Supreme Court of India
CHAITANYA KUMARversusSTATE OF KARNATAKA & ORS.
- Citation
- 1986 INSC 68
- Decided
- 9 April 1986
- Disposal
- Dismissed
- Bench
- O CHINNAPPA REDDY
Holding
The award of bottling contracts was arbitrary, capricious and illegal under the Karnataka Excise Act, the Bottling of Liquor Rules and Article 14, and the appeals are dismissed.
Summary
The Karnataka government invited applications for bottling arrack and, after receiving 131 applications, the Excise Commissioner recommended eight contractors, many of whom were not eligible under the Karnataka Excise (Bottling of Liquor) Rules. The State awarded the contracts despite the rules restricting licences to persons already connected with the liquor trade, and only later amended the rules to accommodate the award. Aggrieved applicants challenged the award as arbitrary, capricious and violative of the Karnataka Excise Act, the Rules and Article 14 of the Constitution. The Supreme Court held that the award was indeed arbitrary, that Rule 3(2) applied to the scheme, and that the post‑hoc amendment could not cure the illegality. It affirmed the High Court’s order striking down the contracts and dismissed the appeals, refusing to allow the contractors to continue work pending appeal.
Issues considered
- Whether the award of bottling contracts to persons ineligible under Karnataka Excise (Bottling of Liquor) Rules was arbitrary and violative of Article 14.
- Whether Rule 3(2) of the Bottling of Liquor Rules applied to the 1984 bottling scheme.
- Whether a post‑award amendment of the Rules could legitimize the award.
- Whether the High Court was correct in striking down the Government order.
- Whether the appellants could be permitted to continue the contracts pending appeal.
Legislation cited
- Constitution of Indias. Art.14, s. Art.226, s. Art.32
- Karnataka Excise Act, 1965s. 13(1)(e), s. 2(2)
- Karnataka Excise (Bottling of Liquor) Rules, 1967s. Rule 3(2), s. Rule 4
Subjects
bottling contractsKarnataka Excise Actadministrative lawarbitrarinesspublic interest litigationrule amendmentequalitylicensingexcise
Judgment
409
A
CllAITANYA KllWI.
v.
STATE OF KARNATAltA & ORS.
APRIL 9, 1986
B
[O. CHINNAPPA REDDY AND K.N. SINGH, JJ.]
Karnataka Excise Act, 1965, ss. 2(2) and 13(1)(e)/
Karnataka Excise (Bottling of Liquor) Rules, 1967, r. 3(2) :
Contracts for bottling arrack - Awarding of - Whether
arbitrary and capricious.
c
Constitution of India, Arts. 14, 32 and 226 :
Goverrunent Contracts - Distribution of State largesse -
Arbitrariness - When arises.
Public Interest Litigation - Balancing of interests - D
Role of the Court.
Words & Phrases : "to bottle" - "Bottle liquor for sale"
-;. - Meaning of - Karnataka Excise Act, 1965, ss. 2(2) and
13(l)(e).
E
Section 13(l)(e) of the Karnataka Excise Act, 1965
• prescribes that no person shall bottle liquor for sale except
under the authority and subject to the terms and conditions of
~ a licence. Rule 3(2) of the Karnataka Excise (Bottling of
Liquor) Rules, 1967, as it stood at the relevant time,
tprovided that no person shall be granted a licence to bottle F
liquor, unless he was a lessee of the right of retail vend of
arrack, or he held a licence for the distillation or
1181lufacture of liquor, or trade and import licence or a
licence for CCllljX>unding, blending or reducing of liquors or
any other licence which required possession of bottling
licence. Rule 4 provided that a lessee of the right of retail G
vend of liquor or a person holding any of the licences
i specified in rule 3 and desirous of obtaining a licence to
bottle liquor 1111y lllllke an application for licence.
Pursuant to the decision of the State Government to
supply liquor in sealed bottles, the Excise Comissioner by a H
410 SUPREME COURT REPORTS !1986] 2 s.c.R.
A
Gazette Notification dated April 11, 1984 invited Jt·
applications from intending persons/firms for bottling arrack,
though according to the rules it was to be confined to persons
already connected with the liquor trade.
Out of the one hundred thirty one applications received
B the Excise Colllllissioner rejected twenty eight on the ground
that the applicants were distillers, ninety on the ground that-'
they were connected with the liquor trade and five on the
ground that there was no ·proof that they had a base in
Karnataka. The remaining eight applications were recoDmended
for the award of the bottling contracts.
c
The Secretary to the Government being dissatisfied with -ll:
the manner of selection, made adverse observations in his note.~
to the Excise Minister. ·But all the same, the Minister
accepted the recoDmendation of the Coomissioner in
consultation with the Chief Minister. The Deputy Secretary to
D the Finance Department in his note to the Home Department also
observed that it was not clear from the file as to how the
Excise Coomissioner had selected the contractors, The
Government, however, by its order dated September 27, 1984
allotted the bottling contracts to the persons recoDmended by -t
the Excise Collllllissioner.
E
Aggrieved by the said order some of the unsuccessful
applicants filed writ petitions in the High Court alleging •
arbitrariness in selecting contractors. The Government at this
stage on November 23, 1984 issued a notification, containing a ~
draft amendment of r. 3(2) by addition of the words "or to
F persons entrusted with the bottling of arrack by the Govern- ;
ment" after the words "reducing of liquors", and inviting ·
objections, if any, by the public before November 28, 1984 -
barely five days' time. This amended rule making persons
unconnected with the liquor trade eligible for grant of
licences, was published on November 30, 1984. Later, r.4 waa
G also amended to· bring it in line with the amended rule 3. More
writ petitions were thereafter filed, including some by public
spirited citizens, one of them alleging malafides on the part r
of the Chief Minister whose son-in-law waa stated to be
interested in some of the firms to whom the contracts had been
awarded.
