Licensee’s vicarious liability for employee convictions justifies suspension of excise licenses notwithstanding annual renewals.

The petitioners, two corporate entities (Som Distilleries Pvt. Ltd. and Som Distilleries and Breweries Pvt. Ltd.), held eight liquor licenses for distilling, brewing, and bottling.

In 2011, a truck containing 1,200 boxes of the petitioners' liquor was intercepted for transporting goods using forged permit books to evade revenue.

Consequently, several employees and directors, including the Managing Director (Surjeet Lal) and Director (Gurudarshan Arora), were convicted by a Sessions Court on 23.12.2023 under Sections 420, 467, 468, 471, and 120-B of the IPC and Section 34(2) of the M.P. Excise Act.

Based on this conviction, the Excise Commissioner issued a Show Cause Notice (SCN) on 26.02.2024.

The petitioners filed replies on 04.03.2024 and 18.07.2024.

On 04.02.2026, the Excise Commissioner passed an order suspending all eight licenses.

The petitioners challenged this suspension under Article 226, arguing that the licenses for the 2025-26 period were "fresh grants" and could not be suspended based on an SCN relating to the 2023-24 period.

1. Whether the suspension of current licenses based on an SCN issued during a previous licensing year is valid under Section 31 of the M.P. Excise Act.

2. Whether the conviction of servants, agents, and directors for fraud and excise violations justifies the suspension of the corporate licenses under Section 31(1) and Section 44 of the M.P. Excise Act.

3. Whether the suspension order violated the principles of natural justice as contemplated under Section 31(1-A) of the Act.

The court primarily applied Section 31 of the M.P. Excise Act, 1915, which empowers authorities to cancel or suspend licenses if the holder or their servants/agents are convicted of excise offences, revenue-related offences, or any cognizable and non-bailable offence.

It further relied on Section 44 of the M.P. Excise Act, which establishes the vicarious criminal liability of a licensee for the acts of their employees.

The court applied Rule 3(11) of the M.P. Distillery Rules, 1995, and Rule 3(12) of the M.P. Foreign Liquor Rules, 1996, which stipulate that manufacturing licenses are renewed annually subject to continued compliance with the Act.

Regarding corporate liability, the court considered the "alter ego" doctrine as discussed in Iridium India Telecom Limited v. Motorola Incorporated and others [(2011) 1 SCC 74], attributing the mens rea of controlling persons to the corporation.

The court rejected the petitioners' argument that the licenses were fresh grants, distinguishing the precedent in N.S. Shethna v. Vinubhai Harilal Panchal by noting that the M.P. Excise Rules explicitly provide for "renewal" subject to the observance of the Act.

It found that the requirements of Section 31(1-A)—recording reasons and providing an opportunity to be heard—were satisfied as the petitioners had submitted two detailed replies to the SCN.

On the merits, the court held that the conviction of the truck driver and cleaner under Section 34(2) of the Excise Act directly triggered Section 31(1)(c) because they were persons "acting on behalf" of the licensee.

Furthermore, the conviction of the Managing Director and Directors for forgery and conspiracy (IPC 420, 467, etc.) constituted cognizable and non-bailable offences under Section 31(1)(d).

The court emphasized that using forged permits constitutes a fraud on the revenue, and under Section 44, the licensee is liable for such acts unless they prove they took all reasonable precautions.

Finally, applying the doctrine of proportionality, the court held that since liquor trade is not a fundamental right, the state's interest in regulating revenue and penalizing fraud justified the suspension.

(i) the licenses were renewals, not fresh grants, and remained subject to the pending SCN.

(ii) the conviction of the company's directors and agents for excise and IPC offences provided sufficient legal grounds for suspension under Sections 31(1)(c) and (d).

(iii) the petitioners were afforded a reasonable opportunity to be heard through the SCN and subsequent replies.

All pending applications were disposed of.