THE STATE OF KARNATAKA,. vs SRI GURUSWAMY,

- 1 -
WA No. 541 of 2026


IN THE HIGH COURT OF KARNATAKA AT BENGALURU

TH
DATED THIS THE 15 DAY OF APRIL, 2026


PRESENT

THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE

AND

THE HON'BLE MR. JUSTICE C.M. POONACHA

WRIT APPEAL NO. 541 OF 2026 (EXCISE)


BETWEEN:

1. THE STATE OF KARNATAKA
REPRESENTED BY ITS SECRETARY
DEPARTMENT OF FINANCE AND EXCISE
VIKASA SOUDHA
BENGALURU - 560 001

2. THE COMMISSIONER OF
EXCISE IN KARNATAKA
ND
TTMC, 2 FLOOR
BMTC COMPLEX
SHANTHINAGAR
BENGALURU - 560 027
…APPELLANTS











Digitally
signed by
SRIDEVI S
Location:
High Court
of Karnataka

(BY SRI SHASHI KIRAN SHETTY K., ADVOCATE GENERAL A/W
SMT. PRATHIMA HONNAPURA, AAG,
SMT. NAMITHA MAHESH B.G., AGA &
MS. ADOORYA HARISH, ADVOCATE)


AND:

1.
SRI GURUSWAMY
S/O LATE SANNEGOWDA
AGED ABOUT 73 YEARS
CL-9 LICENSEE

- 2 -
WA No. 541 of 2026


SHILPA BAR AND RESTAURANT
KATHA NO. 694, YERAGANAHALLI
MYSORE - 570 001

2.
SRI B. GOVINDARAJ HEGDE
S/O LATE B. SANJEEVA HEGDE
AGED ABOUT 64 YEARS
CL-9 LICENSEE
SANJEEVA BAR AND RESTAURANT
VARAMPALLI, UPPINAKOTE
BRAMHAVARA TALUK
UDUPI DISTRICT - 576 213

3.
SRI H.M. NASIR HUSSAIN
S/O LATE H. MIRJA HUSSAIN
AGED ABOUT 53 YEARS
CL-9, LICENSEE
NO.101, BRIGADE SERENITY
KALYAN NAGAR
CHIKKAMAGALUR - 577 102

4. SRI C.M. GOWDA
S/O LATE MUDLAIAH
CL-9 LICENSEE
AGED ABOUT 69 YEARS
NO. 22, "CHINNADAGIRI"
ST
1 BLOCK, II STAGE
BEHIND VIKASA SCHOOL ROAD
VINOBANAGAR, SHIVAMOGGA - 577 201

5. SMT. VISHRUTHA SHETTY
W/O JAGAJJEEVAN SHETTY
AGED ABOUT 38 YEARS
CL-9 LICENSEE
PRINCE BAR AND RESTAURANT
DOOR NO. 3-25B

- 3 -
WA No. 541 of 2026


HOSURU VILLAGE
KUNDAPURA TALUK
UDUPI DISTRICT - 571 213
…RESPONDENTS
(BY SRI D.R. RAVISHANKAR, SENIOR ADVOCATE A/W
SRI MOHAN MAHABALESHWARA BHAT, ADVOCATE)

THIS WRIT APPEAL FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE
INTERIM ORDER DATED 25.11.2025 PASSED IN W.P. No.
35227/2025 (EXCISE) PASSED BY THE LEARNED SINGLE
JUDGE OF THIS HONBLE COURT & ETC.
THIS WRIT APPEAL HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT, COMING ON FOR
PRONOUNCEMENT THIS DAY, JUDGMENT WAS
PRONOUNCED AS UNDER:

CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MR. JUSTICE C.M. POONACHA

C.A.V. JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)

INTRODUCTION
1. The State has filed the present appeal impugning an ad
interim order [ impugned order ] dated 25.11.2025 passed by the
learned Single Judge of this Court in WP.No.35227/2025 (EXCISE).
The said writ petition was filed, inter alia , impugning the

- 4 -
WA No. 541 of 2026


amendments introduced to Rule 5, Rule 5-A and Rule 12 of the
Karnataka Excise (Sale of Indian and Foreign Liquor) Rules, 1968
(hereafter ‘ the Rules’ ) by the Karnataka Excise (Sale of Indian and
Foreign Liquors) (Second Amendment) Rules, 2025 [ the impugned
rules ]. By the impugned order, the learned Single Judge has stayed
the operation, implementation and enforcement of the amended
Rules 5 and 5-A of the rules. Although the impugned order is an ad
interim order, confined to the next date of hearing scheduled for
12.12.2025, it has since been extended.

2. The respondents herein (writ petitioners) were holders of CL-9
licences issued under Rule 3(9) of the Rules. Respondent No. 1
holds a CL-9 licence at Mysore. Respondent No.2 holds a CL-9
licence for Udupi District. Respondent No.3 is the legal heir of the
deceased CL-9 licensee, whose licence at Chikkamagalur held
during the year 1991 to 1992, stood discontinued from the excise
year 1992-93. Respondent No.4 held a CL-9 licence at
Shivamogga, which stood discontinued from the excise year 2001-
02. Respondent No.5 held a CL-9 licence at Kundapura Taluk,
Udupi District, which was not renewed from the excise year 2023-
24. Respondents Nos.3 to 5 had submitted representations seeking

- 5 -
WA No. 541 of 2026


renewal of their discontinued licences, which were rejected by the
concerned Deputy Commissioner of Excise.

3. The respondents (writ petitioners) had sought a declaration
that the impugned Rules, which were published in the Gazette on
03.11.2025, are illegal, unreasonable, arbitrary, unconstitutional and
ultra vires (erroneously referred to as intra vires in the prayer
clause) of the Karnataka Excise Act, 1965 [ the Excise Act ] and the
Rules framed thereunder.

THE AMENDMENTS
4. Before proceeding further, it is relevant to note that the
Government issued three separate notifications on 03.11.2025,
introducing amendments to various rules framed under the Excise
Act - Notification No.I, the Karnataka Excise (General Conditions
and Licences) (Second Amendment) Rules, 2025, amended the
Karnataka Excise (General Conditions of Licences) Rules, 1967 by
amending the proviso to Rule 5(4) of the said Rules. The words ‘or
Form CL-9’ were substituted by the words ‘or Form CL-9 or Form
CL-9A’. Thus, introducing a reference to a licence in Form CL-9A in
the proviso. Rule 17A of the Rules was substituted to provide for
transfer in the event of the death of the licensee or the lessee.

- 6 -
WA No. 541 of 2026


5. By virtue of Notification No.II, the Karnataka Excise (Lease of
the Right of Retail Vend of Beer) (Second Amendment) Rules, 2025
were notified. By virtue of these rules, Rule 5 of the Karnataka
Excise (Lease of the Right of Retail Vend of Beer) Rules, 1976 was
amended to introduce reference to Form CL-9A in addition to Form
CL-9, much in conformity with the amendments introduced in Rule 5
of the Karnataka Excise (General Conditions of Licences) Rules,
1967.

6. By Notification No.III published on 03.11.2025, the impugned
Rules were notified. By virtue of Rule 2 of the impugned Rules,
clauses (a-1), (a-2) and (a-3) were introduced to Rule 2(i) of the
Rules. These clauses define the terms 'Auction pool’, ‘Bid Amount’
and ‘e-auction'. Further, clause (f-1) was introduced in Rule 2(ii) for
defining the term 'winning bid'. As is apparent, these definitions
were intended to explain the terms used in the Rules for the auction
of the licences. Rule 3 of the Rules was amended to introduce Sub-
rule (2-A) and (9-A). Rule 5 of the Rules was amended by the
insertion of a further proviso, and Rule 5A of the Rules was
amended by substituting the proviso to sub-rule (3) of Rule 5A. Rule
12 of the Rules was also amended by the introduction of a proviso
to exclude the applicability to certain licences.

- 7 -
WA No. 541 of 2026


7. Rule 3 of the Rules sets out various licences. The relevant
extract of Rule 3 as amended by virtue of the impugned Rules is set
out below:
"R.3 - Licences.

(1) xxxxxxxxxxx

(1-A) xxxxxxxxxxx

(2) Retail off shop licences for vend of India liquor or
Foreign or both not to be drunk on the premises.-
Under these licences granted in Form C.L.2, the sale of
liquor in sealed bottles to any person in a quantity less
than 0.180 liters at a time is prohibited.

