Class & classification

The Kerala High Court’s decision to uphold the State government’s liquor policy limiting grant of bar licences to five-star hotels raises more questions than it answers.

A bar in Marine Drive, Kochi. In allowing bars only in five-star hotels, there is an implicit assumption that the rich have higher standards of 'decency' and 'morality'.

Practising any profession, or carrying on any occupation, trade or business is a Fundamental Right under Article 19(1)(g) of the Indian Constitution. However, this guarantee, as qualified in Article 19(6), cannot prevent the state from imposing, in the interests of the general public, reasonable restrictions on the exercise of this right.

Therefore, when the Kerala government, notified its new Abkari Policy on August 22, 2014, declaring its intention to grant bar licences only to hotels having five-star status and above granted by the Union Ministry of Tourism, followed it up by amending the Foreign Liquor Rules under the Abkari Act of 1077, and issued notices terminating bar licences of existing bar-attached hotels, it led to apprehensions whether the state was infringing on the fundamental right to carry on a trade by those who owned these hotels. (The Abkari Act, 1077 was passed by the Maharaja of the erstwhile state of Cochin on August 5, 1902, as Act 1 of 1077 [Malayalam Era]. The Act was extended to the entire State by Act 10 of 1967. It has survived as the relevant provisions of the Prohibition Act, 1950, which repeal it, have not yet come into force.)

Not a Fundamental Right

The Division Bench of the Kerala High Court comprising Justices K.T. Sankaran and Babu Mathew P. Joseph dismissed on March 31 concerns that the new Abkari Policy violated Fundamental Rights. The Bench held that neither the sale nor the consumption of liquor fell under the category of Fundamental Rights and that the state had the authority and duty to frame any policy to restrict the sale of liquor and reduce its consumption levels.

The court recognised the importance of the Directive Principles of State Policy under Part IV of the Constitution by stating that it was the duty of the state under Article 47 to enforce prohibition. Article 47 directs the state to endeavour to bring about prohibition of the consumption of intoxicating drinks and of drugs which are injurious to health, except for medicinal purposes. The Constitution gives this specific direction in the context of the general mandate of Article 47, which requires the state to regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as among its primary duties. As this issue went to press, the full text of the Division Bench’s judgment had not yet been released, yet the broad outline of the issues before the court was clear, thanks to two judgments delivered last year: one by the Single Judge of the Kerala High Court, Justice K. Surendra Mohan, which was under appeal before the Division Bench, and another by the Supreme Court in a related case.

Justice Surendra Mohan, on October 30, 2014, had substantially upheld the liquor policy, but exempted four-star and heritage category hotels from the State government’s notification cancelling bar licences. The Division Bench, however, reversed this exemption and found nothing wrong in the cancellation of bar licences of four-star and heritage category hotels along with those of three-star and two-star hotels. The Division Bench’s reasoning, though, appears vulnerable and may be challenged in the Supreme Court.

The Kerala government’s decision was assailed by the petitioners before Justice Surendra Mohan as a deprivation of a right that had already accrued to a citizen for the only reason that there was a change in government policy. It was pointed out that the nature of the right of a citizen to a business permitted by the state and the nature of a right with respect to a business not permitted by the state were different. Thus, if a particular trade or business was completely prohibited, there cannot be any doubt that the citizen would have no right to carry on that business. However, if a business was not prohibited, but permitted either with or without regulations, every citizen had a right to engage in such business, under Article 19(1)(g) of the Constitution. Thus, in cases where a business was permitted either partially or subject to regulations, every citizen had the right to participate in the business activity. This was for the reason that the state had no intention to prohibit the trade altogether.

The Preamble of the Abkari Act shows that the enactment was intended to consolidate and amend the law regulating the import, export, transport, manufacture, sale and possession of intoxicating liquor and intoxicating drugs in Kerala, and not prohibition. Therefore, the petitioners before the Single Judge claimed that they had, in addition to their Fundamental Right under Article 19(1)(g), a statutory right under the Abkari Act to conduct trade or business in liquor, subject of course to the restrictions contained in the Act. The new Abkari Policy and the amendment brought forward by the government took away that right, they argued.

The Supreme Court’s Constitution Bench in Narula vs State of Jammu and Kashmir (AIR 1967 SC 1368) held that every citizen had a right under Article 19(1)(g) to conduct trade or business, even in intoxicating liquor, subject of course to the reasonable restrictions that the state was empowered to place on the right under Article 19(6) of the Constitution. The Abkari Act, being intended to regulate such trade in liquor, cannot proceed to the extent of altogether prohibiting the trade; any such attempt would amount to an unreasonable restriction, under Article 19(6), the petitioners argued.

They further submitted to the High Court that conferring the eligibility to apply for bar licences only to hotels enjoying the status of five star and above actually identified that category of hotels for conferring a benefit, to their advantage over the others doing business in the field. Such classification bore no connection to the proclaimed object of achieving prohibition, for the reason that liquor was freely available in the retail shops and other establishments owned by the state. As the government discriminated against them in the matter of granting renewal, its decision was assailed as being violative of the guarantee of equality enshrined in Article 14 of the Constitution.

It was also argued before Justice Surendra Mohan that Section 29 of the Abkari Act conferred on the state the power to make rules only for the purposes of the Act. Since prohibition was not one of the purposes of the Act, the power under Section 29 was not available for making a rule to achieve prohibition, they suggested. Justice Surendra Mohan, adopting a reasoning that was problematic, held that regulation as envisaged under the Abkari Act also included prohibition.

