-2 licence for construction
of distillery for manufacture of spirit with effect from 1st
April 1986. Clause 1 of the Deed of Agreement provided that
the licensee shall be bound to take land on lease for a
period of 30 years from the State Government, but this
clause is not material because ultimately none of respondent
Nos. 5 to 11 took land on lease from the State Government
and each of them purchased his own land, the site of course
being approved by the State Government. Clause 2 of the Deed
of Agreement is rather material and it may be reproduced in
full:–
“The Govt. shall be bound to sanc-
tion D-2 licence in favour of the Licensee who
has been granted letter of intent to manufac-
ture spirit w.e.f. 1-4-86 in lieu of CHHAT-
TISGARH DISTILLERY situated at INDUSTRIAL
ESTATE BHILAI for a period of 5 years subject
to renewal every year on payment of Licence
Fee Rs.5,000 and on due fulfilment of the
conditions of the licence and the provisions
of M.P. Excise Act 1915 and the Rules made
thereunder.”
35
It was provided by Clause 4 of the Deed of Agreement that
the licensee shall be bound to manufacture country spirit in
the distillery from mahuwa also and the country spirit made
from mahuwa shall not be less than 7.5% of the total produc-
tion in the distillery. So far as the pricing of country
liquor made from mahuwa, khandsari molasses or mill molasses
was concerned, Clause 6 of the Deed of Agreement provided as
follows:–
“The rate of country spirit made from Mahuwa,
Khandsari molasses or mill Molasses shall be
determined every year by the State Govt. on
the basis of the recommendation of the commit-
tee constituted by the State Govt. in this
behalf. The cost price so determined shall be
final and binding on the Licensee.”
The other clauses of the Deed of Agreement are not material
and we need not refer to them in detail beyond merely stat-
ing that they were introduced in the Deed of Agreement in
conformity with the policy decision dated 30th December
1984.
Pursuant to the Letter of Intent and the Deed of Agree-
ment each Of respondent Nos.5 to 11 selected with the ap-
proval of the State Government the new site at which the
distillery should be located, purchased land at such new
site, started constructing buildings for housing the dis-
tillery and placed orders for purchase the plant and machin-
ery to be installed in the distillery. Some of the plant and
machinery started arriving and it began to be installed in
the distillery. There was some dispute between the parties
as to how much amount each of respondent Nos. 5 to 11 had
expended by the time the first writ petition came to be
filed by Nand Lal Jaiswal but it could not be seriously
contested that considerable amount of money had already been
spent by respondent Nos. 5 to 11 in acquiring land, con-
structing buildings. placing orders for purchase of plant
and machinery and taking other necessary steps before 28th
November 1985 when Nand Lal Jaiswal filed the first writ
petition. There is evidence to draw that considerable more
progress had been made by respondent Nos. 5 to 11 in this
direction by the time the second writ petition came to be
filed by Sagar Agarwal. Each of them had, on a conservative
estimate, spent over one or two crores of rupees by the time
Nand Lal Jaiswal and Sagar Agarwal filed these writ peti-
tions challenging the policy decision dated 30th December
1984. On the filing of these writ petitions, an application
for stay was made but it was rejected by the High Court with
the result that the work of setting up the.distilleries
continued
36
space and the distilleries were almost complete by the time
decision came to be given by the High Court disposing of
these writ petitions.
When the writ petitions were argued before the High
Court, one of the questions seriously debated was whether
under the policy decision dated 30th December 1984, D-2
licence was to be granted to each of respondent Nos.5 to 11
only for a limited period of 5 years commencing from 1st
April 1986 or it was to be granted for a minimum period of
five years with a clause for automatic renewal from year to
year after the expiration of the period of five years so
that all other persons would be totally excluded from enter-
ing the field and a monopoly would be created in favour of
respondent Nos.5 to 11 for all time to come so far as D-2
licence for manufacturing liquor in the distillery was
concerned. The petitioners relied on clause 1 of the Letter
of Intent in support of their contention that a monopoly was
sought to be created in favour of respondent Nos.5 to 11 for
maufacturing liquor in the distilleries respectively set up
by them by granting D-2 licence which was renewable every
year after the expiration of the initial period of 5 years
without any limitation of time and this was clearly arbi-
trary and irrational so as to be violative of Article 14 of
the Constitution. This contention was negatived by the
Division Bench and particularly by Acting Chief justice,
J.S. Verma in view of the categorical statement made on
behalf of the State Government by the learned Advocate-
General as also by the learned Advocates appearing on behalf
of respondent Nos.5 to 11 that under the policy decision
dated 30th December, 1984, D-2 licence was to be granted
only for a maximum period of 5 years “subject to its renewal
within the period of 5 years on the terms and conditions”
mentioned in the Letter of Intent and “there was no under-
taking on the part of the State Government” to grant, by way
of renewal or otherwise D-2 licence after the expiry of the
period of 5 years commencing from 1st April 1986. The
learned Attorney General, appearing on behalf of the State
Government, as also the learned advocates appearing on
behalf of respondent Nos.5-11, reiterated the same stand
before us namely, that there was no commitment on the part
of the State Government to grant D-2 licence beyond the
maximum period of 5 years and that the provision in regard
to renewal from year to year was to operate within this
period of 5 years. The learned counsel appearing on behalf
of the petitioners, however, urged that this concession made
on behalf of the State Government and respondent Nos.5-11
was of no avail, since it was contrary to the terms of the
policy decision dated 30th December 1984 and the provision
in the Letter of Intent and, in any event, the validity of
the policy decision dated 30th December 1984 could be tested
only
37
on its own terms and if it was otherwise invalid, the con-
cession made on behalf of the State Government and respond-
ent Nos.5-11 could not save it. We do not think that this
contention urged on behalf of the petitioners is well-found-
ed. It is undoubtedly true that the recommendations of the
Cabinet Sub-Committee which were accepted by the Cabinet in
the policy decision dated 30th December 1984 provided that
in the beginning, D-2 licence shall be granted for a period
of 5 years and thereafter there shall be a provision for its
renewal and for this purpose, necessary amendment in the
M.P. Excise Act, 1915 or the Rules made under the Act shall
be made. But, it is significant to note that no such amend-
ment in the Act or the Rules was made by the State Govern-
ment and when the Letter of Intent was issued and the Deed
of Agreement was executed and even thereafter, the provi-
sions of the Act remained unamended and Rule II of the Rules
of General Application also continued to stand in its una-
mended form. It is obvious that without an amendment of Rule
II of the Rules of General Application, the maximum period
for which D-2 licence could be granted to respondent Nos.5-
11 was only 5 years and there could be no provision for
automatic renewal thereafter from year to year. It is;
therefore, clear that whatever might have been the original
intention, it was not effectuated by carrying out necessary
amendment in the provisions of the Act or in Rule II of the
Rules of General Application and the ultimate decision of
the State Government was to grant D.2 licence for a limited
period of 5 years. This would also seem to be clear beyond
doubt if we examine closely clause 2 of the Deed of Agree-
ment. This clause provided in terms clear and explicit that
the State Government shall be bound to grant D-2 licence to
the licensee “for a period of 5 years subject to renewal
every year on payment of licence fee of Rs.5,000 and on the
fulfilment of the conditions of the licence,and the provi-
sions of the M.P. Excise Act, 19 15 and the rules made
thereunder?,. Obviously the provision of renewal every year
was to operate within the span of 5 years itself and every
year, the licence would be renewable on payment of licence
fee of Rs.5,000 and due fulfilment of the conditions of the
licence and the provisions of the Act and the Rules. It is
not possible to spell out from this clause that the licence
was to be granted for an initial period of 5 years and
thereafter it was liable to be renewed from year to year.
This so called concession made on behalf of the State Gov-
ernment and respondent Nos.5-11 was, therefore, really not a
concession at all but it was a stand taken in recognition of
the correct position in regard to the grant of D-2 licence.
The High Court was, in the circumstances, right in holding
that the grant of D-2 licence to respondent Nos.5-11 was for
a maximum period of 5 years and it did not operate to create
monopoly in their favour for an indefinite period of time.
38
The High Court and particularly the Judgment of the
Acting Chief Justice J.S.Varma with Justice B.M. Lal divided
the policy decision dated 30th December 1984 into two parts.
The first part according to the High Court related “to the
grant for construction Of the new distilleries by the exist-
ing contractors” and the other part related “to the grant of
licence for manufacture and wholesale supply of liquor with
effect from 1st April 1986 to the existing contractors on
construction of new distilleries by them”. The High Court
first took up for consideration the question of validity the
first part and held that having regard to the inordinate
delay in the filing of the writ petitions no interference
was “called for with the grant to this extent”. The High
Court observed and we are quoting here in full what the High
Court has said in regard to the first part since that con-
tains the finding of the High Court on the question of
delay:–
“In our opinion, the delay in bringing these
petitions to challenge the grant made to the
existing contractors who are respondents in
these petitions for construction of the new
distilleries, is not adequately explained and,
therefore, it would not be appropriate to
interfere with the grant to this extent since
at this stage, particularly when the construc-
tions by the respondents are nearly complete.
