Chingleput Bottlers v. Majestic Bottling Company

Judgment

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1 1970-<:

11972 of 1983

Appeals by Special leave from the judgment and Order dated the 27th July, 1983 of the Madras a High Court i in W. A. N6s. 523, 531 & 528 of 1983.

R. K. Venugopal and Cc. 8. Vaidyanathan for the Appellants i in CA-Nos. 1 1970-71183,

Sahnti Bhushan, ALT. M. Sampath and Mr. K, Subramaniam for the Respondents in CA, Nos. 1 1970-71/83.

D.

194 - SUPREME COURT REPORTS *, , 11984] 3 s.c.r.

A, K. Sen and A. V. Rangam for the: Appell ant in CA, No.

11972 of 1983.

‘Soli J. Sorabjee AT. M. Sampath and K Subramaniam for the Respondent in CA. 11972/83. Fhe Judgment of the Court was delivered by

Sen, J. These appeals by special leave directed against a judgment of a Division Bench of the Madras High Court dated July 7,

1983 upholding the judgment and order of a learned Single Judge

- dated June 13, 1983 relate to the grant of a licence for the manufacturing and supplying of bottled arrack to the wohlesale and. retail

‘licensees for the Chingleput district under r. 7 of the Tamil Nadu °

Arrack (Manufacture) Rules, 1981 (‘Rules’, for short) framed under the Tamil Nadu Prohibition Act, 1937 (‘Act’ for short). These appeals raise separate and distinct questions and must therefore receive separate ‘consideration.

’ Put very shortly, the essential: facts are these. On May 28, 1982 one O. H. Kumar carrying on~business under the name and style _ Of Messrs Three Star Bottling Company. surrendered his licene for ' the manufacture and supply of bottled arrack for the Chingleput district for the financial year 1982-83. The Commissioner of Prohibition & Excise, Madras called for applications from intending __ persons for the grant of the licence. fn response to the notice issued . by the Commissioner. under 1.3(2) of the Rules, ‘there were two applications filed under r.5 in Form 1, namely, by J. Balaji. managing partner of Messrs Majestic Bottling Company on June 9, 1982 and by V. Ramabadran, managing partner. of Messrs Chingleput Bottlers on June 14, 1982: *The Commissioner issued a questionnaire and directed the Collector, Chingleput to have an. inquiry held as regards the suitability of the applicants for the grant of a licence.

Pursuant thereto, the Collector had an inquiry held by the Assistant Commissioner (Excise) which lasted for four days ie. from June 21 to June 24,.1982. After.the preliminary inquiry and field inspection mide. by the Assistant Commissioner (Excise), the Collector forwarded his report dated July 2, 1982 to the Commissioner who fixed July 5, 1982 for oral hearing of the parties.

On July 5, 1982, ‘the Commissioner separately 1 heard both 5. Balaji and .V. Ramabadran. At the hearing, the Commissioner

7 recorded the statements of both J. Balaji and v. Ramabadran in oe

¥ i . e _ CHINGLEPUT BOTTLERS ¥. MAJESTIC BOTTLING (Sen, J.) 195 support of their respective claims. On July 31,1982 the Commissioner passed an order rejceting both the applications. As regards Messrs Majestic. Bottling Company, the Commissioner held. that their application was in order but’ that they did not satisfy the requirements of r. 5 (a) and (e) of the Rules. As to their suitability under r. 5 (a), ‘he found that though the partnership had been formed prior to the date of the application i.e. on June 9, 1982 the firm actually got registered subsequent thereto on June 23, 1982 and therefore there was no valid partnership in. existence on June 14, 1982 i. e,.on the date of the filing of the application. As regards r. 5(e), he held that there was no water facility in the lands owned by the partnership firm.

As regards Messrs Chingleput Bottlers, the Commissioner. held that the application made by them was not in order because it was not accompanied by a solvency certificate and that there was no potable water available at the proposed site. He further held that there was only one and a half feet water in the well at the site and it was of poor quality. He also came to the conclusion that the application had not been made bona fide on behalf of the partnership firm but as benami for others. The. Commisioner accordingly held that Messrs Chingleput Bottlers did not fulfil the requriements of tr» 5(a), (c) an@(e) of the Rules. ,

The finding of the Commissioner that Messrs Chingleput Bottlers were mere benamidars of O. H. Kumar, the previous licensee, was based on the report of the Collector and the other | material gathered by him during the course cf the inquiry.

-Both Messrs Majestic Bottling Company and Messrs Chingleput Bottlers filed separate petitions under Art. 226 of the Constitution before the High Court questioning: the validity of the order passed by the Gommissioner. By his judgment dated June 13, 1983 a fearned Single Judge held that the Commissioner was not justified in rejecting the application of Messrs Majestic Bottling Company on a wrongful assumption that they did not satisfy the requirement of r. 5(a) and (e) of the Rules. He held that the order was vitiated by an error apparent on the face of the record inasmuch as J.’ Balaji, managing partner of Messrs Majestic Bottling Company had produced record with regard to the availability of water.

The.Iearned Single Judge however set aside the finding of the Commissioner that the application made by Messrs Chingleput

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196 | _ ” SUPREME CouRT REPORTS =—s—s—s—«é[1984]. 3. S.CR.

e vency certificate holding that non-production of a solvency certificate would not entail a dismissal of the application on that ground alone, as also the finding with regard to non-availability of water

_ at the proposed site since the blending unit of Messrs Three Star

Bottling Company was already functioning there. The learned Single Judge rejected the contention of Messrs Chingleput Bottlers that the Commissioner had acted in breach of the rules of natural justice by his failure to furnish the report of the Collector observing that nothing precluded them from seeking perusal of the records; nor did they t make a ‘demand for it,

By his judgment, the learned Single Judge by the issue af a writ of certiorari quashed the impugned order of the Commissioner insofar as he rejected the application’ made ‘by Messrs Majestic Bottling Company on the ground that there was an error apparent on the face of the record but instead of remitting the matter. back

- to the Commissioner to re-consider the question of grant of such privilege, issued a writ of mandamus ordaining the Commissioner to grant the licence to Messrs Majestic Bottling Company. He further upheld the order of the Commissioner rejecting the application of Messrs Chinglpet Bottlers for the grant of privilege on the ground © that they were mere benamidars of the, previous licensee. Aggrieved by the judgment of the learned Single ‘Judge, both the State Govesn- : » ment and Messrs Chingleput Bottlers preferred appeals under cl. 15

~ of the Letters Patent. Upholding the judgment of the learned Single . Judge the learned Judge of the Division Bench held that learned

Single Judge was. justified not only. in quashing the same but in issuing a writ of mandamus directing, the Commissioner’ to grant the licence in favour of Messrs Majestic Bottling Company without

_ the prior, approval the State Government. under r. 7 of the Rules.

