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PETITIONER: CHAITANYA KUMAR

       Vs.

RESPONDENT: STATE OF KARNATAKA & ORS.

DATE OF JUDGMENT09/04/1986

BENCH: REDDY, O. CHINNAPPA (J) BENCH: REDDY, O. CHINNAPPA (J) SINGH, K.N. (J)

CITATION:  1986 AIR  825            1986 SCR  (2) 409  1986 SCC  (2) 594        1986 SCALE  (1)1099

ACT:      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.      Constitution of India, Arts. 14, 32 and 226 :      Government Contracts  - Distribution  of State largesse Arbitrariness - When arises.      Public Interest  Litigation -  Balancing of interests - Role of the Court.      Words &  Phrases :  "to bottle"  - "Bottle  liquor  for sale" -  Meaning of  - Karnataka  Excise Act, 1965, ss. 2(2) and 13(1)(e).

HEADNOTE:      Section 13(1)(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,  provided that  no person  shall be granted a licence to  bottle liquor,  unless he  was a  lessee of  the right of retail vend of arrack, or he held a licence for the distillation or  manufacture of  liquor, or trade and import licence or  a licence  for compounding, 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  vend of  liquor or  a person  holding any  of the licences specified  in rule  3 and  desirous of  obtaining a licence  to  bottle  liquor  may  make  an  application  for licence.      Pursuant to  the decision  of the  State Government  to supply liquor  in sealed bottles, the Excise Commissioner by a 410 Gazette  Notification   dated   April   11,   1984   invited 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 the Excise  Commissioner rejected twenty eight on the ground that the  applicants were  distillers, ninety  on the ground

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that they  were connected  with the liquor trade and five on the ground  that there was no proof that they had a base i-n Karnataka. me  remaining eight applications were recommended for the award of the bottling contracts.      The Secretary to the Government being dissatisfied with the manner  of selection,  made adverse  observations in his note to  the Excise Minister. But all the same, the Minister accepted  the   recommendation  of   the   Commissioner   in consultation with  the Chief  Minister. The Deputy Secretary to  tile   Finance  Department  in  his  note  to  the  Home Department also observed that it was not clear from the file as  to   how  the   Excise  Commissioner  had  selected  the contractors. The  Government, however,  by its  order  dated September 27,  1984 allotted  the bottling  contracts to the persons recommended by the Excise Commissioner.      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 persons  entrusted with the bottling of arrack by the  Government" 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  was 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 of the Chief Minister whose son-in-law was  stated to be interested in some of the firms to whom the contracts had been awarded.                           MANOHAR 411      The petitions  were contested  by the  State Government contending in  their counter  affidavit that  it was thought desirable  to   award  the  bottling  contracts  to  persons unconnected with  the manufacture  or sale of arrack as that would prevent  the possibility of its adulteration and short measurement, 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      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 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 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  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 Government  to obtain  bottling licences. It was further argued that  the public  interest litigation ceased to be in

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public interest  as soon as the relator wilfully indulged in false allegations and that should be a sufficient ground not to warrant the exercise of the extraordinary jurisdiction of the High Court under Art.226 of the Constitution. G      Dismissing the appeals, the Court, ^      HELD: 1.(i)  Bottling  of  liquor  meant  for  sale  by whosoever in  Karnataka was  regulated by  the  Bottling  of Liquor 412 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-D]      (ii) me  action of the Excise Commissioner in excluding from consideration  for the  award of the bottling contracts those  persons   who  were  eligible  under  the  rules  and recommending such  persons  as  were  not  eligible  was  an unusual, wilful  and perverse way of exercising the power of distributing State largesse. [420 F]      2.(i) It  was only  subsequent  to  the  award  of  the bottling contracts that the Government thought it prudent to 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]      (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 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.  m e  so- called policy  decision, if  any, was  only an after-thought tailored to  meet the  situation 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.l3(1)(e) of  the Excise Act no person could engage himself in 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.  me expression "bottle liquor  for sale"  occurring in s.l3(1)(e) when read with the  definition of  the words  "to bottle" in s.2(2) of the Act makes 413 it amply evident of that all that was necessary was that the liquor bottled must be meant for sale. m ere 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.l3(1)(e) and  the Rules  and  not  a  bottler  who  merely bottles liquor for others. [427 H, 427 F, 428 A, 427 G]      In the  instant case,  the recommendation of the Excise Commissioner 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 (Sr.No.73) was  already an excise contractor and, therefore,