H
CHAITANYA KUMAR v. STATE 411
A
'f The petitions were contested by the Stste Government
contending in their counter affidavit that it was thought
desirable to award the bottling contracts to persons un-
connected with the manufacture or sale of arrack as that would
prevent the possibility of its adulteration and short measure-
ment, and evasion of excise duty. B
,{ The High Court while allowing the two writ petitions,
struck down the impugned order as being unlawful, arbitrary,
capricious, in flagrant violation of law, and as shocking to
judicial conscience. It held that the allegation of personal
bias against the Chief Minister was false, without however,
recording any finding on the question of malafides. C
:i-
-t In appeals by special leave filed by some of the
aggrieved contractors, it was contended that the bottling
scheme introduced by the Government in 1984 was entirely
outside the Karnataka Excise (Bottling of Liquor) Rules, and
that r. 3 had no application to the persons seeking or D
obtaining bottling contracts under the scheme, and that the
Rules, as they stood before October 1984, were applicable only
to those who were engaged in the manufacture and sale of
'f liquor and who desired to bottle such liquor for sale, not to
those who were merely engaged in the business of bottling
liquor, having nothing whatever to do with the manufacture or E
- J
sale of liquor. It was also averred that the persons who
merely bottled liquor at the instance of the Government were
no more than the agents of the Government appointed for the
., purpose of doing a job work, and since it would not be
necessary for the Government to obtain bottling licences, it
~ would be equally unnecessary for the agents of the Govenllll!llt F
to obtain bottling licences. It was further argued that the
public interest litigation ceased to be in public intereat aa
soon as the relator wilfully indulged in false allegations and
that should be a sufficient ground not to warrant the uerciae
of the extraordinary jurisdiction of the High Court under
Art.226 of the Constitution. G
'f Dismissing the appeals , the Court,
lllU>: 1. (i) Bottling of liquor lll!Sllt for 8ale by
whosoever in Karnata:lta was regulated by the Bottling of Liquor
H
412 SUPREME COURT REPORTS (1986] 2 s.c.R.
A
Rules, and r.3 thereof, as it stood at the relevant time, was \
attracted to persons seeking or obtaining bottling contracts
under the scheme introduced by the State Government in 1984.
(428 C; 426 G; 427 A-DJ
(ii) The action of the Excise Collllllissioner in excluding
B from consideration for the award of the bottling contracts
those persons who were eligible under the rules and
reco1111&nding such persons as were not eligtble was an unusual, ~
wilful and perverse way of exercising the power of
distributing State largesse. (420 F]
c 2.(i) It was only subsequent to the award of the
bottling contracts that the Government thought it prudent to ,.t:
amend r.3 of the Bottling of Liquor Rules. The almost ·
·~
surreptitious manner in which it was sought to be achieved
indicates anxiety on the part of the Government to favour the
chosen ones with the bottling contracts. (422 F-G; 425 E]
D
(ii) Governments and the governed are equally bound by
the laws. If any prior policy decision had been taken by the
Government of Karnataka to award the bottling contracts to
strangers to the liquor trade and not to persons connected . ~·
with the trade, nothing would have been simpler than to make
E necessary amendments to the rules before giving effect to the
policy and restrict the advertisement inviting applications to
applicants who were unconnected with the liquor trade. But "
apart from the statement in the counter, no such decision was
brought to Court's notice. The so-called policy decision, if ·~
any, was only an after-thought tailored to meet the situation
F
and clearly in the teeth of the Bottling of Liquor Rules,
which contemplated the grant of bottling licences to persons +
connected with the trade and not to strangers to the trade.
(422 C-G)
3, (i) By virtue of the prohibition contained in
s.13(l)(e) of the Excise Act no person could engage himself in
G
the business of bottling liquor without obtaining a licence
under the Rules. (427 F] )'"
(ii) Bottling liquor for sale may be for selling the
liquor by the bottler himself or by someone else for whom the
bottling has been done by the bottler. The expression "bottle
H
liquor for sale" occurring in s.13(l)(e) when read with the
U
defi.m.tion o.f ~hi! wprc!,s "t,o l)pt,f.JI" :!;i1 ~·t<f) 9,.f tl!i ~
CHAITANYA KUMAR v. STATE 413
A
·-1 it amply evident of that all that was necessary was that the
liquor bottled ID.ISt be meant for sale. There was, therefore,
no warrant to say that only a bottler who himself sells the
liquor bottled by him was subject to and governed by
s.13(1)(e) and the Rules and not a bottler who merely bottles
liquor for others. (427 H, 427 F, 428 A, 427 G] B
,.i. In the instant case, the recoU1Dendation of the Excise
Colllllissioner to award the bottling contracts to eight chosen
persons was not wholly consistent with the very principle on
; which he had excluded as many as 118 out of 131 applications
from consideration. One of the successful applicants
J. (Sr.No. 73) was already an excise contractor and, therefore, c
, was ineligible from being considered in terms of criteria
-t enunciated by him. It was strange that while ten applications
by the same person were rejected on the ground that he was
connected with the liquor trade, the 11th application by that
very person should have been granted without a word to
indicate the sudden departure from the principle or the reason D
for the departure. (421 B-D]