_ Before proceeding further, we would like to mention that the State Government did not file a separate counter. There was a counter-affidavit filed by R. Lakshmanan, Joint Commissioner (IV), Department of Prohjbition & Excise, ~ Madras on behalf of both the

State Government as well as the Commissioner of Prohibition & Excise seeking to support the impugned order passed by the Commis. sioner. In addition to the grounds mentioned by the Commissioner for the refusal of the applications for grant of privilege, there was - an additional ground taken in paragraph 11 and it was alleged that

J. Balaji, managing partner of Messrs Majestic Bottling Company

_ and his other partner Smt. Shanthi, who incidentally is: also his

Bottlers was not in order because it was not accompanied by asol- ° r ay

CHINGLEPUT BOTTLERS V. MAJESTIC BOTILING (Sen, J.) ° 197 mother were the two erstwhile directors of Messrs Dhanalakshmi - Chemical Industries Private Limited, Ranipet upto November 26,

1980 and there was prima facie evidence tifat the company had misu- sed the large quantity of rectified spirit by diverting alcohol from’

industries to arrack production and therefore they were persons not likely to abide by the provisions of the Act and the Rules farmed thereunder within the meaning of r.5(b); and this would have beena .

relevant point to be taken into consideration by the State Government in the matter of grant or refusal of prior approval.under r. 7(1). It was alleged that these two persons were directors during the afore said period of misuse. '

At the conclusion of the hearing of the appeals before tl the High Court, the State Government filed a supplementary affidavit of S. Ranganathan, Deputy Secretary to the State Government of Tamil Nadu, Department of Prohibition &. Excise furnishing further and better particulars of tle alleged misuse of rectified spirit by Messrs Dhanalakshmi Chemical Industries Private Limited which had put the State Government to a loss of revenue to the tune of Rs. 2 crores. It was averred that investigation into ‘the case was almost complete and a prosecution was about to be launched against the Company and its directors, including J. Balaji and Smt. Shanthi, the two partners of Messrs Majestic Bottling Company. Inasmuch as no such ebjection was taken before the learned Single Judge, the learned Judges felt that it was not necessary for them to deal with the facts brought out in the two counter-affidavits. It appears that the learned. Advocate-General also did not press the ground at the hearing of the appeals. The tearned Judges held that the validity of the impugned order passed by the Commissioner must be adjudged by the reasons stated by him and cannot be supplemented by fresh reasons by the State Government in’ the shape of affidavit or.

otherwise.

’

Ther@ are really two questions that fall for determination.

The first is as to the jurisdiction of the High Court to issue a writ

-of mandamus. It is said that the grant of licence under r.7 is subject ‘to the prior approval of the State Government and is in thg discretion of the State Government. The High Court is not the granting © authority and therefore had no power to issue a writ of mandamus directing the Commissioner to grant a licence to Messrs Majestic Bottling Company. The second question is whether the Commissioner acted in breach of the rules natural justice in not furnishing

198 SUPREME COURT REPORTS [1984] 3 s.cR..

- to Messrs Chingleput Bottlers a copy ofthe report submitted by the Collector and gther material gathered by him during the course of the inquiry tending to show that they were benamidars of one

O.H, Kumar, the previous licensee. It is said that Messrs Majestic Bottling Company had at the separate hearing before the Commis- |

_, sioner submitted a brief styled as a representation containing several ‘ documents in oppsition to the:application made by Messrs Chingle- - put Boitlers on the ground that their application was benami with- out furnishing a ‘copy of the same to them and this must have influenced the mind of the Commissioner. Even if the Commissioner was not acting in a judicial or quasi judicial capacity, he was required to act fairly. .The rules of natural justice therefore required

-that Messrs Chingleput Bottlers should not be deprived of this business without knowing the case they had to meet. Both the questions that arise will have to be dealt with separately.

The first issue, as already indicated, raises a question of

_ prime importance and of some difficulty. It would therefore be convenient,-in the first instance, to deal with the appeal preferred by the State Government. It is urged that the High Court had no jurisdiction to issue a-writ of mandamus ordaining the Commissioner to grant a Ifcence to Messts Chingleput Bottlers under r.7 of the Rules without the prior approval of the State Government. It is said.that although a writ of mandamus -may be a necessary adjunct to a writ of certiorari, the proper course for the High Court to have adopted was, if it was satisfied that the impugned order of the Commissioner was liable to be quashed insofar as he rejected the application made by Messrs Majestic Bottling Company on the ground that there was.

an error apparent on the face of the record, to have issued a writ of mandamus Commissioner to redetermine the question as to the grant of such privilege. Reliance is placed on de Smith’s Judicial | Review of Administrative ction, 4th edn. at pp.341 and 544. The’ contention must,.in our opinion. prevail. @ :

Ia order that a writ of mandamus may issue to compel the Commi&sioner to grant the licence, jt must be shown that under the Act and the Rules framed thereunder there was a legal duty imposed on the Commissioner to issue a licence under r.7 of the Rules without the prior approval of the State Government and that Messrs Majestic Bottling Company had a corresponding legal right

