Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 983-990  OF 2003 STATE OF KERALA & ANR.  … APPELLANTS  

Vs. B. SIX HOLIDAY RESORTS (P) LTD. & ETC.  … RESPONDENTS

 WITH

CIVIL APPEAL NO. 998/2003 B. SIX HOLIDAY RESORTS (P) LTD.  … APPELLANT

Vs. STATE OF KERALA & ANR.  … RESPONDENTS  

WITH

CIVIL APPEAL NOS. 999-1003/2003 KRISHNA REGENCY & ETC. … APPELLANTS  

Vs. STATE OF KERALA & ANR. … RESPONDENTS  

O R D E R

R.V. Raveendran, J.

The appeals relate to non-grant of FL-3 Licence under  the  Foreign  Liquor  Rules  (‘the  rules’  for  short)  framed  under the Akbari Act. The appeals arise from the common

judgment  dated  16.7.2002  of  the  Kerala  High  Court  in  a  batch  of  cases  wherein  the  amendment  dated  20.2.2002  to  Rule  13(3)  of  the  Rules  and  consequential  rejection  of  applications  for  FL-3  licences  were  challenged.  CA  Nos.  983-990  of  2003  are  filed  by  the  State  and  the  other  appeals are by the applicants for FL-3 licences.  

2. For convenience, we will refer to the facts of the  case of M/s. B.Six Holiday Resorts (P) Ltd. (referred to as  ‘the applicant’ for short), who is the respondent in C.A.  No. 983 of 2003 and the appellant in C.A. No. 998 of 2003.

3. The applicant constructed a resort hotel at Munnar.  The applicant’s restaurant therein was classified by the  Ministry of Tourism, Government of India, as an approved  restaurant.  On  11.12.2000,  the  applicant  made  an  application for a FL-3 licence under the Rules. As the said  application  was  not  considered,  the  applicant  approached  the  High  Court.  The  High  Court,  disposed  of  the  writ  petition (O.P.No.824/2001) by order dated 9.1.2001 with a  direction to the excise authorities to consider and dispose  of the application within three weeks. The application was  considered  and  rejected  by  order  dated  19.5.2001  on  the  ground that the Managing Director of the applicant had been  convicted  in  an  excise  offence.  The  said  rejection  was  

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challenged  in  O.P.  No.  17106/2001  contending  that  the  person  convicted  was  not  the  Managing  Director  when  the  application was made. The second writ petition was allowed  on  20.6.2001  with  a  direction  to  re-consider  the  application and pass a fresh order, taking note of the fact  that  the  convicted  Managing  Director  was  no  longer  in  office and there was new Managing Director at the time of  the application. The Special Secretary (Taxes), Government  of Kerala, reconsidered the application and by order dated  6.10.2001  rejected  the  application  on  following  four  grounds: (i) the applicant was not a classified restaurant  as contemplated under Rule 13(3) of the Rules; (ii) the  facilities contemplated under Rule 13(3) were not available  in the applicant’s hotel; (iii) only hotels run by Kerala  Tourism  Development  Corporation  and  India  Tourism  Development Corporation were entitled to FL-3 licences; and  (iv) the current policy of the government was not to grant  any fresh licences. The applicant filed yet another writ  petition (O.P. No. 31993/2001) challenging the rejection. A  learned Single Judge dismissed it by order dated 6.11.2001.  He held that though the first three grounds of rejection  were not tenable, in view of policy of the Government not  to grant FL-3 licences for the time being, a mandamus could  not be issued to the State Government to grant a licence  

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contrary  to  its  policy.  The  writ  appeal  filed  by  the  applicant was allowed on 14.12.2001. The Division Bench of  the High Court agreed with the learned single Judge that  the first three grounds of rejection were not tenable. In  regard  to  the  fourth  ground  of  rejection,  the  division  bench felt that the policy put forth, was rather vague and  the Government cannot abdicate its function under the Rules  to  consider  and  grant  licences,  by  alleging  some  vague  policy. It therefore directed the Excise Commissioner to  decide the applicant’s application for FL-3 licence within  two weeks by a speaking order.

