Whether dealing in liquor is a ‘trade’, ‘business’ or ‘commerce’, in terms of the Indian Constitution:

In Cooverjee B. Bharucha Vs. The Excise Commissioner and the Chief Commissioner, Ajmer and Others, the Court assumed the applicability of Art. 19(1)(g) of the Constitution to the liquor trade; however, a wider power in the Government to regulate or prohibit the said trade was accepted. At p. 223 the Supreme Court observed:

“Laws prohibiting trades in noxious or dangerous goods or trafficking in women cannot be held to be illegal as enacting a prohibition and not a mere regulation. The nature of the business is, therefore, an important element in deciding the reasonableness of the restrictions. The right of every citizen to pursue any lawful trade or business in obviously subject to such reasonable conditions as may be deemed by the governing authority of the country essential to the safety, health, peace, order and morals of the community. Some occupations by the noise made in their pursuit, some by the odours they engender, and some by the dangers accompanying them, require regulations as to the locality in which they may be conducted. Some, by the dangerous character of the articles used, manufactured or sold, require also special qualifications in the parties permitted to use, manufacture or sell them.”

Thereafter, the Court held:–

“Elimination and exclusion from business is inherent in the nature of liquor business and it will hardly be proper to apply to such a business principles applicable to trades which all could carry. The provisions of the regulation cannot be attacked merely on the ground that they create a monopoly. Properly speaking, there can be a monopoly only when a trade which could be carried on by all persons is entrusted by law to one or more persons to the exclusion of the general public. Such, however, is not the case with the business in liquor.”

Krishna Kumar Narula etc. Vs. The State of Jammu and Kashmir and Others, was cited by the learned counsel for the petitioners to emphasise that the trade or business in liquor is protected by Article 19(1)(g) of the Constitution; at p. 1373, the Supreme Court concluded on the question as,–

“We, therefore, hold that dealing in liquor is business and a citizen has a right to do business in that commodity; but the State can make a law imposing reasonable restrictions on the said right, in public interests.”

However, subsequently, the Supreme Court expressed a definite and different view in several decisions. It is sufficient, if two of them are referred here.

In Sat Pal and Co. and Others Vs. Lt. Governor of Delhi and Others, , it was held:

“Recently, in P.N. Kaushal and Others Vs. Union of India (UOI) and Others, , after an exhaustive review of all previous decisions this conclusion was affirmed that there is no fundamental right to trade or business in nauseous drinks which include liquor. If there is no fundamental right to carry on trade or business in liquor, there is no question of its abridgement by any restriction which can be styled as unreasonable. In fact, as stated in Har Shankar and Others Vs. The Dy. Excise and Taxation Commr. and Others, , the State under its regulatory power has a right to control or even to prohibit absolutely every form of activity in relation to intoxicants apart from anything else, its import too. This power of control is question of society’s right to self-protection and it rests upon the right of the State to act for the health, moral and welfare of the people. Liquor traffic is a source of pauperism and crime.”

Again, after 3, few sentences:

“Since Kalyani Stores Vs. The State of Orissa and Others, judicial opinion on the vexed question of right to carry on trade or business in intoxicating drinks has undergone a sea change culminating into Har Shankar’s case which again is a decision of 5 Judges Constitution Bench of this Court. Unfortunately the judgment in Kalyani Stores case is not referred to in Har Shankar’s case. However, the undisputed position that now emerges is that there is no fundamental right to do trade or business in intoxicants.”

(Underlining is ours)

In the decision reported in State of M.P. and Others Vs. Nandlal Jaiswal and Others, , the Supreme Court once again pointed out that there is no fundamental right in a citizen to carry on trade or business in liquor. However, it was observed that, as and when the State permits the trade e) grant of such right or privilege to others the State cannot escape the rigour of Art. 14.”