: for its enforcement. No. mandamus will lie where the duty sought

‘to be enforced is of a discretionary nature nor will a-mandamus

> be

EHINGLEPUT BOTTLERS y, MAJESTIC BOTTLING (Sen, J.) 199 e issue to compel the performance by such public body or authority ofan act contrary to law. The Commissioner of Prohibition & Excise was uhder no legal duty to grant a licence to Messrs Majestic Bottling Company till he received the prior approval of the State

- Government under 1.7. Even assuming that the Commissioner reommended the grant of a licence t6 them under 1:7, the State Government were under no compulsion to grant such prior approval. The grant or refusal of such licence was entirely in the discretion of. the State Government. The High Court had no jurisdiction t& issue a writ of Mandadmus to the Commissioner 6 grant a licence to

Messrs Majestic Bottling Company contrary to the provisions of r.7 of the Rules.

r

The learned Judges observed that in normal circumstances they would have upheld the objection of the learned Advocate- General as to the jurisdiction of the High Court to issue a writ of — mandamus, but in view of the fact that the State Government had chosen not to file a separate return. taking a specific plea that in the event of a writ of certiorari being granted, the Court should not issue a writ of mandamus for the grant of licence since the grant or

_refusal of licence was subject to the prior approval of the State

Government under r.7 of the Rules. The learned Judges accordingly held that the learned Single Judge was justified in issuing a writ in the nature of mandamus directing the Commissioner to issue a licence in favour of .Messrs Majestic Bottling Company in view-of the fact that there were only two applicants in the field and the application of Messrs Chingleput Bottlers having been rejected, the State Government had no other option but to make the grant in favour of Messrs Majestic Bottling Company. Further, the learned Judges observed that to sustain: the objection would be tantamount to allowing the State Government to sit in appeal over the judgment of the High Court. In substance, the learned Judges were of the view that fdilure of the State Government to take a specific .

plea as to jurisdiction precluded them from raising a question’ as ‘to the jurisdiction of the High Court to issue a writ of mandamus. We are afraid, we cannot accept this line of reasoning.

‘It is true that sometimes it:is pfudent to couple a writ of certiorari with a writ Of mandamus to control the exercise of discretionary power. The following illuminating passages from de Smith’s Judicial Review of Administrative Action, 4th edn. at pp- 341 and 544 pithily sum up the function. of a writ of mandamus : °

500 ae SUPREME COURT REPORTS | . [1984] 3S.GR.

“Tt is now open to a court when granting certiorari to © * remit the matter to the authority with a direction to recon* sider and to decide in accordance with the findings of the court. Apart from this, the role of the courts is limited to ensuring that direction has been exercised {according to law. - If, therefore, a party aggrieved by the exercise of discretionary power seeks an orderof mandamus to compel the authority _ to determine the matter on the basis legally relevant considerations, thé proper form of the mandamus will be one to hear and determine according. to law ;' though by holding - inad- “missible the considerations on which the original decision was based the court may “indirectly indicate the particular manner in which the discretion ought to be exercised. In practice the _ frontier beyween control of legality and control of the actual exercise of discretion remains indeterminate, for the courts are * sometimes observed to cross the boundaries that they have set to their own jurisdiction.” ee eR for tok oR

*

“The duty to observe these basic principles of legality in exercising a discretion is unlike the “duty” to apply the law correctly to.findings of fact, prima facie enforceable by — mandamus. Hence where an authority has misconceived or . misapplied its discretionary powers by exercising them for an improper purpose, or capriciously, or on the basis of irrelevant considerations or without regard to relevant consideratipns, it will be deemed to have failed to -exercisé its discretion or

- jurisdiction at all or to have failed to hear and determine according to law, and mandamus may issue to compel it to act in accordance with the law.”’

Professor H.W.R. Wade | in his Administrative Law, 5th edn. at p.638 also defines the purpose ofa writ of mandamus in these words : I ;

“Mandamus is often used as an adjunct to certiorari. If a tribunal or authority acts -in a matter where it has no power to act at all, certiorari will quash the decision and prohibition will prevent further unlawful proceedings. If there . is power to act, but the power is abused (as by breach of natural justice or error on the face of the record), certiorari wil] quash and mandamus may: ‘issue simultaneously to , require a proper rehearing. An example is Board of Educa- * tionv. Rice |1911] AC 179 cited elsewhere ; the Board’s

¢ be

. ° CHINGLEPUT BOTTLERS y. MAJESTIC BOTTLING (Sen, J.) - 201 decision was ultra vires since they had addressed their minds to the wrong question; consequently it was quashed by ~ certiorari and the Board were commanded by mandamus to ‘détermine the matter according to law, i.e. within the limits indicated by the House of Lords.”

In our judgment, the High Court exceeded its jurisdiction in issuing'a writ of mandamus directing the Commissioner to grant a licence to Messrs Majestic Bottling Company without the prior approval of the State Government as enjoined by r.7 of the Rules. — The High Court was unduly technical in applying the rules of plead: ings. Absence'ofa specific plea in nature of demurrer would not invest the High Court with jurisdiction to issue’a writ of. mandamus ordaining the Commissioner to grant a licenge to Messers Majestic.

. Bottling Company under r.7 of the Rules without the prior approval ‘of the State Government which was a condition pre-requisite for the grant of such privilege. It is regrettable that the High Court should have short-circuited the whole procedure upon a wrongful assumption ~ of its own powers. The view taken by the High Court is manifestly ‘erroneous. Otherwise, the statutory _ requirement of such prior approval of the State Government under 1.7 would be rendered wholly otiose. ,

We should not be understood as Saying down an inflexible rule that the High Courts cannot, under any circumstances, regulate or control the manner of grant of a liquor licence by the issue of a writ of mandamus. It would all depend upon the fits and circum-

‘ stances as to whether the High Court should issue a writ of manda- mus.or not. The grant of a liquor licence is a matter of privilege. °

_In the very nature of things, the grant of refusal of licence is in the discretion of the State Government. Normally, where the statute vests a discretionary power upon an administrative authority, the Court would not interfere with the exercise of such discretion unless it is made with oblique motives or extraneous purposes or upon extraneous considerations. The present case does not fall within the rule laid down in K. N. Guruswamy y. The State of Mysore & Ors and P. Bhooma Reddy v. State of Mysore & Ors? The decisions in Guruswamy’s and Bhooma Reddy’s cases are“both in consonance with

' the well-settled principle that the High Court ‘can always issue a

(1) [1955] 1 SCR 305 (2) [1969] 3 SCR 14 dod - SUPREME COURT REPORTS [1984] 3 s.c.k. writ of madamus under Art. 226 of the Constitution against a public authority to compel the performance of a public duty where such ‘authority acts in violation of the law.