We have, therefore, reached the conclusion
that without expressing any opinion about the
validity of the scheme relating to the grant
only to the existing contractors for construc-
tion of the new distilleries, no interference
with the grant to this extent alone should be
made in these petitions on the short ground
that there is unexplained delay in challenging
the grant to this extent in these petitions
and during the intervening period, the new
distilleries have almost been completed, if
not wholly completed and any interference with
the grant to this extent will result in need-
less complications. For this reason alone, we
decline to examine the validity of grant made
in favour of the respondents only to the
extent it permits them to construct the new
distilleries. In our opinion, the facet of
promissory estoppel relied on against the
petitioners on the basis of their conduct is
applicable only to this extent.”
The High Court then proceeded to consider the question of
validity of the second part relating to the grant of li-
cences for manufacture and wholesale supply of country
liquor to the existing contractors and held that this part
of the policy decision dated 30th December 1984 contra-
39
vening Artide 14 of the Constitution and was therefore
liable to be struck-down as invalid. The High Court took the
view that the existing contractors cannot be said to consti-
tute a distinct class by themselves so that grant of D-1,
D-2 licences to them for manufacture and wholesale supply of
country liquor to the exclusion of other persons could be
justified under the equality clause of the Constitution.
Though the High Court did not say so in express terms the
view taken by it seem to be that the grant of D-1, D-2
licences given thrown open for all intending applicants and
no one should have been excluded from consideration for the
grant which means that the proposed grant of D-1, D-2 li-
cences should have been advertised so that one and all could
compete for the grant by filing their tenders or by bidding
at an auction. The High Court in this view set aside the
grant of D-1, D-2 licences to respondent Nos.5 to 11 but
since there are no other distilleries apart from those
constructed by respondent Nos.5 to 11 and country liquor
under D-1, D-2 licences could be manufactured and supplied
only from those distilleries, the High Court evolved a new
formula namely, that the persons to whom D-1, D-2 licences
may be granted on the basis of tender or auction should be
entitled to take over the distilleries constructed by re-
spondent Nos.5 to 11 at a proper value assessed by the.
State Government. The High Court accordingly allowed the
writ petitions to this limited extent and directed that each
party shall bear and pay its own costs of the writ peti-
tions. The questions is whether this view taken by the High
Court is correct.
Before we proceed to consider this question, we may
point out that Acting Chief Justice, J.S. Verma, who deliv-
ered the main judgment in the writ petitions, did not make
any comments against the conduct of the State Government in
granting to the existing contractors the right to construct
distilleries and manufacture and make wholesale supply of
country liquor from such distilleries but merely proceeded
to invalidate what he called the second part of the policy
decision dated 30th December 1984 on the ground that it
violated Article 14 of the Constitution. But Justice B.M.
Lal delivered a separate concurring opinion and in this
opinion, he made certain observations which have been
strongly objected to by the learned Attorney General appear-
ing on behalf of the State of Madhya Pradesh. It is neces-
sary to set out in extenso what the learned Judge has said
in this connection because an application has been made to
us by the learned Attorney General that the objectionable
remarks made by the learned Judge should be expunged:
“This new mischievous device gives scope to
respondents
40
No.5 to 11 to monopolize the entire trade of
liquor distillery in Madhya Pradesh and also
make the State dance at their tips while
fixing the rates according to their wishes.
However, it appears that the sinister
of under-hand dealing of the agreement has
persuaded the State Government to make the
statement before this court during the course
of second day of arguments, that they have
reduced the period of the agreement dated
2.2.1985 from 30 years to a mere of 5 years
period i.e. w.e.f. 1.4.86 to 31.3.1991 with no
condition of renewing it thereafter without
adhering to the provisions of rule XXII
(Supra). By making this statement at the bar,
I presume that, the State is trying to mini-
mise the extent of depletion of public reve-
nue, but still the loss of 56 crores, as
argued by Shri Venugopal, continues if licence
in D-1 form is granted to the respondents
Nos.5 to 11 even for a period of five years.
Making any relaxation in contracts
illegally arrived at by violating statutory
provisions of rule XXII (Supra) which gives
abnoxious smell of malafide involving public
revenue in crores, then, in my opinion, even
for a moment it cannot be allowed to stand in
the eye of law.
It appears that by reducing the
period of 30 years to a mere five years peri-
od, the State still wants to extend benefit to
respondents 5 to 11, so that the amount so far
spent by them in working out the contract in
approaching the concerning authorities of the
State may be compensated. Why this undue
favour is being tried to be extended to the
respodents Nos.5 to 11, speaks in itself in
volume and is really a matter of the domain of
the State Government.
The facts relating to under hand
dealing brought to our notice during the
course of arguments by pointing out from the
record are so startling.”
These are undoubtedly strong and highly disparaging remarks
attributing mala fides, corruption and underhand dealing to
the State Government. Are they justified by the record, is a
question which we have to consider.
We may first consider the question of laches or delay in
filling the
41
writ petitions because that is the question which has been
decided by the High Court against the petitioners and the
petitioners have challenged the correctness of the finding
reached by the High Court of this point. The policy decision
impugned in the writ petitions was taken 30th December,
1984. The Letter of Intent was issued in favour of each of
respondent Nos. 5 to 11 on 1st February 1985 and the Deed of
Agreement was executed on 2nd February 1985. Each of re-
spondents nos. 5 to 11 thereafter proceeded to purchase land
where the new disilleries were to be located and incurred
large expenditure in purchase of such land and security
deposit in a fairly large amount was also paid by each of
respondents Nos.5 to 11. Thereafter civil construction work
for putting up the distillery buildings was entrusted to
reputed builders and various steps were taken by each of
respondents Nos.5 to 11 for obtaining requisite
permission/consent from Madhya Pradesh Pradushan Nivaran
Mandal. The construction of the distillery buildings was
started and in many cases considerable progress was made in
the construction. Each of respondents Nos. 5 to 11 also
placed orders for plant and machinery and this too involved
considerable amount of expenditure. All this had to be done
with quick despatch because the distilleries were required
to be ready for production by 1st April 1986. Each of re-
spondent Nos. 5 to 11 worked indefeatably, ceaselessly and
in all earnestness and spent considerable time, energy and
resources in setting up the distilleries at the new sites
and by the time the writ
petitions came to be filed each of respondent Nos. 5 to 11
had spent at least Rs. 1.5 crores it not more, on acquisi-
tion of land, purchase of plant and machinery, construction
of distillery buildings and other incidental and ancillary
expenses. The first writ petition was filed by Nand Lal
Jaiswal on 28th November, 1985 about 11 months after the
date-of the impugned policy decision, while the second writ
petition came to be filed by Sagar Agarwal even later on
24th January 1986 and the third writ petition of M/s Doon-
gaji & Co. was filed when the hearing of the first two writ
petitions was actually going on in the High Court. There can
be no doubt that the petitioners were guilty of gross delay
in filing the writ petitions with the result that by the
time the writ petitions came to be filed, respondent Nos.5
to 11 had, pursuant to the policy decision dated 30th Decem-
ber 1984, altered their position by incurring huge expendi-
ture towards setting up the distilleries.
Now, it is well settled that the power of the High Court
to issue an appropriate writ under article 226 of the Con-
stitution is discretionary and the High Court in the exer-
cise of its discretion does not ordinarily assist the tardy
and the indolent of the acquiescent and the lethargic. If
there is inordinate delay on the part of the petitioner in
42
filing a writ petition and such delay is not satisfactorily
explained, the High Court may decline to intervene and grant
relief in the exercise of its writ jurisdiction. The evolu-
tion of this rule of laches or delay is premised upon a
number of factors. The High Court does not ordinarily permit
a belated resort to the extraordinary remedy under the writ
jurisdiction because it is likely to cause confusion and
public inconvenience and bring in its train new injustices.
The rights of third parties may intervene and if the writ
jurisdiction is excercised on a writ petition filed after
unreasonable delay, it may have the effect of inflicting not
only hardship and inconvenience but also injustice on third
parties. When the writ jurisdiction of the High Court is
invoked, unexplained delay coupled With the creation of
third party rights in the meanwhile is an important factor
which always weighs with the High Court in deciding whether
or not to exercise such jurisdiction. We do not think it
necessary to burden this judgment with reference to various
decisions or this Court where it has been emphasised time
and again that where there is inordinate and unexplained
delay and third party rights are created in the intervening
period, the High Court would decline tO interfere, even if
the State action complained of is unconstitutional or ille-
gal. We may only mention in the passing two decision of this
Court one in Ramanna Dayaram Shetty v. International Airport
Authority of India & Ors., [1979] 3 SCR 1014 and the other
in Ashok Kumar Mishra & Ant. v. Collector Rajput & Ors.,
[1980] 1 SCR 491, We may point out that in R.D. Shetty’s
case (supra), even though the State action was held to be
unconstitutional as being violative of Article 14 of the
Constitution, this Court refused to grant relief to the
petitioner on the ground that the writ petition had been
filed by the petitioner more than five months after the
acceptance of the tender of the fourth respondent and during
that period, the fourth respondent had incurred considerable
expenditure, aggregating to about Rs. 1.25 lakhs, in making
arrangements for putting up the restaurant and the snack bar
of course, this rule of laches or delay is not a rigid rule
which . can be cast in a straitjacket formula, for there may
be cases where despite delay and creation of third party
rights the High Court may still in the exercise of its
discretion interfere and grant relief to the petitioner.