(2-A) Retail off shop licences for vend of Indian liquor
or Foreign liquor or both not to be drunk on the
premises. - Notwithstanding anything contained in Rule
12, these licences shall be granted in Form CL-2A for the
sale of Indian or Foreign Liquor or both in sealed bottles
to successful bidders, where bidding process shall be
carried through "e-auction". The discontinued CL-2
licences, CL-2 licences which are yet to be granted as
per 1987 quota (vide Government order No. HD 452 EFL
86, dated 30.06.1987), the discontinued CL-11 (C)
licences, CL-11 (C) licences which are given prior
approval by the Excise Commissioner but not yet opened
and CL-11(C) licences which are yet to be granted as per
allotment to the Mysore Sales International Limited
(M.S.I.L) as per the Government Order No. FD 7 EFL
2008, dated 03.07.2009 and Government Order No. FD
15 EFL 2015, dated 23.09.2016 respectively, shall be
granted in Form CL-2A to successful bidders, where
bidding process shall be carried through "e-auction.

(3) xxxxxxxxxxxxx

(4) Licence to clubs . - The Agent, Secretary or Manager
or any other person entrusted with the management of
the business of the club shall apply and obtain licence in
Form CL-4 from the Deputy Commissioner. The licencee
under this clause may open up to four additional counters
for serving liquor for the convenience of the members

- 8 -
WA No. 541 of 2026


within the licenced premises with the approval of the
Deputy Commissioner.

Explanation . - For the purpose of this clause, club
means and includes organisation, run by society, a trust
registered under relevant Law or a Company registered
under Section 25 of the Companies Act, 1956 or Section
8 of the Companies Act, 2013 or other association of
individuals, whether incorporated or not with the object of
service motive, providing recreation, cultural, sports,
gymnasium and service activities of entertainment:

Provided that no such licence under this clause shall be
granted by the Deputy Commissioner, unless the
following conditions are satisfied.-

(1) the club shall have been registered under the Karnataka
Societies Registration Act, 1960 or Indian Trust Act, 1882
or under Section 25 of the Companies Act, 1956 or
Section 8 of the Companies Act, 2013 for a period of [not
less than three years, subject to production of audited
reports for the preceding three years) and with not less
than 100 permanent members;

(2) It shall have its own land and building or shall have
obtained it on lease for a term of eleven years or more:

(3) It shall have facility for outdoor games like Tennis,
Badminton, Volley ball etc., and indoor games like
Carrom, Table Tennis etc., and a reading room or a
library;

(4) adequate facilities for catering food and drinks to It shall
have adequate the members; and

(5) It shall have separate toilet with running water facilities
for men and women:

Provided further that, existing clubs to whom
licences are granted under this clause for the excise year
2001-2002 shall be allowed to renew their licences under
the rule existing prior to the commencement of the
Karnataka Excise (Sale of Indian and Foreign Liquors)
(First Amendment) Rules, 2002:

Provided also that existing clubs to whom licences
have already been granted but are registered under

- 9 -
WA No. 541 of 2026


Section 25 of the Companies Act, 1956 or under Section
8 of the Companies Act, 2013 shall also be allowed to
renew their licences.

(5) Occasional Licences. –

(6) Special Licences.-

(6-A) Star Hotel Licences.-

(7) Hotel and Boarding House licences.-

(7-A) Tourist Hotel Licences.-

(7-B) Tourist Hotel Beer Bar Licences.-

(7-C) Licence to supply liquor on Board of Train
engaged and run by Tourism Development
Corporation of State Government or Central
Government.-

(7-D) Hotel and Boarding House Licences owned by
the person belonging to Scheduled Castes and
Scheduled Tribes.-

(8) Military Canteen Licences.-

(8-A) Military Canteen Stores Bonded Warehouse
Licence.-

(8-B) Border Security Force or Para Military Forces
Licences.-

(9) Refreshment Room (Bar) Licence. -

(a) A licence under this clause, for refreshment
room (bar) for sale of Indian liquor combined with the
supply of meals or eatables shall be applied and obtained
in Form CL-9 from the Deputy Commissioner:

Provided that no such licence shall be granted by
the Deputy Commissioner unless he is satisfied that the
refreshment room (bar) provided the following
accommodations and facilities.-

(i) a kitchen with sufficient accommodation either with
exhaust fan or proper ventilator. The customers shall not

- 10 -
WA No. 541 of 2026


pass through kitchen to go the toilet. Passage to the toilet
shall be separate from the kitchen;

(ii) a separate room (Dining Hall) for serving the liquor
along with meals or eatables for consumption. The space
in the dining shall be so provided that not more than eight
persons shall be accommodated in a built in floor area of
100 Sq. ft. (10x10) with a minimum of four feet space
between the tables for the movement of customers and
servers. Further, the total area of the Hall/Halls for dining
shall not be less than 400 Sq. ft:

Provided that the minimum requirement of 400 Sq.
ft, area for dining may be relaxed by the Deputy
Commissioner of Excise in case of the licences existing
on the dates of the commencement of the Karnataka
Excise (Sale of Indian and Foreign Liquor) (Amendment)
Rules, 1993:

Provided further that in case the licensee desired
to shift the licenced premises to any other premises from
the premises in which the licence is existing on the date
of the commencement of the Karnataka Excise (Sale of
Indian and Foreign Liquor) (Amendment) Rules, 1993,
the above provisions shall apply without any relaxation.]

(iii) adequate seating arrangements;

(iv) separate toilet with running water facilities for men
and women.

(10) Auctioner's licences.-

(11) Distributor licence.-

(11-A) Distributor licence to sell foreign liquor.-

(11-B) Licence to sell confiscated liquor.-

(11-C) Retail shop licence issued to Government
Companies.-

(12) Licence for retail sale of bottled toddy.-

(13) Arrack depot licence.-

- 11 -
WA No. 541 of 2026


(14) Licence for running duty-free shop at
International Airport.-

(15) Refreshment Room (Bar) Licence at International
Airport.-
"

8. Rule 5, 5A and 12 of the Rules as amended by the impugned
Rules, are set out below:
" [5. Grant of Licence. - On receipt of the application
under Rule 4, [and subject to the provisions specified in Rule
4-A) the Deputy Commissioner or the Excise Commissioner,
as the case may be, may require such other particulars as he
may deem necessary and may make inquiries for verification
of the particulars furnished by the applicant and also such
other inquiries as he deems fit. If the Deputy Commissioner or
the Excise Commissioner, as the case may be is satisfied that
there is no objection to grant the licence applied for, he may
grant the licence on payment of the fee prescribed under Rule
8 for such licence:

Provided that no such licence shall be granted by the
Deputy Commissioner except with the previous sanction of
the Excise Commissioner.]

4
[Provided further that while considering the
applications for grant of CL-7 licence, the Deputy
Commissioner shall ensure that the applicant is in a position
to provide good accommodation and facilities to the
customers and the standard of refreshments, food and service
are provided for. If the Deputy Commissioner is of the
opinion that the hotel or the boarding house does not conform
to the minimum standard required for running a hotel or
boarding house or not suitable to grant licence, he may reject
such application after giving reasons therefor.]

"Provided also that, the Deputy
Commissioner may grant CL-2A, CL-9A
Licences to successful bidder in e-auction
with the previous approval of the Excise
Commissioner, following the reservation
norms fixed for this purpose by the
Government and subject to the conditions

- 12 -
WA No. 541 of 2026


specified in e-auction notification issued
1
from time to time "

5-A. Renewal of licence. -(1) The Excise Commissioner or
the [Deputy Commissioner of Excise], as the case may be,
may on an application made to him along with the licence fee
prescribed in Rule 8 renew the licence granted under these
rules[except wholesale licence granted in Form CL-1 or Form
st
CL-1 (Beer), for the period commencing from 1 July, 2006.]

(2) Every such application shall be made at least one month
before the expiry of the licence already granted:

Provided that the Excise
Commissioner or the [Deputy
Commissioner of Excise), as the case
may be, may accept and consider any
such application made after the
aforesaid period of one month, if he is
satisfied that the applicant had
sufficient cause for not making the
application within that period.

(3) The licences granted prior to the first of July, 1999 may be
renewed at the discretion of the Excise Commissioner or the
[Deputy Commissioner of Excise], as the case may be on
payment of 50% (fifty per cent) of the fee prescribed under
Rule 8 in respect of the entire period for which licence was not
granted, for the purpose of maintaining continuity of the
licences:

"Provided that, nothing in sub-rule 5-A (3) shall be
applicable to CL-2, CL-9 and CL-11(C) Licences.

