Holding

A distillery employing fewer than 50 workers is not an "industrial undertaking" under the Act and therefore does not require a Central Government licence to manufacture potable alcohol.

Summary

The appellant, Mis. Ramnarayan Satyanarayan Agrawal Distilleries Pvt. Ltd., employed only 22 workers and sought to manufacture potable alcohol under a state‑granted permission. Respondents, Associated Alcohols & Breweries Ltd. and others, challenged the appellant's tender, arguing that only a licence from the Central Government under the Industries (Development and Regulation) Act, 1951 was required because the appellant was an "industrial undertaking". The Supreme Court held that a premises employing fewer than 50 workers with power (or 100 without power) does not qualify as a factory, and therefore the appellant’s business cannot be classified as an "industrial undertaking" under Section 3(d) of the Act. Consequently, the Central Government licence under Section 11 was not necessary, and the State’s permission sufficed under Entry 8, List II of the Constitution. The Court allowed the appeal, set aside the High Court’s order, and awarded exemplary costs to the appellant.

Issues considered

The definition of "industrial undertaking" under the Industries (Development and Regulation) Act, 1951 and its applicability to a distillery employing 22 workers.
Whether a licence from the Central Government under Section 11 of the Act is mandatory for manufacturing potable alcohol.
The jurisdiction of the State versus the Central Government in licensing intoxicating liquor production under Entry 8, List II of the Constitution.

Legislation cited

Constitution of Indias. Entry 8, List II
Excise Act
Industries (Development and Regulation) Act, 1951s. 10, s. 11, s. 30, s. 3(c), s. 3(d)

Subjects

industrial undertakinglicence requirementpotable alcoholfactory definitioncentral government licencestate government permissionconstitutional entry 8list IItender competitionexemplary costs

Judgment

A MIS. RAMNARAYAN SATYANARAYAN AGRAWAL
v.
ASSOCIATED ALCOHOLS AND BREWERIES LTD. AND ORS.

MAY 10, 1995

B [A.M. AHMADI, CJ, S.P. BHARUCHA AND SUHAS C.SEN, JJ.]

Industries (Development and Regulation) Act, I951-Section JI-In-
dustrial undertaking-Licence to manufacture potable alcohol-A factory
employing less than 50 workers-Whether can be treated as an 'industrial
C undertaking'-Held, No-It does not require a licence u/s 11 to manufacture
potable alcohol.

Constitution of India-Entry 8, List II-Intoxicating liquors-Manufac-
ture potable alcohol-Appellant being not an industrial undertaking as
defined in Section 3(d) of Industries (Development and Regulation) Act, no
D special licence from Central Government is necessary.

The State Government granted permission to give licence in favour •
of the appellant to manufacture potable alcohol in pursuance of his ap-
plication. The Excise Commissioner issued a notice dated 8-7-1993 inviting
E tenders for supply of country liquor in the State. The tender of the appellant
being much lower was accepted. The respondents filed a writ petition ques-
tioning the right of the appellant to make its tender on the grounds that the
appellant only held an authorisation from the State Government; that the
State Government had no power, authority or jurisdiction in the matter of
licensing the manufacture of potable alcohol; that only the Central Govern-
F men! possesses such licensing authority and that the appellant did not hold
any licence from the Central Government. The High Court allowing the
.Writ petition held that the alcohol industry can be set up only after obtain-
ing a licence from the Government of India and thereafter the State shall
have the control of the industry in terms of Entry 8 of list II of the Con-
G stitution which gives power to the State to legislate in respect of intoxicating
liquor. It was held that without a licence from the Central Government, an
industrial undertaking for production or manufacture of alcohol cannot be •
set up. Therefore the appellant had to obtain a licence from the Central
Government for setting up of an industry for manufacture of potable al-
cohol. The Court further held that licences for setting up of industries for
H manufacture of potable alcohol and industrial alcohol has to be obtained
330
\
R.S. AGRAWAL v. ASSOCIATED ALCOHOLS AND BREWERIES 331

separately and it cannot be treated as one and the same product. The A
appellant challenged the order by filing this appeal by special leave.