Applicability of Art. 14 is under a different context. The right flowing out of Art. 14 is by virtue of the requirements of fairplay, reasonableness, unarbitrariness, equality etc., in any State action. The State cannot pick and choose for the conferment of the privilege to trade in liquor, arbitrarily. The choice has to be based on reasonable norms. But, while testing the legality and reasonableness of such a State action, the scope of judicial scrutiny is limited, as observed at p. 279 (in Nandalal’s case):

“But, while considering the applicability of Article 14 in such a case, we must bear in mind that, having regard to the nature of the trade or business, the Court would be slow to interfere with the policy laid down by the State Government for grant of licenses for manufacture and sale of liquor. The Court would, in view of the inherently pernicious nature of the commodity allow a large measure of latitude to the State Government in determining its policy of regulating, manufacture and trade in liquor. Moreover, the grant of licenses for manufacture and sale of liquor would essentially be a matter of economic policy where the court would hesitate to intervene and strike down what the State Government had done, unless it appears to be plainly arbitrary, irrational or mala fide.”

After some discussion, and reference to R. K. Garg’s case AIR 1981 SC 2138, the Supreme Court proceeded to observe (at p. 280, para 33):

“What we said in that case in regard to legislation relating to economic matters must apply equally in regard to executive action in the field of economic activities, though the executive decision may not be placed on as high a pedestal as legislative judgment in so far as judicial deference is concerned. We must not forget that in complex economic matters every decision is necessarily empiric and it is based on experimentation or what one may call ‘trial and error method’ and, therefore, its validity cannot be tested on any rigid ‘a priori’ considerations or on the application of any strait-jacket formula. The court must while adjudging the constitutional validity of an executive decision relating to economic matters grant a certain measure of freedom or ‘play’ in the ‘joints’ to the executive. ‘The problems of Government’ as pointed out by the Supreme Court of the United States in Metropolis Theatre Company v. State of Chicago (1912) 57 Law ed. 730 ‘are practical ones and may justify, if they do not require, rough accommodations, illogical, it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not discernible, the wisdom of any choice may be disputed or condemned. Mere errors of Government are not subject to our judicial review. It is only its palpably arbitrary exercise which can be declared void’. The Government, as was said in Permian Basin Area Rate cases (1968) 20 Law ed 2d 312, is entitled to make pragmatic adjustments which may be called for by particular circumstances. The Court cannot strike down a policy decision taken by the State Government merely because it feels that another policy decision would have been fairer or wiser or more scientific or logical. The Court can interfere only if the policy decision is patently arbitrary, discriminatory or mala fide. It is against the background of these observations and keeping them in mind that we must now proceed to deal with the contention of the petitioners based on Article 14 of the Constitution.”(Underlining is ours)

 As to the nature of the liquor trade, this Court observed in Sahyadri Wine Traders Vs. State of Karnataka, :

“All kind rights to deal in intoxicants (which is also referred here as liquor) this, basically belong to the State. By granting a licence to deal in liquor, a privilege is conferred on the licencee to deal in liquor to the extent permitted by the licence, A person, in possession of Or dealing in any liquor without any licence from the State, indulges himself in an activity which he is not entitled in any manner and such a person, is deemed to exercise a privilege which exclusively vest in the State. It is a grave misconduct, enormity of which requires severe deterrent to prevent repetition of such an activity by the said person and others.”

It is, thus clear that none has a fundamental right to trade or do business in liquor. As in the case of gambling activities, though dealing! in liquor has “the external forms, formalities and instruments of trade”, the activities are in fact “extra-commercium”, (as observed, regarding gambling activities in The State of Bombay Vs. R.M.D. Chamarbaugwala, and applied to liquor trade in Har Shankar and Others Vs. The Dy. Excise and Taxation Commr. and Others, . Liquor cannot be treated as a recognised article of commerce or merchandise and hence dealing in liquor cannot be conferred with the status of a ‘trade’, ‘business’ or ‘commerce’, falling within those concepts in the Indian Consti-tution.

