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CASE NO.: Appeal (civil)  1732 of 2006

PETITIONER: Kerala Samsthana Chethu Thozhilali Union

RESPONDENT: State of Kerala & Ors.

DATE OF JUDGMENT: 24/03/2006

BENCH: S.B. Sinha & P.K. Balasubramanyan

JUDGMENT:

J U D G M E N T

[Arising out of SLP (Civil) No.8588 of 2005] WITH CIVL APPEAL NO.         1733                OF 2006 [Arising out of SLP (Civil) Nos.10703-10704 of 2005]

S.B. SINHA, J :

       Leave granted.

       Whether Rules 4(2) and 9(10)(b) of the Kerala Abkari Shops Disposal  Rules, 2002 (for short "the Rules") are ultra vires the Abkari Act (for short  "the Act") is the question involved in these appeals which arise out of a  judgment and order dated 22.3.2005 passed by a Division Bench of the  Kerala High Court at Ernakulam in Writ Appeal Nos. 676, 677, 680, 722 of  2004 and Writ Petition (C) Nos. 17138 of 2003 and 26918, 27105 and 37762  of 2004 whereby and whereunder the High Court following its earlier  decision in Anil Kumar v. State of Kerala  [2005 (1) KLT 130] dismissed the  appeals and the writ petitions.

       The Appellant herein is a federation of trade unions of toddy tappers  and workers in toddy shops situate in the State of Kerala.   

       The Abkari Act was enacted by the Maharaja of Cochin in the year  1902.  It is a pre-constitutional statute.  It is applicable to the entire State of  Kerala.  The provisions of the said Act seek to control and regulate various  categories of intoxicating liquor and intoxicating drugs including arrack,  toddy, Indian Made Foreign Liquor (IMFL), country liquor and other types  of foreign liquor.   

       On or about 1.4.1996, the State of Kerala banned the sale of arrack.  A  policy decision admittedly was taken by the Labour and Rehabilitation  Department of the State of Kerala that the workers who had been engaged in  manufacture, import, export, transport, sale and possession of arrack should  be rehabilitated.  The State of Kerala paid compensation at the rate of Rs.  30,000/- per worker.  The said workers were also paid benefits under the  Abkari Workers Welfare Fund Board Act.  It is not in dispute that a Welfare  Board has also been constituted for the workers working in the toddy shops.             The expressions "Arrack" and "toddy" have been defined in Sections  3(6A) and 3(8) of the Act as under:

"3(6A) "Arrack" means any potable liquor other  than Toddy, Beer, Spirits of Wine, Wine Indian  made spirit, foreign liquor and any medicinal  preparation containing alcohol manufactured  according to a formula prescribed in a  pharmacopoeia approved by the Government of

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India or the Government of Kerala, or  manufactured according to a formula approved by  the Government of Kerala in respect of patent and  proprietory preparations or approved as a bona fide  medicinal preparation by the Expert Committee  approved under section 68A of the Act.

3(8) "Toddy" means fermented or unfermented  juice drawn from a coconut, palmyra, date, or any  other kind of palm tree;"

       Section 8 of the Act dealing with trade in Arrack was amended by Act  No. 16 of 1997 which came into force from 3.6.1997.  The trade was  banned.

       Sections 18A, 24(c), 24(d) and 29(1), which are relevant for our  purpose, read as under: "18 A. Grant of exclusive or other privilege of  manufacture etc on payment of rentals. (1) It shall be lawful for the Government to grant  to any person or persons, on such conditions and  for such period as they may deem fit, the exclusive  or other privilege - (i) of manufacturing or supplying by wholesale; or (ii) of selling by retail; or (iii) of manufacturing or supplying by wholesale  and selling by retail any liquor or intoxicating  drugs within any local area on his or their payment  to the Government of an amount as rental in  consideration of the grant of such privilege. The  amount of rental may be settled by auction,  negotiation or by any other method as may be  determined by the Government, from time to time,  and may be collected to the exclusion of, or in  addition, to the duty or tax leviable Under Sections  17 and 18. (2) No grantee of any privilege under Sub-section  (1) shall exercise the same until he has received a  licence in that behalf from the Commissioner. (3) In such cases, if the Government shall by  notification so direct, the provisions of Section 12  relating to toddy and toddy producing trees shall  not apply." 24. Forms and conditions of licenses, etc. \026 Every  license or permit granted under this Act shall be  granted \026  (a)     *** (b)     *** (c)     subject to such restrictions and on such  conditions; and (d)     shall be in such form and contain particulars  \026 as the Government may direct either generally,  or in any particular instance in this behalf." 29. Power to make rules \026 (1) The Government  may, by notification in the Gazette, either  prospectively or retrospectively, make rules for the  purposes of this Act."