The appellant contended that the provisions of the Industries
(Development and Regulation) Act, 1951 would not apply to an industrial
unit in which less than fifty persons are employed. The manufacturing
process of appellant's business establishment was being carried out by only B
22 workers and therefore, the appellant's business undertaking could not
be treated as a factory nor an 'industrial undertaking' as defined u/s 3(d)
of the Act. It was alleged that the appellant could not be compelled to obtain
a licence u/s 11 of the Act.

The question raised was whether the appellant was an 'industrial C
undertaking' as defined in the Act.

Allowing the appeal, this Court

HELD: 1.1. Under the provisions of the Industries (Development and D
Regulation) Act, if it any premises fifty or more workers are working with
the aid of power or one hundred or more workers are working without the
aid of power, then that place will be treated as a 'factory'. In order to be an
'industrial undertaking', as defined in the Act, it must be an undertaking
carried on in 'one or more factories'. [339-D]
E
In the instant case, since the appellant did not employ more than 22
persons, its place of manufacture could not be regarded as a 'factory'.
Consequently, his business organisation could not be treated as an 'in-
dustrial undertaking' as defined in the Act. The appellant's undertaking
did not come within the mischief of the Act and the appellant could not be
required to obtain a licence from the Central Govt. in order to carry on F
business of manufacturing potable alcohol. [339-E-F]

1.2. Entry 8, List II of the Constitution of India relates to 'intoxicat-
ing liquors, that is to say, the production, manufacture, possession,.
transport, purchase and sale of intoxicating liquors'. The production and
manufacture of intoxicating liquors will fall within the jurisdiction of the G
State. Every step that is necessary to be taken for production or manufac-
ture of intoxicating liquor falling within Entry 8, List II could be taken by
the appellant with the permission of the State Government. The appellant
was not an 'industrial undertaking', as defined in Section 3(d) of the
Industries (Development and Regulation) Act. No special licence from the H
332 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A Central Government was necessary for the appellant for this purpose.
[339·G·H, 340-A]
State of Madhya Pradesh v.Nandlal Jaiswal, AIR (1987) SC 251, relied
on.

Synthetics and Chemicals Ltd.. v. State of U.P., [1990] 1 SCC 109,
B
distinguished.

1.3. The Industries (Development and Regulation) Act has imposed
restrictions and framed regulations in respect of industrial undertaking
as defined by that Act. The undertaking of the appellant did not come
C within the ambit of that definition. Therefore, the appellant did not require
a licence u/s 11 of the Act, to manufacture potable alcohol. [341-A]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5526 of
1995 Etc.

D From the Judgment and order dated 15.2.94 of the Madhya Pradesh
High Court in M.P. No. 1320 of 1993.

R.K. Jain, Rajinder Sachar, A.M. Mathur, A.K. Chitale, K.N. Shukla,
Niraj Sharma, S.K. Gambhir, Vivek Gambhir, Amitabh Verma, K. Pandey,
Satish K. Agnihotri, Ms. Shashi Kiran and Ms. Anil Katiyar for the appear·
E ing parties.

The Judgment of the Court was delivered by

SEN, J. Leave granted.

F The appellant, Ramnarayan Satyanarayan Agrawal Distilleries Pvt.
Ltd., and Associated Alcohols& Breweries Ltd., the respondent No. 1 are
both manufactures of potable alcohol. The respondent No. 1 belongs to
Kedia Group of Distilleries Companies and enjoys a virtual monopoly in
the manufacture of potable alcohol in the State of Madhya Pradesh along
G with two other business houses. According to the appellant, this monopoly
continued until the judgment of this Court in the case of State of Madhya
Pradesh v. Nand/a/ Jaiswal, AIR (1987) SC 251, in which the policy decision
..
of the State Government to grant licence to set up new distilleries at new
sites was upheld.

