Patna High Court
Trigger Goods Pvt.Ltd vs The State Of Bihar & Ors on 22 April, 2009
Author: Ravi Ranjan
Bench: Ravi Ranjan
CIVIL WRIT JURISDICTION CASE No. 312 OF 2009
In the matter of an application under Article 226 of the Cosntitution
of India.
--------
TRIGGER GOODS PVT.LTD., a private Limited company incorporated
under the provisions of the Companies Act, 1956 having its registered office
at Room No. 218, 21, Hemant Basu Sarani, Kolkata 700 001 and its local
office at Tripolia, P.S. Alamganj, Patna 800 007 through its Director duly
authorized by the Board of Directors of the Company, namely, Kajal
Karmakar, aged about 39 years, Late Hira Lal Mistry resident of School
Para, P.s. Islampur, District Uttar Dinajpur, West Bengal --------- Petitioner
Versus
1. The State of Bihar through the Secretary to the State Government-cum-
Excise Commissioner, Bihar, Patna.
2. The Member, Board of Revenue, Bihar, Patna.
3. The Excise Commissioner, Bihar, Patna.
4. The Bihar State Beverage Corporation Ltd. having its office at Bidyut
Bhawan, 1st floor, Jawaharlal Nehru Marg, Patna through its Managing
Director. ---------------------------------------------------------Respondents
---------
For the Petitioner :- M/S. Jitendra Singh, Sr. Advocate & Satyabir
Bharti
For the State Respondents :- Mrs. Nividita Nirvikar, G.P. XVI
For the Respondent No. 4:- M/S. P. K. Shahi, Advocate General &
Vikas Kumar
PRESENT
THE HON'BLE THE CHIEF JUSTICE
&
THE HON'BLE MR. JUSTICE DR. RAVI RANJAN
------
Koshy, C.J: This writ petition was filed for setting aside the Liquor Sourcing
Policy (CS/SCS) 2008-09 (in short, the liquor policy), by which the Bihar
State Beverage Corporation Limited (hereinafter referred to as the
Corporation) has laid down terms and conditions for purchase of country
liquor and spiced country liquor from manufacturers of country/spiced
country liquor. According to the petitioner, the liquor policy is against the
provisions of the Bihar Excise Act, 1915 (in short, the Act) and the rules
made thereunder. It is also contrary to the terms and conditions of the licence
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issued by the State Government. It is further contended that the Corporation
has no authority or jurisdiction to prescribe such terms and conditions which
are against the statutory rules and that the above conditions are onerous,
unilateral and arbitrary and thus amount to abrogation of the terms and
conditions of the licence. It is also submitted that the Corporation having
monopoly to deal with wholesale purchase and supply, it has no authority to
impose such conditions taking undue advantage of that position and,
therefore, the conditions are unilateral and arbitrary and it alters and the
terms and conditions under which the parties are required to deal with liquor.
Further, it is contended that it is violative of Articles 14 and 19 of the
Constitution of India. Even though one of the prayers in the writ petition
was for restraining the Corporation from coercing the petitioner to execute an
agreement as stipulated in the Policy, after the filing of the petition, the
petitioner, out of compulsion and necessity, signed the agreement under
protest.
2. The petitioner is a company registered under the Companies Act,
1956. It is engaged in the manufacture and supply of country liquor. There is
no dispute with regard to the fact that only the State Government has got
exclusive privilege to deal with manufacture and sale of country liquor in the
State. Section 22 of the Act, as amended, provides that the State
Government may grant to any person, on such conditions and for such period
as it may think fit, the exclusive privilege of manufacturing or supplying of
liquor. Section 22 of the Act reads as follows:
―Grant of exclusive privilege of manufacture and sale of country
liquor or intoxicating drugs or denatured spirit or any other intoxicant-
(1) The State Government may grant to any person, on such
conditions and for such period as it may think fit, the exclusive
privilege -
(a) (i) of manufacturing or supplying wholesale, or
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(ii) of manufacturing and supplying wholesale, or
(iii) of selling wholesale or retail, or
(iv) of manufacturing or supplying wholesale and
selling retail, or
(v) of manufacturing and supplying wholesale and
selling retail, any country liquor or intoxicating
drug within any specified local, or
(b) of manufacturing, storing using, possessing, exporting, importing
including wholesale or retail sale
of liquor which after manufacture is denatured to render it unfit for
human consumption and is thereby termed as denatured spirit, and any
other intoxicant;
Provided that public notice shall be given of the intention to grant
any such exclusive privilege, and that any objection made by any
person residing within the area affected shall be considered before an
exclusive privilege is granted.
(2) No grantee of any privilege under sub-section (1) shall exercise the
same unless or until he has received a license in that behalf from the
Collector or the Excise Commission‖.
Section 91 of the Act deals with the power of the Board of Revenue to make
rules. Section 38 of the Act also authorises the Board to make rules and such
restrictions regarding manufacture, etc. of the liquor. The Supreme Court in
M.R Patel v. State of Bihar (AIR 1966 SC 343) also held that the Board of
Revenue, in exercise of the powers conferred on it by Sections 38 and 91 of
the Act, can issue general instructions with regard to the conditions of any
licence granted under the Excise Act. Section 92 of the Act provides that all
rules made, and notifications issued under the Act shall be published in the
official gazette and on such publication it shall have the effect as if enacted
under the Act. Therefore, only the Board can issue notifications regarding
the conditions of licence and other restrictions on the licensees regarding
manufacture and supply of liquor and that too by rules, notifications, etc
published in the official gazette. Since only the State is authorised to grant
the exclusive privilege of manufacture and supply of liquor, it invited tenders
from interested parties to grant the exclusive privilege of manufacture and
wholesale supply of country liquor in the Saran Zone comprising of the
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districts of Saran, Siwan and Gopalganj for the period from 1.6.2005 to
31.3.2008 by notice dated 18.8.2004 (published on 19.10.2004). The
petitioner responded to the tender notice and was granted the exclusive
privilege of manufacture and wholesale supply of country liquor in the Saran
Zone comprising of the districts of Saran, Siwan and Gopalganj, as could be
seen from Annexure 2 dated 31.5.2005. It was issued licence in Form 27 for
the manufacture and wholesale supply of country liquor in Saran Zone
comprising of the districts of Saran, Siwan and Gopalganj. Meanwhile, the
State has taken a policy decision to handover the responsibility of wholesale
supply of all kinds of liquor to the Corporation with effect from 1.10.2006.
