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PETITIONER: M/S RAMNARAYAN SATYANARAYANAGRAWAL DISTILLERIES PVT.LTD.

       Vs.

RESPONDENT: ASSOCIATED ALCOHOLS & BREWERIESLTD. & ORS.

DATE OF JUDGMENT10/05/1995

BENCH: SEN, S.C. (J) BENCH: SEN, S.C. (J) AHMADI A.M. (CJ) BHARUCHA S.P. (J)

CITATION:  1995 AIR 1686            1995 SCC  (4) 563  1995 SCALE  (3)710

ACT:

HEADNOTE:

JUDGMENT:                      THE 10TH DAY OF MAY, 1995 Present:            Hon’ble the Chief Justice            Hon’ble Mr.Justice S.P.Bharucha            Hon’ble Mr.Justice Suhas C.Sen Mr.R.K.Jain, Mr.Rajinder Sachar, Mr.A.M.Mathur, Mr.A.K.Chitale, Mr.R.N.Shukla, Sr. Advs., Mr.Niraj Sharma, Mr.S.K.Gambhir, Mr.Vivek Gambhir, Mr.Amitabh Verma, Mr.K.Pandey, Mr. Satish K.Agnihotri, Ms.Shashi Kiran, Ms.Anil Katiyar, Advs. with them for the appearing parties.                      J U D G M E N T The following Judgment of the Court was delivered:                 IN THE SUPREME COURT OF INDIA                 CIVIL APPELLATE JURISDICTION                 CIVIL APPEAL NO.5526 OF 1995         (Arising out of S.L.P. (c) No.3725 of 1994) M/s Ramnarayan Satyanarayan Agrawal Distilleries Pvt.Ltd. ....Appellant               vs. Associated Alcohols & Breweries Limited and others ....Respondents [With Civil Appeal No.5527 of 1995 (Arising out of S.L.P. (C) No. 13534 of 1994)]                          J U D G M E N T SEN, J.      Leave granted.      The   appellant,    Ramnarayan   Satyanarayan   Agrawal Distilleries Pvt.Ltd.,  and Associated  Alcohols & Breweries Ltd., the  respondent No.1, are both manufactures of potable alcohol. The  respondent No.1  belongs  to  Kedia  Group  of Distilleries Companies  and enjoys a virtual monopoly in the manufacture of  potable  alcohol  in  the  State  of  Madhya

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Pradesh along  with two  other business houses. According to the appellant, this monopoly continued until the judgment of this Court in the case of State of Madhya Pradesh V. Nandlal Jaiswal, AIR  1987 SC  251, in  which the policy decision of the  State  Government  to  grant  licence  to  set  up  new distilleries at new sites was upheld.      On 26th  April, 1993, the Under Secretary,Government of Madhya Pradesh,  Commercial Taxation  Department, issued  an order to  the Excise  Commissioner. By this order, the State Government granted  permission to  give licence in favour of the appellant to manufacture potable alcohol in the interest of more competition. The order was to the following effect:-           "GOVERNMENT OF MADHYA PRADESH           COMMERCIAL TAXATION DEPARTMENT      No. B-1-64/85/VA.KAR/5                Bhopal dated 26th April, 1993 To,      The Excise Commissioner,      M.P. Gwalior.      Subject: Regarding  grant of  DI licence  to    Messers                Ramnarayan Satyanarayan Agrawal, Bilaspur for                manufacture of industrial alcohol.      Reference: Your memo No. 3/2/670 dated 20.4.93.           The  State   Government  grants   permission   for      manufcture of  potable alcohol  in order  to  encourage      greater competition  for issuance of licence to Messers      Ramnarayan Satyanarayan  Agrawal Distilleries Pvt.Ltd.,      Chherka  Bench,  Bilaspur,  which  produces  industrial      alcohol.      2. In accordance with earlier cases the distiller would      be responsible  for the  other licence/permission which      they may be required to obtain from Government of India      and other  departments of  the State Government for the      manufacture of potable alcohol.                By order and in name of the                Governor of Madhya Pradesh                       (R.S. Dubey)              Government of Madhya Pradesh              Commercial Taxation Department."      This was  followed up  by another  order, issued by the Additional Excise Commissioner on 29th April, 1993 which was as under:-           "OFFICE OF THE EXCISE COMMISSIONER           MADHYA PRADESH, OTI MAHAL, GWALIOR. No. 3/2/19-83/920, Gwalior dated 29.4.93      To           M/s. Ramnarayan Satyanarayan Agrawal           Distilleries Pvt.Ltd.,           Chherpha Bandha,           Bilaspur,           Madhya Pradesh.      Subject : Regarding grant of licence DI to M/s.           Ramnarayan Satyanarayan Agrawal, Bilaspur for           manufacture of industrial alcohol.      Reference : The previous memo No. B-1-64/85/Va. Kar 5           dated 26.4.93  of the State Government, Commercial           Taxation Department.           With reference  to the aforesaid government order,      permission is  granted to  you to  manufacture  potable      alcohol under  the DI  licence granted  to you  on  the      condition that  you would  be responsible for obtaining      the necessary licence.permission from the Government of      India and  other departments  of the  State  Government      according to rules applicable there to and further that      you would be required to follow all the necessary terms

