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KHODAY DISTELLERIES LTD V. STATE KARNATKA

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

ISSUE:

  • 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?

RULE:

  • 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.

FACTS:

  • 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.

HELD:

  • 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.