It is urged on behalf of Messrs Majestic’ Bottling Company . placing reliance on the decision of the House of Lords in Padfield ; v. Minister of Agriculture, Fisheries & Food* and that of this Court. in Messrs Hochtief Gammon y. State’ of Orissa &4Ors.? following the same that, no doubt where the reasons given are bad and the authori- © ty had not taken into consideration the relevant matters or real grounds on which the order could have been passed, the Court, can direct the authority to reconsider the matter in the light of such

. relevant matters. But it was urged that no useful purpose would be served in remitting the matter to the authority for reconsideration where all the reasons that can be given for upholding the validity of the order have been’ found by the Court to be bad and unsustainable.

The submission is that in such a case the Courts will not direct the authority to reconsider the matter for, then there is nothing to reconsider but the Court will direct the authority to carry out what it has by the impugned order refused to do. In ‘Hochtief Gammon’s -case, this Court deduced the following principles from the decision of House of Lords in Padfield’s case:

“The Executive have to reach their decisions by taking into account relevant considerations. They should not refuse to consider relevant matter nor should they take into account

‘wholly irrelevant or extraneous consideration. They should not misdirect themselves on a point of law. Only such a decision will be lawful. The Courts have power to see that the Executive acts lawfully. It is no answer to the exercise of that power to say that,the Executive acted bona fide nor that they have bestowed painstaking consideration. They cannot avoid

_scrutiny by courts by fuiling to give reasons. If they give reasons and they are not good reasons, the court can direct them to reconsider the matter in the light of relevant, matters though the propriety, adequacy or satisfactory character of these reasons may not be open to judicial scrutiny. Even if the Executive considers it inexpedient to exercise their powers ‘they should state their reasons and there must be; material to show that they have considered all the relevant facts.

——— (1) LR [1968] AC 997 ) [1976] 1 SCR 667 a antl

Ps

.Y CHINGLEPUT BOTTLERS vy. MAJESTIC BOTTLING (Sen, J.) 203

This was not a case where it could be said that there was nothing for the State Government to consider as to whether should accord or refuse prior approval to the grant of a licence to Messrs Majestic Bottling Company under r. 7 of the Rules. The Commissioner by the impugned order rejected the applications for grant of a licence made by both Messrs Chingleput Bottlersand Messrs Majestic Bottling Company and therefore the stage was not reached. The stage for the State Government to reconsider the matter of grant: of privilege under r. 7 would only arise when. the commissioner makes ‘a recommendation for the grant of a licence to Messrs Majestic Bottling Company. At that stage, the State Government would have to consider whether they should accord prior approval for the grant ‘of such privilege to Messrs Majestic Bottling Company having regard to the matters specified in r. 5 of the Rules and the conditions set out in r. 6(c), in view of the further facts brought out in the supplementary counter affidavit of Deputy Secretary to the State Government, Depart-

* ment of Prohibition’& Excise in support of the objection raised in para 11 of the counter-affidavit. One of the relevant factors that the State Government must, as they should, take into consideration is .the suitability of Messrs Majestic Bottling Company for the grant of licence as required under r. 5(a) and the other is whether J. Balaji, | the managing partner and Smt. Shanthi the other partner, were persons who would abide by the provisisjons of the Act and the Rules made thereunder as enjoined by =r. 5(b). The facts lay a serious ‘charge that Balaji, managing {partner of Messrs Majestic Bottling Company and his other partner Smt. Shanthi were directors of Mes-

. _ STs Dhanalakshmi Chemical Industries Private Limited, Ranipet .

upto November 26, 1980 and that there was prima facie evidence showing that the company had misused the rectified spirit issued to it causing a loss of revenue to the State Government to the tune 6f Rupees two crores or thereabout. It would be permissible for the State Government to take these facts as justification for refusal to grant prior approval under r. 7 of the Rules. .

In goming to the conclusion they did® the learned Judges have drawn sustenance from the decision of this Court in Gujarat State

_ Financial Corporation v. Messrs Lotus Hotels Private Limited! and of the High Court in the State of Tamil Nadu & Anr. v.C. Vadiappan? in support of the view that the High Court had jurisdiction to issue a writ of mandamus directing the State of Tamil Nadu and

(1) [1983] 3 8.C.C. 379 " 7 (2) [1982] 2 Mad. L.J. 30

204 . ~ , SUPREME COURT hePoRts “{1984) 3 S.C. t.

the Comamisstoner of Prohibitién & Excise to grant the privilege for the manufacture and supply of bottled arrack to Messrs Majestic.

Bottling Company for the Chingleput district under r. 7 of. the

Rules.. The decision in Gujarat State Financial Corporation’s case ,

(supra) is clearly distinguishable and is not an authority for any such proposition. No such question arose inthat case at all. There, the Court was dealing with a contract entered into by the Gujarat State Financial Corporation with Messrs Lotus Hotels Private Limited for the purpose of setting up a-4-star hotel. The Company approached the Corporation for a loan of rupees: 30 lakhs aid the Corporation sanctioned a loan of Rs. 29.93 lakhs on certain terms and conditions which the Company accepted. The Corporation however finally resolved not to disburse the loan to the Company whereupon the Company moved Gujarat High Court by a petition under Act. 226 for the issue of a writ of mandamus to direct the Corporation to disburse the loan. A learned Single Judge of the High Court issued the writ as prayed for and it was confirmed by-a Division Bench.” - On appeal by the Corporation, this writ Court held that the High

‘Court was justified.in issuing the writ of mandamus. The decision in Gujarat State Financial-Corporation’s case, (supra) turned on the doctrine of promissory estoppel and it does not justify the conclusion reached by the learned Judges:in the present case for the i issue of a writ of mandamus. It is needless to ‘stress that if the requirement of law was that the advance of loan to be sanctioned by the

Gujarat State Financial Corporation was to be subject to the prior , approval of the Reserve Bank of India, the decision of the Courta would have been otherwise.