4. Thereafter, the applicant gave a representation dated  19.12.2001. The Excise Commissioner considered it and again  rejected the application on 27.12.2001 on the ground that  the  applicant’s  hotel  was  only  a  restaurant  approved  by  Ministry of Tourism, Government of India, but it was not a  classified  restaurant  (two  star  and  above)  as  required  under  Rule  13(3).  Feeling  aggrieved,  the  applicant  initiated  contempt  proceedings.  The  High  Court  on  being  informed that a new Excise Commissioner had taken charge,  granted an opportunity to the new incumbent to reconsider  the matter and pass a fresh order by 22.2.2002. At that  stage, by notification dated 20.2.2002, the Foreign Liquor  

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Rules  were  amended  by  foreign  Liquor  (Amendment)  Rules,  2002, with retrospective effect from 1.7.2001. By the said  amendment, the last proviso under sub-Rule (3) of Rule 13  was substituted by the following proviso:

“Provided  that  no  new  licences  under  this  Rule shall be issued.”

The notification contained the following explanatory note  to indicate the purpose of the amendment:

“Government have decided as its policy not  to  grant  any  new  FL-3  Hotel  (Restaurant)  Licences and also decided not to renew any  defunct licences of the above category with  effect  from  1.7.2001  until  further  orders.  In order to carry out the above decision,  necessary amendments have to be made in the  relevant rules”

On the same date, i.e. 20.2.2002, the Excise Commissioner  considered  the  application  of  the  applicant  and  again  rejected  the  request  for  grant  of  licence  in  view  of  proviso  to  the  amended  rule,  prohibiting  grant  of  new  licences.

5. The applicant challenged the amendment to the Rule and  the consequential rejection of its application in O.P. No.  7112 of 2002. The said writ petition (along with other writ  petitions and writ appeals involving similar issue) were  

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disposed of by the impugned order dated 16.7.2002. The High  Court considered the following four grounds of challenge:  (a) that the repeated rejection of the application by the  Excise  department  and  the  amendment  of  the  Rules  by  notification  dated  20.2.2002  were  unreasonable,  arbitrary  and  was  in  bad  faith  and  was,  therefore,  liable  to  be  interfered; (b) that the proviso to Rule 13(3) was invalid  as  it  was  violative  of  the  main  Rule;  (c)  that  the  amendment to the Rules by notification date 20.2.2002, was  bad as it was made merely get over the judgment of the High  Court directing fresh consideration; and (d) that giving  retrospective  effect  to  the  Rules  was  beyond  the  rule  making power of the State Government under the Act. The  High Court rejected the ground (a),(b) and (c) and upheld  the validity of the amendment. It however accepted ground  (d) and declared that the retrospective effect given to the  last  proviso  to  Rule  13(3)  added  by  notification  dated  20.2.2002  was  illegal  and  unenforceable  and  that  the  amendment would be effective only prospectively from the  date of issue, that is with effect from 20.2.2002. As a  consequence, the court directed the excise authorities to  consider  the  application  dated  19.12.2001  (preceded  by  application  dated  11.12.2000)  submitted  by  the  applicant  (and reiterated on 19.12.2001) on the basis of the rules as  

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were operative as on 19.12.2001. In other words, the High  Court held that the application had to be considered with  reference  to  the  rules  as  they  existed  on  the  date  of  application and not on the date of consideration of the  application.  

6. The State has challenged the said judgment rendered in  the case of the applicant and other similar matters in the  first batch of appeals (CA Nos. 983 to 990 of 2003). The  State has accepted the finding of the High Court that the  retrospective operation of the rules is bad and that the  amendment should be given effect only prospectively. But it  is aggrieved by the direction that the applications filed  by the applicants for FL-3 licences should be considered on  the  basis  of  the  rules  as  they  stood  on  the  date  of  application. It is submitted by the State that the Court  ought to have directed the applications for FL-3 licences  to be considered with reference to the rules in force when  the application was considered.  

7. The  applicant,  as  also  other  restaurateurs  whose  applications for FL-3 licences made in the years 2000 and  2001 were also rejected, have challenged the decision of  the High Court upholding the validity of the amendment and  

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non-grant of licence in CA No. 998 of 2003 and CA Nos. 999- 1003 of 2003.  

8. Two issues arise for consideration on the contentions  urged:

(i) Whether an application for grant of FL-3 Licence  should be considered with reference to the Rules  as they existed when the application was made or  in accordance with the Rules in force on the date  of consideration?

(ii) Whether the amendment to Rule 13(3) of Foreign  Liquor  Rules  substituting  the  last  proviso  is  valid?