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was ineligible  from being  considered in  terms of criteria 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 for the departure. [421 B-D]      4. me  persons who have been awarded bottling contracts cannot be  said to be mere agents of the Government and thus not required  in law  to take  out licences under the Rules. may are  not instrumentalities  of the  Government  but  are independent contractors  who deal  with  the  Government  at arm’s length.  may 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. [428 C-D]      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 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  paramount considerations. me  Court is  always concerned  with  the  I balancing of interests. [426 A-C] 414

JUDGMENT:      CIVIL APPELLATE 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.      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 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.      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.      B.R.L.  Iyengar,   N.  Reddy  and  P.R.  Ramashesh  for Respondent No. 4.      The Judgment of the Court was delivered by      CHINNAPPA  REDDY,  J.  This  case  has  made  political history, but those concerned for the Rule of Law must remain 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 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 as ’shocking  the judicial conscience’. Some of the persons, to whom  the bottling  contracts had  been  awarded  by  the

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Government, have  preferred these  appeals under Article 136 of the Constitution. 415      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 intoxicating  liquor and that the Government may  farm out these privileges for the purpose of raising revenue.  The legislatures  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 states that it is enacted "to provide  for a  uniform law  relating to the production, manufacture,   ’possession,   import,   export,   transport, purchase and  sale of  liquor and intoxicating 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  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’. 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 re- bottling". Sections  3, 4  and 5 provide for the appointment of   Excise    Commissioner,   Deputy    Commissioner    and Superintendents  and   Deputy  Superintendents   of  Excise. Chapter III  (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(1)(e) prescribes  that ’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 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- 416 cating drug  within any  specified area. Chapter VI provides for the  grant of  licences and  permits and Chapter VII and VIII  deal   with  offences  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 Karnataka has made various sets of rules. We  are   primarily  concerned  with  the  Karnataka  Excise (Bottling of  Liquor) Rules,  1967. Prior  to  November  30, 1984, rules 3,4,5 and 6 of the Karnataka Excise (Bottling of Liquor) Rules, were as 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           (Sale of Indian and Foreign Liquors) Rules, 1968.

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         (2) No person shall be granted a licence to bottle           liquor (unless  he is  a lessee  of the  right  of           retail vend  of arrack  or he holds a licence) for           the distillation or manufacture of liquor or trade           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           of retail  vend of  liquor or a person holding any           of the  licences specified  in rule 3 and desirous           of 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.           5. Grant  of  licence  -  If,  after  making  such           enquiries as  he may  deem necessary,  the  Excise           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  is suitable, he shall, subject           to the  conditions hereinafter  provided  grant  a           licence on payment of 417           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 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 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 fact bottled,  it had  to be done under the authority of and subject to  the terms  and conditions  of a  licence and  in accordance with  the requirements  of the  Karnataka  Excise (Bottling of  Liquor) 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 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, 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 Commission of  Enquiry headed  by a  High  Court  Judge  was appointed by the Government of Karnataka to investigate into the cause  of the  tragedy and  to recommend the steps which should be  taken to  prevent  the  repetition  of  any  such tragedy.