But, such cases where the demand of justice is so compelling
that the High Court would be inclined to interfere inspite
of’delay or creation of ,third party rights would by their
very nature be few and for between. Ultimately it would be a
matter within the discretion of the Court ex-hypothese every
discretion must be exercised fairly and justly so as to
promote justice and not to defeat it.
Here, obviously, there was considerable delay on the part of
the
43
petitioners in filing the writ petitions and in the inter-
vening period, respondent Nos.5 to 11 acquired land, con-
structed distillery buildings, purchased plant and machinery
and spent considerable time, money and energy towards set-
ting up the distilleries. These circumstances would, in our
opinion, be sufficient to disentitle the petitioners to
relief under Article 226 of the Constitution. The petition-
ers however contended that they were not aware of the policy
decision dated 30th December 1984 nor had they any knowledge
of the fact that the right to construct distilleries and to
manufacture and supply wholesale country liquor from such
distilleries was granted to the existing contractors and it
was only when they came to know about this that they immedi-
ately proceeded to file the writ petitions. Now, it is
difficult to believe that the petitioners were not aware of
the policy decision dated 30th December 1984. The considera-
tion of this matter started as far back as July 1983 and
there were prolonged and wide ranging deliberations lasting
several months, coupled with spot inspections by the Vijay-
vargi Committee and the Excise Department and it was after
considerable discussion and deliberation that the policy
decision was’ arrived at on 30th December 1984. The peti-
tioners were, on their own
showing, liquor contractors by profession and they were
“associated with the trade of country liquor in the State
since the last several years” and it would be wholly unreal-
istic and naive to suppose that the petitioners were not
aware of the change in the policy which was being discussed
at various levels over a period of almost 12 months and
which was ultimately brought about by the policy decision
dated 30th December 1984. Those who are in the liquor trade
would immediately know what is happening and whether any
change is taking place in the policy in regard to grant of
licences for manufacture and wholesale supply of country
liquor. It is also difficult to believe that the peti-
tioners did not know that new distilleries were being con-
structed at new sites by respondent Nos.5 to 11. The reigned
ignorance of the petitioners is completely exposed by the
letter dated 1st April 1985 addressed by Sagar Agarwal to
the Commissioner of Excise where it has been stated categor-
ically:–
“I have learnt that in order to prevent pollu-
tion the Government has taken a decision to
transfer the distilleries from the densely
populated areas and to establish them in areas
having less thinner population. Government
deserves to be congratulated for this decision
in the face of pollution prevailing throughout
the world.
For this work existing distillers have taken a
decision
44
to construct new distilleries at their own
cost and they are being granted long-term
permanent type licences for the same. Besides
this, the existing supply areas would be kept
in tact with existing distillers.”
This letter clearly shows that Sagar Agarwal very well knew
about the policy decision dated 30th December 1984 and that
he was aware that Iong-term permanent licences were being
granted to the existing contractors for constructing new
distilleries and operating the same. It may also be pointed
out that there was considerable publicity in newspapers in
regard to the construction of new distillery at village
Khapri in Chhatisgarh area and information to that effect
appeared in the issues of Yugdhar dated 7th June 1985,
Navbharat dated 8th June 1985 and Amrit Sandesh. There was
also information in regard to transfer of the Badawah dis-
tillery to village Khodi in the issue of Nai Dunia published
from Indore on 12th July 1985. Of course, the petitioners
have stated in their affidavits that they did not see this
newspaper publicity but it is difficult to accept their
statement. We may also point out that, apart from the letter
dated 1st April 1985, there was also another letter dated
25th September 1985 addressed by Sagar Agarwal to the Com-
missioner of Excise where he made a specific reference to
the policy decision dated 30th December 1984 which shows
that in any event, Sagar Agarwal knew specifically about the
policy decision as far back as 25th September, 1985 and yet
no action was taken by him until 24th January 1986. M/s
Doongaji & Company also knew by April 1985 that the distill-
eries were being given ‘permanently’ to the existing con-
tractors, vide their letter dated 12th April 1985 addressed
to the Chief Secretary, Government of U.P. The next letter
in point of time, namely, that dated 17th May 1985 addressed
by M/s Doongaji & Company to the Prime Minister, also shows
that M/s Doongaji & Company were aware by this time that the
distilleries were being given ‘permanently’ to the existing
contractors. M/s Doongaji & Company addressed another letter
to the Prime Minister on 7th November 1985 in which they
once again complained that the distilleries were being made
‘permanent’ to the existing contractors. Now if Sagar Agar-
wal and M/s Doongaji & Company knew as far back as April
1985 that the distilleries were being given in private
ownership to the existing contractors, it is difficult to
believe that Nand Lal Jaiswal who is also in the liquor
trade for years did not known about it. In fact, every
person in the liquor trade would have know about this change
in policy which had been made by the State Government under
the policy decision dated 30th December 1984. We do not
therefore see any reason to up set the finding of the High
Court that the petitioners were guilty of
45
enormous delay in filing the writ petitions and that in the
meanwhile, during the intervening period, the rights of
third parties had intervened in that respondent Nos.5 to 11,
acting on the basis of the policy decision dated 30th Decem-
ber 1984, had incurred huge expenditure towards setting up
the distilleries. If the policy decision dated 30th December
1984 were now to be set aside at the instance of the peti-
tioners, it would work immense hardship on respondent Nos. 5
to 11 and cause grave injustice to them, since enormous
amount of time, money and energy spent by them in setting up
the distilleries would be totally wasted. Obviously, re-
spondent Nos.5 to 11 would not have proceeded with the work
of setting up the distilleries by spending considerable time
and energy and incurring huge expenditure, if the writ
petitions had been filed in time, for in that event they
would have known that they would be running a serious risk
of losing time, money and resources in case the writ peti-
tions were allowed. But since no writ petitions were filed
by any liquor contractors challenging the policy decision
dated 30th December 1984 for well nigh over 10 months,
respondent Nos.5 to 11 could not be blamed for embarking on
the task of setting up the distilleries pursuant to the
policy decision dated 30th December 1984. It would be most
inequitous now to tell respondent Nos. 5 to 11 that they
policy decision dated 30th December 1984 was unconstitution-
al and void and that all the time and energy spent and the
enormous expenditure incurred by them in setting up the
distilleries is therefore futile and they cannot be permit-
ted to enjoy its benefits.
The High Court however, fell into an error in splitting
up the policy decision dated 30th December 1984 into two
parts, one part relating to the grant for construction of
new distilleries by the existing contractors and the other
part relating to the grant of licences for manufacture and
wholesale supply of liquor to the existing contractors on
construction of new distilleries by them and in holding that
delay on the part of the petitioners in filing the writ
petitions disentitled them to relief in respect of only the
first part ‘and not in respect of the second. The High Court
took the view that by reason of the delay in filing of the
writ petitions, the petitioners could not be permitted to
assail the grant made to the existing contractors for con-
struction of new distilleries but so far as the grant of
licences for manufacture and wholesale supply of liquor from
the new distilleries was concerned. the challenge to the
same was not precluded by the doctrine of laches or delay
and taking this view, the High Court proceeded to hold that
the grant of licences for manufacture and wholesale supply
of liquor made to the existing contractors was violative of
the equality clause of the Con-
46
stitution. This view taken by the High Court is in our
opinion plainly erroneous. The policy decision dated 30th
December 1984 was a single integrated decision arrived at by
the State Government taking a holistic view of all the
aspects involved in the decision and it is difficult to
appreciate how the High Court could sustain one part of the
policy and strike down the other. Either the policy as a
whole could be sustained or as a whole, it could be declared
to be invalid, but certainly one part could not be sus-
tained, whatever be the ground and the other pronounced
invalid. That would be making a new policy for the State
Government which it was not competent for the High Court to
do. Once the High Court came to the conclusion that on
account of delay or laches in the filing of the writ peti-
tions or the creation of third.party rights in the mean-
while, the Court would not interfere with one part of the
policy decision, the Court could not interfere with the
second part of the policy decision as well. The consequence
of sustaining one part of the policy decision and striking
down the other would not only be to create a new policy for
the State Government but it would also cause considerable
hardship and injustice to respondent Nos. 5 to 11 and also
result in public mischief and inconvenience detrimental to
the interest of the State.