Accordingly, the rules were amended, as can be seen from Annexure 3 dated
12.8.2006. Even though the said decision was challenged by some of the
parties, that was upheld by the Court as the State has got the exclusive right
to deal with foreign liquor and there is no fundamental right for any party to
deal in liquor. But, at the same time, the State has a duty to act fairly without
any discrimination. Even though licence was granted to the petitioner for
manufacture and wholesale supply of country liquor, the second part of the
licence was withdrawn as the wholesale supply was handed over to the
Corporation. The respondents, by letter dated 27.9.2006, issued guidelines
stating that with effect from 1.10.2006, the licence granted to the
manufacturers in Form 27 was changed and vide notification dated
21.9.2006, a new licence in From 27(C) was granted to the Corporation
enabling it to do the wholesale supply of the country liquor and the
manufacturers were required to pay the licence fee of Rs.1,50,000/- annually
and the licence fee for the Corporation was fixed at Rs.2/- per L.P litre on the
MGQ fixed for the area. Consequently, the condition for supply of country
liquor was re-determined and the manufacturer has to supply liquor to the
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Corporation only. The State Government modified the licence granted to the
petitioner and the petitioner is still doing the business on the strength of the
licence issued in Form 27 as the Board of Revenue has extended the period
of contract as prescribed under Clause 19 of the licence.
3. Now we will see the conditions of licence issued to the petitioner.
Clause 4 of the licence reads as follows:
―4. The licence shall be bound by the Bihar Excise (Fee)
Act, 1915 and by the rules framed under the Act so far as these may
relate to him. He shall deposit a sum of Rs.1,50,000/- (one lac and fifty
thousand) in advance in a lump sum as licence fee at the annual rate for
each manufactory situated in the area where he wants to sell the
country-made liquor after manufacturing.‖
Clause 7 shows that the licensee has to sell the liquor to the Corporation. It is
an outright sale. Clause 7 reads as under:
―7. The sale of liquor under this licence shall be made, from time
to time, only to the persons (specified as wholesale licensed vendor)
producing passes in prescribed form authorizing the sale to them of the
same type/types and quantity.‖
Clause 16 provides that the manufacturer shall supply country-made liquor to
the Corporation only after receiving bank draft of the cost of country-made
liquor. After payment of price by bank draft, on delivery of the article to the
designated godown, sale is complete. Clause 16 reads thus:
―16. The manufacturer licensee shall supply the country-made
liquor in bottles after receiving bank draft of the cost of country-made
liquor from the wholesale licensee. The manufacturer licensee shall
give separate receipt of the said received amount to the wholesale
licensee. The counterfoil of which shall be kept in safe custody in the
guard file of the warehouses.‖
Clause 25 also provides that if the contractor or his representative violates
the conditions of the licence, it shall be cancelled or suspended under Section
42 and liable to penalty under Section 57 of the Act. Form 27(C) is the
licence to supply, in wholesale, country/spiced country spirit, wherein it is
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specified under clause (2) that the Corporation is also bound by the
provisions of the Act and the Rules and it is also liable to pay licence fee.
Clause (2) reads as under:
―The licensee shall be bound by the provisions of the Bihar
Excise Act, 1915 and the rules framed thereunder so far as these may
relate to him. He shall deposit licence fees at the rate of Rs.2 per L.P
liter on guaranteed quantity of the area where he wants to sell the
country-made liquor/spiced country-made spirit in wholesale; if supply
is more than the guaranteed quantity in a financial year, more licence
fee shall be payable for that much quantity‖.
It also provides that it can sell/supply the country liquor to the retailers only
after receiving the price inclusive of tax by bank draft. A provision for
penalty is also incorporated under Clause 7. The above conditions are
imposed under the licence on the basis of the notification published by the
Board of Revenue.
4. While the dealings were continuing on the terms of the amended
licence, the Corporation published a new ‗liquor policy' for 2008-09. It is
contended by the petitioner that some of the provisions of the ‗liquor policy'
are contrary to the conditions of licence and the rules. The policy also
compels the manufacturers to execute an agreement accepting the conditions
in the liquor policy, which, according to the petitioner, is against the terms of
the licence.
5. The main objections of the petitioner are directed against Clauses
2(iv), 2(viii), 5.1, 5.5, 9.1, 9.2, 9.3, 9.4, 9.6, 9.7, 10, 10.2, 11 and 15 of the
Policy.
―2(iv) - An agreement as in the format at Annexure 4 (page 17 duly
executed by the authorised signatory of the manufacturers on a stamp
paper of the denomination of Rs.100/- (One hundred) only.‖
―2(viii) - Security Deposit of Rupees 50,000 (Fifty thousand) only in
the form of Bank Guarantee.‖
―5.1 - Supply of liquor (Country liquor/Spiced Country liquor) by
manufacturers to the Corporation shall be based on the O.F.S issued
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by the Corporation on request of supplier. The Corporation shall issue
O.F.S based on the stock requirements of depots after duly
considering the quantity held, the sales trend and requests of the
manufacturer, if any. To facilitate the process, the manufacturers may
indicate the requirement of the type and pack sizes of liquor in various
depots. However, the Corporation reserves its right to decide the
quantity for which O.F.S may be issued. O.F.S for Spiced Country
Liquor (SCL) will be issued from the Corporation Headquarters
whereas O.F.S for Country Liquor (CL) will be issued by concerning
depot manager.‖
―5.5. The O.F.S would indicate the validity date within which
the manufacturers should complete the delivery. If a manufacturer
does not honour the quantity indicated in the O.F.S within the validity
period, then the order for the remaining quantity shall lapse
automatically. The Corporation may, at its discretion, extend the
validity of the O.F.S and the manufacturer shall honour the O.F.S
within the extended validity period without fail. However, the
Corporation shall charge a fee for extending validity of each O.F.S for
CL/SCL as under:
(i) For first 3 days or part thereof - Rs.500 per O.F.S
(ii) For every next 3 days or part thereof - Rs.1000/- per
O.F.S.