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    and conditions under the Excise Act.                                    Sd/-                          Additional Excise Commissioner                               Madhya Pradesh."      The aforesaid  two orders  were passed  in pursuance to the appellant’s  application for  permission to  manufacture postable alcohol.  The appellant  has claimed that the order dated  26.4.93   clearly  states   that  it   shall  be  the responsibility   of    the   appellant    to   obtain   such licence/permission,  as   is  necessary,   from  any   other department  of   the  Central   Government  and   the  State Government. All  other ditilleries  in  Madhya  Pradesh  are being  run   on  similar  terms  and  conditions.  The  same procedure was  followed by  the State  of Madhya  Pradesh in respect of all distilleries in Madhya Pradesh, including the distilleries belonging  to Associated  Alcohol  &  Breweries Ltd.,  the  respondent  No.1  and  Anand  Kumar  Kedia,  the respondent No.2.      According to the appellant, the trouble started in this case when  the Excise  Commissioner issued  a  notice  dated 8.7.1993 inviting tenders for supply of country liquor in 19 supply areas  of the State of Madhya Pradesh. The respondent Nos.1 and  2 did not directly submit any tender, but another concern of  the Kedia  Group i.e.  Castle Douglas Industries Limited, submitted  its tender.  The prices  tendered by the appellant and  the Castle Douglas Industries Limited were as under:-      Price tendered by the appellant           Bilaspur       Raipur           Rs. 5.21       Rs. 5.71      Price tendered by Castle Douglas Industries Ltd.           Bilaspur       Raipur           Rs. 14.71      Rs. 14.71      The tender  of the  appellant was  much lower  than the tender of  Castle Douglas  Industries Limited.  There was no other contender.  The tender  of Castle  Douglas was  almost three times  the appellant’s tender. If the tender of Castle Douglas Industries  Limited  were  accepted,  the  Exchequer would have suffered huge loss.      Having failed in open competition the respondent Nos. 1 and 2  are now  trying to perpetuate their monopoly by legal process.      Initially, a writ petition was moved in the name Arvind Kashiv on  3.5.1993  (M.P.  No.  1035/1993).  Arvind  Kashiv claimed to  be a  journalist interested  in  public  causes. Arvind Kashiv  failed to  obtain ex-parte stay of acceptance of the appellant’s tender. Thereafter, the respondent Nos. 1 and 2  came out  in the open and filed a writ petition (M.P. No. 1320/1993)  out of  which this  appeal by  special leave arises. In  the writ  petition, they questioned the right of the appellant to make its tender on the following grounds:- (a) That  the appellant only holds an authorisation from the State Government; (b) that  the State  Government had  no power,  authority or jurisdiction in  the matter  of licensing the manufacture of potable alcohol; (c)  that   only  the   Central  Government  possesses  such licensing authority; and (d) that  the appellant  did not  hold any  licence from the Central Government.      It was  held in that case by a Division Bench of Madhya Pradesh High  Court that  the alcohol industry can be set up only after  obtaining a licence from the Government of India and thereafter  the State  shall have  the  control  of  the industry in  terms of Entry 8 of list II of the Constitution