In the first place, under the policy decision dated 30th
December 1984, new distilleries were to be constructed by
the existing contractors, not with a view to making them
available for manufacturing liquor to any other person who
might give a more acceptable bid or tender for D-1 and D-2
licences in the open market, but in order that the existing
contractors who put up the new distilleries should be able
to manufacture liquor and make wholesale supply of it under
D-1 and D-2 licences to be granted to them for a period of 5
years. The grant of D-1 and D-2 licences to the existing
contractors for a period of 5 years for manufacturing liquor
in the new distilleries constructed by them and supply it in
wholesale to retail vendors, was an integral part of the
policy decision dated 30th December 1984. If D-1 and D-2
licences were not be granted to the existing contractors but
they were to be disposed of by auction or tender to any one
who offers the most favourable rate, why should the existing
contractors or for the matter of that any one, spend so much
time, energy and resources and incur so much expenditure for
constructing the distilleries. Obviously the inducement to
the existing contractors for constructing new distilleries
at enormous cost was that they would be granted D- 1 and D-2
licences at least for a period of 5 years. Otherwise, we do
not see why they should agree to construct new distilleries
spending so much time and energy and incurring such huge
expenditure. Moreover, according to
47
the policy decision dated 30th December 1984, the rate
chargeable for supply of liquor manufactured in the new
distilleries was to be determined from year to year by an
Expert Committee appointed by the State Government, but if
such rate were to depend on the bid which may be made at the
auction or tender and obviously the auction or tender could
take place only at the end of 3 or 5 years and not from year
to year–the entire policy of rate fixation laid down by the
State Government would be set at naught. What would happen
in effect is that the old policy which was being followed up
to 31st March 1986 and which was sought to be changed by the
State Government would be revived but now the distilleries
forming the subject matter of that policy would not be the
old distilleries of which the land and building belonged to
the State Government and the plant and machinery was subject
to transfer at a valuation but the new distilleries con-
structed by the existing contractors with their own monies
and resources under the Letter of Intent dated 1st February
1985 and the Deed of Agreement dated 2nd February 1985,
neither of which provided for transfer of the land and
building or the plant and machinery to any other person who
might be granted D-1 and D-2 licences as a result of auction
or tender. The entire policy of the State Government con-
tained in the policy decision dated 30th December 1984 would
be frustrated and a new policy would be made out which
patently the High Court has no jurisdiction or power to do.
Secondly, it is obvious that respondent Nos. 5 to 11
took tremendous trouble by way of acquiring land, construct-
ing buildings, purchasing and installing plant and machinery
and procuring and utilising large resources in setting up
new distilleries with a view to working them and manufactur-
ing liquor for wholesale supply at such rate or rates as may
be fixed by the Expert Committee appointed by the State
Government. Now if D-1 and D-2 licences are not granted to
them but are disposed of through auction or tender to anoth-
er person the entire effort put in by them would be wasted
and they would be disappointed of a legitimate expectation
created by the policy decision dated 30th December 1984
which remained unchallenged for a period of over 10 months.
There can be no doubt that this would cause considerable
hardship and inconvenience to respondent Nos. 5 to 11.
Moreover, it is difficult to see how D-1 and D-2 licences
could be disposed of in favour of the most acceptable bidder
or tenderer, when such bidder or tenderer has no distillery
in which he can manufacture liquor. D-1 licence, as we have
pointed out above, cannot be granted to a person who does
not hold D-2 licence and the grant of D-2 licence postu-
lates that a distillery would be available to the licencee
where he
48
can work for manufacturing liquor. Here, barring the new
distilleries which are being set up by respondent Nos. 5 to
11 and the Ratlam and Nowgaon distilleries, there are no
other distilleries in the State of Madhya Pradesh where
liquor can be manufactured and hence D-1 and D-2 licences
cannot be granted to any person other than respondent Nos. 5
to 11, unless the new distilleries constructed.by respondent
Nos. 5 to 11, are transferred to such other person either by
agreement or after acquisition by the State Government. We
can plainly rule out the possibility of any agreement on the
part of respondent Nos. 5 to 11 to transfer the new distill-
eries to any other person to whom D-1 and D-2 licences may
be granted by the State Government and the only alternative
left open to the State Government would therefore be to
acquire the new distilleries. But that would again frustrate
the policy of the State Government to transfer the distill-
eries to private ownership and the old policy would be
revived, though in a different garb. Moreover, the State
Government would have to produce over 40 crores of rupees by
way of compensation for the acquisition of the new distill-
eries and that would be a heavy drain on the public revenues
which might otherwise be used for developmental and welfare
activities. Further more, the entire process of acquisition
would take considerable time, may be years, and during this
period, there would be no production of liquor and the State
Government would have to purchase liquor from outside the
State at higher prices in order to satisfy the demand of the
consuming public, resulting in loss of licence fee as well
as excise duty. Even if the person to whom D-1 and D-2
licences may be granted agrees to set up a new distillery,
it would take considerable time and during the period taken
up in the construction of the new distillery, the State
Government would lose revenue. Of course, it may be urged
that if respondent Nos. 5 to 11 are not granted D-1 and D-2
licences but such licences are granted to any other person
or persons who offer a more acceptable bid or tender, re-
spondent Nos. 5 to 11 would be constrained to transfer the
new distilleries to such other person or persons because
otherwise the new distilleries in their hands would remain
idle investment. But the State GOvernment cannot wait for
such chance to materialise and in the meanwhile, lose public
revenue.
We have therefore no doubt that the High Court was not
at all justified in splitting up the policy decision dated
30th December 1984 into two parts and in striking down the
second part, while sustaining’ the first. The Policy deci-
sion dated 30th December 1984 was one integrated policy
decision and it could either be sustained or struck down as
a whole. We must accordingly hold that since the petitioners
were
49
guilty of enormous delay in filing the writ petitions and in
the intervening period, the rights of respondents Nos 5 to
11 were created in that they spent considerable amount of
time, energy and resources and incurred huge expenditure in
setting up the new distilleries and sustaining one part of
the policy decision while striking down the other would
amont to creating a new policy for the State Government and
would also entail considerable hardship and inconvenience to
respondent Nos. 5 to 11 and would also be detrimental to the
interest of the State, it would be unjust. and inequitous to
grant relief to the petitioners against the policy decision
and the petitioners must in the circumstances be held to be
disentitled to relief in respect of the policy decision in
its entirity. On this ground alone we would dismiss the writ
petitions and allow the appeals of the State Government and
respondent Nos, 5 to 11.
But since considerable arguments were advanced before us
in regard to the validity of the policy decision dated 30th
December 1984 with reference to Article 14 of the Constitu-
tion, we shall proceed to consider this question- It would,
however, be convenient if we first examine two minor conten-
tions urged on behalf of M/s. Doongaji & Co. as they are
relatively unimportant and can be briefly disposed of in a
few words. The first contention raised by the learned coun-
sel appearing on behalf of M/s. Doongaji & Co. was that it
was not competent to the State Government to give effect to
the policy decision dated 30th December 1984 until after the
publication of Rules made for that purpose under section
62(2) (h) of the Act. The learned counsel pointed out that
D-2 licence in its existing form does not contemplate any
construction licence at all: it is only a licence to manu-
facture liquor and not a licence to construct a distillery
and hence without publishing Rules relating to licence for
construction of a distillery, the State Government could not
implement the change of policy under the policy decision
dated 30th December 1984. This argument was elaborated by
the learned counsel by putting forward the following conten-
tion which we may reproduce in his own words: “Rule XXII
contemplates the disposal of licences either by tender,
auction or fixed licence fee or in such other manner as the
State Government may by general or special order direct. It
does not enable the State Government without publishing the
rules to licence construction and working of a distillery
under a changed policy: i.e. a policy which does not involve
tender, auction or fixed licence fee. Any other construction
would-render the last clause of Rule XXII as ultra vires
section 62(2)(h) and section 63 read with section 7(c).” The
learned counsel also urged that “the decision of the Cabinet
in a meeting of the
50
Cabinet is not an Order” within the meaning of Rule XXII and
since no order under that Rule was produced, the Letter of
Intent and the Deed of Agreement were without the authority
of law as being in contravention of that Rule. We do not
think this contention has any substance. It is a contention
of despair. It is difficult to understand why the policy
decision dated 30th December 1984 cannot be given effect to
without any new Rules being made by the State Government.
There is nothing in the policy decision dated 30th December
1984 which is contrary to the Rules made under the Act. It
is true that D-2 licence in its existing form does not
contemplate construction of a distillery and that the Rules
do not seem to have prescribed the form for a licence for
constructing a distillery. But, merely because the form of a
licence for constructing a distillery is not prescribed by
the Rules, it does not mean that such a licence cannot be
granted by the Excise Authorities. If the form of a licence
is prescribed, then, of course, such form has to be fol-
lowed, but if no form is prescribed, the only consequence is
that the licence to be granted by the Excise Authorities
need not conform to any particular form. Section 14(c) of
the Act clearly provides that the Excise Commissioner may
license the construction and working of a distillery and
there was, therefore, nothing contrary to the Act or the
Rules in the Excise Commissioner issuing Letter of Intent in
favour of each of respondent Nos. 5-11 granting licence for
construction of a new distillery. Rule XXII, as we have
already pointed out, permits any one of four modes of dis-
posal of licence to be adopted by the Excise Authorities and
it does not prescribe that the fourth mode denoted by the
words “such other manner as the State Government may by
general or special order direct” can be resorted to only if
the first three modes fail. Here, in the present case, the
policy decision dated 30th December 1984 provided that
respondent Nos. 5-11, who were the existing contractors,
should be granted licence to construct new distilleries and
D- 1 and D-2 licences should be given to them for a period
of five years for manufacturing liquor in such new distill-
eries and making wholesale supply of it to retail vendors in
the areas attached to those distilleries. This manner of
disposal of licences was clearly covered by the fourth mode
of disposal set out in Rule XXII. We fail to understand why
any further Rules were necessary to be made by the State
Government in order to give effect to this policy decision
arrived at by the State Government on 30th December, 1984.