4. The persons who have been awarded bottling contracts
'f cannot be said to be mere agents of the Government and thus
not required in law to take out licences under the Rules. They
are not instrumentalities of the Government but are E
• independent contractors who deal with the Government at arm's
length. They are as DIJCh agents of the Government as
contractors of the Public Works Department who build roads and
1bridges or, for that matter, the arrack vendors in whose
favour the Government parts with its exclusive privilege of
y
selling liquor. (428 C-D] F
5. The Court should refuse to act at the instance of the
pseudo-public spirited citizens who indulge in wild and
reckless allegations besmirching the character of others. All
the same, it cannot close its eyes and persuade itself to
uphold publicly mischievous executive actions which have been G
exposed. When arbitrariness and perversion are writ large and
1 brought out clearly, the Court cannot shirk its duty and
refuse its writ. Advancement of the public interest and
avoidance of the public mischief are the paramount
considerations. The Court is always concerned with the
balancing of interests. (426 A-C] H
414 SUPREME COURT REPORTS [19861 2 s.c.R.
A
CIVIL APPELi.ATE JURISDICTION Civil Appeal Nos. 634-45 .~·
of 1986.
From the Judgment and Order dated 31.1.1986 of the
Karnataka High Court in W.P. No. 19851 and 19208 of 1984.
B K.K. Venugopal, C.S. Vaidyanathan, S. Ravindra Bhat and
S.R. Setia for the Appellants in C.A. Nos. 634-35 and 644-45 >.
of 1986.
Dr. Y.S. Chitale, C.S. Vaidyanathan, S. Ravindra Bhat
and S.R. Setia for the Appellants in C.A. Nos. 636-37 and
C 642-43 of 1986.
G.L. Sanghi, M.N. Krishnamani, P.R. Seetharaman, A.T.M.
Sampath and P.N. Ramalingam for the Appellants in C.A. Nos.
638-39 and 640-41 of 1986.
D Shanti Bhushan, Swaraj Kaushal, M.R. Achar, N. Santosh
Hegde and K.M. Muzammil Khan for Respondent No. 1.
L.M. Singhvi, R.K. Jain, Abhishek M. Singhvi,
C. Makhopadhaya, Ranji Thomas, Rajiv Tyagi, Ms. Abha Jain, ~
R.N. Mittal, and D.S. Mehra for Respondent No. 3.
E
B.R.L. Iyengar, N. Reddy and P.R. Ramashesh for
Respondent No. 4.
The Judgment of the Court was delivered by
F ClllNNAPPA REDDY, J. This case has made political
history, but those concerned for the Rule of Law 111JSt remain · 1
unmindful and unruffled by the ripples caused by it. The
legality of the action of the Government of the State of
Karnataka in awarding contracts for 'bottling' arrack to the
appellants and others was questioned in the High Court of
G Karnataka and the order of the State Government was struck
down on the ground that it was 'unlawful', 'arbitrary',
'capricious', 'in flagrant violation of the rule of law' and t
as 'shocking the judicial conscience'. Some of the persons, to
whom the bottling contracts had been awarded by the
Government, have preferred these appeals under Article 136 of
H the Constitution.
CHAITANYA KUMAR v. STATE (CHINNAPPA REDDY, J,] 415
A
1- By general concurrence of opinion since days of yore,
manufacture and sale of intoxicating liquor has always been
considered to be a dangerous and obnoxious trade requiring
the strictest vigilance and supervision and even prohibition.
It is now firmly established that the Government is the
exclusive owner of the privilege of manufacturing and selling B
intoxicating liquor and that the Government may farm out these
privileges for the purpose of raising revenue. The legis-
i4.1atures of the various States in India have enacted excise
laws which enable them to raise public revenue by farming out
these privileges and further to regulate and supervise the
manufacture and sale of intoxicating liquor. The Karnataka
Excise Act, 1965 is one such law. The Preamble to the Act c
i states that it is enacted "to provide for a uniform law
· relating to the production, manufacture, 'possession, import,
-1export, transport, purchase and sale of liquor and intoxicat-
ing drugs and the levy of duties of excise thereon in the
State of Karnataka and for certain other matters hereinafter
appearing." Section 2(15),(16),(18) and (19) of the Act define D
the expressions 'Indian liquor' , 'intoxicant' , 'liquor' and
'manufacture', Section 2(25) defines 'sale or selling' as
including 'any transfer otherwise than by way of gift'.