       In exercise of the said power, the Rules were framed.  After a lapse of  about six years, the State inserted the impugned Rules, inter alia directing  that one arrack worker each must be employed in all toddy shops in the  following terms:

"4(2)   The shops so notified under sub-rule (1)  above shall be such shops as are retained after

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abolition of certain existing shops.  Grantees of  privilege of such retained shops shall undertake to  engage the existing workers and such eligible  workers of the abolished shops who were  registered with the Toddy Workers Welfare Fund  Board as on 31-3-2000 and as are redeployed to  their shops.  Grantee of privilege shall also  undertake to engage on Arrack worker of the  abolished Arrack Shops of the State as would be  allotted to his shop for rehabilitation, on the basis  of district level seniority."

9(10)   In order to ensure that the employment of  workers of abolished Toddy and Arrack Shops are  protected, the licensees shall abide by the  following conditions also:

(a)     ***             *** (b)     One Arrack Worker who has been remaining  unemployed since the abolition of Arrack Shops  with effect from 1st April 1996 shall be absorbed in  the shop as may be decided by Government by  observing the District level seniority of such  Arrack Workers."

       The validity of the said Rules was questioned both by the holders of   licences as also by the toddy workers.  The employees of the toddy shops are  traditional workers.  A learned Single Judge of the High Court upheld the  validity of the Rules inter alia holding:

(i)     in view of Section 18A of the Act, as control of liquor in trade is  within the exclusive domain of the State and as terms and  conditions can be prescribed for granting a licence, the impugned  rules were validly made. (ii)    Although, Section 29(2) does not contain any provision enabling  the State to make such a provision, the same would, however,  come within the purview of sub-section (1) thereof. (iii)   Source of power of the State to frame such rules can be traced to  Entries 23 and 24 of List III of the Seventh Schedule of the  Constitution of India.   

       The Division Bench of the said High Court upheld the said  conclusions of the learned Single Judge.

       Only the toddy workers are in appeal before us.

       Mr. Ranjit Kumar, learned senior counsel appearing on behalf of the  Appellants would submit :

(i)     The State in making the aforementioned rules transgressed its  power of delegated legislation as the Act does not contain any  provision as regards adoption of welfare measures to be taken by  the State. (ii)    The social purpose for which the said rules were made is governed  by the provisions of the Industrial Disputes Act.   (iii)   As the matter relating to the terms and conditions of employment  of workmen is covered by the said parliamentary legislation, the  State had no competence whatsoever to make such a rule.   (iv)    The power under sub-section (1) of Section 29 of the Act could be  resorted to only for the purpose of giving effect to the Act and not  for a purpose de’hors the same.   (v)     The entries contained in the three lists of the Seventh Schedule of  the Constitution of India enumerate only the legislative field,  specifying the sources of legislation by the Parliament and the

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State legislatures and in terms thereof, the State has no power to  make the concerned rule. (vi)    It may be true that the State has the exclusive privilege of carrying  on business in liquor but the same would not mean that while  parting with the said privilege the State can impose any  unreasonable restriction which would be violative of Article 14 of  the Constitution of India.