H On 26th April, 1993, the Under Secretary, Government of Madhya
R.S.AGRAWALv. ASSOCIATED ALCOHOLS AND BREWERIES [SEN,J.] 333

Pradesh, Commercial Taxation Department, issued an order to the Excise A
Commissioner. By this order, this State Government granted permission to
give licence in favour of the appellant to manufacture potable alcohol in
the interest of more competition. The order was to the following effect :-

"GOVERNMENT OF MADHYA PRADESH
COMMERCIAL TAXATION DEPARTMENT B

No. B-1-64/85NA.KAR/5

Bhopal dated 26th April, 1993

To c
The Excise Commissioner,

- M.P. Gwalior.

Subject : Regarding grant of DI licence to Messers Ramnarayan
Satyanarayan Agrawal, Bilaspur for manufacture of in- D
dustrial alcohol.

Reference : Your memo No. 3/2/670 dated 20.4.93.

The State Government grants permission for manufacture of
potable alcohol in order to encourage greater competition for E
issuance of licence to Messres Ramnarayan Satyanarayan Agrawal
Distilleries Pvt. Ltd., Chherka Bench, Bilaspur, which produces
industrial alcohol.

2. In accordance with earlier cases the distiller would be respon- F
sible for the other licence/permissible which they may be required
to obtain from Government of India and other departments of the
State Government for the manufacture of potable alcohol.

By order and in name of the
Governor of Madhya Pradesh G
(R.S. DUBEY)
Government of Madhya Pradesh
Commercial Taxation Department."

This was followed up by another order, issued by the Additional H
334 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A Excise Commissioner on 29th April, 1993 which was as under :-

''OFFICE OF THE EXCISE COMMISSIONER
MADHYA PRADESH, MOTi MAHAL, GWALIOR.

No. 3/2/19-83/920 Gwalior dated 29.4.93.
B
To

M/s. Ramanarayan Satyanarayan Agrawal
Distilleries Pvt. Ltd.
Chherpha Bandha, Bilaspur,
c Madhya Pradesh.

Subject : Regarding grant of licence DI to M/s. Ramanarayan
Satyanarayan Agrawal, Bilaspur for manufacture of in-
dustrial alcohol. -
D Reference : The previous memo No. B-1-64/85/Va. Kar 5
dated 26.4.93 of the State Government, Commer..
cial Taxation Department.

With reference to the aforesaid government order, permission
E is granted to you to manufacture potable alcohol under the DI
licence granted to you on the condition that you would be respon..
sible for obtaining the necessary licence/permission from the
Government of India and other departments of the State Govern-
ment according to rules applicable thereto and further that you
would be required to follow all the necessary terms and conditions
F under the Excise Act.

Sd/-
Additional Excise Commissioner
Madhya Pradesh."

G The aforesaid two orders were passed in pursuance to the appellant's •
application for permission to manufacture potable alcohol. The appellant
has claimed that the order dated 26.4.93 clearly states that it shall be the
responsibility of the appellant to obtain such licence/permission, as neces-
sary, from any other department of the Central Government and the State
H Government. All other distilleries in Madhya Pradesh are being run on
R.S. AGRAWAL v. ASSOCIATED ALCOHOLS AND BREWERIES [SEN, J.] 335

similar terms and conditions. The same procedure was followed by the A
State of Madhya Pradesh in respect of all distilleries in Madhya Pradesh,
including the distilleries belonging to Associated Alcohol & Breweries
Ltd., the respondent No. 1 and Anand Kumar Kedia, the respondent No.
2.

According to the appellant, the trouble started in this case when the B
Excise Commissioner issued a notice dated 8.7.1993 inviting tenders for
supply of country liquor in 19 supply areas of the State of Madhya Pradesh.
The respondent Nos. 1 and 2 did not directly submit any tender, but
another concern of the Kedia Group i.e. Castle Douglas Industries
Limited, submitted its tender. The prices tendered by the appellant and C
the Castle Douglas Industries Limited were as under.

Price tendered by the appellant

Bilaspur Raipur
D
Rs. 5.21 Rs. 5.71

Price tendered by Castle Douglas Industries Ltd.

