Khoday Distilleries Ltd. v. State of Karnataka

Facts

Four groups of matters were referred to the Constitution Bench. In the first, the Karnataka High Court had upheld 1989 amendments to several Karnataka Excise Rules, challenged as violating Articles 14, 19(1)(g), 47, 300A, 301 and 304. In the second, the Kerala High Court had upheld a Government Order of 9 December 1992 cancelling foreign liquor licences issued to hotels, restaurants and tourist homes under Rule 13(3) of the Kerala Foreign Liquor Rules, 1974. In the third, the Andhra Pradesh High Court had upheld amendments to the A.P. liquor rules and the A.P. (Regulation of Wholesale Trade, Distribution and Retail Trade in Indian Liquor and Foreign Liquor, Wine and Beer) Act, 1993. In the fourth, wholesale licensees argued that the 1993 Act took over only the 'trade' and not the 'business' in liquor, so they could continue business until their FL-15 licences expired.

Questions before the Court

1. Do citizens have a fundamental right under Article 19(1)(g) to carry on trade or business in liquor?
2. Can the State create a monopoly in itself for the manufacture, trade or business in liquor?
3. Can reasonable restrictions under Article 19(6) be imposed by subordinate legislation, or only by an Act of the Legislature?
4. Did the A.P. 1993 Act, by taking over the 'trade' in liquor, leave the licensees free to carry on the 'business' of liquor for the rest of their licence period?

What the Court held

• The rights in Article 19(1) are qualified by clauses (2) to (6). The right to carry on trade or business does not extend to activities that are inherently vicious or to goods that are injurious to health and welfare, that is, res extra commercium.
• Potable liquor as a beverage is res extra commercium. A citizen has no fundamental right to trade or business in it, and the State can prohibit such trade completely, both for that reason and because of Article 47.
• The State may create a monopoly in itself or its agency, sell licences, and impose restrictions different in nature from those on ordinary trades. Carrying on the trade itself is a way of regulating it and is not illegitimate. Levying taxes or fees does not make the trade a fundamental right.
• Where the State permits the trade, a citizen may carry it on subject to the limitations, and the State cannot discriminate between qualified citizens; but this equal right is not a fundamental right. Trade in medicinal and toilet preparations and industrial alcohol cannot be prohibited, only reasonably restricted.
• Article 19(6) does not require restrictions to be imposed only by an Act of the Legislature; subordinate legislation not violative of the Constitution suffices. K.K. Narula's case and the second Synthetics and Chemicals case do not hold that the State cannot prohibit trade in potable liquor.
• In Article 19(1)(g) 'trade' and 'business' are used synonymously, so once the A.P. Act took over the trade, nothing was left for the licensees; those special leave petitions were dismissed with costs. The other matters were sent to an appropriate bench for decision.

Why it matters

The judgment sets out, in thirteen propositions, the law on trade in liquor: potable liquor is res extra commercium, there is no fundamental right to deal in it, and the State may prohibit it, monopolise it or license it to maximise revenue without discrimination. It explains K.K. Narula's case as recognising only a qualified right where the State permits the trade, confines the second Synthetics and Chemicals case to industrial alcohol, and holds that Article 19(6) restrictions may be imposed by subordinate legislation.

In the Court's words

Copied from the official judgment; each passage links to its page.

Provisions interpreted

• Article 19(1)(g) and 19(6), Constitution
• Article 47, Constitution
• Article 13(3)(a), Constitution (meaning of 'law')
• Section 3, A.P. (Regulation of Wholesale Trade, Distribution and Retail Trade in Indian Liquor and Foreign Liquor, Wine and Beer) Act, 1993

Case and bench

Parties

M/s Khoday Distilleries Ltd. v. State of Karnataka

Case

Civil Appeal Nos. 4708-12 of 1989 etc.

Decided

19 October 1994

Bench

M.N. Venkatachaliah, CJ, J.S. Verma, P.B. Sawant, K. Ramaswamy, B.P. Jeevan Reddy

Opinions

Unanimous. The judgment of the Court was delivered by P.B. Sawant, J.

Questions on this case

From free Law Maker papers. Try each one before you open the answer.

1. Question 1 · Gujarat Local Laws Practice Set 1

   In Khoday Distilleries Ltd. v. State of Karnataka (1995), a Constitution Bench of the Supreme Court held, in relation to trade in potable liquor, that:

   1. A. the State may regulate trade in potable liquor but can never prohibit it completely while Article 19 stands
   2. B. trade in potable liquor is a fundamental right under Article 19(1)(g), subject only to reasonable restrictions
   3. C. the State may prohibit only the sale of liquor, while its manufacture remains a protected fundamental right
   4. D. there is no fundamental right to trade in potable liquor, and the State may prohibit such trade completely
   Show the answer

   D. there is no fundamental right to trade in potable liquor, and the State may prohibit such trade completely

   In Khoday Distilleries Ltd. v. State of Karnataka, (1995) 1 SCC 574, the Constitution Bench held that a citizen has no fundamental right to carry on trade or business in potable liquor sold as a beverage, and that the State may completely prohibit such trade, consistently with Article 47 and Article 19(6). Total prohibition laws such as the Gujarat Act rest on this power.