Provided also that,

(a) the CL-2, CL-9, CL-11(C) licences which have not
been renewed as on the date of final publication of
the Karnataka Excise (Sale of Indian and Foreign
Liquors) (Second Amendment) Rules, 2025 shall be
deemed to have lapsed and forfeited. Such licences
shall not be eligible for renewal and no rights shall
accrue to the licensee in respect thereof, and these
licences shall fall into the auction pool for
auctioning:

1
Inserted by virtue of Karnataka Excise (Sale of Indian and Foreign Liquors) (Second Amendment) Rules,
2025

- 13 -
WA No. 541 of 2026


(b) CL-2, CL-9, CL-11(C), CL-2A and CL-9A licences
which are not renewed within a period of six months
from the commencement of Excise year, or, within a
period of six months from the date of death of the
licencee, are considered as lapsed and forfeited.
Such licences shall not be eligible for renewal, and
no rights shall accrue to the licensee in respect
thereof, such licences shall fall into the auction pool
for auctioning;

2
(ii) Sub-rule 4 shall be omitted."


12. Number of licences to be fixed. - (1) The maximum
number of licences to be granted in an area shall be
determined from time to time by the Excise Commissioner
with the previous approval of the State Government.

(2) The number of retailers licences to be granted in a taluk
for the year shall be determined with reference to the
population of such taluk and the probable demand .

(3) The number of retail licences to be granted in a Taluk shall
be as follows. -

One retail licence for every 7,500 urban population or a
fraction thereof exceeding 3,500; and

One retail licence for every 15,000 rural population or a
fraction thereof exceeding 7,500.

Explanation. - "Population" for the purpose of this sub-rule
shall be the population as ascertained at the last preceding
census and includes the projected annual growth subsequent
to the last preceding census.

[Provided that, nothing in rule 12 shall be applicable to
3
CL-2A Licences.]

2
Substituted by virtue Karnataka Excise (Sale of Indian and Foreign Liquors) (Second Amendment) Rules,

2025. The deleted proviso read as follows "Provided that while renewing the licence under the sub-rule the
Deputy Commissioner of Excise or the Excise Commissioner, as the case may be shall ensure that the total
number of licences granted or renewed do not exceed the quota fixed in Rule 12, for grant of each kind of
licence for an area.
3
Inserted by virtue Karnataka Excise (Sale of Indian and Foreign Liquors) (Second
Amendment) Rules, 2025

- 14 -
WA No. 541 of 2026



[(3-a) x x x x x.]
[(4) x x x x x.]


GROUNDS OF CHALLENGE
9. A plain reading of the petition indicates that the impugned
Rules are challenged on several grounds, including
(a) that the said amendments could not have
been introduced without proper statistics as to the
licences that had been renewed and the quota fixed for
such licences;

(b) that the licences referred to as CL-2A licences
cannot be exempted from the rigours of Rule 12 of the
Rules, as they are at par with licences referred to as CL-
2 licences;

(c) that the amended Rule 5A of the Rules takes
away the licence holder’s vested right of renewal, and
forfeiting a vested right violates the Constitution of India;

(d) No reservation can be provided in the matter
of granting licences, and therefore, the amendment
enabling the licences to be granted to reserved
categories is unconstitutional; and

(e) the amendments suffer from excessive
delegation and therefore are liable to be set aside.

10. The respondents (writ petitioners) are aggrieved by the
proviso to Rule 5 of the Rules, which provides for the grant of
licences by e-auction and in accordance with the reservation fixed
by the State Government. The petitioners challenge Rule 5-A(3) of
the Rules, which effectively excludes the licences as CL-2, CL-9

- 15 -
WA No. 541 of 2026


and CL-11(C) licences from the scope of Rule 5-A(3) of the Rules.
Thus, licences which were granted prior to 01.07.1999 cannot be
renewed. Further, CL-2, CL-9 and CL-11(C) licences that have not
been renewed as on the date of the publication of the impugned
Rules, i.e., 03.11.2025 were deemed to have lapsed and forfeited.
Such licences would not be eligible for renewal. The amended
proviso to Rule 5-A(3) also provides that the licences which had not
been renewed within a period of six (06) months from the
commencement of the excise year or within a period of six (06)
months from the date of death of the licensee shall be considered
as lapsed and forfeited.

11. The respondents (writ petitioners) also challenge the proviso
to Rule 12 of the Rules, which excludes the applicability of the said
Rule to CL-2A licences. In the present case, the petitioners have
neither renewed their licences within a period of 6 months from the
commencement of the excise year, nor renewed within the 6 months
from the date of death of the licensee. Therefore, their licences are
considered as lapsed or forfeited.

IMPUGNED ORDER
12. As is apparent from the above, the import of the amendments
to the Rules introduced by the impugned Rules is the non-renewal

- 16 -
WA No. 541 of 2026


of lapsed licences and the issuance of licences through an open
auction.

13. The learned Single Judge had noted the submission
advanced on behalf of the petitioners that Rule 5 imposes fresh
restrictions, which were not contemplated under the Excise Act and
that similar reservation-based restrictions were examined by the
Division Bench of this Court in State of Karnataka and Others v.
B. Govindraj Hegde and Others: WA 3374/2016 and connected
matter. The learned Single Judge further noted the submission that
the amended Rule 5-A, by deeming licences as lapsed and
forfeited, extinguished vested rights of renewal. After having noted
the said two submissions, the learned Single Judge observed as
under :
"It is further submitted that, apart from the above, the
amended Rule 5A by deeming licences as lapsed and
forfeited, extinguished vested rights of renewal, which
were otherwise preserved under the unamended Rule.

Having regard to the submissions made, prima facie this
Court finds that amended proviso to Rule 5 and Rule 5A
introduce fresh conditions -reservation - based eligibility
criteria and automatic forfeiture that appear to travel
beyond the scope of enabling provisions of the
Karnataka Excise Act, 1965.

The matter requires consideration, and therefore
operation, implementation and enforcement of the
amended Rule 5 and Rule 5A of Rules, 2025 are stayed
insofar as the petitioners' are concerned, till the next date
of hearing."

- 17 -
WA No. 541 of 2026


14. The impugned order stayed the enforcement of the amended
Rule 5 and Rule 5A of the Excise Rules, essentially on the basis of
(i) the observations made by the Division Bench in B. Govindraj
Hegde (supra) ; and (ii) on a prima facie finding that the amended
proviso to Rule 5 and Rule 5A of the Excise Rules introduces fresh
conditions regarding eligibility criteria (reservation) and automatic
forfeiture, which travel beyond the enabling provisions of the Excise
Act.

15. In view of the above, the principal question required to be
considered is whether the decision in the case of B. Govindraj
Hegde (supra) supports the view that following the reservation
norms in the grant of licence, or declining the renewal of licence,
and whether the Rules are ultra vires to the Constitution of India or
the Excise Act. Since the impugned order is not premised on the
challenge to the proviso to Rule 12, we do not consider it necessary
to address the said question in these proceedings.

SUBMISSIONS
16. Mr Ashok Harnahalli, learned Senior Counsel appearing for
the respondents, had advanced submissions on several fronts.

- 18 -
WA No. 541 of 2026


16.1 First, he submitted that the impugned Rules suffer from
excessive delegation. He submitted that the rule-making power did
not empower the State Government to further delegate the power to
specify the reservation. Thus, the proviso to Rule 5 of the Rules as
introduced by the impugned Rules is liable to be set aside as it
exceeded the Rule-making powers. It is submitted that the Excise
Act does not provide for any sub-delegation of further powers. He
referred to the decision of the Supreme Court in Marathwada
4
University v. Seshrao Balwant Rao Chavan , in support of the
said contention.

16.2 Second, he submitted that the impugned Rules had the
effect of taking away vested rights, which were not permissible.

16.3 Third, he submitted that the impugned Rules were
discriminatory. He submitted that the Rules effectively apply only to
three licences: CL-2A, CL-9A and CL-11(C). He submitted that
licences granted under Rule 3(2-A) and Rule 3(9-A) of the Rules
were similar to the licences granted under Rule 3(2) and Rule 3(9)
of the Rules. He submitted that although the provisions concerning
the functioning of the licence were similar and it was expressly
provided that working conditions of licences CL-2 and CL-9 would

4
(1989) 3 SCC 132

- 19 -
WA No. 541 of 2026


apply to CL-2A and CL-9A licences respectively, the term for which
the licences were granted differed. Further, the same were not
subject to certain restrictions. He submitted that this would offend
the equal protection clause of the Constitution of India.

16.4 He also submitted that the amendments were confined to
only three licences and thus constituted an inherent discrimination
against other categories of licences. He contended that Rule 5 of
the Rules was not applicable to CL-2A and CL-9A licences, and the
amendment to the proviso to Rule 5A was only applicable to CL2,
CL9 and CL-11(C) licences. He contended that singling out these
licences vis-à-vis other licences is arbitrary. He also referred to the
decisions of the Supreme Court in the State of Kerala v. Unni and
5
another and State of M.P. and others v. Nandlal Jaiswal and
6
others , in support of his contention that once the State issues
licences, it cannot discriminate between the licences.