. It is difficult to'subscribe to the doctrine evolved by the High | Court in Vadiappan’s case, (supra) that ‘the Commissioner is the ‘sole . arbiter’ under r: 7 of the Rules. It relied upon the earlier decision © of the High Court in K. Ramaswamy vy. Government of Tamil Nadu

& Ors? jaying down that the proviso to r. 6 of the Tamil Nadu -

Arrack (Supply by Wholesale) Rules, 1981 shad to be understood strictly in a negative seng&. According to the High Court; at best it confers on the Government a power to -veto. By itself, the High

Court observed, ‘it does not make the Government a final arbiter ° between the competing’ claims. The High Court further observed in *

Ramaswamy’s case, supra, that ‘the weighing of the pros and cons and the consideration of the merits and demerits of the rival .clai-

Leeann ne LER IEEE ananaEEmamnentt

(1,) Writ Appeal No. 368 of 1981. |

* ve hy a?

?

. CHINGLEPUT BOTTLERS v. MAJESTIC BOTTLING (Sén, J.) 205 ments remained, from first to last with the Commissioner as his sole responsibility, and that the requirement of the Government’s | proper approval under the proviso to r. 6 of the’ Tamil Nadu Arrack (Supply by Wholesale) Rules 1981 was no doubt a necessary part of the validity of every licence, but ‘the enabling power cannot be employed as a machinery for a review in every case but only as ‘a check upon a possible abuse of its power’ by the Commissioner’.

That approach of the High Court seems to run counter to the scheme of the Act and the Rules framed thereunder. The grant of ‘a liquor licence under r. 7 is a matter of privilege of the State Government.

‘The Commissioner merely exercises the delegated powers of the

State Government. The ultimate responsibility for the grant of such privilege is with the State Government under r. 7 of the Rules. °

Nore can we subscribe to the contention that the Commissioner had to act under the directions and control of the State Government under sub-s. (2) of s. 25A of the act whilé exercising his powers delegated under sub-s (1) of s. 17C read with s.. 25A (i) in the matter or grant of a liquor licence under r. 7 of the Rules. It would not justify the High Court to issue .a writ of mandamus to the Commissioner to grant a licence to Messrs Majestic Bottling Com-

‘pany under r. 7 of the Rules without the prior approval of the State

Government. Obviously, the State Government and the Commissio- ner canot act de hors the scheme of the Act and the Rules framed thereunder. Further, the contention that the State Government had already made up their mind against the grant of such previlege to Messrs Majestic Bottling Company and that there was no occasion for the High Court to send back the case to the Commissioner as .

it would have amounted to the State Governnient being asked to sit in appeal over the judgment of the High Court, cannot be accepted. We regret to say, the High Court has tried to circumvent

_the whole procedure by issuing a writ of mandamus directing the

Commissioner to grant a licence under r. 7 without the prior approval

_ of the State Government. As already stated, the grant of a licence under r. 7 of the Rules is a privilege. There are no charges of mala fides on the part of the State Government. There is no suggestion

"that the State Government had already made up their mind. This is also not a case where the rules of necessity require recourse to a

' writ of mandamus to command the issue of a licence without con forming to the procedure prescribed under r. 7.

In the premises, it was not a .proper exercise of jurisdiction for

- the High Court to have issued a writ of mandamus under Art, 226

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va

206 - . SUPREME COURT REPORTS | - _——«:1984] 3s...

of the Constitution ordaining the Commissioner to grant a licence to Messrs Majestic Bottling Company under r.7 of the . Rules ‘without the prior approval of the State Government... In our opinion, the proper course for the High Court to adopt was to issue a writ of mandamus directing the Commissioner to redetermine the question after following the procedure ofr.7 and in case he came to a decision to grant the licence in favour of Messrs Majestic Bottling

' Company, to refer the matter to the State Government for ‘its ' prior approval. Otherwise 1.7 of the Rules would be rendered.

completely otiose. -

Turning to the appeal preferred by M/s Chingleput Bottlers,, learned counsel for them has mainly advanced a three-fold sub- mission : (1) The Commissioner had acted in flagrant violation of | the rules of natural justice in not furnishing to Messrs Chingleput

Bottlers a copy of the report of the Collector and other extraneous.

‘material comprising of a representation received from Messrs

Majestic Bottling Company along with various other documents.

Nor had. he disclosed to them the substance of the report of the -

Collector or other information gathered by him irrespective of the source. (2) The impugned order passed by the Commissioner was vitiated by erfors apparent on the face of the record. There

‘was no factual basis for, the assumptidn that the three persons from whom Messrs Chingleput Bottlers had taken the lease of the land ont which the blending unit is located. viz, K.J. George, M/s. Visvambaran and E.K. Chandrasekaran, were real partners of Messrs Three

Star Bottling Company. There was also no warrant for the suspicion ° cast by the Collector in his report that Messrs Chingleput Bottlers were mere benamidars of one O.H. Kumar, proprietor of Messrs Three Star Bottling Company, the existing licensee, on the ground that they had entered into an agreement to purchase the blending unit from him. The function of the Commissioner in making the grant of privilege under r.7 of the Rules of being a quasi-judicial nature, the Commissioner could not act on unwarranted conjectures and mere:

surmises. (3) The Commissioner liad not acted fairly inasmuch as

‘he adopted.a double standard. For a secret ‘inquiry was conducted against Messrs Chingleput Bottlers for adjudging their, suitability for the grant of privilege while no such inquiry was made against Messrs Majestic Bottling Company. The -Commissioner had thus. treated Messr¥Chingleput Bottlers and Messrs Majestic Bottling Company on an unequal footing and thus the procedure adopted was violative of Att, 14. The observation made by the Commissioner that the

Peposit of Rs, 10,01,001 made by Messrs Chingleput Bottlers with .