Re : Question (i) 9. This question is directly covered by the decision of  this Court in Kuldeep Singh v. Govt. of NCT of Delhi (2006)  5 SCC 702 relating to grant of licences for sale of Indian  made foreign liquor. This Court held:  

“It  is  not  in  dispute  that  the  State  received a large number of applications. It  was  required  to  process  all  the  applications.  While  processing  such  applications,  inspections  of  the  proposed  sites  were  to  be  carried  out  and  the  contents  thereof  were  required  to  be  verified.  For  the  said  purpose,  the  applications  were  required  to  be  strictly  scrutinized.  Unless,  therefore,  an  accrued  or  vested  right  had  been  derived  by  the  

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Appellants,  the  policy  decision  could  have  been changed. What would be an acquired or  accrued  right  in  the  present  situation  is  the question.

x x x x x x x x  

In case of this nature where the State has  the exclusive privilege and the citizen has  no fundamental right to carry on business in  liquor,  in  our  opinion  the  policy  which  would  be  applicable  is  the  one  which  is  prevalent on the date of grant and not the  one,  on  which  the  application  had  been  filed. If a policy decision had been taken  on 16.9.2005 not to grant L-52 licence, no  licence  could  have  been  granted  after  the  said date.  

10. We may in this context refer to some earlier decision  laying down the principle that applications for licences  have to be considered with reference to the law prevailing  on the date of consideration.

10.1)  In  State of Tamil Nadu v. Hind Stone & Ors. (1981  (2)  SCC  205),  this  Court  considered  the  validity  of  government action in keeping applications pending for long  and  then  rejecting  them  by  applying  a  rule  subsequently  made. This Court while holding that such action is not open  to challenge observed:  

“The submission was that it was not open to  the Government to keep applications for the  grant of leases and applications for renewal  pending for a long time and then to reject  

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them on the basis of Rule 8C notwithstanding  the fact that the applications had been made  long prior to the date on which Rule 8C came  into  force.  While  it  is  true  that  such  applications  should  be  dealt  with  within  a  reasonable time, it cannot on that account be  said  that the  right to  have an  application  disposed of in a reasonable time clothes an  applicant for a lease with a right to have the  application disposed of on the basis of the  rules in force at the time of the making of  the application. No one has a vested right to  the grant or renewal of a lease and none can  claim a vested right to have an application  for the grant or renewal of a lease dealt with  in a particular way, by applying particular  provisions.  In  the  absence  of  any  vested  rights in anyone, an application for a lease  has necessarily to be dealt with according to  the rules in force on the date of the disposal  of the application despite the fact that there  is  a  long  delay  since  the  making  of  the  application”.  

10.2) We may next refer to the decision in  Union of  India & Ors. V. Indian Charge Chrome & Anr. (1999) 7 SCC  314 wherein this Court held:

“Mere  making  of  an  application  for  registration  does  not  confer  any  vested  right on the applicant. The application has  to  be  decided  in  accordance  with  the  law  applicable  on  the  date  on  which  the  authority  granting  the  registration  is  called upon to apply its mind to the prayer  for registration.”

11. The  applicant  contended  that  it  had  a  vested  right because of the several time-bound orders of the High  Court  and  those  orders  were  deliberately  floated  by  the  

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Excise authorities. An identical contention was rejected by  this Court while considering the issue with  reference  to  sanction of a licence under the Building Rules, in  Howrah  Municipal Corporation v. Ganges Rope Co.Ltd. (2004 (1) SCC  663). This Court held:

“Neither the provisions of the Act nor general  law creates any vested right, as claimed by the  applicant company for grant of sanction or for  consideration of its application for grant of  sanction, on the then existing Building Rules  as were applicable on the date of application.  Conceding or accepting such a so-called vested  right  of  seeking  sanction  on  the  basis  of  unamended Building Rules, as in force on the  date  of  application  for  sanction,  would  militate  against  the  very  scheme  of  the  Act  contained in Chapter XII and the Building Rules  which  intend  to  regulate  the  building  activities in a local area for general public  interest and convenience. It may be that the  Corporation did not adhere to the time limit  fixed  by  the  court  for  deciding  the  pending  applications  of  the  company  but  we  have  no  manner of doubt that the Building Rules with  prohibition  or  restrictions  on  construction  activities as applicable on the date of grant  or refusal of sanction would govern the subject  matter  and  not  the  Building  Rules  as  they  existed  on  the  date  of  application  for  sanction. No discrimination can be made between  a  party  which  had  approached  the  court  for  consideration of its application for sanction  and  obtained  orders  for  decision  of  its  application within a specified time and other  applicants  whose  applications  are  pending  without any intervention or order of the court.

x x x x x x x x The  context  in  which  the  respondent  Company  claims a vested right for sanction and which  has been accepted by the Division Bench of the  High  Court,  is  not  a  right  in  relation  to  