16.5 He also submitted that the writ petitioners had applied for
renewal prior to the notification of the impugned rules and thus had
acquired a vested right for the applications to be considered on the
basis of the Rules as in force at the time of the application.


5
(2007) 2 SCC 365
6
(1986) 4 SCC 566

- 20 -
WA No. 541 of 2026


16.6 Lastly, he mentioned that excluding CL-2A licences from the
scope of Rule 12 was also arbitrary.

REASONS AND CONCLUSION
Re: State of Karnataka and Others v. B. Govindraj Hegde and
Others

17. As noted above, the impugned order is largely premised on
the decision of the Division Bench of this court in State of
Karnataka and Others v. B. Govindraj Hegde and Others
(supra). However, prima facie, this decision does not support the
case set up by the petitioners. In the said case, the Court had
examined a challenge to relaxing of the conditions for reserved
categories as provided under sub-rule (7) of Rule 3 of the Rules.
Sub-rule (7) provided for the issuance of hotel and boarding house
licences and prescribed the condition that such licences would not
be issued unless the hotel and boarding house had a minimum of
30 double rooms in a corporation area or 20 double rooms in other
areas. The Government sought to introduce Sub-rule (7D), reducing
the requirement to a minimum of 15 double rooms in corporation
areas and 10 in other areas for the reserved category.

18. In this regard, the Division Bench of this Court held as under:
"32. As such, as per the above referred decision of the
Apex Court in the case of Khoday Distilleries Industries

- 21 -
WA No. 541 of 2026


(supra) when the restriction has been provided in
interest of the general public by virtue of Article 19(6) of
the Constitution upon the rights of the citizen under
Article 19(1) (g) of the Constitution, equal treatment
deserves to be given to all citizens. The State cannot
contend that the restriction can be relaxed if the person
belonging to reserved class is to do sale of liquor in
hotel and boarding houses. When one speaks for
restriction in the interest of general public, such
restriction has to be common for everybody and every
citizen will be required to face with the common
restriction provided by the State in the rights of the
citizen for trade or business. We may record that the
Act read with the Rules when itself is a restriction in the
business or trade of the liquor provided by the State,
such restriction has to apply in the same manner to
everybody and there cannot be different standard
restriction if one is of a general category or one is of a
reserved class. Therefore when one talks of restriction
provided under Article 19(6) of the Constitution and the
rights of the citizen under Article 19(1)(g) of the
Constitution, it would not be open to the State to relax
the restriction or qualification provided for enabling the
citizen to do a particular business or trade. Of course,
the aforesaid is with the clarification that it is open to
the State to provide that a particular percentage of the
business or sale of liquor of a hotel or boarding house
may be retained by the State itself or the State may
provide for a quota of a licence of hotel and boarding
house for a particular class of a citizen may be reserved
class. By the impugned amendment, the State has not
provided for retaining of the business of sale of liquor in
hotel and boarding house or the State has not provided
for a particular percentage licence or a particular
percentage of business for itself or for a reserved class.
But the State for the same type of business has relaxed
the restriction which otherwise has to meet with the test
of Article 19(6) of the Constitution. It is hardly required
to be stated that when one speaks of restriction in the
interest of general public, there can be no compromise
if the same business is to be undertaken by a person
belonging to reserved class. Under the circumstances,
if the provisions of the Act read with Rule has to meet
with the test of Article 19(6) of the Constitution in the
business of trade or business of liquor, relaxation in the
requisition or qualification of a hotel and boarding
house having minimum thirty double rooms capacity in

- 22 -
WA No. 541 of 2026


the Corporation area or twenty double rooms in the
other areas cannot be made."
[emphasis added]

19. It is clear from the plain reading of the aforesaid passage,
that this Court has expressly held that the said decision of reserving
a quota of business for the reserved category would be permissible.
Thus, the challenge to the proviso to Rule 5 of the Rules, which
enables the Government to specify general reservations for licences
to be auctioned, cannot be sustained on the strength of the said
decision. As noted above, the decision was in the context of the
relaxation of a restriction imposed in the Rules. The Court found that
the variation of the said restrictive condition lacked nexus with the
object of such a restriction. The Court held that the restriction was
imposed in the public interest. Thus, the State could not relax it for
a particular class of persons. The said restriction in question would
necessarily be common to everybody.

Re: The impugned rules are not beyond the rule-making power
20. The learned Single Judge had found that, prima facie, the
amended proviso to Rule 5 and Rule 5A, which introduce fresh
conditions, namely reservation-based eligibility criteria and
automatic forfeiture, travel beyond the scope of the enabling

- 23 -
WA No. 541 of 2026


provisions of the Excise Act. The said view is not based on any
analysis of the relevant provisions.

21. At this stage, it would be relevant to examine the scheme of
the Excise Act.

22. Chapter II (Sections 3 to 7) of the Excise Act provides for
Establishment and Control. Under Section 3 of the Excise Act, the
State Government may appoint an officer not below the rank of a
Deputy Commissioner as Excise Commissioner for the State of
Karnataka and he would be the chief controlling authority in all
matters connected with the administration of the Act. Sections 4,
4-A and 5 of the Excise Act provide for the appointment and
jurisdiction of Deputy Commissioners, Joint Commissioners, and
Superintendents of Excise. Section 7 provides for delegation of
powers. In terms of Sub-section (1) of Section 7, the State
Government is empowered by notification to delegate to the Excise
Commissioner or to any other Excise Officer any of its powers under
the Act, except the powers under Section 67 and Section 71. It is
relevant to note that Section 67 of the Excise Act contains the
powers for exemption. The State Government is empowered, by
notification and subject to such restrictions and conditions as it may
specify to reduce or exempt the excise duty in respect of any liquor

- 24 -
WA No. 541 of 2026


sold or is also empowered to exempt any intoxicant from any
provisions of the Act, other than those specified in Chapter V.
Section 71 empowers the power of the State Government to make
Rules for carrying out the purposes of the Act.

23. Chapter III (Sections 8 to 12) of the Excise Act contains
provisions regarding import, export and transport of intoxicants.
Sub-section (1) of Section 8 of the Excise Act prescribes import of
no intoxicant, except under a permit granted by the Deputy
Commissioner of Excise on payment of such countervailing duty
and fees, as may be levied under the Act. Similarly, Sub-section (1)
of Section 9 prohibits the export of intoxicants, except under a
permit. Section 10 empowers the State Government to prohibit the
transport of any intoxicant from any local area into any other local
area. Section 11 prohibits the transportation of any intoxicant
exceeding the quantities that may be prescribed, except under a
permit issued under Section 12. Section 12 empowers the Deputy
Commissioner or any other person empowered by the State
Government in that behalf to issue permits for the transportation of
intoxicants.

24. Chapter IV (Sections 13 to 21) of the Excise Act contains
provisions regarding manufacture, possession and sale of

- 25 -
WA No. 541 of 2026


intoxicants. Sub-section (1) of Section 13 of the Excise Act, inter
alia, prohibits any person from manufacturing or collecting an
intoxicant, cultivating a hemp plant, tapping a toddy-producing tree,
constructing or working a distillery or brewery, bottling liquor for sale
or possessing any material or any intoxicant other than toddy,
except under the authority and subject to the terms and conditions
of the licence. Section 13-A prohibits tapping of Neera from coconut
trees or further processing it, except under a licence.

25. Similarly, Sections 14 and 15 prohibits possession of
excisable articles beyond the specified quantity and sale of the
same without a licence. Section 15-A of the Excise Act prohibits
any person in charge of the management or control of any public
place to allow consumption of liquor unless the consumption in such
places is permitted under the licence granted by the Excise
Commissioner or the Deputy Commissioner.

26. Section 17 of the Excise Act contains powers for grant of
lease of right to manufacture. The State Government is empowered
to lease to any person, on such conditions and for such period as it
may think fit, the exclusive or other right to manufacture or supply by
wholesale or of both and for selling in wholesale or by retail any

- 26 -
WA No. 541 of 2026


Indian liquor. Under Sub-section (2) of Section 17, the licensing
authority may also grant licence to a lessee in terms of the lease.

27. Chapter V (Sections 22 to 25) of the Excise Act contains
provisions regarding Excise Duty and Countervailing Duty.

28. Section 24 of the Excise Act provides for levy and collection of
licence fee or privilege fee as may be determined by the State
Government subject to such rules as may be prescribed in
consideration of grant or renewal of a licence or lease or both.
Section 24-A of the Excise Act empowers the Excise Commissioner
or Deputy Commissioner, subject to such rules as may be
prescribed, to grant a licence for the exclusive or other privilege for
importing or supplying by wholesale or retail any foreign liquor
manufactured outside India. Under Sub-section (3) of Section 24-A,
the State Government is empowered to levy such licence fee,
privilege fee, vend fee or other any form of fee as consideration of
the licence.

