Judicial Control of Subordinate Legislation

KHODAY DISTELLERIES LTD V. STATE KARNATKA

Khoday Distilleries Ltd. and Ors. v. State of Karnataka and Ors. AIR 1996 SC 911

Whether the amendments to the Karnataka Excise Rules mandating that licensees engaged in the manufacture or sale of liquor can sell only to a distributor license holder owned or controlled by the State Government, violate the appellant’s fundamental right under Article 19(1)(g) of the Indian Constitution?
Whether the amendment to the Karnataka Excise Rules is beyond the scope of the delegated authority given to the State?

The state has the authority to impose reasonable restrictions on trade, business, and commerce under Article 19(1)(g), as long as such restrictions serve a public purpose and are not arbitrary or discriminatory.

Rule 3(11) of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968, provides that a distributor license shall be granted by the Excise Commissioner for the purpose of distribution or sale of liquor within the State.
The Rule further specifies that such a distributor license shall only be issued to such a company that is owned or controlled by the State Government.
The State Government specified Mysore Sales International Ltd. (“MSIL”) to be such a company and granted MSIL the distributor license.
Amendments to other Rules under the Karnataka Excise Act 1965 (“Act”) mandated that the licensees under those Rules could sell liquor only to a holder of a distributor license.
As a result of the amendments, licensees engaged in the manufacture or sale of liquor were restricted to selling their liquor solely to a distributor license holder, which could only be a State Government owned or controlled company.
The appellants challenged the validity of these amendments claiming a violation of the fundamental right to carry on trade or business under Article 19(1)(g).
The appellants further argue that there is no legislative policy prescribed for a distributor license hence the amendments to the Rules are beyond the scope of the Act and the delegated authority.

The Supreme Court held that the Act and the Rules are within the legislative competence of the State Legislature and that the Rules have been framed under a validly delegated authority and are within the scope of that authority.
The Court examined the scheme of the Act, referencing the Preamble and Sections 13, 15, 17, and 71, and determined that these provisions clearly contemplate the creation of licenses to regulate the manufacture and sale of liquor.
The Court noted that a distributor license that deals with the sale and purchase of liquor is explicitly contemplated under the Act. The creation of a monopoly for distributor licenses does not take the license outside the ambit of the Act.
The Court reiterated that the right to carry on any occupation, trade or business does not extend to such activities that are inherently pernicious or injurious to the health, safety and welfare.
The Court concluded that no citizen has a fundamental right to do trade or business in intoxicating liquor. Therefore, trade and business in liquor can be completely prohibited.
The Court upheld the Andhra Pradesh High Court’s decision and dismissed the special leave petitions.

State of Tamil Nadu v. Hind Stone AIR 1981 SC 711

Whether Rule 8-C, which reserves the exploitation of black granite for the State or State-owned corporations, is valid under the Mines and Minerals (Regulation and Development) Act, 1957, and whether it improperly limits competition in violation of constitutional principles?
Whether the imposition of a royalty on granite stone extracted from quarries in Tamil Nadu by the State violates the constitutional provisions regarding freedom of trade and commerce under Article 19(1)(g) of the Indian Constitution?

The State government has the power to make rules and regulations under the Mines and Minerals (Regulation and Development) Act, 1957, and such power includes the authority to regulate mining activities, even to the extent of creating monopolies for government-run corporations when done in the public interest.
The delegated power must be exercised in alignment with the public interest and within the framework established by the primary legislation.
Rule 8-C of the Tamil Nadu government regulations allows the State to exclusively control the mining of black granite, asserting that public interest justifies such an arrangement.

The Mines and Minerals (Regulation and Development) Act, 1957 grants the government authority to regulate the prospecting and mining of minerals, including the ability to reserve certain minerals for exploitation by government-owned entities.
The State of Tamil Nadu introduced Rule 8-C which prohibited private individuals from applying for quarrying rights for black granite, effectively reserving such rights for government-controlled corporations.
The respondents, Hind Stone along with other private parties, who held mining leases for quarrying black granite, challenged the validity of Rule 8-C, arguing that it created an unconstitutional monopoly and was contrary to the Mines and Minerals Act.
The petitioners contended that the State’s actions were in line with the regulatory framework under the Mines and Minerals (Regulation and Development) Act, 1957, which allows the reservation of resources for government exploitation if deemed in the public interest.

The Supreme Court held that the State, under the Mines and Minerals (Regulation and Development) Act, could reserve the mining of black granite for itself or its corporations.
The Court upheld the validity of Rule 8-C, finding it was made in bona fide exercise of the State’s regulatory powers and was not unconstitutional.
It reasoned that, as per the statutory framework, the creation of a monopoly for public purposes, such as regulating a natural resource, was permissible within the powers vested in the State.
The Court clarified that while creating monopolies was typically a legislative function, the legislature had delegated this power to the State through the Mines and Minerals Act, thus the creation of a monopoly in this case was within the permissible limits of legislative delegation.
The Court upheld the delegation of legislative power to the State Government as there was clear guidance to the subordinate authority to make rules.