However, these rates may be revised by the MD, BSBCL from time to
time for valid reason.‖
―9 - Stocks held for sale:
9.1 - Manufacturers may note that supply of liquor to the Corporation
against orders for supply shall be construed as an agreement to sell
under sub-section 3 of Section 4 of the Sale Goods Act, 1930. The
sale shall be concluded only when the liquor is delivered to
retailers/buyers by the Corporation. The Corporation would take
necessary care of the stored stock as is reasonably possible and
expected of it.‖
―9.2 - Damage to stocks of liquor held for sale as a result of any
negligence on the part of the manufacturer/manufacturers or the
transporter, would be to the account of the manufacturer concerned.
Instances of sachets having perforation/bottles having hairline cracks
resulting in steady evaporation or leakage of the contents, quantity
filled being less than the declared quantity, damage due to weak
carton-boxes, etc., which are controllable by the manufacturer cannot
be treated as storage losses attributable to the Corporation. Such or
other similar losses whenever detected shall be treated as transit losses
and the concerned manufacturer debited accordingly. Any decision of
the Corporation as regards the nature and quantum of such losses shall
be final. Manufacturers may, if they so desire, depute their
representatives to verify such sachets/bottles and satisfy themselves.‖
―9.3 - Manufacturers may appreciate that storage-space as a resource
has to be optimally utilised and slow moving/non-moving stocks of
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any manufacturer/manufacturers should not result in limiting market-
access of other manufacturers. It is, therefore, necessary that stocks
move regularly and non-moving/slow moving stocks are weeded out.
The stocks held by the Corporation would therefore be categorised as
under:-
(a) Active stocks - Stocks that are upto 21 days old in case of
country liquor and 60 days old in case of spiced country liquor, would
be treated as active stocks.
(b) Inactive stocks - Any stock stored for a period more than
21 days in case of country liquor and 60 days in case of spiced
country liquor will be treated as Inactive stock.
(c) Inactive stocks as aforesaid shall be charged a demurrage
of Rs.2/- per case/per crate per day. The demurrage shall be computed
on the basis of carton box/days (i.e. one carton box of an inactive item
stored for one day is termed as a carton box/day and would attract a
demurrage of Rs.2/-) and adjusted against the payments due to the
manufacturer/manufacturers of such stocks.‖
―9.4 - In the beginning of the month, the Corporation would view
details of inactive stocks (items) as at the end of the previous month,
with a request to the manufacturer to liquidate them within thirty days.
If the manufacturer does not take necessary action to liquidate such
stocks within the period aforesaid, the Corporation would dispose of
the inactive stocks in any manner as may be appropriate and the
difference between the price of delivery of liquor and the amount
realised shall be borne by the manufacturer concerned. Such
manufacturer shall not have any further claim against the Corporation
in respect of such stocks.
9.5 In case manufacturers make a written request to the Corporation
about their intention to withdraw stocks of CL/SCL from depots for
re-processing in view of their non-movement, deterioration in their
quality and packing etc., the BSBCL will recommend to the Excise
Commissioner to permit them to take back the stocks for re-
processing in the manner to be prescribed by the Excise Department.
Corporation margin plus demurrage shall be recovered from the
manufacturers in case of taken back stocks for reprocessing, just like
other stocks.
9.6 - However, any stock of CL/SCL lying unsold for a period of over
six months from the date of bottling/satcheting or stocks declared
unfit for human consumption while lying at the depot shall be drained
out by the Corporation. Any expenditure incurred by the Corporation
towards this shall be recovered from the manufacturer. No
compensation shall be payable in respect of such stock. Corporation
margin plus demurrage shall be recovered from the manufacturers in
case of such stocks also, just like other stocks.
9.7 - The warehouse/depot losses due to breakages and other reasons
will be wholly borne by the manufacturer who will participate in joint
verification at least once every quarter.‖
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―10 - Inter-Depot Transfers
10.1- The Corporation shall have the liberty to effect inter-depot
transfer of stocks for quick and easy disposal. Manufacturers may also
request for such transfers, if in their opinion, such transfers would
facilitate disposal of stocks. However, the decision of the Corporation
in this regard shall be final.
10.2 - Manufacturers shall bear all expenses towards inter depot
transfers. If for any reason, the Corporation expends any amount
towards the transfer, like permit fees, such amounts shall be
immediately debited to the account of the manufacturers. Transit
losses due to the transfer shall be borne by the manufacturers.
10.3 - Where any application is presented for issue of inter depot
transport order the manufacturers shall be required to deposit fee @
Re.1/- per CB (case-box)/per crate subject to minimum of Rs.50/- per
T.O.O (transfer-out order) or as decided by M.D, BSBCL from time
to time. However, as regards extension and cancellation of T.O.O, the
fees prescribed for extension/cancellation of O.F.S (Order for
Supply), as mentioned in relevant clauses shall be applicable.‖
―11 - Payment of stocks sold
11.1 - The Corporation shall pay the manufacturers only for the stocks
sold. Unsold stock shall not be eligible for any payment by the
Corporation.
11.2 - It is the responsibility of the manufacturers and not the
Corporation to effect the sales. The role of the Corporation shall be
that of a facilitator only.