j. Section 2(2) defines "to bottle" as meaning "to transfer
liquor from a cask or other vessle to a bottle, whether any
process of manufacture be employed or not, and includes E
re.,-bottling", Sections 3, 4 and 5 provide for the appointment
• of Excise Commissioner, Deputy Commissioner and Superin-
tendents and Deputy Superintendents of Excise. Chapter Ill
-4 (secs. 8 to 12) deals with import, export and transport of
intoxicants while Chapter IV (secs. 13 to 21) deals with their
'manufacture, possession and sale. Section 13(l)(e) prescribes F
rthat 'no person shall bottle liquor for sale except under the
authority and subject to the terms and conditions of a licence
granted by the Deputy Commissioner in that behalf or under the
provisions of section 18'. Section 16 provides for the
establishment of distilleries and warehouses. Section 17
authorises the Government to lease to any person, on such G
conditions and for such periods as it may think fit the
exclusive or other right - (a) of manufacturing or supplying
'(by wholesale or of both; or (b) of selling by wholesale or by
retail; or (c) of manufacturing or supplying by wholesale, or
of both and of selling by retail any Indian liquor or intoxi-
H
416 SUPREME COURT REPORTS [19861 2 s.c.R.
A
eating drug within any specified area. Chapter VI provides for \-
the grant of licences and permits and Chapter VII and VIII
deal with of fences and penalties and detection, investigation
and trial of offences. Section 71 invests the Government with
the power to make rules, generally and particularly. Pursuant
to the power given under section 71, the Government of
B Karnataka has made various sets of rules. We are primarily
concerned with the Karnataka Excise (Bottling of Ll.quor)
Rules, 1967. Prior to November 30, 1984, rules 3,4,5 and 6 of A
the Karnataka Excise (Bottling of Ll.quor) Rules, were as
c
follows :
"3. Restrictions on the grant of licences to bottle
liquor - ( 1) No liquor shall be bottled except at a*
-
warehouse. .._
Provided that arrack may also be bottled in an
arrack deport licensed under the Karnataka ·Excise
D (Sale of Indian and Foreign Ll.quors) Rules, 1968.
(2) No person shall be granted a licence to bottle
liq1,mr (unless he is a lessee of the right of
ret;.: · l vend of arrack or he holds a licence) for .t
the distillation or manufacture of liquor or trade
E and import licence or a licence for compounding,
blending or reducing of liquors or any other
licence which requires possession of bottle ~
licence.
~
4. Application for licence - A lessee of the right
F of retail vend of liquor or a person holding any of_i
the licences specified in rule 3 and desirous of1
obtaining a licence to bottle liquor may make an
application specifying the warehouse in which the
operation of bottling of liquors is to be carried
on together with the detailed plan thereof.
G
S. Grant of li~nce - If, after making such
enquiries as he may deem necessary, the Excise 'r
Commissioner is satisfied that the applicant is a
fit person to hold a licence and that the warehouse
in which he proposes to carry on bottling operation
H is suitable, he shall, subject to the conditions
hereinafter provided grant a licence on payment of
CHAITANYA KUMAR v. STATE [CHINNAPPA REDDY, J.] 417
A
a fee of rupees one thousand per annum.
6. Duration of licence - The licence shall be
granted in Form MEB 1 and shall take effect from
the day specified therein and shall remain in force
until 30th June next year." B
Rules 7 to 19 deal with various regulatory prescriptions in
'4 regard to the bottling of liquor with which we are not
directly concerned now. On November 30, 1984, subsequent to
the filing of some of the writ petitions in the High Court,
rule 3(2) was amended by the addition of the words "or to
persons entrusted with the bottling of arrack by the C
Government" after the words "reducing of liquors". Later still
· rule 4 was also amended to bring it in line with the amended
rule 3.
In the scheme of things that prevailed before 1984,
bottling of liquor was not obligatory. But if liquor was in D
fact bottled, it had to be done under the authority of and
subject to the terms and conditions of a licence and in accor-
dance with the requirements of the Karnataka Excise (Bottling
-.. of Uquor) Rules. Under the rules no person was entitled to
the grant of licence to bottle liquor unless 'he was a lessee
of the right to retail vend of arrack or he held a licence for E
the distillation or manufacture of liquor or trade and import
• licence or a licence for the compounding, blending or reducing
of liquors or any other licence which requires possession of
~ bottling licence.' In substance it meant that only those
persons who were connected with the liquor trade were entitled
to apply for the grant of "licence to bottle liquor, that is,
F
,. no one was entitled to apply for the grant of licence to
'bottle liquor unless he was already connected with the liquor
trade. It appears that in July 1981, there was a ghastly
tragedy resulting in the death of 336 persons, men, women and
children as a result of the consumption of liquor containing
methanole. Several more persons lost their eye-sight. A
G
Colllllission of Enquiry hesded by a High Court Judge was
'( appointed by the Government of Karnataka to investigate into
the cause of the tragedy and to rt!cOlllllend the steps which
should be taken to prevent the repetition of any such tragedy.
H
418 SUPREME COURT REPORTS [1986] 2 s.c.R.
A
After the Commissioner submitted its report, the Government~
decided that, in order to avoid 'adulteration, short
measurement and evasion of excise duty', it was necessary that
arrack should be supplied in sealed bottles. Apart from
adulteratiOB, it was also realised that supply of loose arrack
was unhygienic and, therefore, it was necessary that arrack
B should be sold in sealed bottles. The decision of the Govern-
ment was announced in the budget speech of the Chief Minister
and instructions were given to the Excise Commissioner to)\
issue necessary notification inviting applications for
bottling arrack.
c Pursuant to the decision of the Government to supply
liquor in sealed bottles the Excise Comnissioner by a notifi-
cation published in the Karnataka Gazette dated April 11, 1984
invited applications from "intending persons/firms for bottl-
ing arrack" in 18 places in Karnataka State specified in the
notification. The price payable for each bottle of different
D size was determined and mentioned in the notification. We were
told at the hearing that even at a modest estimate the turn-
over could be expected to be in the neighbourhood of Rs. 50
crores and that the prices were so determined that the margin
of profit would be in the region of about 10 per cent. It~
appears that the Government had the cost structure worked out ·
E by a firm of Chartered Accountants who recolllllE!nded a margin of
profit of 17 per cent but the Government decided that 10 per
cent was sufficient and reasonable. The notification stated
that the bottling units would be supplied arrack in bulk
quantity from the warehouses, feeding centres or distilleries~
and that the arrack would have to be bottled in the bottling
F units. Further details of the procedure to be followed wereJ
also mentioned in the notification and it was stipulated that!
the working of the blending units would be governed by the
provisions of the Karnataka Excise Act and Rules. It was
mentioned that the provisions of the Karnataka Excise (General
Conditions) Rules would also apply. ·The period for which the
G arrangement would be in force was stated to be four years,
that is, July l, 1984 to June 30, 1988, in the first instance.