The fourth mode of disposal set out in Rule XXII was, in our
opinion, sufficient to permit disposal of licences in the
manner set out in the policy decision dated 30th December
1984. The argument that there was no general or special
order made by the State Government pursuant to the policy
decision dated 30th December 1984 which would bring the case
within the
51
fourth mode set out in Rule XXII is equally futile. When the
policy decision dated 30th December 1984 was arrived at by
the State Government itself, there could be no need for
separate general or special order to be made by the State
Government in that behalf. This would seem to be clear on
principle, but we find that there is a dedsion of this Court
in State of Orissa & Ors. v. Harinarayan Jaiswal & Ors.,
[1972] 3 SCR 784 where the same view has been accepted.
There, the section which came up for consideration was
section 29 of the Bihar and Orissa Excise Act, 1915. Sub-
section (2) of this section provided that the sum payable to
the State Government in consideration of the grant of an
exclusive privilege to manufacture and supply or liquor
shall be determined as follows: “by calling tender or by
auction or otherwise as the State Government may, by general
or special order, direct.” The State Government adopted the
method of selling the exclusive privilege by private negoti-
ations and this was challenged on behalf of the petitioners
on the ground that the Government could sell the exclusive
privilege by private negotiations only if an order was made
under section 29 sub-section (2) that the privilege in
question shall be sold by private negotiations and no such
order having been made by the State Government, the sale
effected by the State Government was invalid. This challenge
was negatived by Hegde, J., speaking on behalf of the Court
in the following words:
“In the cases of public auctions or in the
case of calling for tenders, orders from the
Government directing its subordinates to
notify or hold the auctions or call for ten-
ders is understandable. Public auctions as
well as calling for tenders are done by subor-
dinate officials. Further due publicity is
necessary in adopting those methods. To re-
quire the Government to make an order that it
is going to sell one or more of the privileges
in question by negotiating with some one is to
make a mockery of the law. If the Government
can enter into negotiation with any person, as
we think it can, it makes no sense to require
it to first make an order that it is going to
negotiate with that person. We must understand
a provision of law reasonably. Section
29(2)(a) does not speak of any order. It says
that “the State Government may, by general or
special order direct”. The direction contem-
plated by that provision is a direction to
subordinate officials. It is meaningless to
say that the Government should direct itself.”
This decision provides a complete answer to the contention
urged on
52
behalf of M/s. Doongaji & Co. based on the language of the
last clause of Rule XXII. It is true that what has been
produced before the Court by way of policy decision dated
30th December 1984 is the decision of the Cabinet and if its
production had been objected to on behalf of the State
Government, a question would perhaps have arisen whether it
is barred form the scrutiny of the Court under clause (3) of
Article 163 of the Constitution. But, it has been produced
by the petitioners without any objection on the part of the
State Government and once it is produced, the Court is
entitled to look at it and it clearly contains the decision
of the State Government and must be held to fall within the
last clause of Rule XXII. This view finds complete support
from the decision of this Court in L.G. Chaudhari v. Secre-
tary, L.S.G. Deptt., Govt. of Bihar & Ors., AIR 1980 SC 383.
The learned counsel appearing on behalf of M/s Doongaji
& Co. also raised another contention based on the provisions
of the Industries (Development & Regulation) Act, 1951. The
argument of the learned counsel was that respondent Nos. 5-
11 were not entitled to set up new distilleries at the new
sites without obtaining a licence from the Central Govern-
ment under Section 11 of this Act and since there was noth-
ing to show that they had obtained such licence before
setting up the new distilleries, their action in setting up
the new distilleries was illegal and could not give rise to
any rights in their favour. But, this contention is also
unsustainable. In the first place, no such contention was
raised in the writ petitions and neither the State Govern-
ment nor respondent Nos. 5-11 had any opportunity of answer-
ing such contention. This contention is based on facts and
we cannot permit the petitioners to raise it for the first
time in the present appeals. The foundation for this conten-
tion should have been laid in the writ petitions and the
necessary facts should have been pleaded in support of it.
No such plea having been raised and no such facts having
been pleaded in the writ petitions, we cannot allow this
contention to be raised before us. Moreover, it is obvious
from section 11 read with the definitions of ‘factory’ and
‘industrial undertaking’ contained in sub-sections (c) and
(d) of section 3 of this Act that licence from the Central
Government for setting up new distilleries would be neces-
sary only if 50 or more workers would be working in such
distilleries and here in the present writ petitions, there
is nothing to show that 50 or more workers were going to be
employed in the new distilleries. We were told at the Bar
that in fact old distilleries were also working without any
licence from the Central Government, presumably because less
than 50 workers were employed in such distilleries. This
contention of the learned counsel on behalf of M/s Doongaji
& Co. must also, therefore, be rejected.
53
That takes us to the next contention urged on behalf of
the petitioners in regard to the validity of the policy
decision dated 30th December 1984 tested with reference to
Article 14 of the Constitution. The High Court, of course,
declined to interfere with what it called the first part of
the policy decision on account of laches or delay on the
part of the petitioners but came to the conclusion that the
second part of the policy decision was violative of the
equality clause. The High Court observed that the policy
decision dated 30th December 1984 “in so far as it relates
to the grant of licences for manufacture and wholesale
supply of country liquor …….. contravenes Article 14
of the Constitution and interference to that extent is
called for”. The argument which found favour with the High
Court was, and that is the argument which was reiterated
before us on behalf of the petitioners, that the policy
decision dated 30th December 1984 that licence to construct
new distilleries should be given only to the existing con-
tractors and D-1 and D-2 licences to manufacture and supply
it in wholesale to retail dealers liquor in such new dis-
tilleries should be granted to them alone to the exclusion
of other liquor contractors without holding auction or
inviting often which would give an opportunity to all liquor
contractors interested in setting up new distilleries and
manufacturing and supplying liquor to complete for the grant
of such licences, was arbitrary and irrational and there was
no valid justification for selectively preferring the exist-
ing contractors to other liquor contractors for grant of
such licences. This contention, plausible though it may seem
at tint blush, is, in our opinion, wholly untenable. There
are two very effective answers to it given by the learned
Attorney General and the learned counsel for Respondent Nos.
5-11 and we shall immediately proceed to discuss them.
But, before we do so, we may at this stage conveniently
refer to a contention of a preliminary nature advanced on
behalf of the State Government and respondent Nos. 5-11
against the applicability of Article 14 in a case dealing
with the grant of liquor licences. The contention was that
trade or business in liquor is so inherently pernicious that
no one can claim any fundamental right in respect of it and
Article 14 cannot therefore be invoked by the petitioners.
Now, it is true, and it is well settled by several decisions
of this Court including the decision in Har Shanker & Ors.
etc. v. Deputy Excise & Taxation Commissioner & Ors., [1975]
3 SCR 254 that there is no fundamental right in a citizen to
carry on trade or business in liquor. The State under its
regulatory power has the power to prohibit absolutely every
form of activity in relation to intoxicants–its manufac-
ture, storage, export, import, sale and possession. No one
can claim as against the
54
State the right to carry on trade or business in liquor and
the State cannot be compelled to part with its exclusive
right or privilege of manufacturing and selling liquor. But
when the State decides to grant such right or privilege to
others the State cannot escape the rigour of Article 14. It
cannot act arbitrarily or at its sweet will. It must comply
with the equality clause while granting the exclusive right
or privilage of manufacturing or selling liquor. It is,
therefore, not possible to uphold the contention of the
State Government and respondent Nos. 5-11 that Article 14
can have no application in a case where the licence to
manufacture or sell liquor is being granted by the State
Government. The State cannot ride roughshod over the re-
quirement of that Article.
But, while considering the applicability of Article b,
in such a case, we must bear in mind that, having regard to
the nature of the trade or business, the Court would be slow
to interfere with the policy laid down by the State Govern-
ment for grant of licences for. manufacture and sale of
liquor. The Court would, in view of the inherently perni-
cious nature of the commodity allow a large measure of
latitude to the State Government in determining its policy
of regulating, manufacture and trade in liquor. Moreover,
the grant of licences for manufacture and sale of liquor
would essentially be a matter of economic policy where the
court would hesitate to intervene and strike down what the
State Government has done, unless it appears to be plainly
arbitrary, irrational or mala fide. We had occasion to
consider the scope of interference by the Court under Arti-
cle 14 while dealing with laws relating to economic activi-
ties in R.K. Garg etc. v. Union of India & Ors. etc. [1982]
1 SCR 947. We pointed out in that case that laws relating to
economic activities should be viewed with greater latitude
than laws touching civil rights such as freedom of speech,
religion, etc. We observed that the legislature should be
,allowed some play in the joints because it has to deal with
complex problems which do not admit of solution through any
doctrinaire or strait-jacket formula and this is particular-
ly true in case of legislation dealing with economic mat-
ters, where, having regard to the nature of the problems
required to be dealt with, greater play in the joints has to
be allowed to the legislature. We quoted with approval the
following admonition give by Frankfurter, J. in Morey v.