11.3 - The amount payable to manufacturers for the sales
provisionally recorded within the week ending every Saturday shall be
computed and paid on the following Wednesday. Any amounts to be
recovered from the manufacturer due to demurrage, interest, etc. shall
be recovered out of the amounts payable. The Corporation would
provide a statement of provisional sales recorded to facilitate
reconciliation. Any missing data due to delays/failures in electronic
transfer of data shall be reckoned in the succeeding week, and
adjusted.
11.4 - The Corporation prefers to transfer the amounts due to the
manufacturer directly to their bank accounts. To facilitate such
transfer, manufacturers may open their accounts with any one of the
bankers to the Corporation.
11.5 - The Corporation would not be a party to any bill discounting
arrangement that the manufacturer may enter into with his bank.
11.6 - Once in three months, the Corporation would verify un-audited
sales data and rework the payment due to the manufacturer. Any
adjustment necessary would be made after such verification.
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11.7 - The Corporation would provide an extract (statement) of all
transactions of the manufacturer concerned before the 10th of the
succeeding month. Manufacturers may verify the statements and point
out instances of differences, if any, within the next two months. The
Corporation would, after confirmation, initiate corrective action.
However, the Corporation shall entertain no such difference after two
months of the close of the financial year.
11.8 - The Managing Director, M/s. Bihar State Beverages
Corporation Ltd., Patna reserves the right to modify the terms of
payments with the consent of the manufacturers.
11.9 - The manufacturers shall be liable to pay VAT as per provisions
of the law, and at rates applicable in the Bihar VAT Act.‖
―15 - Prejudicial act:
If during the currency of the contract, the manufacturers or any of
their representatives, workers or agents are found indulging in any
activity, which directly or indirectly, is prejudicial to the interest of
the Corporation or the Government of Bihar, or are found of -
a) offering illegal gratification of any kind including a bribe,
reward or advantage, etc., pecuniary or otherwise, to any officer or
employee of the Corporation, or
b) indulging in any malpractice, such as, forgery, falsification or
fabrication of any documents, bills, vouchers, delivery challans, etc.,
or introducing any liability in connection with the supply of CL/SCL
which amounts to an offence punishable under the Indian Penal Code
or any other law in force;
the Corporation, without prejudice to other legal rights, shall have the
right to terminate the contract forthwith, black-list the
manufacturer/concerned and forfeit its amounts as may be lying with
the Corporation besides initiating other appropriate action. All losses
that may be incurred by the Corporation in this regard shall be
recoverable from the manufacturer.
15.1 - The Corporation reserves the right to terminate any contract
with any manufacturer with one month's notice without assigning any
reason. The manufacturers should abide by the provisions of the Bihar
Excise Act, 1915, and the rules made thereunder in force from time to
time and any other relevant enactment like the Standards of Weights
& Measures Act, 1976, and Packaged Commodities Regulations,
1975, etc. The manufacturer is solely and individually responsible for
all the consequences arising out of any violation in this regard. Any
legal complications arising out of failure to comply with various rules
shall be the liability of the manufacturers concerned. Any
losses/damages suffered by the Corporation due to any lapse on the
part of the manufacturers in not complying with any of the rules will
be made good by the manufacturers concerned.
15.2 - Dues recovery process:- Any outstanding liabilities or dues
since the inception of BSBCL, not honoured by the
manufacturer/suppliers shall henceforth be treated as Public Demand
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under the Bihar and Orissa Public Demand Recovery Act 1913 and it
shall be recovered by the procedure laid down for the same in the
aforesaid Act‖.
6. The petitioner wrote Annexure 8 letter of objection to various
authorities including the respondents questioning the liquor policy and
against the execution of such agreement. Questioning the liquor policy, he
filed this writ petition on 6.12.2008. But, in view of the compulsion and
necessity, he signed the agreement on 15.12.2008 with a specific
endorsement, which reads as follows:
―Note: The above agreement is without prejudice to our right and
contention as raised in writ petition already filed, copy whereof has
been served on the BSBCL and the conditions contained in the
agreement hereby executed which are contrary to or modify the
provisions of the New License conferred or the scope of the Govt.
resolution dated 12.8.2006 shall not be binding on us‖.
It is also followed by another letter of protest dated 15/18.12.2008.
7. The learned Advocate General submitted that the writ petition itself is
not maintainable because (i) the liquor policy is only for 2008-09 and that
period is over; (ii) even though the petitioner was granted licence in Form
27, its term expired, and he is continuing now only on ad hoc extension
granted and, therefore, he has no locus standi to challenge the same; (iii)
since he has already executed the agreement, it is a contract in nature and in
contractual matters, Courts cannot interfere; and (iv) ‗liquor policy' is the
policy of the State and, therefore, the power of the Court to interfere is very
limited especially when supply, sale, etc of liquor are under the exclusive
jurisdiction of the State Government and there is no fundamental right to
carry liquor business. It is also submitted that the Corporation is a
Government owned company and is manned by Government officers and the
policy was framed by the Corporation which was subsequently approved by
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the State as its policy. If the petitioner is not willing to accept the terms and
conditions, according to the learned Advocate General, it can relinquish the
licence. Further, it is submitted that there is no violation of the Act or Rules
or the conditions of the policy.
8. Even though the ‗liquor policy' is framed for 2008-09, after the
expiry of the financial year, no new ‗liquor policy' was framed and the same
arrangement is being continued and the Corporation still insists that unless
conditions of liquor policy are complied with, they need not receive liquor
from the licensed manufacturer. The petitioner is still holding the licence in
Form 27 as a manufacturer on the basis of renewal by the Board of Revenue
as prescribed under the Rules and Clause 19 of the licence and if the
conditions in the liquor policy are not observed it would not be able to do
business. Further, even after the period is over, the question of financial
obligation and liability to pay will continue on the basis of the terms of the
policy. Therefore, merely because the liquor policy of the Corporation was
framed for 2008-09 alone, is not a ground for dismissing the writ petition in
limine. Even according to the Corporation, the conditions of the liquor policy
are still binding on the petitioner and similar manufacturer licensees.