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which gives  power to  the State  to legislate in respect of intoxicating liquor i.e. to say the production, manufacture, possession and transport. Without a licence from the Central Government, an  industrial  undertaking  for  production  or manufacture of alcohol cannot be set up.      As regards  the individual  cases of respondents Nos. 4 and  5,  in  that  writ  petition,  it  was  held  that  the respondent No.  4 shall be entitled to continue its business as before but respondent No. 5 (the appellant herein) had to obtain a  licence from the Central Government for setting up of an industry for manufacture of potable alcohol. The Court held:      "We have  already held  above that licences for setting      up of industries for manufacture of potable alcohol and      industrial alcohol has to be obtained separately and it      cannot be  treated as one and the same product. Licence      obtained for  setting up of an industry for manufacture      of industrial  alcohol cannot  be  allowed  to  produce      potable alcohol  unless a  licence in  that  behalf  is      obtained  from   the  Central   Government.  Therefore,      whenever a  unit obtains  a licence from the Government      of  India   for  setting   up  a  plant  for  producing      industrial  alcohol,  it  cannot  without  obtaining  a      licence from  the Government  of  India,  convert  that      licence for producing potable alcohol, by obtaining the      permission or licence issued by the State Government."      M/s. Ramnarayan  Satyanarayan Agrawal Distilleries Pvt. Ltd. has  now come up in appeal by special leave before this Court.      The case of the appellant is that the provisions of the Industries   Development    and   Regulation)    Act,   1951 (hereinafter referred  to as  the Act’) does not apply to an industrial  unit  in  which  less  than  fifty  persons  are employed. This contention must be upheld. ‘Factory’ has been defined in Section 3(c) of the Act as under:      "3(c)  ‘Factory’  means  any  premises,  including  the      precincts thereof, in any part of which a manufacturing      process is being carried on or is ordinarily so carried      on-      (i) with  the aid of power, provided that fifty or more      workers are  working or were working thereon on any day      of the preceding twelve months; or      (ii) without  the  aid  of  power,  provided  that  one      hundred or  more workers  are working  or were  working      thereon on  any day  of the preceding twelve months and      provided further  that in  no part of such premises any      manufacturing process  is being carried on with the aid      of power."      The  manufacturing   process  of  appellant’s  business establishment is  being carried  out  by  only  22  workers. Consequently, the appellant’s business undertaking cannot be treated as  a factory  nor an  ‘industrial  undertaking’  as defined under Section 3 (d) of the Act.      "3(d). ‘industrial  undertaking’ means  any undertaking      pertaining to a scheduled industry carried on in one or      more factories  by any  person or  authority  including      Government."      The requirement to obtain a licence in Section 11 is in respect  of   ‘any  new   industrial  undertaking’.  If  the manufacturing  establishment  of  the  appellant  is  not  a factory and  consequently not  an industrial  undertaking as defined in  the Act,  the appellant  cannot be  compelled to obtain a licence under Section 11 which is as under:-      "11. Licensing of new industrial undertakings-      (1) No  person or  authority  other  than  the  Central

