Supreme Court of India
STATE OF KERALA & ORS.versusB. SURENDRA DAS ETC
- Citation
- 2014 INSC 933
- Decided
- 5 March 2014
- Disposal
- Case Partly allowed
- Bench
- H L GOKHALE
Holding
The deletion of three‑star hotels from FL‑3 licence eligibility is constitutionally valid, while the distance rule (Rule 3E) is unconstitutional as it is arbitrary and violates Article 14.
Summary
The Supreme Court examined two amendments to Kerala's Abkari Policy that altered Rule 13 of the Foreign Liquor Rules: (i) the removal of "three‑star" hotels from eligibility for FL‑3 liquor licences, and (ii) the introduction of a distance rule (Rule 3E) prohibiting new licences within 3 km in panchayat areas and 1 km in municipal areas of existing licences. The Court held that the deletion of three‑star hotels was a valid policy measure, consistent with earlier rulings upholding similar revisions, and not violative of Article 14. However, the distance rule was struck down as arbitrary and discriminatory, lacking a rational nexus to the policy’s objective of curbing alcoholism under Article 47. Consequently, the High Court’s order striking down both amendments was partially set aside: the deletion was upheld, the distance rule was invalidated. The Court also reiterated that there is no fundamental right to trade in liquor, though any permitted trade must not be discriminatory.
Issues considered
- The constitutionality of deleting three‑star hotels from eligibility for FL‑3 licences under Rule 13(3) – whether it violates Article 14 or is a permissible policy amendment.
- The constitutionality of the distance rule (Rule 3E) introduced in 2012 – whether it is arbitrary, discriminatory, and inconsistent with the objective of the Abkari Policy and Article 47.
- Whether a fundamental right to trade in liquor exists under Article 19(1)(g) and how it is limited by Article 47 and Article 14.
- The applicability of the principle that policy‑driven rule amendments, if not open to challenge, are themselves not challengeable (as in B. Six Holiday Resorts).
- The validity of differentiating between hotels of different star categories under the tourism policy and local law.
Legislation cited
- Constitution of Indias. Article 14, s. Article 151(2), s. Article 19(1)(g), s. Article 47
- Kerala Abkari Acts. Rule 13, s. Rule 13(3), s. Rule 3E
Subjects
Abkari PolicyArticle 47Article 14Liquor licensingFL-3 licenceDiscriminationArbitrarinessTourismPublic healthKerala
Judgment
(2014] 3 S.C.R. 1054
A STATE OF KERALA & ORS.
v.
B. SURENDRA DAS ETC.
(Civil Appeal Nos. 3196-98 of 2014)
MARCH 5, 2014
B
[H.L. GOKHALE AND J. CHELAMESWAR, JJ.]
ABKARI POLICY: Kera/a Abkari Policy - Object of - Held:
Is to curb the rampant alcoholism in the State of Kera/a, which
C claims to have the highest consumption of alcohol as against
the other states in India, and whereby the younger generation
is getting addicted - The objective is in pursuance of Article
47 of the Constitution which declares it to be a Directive Policy
for the State to endeavour to bring about prohibition of
D consumption of intoxicating drinks - Constitution of India,
1950 - Article 47 - Liquor.
CONSTITUTION OF /NOIA, 1950 - Article 47 - Liquor -
Right to trade - Held: There is no fundamental right to trade
E . in liquor - At the same time where such a trade is permitted,
there cannot be any room for discrimination.
KERALA ABKARI ACT:
r.13 - Kera/a Abkari Policy 2011-12 -Amendment to s.13
F omitting words 'three star' from r. 13(3) - Constitutionality of -
Held: In the case of B. Six Holiday Resorts, the deletion of
two star hotels from the eligibility of FL-3 licences was upheld
by Supreme Court - It was held therein that promotion of
tourism should be balanced with general public interest and
G that if policy is not open to challenge the amendment of the
rules to effect the policy can also not be challenged - Deletion
of three star hotels falls in the same genre as the deletion of
two star hotels, which was done earlier - This being the
position, the State cannot be faulted for deletion of three star
H 1054
STATE OF KERALA & ORS. v. B. SUREN ORA DAS 1055
ETC.
