The article is authored by Shelly Kohli, Chief Legal and Compliance Officer and Harshal Sharma, Privacy Officer and Legal Consultant at United Breweries Limited
Introduction
Article 19(1)(g) of the Indian Constitution, grants the citizens of India, a Fundamental Right (FR) to engage in any profession, occupation, trade, or business. This is subject to reasonable restrictions. Noteworthy that grounds for imposition of these restrictions are limited and are enumerated in Art. 19(6) viz. in the interests of general public which inter alia can be in the form of prescription of professional qualifications, the government creating a monopoly in any trade, or any other restriction that passes the test of reasonability as determined by the judiciary. Recognizing the sacrosanct nature of FRs, landmark cases of TMA Pai Foundation1 and Dharam Dutt v. UOI2, have underscored the necessity for this stringent scrutiny when imposing any restriction on the FR to trade.
Oddly, the judiciary's stance in treatment of liquor industry has been somewhat atypical of the standard position summarised above. This distinctive treatment will be better understood by first appreciating the constitutional position of liquor trade. The legislative and regulatory authority over liquor industry in India is enshrined in Entry 8 of List II (State list) in the Seventh Schedule, which specifically provides for "production, manufacture, purchase and sale of intoxicating liquor". Additionally, Entry 51 of List II viz. "Duty of Excise on intoxicating liquor for human consumption" reiterates that manufacture of liquor can be for human consumption and vests the power to levy duty on liquor so produced with the states. Not only does this demarcate the centre-state lines in our federal democracy, but also economically aids the functioning of state machineries in India, with excise receipts contributing to states' exchequers, a considerable part of revenue required for them to perform necessary government functions and expenditure.3 Quite naturally, revenue optimization surfaces as one of the objectives for state governments while formulating regulatory framework governing liquor trade.
This presents plethora of challenges for liquor manufacturers who must navigate their route to profit through a complex regulatory framework in each state. Most state governments license the privilege of manufacturing alcohol to private players and levy excise duties on production and sale of liquor. Receipts through excise duties are monitored and optimized by various means. This includes deployment of excise staff at breweries where their accommodation, travel etc. are often paid by the manufacturer. Creation of monopsonies by establishing government corporations as sole purchasers and distributors within a state is yet another means of exercising stringent control on distribution. In some instances, rules have been enacted that presume certain volume of beer being produced (for calculating excise duty) basis the quantity of raw materials used4 and not the actual production volume. Article 475 in the Constitution is often quoted to justify the imposition of strict regulations which may be otherwise inconsistent with the FR to trade and do business in liquor. Consequently, judicial intervention is warranted frequently to ensure that manufacturers' rights are not thwarted by State action.
Existence of a Fundamental Right to Trade in Liquor
In Krishna Kumar Narula vs State of Jammu and Kashmir6, the question whether there existed a FR to trade in liquor fell directly for consideration before a constitutional bench of the Supreme Court of India (SC). Arguing against the existence of a FR, State contended that goods like liquor were dangerous to the community and subversive of its morals, and therefore such activities could not avail a FR under Art. 19(1)(g). Disagreeing with the State's argument, SC opined that standards of morality can afford a guidance to impose restrictions but cannot limit the scope of the right. In words of K. Subba Rao, C.J.,
"the legislature can impose partial restrictions or even total prohibition on a particular trade and the Court, having regard to circumstances obtaining at a particular time or place may hold the restriction or prohibition reasonable. Liquor can be manufactured, brought or sold like any other commodity. The morality of a trade does not affect the quality of the trade although it may be a ground for imposing restriction on such trade. If a law prohibits dealing in liquor, the dealing does not cease to be business, but the said law imposes a restriction on the said dealing."7
Therefore, in SC's view, while nature of a trade may determine the nature of restrictions that may be imposed, it does not deny the existence of a FR to trade altogether. Relying on this plain and precise reasoning, SC held that dealing in liquor is business and a citizen had a FR to trade in that commodity.
The practical effect of Narula was that any State action imposing restriction on liquor trade must have passed the test of reasonability. Furthermore, such restrictions could be only on grounds mentioned in 19(6) and not otherwise8. Consequently, the State, while imposing restrictions would have had to be more mindful of the rights of liquor manufacturers. For almost three decades, the law laid down in Narula governed the status of liquor trade under Indian Constitution until the SC in Khoday9 decided to revisit this position.