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    Government, shall,  after the commencement of this Act,      establish any  new industrial undertaking, except under      and in  accordance with a licence issued in that behalf      by the Central Government:           Provided that  a Government other than the Central      Government, may  with the  previous permission  of  the      Central  Government,   establish   a   new   industrial      undertaking.      (2) A  licence or  permission under sub-section (1) may      contain  such   conditions  including,  in  particular,      conditions as  to the  location of  the undertaking and      the minimum standards in respect of size to be provided      therein as  the Central  Government  may  deem  fit  to      impose in  accordance with  rules, if  any, made  under      Section 30."      By the  Industries (Development  and  Regulation)  Act, 1951, by  virtue and  provision of Section 2, the industries specified in  the First  Schedule  of  the  Act,  have  been brought under the control of the Union. Item 26 of the First Schedule refers to Fermentation Industries and is as under:      "26. FERMENTATION INDUSTRIES:      (1) Alcohol.      (2) other products of fermentation industries."      Chapter  III   of  the   Industries  Act   deals   with ‘REGULATION OF SCHEDULED INDUSTRIES’. Under this Chapter, it has been  laid down  in Section  10 that existing industrial undertaking will  have to  be registered  in the  prescribed manner. Section  11 lays  down that  no person  or authority shall, after  the commencement of the Act, establish any new industrial undertaking  without a  licence  issued  in  that behalf by the Central Government.      Neither the appellant nor the Castle Douglas Industries Limited  has  been  registered  as  an  existing  industrial undertaking under Section 10 of the Act, nor any licence has been issued  to either of these undertaking under Section 11 of the  Act. If the contention of the respondent No. 1 is to be accepted,  then the distilleries run by them will have to be closed  down,  as  they  have  no  right  to  manufacture industrial or potable alcohol.      It has been contended on behalf of the respondence that even though  they have  not obtained a licence under Section 11 of  the Act, they have applied for permission to carry on business (COB)  to Government of India and their application has been registered. That, however, is not the same thing as having a  licence under  Section  11  of  the  Act.  If  the provisions of the Act are strictly enforced, the respondents will have  no right  to carry  on business  of manufacturing liquor.      So far  as the  appellant is  concerned,  it  has  been stated in  the appeal  before this  court as  well as in the affidavit filed  in the  court below,  that they  employ not more than 22 persons in their factory. Section 10 of the Act requires the  owner of every existing industrial undertaking to get  the undertaking registered in the prescribed manner. Similarly, Section 11 of the Act lays down that no person or authority other  than the Central Government shall establish any  new   industrial  undertaking,   except  under  and  in accordance with  a licence  issued in  that  behalf  by  the Central Government. The question is whether the appellant is an ‘industrial undertaking’ as defined in the Act. If at any premises fifty  or more  workers are working with the aid of power or one hundred or more workers are working without the aid  of  power,  then  that  place  will  be  treated  as  a ‘factory’. In  order to  be an  ‘industrial undertaking’, as defined in  the Act, it must be an undertaking carried on in