hotels after a periodical revision of the policy. A
r.13 - Kera/a Abkari Policy 20'11-12 -Amendment to r.13
introducing distance rule - Constitutionality of - Held: The
consequences of the amendment would be that four star and
five star hotels would not be permitted to have FL-3 licences
8
only on the ground that they are within the prohibited distance
from such hotels which have poor hygiene standards, and
which are not following norms laid down by the State
Government - As per the report of the GAG, there was
violation of licence conditions by the Bar Hotels - The Excise C
Commissioner also sent a letter to the Government
· highlighting poor standards maintained by the 418
unclassified bars and requesting not to grant fresh FL3
licenses as during the last one year several people had died
due to excessive drinking in the unclassified hotels - Even
then seven more FL3 licenses were issued - Moreover in the D
Abkari Policy for 2010-11, the Government declared that the
FL3 licensees not having the requisite star qualification and
,,-.;ho were functional during 2009-10 should be regularized -
Government having not taken a firm stand to ensure that only
hotels of a minimum standard are issued FL3 licenses has E
seriously compromised public safety - This is counter-
productive to the objective of r. 13(3), which is to promote
tourism, as well as to the State's avowed policy of improving
the health and nutrition standards of its citizens - In the
circumstances, although there is no dispute regarding the F
power of the State Government to bring about the necessary
reform, by modifying the rules, it has got to be justified on the
touchstone of the correlation between the provision and the
objective to be achieved - If that correlation is not established,
surely the rule will suffer from the vice of arbitrariness, and G
therefore will be hit by Article 14 - The State Government has
appointed a one-man commission for reviewing the Abkari
Policy, by issuing a necessary notification - The commission
would take into consideration the hard realities which are
reflected in the report of the CAG and make necessary H
1056 SUPREME COURT REPORTS [2014] 3 S.C.R.
A recommendations - In these circumstances, distance rule by
way of addition of Rule (3E) in Rule 13(3) is held to be bad
in law - The state government will not proceed to deny FL3
licenses to hotels with a classification of four star and above
by resorting to their deletion under r. 13(3) until the report of
B the one-man commission is received, and until it takes action
against the non-standard restaurants which have been
permitted under the sixth and seventh proviso of r. 13(3).
Classification and reclassification of hotels - Bar licence
- Held: The two star and three star hotels stand on a different
C footing as against the hotels with four star and higher
classification under the tourism policy of the Government of
India - The Ministry of Tourism of the Government of India
has issued the amended guidelines for classification/re-
classification of hotels on 28. 6. 2012 - The classification of the
D hotels into star categories and heritage categories is done
thereunder, and it is a voluntary scheme - If a local law
prohibits the issuance of a bar licence to four star, five star,
five star deluxe, heritage classic and heritage grand
categories, which is otherwise necessary, such local law will
E prevail - In any case three star hotels will have to be placed
in a different category as against the hotels with four star and
higher classification, since it is not necessary for three star
hotels to have an FL3 licence.
F Pursuant to the State's Abkari Policy framed in 2011-
12, two amendments were introduced by the State of
Kerala in Rule 13 of the Kerala Abkari Act. Firstly, the
words 'three star' were omitted from Rule 13(3).
Consequently, after this amendment of the rule which
G came into force immediately, three star hotels not already
having a licence, were held not eligible to get a bar
licence for retail sale of liquor in the hotels. Thus, no new
hotels having the three star classification were entitled to
the licence known as FL-3 licence for selling the IMFL.
The hotels having the two star or lesser classification
H
I
. '
STATE OF KERALA & ORS. v. B. SUREN ORA DAS 1057
ETC.
were already ineligible to get this licence by virtue of the A
pre-existing proviso to Rule 13(3), introduced by
notification dated 20.12.2002. Secondly, Rule (3E) was
added in Rule 13 w.e.f. 27.3.2012 introducing distance rule
whereby no new bar hotels of any classification were
permitted to be opened (a) if they were situated within a B
distance of 3 kms. from existing bar hotels in a panchayat
area, and (b) within a distance of 1 km. from existing bar
hotels in a municipal area. Writ petitions were filed
challenging these. amendments. A single judge of High
Court dismissed the writ petition. The Division Bench of c
the High Court allowed the appeals and struck down the
two amendments as unconstitutional. The instant
appeals were filed challenging the order of the High
Court.
Partly allowing the appeals, the Court D
HELD: 1. The avowed object of this Abkari Policy is
to curb the rampant alcoholism in the State of Kerala,
which claims to have the highest consumption of alcohol
as against the other states in India, and whereby the E
younger generation is getting addicted. Thus, the
objective is in pursuance of Article 47 of the Constitution
of India which declares it to be a Directive Policy for the
State to endeavour to bring about prohibition of
consumption of intoxicating drinks. [para 4] [1066-B-C] F
2. Abkari Policy of the Government of Kerala for the
year 2011-2012:-
The Government of Kerala announced the Abkari
Policy on 17.8.2011 wherein serious concern was shown G
regarding the rising trend of alcoholism and the
consequential social issues arising in the Kerala society
and government clarification that it did not wish to view
the liquor business as a source of revenue. [Para 5, 6 and
7] [1067-B, C, D-F] H
1058 SUPREME COURT REPORTS (2014] 3 S.C.R.
A 3. There cannot be any dispute on the proposition
that, there is no fundamental right to trade in liquor. At
the same time the dicta of the Supreme Court in Khoday
Distilleries cannot be ignored that where such a trade is
permitted, there can not be any room for discrimination.
B [para 32] [1088-A-B]
Khoday Distilleries Ltd. & Ors. v. State of Karnataka 1995
(1) SCC 574 1994 (4) Suppl. SCR 477 ; State of Kera/a v.
B. Six Holiday Resorts Private Ltd. 1010 (5) SCC 186: 2010
C (3) SCR 1 - relied on.
4. There are two amendments which are under
challenge. As far as the deletion of three star hotels is
concerned, in the case of B. Six Holiday Resorts wherein,
the previous deletion of two star hotels from the eligibility
D of FL-3 licences was upheld by this Court. It was held
that promotion of tourism should be balanced with
general public interest. Paragraph 31 permitted a
periodical reassessment of policy, and held that if policy
is not open to challenge the amendment of the rules to
E effect the policy can also not be challenged This being
the position the grievances made by the hoteliers with
respect to the deletion of three star hotels, and to insist
on a bar licence, cannot be sustained, on this ground.