Bilaspur Raipur
E
Rs. 14.71 Rs. 14.71

The tender of the appellant was much lower than the tender of Castle
Douglas Industries Limited. There was no other contender. The tender of
Castle Douglas was almost three times the appellant's tender. If the tender
of Castle Douglas Industries Limited were accepted, the Exchequer would F
have suffered huge loss.

Having failed in open competition the respondent Nos. 1 and 2 are
now trying to perpetuate their monopoly by legal process.

Initially, a writ petition was moved in the name Arvind Kashiv on G
3.5.1993 (M.P.No. 1035/1993). Arvind Kashiv claimed to be a journalist
interested in public causes. Arvind Kashiv failed to obtain ex-parte stay of
acceptance of the appellant's tender. Thereafter, the respondent Nos. 1
and 2 came out in the open and filed a writ ·petition (M.P. No. 1320/1993)
out of which this appeal by special leave arises. In the writ petition, they H
336 SUPREME COURT REPORTS [1995] SUPP. l S.C.R.

A questioned the right of the appellant to make its tender on the following
grounds:-

(a) That the appellant only holds an authorisation from the State
Government;

B {b) that the State Government had no power, authority or jurisdic-
tion in the matter of licensing the manufacture of potable alcohol;

(c) that only the Central Government possesses such licensing
authority; and

C (d) that the appellant did not hold any licence from the Central
Government.

It was held in that case by a Division Bench of Madhya Pradesh High
Court that the alcohol industry can be set up only after obtaining a licence
from the Government of India and thereafter the State shall have the
D control of the industry in terms of Entry 8 of list II of the Constitution
which gives power to the State to legislate in respect of intoxicating liquor
i.e. to say the production, manufacture, possession and transport. Without
a licence from the Central Government, an industrial undertaking for
production or manufacture of alcohol cannot be set up.
E
As regards the individual cases of respondents Nos. 4 and 5, in that
writ petition, it was held that the respondent No. 4 shall be entitled to
continue its business as before but respondent no. 5 (the appellant herein)
had to obtain a licence from the Central Government for setting up of an
industry for manufacture of potable alcohol. The Court held :
F
"We have already held above that licences for setting up of in-
dustries for manufacture of potable alcohol and industrial alcohol
has to be obtained separately and it cannot be treated as one and
the same product. Licence obtained for setting up of an industry
for manufacture of industrial alcohol cannot be allowed to produce
G potable alcohol unless a licence in that behalf is obtained from the
Central Government. Therefore, whenever a unit obtains a licence
from the Government of India, for setting up a plant for producing
industrial alcoho~ it cannot without obtaining a licence from the
Government of India, convert that licence for producing potable
H alcohol, by obtaining the permission or licence issued by the State
R.S. AGRAWAL v. ASSOCIATED ALCOHOLS AND BREWERIES [SEN, J.J 337

Government." A

Mis. Ramnarayan Satyanarayan Agrawal Distilleries Pvt. Ltd. has
now come up in appeal by special leave before this Court.

The case of the appellant is that the provisions of the Industries
(Development and Regulation) Act, 1951 (hereinafter referred to as 'the B
Act') does not apply to an industrial unit in which less than fifty persons
are employed. This contention must be upheld. 'Factory' has been defined
in Section 3(c) of the Act as under :

"3(c). 'Factory' means any premises, including the precincts there- C
of, in any part of which a manufacturing process is being carried
on or is ordinarily so carried on -

(i) With the aid of power, provided that fifty or more workers are
working or were working thereon on any day of the preceding
twelve months; or D
(ii) without the aid of power, provided that one hundred or one
workers are working or were working thereon on any day of the
preceding twelve months and provided further that in no part of
such premises any manufacturing process is being carried on with
the aid of power." E

The manufacturing process of appellant's business establishment is
being carried out by only 22 workers. Consequently, the appellant's busi-
ness undertaking cannot be treated as a. factory nor an 'industrial
undertaking' as defined under Section 3(d) of the Act.
F
"3(d). 'industrial undertaking' means any undertaking pertaining to
a scheduled industry carried on in on<> or more factories by any
person or authority including Government"