Relying on D. Nettakallu v. State of Mysore ILR (1964) Mys 697 it was argued that, assuming that there is no fundamental right to trade in liquor, the right accrues to a licencee as and when the State parts with its privilege and permits others to trade in liquor. In such a situation, since the State permits trading in liquor as lawful, it would necessarily follow that it is a fundamental right.

This contention ignores the nature of a fundamental right. It is a right which inheres! every person in the country and recognised by the Constitution; fundamental right cannot: be created by a statute. A right or privilege created by the legislature or by a statute will be a statutory right; it cannot have the status; of a fundamental right.

The words ‘trade’ and ‘commerce’ or ‘business’ used in the Constitution, should be applicable only to those classes of dealings or activities which are recognised as subjects of fundamental rights.

In view of the ‘sea change’ undergone in the law on the subject, as observed by the Supreme Court, the earlier decisions cannot be followed as binding precedents.

To reiterate, we hold that the business in liquor is not per se lawful except when carried on under licence or permit and thus no right inheres in any individual to carry on trade in noxious or dangerous drugs. A licence granted for carrying on trade in such noxious drugs allows the person or licencee to carry on the activity of dealing in liquor. But grant of licence to carry on such activity does not by itself take away the pernicious character of the activity as such. As it is not possible to eradicate this evil, it is tolerated by the grant of licence. Neither the inherent obnoxious quality of the activity is erased nor a socially acceptable characteristic injected into it, by the licence. The moment the licence expires, cancelled or withdrawn the right or privilege gets extinguished. Therefore, such a privilege granted cannot be elevated to the status of a right either for the purpose of Art. 19(1)(g) or for the purpose of Art. 301. The State may completely prohibit the trade or impose severe restrictions on such business. Only those persons who are ready and willing to comply with such strict, severe and stringent conditions are enabled to carry on the activity. This position is made clear by the Supreme Court itself in Sat Pal and Co. and Others Vs. Lt. Governor of Delhi and Others, (which we have already referred and in which the law has been exhaustively considered by the Supreme Court).

A distinction was however sought to be made between the freedoms guaranteed under Articles 19(1)(g) and 301 of the Constitution. It was submitted that while the right available under Art. 19(1)(g) is a fundamental right of a citizen, though there may be no such right in view of the decisions referred to above, the protection offered by Art. 301 is entirely different; object behind Article 301 was to ensure the economic unity of the country by guaranteeing freedom of trade, commerce and intercourse throughout India. It is submitted that Art. 301 deals with the question as to how trade, commerce and intercourse is to he carried on between one place and another, inside or outside the State. Art, 301 protects the collective rights of trade or business as a whole while Art. 19(1)(g) speaks of a freedom guaranteed to a citizen. We are unable to accept this contention. In the decision known as The State of Bombay Vs. R.M.D. Chamarbaugwala, the Supreme Court held that the protection under Art. 301 is confined to such activity as may be regarded as lawful trade activity and does not extend to an activity which is ‘res extra commercium’. The concept of trade or business cannot include activities which are inherently pernicious such as trafficking in women, gambling or training persons in goondaism.

In The State of Bombay Vs. R.M.D. Chamarbaugwala, , the Supreme Count observed at 718:

“We have no doubt that there arc certain activities which can under no circumstance be regarded as trade or business or commerce although the usual forms and instruments are employed therein. To exclude those activities from the meaning of those words is not to cut down their meaning at all but to say only that they are not within the true meaning of those words. Learned counsel has to concede that there can be no ‘trade’ or ‘business’ in crime but submits that this principle should not be extended and that in any event there is no’ reason to hold that gambling does not fall within the words ‘trade’ or ‘business’ or ‘commerce’ as used in the Articles under consideration.

The question arises whether our Constitution makers ever intended that gambling should be a fundamental right within the meaning of An. 19(1)(g) or within the protected freedom declared by Art. 301.”