Deletion of three star hotels falls in the same genre as the
F deletion of two star hotels, which was done earlier. This
Court has upheld the deletion of two star hotels in the
said judgment. This being the position the state can not
be faulted for deletion of three star hotels after a
periodical revision of the policy. [para 33] [1088-B-G]
G 5. The two star and three star hotels stand on a
different footing as against the hotels with four star and
higher classification under the tourism policy of the
Government of India. The Ministry of Tourism (H&R
Division) of the Government of India has issued the
H amended guidelines for classification/re-classification of
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1059
ETC.
hotels on 28.6.2012. The classification of the hotels into A
star categories and heritage categories is done
thereunder, and it is a voluntary scheme. Annexure-2
contains the provisions concerning classification/re-
classification of operational hotels. This being the
position, it is not necessary for a three star hotel to have B
a bar licence. In fact para 8(f) also states that if a local law
prohibits the issuance of a bar licence to four star, five
star, five star deluxe, heritage classic and heritage grand
categories, which is otherwise necessary, such local law
will prevail. In any case three star hotels will have to be c
placed in a different category as against the hotels· with
four star and higher classification, since it is not
necessary for three star hotels to have an FL3 licence.
[Para 34] [1088-G-H; 1089-A-B, D-E]
6. The position with respect to the distance rule D
introduced in 2012 is, however, different. As far as the
amendment brought in 2012 introducing the distance rule
is concerned, the hard realities cannot be ignored which
were recorded in the report of the Comptroller and
Auditor General who is a constitutional functionary, and E
who has made the report on receiving the necessary
information from the State Government. Para 5.3.1.1 of the
report spoke for itself and read that the field officers of
the Department had reported violation of licence
conditions like unhygienic conditions, lack of facilities, F
non adherence of the time schedule, selling on dry days,
opening more than one counter, etc. in these bar hotels.
However, no action was taken by the Department on
these reports. The Excise Commissioner sent a letter
(January 2011) to the Government highlighting the poor G
standards maintained by the 418 unclassified bars and
requested not to grant fresh FL3 licenses for areas other
than tourism notified areas. In the letter the Excise
Commissioner, inter alia, stated that the restaurant
segment of the unclassified hotels were functioning for H
1060 SUPREME COURT REPORTS [2014] 3 S.C.R.
A name sake only and during the last one year seven
people had died due to excessive drinking in the
unclassified hotels. He also pointed out that he had
personally seen that almost all the customers went there
to drink liquor and not for taking food. Even though the
s Excise Commissioner had requested not to issue fresh
FL3 licenses, seven more FL3 licenses were issued
between 12 January and 31 March 2011. Moreover in the
Abkari Policy for 2010-11, the Government declared that
the FL3 licensees not having the requisite star
c qualification and who were functional during 2009-10
should be regularised. Thus, the Government has made
it a regular feature to regularise ineligible licensees. The
Government has not taken a firm stand to ensure that
only hotels of a minimum standard are issued FL3
licenses. Further, the Government has seriously
0
compromised public safety by (a) regularising 418
unclassified bars, though they were not able to attain the
minimum standards despite repeated extension of time
and (b) by turning a blind eye towards the various
complaints against these unclassified bars. On this being
E pointed out in audit the Department stated (June 2011)
that the Government is the competent authority to issue
orders allowing relaxation, if any, for the functioning of
FL3 licensees/bar hotels. [para 35] [1089-F-G; 1091-C-H;
1092-A-C]
F
7. The consequences of the amendment of 2012 will
be that four star and five star hotels would not be
permitted to have FL-3 licences only on the ground that
they are within the prohibited distance from such hotels
G which have poor hygiene standards, and which are not
following norms laid down by the State Government. The
FL3 licences are issued on an annual basis, and it is quite
within the powers of the Government not to renew these
licenses if such serious violations are reported. But the
H Government appears to be slow in taking any such
STATE OF KERALA & ORS. v. B. SUREN ORA DAS 1061
ETC.
action. It will surely be counter--productive to the A
objective of Rule 13 (3), which is to promote tourism, as
well as to the State's avowed policy of improving the
health and nutrition standards of its citizens. The
criticism of the respondents, particularly of the hotels
which have been permitted under the 6th and 7th proviso B
to Rule 13(3), is therefore quite justified. In the
circumstances, although there is no dispute regarding the
power of the State Government to bring about the
necessary reform, by modifying the rules, it has got to be
justified on the touchstone of the correlation between the c
provision and the objective to be achieved. If that
correlation is not established, surely the rule will suffer
from the vice of arbitrariness, and therefore will be hit by
Article 14. The State Government has introduced
awareness programmes in this behalf and, it ought to 0
continue with that. It should also take steps to see to it
that hotels with poor hygiene standards are not allowed
to function. The State Government has appointed a one-
man commission for reviewing the Abkari Policy, by
issuing a necessary notification on 23.1.2013. It is hoped
E
that the commission will take into consideration the hard
realities which are reflected in the report of the CAG and
make necessary recommendations. As far as this Court
is concerned, the validity of the amendment of 2012, in
the present circumstances cannot be upheld. [paras 36,
37] [1092-D-H; 1092-A-C] F
8. If the Government is really serious about reducing
the consumption of liquor, it should also take steps to
reduce its own shops and depots and in any case should
not open new ones. In view of the very high consumption G
of liquor, which the State Government intends to reduce,
the Government should consider not issuing further FL-
1 licences. 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 H
1062 SUPREME COURT REPORTS [2014] 3 S.C.R.
A private sector alone to function in a particular manner.