Therefore, the petitioner cannot be thrown out only because the liquor policy
is only for the financial year 2008-09 or because the agreement term of the
petitioner expired. The petitioner has locus standi to question the same.
Even before executing the agreement, the petitioner questioned the policy by
writing letters to all the respondents separately, copies of which are produced
as annexure to the writ petition. The petitioner also challenged the same by
filing a writ petition, though out of compulsion and necessity it accepted the
policy under protest. Therefore, merely because the petitioner has signed the
agreement on the basis of the liquor policy, it cannot be contended that the
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petitioner cannot question the terms of the liquor policy on the ground of
violation of the statutory provisions or arbitrary.
9. Now we have to consider whether it is a pure contractual matter.
After the acceptance of the tender, the petitioner was issued licence in Form
27 and the State granted the exclusive privilege of manufacturing liquor only
in three districts. The conditions of the licence are binding on it. The
petitioner cannot contend that it is not accepting the conditions of the licence.
It is a statutory contract. If the conditions of licence are violated, he would
be liable for penalty and other consequences. Similarly, the Corporation is
also a licensee and it was given licence in Form 27(C). Therefore, both the
petitioner and the Corporation are bound by the rules and the terms of the
licence. The liquor policy was issued against the original contractual terms
and unless the agreement is executed accepting the conditions in the liquor
policy, the Corporation would not accept the supply and the petitioner, being
the licensee, cannot sell liquor to anybody since the Corporation is given
monopoly right to supply liquor and the manufacturer is bound to supply
liquor only to it. Therefore, under protest, the petitioner signed the agreement
in distress and the writ petition cannot be dismissed because the petitioner
has signed the agreement accepting the liquor policy of the Corporation.
10. The public policy of the State is contained in the Statute as well as
the Rules. The conditions of licence incorporated in the Rules also show the
policy of the State. As soon as there is change in policy, the Board of
Revenue has to publish the new rules and the general conditions in the
official gazette as provided under Section 92 of the Act. Once the policy is
framed and published in the gazette in the form of Rules, notification and
general directions, it cannot be changed by a decision of a company
registered under the Companies Act even though it is a Government
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company and the directors of the board are Government officers. The board
of directors of the respondent-Company cannot amend the State policy or the
statutory rules. It has no authority or jurisdiction to do the same. The learned
Advocate General was not able to show any legal authority to prove that the
board of directors of a Government company can declare public policy of the
State. Such a power of rule making cannot be delegated to the directors of a
registered company.
11. It is true that the Courts should not examine the merits and demerits
of the policy laid down by regulations. Any drawbacks in the policy
incorporated under the Rules and Regulations will not render it ultra vires, as
held by the Supreme Court in Maharashtra State Board of Secondary and
Higher Secondary Education and another v. Paritosh Bhupesh
Kurmarsheth (AIR 1984 SC 1543). It was further held by the Supreme
Court that even if the policy is a foolish one, the Courts have no power to set
aside the same and that the Courts need only three aspects viz.
(1) Whether the provisions of the regulations fall within the
scope and ambit of the power conferred by the Statute;
(2) Whether the regulations/rules framed by the delegate are to
any extent inconsistent with the provisions of the parent enactment;
and
(3) Whether they infringe any of the fundamental rights or other
restrictions imposed by the Constitution.
It was further held by the Supreme Court that the right of the State to change
its policy from time to time under the changed circumstances cannot be
questioned. Even though the State has discretionary powers, it cannot act
arbitrarily. It is bound by the Rules and the conditions framed by it
statutorily and once the licence is granted, it will become a statutory contract.
Neither in the Act nor in the Rules, there is no provision which enables the
15
Corporation to frame rules that is contrary to the statute or rule, making them
as conditions of licence therewith.
12. In Bombay Dyeing & Mfg. Co. Ltd. V. Bombay
Environmental Action Group ((2006) 3 SCC 434), the Supreme Court held
as follows:
―A policy decision, as is well known, should not be lightly
interfered with but it is difficult to accept the submissions made on
behalf of the learned counsel appearing on behalf of the appellants
that the courts cannot exercise their power of judicial review at all. By
reason of any legislation, whether enacted by the legislature or by way
of subordinate legislation, the State gives effect to its legislative
policy. Such legislation, however, must not be ultra vires the
Constitution. A subordinate legislation apart from being intra vires the
Constitution should not also be ultra vires the parent Act under which
it has been made. A subordinate legislation, it is trite, must be
reasonable and in consonance with the legislative policy as also give
effect to the purport and object of the Act and in good faith.‖
In State of Rajasthan v. Basant Nahata ((2005) 12 SCC 77), it was
observed by the Supreme Court as follows:
―The contention raised to the effect that this Court would not
interfere with the policy decision is again devoid of any merit. A
legislative policy must conform to the provisions of the constitutional
mandates. Even otherwise a policy decision can be subjected to
judicial review.‖
In Clariant International Ltd v. Securities & Exchange Board of India
((2004) 8 SCC 524), following observations in Secretary, Ministry of
Chemicals & Fertilizers, Govt. of India v. Cipla Ltd ((2003) 7 SCC 1), the
Supreme Court has held as follows:
―When any criterion is fixed by a statute or by a policy, an
attempt should be made by the authority making the delegated
legislation to follow the policy formulation broadly and substantially
and in conformity therewith.‖
13. It is true that normally the Courts will not interfere with the policy
decision of the State unless the State policy is demonstrably arbitrary,
capricious, irrational, discriminatory or violative of the constitutional or
16
statutory provisions, it cannot be struck down by the Courts. Wisdom of the
public policy is irrelevant (Krishnan Kakkanth v. Government of Kerala
and others - (1997) 9 SCC 495). In Kanhaiya Lal Sethia and another v.