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‘one or more factories’.      In the  instant case,  since  the  appellant  does  not employ more than 22 persons, its place of manufacture cannot be regarded  as  a  ‘factory’.  Consequently,  his  business organisation   cannot   be   treated   as   an   ‘industrial undertaking’,  as   defined  in  the  Act.  The  appellant’s undertaking does not come within the mischief of the Act and the appellant  cannot be  required to  obtain a  licence  in order to carry on business of manufacturing potable alcohol.      An argument  was advanced  on behalf  of the respondent that potable  alcohol cannot  be made  without manufacturing industrial alcohol  in the  first place.  Industrial alcohol has to be the base for manufacture of potable alcohol. Entry 8, List II relates to ‘intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale  of intoxicating  liquors’. It  is clear  from this Entry that  the production  and manufacture  of intoxicating liquors will  fall within  the jurisdcition  of  the  State. Every step  that is  necessary to be taken for production or manufacture of  intoxicating liquor  falling within Entry 8, List II can be taken by the appellant with the permission of the State  Government. The  appellant is  not an ‘industrial undertaking’, as  defined in  Section 3(d) of the Industries (Development and  Regulation) Act.  No Special  licence from the Central  Government is  necessary for  the appellant for this purpose.  In course  of the argument apart from Section 11, nothing could be shown by the respondents which requires the  appellant   to  obtain   a  licence  from  the  Central Government for manufacturing potable alcohol.      We are  fortified in  the  view  we  have  taken  by  a judgment of  this Court  in the  case  of  State  of  Madhya Pradesh  V.  Nandlal  Jaiswal  (supra).  In  that  case,  an argument was advanced that the respondents were not entitled to set  up new distilleries without obtaining a licence from the Central  Government under  Section 11  of the Act. Since there was  nothing to  show that  they had  obtained such  a licence before setting up the new distilleries, their action in  setting  up  the  new  distilleries  was  illegal.  This contention was  repeled by  this Court on the ground that no such plea had been raised in the court below. It was held by P.N. Bhagwati, C.J.:-      "Moreover, it  is obvious from Section 11 read with the      definitions of  ‘factory’ and  ‘industrial undertaking’      contained in  sub-sections (c)  and (d) of Section 3 of      this Act  that licence  from the Central Government for      setting up  new distilleries  and here  in the  present      writ petitions,  there is  nothing to  show that  50 or      more workers  were going  to be  employed  in  the  new      distilleries. We  were told at the Bar that in fact old      distilleries were also working without any licence from      the Central  Government presumably because less than 50      workers  were   employed  in  such  distilleries.  This      contention of  the learned  counsel on  behalf of  M/s.      Doongaji & Co. must also, therefore, be rejected."      On behalf  of the  respondents, it  was contended  that this judgment  cannot be  treated as  good law  any more, in view of the decision of this Court in the case of Synthetics and Chemicals  Ltd. V.  State of  U.P. (1990)  1 SCC 109. In that case  the question  was whether  vend fee in respect of industrial alcohol  levied by  different State  Legislatures was valid.  The question, whether a ‘factory’ employing less than  50   workers  can   be  treated   as  an   ‘industrial undertaking’   under   the   Industries   (Development   and Regulation) Act,  did not  come up for consideration in that case at  all. The  Act has  imposed restrictions  and framed

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regulations  in   respect  of  industrial  undertakings,  as defined by  that Act.  The undertaking of the appellant does not come  within the  ambit of that definition. It cannot be said  that  the  appellant  cannot  operate  its  distillery without acquiring  a licence  as laid  down by Section 11 of the Act.      In that  view of  the  matter,  it  is  held  that  the appellant does not require a licence under Section 11 of the Industries (Development  and Regulation)  Act to manufacture potable alcohol. Their bid pursuant to the tender floated by the State  Government to  manufacture potable  alcohol  will have to be considered in accordance with law.      The appeal, therefore, must succeed.      We  have   noted  earlier  in  the  judgment  the  wide disparity in  price in  the tender made by the appellant and Castle Douglas  Industries Limited.  Having failed  in  open competition, the  respondents Nos.  1 and 2 invoked the writ jurisdiction first  indirectly, and  thereafter directly, to frustrate the  appellant’s bid  to secure the contract. They have successfully  frustrated the effort of the appellant to obtain the  contract by  this process  so far. Their attempt has now  failed. Costs  must follow  the  event.  Having  to regarding to  the facts,  we have decided to award exemplary costs in this case.      The appeal is allowed. The respondents Nos.1 and 2 will pay costs  assessed at  Rs. 20,000/- (Rupees twenty thousand only) to the appellant. I.A. No. 5 of 1995 in S.L.P. (C) No.3725 of 1994      The above I.A. is also disposed of accordingly.             CIVIL APPEAL NO. 5527 OF 1995      (Arising out of S.L.P.(C) No. 13534 of 1994) Leave granted.      In view  of our  judgment in  Civil Appeal  No. 5526 of 1995 (arising  out of  S.L.P. (C)  No.  3725  of  1994),  no further order need to be passed in the above case.