The Government must as well behave in conformity with
the mandate of Article 47. There is one more development
in this matter. In as much as this court had not granted
any stay of the impugned judgment and order of the High
B Court, an order was passed by this Court on 19/9/2012
that the applications of the claimants for the licenses be
considered in eight weeks. Since no decision was
forthcoming, some of the respondents filed Contempt
Petitions. A notice was issued on the Contempt Petition
c filed by respondent. A reply was filed on behalf of the
appellants on 25.01.2013 that they had considered the
applications, some of them were rejected, and in the rest
further information was sought. These steps were
initiated within the time stipulated by this court, and due
to the large number of applications, the decision was
0
taking its own time. On 8.02.2013, this court directed that
the Contempt Petitions be heard alongwith the special
leave petitions. Since the Civil appeals arising out of
these SLPs are being disposed of with this order, no
E separate orders are required on the contempt petitions.
The appellants will have to act now in terms of the order
being passed herein. [paras 39, 40] (1094-G-H; 1095-A-E]
P.N. Kausal and Ors. vs. Union of India & Ors. 1978 (3)
sec 558 - relied on.
F Kuldip Singh vs. Government of NCT of Delhi 2006 (5)
SCC 702:2006 (3) Suppl. SCR 335; Khandige Sham Bhat
and Ors. vs. The Agricultural Income Tax Officer AIR 1963
SC 591: 1963 SCR 809; State of Kerala Vs. Maharashtra
Distilleries Ltd & Ors. 2005 (11) SCC 1: 2005 (1) Suppl. SCR
G 91; Javed and Ors. vs. State of Haryana 2003 (8) SCC 369:
2003 (1) Suppl. SCR 947; Balco Employees Union vs. Union
of India 2002 (2) SCC 333: 2001 (5) Suppl. SCR 511 ; State
of Andhra Pradesh and Ors. vs. Mc Dowell and Co. 1996 (3)
SCC 709: 1996 (3) SCR 721 ; Mis Ugar Sugar Works Ltd.
H vs. Delhi Administration & Ors. 2001 (3) SCC 635: 2001 (2)
STATE OF KERALA & ORS. v. 8. SURENDRA DAS 1063
ETC.
SCR 630; State of M.P. vs. Nandlal Jaiswal & Ors. 1986 (4) A
SCC 566: 1987 (1) SCR 1 ; State of Jammu and Kashmir
vs. Triloki Nath Khosa & Ors. 1974 (1) SCC 19: 1974 (1) SCR
771 ; Rashbihari Panda vs. State of Orissa 1969 (1) SCC
414: 1969 (3) SCR 374 ; State of Maharashtra vs. Indian
Hotels and Restaurant Assn. 2013 (8) SCC 519: 2013 (7) B
SCR 654; Reliance Energy Limited vs. Maharashtra State
Road Development Corporation 2007 (8) SCC 1: 2007 (9)
SCR 853 • referred to.
9. The judgment rendered by the Division Bench is
set-aside to the extent it interferes with the amendment C
brought in the year 2011. The deletion of three star hotels
from the category of hotels eligible for FL3 licenses under
Rule 13(3) is held valid.As far as the amendment brought
in 2012 introducing the distance rule by way of addition
of Rule (3E) in Rule 13(3) is concerned, the same is held D
to be bad in law. The judgment of the High Court is
confirmed to that extent. The state government will not
proceed to deny FL3 licenses to hotels with a
classification of four star and above by resorting to their
deletion under Rule 13 (3) until the report of the one-man E
commission is received, and until it takes action against
the non-standard restaurants which have been permitted
under the sixth and seventh proviso of Rule 13(3). [para
41] [1095-F-H; 1096-A-B]
F
Case Law Reference:
1994 (4) Suppl. SCR 477 relied on Para 10
2006 (3) Suppl. SCR 335 relied on Para 17
2010 (3) SCR 1 relied on Para 18 G
1963 SCR 809 Referred to Para 19
2005 (1) Suppl. SCR 91 Referred to Para 20
2003 (1) Suppl. SCR 94·7 Referred to Para 21 H
1064 SUPREME COURT REPORTS (2014) 3 S.C.R.
A 2001 (5) Suppl. SCR 511 Referred to Para 21
1996 (3) SCR 721 Referred to Para 22
2001 (2) SCR 630 Referred to Para 23
1987 (1) SCR 1 Referred to Para 26
B
1974 (1) SCR 771 Referred to Para 27
1969 (3) SCR 374 Referred to Para 28
2013 (7) SCR 654 Referred to Para 29
c
2007 (9) SCR 853 Referred to Para 29
1978 (3) sec 558 Relied on Para 30
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
D 3196-98 of 2014.
From the Judgment and Order dated 27.07.2012 of the
High Court of Kerala at Ernakulam in W.A. Nos. 470, 670 and
745 of 2012.
E WITH
Civil Appeal Nos. 3199-3218, 3219, 3220, 3221, 3222, 3223,
3224, 3225, 3226 and 3227 of 2014, Contempt Petition (C)
Nos. 449 and 450 of 2012, 20, 18 and 19 of 2013, 431, 432-
444 of 2012 and 5 of 2013.
F
V. Giri, Mukul Rohatgi, Chander Uday Singh, Krishnan
Venugopal, Mohammed Sadique, Abhilash M.R., Krishna
Pradip, Ramesh Babu M.R., Aditya Soni, G. Prakash, Himinder
Lal, D.K. Devesh, S.K. Roshan, Prasenjit Pritam, Amarjit Singh
Bedi, Radha Shyam Jena, K.B. Pradeep, Sanand
G Ramakrishnan, Rajeev Mishra, Sumita Hazarika, AS. Tuisem
Shimray, Romy Chacko, Varun Mudgal, M.C. Ashri, Sudhi
Vasudevan, V.K. Sidharthan, Roy Abraham, Reena Roy,
Seema Jain, Harish Beeran, Amer Mushtaq, Deepak Prakash, /
1
Biju P. Raman, Vivek Kumar Verma, Haritha V.A. (for Usha
H Nandini V.), Joe Joseph Kochikunni, M.P. Vinod, Dileep ft>illai,
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1065
ETC.