Every application was required to be accompanied by a draft of)'
Rs.10,000 and it was further made a condition that successful
applicants would have to make a cash deposit of Rs. 50,000
within five days of the date of acceptance of his offer. 'lbe
H aucce&Bfal applicanl: -1.d be ia8Ued a bottling licence
according to the rules on payment of the prescribed licence
CHAITANYA Kli1AR v. STATE (CHINNAPPA REDDY, J,] 419
A
'ifee. April 21, 1984 was prescribed as the last date for
receipt of applications.
One of the very curious features of the advertisement
which attracts immediate attention is that the applications
for bottling arrack were invited from all "intending persons/ B
firms" without any restriction whatsoever. Though under the
~l<arnataka Excise (Bottling· of Liquor) Rules, as they stood at
the relevant time, bottling licences could only be granted to
- persons already connected with the liquor trade, the
advertisement did not confine its invitation to such persons
only. That was indeed curious but things got "curiouser and
,curiouser" as Alice would certainlv have said and as we shall c
~presently see. .
-+ In response to the advertisement, 131 applications were
received by the Excise Collllrl.ssioner. The Excise Collllrl.ssioner
then called all the applicants for discussi.on in order to
ascertain their experience and financial stability. At the D
conclusion of the discussions and after obtaining intelligence
reports, the Excise Collllrl.ssioner proceeded to make his
recommendation to the Government. The Excise Commissioner
tafter referring to the qualifications etc., of each of the 131
applicants stated as follows :
E
"131 applicants were eKalllined with reference to the
interview and other informations available and the
details are as under :
Sl.Nos. 25, 35, 38, 39, 40, 41, 42, 43, 44, 45, 46,
47, 48, 49, 50, 51, 52, 53, 54, 55, 63, 64, 78, 85, F
86, 89, 95 and 122 are distillers and hence they
need not: be CODSidered. Sl.Nos. 2, 3, 4, 6, 7, 8,
9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21,
22, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 36, 37,
56, 57, 58, 59, 60, 61, 62, 65, 66, 67, 68, 69, 70,
71, 72, 73, 75, 76, 77, 79, 80, 81, 82, 83, 84, 87, G
88, 89, 90, 91, 92, 93, 94, 96, 97, 98, 99, 100,
101, 103, 104, 105, 106, 107, 108, 109, 110, 111,
113, 115, 116, 117, 118, 123, 124, 125, 1"26, 128,
129, are co1111ected with the trade of arrack and
among them Sl. Nos. 9 to 12, 13 to 20 have no base
in Karnataka and they are said to be trading in H
420 SUPREME COURT REPORTS [1986] 2 s.c.a.
A
bottling, blending etc., of arrack in Tamil Nadu
and Kerala.
Similarly Sl. Nos. l, 114, 119, 120, and 127 are
outsiders who have not shown any proof of base in
Karnataka. These also need not be considered.
B
In the result others, namely Sl. Nos. 5, 23, 74•
102, 112, 121, 130, 131 who have got background of
trade in bottling and blending and also financially
sound and are found to be capable of handling the -
work if entrusted to them may be considered for
c bottling work and their names may be recoumended
for approval". ~
t-
We see that the Excise Commissioner rejected twenty eight
applications on the ground that the applicants were
distillers, ninety applications on the ground that the appli-
D cants were connected with the liquor trade and five applicants
on the ground that there was no proof that they had a base ir
Karnataka. Eight applications remained and they were recom-
mended to be chosen for the award of the bottling contracts.
Earlier we remarked that things were to become "curiouser an~
curiouser". They did. Under the Karnataka Excise (Bottling of
E Liquor) Rules, distillers and persons connected with the
liquor trade were those that were eligible for the grant of
bottling licences and strangers to the liquor trade were not
eligible for the grant of bottling licences. But there t1f.