Dond, (354 US 457):
“In the utilities, tax and economic regulation
cases, there are good reasons for judicial
self-restraint if not judicial deference
to legislative judgment. The legislature after
all has the affirmative responsibility. The
courts have only the power to destroy, not to
reconstruct. When these are added
55
to the complexity of economic regulation, the
uncertainty, the liability to error, the
bewildering conflict of the ‘experts, and the
number of times the judges have been overruled
by events-self-limitation can be seen to be
the path to judicial wisdom and institutional
prestige and stability.”
What we said in that case in regard to legislation relating
to economic matters must apply equally in regard to execu-
tive action in the field of economic activities, though the
executive decision may not be placed on as high a pedestial
as legislative judgment in so far as judicial deference is
concerned. We must not forget that in complex economic
matters every decision is necessarily empiric and it is
based on experimentation or what one may call ‘trial and
error method’ and, therefore, its validity Cannot be tested
on any rigid a ‘priori’ considerations or on the application
of any straight-jacket formula. The court must while adjudg-
ing the constitutional validity of an executive decision
relating to economic matters grant a certain measure of
freedom or play in the ‘joints’ to the executive. “The
problem of Government” as pointed out by the Supreme Court
of the United States in Metropolis Theatre Company v. State
of Chicago, 57 Lawyers Edition 730 “are practical ones and
may justify, if they do not require, rough accommodations,
illogical, it may be, and unscientific. But even such criti-
cism should not be hastily expressed. What is best is not
discernible, the wisdom of any choice may be disputed or
condemned. Mere errors of Government are not subject to our
judicial review. It is only its palpably arbitrary exercises
which can be declared void.” The Government, as was said in
permian Basin Area Rate cases 20 Lawyers Edition (2d) 312,
is entitled to make pragmatic adjustments which may be
called for by particular circumstances. The Court cannot
strike down a policy decision taken by the State Government
merely because it feels that another policy decision would
have been fairer or wiser or more scientific or logical. The
Court can interfere only if the policy decision is patently
arbitrary, discriminatory or mala fide. It is against the
background of these observations and keeping them in mind
that we must now proceed to deal with the contention of the
petitioners based on Article 14 of the Constitution.
The first answer to the contention of the petitioners
is, and this in our opinion is a fatal answer, that no
liquor contractors have in fact been excluded from consider-
ation under the policy decision dated 30th December 1984. It
is undoubtedly true that, on the application of the existing
contractors, the State Government decided to grant to them
licences to construct new distilleries in lieu of the old
distilleries in
56
Gwalior, Ujjain, Dhar, Badwaha, Chattisgarh, Bhopal Seoni as
also to give them D-1 and D-2 licences to manufacture liquor
in such new distilleries and to sell it in wholesale to
retail vendors in the respective areas attached to such new
distilleries and it might appear on a superficial reading of
the policy decision dated 30th December 1984 that the entire
cake was handed over to the existing contractors and all
other liquor contractors were left out and they were denied
an opportunity of asking for similar licences. But this
view, in our opinion, is based on a misreading of the policy
decision dated 30th December 1984. It ignores clause 2 of
the policy decision which clearly provides that “if some
such ‘similar matters are put up, the department on the
basis of the principles recommended by the Cabinet Sub-
Committee should take decisions”. It is clear from this
clause that the State Government envisaged the possibility
of other liquor contractors making similar applications for
licences to construct new distilleries and to manufacture
and supply liquor from such new distilleries and hence
provided that if any such applications are made, they should
be disposed of by the Excise Department on merits on the
basis of the principles “recommended by the Sub-Committee”
that is, on the basis of the same principles on which the
licences were decided to be granted to the existing contrac-
tors. It is therefore impossible to see how it can at all be
contended that other contractors were excluded from consid-
eration for the grant of licences for new distilleries. If
any liquor contractor makes an application for a licence to
construct a new distillery on the same terms on which li-
cences are granted to the existing contractor his applica-
tion would have to be considered on merits by the Excise
Authorities and the Excise Authorities may, if they find the
proposal suitable, grant to such liquor contractor licence
to construct a new distillery along with D-2 licence on the
same basis. The Excise Authorities may, in such event,
either (1) direct such liquor contractor to manufacture
rectified spirit, denatured spirit or foreign liquor in the
new distillery for the remaining period of the D-1 and D-2
licences of the existing contractors and thereafter consider
him along with other liquor contractors for grant of D-1 and
D-2 licences in respect of the new distillery or (2) reduce
and/or alter the area of supply-of any of the existing
contractors and grant D-1 licence to such liquor contractor
in respect of the carved out area. If the Cabinet decision
dated 30th December 1984 while granting licences to the
existing contractors leaves it open to other liquor contrac-
tors to come in and apply for similar licences, it is diffi-
cult to see how the challenge based on Article 14 can be
sustained.
This view taken by us is sufficient to dispose of the con-
tention
57
based on Article 14. But apart from this answer to the
contention which has found acceptance with us, there is
another answer which is equally strong and cogent. Let us
consider the circumstances under which the policy decision
dated 30th December 1984 came to be taken. The proposal
which ultimately culminated in the policy decision was first
initiated in July 1983 by the M.P. Distillers Association,
which was of course an association of existing distillers,
making a representation to the State Government for privati-
sation of the distilleries. The situation which prevailed at
that time in regard to the distilleries was quite disturb-
ing. Whatever might have been the position at the date when
the distilleries were constructed, considerable human habi-
tation had grown around them over the years and, barring
Gwalior and Dhar distilleries, all the other distilleries
were in thickly populated localities and even so far as
Gwalior and Dhar distilleries were concerned, it was appre-
hended that within 5 or 7 years they would also be in the
same unhappy situation. The result was that the working of
the distilleries at the old sites was causing serious air,
water and environmental pollution. The note prepared by the
separate Revenue Department for the consideration of the
Cabinet Sub-Committee as also the Report of the Vijayvargi
Committee clearly showed that there was considerable air and
water pollution on account of dirty water flowing out of the
distilleries and fouling air and water. There was not enough
space at the old sites for constructing lagoons for removal
of the polluted water coming out of the distilleries. It was
therefore necessary to transfer the distilleries to new
sites which would be away from human habitation and. where
the distilleries could be constructed keeping in mind the
standards fixed by the M.P. Pradushan Nivaran Mandal for
removal of polluted water and keeping the environment dean
and wholesome. Moreover, the total capacity of the distill-
eries including Ratlam Alcohol plant and Nowgaon distillery
was only 203 lakhs proof litres and even this quantity of
production was not being reached largely on account of old
plant and machinery. The result was short supply of country
liquor leading to loss of licence fee as well as excise duty
on the part of the State Government. Moreover, the estimated
consumption of liquor in the State was likely to be around
482.36 lakhs proof litres by the year 1991 and by the turn
of the century it was expected to reach the startling figure
of 1696.80 lakhs proof litres. The existing distilleries
were obviously incapable of meeting this growing demand for
country liquor. The plant and machinery of the distilleries
had became antiquated and worn out and the licensees for the
time being had no incentive to replace it by modern plant
and machinery. The buildings in which the distilleries were
housed had also become old and dilapidated and the State
Government was not in a position to
58
maintain them in good condition and obviously the licencees
for the time being were also not interested in keeping the
buildings in good state of repair because the buildings did
not belong to them. It was therefore absolutely essential to
construct new distilleries with modern technologically
advanced plant and machinery at new sites where there would
be no problem of air or water pollution. The question was as
to how this should be done whether the new distilleries
should be constructed by the State Government or whether
they should be placed in the private sector. The proposal
made by M.P. Distillers Association was that the distiller-
ies should be transferred to private ownership and they
offered to take over the existing distilleries. The Cabinet
SubCommittee considered this question in all its aspects and
reached the conclusion that it would be better to entrust
the construction of the new distilleries to the private
sector rather than ask the State Government to do so. There
are four very good reasons why the Cabinet Sub-Committee
took this view. In the first place, the distilleries were in
private ownership in almost all the States barring the State
of M.P. and there was no reason why the State of M.P. should
not fail in line with what was happening in the other
States. Secondly, the State Government would have to invest
about Rs.50 crores, in any event more than Rs.40 crores, if
the State Government had to construct and cut up new dis-
tilleries. This large amount would become available for
other developmental and welfare programme, if, instead of
the State Government the private sector was entrusted with
the task of construction of new distilleries. Thirdly, the
State Government would not have to, incur any recurring
expenditure on maintenance of the buildings and the plant
and machinery, because in the event of construction of the
new distilleries being entrusted to private entrepreneurs,
maintenance of buildings as well as plant and machinery
would become their responsibility and moreover they would
have real interest in keeping and maintaining them in good
condition. And lastly, the land and buildings in which the
distilleries were then housed would become available to the
State Government for sale and, situated as they were in
thickly populated areas, they would fetch a very handsome
price which would go to augment the resources of the State
Government. The State Government for these reasons thought
it desirable that the construction of new distilleries
should be in the private sector and, after discussion with
the M.P. Distillers Association the State Government decided
to entrust the construction of new distilleries to the
existing contractors who had already offered to take over
the distilleries.