29. Chapter VI (Sections 26 to 31) of the Excise Act contains
provisions for licences and permits. Section 26(1) provides that
every licence or permit shall be granted on payment of such fees,
for such period, and subject to such restrictions and on such

- 27 -
WA No. 541 of 2026


conditions, and shall be in such Form and shall contain such
particulars as may be prescribed. Section 29 of the Excise Act
empowers the State Government to cancel the licence for costs that
are stipulated in various clauses. Section 30 of the Excise Act
empowers the licensing authority to withdraw the licence for reasons
other than those specified in Section 29, on not less than thirty days'
notice in writing of its intention to do so. In such a case, the
proportionate fee to the unexpired portion of the term of the licence
is required to be refunded to the licensee. Under Section 31 of the
Excise Act, the licensee can also surrender his licence.

30. Chapter VII of the Excise Act contains provisions regarding
offences and penalties. Chapter VIII of the Excise Act contains
provisions regarding the detection, investigation and trial of
offences. Chapter IX contains provisions regarding appeals and
revision. Chapter X contains miscellaneous provisions.

31. The purpose of the Excise Act, as expressly stated in its
object, is to provide a uniform law as to production, manufacture,
possession, import, export, transportation, purchase and sale of
liquor and intoxicants.

- 28 -
WA No. 541 of 2026


32. Section 71 of the Excise Act enables the State Government to
make Rules to carry out the purposes of the said Act. Sub-section
(2) of Section 71 also explicitly specifies the matters in which the
State Government can make rules. Sub-section (1) and Clauses (e),
(f) and (h) of Section 71 (2) of the Excise Act are relevant and are
set out below:
71. Power to make Rules.- (1) The State Government
may, by notification and after previous publication, make
rules to carry out the purposes of this Act.

(2) In particular and without prejudice to the generality of
the foregoing provision, the State Government may make
rules,-

(a) x x x x x;

(b) x x x x x;

(c) x x x x x

(d) x x x x x

(e) regulating the periods and localities in which, and the
persons or classes of persons to whom, licences for the
wholesale or retail sale of any intoxicant may be granted
and regulating the number of such licences which may be
granted in any local area;

(f) prescribing the procure to be followed and the maters
to be ascertained before any licence for such sale is
granted for any locality;

(g) x x x x x

(h) prescribing the authority by which, the form in which
and the terms and conditions on and subject to which any
licence or permit shall be granted, and may, by such
rules, among other matters,-

- 29 -
WA No. 541 of 2026


(i) fix the period for which any licence or permit shall
continue in force;

(ii) prescribe the scale of fees, or the manner of fixing the
fees payable in respect of any lease, licence or
permit, or the storing of any excisable article;

(iii) prescribe the amount of security to be deposited by
the holders of any licence or permit for the performance
of the conditions of the same;

(iv) prescribe the accounts to be maintained and the
returns to be submitted by licence holders;

(v) prohibit or regulate the transfer of licences; and

(vi) prescribe the ages under which it shall be unlawful to
employ children and to sell or give to children excisable
articles;
(i)
(j)
(k)
(l)
(m)
(n) ”

33. It is clear from the scheme of the Excise Act that all
commercial activities in respect of intoxicants, including liquor, are
prohibited without a permit, lease or licence. The State Government
is also empowered to levy countervailing duty, excise duty, as well
as privilege fees, licence fees, and vend fees as consideration for
the licences. There is no specific provision in the Excise Act that
designate particular persons or a class of persons to whom licences
may be granted (the Act leaves this to be prescribed by the Rules)
or the manner in which the licences are to be granted. As noted

- 30 -
WA No. 541 of 2026


above, under Section 17 of the Excise Act, the State Government
has the power to lease to any person, on such conditions and for
such period as it thinks fit, the exclusive or other right of
manufacture or supply by wholesale or by retail any Indian liquor or
any intoxicant drug within the specified area.

34. It is clear from the above that the State Government not only
has the power to contractually lease any right regarding the
manufacture, distribution or sale of Indian liquor or intoxicant in a
specified area, but it also has wide powers to make rules to carry
out the purposes of the Excise Act. Sub-section (1) of Section 71 of
the Excise Act is couched in wide terms. The opening words of Sub-
section (2) of Section 71 of the Excise Act also make it explicitly
clear that the matters specified in various clauses are without
prejudice to the generality of the provisions of Sub-section (1) of
Section 71 of the Excise Act. Thus, Sub-section (2) of Section 71
does not limit the powers of the State Government, but merely
indicates some of the matters regarding which the State
Government can make rules.

35. Bearing the aforesaid in mind, we may now proceed to
examine whether, prima facie, the impugned rules have travelled
beyond the rule-making power. As noted earlier, the learned Single

- 31 -
WA No. 541 of 2026


Judge had found that the matters relating to eligibility criteria
(reservation) and forfeiture of licence travel beyond the Excise Act.
As far as the forfeiture of licences is concerned, the challenge
essentially is to the provisos to Rule 5-A of the Excise Rules.
However, a plain reading of the proviso to Rule 5-A indicates that it
does not provide for any forfeiture of licence.

36. A licence can be cancelled in terms of Section 29 of the
Excise Act for the reasons as set down therein or withdrawn
prematurely in terms of Section 30 of the Excise Act, except that in
case of a withdrawal under Section 30 of the Act, the State
Government would have to refund the part of the licence fee
commensurate with the unexpired portion of the licence. The
proviso to Rule 5-A mainly curtails the right of renewal. There is no
provision in the Excise Act which provides for a perpetual right of
renewal of a licence. On the contrary, Section 26(1) of the Excise
Act expressly provides that every licence or permit shall be granted
on payment of fees "for such period as may be prescribed."

37. The proviso to Rule 5-A of the Excise Rules merely provides
for forfeiture of the right to renew certain licences [CL-2, CL-9 and
CL-11(C)], which are not renewed as on the date of publication of
the impugned rules. Thus, the proviso curtails the renewal of

- 32 -
WA No. 541 of 2026


licences. The Excise Act does not provide for renewal of licences.
The provision for renewal is a right conferred by the Rules.

38. Plainly, if the Rules can provide for the renewal of the licence,
they could also provide for curtailing the said right. We are unable to
accept that whilst the Rules could provide for renewal of licences, it
could not limit the same.

39. Clause (e) of Sub-section (2) of Section 71 of the Excise Act
expressly empowered the State Government to make rules for
regulating the periods, and localities in which, and the persons or
classes of persons to whom, licences may be granted. Thus,
making rules for renewal or restricting the same is clearly, with the
rule making power of the State Government.

40. The learned court’s prima facie finding as to the eligibility
criteria (reservation) for the grant of a licence refers to Rule 5 of the
Excise Rules. A plain reading of the said proviso indicates that it has
two limbs. First, is to grant CL-2A and CL-9A licences to successful
bidders in e-auctions, and second, to follow the reservation norms
fixed by the government for this purpose.

41. Undisputedly, the State Government can make Rules for
regulating the persons or class of persons to whom the licences for

- 33 -
WA No. 541 of 2026


wholesale or retail sale of intoxicants may be granted. It also
enables the State Government to prescribe the terms and conditions
under which any licence or permit may be granted. Section 71(2)(f)
of the Excise Act provides that the State Government also has the
power to make rules prescribing the procedure to be followed.

42. Thus, clearly, the State Government has the power to frame
rules for the grant of licences by auction. It is not necessary that all
terms and conditions of the auction be expressly stipulated in the
Rules. The State Government has ample elbow room to determine
the terms and conditions of the auction.

43. The Excise Act explicitly empowers the State Government to
make rules for regulating the periods for which, the localities in
which, and the persons or classes of persons to whom, licences are
to be granted. Thus, curtailing the period during which the
application for renewal may be made and disallowing renewal of
certain licences are well within the rule-making power of the State
Government.

44. The contention that the State Government cannot grant
licences by auction or provide the conditions of such licences, is
plainly ill-founded.

- 34 -
WA No. 541 of 2026


45. The power to make rules for the grant of licences and for
regulating the persons or classes of persons to whom licences may
be granted enables the State Government to make rules, which
provide for reservation. The question whether the Rules can enable
the State Government to specify the reservation, or whether this
must necessarily be set out in the Rules, requires examination, and
this question cannot be considered in isolation and must be
addressed bearing in mind the nature of the grant of licence and the
extent of the powers of the State Government amongst other
factors.