Excise Coumissioner was, excluding from consideration for the
award of the bottling contracts those persons who were
F eligible for the grant of bottling licences and recoumendi~
such persons as were not eligible for the grant of bottling
licences under the rules, an unusual, wilful and perverse way
of exercising the power of distributing State largesse. It was
suggested before us that the public exchequer would not suffer
in any way since the bottling charges were to be borne by the
G arrack contractors and not by the State. So were the huge
profits to be made by the contractors. It would make no
difference that the bottling charges were to be borne by t~
contractors since the award of bottling contracts by the
State would enable them to make huge profits. The burden of
the bottling charges would of course be passed on ultimately
H to the poor consumer. Thus even if the award of the bottling
CllAITANYA KUMAR v, STATE [CHINNAPPA REDDY, J, ] 421
A
~contracts was not at the expense of the exchequer, there could
be no question that what was done was the distribution by the
State of favours loaded with bounty by way of enabling the
recipients of the favours to earn enormous profits. Proceeding
further we may also mention at this stage itself that the
recoDDendation of the Excise Coumissioner to award the bottl- B
ing contracts to the eight chosen persons was not wholly con-
sistent with the very principle on which he had excluded as
*many as 118 out of 131 applications from consideration. One of
the successful applications (Serial No. 73) was that submitted
by T. v. Sarangadharan, who was already an excise contractor
- and who, therefore, was ineligible from being considered on
the very principles enunciated by the Excise Colllllissioner in c
Jlhis recoDDendation. In fact, 10 applications (Nos. 58, 59 and
60 to 67) submitted by this very gentleouln, T. v. Saranga-
-tdharan, were rejected by the Excise Coumissioner by the appli-
cation of that principle. It is strange that while 10 applica-
tions by the same person were rejected on the ground that he
was connected with the liquor trade, the 11th application by D
that very person should have been granted without a word to
indicate the sudden departure from the principle or the reason
for the departure. An attempt was made to explain the choice
made in favour of Sarangadharan on the ground that he had an
+~existing bottling unit and that he had been voluntarily bottl-
ing arrack in the previous years. Apart from the fact that E
this ground was not mentioned in the report of the Excise
"" Commissioner, it does not explain why then the ten other
applications of Sarangadharan were rejected, nor does it
1 explain why the application of the Mysore Sugar Company (a
public sector undertaking) was rejected on the ground that it
was connected with the liquor trade despite the fact that this F
~company, like Sarangadharan, had voluntarily bottled the
arrack supplied or sold by it in previous years. To add to it,
the Mysore Sugar Company was also a public sector undertaking.
We gather from the counter affidavit filed on behalf of
the Excise Commissioner and the Government of Karnstaka that G
it was thought desirable to award the bottling contracts to
persons unconnected with the manufacture and sale of arrack as
1 that would prevent the possibility of adulteration and short
measurement. In their own words, they have stated in their
counter before the High Court as follows :
H
422 SUPREME COURT REPORTS [1986] 2 s.c.R.
A
" It is felt that as far as possible, the work of ....
bottling of arrack should be entrusted to an Indian
agency which is not connected with the manufacture
of arrack or rectified spirit to avoid any
possibility of adulteration and short measurement.
B
It was thought that if the work of bottling of
arrack is entrusted to a third person unconnected
with the manufacture of arrack or sale of the same,
it would be far easy to check short measurement,~
adulteration and also prevent evasion of excise
c
duty".
It would be possible to appreciate and commend the stand taken,
by the Government of Karnataka if such a policy decision had ~
-
been taken by the Government before inviting applications for
the bottling contracts and the rules had been suitably~
amended. Apart from the statement in the counter, no such
D
decision was brought to our notice. Whether such a decision
was taken by way of a resolution of the Cabinet or by the
issue of a G.O. or by a communication to the Excise
Commissioner, we have no information whatsoever. Assuming that
there was any such decision, it was clearly in the teeth of
the Karnataka Excise (Bottling of Liquor) , Rules which t
E contemplated the grant of bottling licences to persons
connected with the trade and not to strangers to the trade. If
any prior policy decision had been taken by the Government of
Karnataka to award the bottling contracts to strangers to the ......
liquor trade and not to persons connected with the trade,
nothing would have been simpler than to make necessary ._
F
amendments to the rules before giving effect to the policy.
Governments and the governed are equally bound by the laws• 1
And the advertisement inviting applications could have f
restricted the applications to applicants who were unconnected
with the liquor trade. As we shall presently point out it was
only subsequent to the award of the bottling contracts that it
G
was thought necessary to amend the Karnataka Excise (Bottling
of Liquor) Rules. It looks to us that the so-called policy
decision was only an after-thought tailored to meet the
situation and the principle purported to be enunciated by the ~
Excise Commissioner was a mere pretext designed to eliminate ,
all except the chosen.
H
CHAITANYA KlWIR v. STATE [CHINNAPPA REDDY, J,] 423
-1 The correspondence which followed between the Excise A
Commissioner and the Government is also revealing. On receipt
of the letter of the Excise Coomissioner containing his
recommendation, the Secretary. to the Government wrote to the
Excise Coomissioner a letter in which he stated :
"The process of establishing bottling plants at B
different places would inevitably involve financial
t outlays and time. There are no details forthcoming
-
regarding the credit worthiness of these
individuals who are to be entrusted with the
bottling work. No information is forthcoming
regarding the infrastructural facilities available
with them and the time frame within which they can c
set up the bottling plants. The same may kindly be
furnished."
Instead of placing before the Government the material if any
which was available to him to judge the credit worthiness of
the contractors and the availability of infrastructural D
facilities to them, the Excise Coomissioner sent what would
st·rike any one as an evasive reply. He said,
f
"The process of establishing bottling plants in
different places involves financial outlays towards
the cost of land, buildings, machinery etc. Before E
• finalising these proposals I called- all the
applicants for discussions in my office to find out
their credit worthiness and capability for doing
the work. The proposals sent by me to the
Government are on the basis of my assessment of the
credit worthiness and capacity of the individuals F
to provide the infrastructural facilities required
for taking up bottling of arrack without undue
delay."