Khoday Distilleries Ltd. and Ors. Vs. State of Karnataka and Ors.
The moot question of law taken up by the constitutional bench of the SC was that whether there exists, under Article 19(1)(g), a FR to trade or carry on business in potable liquor. Two rival contentions of law were canvassed before the court. One, that there is no FR to trade or do business. If this position was to be accepted, then the incidental consequence which the SC assumed shall follow was for State to have an exclusive privilege to sell liquor which could be transferred to citizens by means of a licence. Effectively then, restriction imposed by the State upon manufacturers need not pass a judicial review on the touchstone of Art.19(6) as there would be no FR to trade in liquor.
The other contention was the same as laid down in Narula. That a citizen has a FR to trade or do business in liquor and the State can only place restrictions on the said right in the interests of general public by a law made under Article 19[6] of the Constitution. State's contention in support of the former (privilege argument) stemmed out of an attempt to impose the doctrine of res extra commercium on liquor trade.
A case of imperfect application of res extra commercium doctrine
Res extra commercium (Latin – 'a thing outside commerce') is a doctrine originating in Roman law, holding that certain things may not be the object of private rights, and are therefore insusceptible to being traded. The genesis of this doctrine in India dates back to 19th century10 where it was held that a religious office cannot be a subject of sale and therefore res extra commercium. Similarly, in Puncha Thakur and Ors. vs. Bindesri Thakur and Ors.11, it was held that,
"There are certain rights that cannot be transferred; they are termed res extra commercium, for instance sacerdotal office which belongs to the priest of a particular temple."
In time, the doctrine expanded to include the office of trusteeship12, poojah rights13 and other similar rights which were interpreted by judiciary to be of inalienable nature. It was not the morality of a trade or business, but the test of inalienability of a particular right, which formed the yardstick for labelling an activity as res extra commercium in the beginning stages of doctrine enforcement.
Post independence, the doctrine of res extra commercium was significantly expanded in the 1957 case of State of Bombay v. R.M.D. Chamarbaugwala. The issue before the SC was whether morality of a trade, activity or business can act as a ground of depriving such activity of rights guaranteed under Article 19(1)(g)14. Given the sacrosanct nature of FRs, the petitioners argued that words "trade" or "business" or "commerce" in Article 19(1)(g) should be read in their widest amplitude. The suggested method for construction of these provisions was to start with absolute freedom and then permit the State to cut down, if necessary, by restrictions, which may even extend to total prohibition.
The court while rejecting this view, held that,
"On this argument it will follow that criminal activities undertaken and carried on with a view to earning profit will be protected as fundamental rights until they are restricted by law. Thus there will be a guaranteed right to carry on a business of hiring out goondas to commit assault or even murder........."
The analogy drawn by the Supreme Court may not have been entirely precise as hiring out goondas, housebreaking etc. were activities prohibited by law. Classifying activities that are "illegal" with those that may be construed as "immoral" in order to deprive the latter with basic rights, may allow space for subjective morality and deprive a trade from constitutionally guaranteed rights under Part III of the Constitution.
In Indian FR jurisprudence, Chamarbaugwala thus unfortunately opened the floodgates for expansion of res extra commercium basis subjective morality of a trade. This was evident in Khoday Distilleries Case15 wherein the moot question of law was that whether there exists, under Article 19(1)(g), a FR to trade or carry on business in potable liquor. The SC while denying a right to trade in liquor, held that,
"The right to practice any profession or to carry on any occupation, trade or business does not extend to practising a profession or carrying on an occupation, trade or business which is inherently vicious and pernicious, and is condemned by all civilised societies."
Effectively, the usage of words "inherently vicious and
pernicious" insinuated the trade in liquor and acted as a
catalyst for stripping it bare of an otherwise constitutionally
guaranteed right.
In a similar vein, post Chamarbaugwala, many cases
including Khoday, have frequently relied upon Art. 47 in
the Constitution to strengthen their conclusion of non-existence of
right to trade in liquor.
Can Article 47 act as a deterrent to existence of a Fundamental Right?
The argument that a Directive Principle of State Policy (DPSP) enunciates a duty on state to bring about prohibition of intoxicating drinks and therefore a FR cannot exist to that extent also fails the test of evolved jurisprudence in India. Directive Principles under Part IV are not justiciable. Their support may be taken to impose reasonable restrictions upon FRs, but they cannot be a source to deny the very existence of a FR. Consequently, every restriction on rights guaranteed under Art. 19(1)(g), whether partial or complete, shall also satisfy the test of reasonability and this shall be subject to judicial review. A blanket denial of a FR on basis of subjective morality of a trade erodes the sanctity of such constitutionally guaranteed right.