       Mr. T.L.V. Iyer, learned senior counsel appearing on behalf of the  State, on the other hand, would contend that :  (i)     imposition of such a condition is within the domain of the State in  terms of Sections 18A, 24(c), 24(d) and 29 of the Act inasmuch as  while granting a licence for sale of toddy, the State merely parts  with a privilege which exclusively vested in it and in that view of  the matter if in terms of the policy decision of the State, arrack  workers were to be rehabilitated, it could direct employment of  unemployed arrack workers and, thus, there was absolutely no  reason as to why such a condition cannot be imposed while parting  with the privilege by the State in terms of Section 18A of the Act  which enables the State to impose such conditions or restrictions as  it may deem fit for the purpose of grant of a licence to sell  intoxicating liquor.   (ii)    As arrack and toddy both come within the purview of the Act, the  State is entitled to exercise its control thereover which in turn  would mean that a provision enabling the arrack workers, thrown  out of employment, to be employed in toddy shops has a  reasonable nexus with the purposes of the Act and such a provision  cannot be said to be extraneous to the provisions of the Act and  would come within the purview of sub-section (1) of Section 29  thereof.   (iii)   The Rules which are impugned in these appeals enable the State to  direct employment of toddy workers also who are displaced by the  relocation of the toddy shops or reduction in their number and as  such the workers cannot successfully question the validity of the  Rules.   (iv)    The right of the State to impose conditions is recognised by  Sections 18A, 24(c) and (d) and in that view of the matter while  considering the validity of the Rules made in terms of sub-section  (1) of Section 29 of the Act, the jurisdiction of this Court should  not be confined only to looking at the object and purport of the Act  as contended by the Appellants herein but also look to the purposes  which are sub-served thereby.   (v)     Section 69 of the Act also assumes importance in this context and  confers a statutory flavour on the rules made under the Act and  rules validly made in terms thereof become a part of the Act itself.

       Mr. Romy Chacko, learned counsel appearing on behalf of the  Intervener would supplement the submissions of Mr. Iyer contending that  the purpose of the Act must be found out from the various provisions of the  Act and not from Section 18A of the Act or Section 24 alone.  The learned  counsel would contend that while parting with the privilege, the State can  impose any condition and it is for the licensee to take it or leave it.  The  learned counsel would further submit that as dealing in liquor is res-extra  commercium, as has been held by this Court in Har Shankar and Others v.  Dy. Excise and Taxation Commr. And Others[(1975) 1 SCC 737], the  licensee could not have contended that the condition imposed for grant of  licence was onerous.

       Drawing our attention to sub-rule (38) of Rule 7, it was urged that the  licensees are bound by all the rules which have either been passed under the   Act or which may thereafter be made thereunder or under any law relating to  Abkari Revenue which may be made in future and, thus, the power  conferred upon the State must be held to be of wide amplitude.

       The Act was enacted to consolidate and amend the law relating to the

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import, export, transport, manufacture, sale and possession of intoxicating  liquor and/ or intoxicating drugs in the State of Kerala.  While framing the  Rules for the purposes of the Act, the legislative policy cannot be abridged.   The Rules must be framed to carry out the purposes of the Act.   

       By reason of Section 8 of the Act, trade in arrack was prohibited as far  back as in the year 1996.  By reason of the impugned Rules, the State has  not laid down the terms and conditions for employment of a worker.  The  Act does not contain any provision therefor.  Under the common law as also  under the provisions of the Specific Relief Act, an employer is entitled to  employ any person he likes.  It is well-settled that no person can be thrust  upon an unwilling employer except in accordance with the provisions of a  special statute operating in the field.  Such a provision cannot be made by  the State in exercise of its power under delegated legislation unless the same  is expressly conferred by the statute.     

       A rule is not only required to be made in conformity with the  provisions of the Act whereunder it is made, but the same must be in  conformity with the provisions of any other Act, as a subordinate legislation  cannot be violative of any plenary legislation made by the Parliament or the  State Legislature.

       The State by enacting Section 8 of the Act prohibited sale of arrack.   Once such a right to bring about prohibition, having regard to the principles  contained in Article 47 of the Constitution of India is exercised, no trade  being in existence, the question of exercise of any control thereover would  not arise.  Such a power in view of Section 8 of the Act must be held to be  confined only to carrying out the provisions thereof meaning thereby, no  person can be allowed to deal in arrack and in the event, any person is found  to be dealing therewith, to take appropriate penal action in respect thereof as  provided.

       Rules 4(2) and 9(10)(b) in the Rules were introduced six years after  the trade in arrack was completely prohibited.  In the aforementioned  backdrop of events, the question as regard applicability of the provisions of  Sections 18A, 24(c) and (d) of the Act is required to be construed.  Section  18A of the Act recognises the common law right of the State to part with the  privilege.  The State’s exclusive privilege of supply or sale of liquor is also  not in question.  But, we may notice that Section 18A is an enabling  provision.  It was enacted evidently having regard to Article 47 of the  Constitution of India.  The State while parting with its exclusive privilege or  a part thereof, may impose such conditions but once such terms and  conditions are laid down by reason of a statute, the same cannot be deviated  from.