The Secretary was obviously dissatisfied with the reply of
the Commissioner. So, in his note to the Excise Minister he G
-1 stated :
"There is hardly any data on record either
regarding the credit worthiness of the
individuals/ firms companies recoomiended by the
H
424 SUPREME COURT REPORTS [1986J 2 s.c.R.
Excise Commissioner or their capabilities to .,_
A
undertake a job of the magnitude and the
proportions in question. No information is also
forthcoming on the infrastructural facilities at
their disposal. As the entire arrack is to be sold
in bottles, their operational efficiency would have
a very significant bearing on the excise revenues
B
of the State. In the absence of data, it is
difficult to come to any conclusion on this issue." -+
Despite the note of the Secretary, the Minister accepted the
recommendation of the Excise Commissioner and also added that
he had already discussed the proposal with the Chief Minister
'
and that the latter had given his clearance to the proposals, -.:
c
and therefore, necessary orders might be issued approving the.,_
proposals of the Commissioner. When the matter went to the
Finance Department, the Deputy Secretary (Finance) made a note
stating "Home Department is also requested to take into
consideration the following observations :
D
(a) It is not clear from the file as to how the
Excise Commissioner had selected 9 bottling
contractors out of 131 firms which have submitted t
their offers. This has to be brought on record
clearly. Otherwise, the selection is subject to
E challenge in the court of law."
The protest of the Deputy Secretary was ignored., the
political arm of the Executive prevailed over the bureaucratic l>-
arm of the Executive, as it always happens when the question
is of distribution of Government patronage, and the impugned ~·
F
order of the Government was issued on September 27, 1984 ·
alloting the bottling contracts to the eight persons
recommended by the Excise Commissioner. On October 26, 1984,
M/s. Pramila Plastics filed a writ petition (No. 17011 of
1984) in the Karnataka High Court questioning the G.O. Some
other persons already engaged in the liquor trade whose
applications had been rejected by the Excise Commissioner also
G
filed writ petitions questioning the G.O. in November, 1984. r
At that stage it appears to have dawned on the powers that it
was necessary to amend the Karnataka Excise (Bottling of
Ll.quor) Rules. So the Excise CoDJDissioner wrote to the
Govermnent on November 6, 1984 a letter in the following
H terms:
CHAITANYA Kl.MAR v. STATE [CHINNAPPA REDDY, J. ] 425
A
"I write to state that Goverrunent have approved in
their G, o. No. H. D. 24EAA. 84 dated 29. 9. 84 for the
sale of arrack in sealed bottles. In order to
implement the orders of Goverrunent contained in the
above Government Order, the amendments for the B
above rules are necessary. Unless these amendments
are issued, the bottling uni ts approved by the
Goverrunent in the above Goverrunent Order cannot be
t issued licences for bottling units. Hence I request
that the enclosed draft amendments may kindly be
approved and issued by the Government."
c
On November 23, 1984, the Goverrunent issued a notification
'1-- containing a draft amendment of rule 3 and inviting
~objections, if any, by the public to be made before November
28, 1984. There is some controversy as to the date on which
notification dated November 23, 1984 was published in the
Gazette, that is, whether it was published on 23rd itself or D
on 29th, that is, after the prescribed date for filing of
objections. Even if it was published on 23rd, there was hardly
any time for anyone to make any objections since only five
days' time was given. The draft rule was finalised and the
-f amended rule was published on November 30, 1984. Later it was
discovered that an amendment of rule 4 was also necessary and E
that rule was accordingly amended in April, 1985. The almost
surreptitious manner in which rule 3 was amended subsequent to
• the filing of some of the writ petitions also appears to give
J an indication regarding the anxiety of the Government to
-i favour t,he chosen ones with the bottling contracts.
F
' More writ petitions were thereafter filed, some by rival
applicants for the bottling contracts and some by public
spirited citizens determined to expose Goverrunental
misconduct, We were told by Shri Venugopal that the
preliminary hearing of the writ petitions was postponed twice
and that a l<ule Nisi was issued only after an amendment of one G
of the writ petitions by the inclusion of an allegation of
malafides against the Chief Minister whose son-in-law was
1 stated to be interested in some of the firms to whom the
contracts had been awarded. The allegation against the Chief
Minister has been found to be unfounded and false. According
to Shri Venugopal while the institution of Public Interest
H
U.tigation is a good thing in itself, those professing to be
426 SUPREME COURT REPORTS [1986] 2 s.c.R.
A.
public spirited citizens cannot be encouraged to indulge in \.-
wild and reckless allegations besmirching the character of
others and so the court must ref use to act at the instance of
such pseudo-public spirited citizens. We agree with Shri
Venugopal. But, simultaneously, the court cannot close its
eyes and persuade itself to uphold publicly mischievous
B executive actions which have been so exposed. When
arbitrariness and perversion are writ large and brought out
clearly, the court cannot shirk its duty and refuse its writ. -~
Advancement of the public interest and avoidance of the public
mischief are the paraioount considerations. As always, the
court is concerned with the balancing of interests, and we are
c satisfied that in the present case the High Court had little
option but to act as it did and it would have failed in its ,(
duty had it acted otherwise and refused to issue a writ on the
ground that the allegation of personal bias against the Chief·~
Minister was false. Had that been done the public mischief
perpetrated would have been perpetuated. That is not what
D courts are for.
To continue, two of the Writ Petitions filed by rival
applicants were settled between the parties at the time of the
preliminary hearing and were so disposed of. After the cases t
were partly argued at the final hearing, permission was sought
E to withdraw three other writ petitions filed by rival
applicants. The result was that only two Writ Petitions were
effectively argued and they were allowed by the High Court on •
the ground that the order of the Government was arbitrary,
capricious etc. The High Court however held that the ~
allegation of personal bias made against the Chief Minister
F was false. The Court did not record any finding on the
question of 'malafides' on the ground that it was unnecessary.~
The State Government has gracefully accepted the judgment of
the High Court but some of the persons in whose favour the
contracts had been awarded have preferred these appeals by
Special Leave.