Furthermore, inclusion of lawful activities in res extra commercium basis subjective standards of morality and under the garb of applying DPSPs, creates a separate class of activities which are although legal, but lie below the status of constitutionally guaranteed FRs. Effectively, this renders the activities under this separately carved out class, vulnerable to arbitrary state action without recourse to judicial review vis-à-vis Art. 19(1)(g).
In fact, it may very well be argued that erroneous application of doctrine of res extra commercium is the very antithesis of the basic structure doctrine carved out in Kesvananda Bharati16. The basic structure doctrine enunciates that some concepts (such as equality, democracy, secularism etc.) permeate throughout the constitution and form the basic structure for the governance of our nation. Within the Constitution, lies an inner circle of inviolable core values which are beyond the amendment making power of the legislature. Trade in liquor being labelled as res extra commercium is converse to this. While almost all trades and businesses are awarded rights under Art. 19(1)(g), inclusion in the res extra commercium category would automatically disqualify such trade from availing the FR. This creates a sphere of activity outside the protected core of Art. 19(1)(g) wherein trade and business is permitted but with strings attached. Activities which fall outside this protected core are violable with ease and without recourse to judicial review vis-a-vis right to trade. Could this have been the intent of the Constitution makers in the first place?
Narula vs. Khoday – What to Follow?
Stare decisis is a Latin phrase which means to stand by decided cases; to uphold precedents; to maintain former adjudication. This principle is expressed in the maxim "stare decisis et non quieta movere" which means to stand by decisions and not to disturb what is settled. However, the question that needs asking is how to rely on a precedent if there are two conflicting Judgments of a co-equal Bench of the High court or Supreme Court?
Salmond defines a precedent as "a judicial decision which contains in itself a principle." The underlying principle which forms its authoritative element is often termed the ratio decidendi. Allen in his Law in the Making, observes that "any judgment of any Court is authoritative only as to that part of it, called the ratio decidendi, which is considered to have been necessary to the decision of the actual issue between the litigants." In this light, let us observe the reception of Indian courts of this venerable principle.
In Vasant Tatoba Hargude v. Dikkaya Muttaya Pujari17, a 1979 case, Division Bench of SC was dealing with a similar question under Art.141. It held that if a clear conflict occurs between two decisions of the SC of an equal number of judges, the later decision will bind the subordinate forum. Yet earlier, another Division Bench of this Court in Manasing Surajsingh v. The State Maharashtra18, 1968, has quoted with approval Salmond's observations in his treatise on Jurisprudence:
"Where authorities of equal standing are irreconcilably in conflict, a lower court has the same freedom to pick and choose between them as the schizophrenic court itself. The lower court may refuse to follow the later decision on the ground that it was arrived at per incuriam, or it may follow such decision on the ground that it is the latest authority. Which of these two courses the court adopts depends, or should depend, upon its own view of what the law ought to be."
Long back, a constitution bench of the SC in Atma Ram v. State of Punjab19, has however termed this "doctrine of choice" for the subordinate courts as an embarrassment of preferring one view to another, both equally binding upon them. Faced with this ineluctable embarrassment, later a full bench of SC, in Kamleshkumar Ishwardas Patel v. Union of India20, has referred to a special bench, the decision of Calcutta High Court in Bholanath v. Madanmohan21. It concerns the course to be followed by the High Court (HC) when confronted with contrary decisions of the SC emanating from benches of co- equal strength. That said, Bholanath has acknowledged that highly embarrassing it may be for the HC to declare one out of the two or more decisions of the SC to be more reasonable, if such a task falls upon the HC, however uncomfortable, the duty has got to be performed.