THE NATURE OF THE LICENCE
46. At this stage, it is necessary to note that the manufacture,
distribution and sale of intoxicants is the State’s privilege and, thus,
the State can determine the terms and conditions on which such
privilege can be parted.

47. We may note that way back 1954, in Cooverjee B. Bharucha
7
v. Excise Commissioner , the Supreme Court had rejected the
contention that by virtue of Article 19(1)(g) of the Constitution of
India a person has a right to carry on trade in intoxicating liquors
and that the State had no right to create a monopoly in them. The

7
1954 SCC OnLine SC 66.

- 35 -
WA No. 541 of 2026


court referred to a passage from the decision of the US Supreme
Court in Crowley v. Christensen [Crowley v. Christensen, 1890 SCC
OnLine US SC 226: 34 L Ed 620 and concurred with the view that
“there is no inherent right in a citizen to thus sell intoxicating liquors
by retail; it is not a privilege of a citizen of the State or of a citizen of
the United States. As it is a business attended with danger to the
community, it may, as already said, be entirely prohibited, or be
permitted under such conditions as will limit to the utmost its evils.
The manner and extent of regulation rest in the discretion of the
governing authority.”

8
48. In Nashirwar v. State of M.P. the Supreme Court explained
as under:
“23. There are three principal reasons to hold that there
is no fundamental right of citizens to carry on trade or to
do business in liquor. First, there is the police power of
the State to enforce public morality to prohibit trades in
noxious or dangerous goods. Second, there is power of
the State to enforce an absolute prohibition of
manufacture or sale of intoxicating liquor. Article 47
states that 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. Third, the history of excise law shows
that the State has the exclusive right or privilege of
manufacture or sale of liquor.



35. Trade in liquor has historically stood on a different
footing from other trades. Restrictions which are not

8
(1975) 1 SCC 29

- 36 -
WA No. 541 of 2026


permissible with other trades are lawful and reasonable
so far as the trade in liquor is concerned. That is why
even prohibition of the trade in liquor is not only
permissible but is also reasonable. The reasons are
public morality, public interest and harmful and
dangerous character of the liquor. The State possesses
the right of complete control over all aspects of
intoxicants viz. manufacture, collection, sale and
consumption. The State has exclusive right to
manufacture and sell liquor and to sell the said right in
order to raise revenue. That is the view of this Court
in Bharucha case [AIR 1954 SC 220 : 1954 SCR 873]
and Jaiswal case [(1972) 2 SCC 36 : (1972) 3 SCR 784]
. The nature of the trade is such that the State confers
the right to vend liquor by farming out either in auction or
on private treaty. Rental is the consideration for the
privilege granted by the Government for manufacturing
or vending liquor. Rental is neither a tax nor an excise
duty. Rental is the consideration for the agreement for
grant of privilege by the Government.”

49. It is well accepted that the State has the exclusive rights in
matter of manufacture, distribution and sale of intoxicants. In State
9
of Orissa v. Harinarayan Jaiswal the Supreme Court observed:


“Public auctions are held to get the best possible price…
The fact that the Government was the seller does not
change the legal position once its exclusive right to deal
with those privileges is conceded. If the Government is
the exclusive owner of those privileges, reliance on
Article 19(1)( g ) or Article 14 becomes irrelevant. Citizens
cannot have any fundamental right to trade or carry on
business in the properties or rights belonging to the
Government—nor can there be any infringement of
Article 14, if the Government tries to get the best
available price for its valuable rights. The High Court was
wholly wrong in thinking that purpose of Sections 22 and
29 of the Act was not to raise revenue. Raising revenue
as held by this Court in Cooverjee B. Bharucha case was
one of the important purposes of such provisions. The
fact that the price fetched by the sale of country liquor is

9
(1972) 2 SCC 36

- 37 -
WA No. 541 of 2026


an excise revenue does not change the nature of the
right. The sale in question is but a mode of raising
revenue..”

10
50. In Har Shankar v. Excise & Taxation Commissioner , the
Supreme Court reiterated that the rights to manufacture and sell
liquor vest with the state. The court further observed:
“ 55. Since rights in regard to intoxicants belong to the
State, it is open to the Government to part with those
rights for a consideration. By Article 298 of the
Constitution, the executive power of the State extends
to the carrying on of any trade or business and to the
making of contracts for any purpose.”


11
51. In Panna Lal v. State of Rajasthan , the Supreme Court
explained that the fee charged by the state for the grant of a licence
was a matter of quid pro quo , in the following words:
“ 20 . The licence fee stipulated to be paid by the
appellants is the price or consideration or rental which
the Government charges from the licencees for parting
with its privilege in stipulated lump sum payment and is
a normal incident of a trading or business transaction”


52. It is clear that the licence is a grant of a privilege which
exclusively vests with the State Government. The State Government
has framed Rules in exercise of the powers under Section 71 of the
Excise Act, which are wide in scope.


10
(1975) 1 SCC 737
11
(1975) 2 SCC 633

- 38 -
WA No. 541 of 2026


53. The petitioners' challenge to the proviso, which enables the
grant of a licence through e-auction in accordance with the
government-fixed reservation norms, is that it exceeds the
delegated powers. Undisputedly, the Excise Act empowers the
State Government to frame rules regarding persons or classes of
persons to whom licences may be granted. Providing for a quota for
reserved categories falls within the scope of the said rules. The key
question is whether it is necessary for the Rules to expressly specify
the norms and the extent of the reservation, or whether it is
permissible to provide for the adoption of the norms fixed by the
Government for that purpose. According to the writ petitioners, it is
not permissible to adopt the norms fixed by the state Government.
Although not stated in so many words, the petitioners seek to invoke
the principle of delegata potestas non potest delegari. The said
maxim embodies the principle of the law of agency. It literally
means that a delegated authority cannot be again delegated.
Although the principle has its origin in the law of Agency, it is well
accepted in administrative law. The courts have, in certain cases,
also extended it to delegated legislation. However, this principle is
not ubiquitous. It is settled that in cases where the principal
legislation itself empowers the framing of a delegated legislation to
further sub-delegate certain acts, the delegated legislation would not

- 39 -
WA No. 541 of 2026


be amenable to challenge on the said ground. The delegated
legislation may also require certain authorities to perform acts
incidental to the exercise of the delegated power. The question
whether the subordinate legislation can be challenged on the
ground of sub-delegation also requires examination, bearing in mind
the nature of sub-delegation and the nature of power.

54. In the present case, it is important to bear in mind that the
matters of manufacture, distribution, sale and possession of
intoxicants are a privilege of a State. The powers of the State under
Article 162 of the Constitution would extend to matters dealing with
such privileges. Thus, even in the absence of any legislation in this
regard, the decision to grant licences would be a matter of policy.

12
55. In Kuldeep Singh vs Govt. of NCT Of Delhi , the Supreme
Court rejected the contention that the applicants applied for licence
and the policy had any vested or accrued right under the application
to be considered under the said policy. The Supreme Court
observed that "the matter relating to grant of licence for dealing in
liquor is within the exclusive domain of the State. The State had the
right to adopt the policy decision; they indisputably had a right to
vary, amend or rescind the same". Since the Act does not

12
(2006) 5 SCC 702

- 40 -
WA No. 541 of 2026


specifically provide for any class of persons or persons to whom a
licence could be conferred, and the power to frame rules is
conferred on the State Government, the State, would not be
precluded to make rules for adopting its policy in regard to
reservation. Further, the principle that delegated authority cannot be
sub-delegated may not strictly apply where the delegatee and the
authority to whom the powers are delegated is the same.

56. In the present case, the Excise Act empowered the State
Government to frame rules. If we read the proviso to Rule 5 as
sub-delegating the power to specify the reservations for licences,
then it is also important to consider that the delegatee is no other
than the State Government itself. This would imply that the
delegatee and the sub-delegatee are the same.

57. In this regard, we may refer to the decision of the Supreme
13
Court in Arun Tewari & Ors vs Zila Mansavi Shikshak Sangh .
In this case the Supreme Court considered the challenge to the
amendment to Rule 10(3) of the Recruitment Rules on the ground of
excessive delegation. Rule 10 of the Recruitment Rules is as
follows:

13
(1998) 2 SCC 332

- 41 -
WA No. 541 of 2026


“10. Direct Recruitment by selection .—(1) There
shall be a Committee for selection by direct recruitment,
the membership of which shall be like the membership of
the Committee constituted for selection by promotion.

(2) Selection for recruitment to the service shall
be held at such intervals as the appointing authority may
from time to time determine.

(3) The selection of candidates for service shall
be made by the Committee by conducting a competitive
examination and after interviewing them.”