Ajay K. Jain, Neelam Saini, James P. Thomas, Rohit Kumar A
Singh, Sajith P.Warrier, P.O. Baby John, Venkita Subramoniam
T.R., Rahat Bansal, P. Sreekumar, Alex Joseph, Shiv Sagar
Tiwari, Bobby Augustine, Rajesh Tiwari for the Appearing
Parties.
B
The Judgment of the Court was delivered by
H.L. GOKHALE J. 1. Leave granted.
2. This group of Civil Appeals raises the questions with
respect to the legality and validity of two amendments c
introduced by the first appellant-State of Kerala, in pursuance
of its Abkari Policy framed in 2011-2012, in the Foreign Liquor
Rules framed under the Kerala Abkari Act, since those
amendments have been struck down as unconstitutional by the
impugned judgment and order rendered by the High Court of D
Kera la.
3. Rule 13 of the Foreign Liquor Rules governs the grant
of licences for the sale of the Indian Manufactured Foreign
Liquor ('IMFL' for short). The two amendments which are
disputed are as follows:- E
(i) Firstly, the words 'three star' were omitted from Rule
13(3) of these rules by Government of Kerala by issuing
notification dated 9.12.2011. Consequently, after this
amendment of the rule which has come into force immediately, F
three star hotels not already having a licence, will not be eligible
to get a bar licence for retail sale of liquor in the hotels. Thus,
no new hotels having the three star classification will be issued
the licence known as FL-3 licence for selling the IMFL. The
hotels having the two star or lesser classification are already G
ineligible to get this licence by virtue of the pre-existing proviso
to Rule 13(3), introduced by notification dated 20.12.2002.
(ii) Secondly, Rule (3E) has been added in this Rule 13
w.e.f. 27.3.2012 by issuing a notification of even date, whereby
H
1066 SUPREME COURT REPORTS [2014] 3 S.C.R.
A no new bar hotels of any classification will be permitted to be
opened (a) if they are situated within a distance of 3 kms. from
existing bar hotels in a panchayat area, and (b) within a
distance of 1 km. from existing bar hotels in a municipal area.
B 4. The avowed object of this Abkari Policy is to curb the
rampant alcoholism in the State of Kerala, which claims to have
the highest consumption of alcohol as against the other states
in India, and whereby the younger generation is getting
addicted. Thus, the objective is in pursuance of Article 47 of
the Constitution of India which declares it to be a Directive
C Policy for the State to endeavour to bring about proh:!:>ition of
consumption of intoxicating drinks. These two amendments
were challenged by the respondents in the Kerela High Court
on the touchstone of Article 14 of the Constitution of India, as
being arbitrary, discriminatory, irrational, excessive, and even
D malafide. It is contended by them that the amendments will not
succeed in achieving the objectives for which they have been
introduced. On the contrary, the two amendments will affect the
other objective of the policy of the State of Kerala viz. to
encourage and increase tourism in the State.
E
5. The respondent No.1, B. Surendra Das, was one such
person who filed a Writ Petition, bearing Writ Petition (C)
No.5650/2012, to challenge the denial of the FL-3 licence to
his three star hotel on the basis of the first amendment effected
F by notification dated 9.12.2011. The writ petition was
dismissed by a Single Judge by his judgment and order dated
7.3.2012. Being aggrieved by the said judgment and order, he
preferred Writ Appeal No.470/2012. Some other persons
whose writ petitions were rejected, filed similar Writ Appeals.
G The distance rule introduced with the addition of Rule (3E) in
Rule 13 w.e.f. 27.3.2012 was also challenged by some other
persons by filing Writ Petitions directly to the Division Bench.
All these Writ Appeals and Writ Petitions were allowed by a
Division Bench of the High Court by its common judgment and
order dated 27. 7.2012, which struck down the two amendments
H
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1067
ETC. [H.L. GOKHALE, J.]
as unconstitutional. Being aggrieved by the said judgment and A
order, these appeals have been filed by the appellant-State of
Kerala and its concerned officers of the Excise Department.
Abkari Policy of the Government of Kerala for the year
2011-2012:-
B
6. Before we deal with the impugned judgment and the
amendments, we must first refer to the Abkari Policy of the
Government of Kerala which led to the two disputed
amendments to Rule 13. The Government of Kerala announced
the Abkari Policy on 17.8.2011. In the second sub-para of the C
very first paragraph of this policy, the Government noted as
follows:-
"This Government views with serious concern the rising
trend of alcoholism and the consequential social issues D
arising in the Kera/a society. Strong feelings against this
have been emanating from the civil society. Fully
realising, Government intends to formulate a stringent
Abkari Policy. "
7. The notable features of this policy were as follows:- E
"a, The Government noted the rising trend of
alcoholism in the state and its consequences.
b. Clarified that it did not wish to view the liquor
F
business as a source of revenue.
c. Noted that as a prelude to forming its Abkari
Policy, detailed discussions were held with
stakeholders, such as trade-unions in the Toddy/
IMFL sector, bar-owners, distilleries and brewers, G
anti-liquor organizations, NGOslindividuals
running de-addiction centers, religious heads. Etc.
d. For IMFL the following yard-sticks wereimposed
H
1068 SUPREME COURT REPORTS [2014] 3 S.C.R.
A (i) A condition insisting on a distance of 3 km and
1 km fromexisting bar hotels in panchayats and
municipalities respectively.