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"ownership or possession of any property" for  which the expression "vest" is generally used.  What  we  can  understand  from  the  claim  of  a  "vested right" set up by the respondent Company  is that on the basis of the Building Rules, as  applicable to their case on the date of making  an  application  for  sanction  and  the  fixed  period  allotted  by  the  Court  for  its  consideration,  it  had  a  "legitimate"  or  "settled expectation" to obtain the sanction.  In  our  considered  opinion,  such  "settled  expectation", if any, did not create any vested  right to obtain sanction. True it is, that the  respondent Company which can have no control  over the manner of processing of application  for  sanction  by  the  Corporation  cannot  be  blamed  for  delay  but  during  pendency  of  its  application  for  sanction,  if  the  State  Government,  in  exercise  of  its  rule-making  power, amended the Building Rules and imposed  restrictions  on  the  heights  of  buildings  on  G.T.  Road  and  other  wards,  such  "settled  expectation"  has  been  rendered  impossible  of  fulfilment  due  to  change  in  law.  The  claim  based on the alleged "vested right" or "settled  expectation" cannot be set up against statutory  provisions which were brought into force by the  State  Government  by  amending  the  Building  Rules………………………………”

12. Where the Rule require grant of a licence subject to  fulfillment  of  certain  eligibility  criteria  either  to  safeguard  public  interest  or  to  maintain  efficiency  in  administration, it follows that the application for licence  would require consideration and examination as to whether  the eligibility conditions have been fulfilled or whether  grant of further licences is in public interest. Where the  applicant for licence does not have a vested interest for  grant  of  licence  and  where  grant  of  licence  depends  on  

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various  factors  or  eligibility  criteria  and  public  interest, the consideration should be with reference to the  law  applicable  on  the  date  when  the  authority  considers  applications for grant of licences and not with reference  to the date of application.

13. The applicant submitted that it had originally filed  an  application  on  11.12.2000  and  in  pursuance  of  the  decision of the High Court on 14.12.2001, it submitted an  application  on  19.12.2001  and  that  application  was  considered  and  disposed  of  on  27.12.2001.  The  applicant  contended that even if the principle laid down in  Kuldeep  Singh  was applied, the application having been considered  and disposed of by the concerned authority on 27.12.2001,  the law in force on that day ought to have been applied.  The applicant further contended that the amendment to the  rules which came into effect only on 20.2.2002, was not  applicable  on  27.12.2001  and  therefore  the  rejection  on  27.12.2001 was bad and consequently the impugned order of  the High Court may be construed as requiring the authority  to decide the matter as on 27.12.2001. We find that the  said contention does not have any merit. It is true that  the application was given on 19.12.2001. It is true that  the application was considered and rejected on 27.12.2001  

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on a ground which may not be sound. It is also true that  the  amendment  to  the  rules  which  was  introduced  by  notification dated 20.2.2002 was not in force or effect on  27.12.2001. But the said order dated 27.12.2001 was neither  challenged nor set aside by the High Court. The applicant  chose  to  file  a  contempt  application  alleging  that  the  excise  authorities  had  disobeyed  the  order  dated  14.12.2001. In the contempt case, the High Court made an  order on 12.2.2002 that the new Excise Commissioner should  pass  an  order  on  the  application.  Therefore  the  only  question  is  whether  the  order  passed  by  the  Excise  Commissioner on 20.2.2002 was in accordance with the Rules  as they stood on 20.2.2002. Under the amended rules, no new  FL-3 licence could be issued. Consequently, the rejection  of  the  application  by  order  dated  20.2.2002  was  in  accordance with the rules and cannot be faulted.

14. Learned  counsel  appearing  for  the  applicant  next  contended that the decision in  Kuldeep Singh was not with  reference to any statutory rules, but with reference to a  policy of the executive and therefore inapplicable. We find  no force in this argument. It is true that in that case  there were no statutory rules and what was considered was  with reference to a policy. But the ratio of the decision  is that where licence sought related to the business of  

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liquor,  as  the  State  has  exclusive  privilege  and  its  citizens had no fundamental right to carry on business in  liquor, there was no vested right in any applicant to claim  a FL-3 licence and all applications should be considered  with  reference  to  the  law  prevailing  as  on  the  date  of  consideration  and  not  with  reference  to  the  date  of  application.  Whether  the  issue  relates  to  amendment  to  Rules or change in policy, there will be no difference in  principle. Further the legal position is no different even  where the matter is governed by statutory rules, is evident  from  the  decisions  in  Hind  Stone (supra)  and  Howrah  Municipal Corporation (supra).

