State of Madhya Pradesh & Ors Vs. Nandlal Jaiswal & Ors [1986] INSC 218 (24 October 1986)

BHAGWATI, P.N. (CJ) 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 decision of the Government of Madhya Pradesh--Whether the licence 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 Distilleries Association--Whether the High Court could bifurcate 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 manufacture, 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 several sets of Rules. Rule II of the Rules of General Application 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 Government). So far as the first seven distilleries are concerned, 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 machinery. 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 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 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 Dis3 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 machinery 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 production 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 distil4 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 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 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. Distilleries Association was examined by the State Government at different levels, cabinet sub-committees, special committee headed by Shri Vijayavargi, 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 D1 licences for the period ending 31st March 1986. The Letter of Intent set out various conditions subject 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 provided 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 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. 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 approved by the State Government.

Pursuant to the Letter of Intent and the Deed of Agreement 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 distillery and placed orders for purchase of plant and machinery 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 petitions. 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 succeed, 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 licence for manufacture or sale of country liquor may be disposed of in any one of four different modes, viz., tender, auction fixed licence fee or such other manner as the State Government may by general or special order direct.

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 construction 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 licence in Form D-1 or not. There are also two types of licences 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 rectified spirit, denatured spirit or foreign liquor as contemplated 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 provi8 sions 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. 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 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 respondent Nos. 5 to 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 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 Government 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 sustained 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 licensees and also result in public mischief and inconvenience detrimental to the interest of the State. Since the petitioners 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 considerable amount of time, energy and resources and incurred huge expenditure in setting up the new distilleries, sustaining 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 decision 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 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 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" contained 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 Constitution 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 factors. The High Court does not ordinarily permit a belated resort to the extra ordinary remedy under the writ jurisdiction 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 jurisdiction is exercised 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. 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 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 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 discretion 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 respondent 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 Authority 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 regulatory 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 contention 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 requirement 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 arbitrary, 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 method" 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 licences are granted to the existing contractor his application 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 D1 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 D1 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 industry. [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 infallible 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, corruption and underheard dealing of the State Government which are not justified by the record. [62B]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 162239 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. Srivastava, 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.KSinha, 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 1986was filed by one Sagar Agarwal on 24th-January 1986. Both these writ petitions were directed against the policy decision 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 challenging 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 application 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 material 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 'intoxicating 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 intoxicant 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 'spirit' in section 15 2(17) which provides that "spirit" means any liquor containing alcohol obtained by distillation whether it is denatured or not. Chapter IV of the Act is headed 'Manufacture, Possession 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 possession 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 behalf. 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 reproduced 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 payment 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 manufacturing or of supplying by wholesale, or of both, and selling by retail, any 16 liquor or intoxicating drug within any specified area." There are no other sections in the Act material for our purpose until we come to section 62 which confers on the State Government 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 prescribing 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 matters, 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 manufacture, 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 behalf." 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., tender, 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 disposal, 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 obviously 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 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 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 violated 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 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 in Form D1 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 working 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 country 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, denatured 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 simultaneously have a licence in Form D1.

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 distilleries are concerned, and hereafter whenever we refer to distilleries we shall be referring only to these seven distilleries, 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 machinery. 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 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 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 machinery 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 including 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 actually 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 distilleries 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 incurring heavy expenditure every year. The plant and machinery were also old and antiquated and it was necessary to install 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 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 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 appropriate 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 distilleries 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 transferred to new sites in view of the problem of pollution and the question of transfer of distilleries to private ownership 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 Sub Committee 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, Separate Revenue Department, Secretary Finance Department and Excise Commissioner were directed to assist the Cabinet Sub Committee. The Separate Revenue Department submitted a note for the consideration of the Cabinet Sub-Committee and this note formulated various issues arising for consideration 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 distilleries 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 implements for manufacture of liquor in the distilleries 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 distillery is to be maintained at the present site" and in order to determine this question, the Cabinet Sub-Committee constituted a Committee headed by Shri Vijayvargi Special Secretary, 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 existing sites on account of the problem of pollution. The Vijayvargi 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 Commissioner as also by the M.P. Consultancy Organisa24 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. Pursuant 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 Commissioner 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 capacity of all the 9 distilleries taken together would not be sufficient to meet this growing requirement of liquor consumption. 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 considered 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 decisions which are set out in paragraph 3 of the proceeding of this meeting which form part of the record. It is not necessary 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 suggestions to the Cabinet Sub-Committee and these suggestion