Thereafter, at para-42, it was held:

It will be abundantly clear from the foregoing observations that the activities which have been condemned in this country from ancient times appear 10 have been equally discouraged and looked upon with disfavour in England, Scotland, the United States of America and in Australia in the cases referred to above.

We find it difficult to accept the contention that those activities which encourage a spirit of reckless propensity for making easy gain by lot of chance, which lead to the loss of the hard earned money of the undiscerning and improvident common man and thereby lower his standard of living and drive him into a chronic state of indebtedness and eventually disrupt the peace and happiness of his humble home could possibly have been intended by our Constitution makers to be raised to the status of trade, commerce or intercourse and to be made the subject matter of a fundamental right guaranteed by Art. 19(1)(g).

We find it difficult to persuade ourselves that gambling was ever intended to form any part of this ancient country’s trade, commerce or intercourse to be declared as free under Art 301. It is not our purpose nor is it necessary for us in deciding this case to attempt an exhaustive definition of the word ‘trade, ‘business’ or ‘intercourse”.

We are, however, clearly of opinion that whatever else may or may not be regarded as falling within the meaning of these words, gambling cannot certainly be taken as one of them. We are convinced and satisfied that the real purpose of Arts. 19(1)(g) and 301 could not possibly have been to guarantee or declare the freedom of gambling. Gambling activities from their very nature and in essence are extra commercium although the external forms, formalities and instrument? of trade may be employed and they are not protected either by Art. 19(1)(g) or Art. 301 of our Constitution.”

The reasoning equally applies to dealings in liquor and in fact Sat Pal and Co. and Others Vs. Lt. Governor of Delhi and Others, has applied the above principles to liquor dealings.

Therefore, a licence to deal in liquor cannot result in the creation of a fundamental right to trade under Article 19(1)(g) of the Constitution, nor, the said licence result in elevating the activity of dealing in liquor to the status of constitutionally recognised trade or business.

 H. Anraj Vs. Government of Tamil Nadu, was, cited to contend that tax on sale of lottery tickets attracted Article 304 of the Constitution. The entire discussion therein shows that the Supreme Court was not concerned with the nature of the ‘trade, business and commerce’ involved in the sale of lottery tickets. Had such a question been raised,’ the Supreme Court while deciding Anraj’s case, would have referred to the earlier direct decision on the concept of trade, business and commerce, vis-a-vis, gambling activity given in The State of Bombay Vs. R.M.D. Chamarbaugwala, .

While invoking Articles 301 and 304 of the Constitution, a decision reported in Vijaya Wine Stores v. State of Karnataka (1975) 1 Kar LJ 170 was cited. The petitioner therein obtained a permit at Mahale (not in Karnataka State) to transport liquor from Pondicherry to Mahale. The route passed through Karnataka. While in transit, at Mysore, the goods were seized, as there was no valid permit for transportation issued by this State’s authority. This Court permitted the petitioner to make an application for the appropriate permit; but the Excise Commissioner rejected the application. Hence a writ of mandamus was sought for the permit.

The Excise Commissioner suspected the permit issued by the authority at Pondicherry; however, the genuineness of the permit was, in fact, not verified. This Court found, that the said permit was a genuine permit. The contention of the Excise Commissioner, that there is no fundamental right in a citizen to carry on the trade and business in liquor, was negatived by relying on Krishna Kumar Narula etc. Vs. The State of Jammu and Kashmir and Others, . Thereafter, Articles 301 and 304 were referred, to hold that there was a freedom to transport liquor under a valid permit issued by the Pondicherry authority and that, by virtue of Article 261 of the Constitution the Officers of the Karnataka State were bound to give ‘full faith and credit’ to the said permit. It is in this background, it was held at 18:

“As observed by the Supreme Court, the fact that the goods are dangerous may give a guidance with regard to the nature of restrictions that may be imposed, but it cannot limit the scope of the right. Any restriction that is imposed must sub-serve some public interest. It is only then it may be said that the restriction is a reasonable one. I do not understand what public interest S. 12 has to subserve if it is to be interpreted that a person carrying liquor through the State of Karnataka should go to the Deputy Commissioner in each District, through which he passes, for obtaining a permit. Even if Section 12 is to be held as imposing a restriction, I am of the view that the said restriction is unreasonable and it is liable to be struck down under Article 19(1)(g) of the Constitution. It is the ordinary rule of interpretation of the Constitution and the laws that if it is possible by reading down a particular provision of law to save it from the mischief of unconstitutionally, the Court should do so. ‘Reading down has the practical effect that where an Act is expressed in a language of generality which makes it capable, if read literally, of applying to matters beyond the relevant legislative power, the Court will construe it in a more limited sense so as to keep it within power’, (see Howard on Australian Federal Constitutional Law, 1968, page 8). Read in that way, it has to be held that Sec. 12 applies only to movement or transport between the places in the Slate and not to a case of inter-State movement of transport. 1 am. therefore, of the view that the case of the petitioners does not fall within the scope of S. 12. No other provision of law has been brought to my notice by the respondents, which entitles them to seize the goods in question.”

(Emphasis is ours)

The above decision was based on the observations in Krishnakumar Narula’s case, which, we have already noticed, is not the present law as accepted by the Supreme Court subsequently. The conclusion reached in Vijaya Wine Store’s case, no doubt, is justifiable by the application of Art. 261 of the Constitution read with Sec. 12 of the Act. The impugned action and the inaction of the Excise Commissioner in Vijaya Wine Store’s case, also could DC, stigmatised as arbitrary and unreasonable.

18. Assuming Arts. 301 & 304 are attracted, we are of the view that, the law here is enacted by the Legislature which has received the assent of the President. Under Art. 304(b) of the Constitution, the restrictions on the freedom of trade, commerce or intercourse, in the public interest may be imposed by the ‘legislature of a State by law’. The contention urged was that a subordinate legislation is not a law made by the legislature of the State and therefore the restrictions imposed by the impugned Rules contravene Art. 304(b) of the Constitution (on the assumption that the said Article is attracted to the liquor trade). We do not accept this contention. A subordinate legislation, if valid, and treated as if enacted in the Act, has the same force as the statute which enabled its making. When making of such a Rule falls within the statutory purposes, the restrictions imposed, by such a Rule has to be held as the one imposed by the law made by the legislature. Sec. 71(3) of the Act declares the rule to have effect as if enacted in the Act. It reads:

“71(3): A rule under this Act may be made with retrospective effect and when such a rule is made the reasons for making the rule shall be specified in a statement laid before both Houses of the State Legislature. Subject to any modification made under sub-section (4), every rule made under this Act shall have effect as if enacted in this Act.”

At least, in two decisions, the Supreme Court held that the law contemplated by Art. 304(b) includes such a statutory Rule. In Firm A.T.B. Mehtab Majid and Co. Vs. State of Madras and Another, , Rule 16 of the Madras General Sales Tax (Turnover and Amendment Rules) was held to be a law falling within the concept of the law made by the legislature as per Art. 304(b). It was observed-

“This rule was made by the Governor in the exercise of power conferred on him under S. 19 of the Act and would therefore have statutory force, in fact sub-s. (5) of S. 19 provides that the rules shall have effect as if enacted in the Act. We therefore do not agree that R. 16 is not a law which would fall within a law made by the State Legislature.”