NF aN oy!

CHINGLEPUT BOTTLERS Y; MAJESTIC BOTTLING (Sen, J.) 207 the Indian Overseas Bank had not come from bona fide sources and that obviously there was some secret understanding between O.H.

.Kumar and Messrs Chingleput Bottlers was not based: on any material at all. The Commissioner knew that O.H. Kumar, the previous licensee, was not in a position to advance rupees 10 lakhs and odd to Messrs Chingleput Bottlers. Again, no such inquiry was made as to the financial capacity ‘of Messrs Majestic Bottling Company. Further, the Commissioner had wrongly assumed that Messrs Chingleput Bottlers and given their'address as ‘Ramabadran, c/o Messrs Three Star Bottling Company, Iyanchery’ when no such . address was ever furnished and therefore the impugned order is vitiated by an error apparent on the face of the record.

-In support ofthe contention that the Commissioner acted in violation of the rules of natural justice, the learned counsel contends that Messrs Chingleput Bottlers had a right to be heard. It is urged that there was clear breach of the principle of audi alteran partem .

inasmuch as neither a copy of the report of the Collector was furnished to Messrs Chingleput Bottlers nor acopy of the representation submitted by Messrs Mujestic Bottling Company against the grant of licence to them. The argument is that a hearing where a party does not know the case he has to meet is no hearing at all, while the learned counsel concedes that the right to know the case to be met does not necessarily involve any right to know the sources . of adverse inference or to confront informants, for in many cases it will be quite proper for the authority to employ confidential

’ sources, the rules of natural justice require that the information itself should be - disclosed so that there is a fair opportunity of meeting the case. — ,

In the file relating to Messrs Majestic Bottling Company there is a representation filed by J. Balaji, managing partner of Messrs Majestic Bottling Company, consisting of 131 pages and was apparently handed over by J. Balaji at the time of heafing before the Commissioner on July 5, 1982. The representation dated July 5, 1982 is in the form of a petition in continuation of the application for grant made on June 9, 1982. Regarding Messrs Chingleput Bottlers, certain objections are raised to the grant of licence. The objections are formulated in a document marked Annexure ‘A’. It is alleged ‘that the existing licensee O.H. Kumar is running the show under the name and style of Messrs Three Star Bottling Company which is under the control of three persong, namely, K.J, George, M:S. Visvambaran and E.K. Chandrasekaran. It tecites that now find- +

208 - _ SUPREME COURT REPORTS : {1984} 3: S.C.R.

ing that O.H. Kumar. could not get the present - licence, they have . set up Ramabadran who has himself shown his address as care of ; - Messrs Three Star Bottling Company. This itself clearly ‘shows’

that the applicant Ramabadran isa benamidar of Messrs Three Star Bottling Company. In support of the assertion that . Ramabadran is a. benamidar of O.H. Kumar, there is a copy of the judgment of the High Court of Madras in Writ Petition No. 1239 of 1961 filed along with other papers. “In the file relating to Messrs Chingleput Bottlérs there is a two- “page note which formulates certain objections to the grant of privilege to Messrs Chinfpleput Bottlers. It was obviously handed over by J. Balaji, managing partner of Messrs Majestic Bottling Company to the Assistant Commissioner (Excise) during his inspection of the blending unit or _ before the Collector before the submission of his report.

AY *

We do not think that the Comffissioner was under an obliga-:

‘tion to. furnish Messrs Chingleput Bottlers with a copy of.the report ~ submitted by the Collector or of the representation made by- Messrs Majestic Bottling Company. This equally applies to the two-page note appearing in the file of Messrs Chingleput Bottlers. It was quite pro- - perfor the Commissioner to make secret and discreet inquiries from confidential sources. There was no duty cast on him to disclose to

Messrs Chingleput Bottlers the sources of adverse information or to - give them an opportunity to confront the informants. Rules of fairplay only enjoin that Messrs Chingleput Bottlers should know the case against them. This-apparently they did from the questionnaire issued by the ‘Commissioner and the questions put by the Commis-

7 sioner on July 5, 1982 on the basis of the information gathered by him.

The Commissioner has relied upon the report of the Collector and the conclusions reached by the Collector are based on the statement of Ramabadran recorded by the Assistant Commissionér (Excise).

Further, at the heating on July 5, 1982, the Commissioner recorded ' the statementeof Ramabadran, managing partner of Messrs Chingleput Bottlers. There'was no occasion for the Commissioner to have recorded the statement of Rarfiabadran over again unless this was to give him an opportunity to explain the substance of the report of the Collector or other information gathered by him irrespective of the source.

The learned Judges . repelled .the contention of Messrs Chingleput Bottlers that the Commissioner acted in breach of the rules of natural justice by his failure to furnish them with a copy of the v.

pe

CHINGLEPUT BOTTLERS V, MAJESTIC BOTTLING (Sen, J.) 209 report of Collector on the ground that there is no fundamental right in a citizen to carry on any trade in liquor. According to them, the Commissioner under the Rules performs an administrative function and having regard to the requirements of r.5 of the Rules, and in view of.the fact that Messrs Chingleput Bottlers had neither a legal tight nor a legaj expectation that they would be granted the privilage all that was required. was that the Commissioner should act fairly in . dealigg with the application and not in a capricious or arbitrary manner. On the material on record, the learned Judges held that they were satisfied that the Commissioner acted fairly and reasonably and not arbitrarily or capriciously in coming to the. conclusion that Messrs Chingleput Bottlers had not made the application on their own behalf, but beriami for others and in rejecting their application for the privilege for-‘setting up a blending unit for arrack.