       In Har Shankar (supra) whereupon Mr. Chacko placed reliance, it was  stated:

"5. Auctions for granting the right to sell country  liquor for the year 1968-69 were initially held in  various districts of Punjab on or about March 8,  1968 in pursuance of conditions of auction framed  on February 19, 1968. Those auctions became  ineffective by reason of a judgment dated March  12, 1968 of a Division Bench of the High Court of  Punjab and Haryana in Civil Writ No. 1376 of  1967 (Jage Ram v. State of Haryana). Following  an earlier judgment in Bhajan Lal v. State of  Punjab the High Court took the view that the  licence fee realised through the medium of  auctions was really in the nature of "still-head  duty" and that the licensees could not be called  upon by the Government to pay still-head duty on  the liquor quota which, under the terms of  auctions, they were bound to lift but which in fact

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was not lifted by them."

       The said decision has no application to the fact of the present case, as  therein this Court was concerned with a different question.

       It is, furthermore, not in dispute that Article 14 of the Constitution of  India would be attracted even in the matter of trade in liquor.

       In State of M.P. and Others v. Nandlal Jaiswal and Others [(1986) 4  SCC 566], this Court opined:

"\005The State under its regulatory power has the  power to prohibit absolutely every form of activity  in relation to intoxicants \027 its manufacture,  storage, export, import, sale and possession. No  one can claim as against the State the right to carry  on trade or business in liquor and the State cannot  be compelled to part with its exclusive right or  privilege of manufacturing and selling liquor. But  when the State decides to grant such right or  privilege to others the State cannot escape the  rigour of Article 14. It cannot act arbitrarily or at  its sweet will. It must comply with the equality  clause while granting the exclusive right or  privilege of manufacturing or selling liquor. It is,  therefore, not possible to uphold the contention of  the State Government and Respondents 5 to 11 that  Article 14 can have no application in a case where  the licence to manufacture or sell liquor is being  granted by the State Government. The State cannot  ride roughshod over the requirement of that  article."

       In Khoday Distilleries Ltd. and Others v. State of Karnataka and  Others [(1995) 1 SCC 574], a Constitution Bench of this Court upon  referring to a large number of decisions summed up its findings in the  following terms:

"60\005(e) For the same reason, the State can create  a monopoly either in itself or in the agency created  by it for the manufacture, possession, sale and  distribution of the liquor as a beverage and also  sell the licences to the citizens for the said purpose  by charging fees. This can be done under Article  19(6) or even otherwise. (f) For the same reason, again, the State can  impose limitations and restrictions on the trade or  business in potable liquor as a beverage which  restrictions are in nature different from those  imposed on the trade or business in legitimate  activities and goods and articles which are res  commercium. The restrictions and limitations on  the trade or business in potable liquor can again be  both under Article 19(6) or otherwise. The  restrictions and limitations can extend to the State  carrying on the trade or business itself to the  exclusion of and elimination of others and/or to  preserving to itself the right to sell licences to do  trade or business in the same, to others. (g) When the State permits trade or business in the  potable liquor with or without limitation, the  citizen has the right to carry on trade or business  subject to the limitations, if any, and the State  cannot make discrimination between the citizens

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who are qualified to carry on the trade or  business."       

       While imposing terms and conditions in terms of Section 18A of the  Act, the State cannot take recourse to something which is not within its  jurisdiction or what is otherwise prohibited in law.  Sub-sections (c) and (d)  of Section 24 of the Act provide that every licence or permit granted under  the Act would be subject to such restrictions and on such conditions and  shall be in such form and contain such particulars as the Government may  direct either generally or in any particular instance in this behalf.  The said  provisions are also subject to the inherent limitations of the statute.  Such an  inherent limitation is that rules framed under the Act must be lawful and  may not be contrary to the legislative policy.  The rule making power is  contained in Section 29 of the Act.  At the relevant time, sub-section (1) of  Section 29 of the Act provided that the government may make rules for the  purpose of carrying out the provisions of the Act which has been amended  by Act No. 12 of 2003 with effect from 1.4.2003 empowering the State to  make rules either prospectively or retrospectively for the purposes of the  Act.