The requirement to obtain a licence in Section 11 is in respect of 'any G
new industrial undertaking'. If the manufacturing establishment of the
~ppellant is not a factory and consequently not an industrial undertaking
as defi11ed in the Act, the appellant cannot be compelled to obtain a licence
under Section 11 which is as under:-

"11. Licensing of new industrial undertakings- H
338 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A (1) No person or authority other than the Central Government,
shall, after the commencement of this Act, establish any new
industrial undertaking, except under and in accordance with a
licence issued in that behalf by the Central Government:

Provided that a Government other than the Central Govern-
B ment, may with the previous permission of the Central Govern-
ment, establish a new industrial undertaking.

(2) A licence or permission under sub-section (1) may contain such
conditions including, in particular, conditions as to the location of
c the undertaking and the minimum standards in respect of size to
be provided therein as the Central Government may deem fit to
impose in accordance with rules, if any, made under Section 30."

By the Industries (Development and Regulation) Act, 1951, by virtue
and provision of Section 2, the industries specified in the First Schedule of
D the Act, have been brought under the control of the Union. Item 26 of the
First Schedule refers to Fermentation Industries and is as under :

!!26. FERMENTATION INDUSTRIES:

( 1) Alcohol.
E
(2) other products of fermentation industries."

Chapter III of the Industries Act deals with 'REGULATION OF
SCHEDULED INDUSTRIES'. Under this Chapter, it has been laid down
F in Section 10 that existing industrial undertaking will have to be registered
in the prescribed manner. Section 11 lays down that no person or authority
shall, after the commencement of the Act, establish any new industrial
undertaking without a licence issued in that behalf by the Central Govern-
ment.

G Neither the appellant nor the Castle Douglas Industries Limited has.
been registered as an existing industrial undertaking under Section 10 of
the Act, nor any licence has been issued to either of these undertakings
under Section 11 of the Act. If the contention of the respondent No. 1 is
to be accepted, then the distilleries run by them will have to be closed
H down, as they have no right to manufacture industrial or potable alcohol.
R.S. AGRA WAL v. ASSOCIATED ALCOHOLS AND BREWERIES [SEN, J.] 339

It has been contended on behalf of the respondents that even though A
they have not obtained a licence under Section 11 of the Act, they have
applied for permission to carry on business (COB) to Government of India
and their application has been registered. That, however, is not the same
thing as having a licence under Section 11 of the Act. If the provisions of
the Act are strictly enforced, the respondents will have no right to carry B
on business of manufacturing liquor.

So far as the appellant is concerned, it has been stated in the appeal
before this Court as well as in the affidavit filed in the court below, that
they employ not more than 22 persons in their factory. Section 10 of the
Act requires the owner of every existing industrial undertaking to get the C
undertaking registered in the prescribed manner. Similarly, Section 11 of
the Act lays down that no person or authority other than the Central
Government shall establish any new industrial undertaking, except under
and in accordance with a licence issued in that behalf by the Central
I Government. The question is whether the appellant is an 'industrial
undertaking' as defined in the Act. If at any premises fifty or more workers D
I are working with the aid of power or one hundred or more workers are
working without the aid of power, then that place will be treated as a
'factory'. In order to be an 'industrial undertaking', as defined in the Act,
it must be an undertaking carried on in 'one or more factories'.

In the instant case, since the appellant does not employ more than
E
22 persons, its place of manufacture cannot be regarded as a 'factory'.
Consequently, his business organisation cannot be treated as an 'industrial
undertaking', as defined in the Act. The appellant's undertaking does not
come within the mischief of the Act and the appellant cannot be required
to obtain a licence in order to carry on business of manufacturing potable F
alcohol.