-Jncidentally, they pointed out that Messrs Chingleput Bottlers did not specifically make a grievance of the fact in the writ petition that principles of natural justice had not been complied with. Itisa. fundamental rule of law that no decision must be taken which. will affect the rights of any person without first giving him an opportunity . of putting forward his case.

There has ever since the judgment of Lord Reid in Ridge v.

' Baldwin, supra, been considerable fluctuation of judicial opinion in England as to the degree of strictness with which the rules of natural justice should be extended, and there is growing awareness of the problems created by the extended application of principles of natural justice, or the duty to act fairly, which tends to sacrifice the administrative efficiency and despatch, or frustrates the object of the law in question. Since.this Court had held that Lord Reid’s judgmeat in Ridge v. Baldwin would be of assistance in ‘deciding questions

‘relating to natural justice, there is always “the duty to act judicially”

whenever the rules of natutai justice are applicable. There is therefore the insistence upon the requirement of a “fair hearing”.

In the light of the settled principles, we have to see whether the Commissioner acted in breach of the rules of | natural justice or fairplay in passing the impugned order.

There is authority for the proposition that an authority or body need not observe thie rules of natural justice where its decision, although final, relates not to a ‘right’ but to a ‘privilege or licence’. In a number of recent decisions, the Courts have, while extending co:

'

210 "SUPREME COURT REPORTS — [1984] 3 s.c.r.

the protection of natural justice in the former vategory of claims, denied such protection to the latter category. All that is emphasizetl in such cases is that the applications must be considered fairly. In R. v. Gaming Board for Great Britain ex parte Bneain & Khaida‘ the

Court of Appeal held-that in refusing a certificate for reasons:

- concerning the character and suitability of the applicants, the Board must act fairly and obey the broad principles .of natural justicé, In fact, it was held that they had done so: since they had given the applicants full opportunity to know and contest the case again®t

-_ them, tven though they had not revealed the sources of their infor- fhation og given their reasons. It follows that the right to know the case to be met does not necessarily involve any right to know

_the source of adverse information or to confront the informants, for in: some cases it would be quite proper for the authority to employ confidential sources.

The Master of’ Rolls referred to the contention advanced. by: :

counsel appearing for the applicants that they ought not to be

' deprived of the chance to get licence for the gaming business without knowing the case they had to meet. The counsel criticized especially

_ the-way in which the Board proposed to keepthat confidential information and relied on.some words of hisin R. Surinder Singh Kanda v. Government of the AFederation of Malaya* where he had ‘said :

* “That the’ Judge or whoever Htas to adjudicate must not ‘hear evidence or receive ‘representation from one side behind the back of the other.” .

Lord’ Denning rejected the contention by observing that ‘the counsel had put his case too 0 high’. The learned Master of Rolls then observed. :

.. “Jtisan error. to regard Crockford’s as having any right of which they are being deprived. They have not had in the past, and they have not now, any right to play these games of chance-roulette, cheminde-fer, baccarat and the like for their own profit. What they are really seeking is a privilege-almost, I might say, a: franchise-to carry on gaming

(1). [{1970}2 All B.R. 528 (2). LR [1962] AC 322.

yA

_F

CHINGLEPUT BOTTLERS p. MAJESTIC BOTTLING (Sen, J.) d1 for profit, a thing never hitherto allowed in this country. Itis for them to show that they are fit to be trusted with it.” In Breen vy. Amalgamated Engineering Union.1 Lord Denning said :

“If a man seeks a privilege to.which he has no particular claim-such as an appointment to some post or otherthen he can be turned away without a word.”

The Master of Rolls went on to say that nonetheless statutory . and in some cases “domestic bodies must act “fairly and this may | involve a. hearing, although it is not clear from the judgment whether the duty appliés where an initial application is bein g considered or only where an existing privilege is being terminated.

¢ - In Meinnes v.-Onslow Fane & Ante, Megarry, V.C. has drawn a distinction between initial applications for grant of licence and the revocation, suspension or refusa? to renew licences already granted. The learned Vice-Chancellor says,that there is a substantial distinction between ‘application cases’ dnd ‘forfeiture cases’. He observes.

‘that while an applicant for grant of licence has neither a right to

-_ such a grant nor a reasonable expectation that such grant would be a

_ made-in his favour, but cancellation or forfeiture of an existing licence or-refusal' to renew a licences, involves.a right to a hearing | as the applicant has what may be called ‘reasonable expectation’; Megarry, V.C. dealt with the question whether the grant or refusal of licence by the Board of Control is subject to any requirement of . natural justice or fairness which would be enforced by the Courts. In dealing with the nature of the right to claim a licence, he said that it was nothing but a privilege. The three distinct categories can best be discerned in his own words : ‘First, there are what may be called the forfeiture cases. In these, there is a decision which takes away some existing right or position, as where a member of an organization is - expelled’or a licence is revoked. Second, at the other extreme there are what may be called the application cases. There are cases where the decision merely refuses to grant the applicant the right or position that he seeks, such as membership

' 1). [1971] 2 QB 175- (2). [1978] 3 Al. BR. 20

7 2120 6 _ SUPREME COURT REPORTS ° [1984] 3S.GR.

of the organization, or a licence to do certain acts. Third, there is an intermediate category, which may be called the expectation, cases, which differ from the application cases only in that the applicant has some {legitimate expectation from what has already happened that his application will be granted. This head includes cases where an existing licence holder applies for a renewal of his licence, or a person already eleceted or appointed to some position seeks confirmation from some confirming authority.

. * The learned Vice-Chancellor went on to say that there was a substantial distinétion between forfeiture cases and application ‘cases. In forfeiture cases, there is a threat to take something away for some reason. In such cases, the right to an unbiased tribunal, the right to notice of the charges and the right to be ‘heard in answer to the charges which were.the three features of natural

. justice are plainly apt. In application cases, on the other hand,’

nothing is being taken away, and in all normal circumstatces there -are no charges, and so no requirement of an opportunity of being heard in answer to the charges. Indeed, there is the-far wider and less defined questions of the general suitability of the applicant for membership or a licence. The distinction is- well recognized, for in general it is clear that the Courts will require natural justice to be observed for expulsion from a social club, but not on an application for admission to it. The intermediate category i.e. of the ‘expectation cases, may at least in some respects be regarded as ‘being more akin to forfeiture cases than application cases; for although in form there is no forfeiture but merely ‘an attempt at acquisition that fails, the legitimate expectation of a renewal of the licence or conformation of the membership is one which raises the question of what it is that has happened to make the applicant unsuitable for the membership or licence for which he was previously thought suitable, — .