There was also one other factor which, according to the
State Government and respondent Nos. 5 to 11, weighed with
the State
59
Government in arriving at the decision to entrust the con-
struction of new distilleries to the existing contractors
instead of inviting offers by advertisement and that factor
was that the licences of the existing contractors were
coming to an end on 31st March, 1986 and it was therefore
necessary that the new distilleries should be ready for
manufacture of liquor before 1st April, 1986. The construc-
tion of new distilleries was a time-consuming job because it
involved selection of appropriate land, approval of the
authorities to the land selected, entrustment of contract
for construction to a competent contractor, obtaining of
sanction of the municipal and other authorities to the plans
acquisition of materials and construction of buildings
placing of orders for modern sophisticated plant and machin-
ery and installation of such plant and machinery in the
distilleries. This whole process was bound to take consider-
able time and the State Government could not therefore be
faulted if they negotiated with the existing contractors who
had come forward with a positive offer and entrusted the
construction of new distilleries to them so that they could
be ready for manufacture by 1st April 1986. Moreover it may
be noted that no other person with experience of working a
distillery had come forward with an offer to set up a new
distillery. It is not possible to believe that when the
existing contractors who were members of M.P. Distillers
Association had made an offer to the State Government to set
up new distilleries and considerable deliberations and
detailed enquiries were going on at the highest level for
deciding whether the new distilleries should be handed over
to the private sector and negotiations were actually being
carried on with the M.P. Distillers Association in that
behalf the other liquor contractors were not aware of any
such proceedings. Even after the policy decision dated 30th
December, 1984 was reached by the State Government, neither
Nandial Jalswal nor M/s Doongaji & Co. made any application
for grant of licence to construct a new distillery on the
same terms on which licences were decided to be granted to
the existing contractors. It is true that Sagar Aggarwal did
make an offer but it may be noted that in the first place he
was at no time a D-2 licencee and he had no experience of
working a distillery and secondly, his main interest was in
having D-1(S) licences for Jabalpur and Betul districts. It
is also significant that while taking a decision to grant
licences to the existing contractors to put up new distill-
eries, the State Government did not wish to create a monopo-
ly in favour of the existing contractors and the State
Government therefore, when entering into the Deed of Agree-
ment, limited the duration of D-2 licence to be granted to
each of the existing contractors to five years and also left
it open to other distillery contractors to come in on the
same terms. In fact the learned Attorney General
60
frankly stated that if M/s Doongaji & Co. made an applica-
tion for a licence to construct a new distillery on the
basis as others, his application would be considered by the
State Government. We fail to appreciate how in these circum-
stances it can at all be contended that the policy decision
dated 30th December, 1984 taken by the State Government was
arbitrary or irrational so as to be violative of Article 14
of the Constitution.
We may also point out that when the State Government is
granting licence for putting up a new industry, it is not at
all necessary that it should advertise and invite offers for
putting up such industry. The State Government is entitled
to negotiate with those who have come up with an offer to
set up such industry. This principle was clearly and une-
quivocally accepted by this Court in Kasturi Lal Lakshmi
Reddy v. State of Jammu & Kashmir, [1980] 3 SCR 1338 where
contracts entered into by the state Government with three
manufacturers giving them the right to set up factories in
the State for the manufacture of rosin, turpentine and other
derivatives and making available to them an assured supply
of 4,000, 3,500 and 8000 metric tonnes of rosin per year by
giving them tapping contract were challenged as violative of
Article 14 of the Constitution on the ground that the State
Government had not issued any advertisement inviting offers
for award of tapping contract or stating that the tapping
contract would be given to any party who would be prepared
to put up a factory for manufacture of rosin, turpentine and
other derivatives within the State and thereby equality of
opportunity to compete for obtaining such contracts was
denied to other persons. This Court speaking through one of
us (Bhagwati, J., as he then was) pointed out:-
“The pre-dominant purpose of the trans-
action was to ensure setting up of a factor by
the 2nd respondents as part of the process of
industrialisation of the State and since the
2nd respondents for that purpose. If the State
were giving tapping contract simplicitor there
can be no doubt that the State would have to
auction or invite tenders for securing the
highest price, subject, of course, to any
other relevant overriding considerations of
public weal or interest, but in a case
like this where the State is allocating re-
sources such as water, power, raw materials
etc. for the purpose of encouraging setting up
of industries within the State, we do not
think the State is bound to advertise and tell
the people that it wants a particular industry
to be set up within the State and invite those
interested to come up
61
with proposals for the purpose. The State may
choose to do so, if it thinks fit and in a
given situation, it may even turn to be advan-
tageous for the State to do so, but if any
private party comes before the State and
offers to set up an industry, the State would
not be committing breach of any constitutional
or legal obligation if it negotiates with such
party and agrees to provide resources and
other facilities for the purpose of setting up
the industry. The State is not obliged to tell
such party; “Please it. I will first adver-
tise, see whether any other offers are forth-
coming and then after considering all offers,
decide whether I should let you set up the
industry”. It would be most unrealistic to
insist on such a procedure ……………The
State must be free in such a case to negotiate
with a private entrepreneur with a view to
inducing him to set up an industry within the
State and if the State enters into a contract
with such entrepreneur for providing resources
and other facilities for setting up an indus-
try, the contract cannot be asailed as invalid
so long as the State had acted bona fide,
reasonably and in public interest. If the
terms and conditions of the contract or the
surrounding circumstances show that the State
has acted mala fide or out of improper or
corrupt motives or in.order to promote the
private interests of some one at the cost of
the State, the Court will undoubtedly inter-
fere and strike down State action as aribi-
trary, unreasonable or contrary to public
interest. But so long as the State action is
bona fide and reasonable, the Court will not
interfere merely on the ground that no adver-
tisement was given or publicity made or ten-
ders invited.”
Here, in the present case, the pre-dominant purpose of the
policy decision dated 30th December, 1984 was to ensure
construction and setting up of new distilleries with modern
technologically advanced plant and machinery at new sites
where there would be no possibility of air and water pollu-
tion and if for achieving this purpose the State Government
considered the offer of the existing contractors and negoti-
ated with them and ultimately decided to grant to them
licences for construction of new distilleries on the terms
and conditions set out in the recommendations of the Cabinet
sub-Committee it is difficult to see how, in view of the
decision in Kasturi Lal Lakshmi Reddy’s case (supra) the
State Government could be said to have acted arbitrarily or
capriciously in violation of Article 14 of the Constitution.
The con-
62
tention of the petitioners based on Article 14 of the Con-
stitution must therefore stand rejected.
Before we part with this case we must express our strong
disapproval of the observations made by B.M. Lal, J. in
paragraph 1,9, 17, 18, 19 and 34 of his concurring opinion.
The learned Judge made sweeping observations attributing
mala fides, corruption and underhand dealing to the State
Government. These observations are in our opinion not at all
justified by the record. In the first place it is difficult
to appreciate how any such observation could be made by the
learned Judge without any foundation for the same being laid
in the pleadings. It is true that in the writ petitions the
petitioners used words such as ‘mala fide’, ‘Corruption’ and
‘corrupt practice’, but the use of such words is not enough.
What is necessary is to give full particulars of such alle-
gations and to set out the material facts specifying the
particular person against whom such allegations are made so
that he may have an opportunity of controverting such alle-
gations. The requirement of law is not satisfied in so far
as the pleadings in the present case are concerned and in
the absence of necessary particulars and material facts, we
fail to see how the learned Judge could come to a finding
that the State Government was guilty of factual mala fides,
corruption and under-hand dealings. The learned Judge ob-
served that amount was spent by respondent Nos. 5 to 11 “in
working out the contract in approaching the concerned au-
thorities of the State”. This observations carried a direct
allegation that money passed from respondent Nos. 5 to 11 to
“the concerned authorities” for getting the licences. But no
such allegation was at any time made by the petitioners and
when the petitioners did not make any such allegation in the
pleadings, nor even stated as to which authority took monies
by way of illegal gratification, it is difficult to under-
stand how the learned Judge could possibly make such an
observation. The petitioners also did not make any specific
imputation of under hand dealing in the writ petitiones and
yet the learned Judge inexplicably came to the conclusion
that the State Government was guilty of ‘sinister underhand
dealing’. The learned Judge was clearly not justified in
doing so.
But, quite apart from this objection based on lack of
proper and adequate pleading, we think that even on merits
the observations made by B.M. Lal, J. were clearly unjusti-
fied. There is not an iota of evidence to establish or even
as much as to indicate that the State Government was actuat-
ed by any collateral purpose or was guility of any ‘sinister
underhand dealing’ or was prompted by any currupt motive in
reaching the policy decision dated 30th December, 1984.