       Its power, therefore, was to make rules only for the purpose of  carrying out the purposes of the Act and not de’hors the same.  In other  words, rules cannot be framed in matters that are not contemplated under the  Act.

       The State may have unfettered power to regulate the manufacture, sale  or export-import sale of intoxicants but in the absence of any statutory  provision, it cannot, in purported exercise of the said power, direct a  particular class of workers to be employed in other categories of liquor  shops.

       The Rules in terms of sub-section (1) of Section 29 of the Act, thus,  could be framed only for the purpose of carrying out the provisions of the  Act.  Both the power to frame rules and the power to impose terms and  conditions are, therefore, subject to the provisions of the Act.  They must  conform to the legislative policy.  They must not be contrary to the other  provisions of the Act.  They must not be framed in contravention of the  constitutional or statutory scheme.   

       In Ashok Lanka and Another v. Rishi Dixit and Others [(2005) 5 SCC  598], it was held:

"\005 We are not oblivious of the fact that framing  of rules is not an executive act but a legislative act;  but there cannot be any doubt whatsoever that such  subordinate legislation must be framed strictly in  consonance with the legislative intent as reflected  in the rule-making power contained in Section 62  of the Act."

       In Bombay Dyeing & Mfg. Co. Ltd. v. Bombay Environmental Action  Group & Ors. [2006 (3) SCALE 1], this Court has stated the law in the  following terms:

"A policy decision, as is well known, should not be  lightly interfered with but it is difficult to accept  the submissions  made on behalf of the learned  counsel appearing on behalf of the Appellants that  the courts cannot exercise their power of judicial  review at all.  By reason of any legislation whether  enacted by the legislature or by way of subordinate  legislation, the State gives effect to its legislative  policy.  Such legislation, however, must not be  ultra vires the Constitution.  A subordinate  legislation apart from being intra vires the

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Constitution, should not also be ultra vires the  parent Act under which it has been made.  A  subordinate legislation, it is trite, must be  reasonable and in consonance with the legislative  policy as also give effect to the purport and object  of the Act and in good faith."

       In Craies on Statute Law, 7th edition, it is stated at page 297:

"The initial difference between subordinate legislation  (of the kind dealt with in this chapter) and statute law  lies in the fact that a subordinate law-making body is  bound by the terms of its delegated or derived  authority, and that courts of law, as a general rule, will  not give effect to the rules, etc., thus made, unless  satisfied that all the conditions precedent to the  validity of the rules have been fulfilled.  The validity  of statutes cannot be canvassed by the courts, the  validity of delegated legislation as a general rule can  be.  The courts therefore (1) will require due proof that  the rules have been made and promulgated in  accordance with the statutory authority, unless the  statute directs them to be judicially noticed; (2) in the  absence of express statutory provision to the contrary,  may inquire whether the rule-making power has been  exercised in accordance with the provisions of the  statute by which it is created, either with respect to the  procedure adopted, the form or substance of the  regulation, or the sanction, if any, attached to the  regulation : and it follows that the court may reject as  invalid and ultra vires a regulation which fails to  comply with the statutory essentials."

       In G.P. Singh’s Principles of Statutory Interpretation, Tenth Edition, it  is stated at page 916:

"Grounds for judicial review. Delegated legislation is  open to the scrutiny of courts and may be declared  invalid particularly on two grounds: (a) Violation of  the Constitution; and (b) Violation of the enabling  Act.  The second ground includes within itself not  only cases of violation of the substantive provisions  of the enabling Act, but also cases of violation of the  mandatory procedure prescribed.  It may also be  challenged on the ground that it cannot be said to be  in conformity with the statute or Article 14 of the  Constitution or that it has been exercised in bad faith.   The limitations which apply to the exercise of  administrative or quasi-judicial power conferred by a  statute except the requirement of natural justice also  apply to the exercise of power of delegated  legislation.  Rules made under the Constitution do  not qualify as legislation in true sense and are treated  as subordinate legislation and can be challenged in  judicial review like delegated legislation.   Compliance with the laying requirement or even  approval by a resolution of Parliament does not  confer any immunity to the delegated legislation but  it may be a circumstance to be taken into account  along with other factors to uphold its validity  although as earlier seen a laying clause may prevent  the enabling Act being declared invalid for excessive  delegation."