G
Shri K.K. Venugopal, Dr. Chitale and Shri G.L. Sanghi
learned counsel for the appellants submitted that the ~
"bottling scheme" introduced by the Government in 1984 was
entirely outside the Karnataka Excise (Bottling of Liquor)
Rules, and that Rule 3 had no application to the persons
H seeking or obtaining bottling contracts under the scheme. They
CHAITANYA KUMAR v. STATE (CHINNAPPA REDDY, J.] 427
A
~ argued that the Bottling of Liquor Rules as they stood before
October, 1984 were applicable only to those who were engaged
in the manufacture and sale of liquor and who desired to
bottle such liquor for sale. They were not applicable and Rule
3 was not attracted to the case of persons who were merely
engaged in the business of bottling liquor, having nothing B
whatever to do with the manufacture or sale of liquor. It was
said that those who were engaged in the manufacture and sale
+of liquor had the option to bottle or not to bottle the liquor
manufactured or sold by them and if they preferred to bottle
- .the liquor they were obliged to observe the rules but others
who neither manufactured nor sold liquor had not to observe
the rules. It was also submitted that the persons who merely
j bottled liquor at the instance of the Government were no more
c
-tthan the agents of the Government appointed for the purpose of
doing a job-work, and since it would not be necessary for the
Government to obtain bottling licences, it would be equally
necessary for the agents of the Government to obtain bottling
licences. It is patent that these submissions are submissions D
of desperation. It is impossible to agree with them. Even the
.Government did not think that the Rules had no application and
that Rule 3 was not attracted. The advertisement inviting
+ applications from intending bottlers was quite clear that
licences for bottling 'as per rules' would have to be obtained
on payment of the prescribed licence fee of Rs.1000 each. The E
necessity for obtaining licences under the Bottling of Liquor
Rules by the persons to whom the bottling contracts had been
awarded was also 1·ealised by the Government and it was for
~ that reason that Rule 3 came to be amended. We are unable to
understand how despite the prohibition contained in s.l3(l)(e)
anyone can engage himself in the business of bottling liquor F
~without obtaining a licence under the Rules. It is true that
s.13(l)(e) uses the expression 'bottling liquor for sale' and
the expression 'to bottle' is itself defined to mean 'the
transfer of liquor from a cask or other vessle to a bottle
for the purpose of sale 1 • But there is no justification for
the implication sought to be read into section 13(1 )(e) read G
with the definition of 'to bottle' that only a bottler who
_., himself sells the liquor bottled by him is subject to and
· governed by s. l3(l)(e) and the Rules and not a bottler who
merely bottles liquor for others. Bottling liquor for sale may
be for selling the liquor by the bottler himself or by someone
else for whom the bottling has been done by the bottler. In H
428 SUPREME COURT REPORTS [19861 2 s.c.R.
A
either case it is bottling liquor for sale. All that is )..
necessary is that the liquor must be meant for sale. It may be
that occasionally liquor may be bottled not for sale but for
private consumption. Manufacture of liquor for private or
domestic consumption may be permitted under the Excise laws
and where so permitted, the liquor may be bottled without
B
obtaining a separate bottling licence but where the liquor
which is bottled is intended to be sold whether by the bottler
or by someone else at whose instance the bottling is done, the ~
bottler must necessarily have a bottling licence without which
c
he cannot engage himself in the business of bottling liquor
meant for sale. llottling of liquor meant for sale by whosoever
is without doubt regulated by the llottling of Ll.quor
Rules. Nor is there the slightest substance in the submission ~
-
that the persons who have been awarded ·the bottling contracts ·
are mere agents of the government and so they are not required +-
in law to take out licences under the Rules, They are not
'instrumentalities' of the Government; they are independent
D
contractors who deal with the Government at arm's length. They
are as much agents of the Government as contractors of the
Public Works Department who build roads and bridges or for
that matter, the arrack vendors in whose favour the Government
parts with its exclusive privilege of selling liquor.
E Though considerable argument appears to have been
advanced before the High Court on the question of locus
standi, the question was rightly not raised before us. Shri
Venugopal however argued that Public Interest Ll.tigation
.
ceased to be in the public interest as soon as the relator ~
wilfully indulged in false allegations and that should be a
F sufficient ground not to warrant the exercise of the
extraordinary jurisdiction of the High Court under Art. 226 t
of the Constitution. We have already considered this
submission and rejected it.
A special argument was advanced on behalf of
G
Sarangadharan who it was said was also eligible under the
rules as they then existed and who was entitled to claim
preference in view of his previous bottling experience. But
that was not the ground on which the contract was awarded to )"
him and it is not open to us to uphold the award in his favour
for altogether different reasons, ignoring the claims of over
R
a hundred other applicants of whose claims to preference we
CHAITANYA KUMAR v. STATE (CHINNAPPA REDDY, J,] 429
A
-1 are truly ignorant. Nor is it within our province to weigh the
claims and the preferences.
At the conclusion of the argument, Shri Venugopal made
an appeal that his clients may be permitted to continue to
work the contracts far some reasonable time so that the heavy B
investments made by them may not go waste. We do not see how
+ we can do that. All the appeals are dismissed with costs.
- P.s.s. Appeals dismissed.
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