63
What the learned Judge has said is based entirely on conjec-
ture and suspicion and approach which does not go well with
judicial disposition of a case. There are two important
factors which throw considerable light in determining wheth-
er a policy decision is mala fide or motivated by improper
considerations. One relates to the manner and method of
reaching the policy decision and the other to the circum-
stances in which the policy decision is taken and the con-
siderations which have entered into the making of it. Now,
it is dear from the detailed statement of facts which we
have given at the commencement of this judgment that the
entire process commencing with the representation of the
M.P. Distillers’ Association in July 1983 and culminating in
the policy decision dated 30th December 1984 was spread over
a period of about 17 months and it included gathering of
information, on-spot inspection of the sites, collegiality
of deliberations, candour of inter-departmental and intra-
departmental communication and a dialectical interaction of
different multilateral viewpoints. The policy decision was
an informed and reasoned decision arrived at after detailed
inquiries, fact-finding efforts and reports spreading over a
period of more than a year and a half. Several queries and
issues were raised by the Finance Department boldly and
fearlessly and these queries and issues were fully and
frankly dealt with, clarifications were given and the entire
matter was fully considered. There was no attempt at any
stage of suppress discussion and debate or to avoid or
side-track or push under the carpet any doubts or questions
raised by any of the parties involved in the deliberations.
It is also significant that the policy decision was not
arrived at by a single individual in the secrecy of his
chamber but it was by the entire Cabinet and it was based on
the recommendations made by the Cabinet SubCommittee which
was composed of four Ministers.assisted by officers from
different departments belonging to the highest scholars of
the civil service. It may also be noted that the Cabinet
Sub-Committee considered the matter from different angles,
obtained relevant information, sent a Committee of officers
for spot inspection, took stock of the valuation and the
likely investment, reviewed the problem and worked out the
solution and made its recommendations to the Cabinet. The
entire proceedings of the Cabinet Sub-Committee were before
the Cabinet including the reasons for which the recommenda-
tions were made and it was after considering these recommen-
dations that the Cabinet reached the policy decision. The
entire proceedings show that there was complete openness of
discussion and deliberation. There was no suddenness of
decision, no impulsive caprice or arbitrariness in reaching
the decision. The policy decision was plainly and avowedly
an informed and institutionalised decision and the manner in
64
which it was reached is clearly indicative that it was
neither mala fide nor guided by any corrupt or collateral
considerations.
We have already discussed the circumstances under which
the policy decision dated 30th December, 1984 came to be
made. We need not repeat what we have said in the preceding
paragraphs in regard to the making of the policy decision
and the circumstances under which it was made. These circum-
stances plainly and unmistakably point to the bona fides of
the policy decision. It is not possible to discern any mala
fides or any improper or corrupt motive on the part of the
State Government in reaching the policy decision. It is
significant to note that the State Government did not con-
cede whatever was demanded by the existing contractors. The
existing contractors wanted the land and buildings of the
existing distilleries to be transferred to them at a valua-
tion but the Cabinet Sub-Committee did not agree to this
suggestion and insisted that the existing contractors would
have to acquire land at new sites, construct buildings for
setting up new distilleries, and the land and buildings in
which the existing distilleries were housed would come back
to the State Government. The Cabinet Subcommittee also
insisted on the existing contractors to make the necessary
arrangements for removing air and water pollution in the new
distilleries as also to construct a laboratory with modern
equipment. The State Government also changed the mode of
rate fixation. Originally the rates for supply of liquor to
the retail vendors were fixed on the basis of tenders every
five years with the result that the rates accepted by the
excise authorities on the basis of the tenders continued to
prevail for a period of five years. Now it is a fallacy to
assume that the lowest rates quoted by the tenderers would
necessarily be the cheapest and the best. If the tenderers
form a syndicate they can push up the rates for supply of
liquor and in fact it is obvious from the rates which were
accepted by the excise authorities for the five year period,
1st April, 1981 to 31st March, 1986, that these were not the
most reasonable rates. The Cabinet Sub-Committee therefore
felt that the system of rate fixation prevalent in West
Bengal was the most beneficial to the State Government
because it provided for rate fixation by an expert Committee
which would take into account the escalation or de-escala-
tion in the price of raw materials, varying labour cost and
fluctuating market conditions every year and arrive at a
reasonable rate, fair both to the licencee and to the State
Government. The Cabinet-Committee also did not recommend
taking over of the plant and machinery of the old distiller-
ies from the existing contractors against payment of its
value with the result that the old plant and machinery
remained with the existing contractors and obviously it
65
would have no value because they would not be able to sell
it to any one and it would be dead junk in their hands and
the price paid by them to the out-going licences would be
totally lost. It is indeed difficult to see how it can at
all be said that in making its recomendations, the Cabinet
Sub-Committee was guilty of any mala fides or underhand
dealing or was actuated by any corrupt motive. The Cabinet
merely accepted the recomendations made by the Cabinet
SubCommittee and in fact when the deed of Agreement came to
be executed with each of the existing contractor the State
Government actually introduced a provision that D-2 licences
would be given only for a period of five years. We are
therefore unable to appreciate how B.M. Lal, J. could possi-
bly pass strictures against the State Government attributing
mala fides, under-hand dealing and corruption to the State
Government.
We may also in this connection refer to an allegation
made by Sagar Aggarwal that by reason of the policy decision
dated 30th December. 1984 the State Government would incur a
loss of about Rs. 56 crores. This allegation did not find
favour with Acting Chief Justice J.S. Verma but it seemed to
have impressed B.M. Lal, J. because he categorically stated
in paragraph 17 of his concurring opinion that even if D-1
licences were granted to respondent Nos. 5 to 11 only for a
period of five years the State Government would suffer a
loss of Rs. 56 crores. We find it difficult to understand
how B.M. Lal, J. could possibly come to a conclusion that
the State Government would be incurring a loss of Rs. 56
crores by the policy decision dated 30th December, 1984. The
figure of Rs. 56 crores was arrived at by Sagar Aggarwal on
the assumption that if instead of granting licence to the
existing contractors to construct new distilleries and
giving them D-1 and D-2 licences for a period of five years,
D- 1(S) licence was granted to him for the entire territory
of the State of Madhya Pradesh and he was able to get liquor
from the Ratlam Alcohol plant at the rate of Rs. 1.80 per
proof litre in sufficient quantity so as ‘to be able to
supply liquor to retail vendors in the entire State he would
be able to save for the State Government a sum of Rs. 56
crores on the basis that otherwise a rate of Rs. 4 per proof
litre would be charged by the existing contractors. This
assumption is, in our opinion, wholly unfounded. It is
totally absurd and chimerical. In the first place, the
Ratlam Alcohol plant was unable to supply the requirements
of even Jabalpur and Betul districts and during the period
ending 31st March 1986 Sagar Aggarwal himself had to pur-
chase liquor from outside at higher rates in order to satis-
fy the requirements of these two districts for which he held
D-1(S) licence. ‘If that be so, how could Ratlam
65
Alcohol plant which could not produce more than 60 lakh
proof litres at the outside, possibly supply liquor for the
whole of the territory of the State. If Ratlam Alcohol plant
could be made to supply the requirement of the entire State
there would be no need for any other distillery at all. But
obviously the capacity of the Ratlam Alcohol plant was very
limited and it was not able to achieve production on up to
this capacity. Secondly, it was decided that the Ratlam
Alcohol plant would manufacture only ractified spirit for
making masala liquor which was more popular and which
brought greater revenue to the State and obviously therefore
Ratlam Alcohol plant could not be available for producing
ordinary liquor for supply to the retail vendors. Thirdly,
it is difficult to understand how the learned Judge could
assume that Sagar Aggarwal would continue to get liquor from
Ratlam Alcohol plant at the rate of Rs. 1.80 per proof
litre. The rate for supply of liquor by the Ratlam Alcohol
plant would naturally depend upon varying market conditions.
And lastly we fail to understand how the learned Judge could
proceed on the assumption that a rate of Rs.4 per proof
litre would be fixed by the Export Committee for supply of
liquor by the existing contractors from the new distiller-
ies. We do not know what rate would be fixed by the Expert
Committee. That would depend upon diverse considerations and
of course one of the considerations would certainly be that
Sagar Aggarwal had offered minus 2.31 rupees per proof litre
while taking D-1(S) licences for Jabalpur and Betal dis-
tricts. The figure of Rs.56 crores put forward by Sagar
Aggarwal and accepted by the learned judge was clearly
hypothetical and based on assumptions which were totally
unwarranted. We do not think that the learned Judge was
right in observing that the public exchequer would incur a
loss of Rs.56 crores by the policy decision dated 30th
December, 1984 and that the policy decision was therefore
vitiated by mala fides or under-hand dealing or improper or
corrupt motive.
We may observe in conclusion that Judges should not use
strong and carping language while criticising the conduct of
parties or their witnesses. They must act with sobriety,
moderation and restraint. They must have the humility to
recognise that they are not infallible and any harsh and
disparaging strictures passed by them against any party may
be mistaken and unjustified and if so, they may do consider-
able harm and mischief and result in injustice. Here, in the
present case, the observations made and strictures passed by
BM. Lal, J. were totally unjustified and unwarranted and
they ought not to have been made.
67
We must therefore hold that the High Court was in error
in allowing the writ petitions even to a limited extent. We
accordingly allow the appeals of the State Government and
respondents Nos. 5 to 11 and dismiss the writ petitions. The
special leave petitions of M/s. Doongaji & Co. and Nand Lal
Jaiswal will also stand dismissed. We would however on the
facts and circumstances of the present case make no orders
as to costs.
S.R. Appeals allowed and Petitions
dismissed.
68