(ii) From 1.4.2012 bar licences would begranted
only to hotels having four-star and above
B
classification.
(iii) From the 2013-2014 financial year onwards
Bar- licences would be granted only to five star
hotels etc.
c
e. Further, impositions were as follows:
(i) The age limit for buying and selling alcohol was
increased.
D (ii) The maximum limit of alcohol possession was
reduced.
(iii) The working hours of bars were altered and
restricted to 8 am to 11 pm in panchayats and 9
am to 12 pm in corporation areas."
E
The relevant Foreign Liquor Rule 13(3):-
8. As a consequence of this policy the two amendments
were brought in, firstly the denial of fresh licences to three star
F hotels by the amending notification dated 9.12.2011, and
secondly the distance rule by the notification dated 27.3.2012.
Relevant portion of Rule 13(3) reads as follows:-
"13. Licences for possession, use or sale:- Licences for
the possession and sale of foreign liquor or for
G
possession or use of foreign liquor shall be of the
following descriptions and in the forms appended hereto.
xxx xxx xxx
H (3) Foreign Liquor 3 Hotels (Restaurant) Licence:-
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1069
ETC. [H.L. GOKHALE, J.]
Licence in this form may be issued by the Excise A
Commissioner under orders of Government, in the
interest of promotion of tourism in the State, to hotels
which have obtained (three star)1, four star, five star, five
star deluxe, heritage, heritage grand or heritage classic
classification from Ministry of Tourism, Government of B
India, where the privilege of sale of foreign liquor in such
hotels have been purchased on payment of an annual
rental of Rs. 22,00,000 (Rupees twenty two lakhs only).
But no such licence shall be issued to hotels which are
located within 200 (two· hundred) metres from an c
educational institution, temple, church, mosque or burial
ground. Hotels other than those in the private sector
having four star, five star, five star deluxe classification
will be exempted from the distance restrictions in the
interest of promotion of tourism in the State. In the case 0
of hotels in the private sector of the above categories and
hotels having heritage, heritage grand and heritage
classic classification issued by the Ministry of Tourism,
. Government of India, no such licence shall be issued if
located within 50 (fifty) metres from any educational E
institution, temple, church, mosque, burial ground or
scheduled caste/scheduled tribe colony. The applicant
shall produce from the Abkari Workers Welfare Fund
Inspector a certificate to the effect that he has remitted
before the date of application for the licence/renewal of
licence, the arrears of contributions, if any, payable upto F
the 31st of December of the preceding year.
The existing licencees who do not maintain two star
standards will be allowed time upto 31st March, 2007 to
upgrade their standards to two star. Their licence will be G
renewed till that date. Failure to upgrade the standard of
those hotels would lead to cancellation of licence and
forfeiture of rental paid by them. Licencees shall have no
claim for compensation. The applicant shall produce
from the Abkari Worker's Welfare Fund Inspector a H
1070 SUPREME COURT REPORTS [2014] 3 S.C.R.
certificate to the effect that he has remitted before the date
of application for the licence/renewal of licence, the
arrears of contribution, if any, payable upto 31st day of
December preceding year.
The question whether a hotel or restaurant confirms
B
to the standard of two star hotel shall be determined in
accordance with the specific issues for classification of
star hotels issued by the Department of Tourism and in
case of doubt or dispute, the decision of the Excise
Commission shall be final.
c
The cost of liquor shall be billed along with the cost
of meals. The cost of liquor shall be shown separately in
the bill and the duplicate copies thereof shall be retained
for inspection by the Officers of the Excise Commission.
D
xxx xxx xxx
Provided also that such bar licences, having dispute on
distance rules and shifting outside Municipal Corporation
area, including those of Approved Restaurants, existing
E as on 1st April, 2004 shall be regularized.
(Fourth Proviso)
xxx xxx xxx
F Provided further that all existing licences not having the
above classification and are functional as on 31st March,
2007 shall be regularized.
(Sixth Proviso)
G Provided also that all FL-3 licences not having the
requisite star classification and are functional during
2009-2010 shall be regularized.
(Seventh Proviso)
H
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1071
ETC. [H.L. GOKHALE, J.)
xxx xxx xxx A
(38) No liquor shall be sold under FL-3 licences for
removal outside the hotel to anyone including the
residents of the hotel:
Provided that the liquor may be sold and served to the B
residents of the hotel in the rooms where they reside or
in the restaurant where they partake food, if such hotels
have restaurants exclusively for the use of families and
others where no liquor shall be served:
c
Provided further that the holder of an FL-3 licence may
serve liquor along with meals by the side of swimming
pools and in the lawns and roof gardens of the hotel if
he obtains a special permit for the purpose from the
Commissioner of Excise, on payment of additional D
annual rental of {Rs. 50, OOO(Rupees Fifty Thousand
only)].
Provided also that for serving liquor at restaurants to
persons other than residents, the licencee shall pay an
additional annual fee of [Rs. 25,000 (Rupees Twenty Five E
Thousand)].
xxx xxx xxx
(3E) 2 Notwithstanding anything contained in these rules, F
no new FL-3 licence shall be granted to hotels which are
located within a radius of three kilometers in Grama
Panchayat and one kilometer in Municipal Corporation/
City Corporation, from another hotel having an FL-3
licence granted under this rule].