15. Having regard to the fact that the State has exclusive  privilege of manufacture and sale of liquor, and no citizen  has a fundamental right to carry on trade or business in  liquor, the applicant did not have a vested right to get a  licence. Where there is no vested right, the application  for  licence  requires  verification,  inspection  and  processing. In such circumstances it has to be held that  the consideration of application of FL-3 licence should be  only with reference to the rules/law prevailing or in force  on  the  date  of  consideration  of  the  application  by  the  excise authorities, with reference to the law and not as on  the date of application. Consequently the direction by the  

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High  Court  that  the  application  for  licence  should  be  considered with reference to the Rules as they existed on  the date of application cannot be sustained.

Re: Question (ii) 16. The applicants for licence submitted that Rule 13(3)  contemplates FL-3 licences being granted on fulfillment of  the  conditions  stipulated  therein;  and  the  newly  added  proviso, by barring grant of new licence had the effect of  nullifying the main provision itself. It was contended that  the  proviso  to  Rule  13(3)  added  by  way  of  amendment  on  20.2.2002  was  null  and  void  as  it  went  beyond  the  main  provision in Rule 13(3) and nullified the main provision  contained in Rule 13(3).  

17. Rule  13(3)  provides  for  grant  of  licences  to  sell  foreign liquor in Hotels (Restaurants). It contemplates the  Excise Commissioner issuing licences under the orders of  the  State  Government  in  the  interest  of  promotion  of  tourism in the State, to hotels and restaurants conforming  to standards specified therein. It also provides for the  renewal  of  such  licences.  The  substitution  of  the  last  proviso to Rule 13(3) by the notification dated 20.2.2002  provided that no new licences under the said Rule shall be  

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issued. The proviso does not nullify the licences already  granted. Nor does it interfere with renewal of the existing  licences. It only prohibits grant of further licences. The  issue of such licences was to promote tourism in the State.  The  promotion  of  tourism  should  be  balanced  with  the  general public interest. If on account of the fact that  sufficient licences had already been granted or in public  interest, the State takes a policy decision not to grant  further licences, it cannot be said to defeat the Rules. It  merely gives effect to the policy of the State not to grant  fresh licences until further orders. This is evident from  the explanatory note to the amendment dated 20.2.2002. The  introduction of the proviso enabled the State to assess the  situation and reframe the excise policy. It was submitted  on behalf of the State Government that Rule 13(3) was again  amended  with  effect  from  1.4.2002  to  implement  a  new  policy. By the said amendment, the minimum eligibility for  licence  was  increased  from  Two-star  categorization  to  Three-Star  categorization  and  the  ban  on  issue  of  fresh  licences  was  removed  by  deleting  the  proviso  which  was  inserted by the amendment dated 20.2.2002. It was contended  that the amendments merely implemented the policies of the  government from time to time. There is considerable force  in  the  contention  of  the  State.  If  the  State  on  a  

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periodical re-assessment of policy changed the policy, it  may amend the Rules by adding, modifying or omitting any  rule, to give effect to the policy. If the policy is not  open to challenge, the amendments to implement the policy  are also not open to challenge. When the amendment was made  on 20.2.2002, the object of the newly added proviso was to  stop  the  grant  of  fresh  licences  until  a  policy  was  finalized. A proviso may either qualify or except certain  provisions from the main provision; or it can change the  very concept of the intendment of the main provision by  incorporating certain mandatory conditions to be fulfilled;  or it can temporarily suspend the operation of the main  provision. Ultimately the proviso has to be construed upon  its  terms.  Merely  because  it  suspends  or  stops  further  operation  of  the  main  provision,  the  proviso  does  not  become  invalid.  The  challenge  to  the  validity  of  the  proviso is therefore rejected.

18. In view of the above, the appeals filed by the State  are allowed in part and the appeals filed by the applicants  for  licences  are  dismissed,  subject  to  the  following  clarifications:  

(i) If any licences have been granted or regularized  in the case of any of the applicants during the  

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pendency of this litigation, on the basis of any  further amendments to the Rules, the same will  not be affected by this decision;

(ii) If any licence has been granted in pursuance of  any  interim  order,  the  licence  shall  continue  till the expiry of the current excise year for  which the licence has been granted.  

(iii) This decision will not come in the way of any  fresh application being made in accordance with  law  or  consideration  thereof  by  the  State  Government.

       ______________________J.       (R. V. RAVEENDRAN)

   _____________________J.               (SURINDER SINGH NIJJAR)

New Delhi; January 13, 2010.

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