Th such cases, Megarry, V.C. felt that- much help cannot be | had from discussing whether ‘natural justice’ or ‘fairness’ was the’

more appropriate term’. He.observes that if one expects that natural justice is a flexible term which imposes different requirements in different cases, itis capable of applying appropriately to the whole range of situations indicated by the terms such as ‘judicial,’ “‘quasijudicial’ and ‘administrative’. The content of the ‘duty to act fairly’

did. not impose on the Board -to give either oral hearing to the

CHINGLEPUT BOTTLERS ¥. MAJESTIC BOTTLING (Sen, J.) 213

”

applicant or to disclose the case against him nor was it under any

_ obligation to give reasons for a decision. The learned Judge then went on to say that there was no obligation for the Board to give the applicant ‘even’ the gist of the reasons while they refused his’ applicatibn, or proposed to do so, and added:

The concepts of natural justice and the duty to be fair must not be allowed to discredit themselves while making unreasonable requirements and imposing undue burdens.”

_ In such cases, the right to hearing has been denied on the ground that the claim or interest or legitimate expectation is a more ‘privilege or ‘licence’. This is in consonance with the decision of a Constitu-

. tion Beitch of this Court in Kishan Chand Arora v. Commissioner of

Police, Calcutta following the judgment of the Privy Council in Nakkuda Ali y. M.F.De S. Jay@ratne’s* case.

It is beyond the scope of the present: judgment to enter into a discussion on the apparent conflict between the decision of the Privy Council in Nakkuda Ali’s case and the observations of Lord Reid in Baldwin’s case. It would appear that the long line of cases begin- ~ ning. with Baldwin’s case and ending with D’arcy Ryan’s case are cases dealing with interference with property rights, deprivation of membership of professional.or other non-statutory bodies, dismissal from office, imposition of penalties and deprivation of advantages etc. Both the Privy Council as well as this Court have required strict adherence to the rules of natural justice’ where a public authority or body has to deal with rights. But the principle that there was a duty to observe the audi alteram partem rule may not apply to cases which relate not to rights or legal expectations but to. mere privilege or licence. . *

It is now well-settled that, while considering the question of breach of the. principles of natural justice, the Court should not proceed as if there are inflexible rules of natural justice of universal application. Each case depends on Sits own circumstances. Rules of natural justice vary with the varying constitutions of statutory bodies and the rules’ prescribed by the fegieiature under which they have to act.

content,

(4). [1961] 3SCR 135, (2). LR [1951] AC 66.

oF

14 | SUPREME COURT REPORTS 11984] 3 s.c.k

There is nothing in the language of 1.7 of the Rules to suggest that in refusing to grant the privilege, the Commissioner is obliged:

to act ‘judicially’, The order refusing a licence under 1.7 is purely -an administrative or executive order and is not open to appeal or revision. There is no is between the Commissioner and the person who is refused such privilege. The power of réfusal of licence unlike the power to grant is not subject to any pre-condition.

It must follow that the grant of a liquor licence under r.7 of the Rules does nof involve any right ot expectation but it is a matter

- of privilege. The Commissioner was therefore under no ‘obligation :

either to disclose the sources of information or the gist of the information that he had. All that was required was that he should act fairly, and deal with the applications without any bias, and not in an arbitrary or capricious manner.

‘There is DO suggestion “of any mala fides on the part of the Commissioner or the State Government. The Commissioner heard ’ both the parties after he had an.inquiry made through the Collector -to adjudge their suitability for the grant of the licence. The

Commissioner had issued a questionnaire and had the material collected by the Collector. The Commissioner was entitled to act on the report of the Collector’and also-on other material gathered by him during the course of thejinquiry. There is no requirement under the Act for a confronted hearing like the hearing contemplated between rival claimants for the grant ofa stage carriage permit under — the Motor Vehicles Act, 1939 into’ their respective merits and ‘demerits. The Commissioner separately heard both the parties and had their statements recorded with respect to all the relevant aspects. It cannbt be said that the Commissioner in dealing with the dpplications did not act fairly in not furnishing a copy of the report of the . Collector or in taking & representation from Messrs Majestic Bottling Company.

’ The High Court could not have in proctedings under Art. 226 of the Constitution interfered. with the impugned order of the

_Commissioner merely because ona reappraisal of the evidence it might have come to a contrary conclusion. There was no error of jurisdiction on the part of the Commissioner nor was the impugned order vitiated by any error apparent on the face of the record. The finding reached by the Commissioner that the application made by’

Messrs Chingleput Bottlers was not, made bona fide on their own e

CHINGLEPUT BOTTLERS v. MAJESTIC BOTTLING (Sen, J.) 215 account but as benami for others is a finding based on appreciation

_ of evidence. The Commissioner was entitled to rely upon the facts found by the Collector. It may be pointed out that the Coilector’s report is entirely based on the statement of V. Ramabadran, managing partner of Messrs Chingleput Bottlers. The High Court was therefore justified in dismissing the appeal preferred by Messrs Chingleput Bottlers.

In the result, the appeal preferred by the State Government must succeed and is allowed. The judgment. and order passed by the High Court for the issue of a writ of mandamus directing the Commissioner of Prohibition & Excise, Madras is set aside and the case is remanded to the Commissioner for a decision afresh according to law. For the reasons-stated, the appeal filed by Messrs Chingleput Bottlers must fail and is ‘dismissed.

There shall be no order as to costs.

C.As., 11970-7183 dismissed

SR, and €.A. 11972|83 allowed