Union of India and another ((1997) 6 SCC 573), it was held by the
Supreme Court that Courts do not, in exercise of their power of judicial
review, interfere in policy matters of the State unless the policy so
formulated either violates the mandate of the Constitution or any statutory
provision or is otherwise actuated by mala fides. To say that the
Government policy is irrational, one should find Wednesbury on
unreasonableness. It applies to a decision which is so outrageous in its
defiance of logic or of accepted moral standards that no sensible person who
had applied his mind to the question to be decided could have arrived at and
another ground for striking down a policy incorporated in the rules is the
procedural impropriety. The modern trend points to judicial restraint in
administrative action. Even though the Courts should not examine the merit
and demerit of the policy laid down by the rule making authority, the Courts
can consider the question whether the regulation falls within the scope of
regulation making power. Here the unfortunate part is that the rules were not
amended and no State policy was introduced by the Government or its
delegate Board of Revenue by any rules or regulations and some of the
provisions in the liquor policy framed by the Corporation are contrary to the
rules in terms of the licence (statutory clause). As per Section 32, 91 and 92,
only the Board of Revenue can issue notification, rules, directions, etc that
too by publication in the official gazette incorporating the policy. When
monopoly right of supply of liquor is given to the Corporation as a result of
change in public policy, the Board of Revenue published notification in the
official gazette incorporating the changes in the policy and amended licence
17
was also issued incorporating new policy. A company registered under the
Companies Act, even if it is owned by the Government, cannot declare the
State policy and it has no power to amend the statutory rules and the licence
conditions. By no stretch of imagination, it can be found that statutory rules
can be framed by a company even in violation of the statutory regulations.
Even though it was argued by the learned Advocate General that the policy
was approved by the Government, there is no such averment in the counter
affidavit filed by the State. No document was also produced to show that the
policy was approved by the State as per the rules of procedure. Further, when
the policy is incorporated in a rule or notification or regulation, the same can
be changed only by amendment of the rules or the notification by publication
in the official gazette as prescribed under the parent Act. Here no such
amendments were made and the licence conditions were not changed. Both
the State and the petitioner are bound by the licence conditions in Form 27
and the conditions in the licence in Form 27(C) as prescribed in the Rules.
The Corporation, a company registered under the Companies Act, cannot
change the above conditions. The liquor policy is only a policy of the
Corporation and it is not a State policy or public policy. The conditions in the
policy which are against the Act, Rules, valid notifications or licence are
illegal and are liable to be set aside.
14. With regard to the contention that if the petitioner is not willing to
accept the terms and conditions it can leave, we are of the view that in view
of the monopoly right given to the Corporation, the bargaining power is
unequal and, therefore, such a contention cannot hold good. In Hindustan
Times v. State of U.P ((2003) 1 SCC 591), while repelling such a
contention, the Supreme Court observed thus:
18
―The respondents being a State cannot in view of the equality
doctrine contained in Article 14 of the Constitution, resort to the
theory of ‗take it or leave it'. The bargaining power of the State and
the newspapers in matters of release of advertisement is unequal. Any
unjust condition thrust upon the petitioners by the State in such
matters, in our considered opinion, would attract the wrath of Article
14 of the Constitution as also Section 23 of the Indian Contract Act -
see Central Inland Water Transport Corpn. Ltd v. Brojo Nath
Ganguly ((1986) 3 SCC 156) and Delhi Transport Corpn. v. D.T.C
Mazdoor Congress - (1991 Supp (1) SCC 600. It is trite that the
State in all its activities must not act arbitrarily. Equity and good
conscience should be at the core of all governmental functions. It is
now well settled that every executive action which operates to the
prejudice of any person must have the sanction of law. The executive
cannot interfere with the rights and liabilities of any person unless the
legality thereof is supportable in any court of law. The impugned
action of the State does not fulfil the aforementioned criteria.‖
The Supreme Court again considered the matter in Kerala Samsthana
Chethu Thozhilali Union v. State of Kerala and others ((2006) 4 SCC
327) and held as follows:
―'Take it or leave it' argument advanced by Mr. Chacko is stated
to be rejected. The State while parting with its exclusive privilege
cannot take recourse to the said doctrine having regard to the equity
clause enshrined under Article 14 of the Constitution. The State in its
dealings must act fairly and reasonably. The bargaining power of the
State does not entitle it to impose any condition it desires.‖
In view of the exclusive privilege, we cannot accept the contention of the
learned Advocate General in this regard.
15. With regard to the contention that the State has the exclusive right
to deal with liquor and that a citizen does not have the fundamental right to
deal with liquor and, therefore, the Court cannot interfere with the matter and
it should be left to the State alone, we are of the view that liquor policy is not
a policy of the State. It is not a rule or valid order. In State of M.P v.
Nandlal Jaiswal ((1986) 4 SCC 566), the Supreme Court held that:
―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
19
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 privilege of manufacturing or selling liquor. It is,
therefore, not possible to uphold the contention of the State
Government and respondents 5 to 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 requirement of that article.‖
In Khoday Distilleries Ltd v. State of Karnataka ((1995) 1 SCC 574), a
Constitution Bench of the Supreme Court held that the State can create a
monopoly either in itself or in the agency created by it for the manufacture,
possession, sale and distribution of the liquor and restrictions can be imposed
on trade or business in the potable liquor with or without limitation. In this
case, more limitations than what is mentioned in the Act, Rules and the
Liquor Policy were imposed on the petitioner by a Government company by
framing liquor policy of that company which is contrary to the legislative
policy. Here the liquor policy, which has the effect of a statutory rule, is not
a statutory rule. Therefore, it cannot be implemented as statutory rule.
16. In Assistant Excise Commissioner and others v. Issac Peter and
others ((1994) 4 SCC 104), the Supreme Court observed that even though
the State has exclusive privilege to grant licence, once it is granted, the
contract between the parties will be governed by the statutory provisions i.e.
provisions of the Act, Rules, the conditions of licence and the counterpart
agreement. They are binding both upon the Government and the licensee.