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418 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 adulteration, it  was also  realised that  supply  of  loose arrack was  unhygienic and, therefore, it was necessary that arrack ’t  should be sold in sealed bottles. The decision of the Government  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.      Pursuant to  the decision  of the  Government to supply liquor in sealed bottles the Excise Commissioner by a notifi cation published  in the  Karnataka Gazette  dated April 11, 1984 invited  applications from "intending persons/firms for bottling arrack"  in 18  places in Karnataka State specified in the  r notification.  me price payable for each bottle of different  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 by a firm of Chartered Accountants who recommended  a margin  of profit  of 17 per cent but the Government decided  that lO  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  units. Further details  of the  procedure to  be followed were 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  arrangement would  be in  force was  stated to be four years,  that is,  July 1, 1984 to June 30, 1988, in the first  instance.   Every  application  was  required  to  be accompanied by  a draft of Rs.10,OOO and it was further made a condition  that successful applicants would have to make a cash deposit  of Rs.50,OOO  within five  days of the date of acceptance of  his offer.  The successful applicant would be issued a  bottling licence according to the rules on payment of the prescribed licence 419 fee. 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/ firms"  without any  restriction whatsoever. Though under the  Karnataka 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 certainly have said and as we shall presently see.      In response to the advertisement, 131 applications were received by the Excise Commissioner. The Excise Commissioner then called  all the  applicants for  discussion in order to ascertain their  experience and  financial stability. At the conclusion  of   the   discussions   and   after   obtaining

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intelligence reports,  the Excise  Commissioner proceeded to make  his  recommendation  to  the  Government.  The  Excise Commissioner after  referring to the qualifications etc., of each of the 131 applicants stated as follows :           "131 applicants  were examined  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,  86, 89,  95 and  122 are  distillers  and           hence they  need not  be considered. 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,  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, 126,  128, 129, are connected 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 420           bottling, blending  etc., of  arrack in Tamil Nadu           and Kerala.           Similarly Sl.  Nos. 1,  114, 119, 120, and 127 are           outsiders who  have not shown any proof of base in           Karnataka. These also need not be considered.           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  bottling work  and their names may           be recommended for approval". 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 applicants were  connected with  the liquor  trade and  five applicants on  the ground  that there was no proof that they had a  base in  Karnataka. Eight  applications remained  and they were  recommended to  be chosen  for the  award of  the bottling contracts.  Earlier we remarked that things were to become  "curiouser  and  curiouser".  They  did.  Under  the Karnataka Excise  (Bottling of 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 the  Excise Commissioner was, excluding from consideration  for the  award of the bottling contracts those persons  who were  eligible for  the grant of bottling licences and  recommending 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 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 the contractors since the award  of bottling  contracts by  the State would enable them to make huge profits. me burden of the bottling charges would  of  course  be  passed  on  ultimately  to  the  poor consumer. Thus even if the award of the bottling 421

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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   recommendation  of   the  Excise Commissioner to  award the  bottling  contracts to the 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 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  Commissioner  in  his recommendation. In fact, 10 applications (Nos. 58, 59 and 60 to 67) submitted by this very gentleman, T.V. Sarangadharan, were rejected  by the Excise Commissioner by the application of that  principle. It is strange that while 10 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 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 bottling  arrack in  the previous  years.  Apart from the  fact that  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  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   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 Karnataka that it was  thought desirable to award the bottling contracts to persons unconnected  with the manufacture and sale of arrack as 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 : 422           " It  is felt that as far as possible, the work of           bottling of arrack should be entrusted to an India           agency which is not connected with the manufacture           of  arrack   or  rectified  spirit  to  avoid  any           possibility of adulteration and short measurement. 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 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  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  contemplated the  grant of bottling

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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  amendments  to  the  rules before giving  effect to  the policy.  Governments  and  the governed  are   equally  bound   by  the   laws.   And   the advertisement inviting  applications could  have  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 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. 423      The correspondence  which followed between the Excise A Commissioner  and  the  Government  is  also  revealing.  On receipt of  the letter of the Excise Commissioner containing his recommendation, the Secretary to the Government wrote to the Excise Commissioner a letter in which he stated :           "The process  of establishing  bottling plants  at           different   places    would   inevitably   involve           financial outlays  and time.  m ere 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           set up the bottling plants. m e 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 facilities to  them, the Excise Commissioner sent what would strike any one as an evasive reply. He said,           "The process  of establishing  bottling plants  in           different  places   involves   financial   outlays           towards the  cost of  land,  buildings,  machinery           etc. Before  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. me proposals sent by me to the           Government are  on the  basis of  my assessment of           the  credit   worthiness  and   capacity  of   the           individuals   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 stated :           "There  is   hardly  any  data  on  record  either           regarding   the    credit   worthiness    of   the           individuals/firms companies recommended by the 424           Excise  Commissioner   or  their  capabilities  to           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