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       In Clariant International Ltd. & Anr. vs. Securities & Exchange Board  of India [(2004) 8 SCC 524], this Court observed:

63. When any criterion is fixed by a statute or by a  policy, an attempt should be made by the authority  making the delegated legislation to follow the policy  formulation broadly and substantially and in  conformity therewith. [See Secy., Ministry of  Chemicals & Fertilizers, Govt. of India v. Cipla Ltd.  23, SCC para 4.1.)

       We may notice that in State of Rajasthan & Ors. vs. Basant Nahata   [(2005) 12 SCC 77 : AIR 2005 SC 3401], it was pointed out :

       "The contention raised to the effect that this Court would  not interfere with the policy decision is again devoid of any  merit.  A legislative policy must conform to the provisions  of the constitutional mandates.  Even otherwise a policy  decision can be subjected to judicial review\005"

In B.K. Industries & Others v. Union of India & Others [(1993) Supp.  3 SCC 621], this Court clearly held that a delegate cannot act contrary to the  basic feature of the Act stating:   

"\005..The words’so far as may be’ occurring in  Section 3(4) of the Cess Act cannot be stretched to  that extent.  Above all it is extremely doubtful  whether the power of exemption conferred by Rule  8 can be carried to the extent of nullifying the very  Act itself.  It would be difficult to agree that by  view of the power of exemption, the very levy  created by Section 3(1) can be dispensed with.   Doing so would amount to nullifying the Cess Act  itself.  Nothing remains thereafter to be done under  the Cess Act.  Even the language of Rule 8 does  not warrant such extensive power.  Rule 8  contemplates merely exempting of certain  exciseable goods from the whole or any part of the  duty leviable on such goods.  The principle of the  decision of this Court in Kesavananda Bharati v.  State of Kerala applies here perfectly.  It was held  therein that the power of amendment conferred by  Article 368 cannot extend to scrapping of the  Constitution or to altering the basic structure of the  Constitution.  Applying the principle of the  decision, it must be held that the power of  exemption cannot be utilised for, nor can it extend  to, the scrapping of the very Act itself.  To repeat,  the power of exemption cannot be utilised to  dispense with the very levy created under Section  3 of the Cess Act or for that matter under Section 3  of the Central Excise Act."

The law that has, thus, been laid down is that if by a notification, the  Act itself stands affected; the notification may be struck down.

       Furthermore, the terms and conditions which can be imposed by the  State for the purpose of parting with its right of exclusive privilege more or  less has been exhaustively dealt with in the illustrations in sub-section (2) of  Section 29 of the Act.  There cannot be any doubt whatsoever that the  general power to make rules is contained in sub-section (1) of Section 29.   The provisions contained in sub-section (2) are illustrative in nature.  But,  the factors enumerated in sub-section (2) of Section 29 are indicative of the

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heads under which the statutory framework should ordinarily be worked out.

       Neither Section 18A nor sub-sections (c) and (d) of Sections 24 of the  Act confer power upon the delegatee to encroach upon the jurisdiction of the  other department of the State and take upon its head something which is not  within its domain or which otherwise would not come within the purview of  the control and regulation of trade in liquor.  The conditions imposed must  be such which would promote the policy or secure the object of the Act.  To  grant employment to one arrack worker in each toddy shop in preference to  the toddy workers neither promotes the policy nor secures the object of the  Act.  It is not in dispute that the purport and object of such rules is to  rehabilitate the former employees of arrack shops.  Rehabilitation of the  employees is not within the statutory scheme and, thus, the Rules are ultra  vires the provisions of the Act.  

       In State of Kerala and Others v. Maharashtra Distilleries Ltd. and  Others [(2005) 11 SCC 1], this Court took notice of the provisions of  Section 18A of the Act.  It was held that the State had no jurisdiction to  realise the turn over tax from the manufacturers in the garb of exercising its  monopoly power.  It was held that turn-over tax cannot be directed to be  paid either by way of excise duty or as a price of privilege.

       The said decision, therefore, is an authority for the proposition that the  State while implementing the purposes of the Act must act within the four- corners thereof.  It may be true that all types of intoxicating liquors  including ’toddy’ are subject matter of control but the power to control has  been arbitrarily exercised.  Whereas in the case of Arrack, the trade has  totally been prohibited, the trade in toddy has merely been subjected to the  control within the purview of the provisions of the Act.   