Provided that in any specific circumstance the
State Government may, in consultation with the General
Administration Department prescribe the criteria and
procedure for the selection of candidates.”

57.1 The concerned School Education Department proposed a
scheme for the selection of Assistant Teachers under the proviso to
Rule 10(3) of the said Rules. The same was approved, and the
recruitment process was initiated. The selection of Assistant
Teachers was to be made by a Committee presided over by a
nominated officer. In this context, the appellant contended that the
proviso to Rule 10(3) was invalid because it confers unguided and
excessive delegation of powers on the State Government in the
matter of criteria and procedure for recruitment.

57.2 The Supreme Court rejected the said challenge, inter alia, on
the ground that the power to frame these criteria and procedure was
not delegated to any subordinate authority. The court noted that:

- 42 -
WA No. 541 of 2026


“The very authority which framed the original rules
is delegated the power to frame special rules prescribing
criteria and procedure in specific circumstances in
consultation with the General Administration Department.
The question of excessive delegation does not, therefore,
arise because the rule-making authority has given to itself
the power to prescribe criteria and procedure for selection
in specific circumstances.”

57.3 The Supreme Court also referred to the decision of the
14
constitution bench in Workmen v. Meenakshi Mills Ltd . , wherein
it was held that when the discretion is given to the Government itself
and not to a subordinate officer, it cannot be said that there is
excessive and uncontrolled delegation.

58. In view of the above, we are unable to accept that the proviso
providing for the adoption of the norms of reservations as fixed by
the State Government, falls foul of the Constitution of India. We,
however, note that the learned Advocate General, on instructions,
stated that to obviate any objection in this regard, the State
Government would take steps to specifically provide the norms of
reservation in the Rules.

THE PETITIONERS ACQUIRED NO VESTED RIGHTS
59. The contention that the impugned Rules have the effect of
taking away the vested rights is, plainly, insubstantial and without

14
(1992) 3 SCC 336

- 43 -
WA No. 541 of 2026


any merit. The contention is premised on an erroneous
understanding of the meaning of a ‘vested right’ and the very nature
of the licence. We may, at the outset, note certain binding
authorities, which explain the meaning of a vested right.

15
60. In Bibi Sayeeda v. State of Bihar the Supreme Court
referred to the definition of the word ‘vested’ as defined in in Black's
Law Dictionary (6th Edn) and observed as under:
“Rights are ‘vested’ when right to enjoyment, present or
prospective, has become property of some particular
person or persons as present interest; mere expectancy of
future benefits, or contingent interest in property founded
on anticipated continuance of existing laws, does not
constitute vested rights.”

61. In a later decision, MGB Gramin Bank v. Chakrawarti
16
Singh , the Supreme Court referred to Bibi Sayeeda v. State of
Bihar (supra) and explained that the rights are vested when they
become property and are not contingent on the anticipated
continuance of laws. We consider it apposite to refer to the following
extract of the said decision:
“11. The word “vested” is defined in Black's Law
Dictionary (6th Edn.) at p. 1563, as:
“Vested.—fixed; accrued; settled; absolute; complete.
Having the character or given in the rights of absolute
ownership; not contingent; not subject to be defeated by
a condition precedent. Rights are ‘vested’ when right to
enjoyment, present or prospective, has become property

15
(1996) 9 SCC 516
16
(2014) 13 SCC 583

- 44 -
WA No. 541 of 2026


of some particular person or persons as present interest;
mere expectancy of future benefits, or contingent interest
in property founded on anticipated continuance of existing
laws, does not constitute ‘vested rights’.”

12. In Webster's Comprehensive Dictionary
(International Edition) at p. 1397, “vested” is defined as
law held by a tenure subject to no contingency; complete;
established by law as a permanent right; vested interest.
(Vide Bibi Sayeeda v. State of Bihar [(1996) 9 SCC 516 :
AIR 1996 SC 1936] and J.S. Yadav v. State of
U.P. [(2011) 6 SCC 570 : (2011) 2 SCC (L&S) 140] )

13. Thus, vested right is a right independent of any
contingency and it cannot be taken away without consent
of the person concerned. Vested right can arise from
contract, statute or by operation of law. Unless an
accrued or vested right has been derived by a party, the
policy decision/scheme could be changed. [Vide Kuldeep
Singh v. Govt. (NCT of Delhi). [(2006) 5 SCC 702 : AIR
2006 SC 2652]”

17
62. In Howrah Municipal Corpn. v. Ganges Rope Co. Ltd. ,
the Supreme Court observed that “the word ‘vest’ is normally used
where an immediate fixed right in present or future enjoyment in
respect of a property is created. With the long usage the said word
‘vest’ has also acquired a meaning as ‘an absolute or indefeasible
right’.

63. There is no dispute that the licence granted is for a term of
st
one year commencing 1 of July. Thus, the right to deal in liquor
under the licence is for a fixed term. There is no indefeasible right to

17
(2004) 1 SCC 663

- 45 -
WA No. 541 of 2026


continue to enjoy the licence beyond its terms. The licence, in the
prescribed form, also expressly states the period for which it is
granted. The licencee’s right to renewal is determined by the rules
existing at the time of renewal. There is no right to insist that the
rules pertaining to renewal, as on the date of grant of licence, shall
continue to be operative and vest an indefeasible right to renewal in
perpetuity. The question whether the licence is to be renewed
depends on the rules as applicable at the time of renewal and not at
the time of the grant.

18
64. In State of Kerala v. B. Six Holiday Resorts (P) Ltd. the
Supreme Court considered a challenge to an order of Special
Secretary (Taxes), Government of Kerala, rejecting an application,
inter alia, on the ground that the policy in vogue was not to grant
licences. The respondent challenged the Notification dated 20-2-
2002, amending the Foreign Liquor Rules by the 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

18
(2010) 5 SCC 186

- 46 -
WA No. 541 of 2026


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.”


64.1 The Supreme Court framed the following questions for
consideration:
“( 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 the Foreign
Liquor Rules substituting the last proviso is valid?”

64.2 The Supreme Court observed that question (i) is directly
covered by the decision of this Court in Kuldeep Singh v. Govt. of
19
NCT of Delhi and set out the following extract from the said

decision:
“29. 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,

19
(2006) 5 SCC 702

- 47 -
WA No. 541 of 2026


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 scrutinised.

30. Unless, therefore, an accrued or vested right had
been derived by the appellants, the policy decision could
have been changed.

31. What would be an acquired or accrued right in the
present situation is the question.

*

36. In a 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.”



64.3 The Supreme Court further observed as under:
“27. It is true that in Kuldeep Singh case [(2006) 5 SCC
702] 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 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 an 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 [(1981)
2 SCC 205] and Howrah Municipal Corpn. [(2004) 1 SCC
663]

28. Having regard to the fact that the State has exclusive
privilege of manufacture and sale of liquor, and no citizen

- 48 -
WA No. 541 of 2026


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 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.”

64.4 The Supreme Court rejected the challenge to the validity of
the proviso and answered question (ii) in the negative in the
following words:
“ 29. The applicants for licence submitted that Rule 13(3)
contemplates FL-3 licences being granted on fulfilment 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).

30. 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 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

- 49 -
WA No. 541 of 2026


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.

31. 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 categorisation to three-star categorisation 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
periodical reassessment 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 finalised.

32. 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.


65. It is also well settled that there is no estoppel against statute.
We consider it apposite to refer to the following observations of the

- 50 -
WA No. 541 of 2026


Supreme in the decision in Prashanti Medical Services &
20
Research Foundation v. Union of India .
“25. … a plea of promissory estoppel is not available to
an assessee against the exercise of legislative power and
nor any vested right accrues to an assessee in the matter
of grant of any tax concession to him. In other words,
neither the appellant nor the assessee has any right to
set up a plea of promissory estoppel against the exercise
of legislative power such as the one exercised while
inserting sub-section (7) in Section 35-AC of the Act
(see Motilal Padampat Sugar Mills Co. Ltd. [Motilal
Padampat Sugar Mills Co. Ltd. v. State of U.P., (1979) 2
SCC 409 : 1979 SCC (Tax) 144] and other cases relied
on by the learned counsel for the respondent Revenue). It
is more so when we find that this sub-section was made
applicable uniformly to all alike the appellant
prospectively.”