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         revenues 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, 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 :           (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           their offers.  mis has  to be  brought  on  record           clearly. Otherwise,  the selection  is subject  to           challenge in the court of law."      The protest  of the  Deputy Secretary  was ignored, the political  arm   of  the   Executive  prevailed   over   the bureaucratic arm of the Executive, as it always happens when the question is of distribution of Government patronage, and the impugned order of the Government was issued on September 27, 1984  allotting 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  filed writ petitions questioning the G.O. in November,  1984. At  that stage it appears to have dawned on the  powers that  it was necessary to amend the Karnataka Excise  (Bottling   of  Liquor)   Rules.   So   the   Excise Commissioner wrote  to the  Government on November 6, 1984 a letter in the following terms: 425           "I write to state that Government 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  Government contained  in           the above Government Order, the amendments for the           above rules are necessary. Unless these amendments           are issued,  the bottling  units approved  by  the           Government in the above Government Order cannot be           issued  licences   for  bottling  units.  hence  I           request that  the enclosed  draft  amendments  may           kindly be approved and issued by the Government." On November  23, 1984,  the Government issued a notification 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 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. me draft rule was finalised and the amended  rule was  published on November 30, 1984. Later it was  discovered that  an amendment  of rule  4  was  also necessary and  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 an indication regarding the anxiety of the Government to favour the chosen ones with the

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bottling contracts.      More writ  petitions were  thereafter  filed,  some  by rival applicants  for the  bottling contracts  and  some  by public spirited  citizens determined  to expose Governmental misconduct.  We   were  told  by  Shri  Venugopal  that  the preliminary hearing  of the  writ  petitions  was  postponed twice and  that  a  rule  Nisi  was  issued  only  after  an amendment of  one of  the writ petitions by the inclusion of an allegation  of malafides against the Chief Minister whose son-in-law was  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 Litigation  is a  good thing  in itself, those professing to be 426 public spirited  citizens cannot be encouraged to indulge in wild and  reckless allegations  besmirching the character of others and  so the  court must refuse 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 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 paramount  considerations.  As always,  the  court  is  concerned  with  the  balancing  of interests, and we are 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 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 were  partly argued  at the  final hearing, permission was sought  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  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.      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 seeking or  obtaining bottling  contracts under  the scheme. They 427 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

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liquor, having  nothing 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 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 necessary for the agents of the Government to obtain bottling licences.  It is  patent that these submissions are submissions 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  necessity for  obtaining licences under  the Bottling  of Liquor Rules by the persons to whom  the bottling  contracts had  been awarded  was also realised 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.13(1)(e) anyone can engage himself  in the  business of  bottling liquor without obtaining a  licence  under  the  Rules.  It  is  true  that s.13(1)(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’.   But  there  is  no justification for  the implication  sought to  be read  into section 13(1)(e)  read 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.13(1)(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 428 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 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  he cannot engage himself in the business  of bottling liquor meant for sale. Bottling of liquor  meant   for  sale  by  whosoever  is  without  doubt regulated by  the Bottling of Liquor 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 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

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liquor.      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  Litigation ceased to  be in  the public interest as soon as the relator willfully indulged in false allegations and that should be a sufficient  ground  not  to  warrant  the  exercise  of  the extraordinary jurisdiction  of the High Court under Art. 226 of  the   Constitution.  We  have  already  considered  this submission and rejected it.      A  special   argument  was   advanced  on   behalf   of 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  a hundred  other  applicants  of  whose  claims  to preference we 429 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 for  some reasonable  time so  that  the heavy 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. 430