       So far as trade in toddy is concerned, the toddy workers not only act  in the shops, some of them are also toddy tappers.  It requires a specialised  skill.  They form a different class.  Even assuming that both toddy and  former arrack workers belong to the same class, the rehabilitation of arrack  workers who had been thrown out of employment because of an excise  policy on the part of the State, do not have any reasonable nexus with the  purpose of the Act, namely, the prohibition of grant of excise licence in  relation to the trade in arrack.

       If a policy decision is taken, the consequences therefor must ensue.   Rehabilitation of the workers, being not a part of the legislative policy for  which the Act was enacted, we are of the opinion that by reason thereof, the  power has not been exercised in a reasonable manner.  Rehabilitation of the  workers is not one of the objectives of the Act.

       The submission of Mr. Iyer that there exists a distinction between  carrying out the provisions of the Act and the purpose of the Act, is not  relevant for our purpose.  The power of delegated legislation cannot be  exercised for the purpose of framing a new policy.  The power can be  exercised only to give effect to the provisions of the Act and not de’hors the  same.  While considering the carrying out of the provisions of the Act, the  court must see to it that the rule framed therefor is in conformity with the  provisions thereof.   

       Reference to the provisions of Articles 39, 42 and 43 of the  Constitution of India by the learned counsel for the Respondent is  misconceived.  While exercising the power of rehabilitation, the State did  not take recourse to the provisions of Article 47 of the Constitution of India.   The matter might have been different if the State took a decision in exercise  of its executive power in consonance with the legislative policy of the State  as also for the purpose of giving effect to Articles 39, 42 and 43 of the  Constitution of India.  But, herein, the State was exercising a specific power  of delegated legislation.

       Recourse to Section 69(1) of the Act is again misconceived.  Only a

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rule validly made will have a statutory flavour.  If a rule is not validly made,  the question of its being interpreted in the same manner as if enacted or as if  the same is a part of the statute, would not arise.

       In Hotel Balaji and Others v. State of A.P. and Others [1993 Supp (4)  SCC 536], whereupon Mr. Iyer placed reliance, it is stated:

"\005The necessity and significance of the delegated  legislation is well accepted and needs no  elaboration at our hands. Even so, it is well to  remind ourselves that rules represent subordinate  legislation. They cannot travel beyond the purview  of the Act. Where the Act says that rules on being  made shall be deemed "as if enacted in this Act",  the position may be different. (It is not necessary  to express any definite opinion on this aspect for  the purpose of this case.) But where the Act does  not say so, the rules do not become part of the  Act."

       The said decision runs counter to the position in the present case.   

       Mr. Chacko has referred to Rule 7(38) of the Rules.  For the reasons  stated hereinbefore, reference to sub-rule (38) of Rule 7 which mandates the  licensee to be bound by the rules made under the Act is fallacious as rules  contemplated thereunder would mean a valid rule and not a rule which has  been made de’hors the statute.

       The High Court, furthermore, in our opinion, is not correct in tracing  the legislative power of the State to Entries 23 and 24 of the List III of the  Seventh Schedule of the Constitution of India.  The legislative field  contained in the Seventh Schedule of the Constitution of India provides for  field of plenary power of the legislature but what a legislature can do,  evidently, a delegatee may not, unless otherwise provided for in the statute  itself.

       The rights and liabilities of a workman would fall within the purview  of the provisions of the Industrial Disputes Act.  What is the right of a  workman in case an industry is closed is governed by Section 25(FFF) and/  or Section 25(J) of the Industrial Disputes Act.

       The State while pursuing its social object or policy may do something  to rehabiliate the workers affected by the ban but the same would not mean  that the State can thrust such employees upon an unwilling employer.  It,  furthermore, would not mean that the State can rehabilitate one set of  workers at the cost of the other.   

       The employees in the arrack shops had already been paid an amount  of Rs. 30,000/- as compensation and other benefits under the Abkari  Workers Welfare Fund Board Act.  We are informed that they have also  been paid a sum of Rs. 2000/- each in 1997.  If they became entitled to any  other benefit, the State may provide the same as a part of welfare policy but  not in pursuit of an excise policy.