Neither of them can depart from them. It is not open to any officer of the
Government to modify, amend or alter the said terms and conditions, not
even to the Minister for Excise. In any event, a company registered under the
Companies Act has no power to alter the terms of the licence and merely
because it has got monopoly over purchase, supply and distribution of liquor,
20
using that advantageous position, it cannot compel the parties to violate the
terms of the licence and impose more onerous conditions.
17. Now we may consider some of the decisions of this Court, which are
affirmed by the Supreme Court. In M/s. Sheo Narain Jaiswal Pvt. Ltd and
another v. State of Bihar and others (1997 (1) BLJ 107), a Division Bench
held as follows:
―4. It is by now well settled that no citizen has a fundamental
right to carry on business in country liquor. All rights in regard to
manufacture and sale of intoxicants vest in the State. It is open to the
State to part with these rights for a consideration. This consideration
amount is neither an excise duty nor a licence fee. It is the price of
privilege of the State. The concept of exclusive privilege envisages a
peculiar benefit granted by the State to a particular person to the
exclusion of others in a specified local area. Since the licence fee is
the price of consideration which the government charges from the
licensee for parting with its exclusive privilege, it is a normal incident
of a trading or business transaction. Terms and conditions of licence
are not open to challenge on grounds of harshness or inconvenience.
......‖
―5. While it is sell settled that a citizen has no fundamental right
to carry on trade or business in intoxicants, and no one can claim the
grant of such privilege, as a matter of right, it is equally well settled
that in the exercise of its statutory authority, if the State wishes to part
with its exclusive privilege in favour of private individuals, it can do
so by following a procedure which is fair and not arbitrary. If the
grant is made on certain terms and conditions, those terms and
conditions have to be adhered to by the State as much as by the
grantees of such privilege. There can be no arbitrariness even in the
distribution of larges by the State. A fair procedure, free of
arbitrariness, is a sine quo non for the proper exercise of power even
in the administrative field. .........‖.
But, it was held that the State and its officers cannot demand in excess of the
amount mentioned in the licence. When the State had taken the matter in
appeal, the Supreme Court while dismissing the appeal directed to refund the
amount collected in excess of the fees mentioned in the licence. In M/s. SCI
(India) Ltd and another v. State of Bihar (1997(1) PLJR 459 (SC)), it was
held that the State is not only a promisor but has also granted exclusive
privilege in terms of Section 22 followed by issuance of licence under
21
Section 22(2). The action of the authorities in patent disregard of a binding
contract is quite unreasonable and arbitrary and violative of the constitutional
guarantee under Article 14 of the Constitution.
18. We agree with the learned Advocate General that when the
Corporation has the monopoly in distribution of liquor, all manufacturers are
bound to supply liquor to the Corporation. The Corporation can make some
procedural arrangement regarding purchase and storing of the liquor and for
that it can frame its own procedures. But such arrangements cannot change
the conditions in the licence or the provisions of the Act or the Rules.
19. The Corporation itself is a licensee under Form 27(C). If either the
petitioner or the Corporation violates any of the conditions contained in the
licence, it will be liable for penalty. Further, the Corporation cannot
incorporate arbitrary rules and more onerous conditions on a licence merely
because of its monopoly over wholesale supply or distribution of liquor. One
sided terms cannot be made by the Corporation. Merely because a Joint
Commissioner of Excise has written a letter to the petitioner to comply with
the policy will not make the policy a public policy of the State. Change in
the regulation can be made only by the Board of Revenue. Statutory power
given to the Board of Revenue cannot be usurped by the board of directors.
The board of directors can make its own procedure while purchasing liquor
from the manufacturers in wholesale, but that should be in accordance with
the terms of the conditions of the licence and such procedure shall not affect
the substantial rights of the parties concerned. In this case, it is manifest that
under the provisions of the Act, only the State Government and the Board of
Revenue are empowered to frame terms and conditions for manufacture,
wholesale and retail sale of any form of intoxicant and of course the
Corporation, which is a grantee of licence, is not empowered to provide for
22
any terms and conditions contrary to the licence conditions on the
manufacturer. The Bihar Liquor Policy contains mainly procedures to be
followed by the manufacturer licensees in the manufacture and supply of
liquor and it contained more onerous conditions.
20. Now we may consider some of the clauses objected to by the
petitioner. The provision under Clause 2(iv) to execute an agreement
accepting the procedural law in an agreement on a stamp paper is not as such
illegal. The agreement cannot contain provisions against the conditions of the
licence. The sole question is whether any of the conditions in the policy or
agreement are bad and oppressive in nature and against the provisions of the
Rules. As per Clause 2(viii), a security deposit of Rs.50,000/- is to be paid in
the form of bank guarantee to the Corporation. As per the conditions of the
licence, the licensees have to make a deposit of Rs.1,50,000/- in lumpsum as
licence fee. It was already deposited. Nowhere in the Act or the Regulation
the Corporation has been authorised to obtain bank guarantee of Rs.50,000/-
and so long as the Act, Rules and the licence conditions are silent regarding
fresh bank guarantee, we are of the view that Clause 2.8 of the liquor policy
and the corresponding provision in the agreement are unsustainable. The
condition in Clause 5.1 that supply of liquor by the manufacturers to the
Corporation shall be based on the O.F.S issued by the Corporation cannot be
stated to be illegal as the manufacturer cannot compel that all the liquor
manufactured by it irrespective of need should be accepted by the
Corporation. So it needs no interference.