In State of Tamil Nadu Vs. Hind Stone and Others, , again it was observed, at p. 720:

“Rule SC has been made by the State Government by notification in the official Gazette, pursuant to the power conferred upon it by Section 15 of the Act. A statutory rule, while ever subordinate to the parent statute, is, otherwise, to be treated as part of the statute and as effective. ‘Rules made under the Statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act and are to be judicially noticed for all purposes of construction or obligation’. The State of Uttar Pradesh and Others Vs. Babu Ram Upadhya, : (See also Maxwell Interpretation of Statutes, 11th edn. pp. 49-50). So, statutory rules made pursuant to the power entrusted by Parliament are law made by Parliament within the meaning of Article 302 of the Constitution. To hold otherwise would be to ignore the complex demands made upon modern legislation which necessitate the plenary legislating body to discharge its legislative function by laying down broad guidelines and standards, to lead and guide as it were, leaving it to the subordinate legislating body to fill up the details by making necessary rules and to amend the rules from time to time to meet unforeseen and unpredictable situations, all within the frame work of the power entrusted to it by the plenary legislating body.”

Thereafter, the Supreme Court proceeded to distinguish State of Mysore Vs. H. Sanjeeviah, , which was also cited before us by the learned counsel for the petitioners.

Therefore, having regard to the language of Sec. 71(3) of the Act and its effect, a valid Rule made under the Act has to be treated, for all purposes, as a law made by the State legislature and consequently the contention based on this aspect of Art. 304(b) of the Constitution, is liable to be rejected.

Since State of Tamil Nadu Vs. Hind Stone and Others, is referred just now, we may as well, refer to other principles stated therein, which are relevant to a few other contentions raised in these writ petitions. By Rule 8C, leases for quarrying black granite in favour of private persons were barred and it provided that leases can be granted only in favour of a Corporation wholly owned by the State Government. This Rule was successfully challenged before the High Court; the decision of the High Court was reversed by the Supreme Court. It was held by the Supreme Court –

(i) Making a Rule which is perfectly in order cannot be by itself, considered as a misuse of the Rule making power, if it advances the interest of a State, which really means the people of the State. The contention, that, the Rule created a monopoly in the State, is based on the self-interest of the State, was negatived (vide para-6).

(ii) Whenever there is a switchover from “private sector’ to ‘public sector’, it does not necessarily follow that the change of policy requiring express legislative sanction is invoive’d. It depends on the subject and the statute (vide para-9).

(iii) The concept or ‘Regulation’ envisaged by the Statute, would comprise within it, the power to ‘prohibit’. Much depends on the context in which the expression is used in the statute and the object sought to be achieved by the contemplated regulation. “In modern Statutes concerned as they are with economic and social activities, ‘regulation’ must, if necessary, receive so wide an interpretation that in certain situations, it must exclude competition to the public sector from the private sector” — (vide para-10).

Therefore, entrusting the sole ‘distributorship’ to a governmental company, by itself as a principle of law, cannot be held to be arbitrary; not the policy behind it, as a major shift in the ‘policy’ which, only the State legislature could evolve and effectuate.

By referring to Black’s Judicial Dictionary and a treatise “Jural relations”, Sri Janardhan contended that, liquor is a commercial commodity and dealing in it is trade or commerce. Reference was also made to certain observations in a decision of Madras High Court.

We have already referred to the recent; decisions of the Supreme Court and opined that, the dealing in liquor cannot be considered as a trade or business for purposes of Art. 19 of the Constitution. We are also of the view that, for purposes of Art. 301 dealing in liquor cannot be extended the status of ‘trade’ or ‘commerce’. Dealing in liquor in all its aspects is the inherent privilege of the State and when the State exercise an aspect of the privilege of dealing in liquor, any incidental effect of such State dealing cannot be held as attracting the provisions of Art. 301 or 304 of the Constitution. Here, State has reverted to itself the privilege to deal in liquor in the State, as a ‘distributor’. Any one who has to send the intoxicant into this State has to respect and abide by the State’s privileges. The free flow of dealings, i.e., trade and commerce which are sought to be protected by Art. 301, cannot be extended to dealings in goods which are inherently dangerous to health and morality of the people and hence cannot be considered as recognised articles of trade.