When we consider that the licence is in the nature of
parting with privilege – which otherwise vests exclusively
with the State – to the licencees to carry on manufacture
or trade in liquor and intoxicants; we are unable to accept
that fixing the terms and conditions on which licence may
be granted would exceed the powers of the State
Government. The proviso to Rule 5 of the Rules, inserted
by the impugned rules framed the State Government in
exercise of its powers under Section 71 of the Excise Act,
merely provides for adopting its policy in regard to
reservations. Viewing it from this perspective, we find it
difficult to accept that the same would fall foul of the
principle of delegatus non potest delegare. As noticed
above, the Excise Act delegates the rule making powers
to the State Government and the Rules framed by the
State Government are to the effect of incorporating its
own policy as the part of the Rules. Principle of sub-
delegation may not apply where the delegator and the
delegate are the same. Whilst it is correct that the Rules
are required to be placed before the Legislative Assembly
and there may not be any such requirement for the policy
as to the reservation norms. However, in our view this
may not be material if one examines the language of the
proviso; it simply provides for incorporation of the State

20
2020(14) SCC 785

- 51 -
WA No. 541 of 2026


Government’s policy as to reservation. This is akin to
incorporation of the State’s policy by reference rather
than an incidence of sub-delegation. In view of the
above, we find no merit in the contention that the
impugned Rules to the extent it provides for introducing
the proviso to Rule 5 of the Rules is invalid.

THE LACK OF UNIFORMITY IN THE TERMS OF THE LICENCES
DOES NOT VIOLATE ARTICLE 14 OF THE CONSTITUTION OF
INDIA

66. The contention that selecting only three categories of licences
or providing for the forfeiture of only three categories of lapsed
licences is discriminatory and offends Article 14 of the Constitution
of India is also without any merit. Article 14 of the Constitution of
India permits reasonable classification. In the present case, Rule 3
of the Rules sets out various classes of licences issued for different
establishments. It is erroneous to contend that all licences must be
governed by similar terms.

67. As noted before, grant of licence is a matter of quid pro quo .
The State is thus entitled to determine the terms and conditions on
which the privilege is granted. It is fully entitled to grant privileges on
varied terms. Thus, there can be multiple types of licences with
varied terms and conditions. There is no principle of law, which
confines the State to enter into only one type of contract and restrict
its freedom to enter into contracts with varying terms. However, the

- 52 -
WA No. 541 of 2026


State cannot discriminate in allowing participation in securing the
contracts offered by it. As long as the participation is not arbitrarily
restricted, no grievances can be raised on the ground of Article 14
of the Constitution of India on account of lack of uniformity in the
contracts. Issuance of various types of licences with varying terms
and conditions does not offend the equal protection clause.

PRESUMPTION AS TO CONSTITUTIONALITY
68. It is also necessary to bear in mind that there is a presumption
of constitutional validity of the legislative instruments unless it is
established that a particular piece of legislation is ultra vires of the
Constitution of India. It must be presumed that the same is
Constitutional. However, in the present case, it does not appear that
the learned Single Judge had examined the rival contentions. The
impugned order is based mainly on an observation that, prima facie,
the rules travel beyond the rule-making, which requires examination.
Legislation, including subordinate legislation, is presumed to be
valid. Thus, unless a very strong case of invalidity of the legislation
is made out, its operations cannot be stayed.

- 53 -
WA No. 541 of 2026


21
69. In Nand Kishore v. State of Punjab , albeit in a different
context, the Supreme Court observed as under:
“ Raising the constitutionality of a provision of law, as it
appears to us, stands on a different footing than raising a
matter on a bare question of law, or mixed question of
law and fact, or on fact. There is a presumption always in
favour of constitutionality of the law. The onus is heavy
on the person challenging it. It is by the discharge of onus
that the presumption of constitutionality can be crossed
over.”

70. The considerations for examining the constitutional validity of
subordinate legislation and executive action on the ground of
unreasonableness also stand on a separate footing. In Bombay
22
Dyeing & Mfg. Co. Ltd. v. Bombay Environment Action Group ,
the Supreme Court had observed:
“Judicial review of administrative action and judicial
review of legislation stand on a different footing. What is
permissible for the court in case of judicial review of
administrative action may not be permissible while
exercising the power of judicial review of legislation.”

71. In Sharma Transport Represented by D.P. Sharma
23
v. Government of A.P. the Supreme Court had observed as
follows:
“The tests of arbitrary action applicable to executive
action do not necessarily apply to delegated legislation.
In order to strike down a delegated legislation as
arbitrary it has to be established that there is manifest
arbitrariness. In order to be described as arbitrary, it

21
(1995) 6 SCC 614
22
In (2006) 3 SCC 434
23
(2002) 2 SCC 188

- 54 -
WA No. 541 of 2026


must be shown that it was not reasonable and manifestly
arbitrary. The expression “arbitrarily” means: in an
unreasonable manner, as fixed or done capriciously or
at pleasure, without adequate determining principle, not
founded in the nature of things, non-rational, not done or
acting according to reason or judgment, depending on
the will alone.”

72. The grounds on which delegated or subordinate legislation
can be challenged are essentially the same, except that delegated
legislation may also be challenged on the ground that it is ultra vires
the principal legislation. However, the presumption that the
legislation is valid applies equally to subordinate legislation. The
following passages from the decision of the Supreme Court in State
24
of A.P. v. P. Laxmi Devi – although in the context of a legislative
enactment and not subordinate legislation – are instructive:
“ 44. In our opinion, there is one and only one ground for
declaring an Act of the legislature (or a provision in the
Act) to be invalid, and that is if it clearly violates some
provision of the Constitution in so evident a manner as
to leave no manner of doubt. This violation can, of
course, be in different ways e.g. if a State Legislature
makes a law which only Parliament can make under List
I to the Seventh Schedule, in which case it will violate
Article 246(1) of the Constitution, or the law violates
some specific provision of the Constitution (other than
the directive principles). But before declaring the statute
to be unconstitutional, the court must be absolutely sure
that there can be no manner of doubt that it violates a
provision of the Constitution. If two views are possible,
one making the statute constitutional and the other
making it unconstitutional, the former view must always
be preferred. Also, the court must make every effort to
uphold the constitutional validity of a statute, even if that

24
(2008) 4 SCC 720

- 55 -
WA No. 541 of 2026


requires giving a strained construction or narrowing
down its scope vide Rt. Rev. Msgr. Mark Netto v. State
of Kerala [(1979) 1 SCC 23 : AIR 1979 SC 83] SCC para
6 : AIR para 6. Also, it is none of the concern of the court
whether the legislation in its opinion is wise or unwise.



56. In our opinion adjudication must be done within the
system of historically validated restraints and conscious
minimisation of the judges' personal preferences. The
court must not invalidate a statute lightly, for, as
observed above, invalidation of a statute made by the
legislature elected by the people is a grave step. As
observed by this Court in State of Bihar v. Kameshwar
Singh [(1952) 1 SCC 528 : AIR 1952 SC 252] : (AIR p.
274, para 52)

“52. … The legislature is the best judge of what is good
for the community, by whose suffrage it comes into
existence.…”

57. In our opinion, the court should, therefore, ordinarily
defer to the wisdom of the legislature unless it enacts a
law about which there can be no manner of doubt about
its unconstitutionality.”

73. In the present case, we are unable to, prima facie, accept that
the writ petitioners have surmounted the presumption of
constitutionality.

74. We are unable to readily accept that the impugned Rules are
ex facie invalid and that the petitioners have made out a case
warranting a stay of the impugned Rules. The impugned order
disregards settled principles as discussed hereinbefore and
therefore is liable to be set aside.

- 56 -
WA No. 541 of 2026


75. The respondents have also challenged the insertion of proviso
to Rule 12 of the Rules whereby CL-2A licences are excluded from
the scope of Rule 12 of the Rules. Although, it is contended that the
said exclusion of CL-2A licences is arbitrary, we do not think it
necessary to address this issue at this stage. We are refraining from
examining the said question at this stage for several reasons. First,
that the impugned order is not premised on the challenge to the
proviso to Rule 12 of the Rules; second, we have not heard detailed
oral submissions on this question; and third, that the learned AGA
has at the outset submitted that the auction proposed to be
conducted would be confined to the number of licences that had
lapsed and those that belonged to the state authorities / agencies.
We thus reserve the liberty of the parties to advance their
submissions regarding their challenge to proviso to Rule 12 of the
Rules before the learned Single Judge in the pending petition.
However, we are unable to accept that any interim orders are
warranted.

76. We are also conscious that although the present appeal
arises from an ad-interim order, our observations and findings as
noted hereinbefore would finally conclude some of the issues as
raised by the appellants. However, since the parties had advanced

- 57 -
WA No. 541 of 2026


arguments and invited a ruling on the contentious questions, we did
not consider it apposite to refrain from rendering a decision on the
contentions advanced.

77. The appeal is allowed and the impugned order is set aside.


Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE


Sd/-
(C.M. POONACHA)
JUDGE




SD