G
1. Deleted by impugned Amendment of 2011.
2. Introduced by impugned Amendment of 2012."
1072 SUPREME COURT REPORTS [2014] 3 S.C.R..
A Judgment of the Single Judge:-
9. The learned single Judge who heard the matter
concerning the denial of licences to new three star hotels held
that there was no vested right to get a licence, leave aside any
B Fundamental Right. It was held that there was no element of
discrimination, nor that of legitimate expectation. He also held
that the unamended rule cannot be applied once the amendment
comes into force, and therefore rejected the petition.
Judgment of the Division Bench:-
c
10. The Division Bench, on the other hand, noted in
paragraph 5 of its judgment the submission of the respondents
that although there was no Fundamental Right to carry on
business in liquor, as held in Khoday Distilleries Ltd. & Ors. vs.
D State of Karnataka reported in 1995 (1) SCC 574, once the
State permits such a trade, it has to make rules and permit the
business without any arbitrariness or discrimination, and in
conformity with Article 14 of the Constitution of India. It also
noted the submissions of the respondents that they have made
E huge investments, and many of them had earned the
classification of heritage hotels from the Ministry of Tourism,
Government of Kerala. They also challenged the 4th, and
particularly 6th and 7th proviso of this rule. The 6th proviso
regularized the licences as functioning on 31.3.2007. The 7th
proviso regularized those licences functioning during 2009-
F 2010. It was submitted that if such hotels, although not
conforming to the statutory requirements, were to be tolerated,
how can the distance rule be applied to deny licences to hotels
having three star, four star or higher classification, which meet
the prescribed criteria, by measuring distances from such
G hotels which do not meet minimum standards of health and
hygiene?
11. The Division Bench noted that when it comes to the
wholesale business in liquor in the State, there was a complete
H monopoly of the State Government in as much as the business
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1073
ETC. [H.L. GOKHALE, J.]
was in the hands of 3 entities, (1) Kerala State Beverages A
.(Manufacturing and Marketing) Corporation Limited, (2) Kerala
State Civil Supplies Corporation Limited and (3) Kerala State
Co-operative Consumer Marketing Federation Limited. The
Court noted that all these 3 Government companies were
together running around 400 shops, in the State having FL 1 B
licenses. The shops with these licenses sell liquor, in the form
of unopened bottles, which is not to be consumed on the
premises. These are the shops which have the highest sale of
liquor, and the consequence of it in any case is the high
consumption of liquor. The Court also noted that the c
Government earned huge revenue from this sale, and the State
Government's annual collection was over 7000 crores. lfthese
sales by the shops run by the State are to be permitted, why
should the privately owned restaurants and bars not be
permitted to vend liquor? D
12. The Division Bench was of the view that whereas on
the one hand, the policy of the State perpetuated the monopoly
of the existing hotels having three star or higher classification,
on the other hand by preventing new star hotels from coming
up, it would encourage consumption of spurious liquor. The E
Court was of the view that there was no distinction between the
existing three star hotels and the new three star hotels, to be
opened. Besides most of these hotels were set up in areas
where there was a thriving tourism business like the Kovalam
Beach near Thiruvanantapuram. The decision to set up hotels F
ought to be left to the hoteliers. The State Government will defeat
the tourism policy by introducing, by amendment, the distance
rule. For all these reasons the Court held that the two
amendments were discri.minatory, and will not achieve ttie
policy which they intended to achieve. The Court, therefore, held G
the two amendments to be bad in law and unco.nstitutional.
13. Learned senior counsel, Mr. V. Giri assist~d by Mr.
Ramesh Babu, learned counsel, has appeared for the
appellants. He has been supported by Mr. P.K. Bali, learned H
1074 SUPREME COURT REPORTS [2014] 3 S.C.R.
A senior counsel appearing for the Kerala Pradesh Madhya
Virudh Samithy (i.e. committee opposing consumption of liquor
in the area of Kerala). Senior counsel Mr. Mukul Rohtagi,
Chander Udai Singh, Krishnan Venugopal and others have
appeared for the respondents and the interveners.
B
Submissions on behalf of the appellants:-
14. The principal submission of Mr. Giri, as well as Mr.
Bali, has been that the consumption of liquor is the highest in
the State of Kerala, as compared to all other states in India.
C Chronic diseases are on the rise due to the excessive
consumption of alcohol. The amendments in Rule 13(3) of the
Foreign Liquor Rules are effected to bring in force the Abkari
Policy of the Government, with a view to bring down the sale
and distribution of liquor within the State. Mr. Giri highlighted
D the objectives of the Abkari Policy framed from the year 2011-
2012 (These objectives have already been referred to in
paragraph 7 above). It was submitted that trading in liquor is
not a Fundamental Right as held in Khoday Distilleries (supra),
and the effect of the policy decision taken by the State is to be
E considered having regard to the provisions contained in Article
47 of the Constitution of India, as also the power of the State
to regulate and control the trade in liquor in terms of the
provisions of the Abkari Act.
15. It was pointed out by Mr. Giri that the revised policy
F was introduced by the Government foreseeing the ill effects of
increase in the consumption of liquor, and with the intention of
reducing it in a phased manner. The amendments have been
brought about for that purpose as a part of the social
commitment to the public at large. The Abkari Policy has been
G framed from 1992 onwards as follows:-
"(iJ In 1992, with the intention of reducing the number
of bar hotels, Government decided to restrict grant
of FL-3 Licences to only hotels having two star
H and above.
STATE OF KERALA & ORS. v. B. SUREN ORA DAS 1075
ETC. [H.L. GOKHALE, J.]