The State government contended that its policy was intended to reduce consumption of liquor in public places and it was for that reason that consumption of liquor in bar hotels had been banned. The policy would put pressure on persons who frequented bars to restrict their consumption to the confines of their homes, thereby subjecting their activity to the influence of their family members, the government suggested.

The State government relied on the Constitution Bench decision of the Supreme Court in Khoday Distilleries Ltd. vs State of Karnataka [(1995) SCC (1) 574] to contend that trade in liquor was objectionable and no citizen had a fundamental right to trade in liquor.

Justice Surendra Mohan relied on the same judgment to hold that when the State neither prohibited nor monopolised the business in liquor, the citizens could not be discriminated against while granting licences to carry on such business.

The State government argued that by confining bars only to hotels with a five-star classification, the opportunities to consume intoxicating liquor available to youngsters and students were reduced substantially. Consumption of liquor took place mostly in two-, three- and four-star hotels. Only a very limited category of people frequented five-star hotels and liquor consumption in such establishments also was not substantial, the State government contended.

But Justice Surendra Mohan held that hotels with classification of four star and above were not frequented by the youth, students or the less-affluent sections of society. In particular, he quashed the government’s notification cancelling the bar licences of four-star and heritage hotels on the ground that it was not based on any material.

The petitioners relied on the Supreme Court’s judgment in State of Maharashtra and others vs Indian Hotel Restaurants Association and others (Dance Bar cases) (2013 (8) SCC 519) to contend that the quality of services offered by two-star hotels or three-star hotels and five-star hotels was the same. The new policy made a distinction on the basis of star classification, which, according to them, was in fact a classification of society itself. Consequently, people belonging to the higher strata of society or the affluent section were granted a privilege without any basis. Such classification was found to be bad by the Supreme Court in the Dance Bars cases.

In the Dance Bars cases, the Supreme Court had to consider whether the prohibition imposed by the Bombay Police Act, 1951 (as amended in 2005), on dancing of any kind in eating houses, permit rooms or beer bars having a classification of less than three star was violative of Article 14 of the Constitution. The Supreme Court held in this case that materials were insufficient to justify the classification made.

“The state neither had the empirical data to conclude that dancing in the prohibited establishment necessarily leads to depravity and corruption of public morals, nor was there general consensus that such was the situation,” the court had concluded in that case.

The Supreme Court added: “Undoubtedly, the legislature is the best judge to measure the degree of harm and make reasonable classification but when such a classification is challenged the state is duty-bound to disclose the reasons for the ostensible conclusions. In our opinion, in the present case, the legislation is based on an unacceptable presumption that the so-called elite, i.e. rich and the famous, would have higher standards of decency, morality or strength of character than their counterparts who have to content themselves with lesser facilities of inferior quality in the dance bars.”

One-Man Commission

Relying on these observations, Justice Surendra Mohan examined whether the state had sufficient material to justify the classification made, treating five-star hotels alone as eligible for grant of bar licences. The materials referred to in the Abkari Policy are the reports of the One Man Commission (headed by former Judge of the Kerala High Court, Justice M. Ramachandran) and the recommendations of the Secretary (Taxation) on the report of the One Man Commission. The Commission had recommended that, after the expiry of the term of the licences issued earlier, renewal be granted only to those hotels having at least three-star or four-star classification. As a measure of sympathy, it recommended that the licences of hotels having lesser standards be kept in hibernation and reissued only on their securing the requisite certification from the competent authority. The commission also noted that the crowds frequenting the three-star and four-star categories of hotels were, in general, orderly and disciplined. The Taxation Secretary too approved the Commission’s recommendation that licences be granted to hotels having sufficient facilities.

Justice Surendra Mohan concluded that there was absolutely no material to justify a conclusion that there were any complaints with respect to the functioning of four-star and heritage hotels and that the government should have at least stated that it was rejecting the recommendations of the One Man Commission.

The Division Bench of the High Court, on March 31, however, took a different view by holding that it was sufficient that the government adverted to the One Man Commission report and the recommendations of the Taxation Secretary in its Abkari Policy and that it was not necessary for the government to issue a speaking order for rejecting these reports. While Justice Surendra Mohan found force in the Supreme Court’s judgment in the Dancing Bars case and considered it as binding on him, the Division Bench found that the reasoning in that case was inapplicable to the bar licences case.

Justice Surendra Mohan also took note of the Supreme Court’s order delivered in the case of State of Kerala & Others vs B. Surendra Dasetc by Justices H.L. Gokhale and J. Chelameswar on March 5, 2014. In this order, the Supreme Court, while upholding the government’s policy to deny renewal of bar licences to two-star and three-star hotels, underlined that the State government had the power to amend the rules on the touchstone of the correlation between the provision and the objective to be achieved. If that correlation was not established, surely the rule would suffer from the vice of arbitrariness, it warned.

The Supreme Court urged the State government to take steps to reduce the number of its own shops and depots and not open new ones, in view of the high consumption of liquor in the State. “If it is not possible for the government to reduce the existing FL-1 shops, with respect to which it enjoys a monopoly, it is of no use for it to direct the private sector alone to function in a particular manner. The government must as well behave in conformity with the mandate of Article 47,” the court held.

During the hearing of this case before the Supreme Court, the Kerala government made a virtue of its setting up the One Man Commission on the issue of the grant of FL-3 licences to four-star hotels and above and the court appreciated its stand that it would not deny bar licences to such hotels till the commission submitted its report. Therefore, the government’s and the High Court Division Bench’s current stand justifying the rejection of the report, without stating any reasons, is least convincing.