       The matter can be considered from another angle.

       When an employer gives employment to a person, a contract of  employment is entered into.  The right of the citizens to enter into any  contract, unless it is expressly prohibited by law or is opposed to public  policy, cannot be restricted.  Such a power to enter into a contract is within  the realm of the Indian Contract Act.  It has not been and could not be  contended that a contract of employment in the toddy shops would be hit by  Section 23 of the Indian Contract Act.  So long as the contract of  employment in a particular trade is not prohibited either in terms of the  statutory or constitutional scheme, the State’s intervention would be

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unwarranted unless there exists a statutory interdict.  Even to what extent  such a legislative power can be exercised would be the subject matter of  debate but in a case of this nature there cannot be any doubt that the  impugned rules are also contrary to the provisions of the Indian Contract Act  as also the Specific Relief Act, 1963.   

       In Pearlite Liners (P) Ltd. v. Manorama Sirsi [(2004) 3 SCC 172], it is  stated:

"\005It is a well-settled principle of law that a  contract of personal service cannot be specifically  enforced and a court will not give a declaration  that the contract subsists and the employee  continues to be in service against the will and  consent of the employer. This general rule of law  is subject to three well-recognised exceptions: (i)  where a public servant is sought to be removed  from service in contravention of the provisions of  Article 311 of the Constitution of India; (ii) where  a worker is sought to be reinstated on being  dismissed under the industrial law; and (iii) where  a statutory body acts in breach of violation of the  mandatory provisions of the statute\005"

       Furthermore, a person may not have any fundamental right to trade or  do business in liquor, but the person’s right to grant employment or seek  employment, when a business is carried on in terms of the provisions of the  licence, is not regulated.  

       Reliance placed by the learned counsel on C.M. Joseph and Others v.  State of Kerala and Others [(2001) 10 SCC 578] is again mis-placed.   Therein, Rule 6(39) of the Rules was held to be suffering from no infirmity  and it is in that situation it was held that as the said rule was in existence at  the time when licence was granted, the licensee could not be allowed to  impugn the same.  We are not concerned with the right of the licensee but  the right of the workmen.   

       In Solomon Antony and Others v. State of Kerala and Others [(2001)  3 SCC 694], this Court again held that the contractors were liable to pay the  duty on even unlifted portion of the designated quantum of rectified spirit  having regard to the binding nature of the contract.  

       "Take it or leave it" argument advanced by Mr. Chacko is stated to be  rejected.  The State while parting with its exclusive privilege cannot take  recourse to the said doctrine having regard to the equity clause enshrined  under Article 14 of the Constitution of India.  The State must in its dealings  must act fairly and reasonably.  The bargaining power of the State does not  entitle it to impose any condition it desires.   

       In Hindustan Times and Others v. State of U.P. and Another [(2003) 1  SCC 591], wherein one of us was a member, this Court observed:

"39. The respondents being a State, cannot in view  of the equality doctrine contained in Article 14 of  the Constitution of India, resort to the theory of  "take it or leave it". The bargaining power of the  State and the newspapers in matters of release of  advertisements is unequal. Any unjust condition  thrust upon the petitioners by the State in such  matters, in our considered opinion, would attract  the wrath of Article 14 of the Constitution of India  as also Section 23 of the Indian Contract Act. See  Central Inland Water Transport Corpn. Ltd. v.  Brojo Nath Ganguly and Delhi Transport Corpn. v.  D.T.C. Mazdoor Congress. It is trite that the State

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in all its activities must not act arbitrarily. Equity  and good conscience should be at the core of all  governmental functions. It is now well settled that  every executive action which operates to the  prejudice of any person must have the sanction of  law. The executive cannot interfere with the rights  and liabilities of any person unless the legality  thereof is supportable in any court of law. The  impugned action of the State does not fulfil the  aforementioned criteria."

       We, however, accept the submission that Rule 4(2) of the Rules must  be held to be ultra vires in its entirety as even that part of it, vis-‘-vis, the  toddy workers, is not severable.  Hence Rule 4(2) is declared ultra vires in  its entirety.

       For the reasons aforementioned, the impugned judgment cannot be  sustained.  It is set aside accordingly.  The appeals are allowed.  No costs.