An argument was advanced on behalf of the respondent that potable
alcohol cannot be made without manufacturing industrial alcohol in the
first place. Industrial alcohol has to be the base for manufacture of potable
alcohol. Entry 8, List II relates to 'intoxicating liquors, that is to say; the G
production, manufacture, possession, transport, purchase and sale of in-
toxicating liquors'. It is clear from this Entry that the production and
manufacture of intoxicating liquors will fall within the jurisdiction of the
State. Every step that is necessary to be taken for production or manufac-
ture of intoxicating liquor falling within Entry 8, List II can be taken by the H
340 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A appellant with the permission of the State Government. The appellant is
not an 'industrial undertaking', as defined in Section 3( d} of the Industries
(Development and Regulation) Act. No special licence from the Central
Government is necessary for the appellant for this purpose. In course of
the argument apart from Section 11, nothing could be shown by the
B respondents which requires the appellant to obtain a licence from the
Central Government for manufacturing potable alcohol.

We are fortified in the view we have taken by a judgment of this
Court in the case of State of Madhya Pradesh v. Nandlal Jaiswal, (supra).
In that case, an argument was advanced that the respondents were not
C entitled to set up new distilleries without obtaining a licence from the
Central Government under Section 11 of the Act. Since there was nothing
to show that they had obtained such a licence before setting up the new
distilleries, their action in setting up the new distilleries was illegal. This
contention was repelled by this Court on the ground that no such plea had
been raised in the court below.
D
It was held by P.N. Bhagwati, C.J.:-

"Moreover, it is obvious from Section 11 read with the definitions
of 'factory' and 'industrial undertaking' contained in sub-sections
E (c) and (d} of Section 3 of this Act that licence from the Central
Government for setting up new distilleries and here in the present
writ petitions, there is nothing to show that 50 or more workers
were going to be employed in the new distilleries. We were told
at the Bar that in fact old distilleries were also working without
any licence from the Central Government presumably because less
F than 50 workers were employed in such distilleries. This contention
of the learned counsel on behalf of M/s. Doongaji & Co. must also,
therefore, be rejected."

On behalf of the respondents, it was contended that this judgment
G cannot be treated as good law any more; in view of the decision of this
Court in the case of Synthetics and Chemicals Ltd. v. State of U.P., (1990)
1 SCC 109. In that case the question was whether vend fee in respect of
industrial alcohol levied by different State Legislatures was valid. The
question, whether a 'factory' employing less than 50 workers can be treated
as an 'industrial undertaking' under the Industries (Development and
H Regulation) Act, did not come up for consideration in that case at all. The
RS.AGRAWALv. ASSOCIATEDALCOHOLSANDBREWERIES[SEN,J.] 341

Act has imposed restrictions and framed regulations in respect of industrial A
undertakings, as defied by that Act. The undertaking of the appellant does
-1 not come within the ambit of that definition. It cannot be said that the
appellant cannot operate its distillery without acquiring a licence as laid
down ·by Section 11 of the Act.

In that view of the matter, it is held that the appellant does not B
require a licence under Section 11 of the Industries (Development and
Regulation) Act to manufacture potable alcohol. Their bid pursuant to the
tender floated by the State Government to manufacture potable alcohol
will have to be considered in accordance with law.

The appeal, therefore, must succeed. c
We have noted earlier in the judgment the wide disparity in price in
the tender made by the appellant and Castle Douglas Industries Limited.
Having failed in open competition, the respondents Nos. 1 and 2 invoked
the writ jurisdiction first indirectly, and thereafter directly, to frustrate the D
appellant's bid to secure the contract. They have successfully frustrated the
effort of the appellant to obtain the contract by this process so far. Their
attempt has now failed. Costs must follo;S-the event. Having regard to th~
fact_s, we have decided to award exemplary costs in this case.

The appeal is allowed. The respondents Nos. 1 and 2 will pay costs E
assessed at Rs. 20,000 (Rupees twenty thousand only) to the appellant.

IA.No. 5 of 1995 in S.L.P.(C) No. 3725 of 1994

The above LA is also disposed of accordingly.
F
Civil Appeal No. 5527 of 1995

(Arising out of S.L.P.(C) No. 13534 of 1994)

Leave granted.
G
In view of our judgment in Civil Appeal No. 5526 of 1995 (arising
out of S.L.P.(C) No. 3725 of 1994), no further order need to be passed in
the above case.

R.A. Appeal allowed. H