We see that this uncomfortable duty has been performed by the judiciary in the subsequent cases post Khoday, albeit with conflicting positions. While majority of the cases mechanically applied Khoday and used the moral standpoint taken therein to categorise the trade in liquor to activity res extra commerium, certain cases dismissed its precedential value and appreciated the position taken by Narula. As recently as in the year 2015, in landmark judgment concerning the liquor industry viz. Kerala Bar Hotels Association and another v. State of Kerala and others22
the SC, while interpreting Khoday differently, gave a more liberal interpretation in coherence with Narula and held as under:
"We disagree with the submissions of the respondents that there is no right to trade in liquor because it is res extra commercium. The interpretation of Khoday put forward by Mr. Sundaram is, in our opinion, more acceptable. A right under Article 19(1)(g) to trade in liquor does exist provided the State permits any person to undertake this business. It is further qualified by Articles 19(6) and 47. The question, then, is whether the restrictions imposed on the appellants are reasonable."
Similarly, in the matter of Golden Vats Private Ltd. v. The Chairman, Tamil Nadu State Marketing Corporation Ltd. (TASMAC)23, the court while upholding the position in Narula, held that,
"A combined reading of clauses (1) & (6) of Article 19 makes it clear that a citizen has a fundamental right to carry on any trade or business and the State can make a law imposing reasonable restrictions on the said right in the interest of the general public. It is, therefore, obvious that unless dealing in liquor is excluded from "trade or business", a citizen has a fundamental right to deal in that commodity."
Therefore, the uncertainty in application of the doctrine of stare decisis by the Indian judiciary, is not one borne out of incongruity or deviation from universal practice but rather as a discharge of inconvenient duty of choosing from irreconcilable contrary decisions of the apex court as put forward by Salmond himself and various judgments that followed.
Striking a Balance
Considering the judiciary's frequent contradictory positions on this matter, it seems timely for a larger bench of the Supreme Court to intervene and clarify the stance. Under Article 19(6), the State already has the right to impose restrictions or even a complete prohibition on the freedom to trade. Including a trade in res extra commercium does not principally limit the State's power but rather restricts the liquor industry's right to judicial review.
A ruling affirming the right to trade in liquor would not be unprecedented but would instead align this right with the broader framework of Fundamental Rights. This approach would eliminate the need to unnecessarily inflate the layer of res extra commercium, which sits above the activities declared illegal by the State but below those protected by Article 19(1)(g). Practically, this would enable liquor manufacturers to challenge any arbitrary State actions. Given that excise revenue is the third largest income source for states, it is crucial that manufacturers, as primary contributors, receive fair treatment. In the end, even the State must adhere to the principle that one cannot enjoy the benefit of both sides.
Footnotes
1. AIR 2003 SC 355.
2. AIR 2004 SC 1295.
3. Sinha, S. (2022) 'Alcohol gave 'high' to States' own tax revenue', The Hindu Business Line, 21 August. Available at: https://www.thehindubusinessline.com/economy/alcohol-gave-high-to-states-own-tax-revenue/article65794051.ece Last Accessed on 14 October 2024.
4. See Karnataka Excise (Regulation of Yield, Production and Wastage of Spirit, Beer, Wine or Liquors) Rules 1998 and Rule 34A of The Rajasthan Brewery Rules, 1972.
5. Art. 47 of Constitution of India, 1950: Duty of the State to raise the level of nutrition and the standard of living and to improve public health - The State shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as among its primary duties and, in particular, the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health.
6. AIR 1967 SC 1368.
7. AIR 1967 SC 1368 at para 11.
8. Article 19(6) enunciates that reasonable restrictions may be imposed on rights available to the citizens under Art. 19(1)(g), in the interests of the general public.
9. (1995) 1 SCC 574.
10. Rangasami vs. Ranga and Ors. (1892) ILR 16 Mad 146.
11. (1916) ILR 43 Cal 28.
12. Chockalingam Vs. Duraiswami and Ors. AIR 1928 Mad 327.
13. Sathasiva Kurukkal vs . Subramaniam Kurukkal; (1929) (31) NLR (165).
14. Article 19 of The Constitution of India, 1950; Protection of certain rights regarding freedom of speech, etc.— (1) All citizens shall have the right— (g) to practise any profession, or to carry on any occupation, trade or business.
15. Khoday Distilleries Ltd. and Ors. Vs. State of Karnataka and Ors.; (1995) 1 SCC 574.
16. AIR 1973 SC 1461.
17. AIR 1980 BOM 341.
18. (1968) 70 BOMLR 654.
19. 1959 AIR 519.
20. (1995) 4 SCC 51.
21. AIR 1988 CAL 1.
22. (2015) 16 SCC 421.
23. W.P. Nos. 1937 and 1938 of 2014 before the High Court of Madras.
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