21. Clause 5.2 states that the Corporation will be under no obligation
to procure any specified minimum quantities of country liquor during the
currency of the contract as the quantity to be procured from time to time
shall depend upon the demand for the product. The petitioner is the only
23
licensed manufacturer for the three districts under Saran Zone. With regard
to the condition that the Corporation would be under no obligation to procure
minimum quantity of liquor from the petitioner, we are of the view that since
the petitioner is the only licensed manufacturer for the three districts under
Saran Zone, whenever there is demand, the Corporation is bound to accept
liquor from the petitioner and there cannot be any discrimination between the
petitioner and other manufacturers. It is stated in Clause 5.5 that the O.F.S
would indicate the validity date within which the manufacturers should
complete the delivery and if there is delay in delivery, provision for
imposition of fee is incorporated. The O.F.S can be changed depending upon
the nature of the product before its supply. There is nothing wrong in the
Corporation insisting that the stock shall be delivered at the depot of the
Corporation and it shall conform to the quality, quantity and pack size as
indicated in the O.F.S. This clause cannot be questioned as it is not violative
of any provisions of the licence conditions. There is also nothing wrong in
stipulating condition that the Corporation can cancel the O.F.S if the liquor is
not supplied in time. Clause 7 deals with quality control and such procedure
can be fixed by the wholesale dealer.
22. Clause 8.1 states that any risk during transit of liquor from the
premises of the manufacturer till the stocks are unloaded and stacked in the
deposit shall be borne by the manufacturer. There is no need for interference
with that clause. We also see no reason to interfere with clause 8. We are of
the view that the condition under Clause 9.1 that the sale shall be concluded
only when the liquor is delivered to retailers/buyers by the Corporation is
contrary to the terms of the licence. The licence condition contemplates
actual sale of liquor to the Corporation. As soon as the goods are delivered at
the designated godown of the Corporation, the price shall be paid and
24
thereafter the products become the property of the Corporation. Therefore it
cannot be said that the sale concludes only when the liquor is delivered to
retailers/buyers by the Corporation and this clause is against the terms of the
contract.
23. With regard to Clause 9.2, only if damage to stocks of liquor held
for sale as a result of any negligence on the part of the
manufacturer/manufacturers or the transporter is caused, they could be made
responsible. But after the delivery of the stocks if any damage is caused, the
manufacturers cannot be made liable. Therefore, Clause 9.2 is totally against
the terms of the licence. Clause 9.3 is only one-sided. In contractual terms,
the Corporation cannot impose statutory onerous conditions on the buyers.
The conditions in Clauses 9.5 and 9.6 are also unreasonable, unilateral and
beyond the licence conditions. If there is any defect in manufacture, the
Corporation could, of course, return the goods to the manufacturer and the
cost incurred by it could be recovered. But merely because the stock lay
unsold for six months or the stock declared unfit for human consumption
while lying at the depot, no demurrage can be recovered from the
manufacturers. The clause regarding inter-depot transfers also appears to be
contrary to the rules. Once the goods reached the designated godown and
accepted by the Corporation, it is the property of the Corporation and,
therefore, the petitioner cannot be burdened with inter-depot transfer charges,
handling charges, etc.
24. With regard to the clause relating to inter-depot transfer, we do not
find anything wrong with it. But when the stock purchased are forwarded for
inter-depot transfer, it is the sole responsibility of the Corporation and the
conditions under Clauses 10.2 and 10.3 imposing such liability on the
manufacture are totally against the conditions of the licence and more
25
onerous than what is prescribed under the Rules. Inter-depot transfers are at
the discretion of the Corporation after the purchase of goods and after
delivery of the goods at the designated godown, it is for the Corporation to
undertake the risk for inter-depot transfer and the manufacturers cannot be
made liable. It is a totally unilateral and one-sided clause. The further
condition that the Corporation shall pay the manufacturers only for the stock
sold and they are not eligible for payment for the unsold stock also cannot be
accepted since it is against the terms and conditions of the licence. Similar is
the case with Clause 11. The licence condition is that the
manufacturer/licensee shall sell the goods to the Corporation and the
Corporation shall pay the sale price by bank draft. Therefore, in the absence
of a provision in the licence or the Rules that the Corporation shall pay the
manufacturers only for the stocks sold by retailers, that condition will not
stand. The stipulation regarding payment against the provisions of the licence
conditions in Clause 11 are to be held as invalid and such clauses are not
binding on the licensees. As per Clause 12.1, if the offer is withdrawn within
one year of the contract, the Corporation shall be at liberty to cancel the
contract, forfeit the security deposit and also recover from the manufacturer
extra loss incidental to the breach of the contract on the part of the
manufacturer. The Corporation cannot cancel the licence issued by the
Government. The manufacturers can supply the liquor manufactured by it
only to the Corporation and if the Corporation refuses to buy the liquor, the
petitioner cannot sell the liquor to others as it amounts to cancellation of the
licence. The licence can be cancelled only as per the Rules.
25. We see no objection against Clause 15. Clause 15.1 provides that the
Corporation reserves the right to terminate any contract with any
manufacturer with one month's notice without assigning any reason. Such a
26
clause is arbitrary. The Corporation has no authority to cancel the contract
unless ordered by the Government or the Board of Revenue, as the case may
be. As regards Clause 15.2, the Corporation suo motu cannot say that if any
outstanding liability or dues since the inception of BSBCL not honoured by
the manufacturers/suppliers shall henceforth be treated as public demand
under the Bihar and Orissa Public Demand Recovery Act 1913 and it shall be
recovered by the procedure laid down for the same in the aforesaid Act is
also against the provisions of the parent Statute. Admittedly if any amount is
due to the Corporation, being a Government company, it shall automatically
become a public demand. A provision in the Act or Rules or at least a
notification has to be issued by the Government as provided under the parent
Act. Either by an agreement or by a policy decision of the board of directors
of the company, such clauses cannot be incorporated.
26. We are of the view that then clauses stated above are against the
provisions of the statutory rules and violative of the conditions of the licence
(statutory conditions). In view of the above, the agreement incorporating
objectionable conditions, signed under protest due to coercion, is invalid and
cannot be acted upon. With the above observation, the writ petition is partly
allowed.
Sd/-
(J. B. Koshy, CJ.)
Dr. Ravi Ranjan, J.I agree.
Sd/-
(Dr. Ravi Ranjan, J.) Patna High Court, The 22nd April, 2009, AMIN/ (A.F.R.) 27