(ii) By 1996 Abkari policy the Government decided to A
ban sale of Arrack with effect from 01.04.1996.
(iii) In 2002 as per the Abkari policy of 202, an
amendment was brought in the Rule restricting
grant of FL-3 Licence to only hotels having 3 star
8
and above classification.
(iv) In continuation of the policy of the Government to
reduce sale and distribution of Liquor, Abkari
policy of 2011 was announced interalia restricting
issue of FL-3 Licence to only having 4 star and C
above classification."
Thereafter, the distance rule has been brought in 2012 by
adding Rule (3E) in Rule 13. It was. submitted that all these
changes in the rules have been made with the object of 0
gradually reducing the sale and distribution of liquor in the
State.
16. Mr. Giri emphasized the observations in sub-para (c)
and (d) of para 60 of Khoday Distilleries (supra) to the following
effect:- E
"(c) Potable liquor as a beverage is an intoxicating and
depressant drink which is dangerous and injurious to
health and is, therefore, an article which is res extra
commercium being inherently harmful. A citizen has, F
therefore, no fundamental right to do trade or business
in liquor. Hence the trade or business in liquor can be
completely prohibited.
(d) Article 47 of the Constitution considers intoxicating G
drinks and drugs as injurious to health and impeding the
raising of level of nutrition and the standard of living of
the people and improvement of the public health. It,
therefore, ordains the State to bring about prohibition of
the consumption of intoxicating drinks which obviously
H
1076 SUPREME COURT REPORTS [2014] 3 S.C.R.
A include liquor, except for medicinal purposes. Article 47
is one of the Directive Principles which is fundamental
in the governance of the country. The State has,
therefore, the power to completely prohibit the
manufacture, sale, possession, distribution and
B consumption of potable liquor as a beverage, both
because it is inherently a dangerous article of
consumption and also because of the Directive Principle
contained in Article 47, except when it is used and
consumed for medicinal purposes."
c 17. He then emphasized that this Hon'ble Court has also
held in Ku/dip Singh vs. Government of NCT of Delhi reported
in 2006 (5) sec 702 that the right to carry on business in liquor
is not a Fundamental Right, and the policy decision of the
Government in Abkari Matters, introduced through amendment
D should not be easily interfered with, unless the amendment is
motivated by malafides, arbitrariness and discrimination.
18. Apart from these two leading judgments, he drew our
attention to another judgment of this Court in State of Kera/a
E vs. B. Six Holiday Resorts Private Limited reported in 2010
(5) sec 186 when this very Rule 13(3) was amended w.e.f.
1.4.2002; and grant of FL-3 licences to two star hotels was
stopped. The challenge to this restriction was repelled by this
Court in the following words in paragraphs 30 and 31 of this
F judgment. These paragraphs read as follows:-
"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
G 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
H be issued. The proviso does not nullify the licences
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1077
ETC. [H.L. GOKHALE, J.]
already granted. Nor does it interfere with renewal of the A
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
sufficient licences had already been granted or in public B
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 c
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 D
amendment, the minimum eligibility for licence was
increased from Two-star categorization to Three-Star
categorization 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 E
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 re-assessment of policy changed the policy,
it may amend the Rules by adding, modifying or omitting F
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, tbe object of the
newly added proviso was to stop the grant of fresh G
licences until a policy was finalized."
19. It was, therefore, submitted by Mr. Giri that when a
policy was introduced with a good intention, after considering
the serious problems in the society, and after consulting all H
1078 SUPREME COURT REPORTS [2014] 3 S.C.R.
A affected interests including the hoteliers, there was no reason
for the High Court to interfere therein by calling it arbitrary or
discriminatory. In this context he relied upon a Constitution
Bench Judgment in Khandige. Sham Bhat and Ors. vs. The
Agricultural Income Tax Officer reported in AIR 1963 SC 591
B wherein the issue was with respect to the classification of State
of Kerala into two parts, i.e., the Madras area and the
Travancore-Cochin area, for the purpose of imposition of
agricultural Income Tax. The petitioners had contended that it
had no rational nexus with the object of the Act, namely,
c imposition of agricultural income-tax, for, as the two parts belong
to the same State, no post amalgamation law can treat
assesses of the same State differently in the matter of taxation.
This Court, while dismissing the Petitions, stated the following
in para 11 of the judgment:
D "The said discussion leads to the only conclusion that the
Legislature in its sincere attempt to meet a difficult
situation made a law adopting one of the diverse methods
open to it and even the method adopted cannot be said
to be either unreasonable or arbitrary, as the overall
E picture indicates that it works fairly well on all similarly
situated, though some hardship may be caused to some
in the implementation of the law which is almost inevitable
in every taxation law. We cannot, therefore, say that in the
present case the one method adopted instead of another
F is either arbitrary or capricious."
He, further, submitted that if three star hotels are not to be
issued FL-3 licences any more, that was as a part of the
continuing policy of the State, and the previous restriction of not
G issuing FL-3 licences to two star hotels has already been
upheld by this Court. That being so, the amendment of Rule
13(3) omitting three star hotels by notification dated 9.12.2011
could not be faulted.
20. As far as the distance rule is concerned, Mr. Giri
H submitted that there were already very large number of
'STATE OF KERALA & ORS. v. B. SURENDRA DAS 1079
ETC. [H.L. GOKHALE, J.]
restaurants and liquor bars having FL-3 licences spread over A
the State, in the Grama Panchayat and in the municipal areas.
The objective behind introducing the distance rule is to prevent
any more restaurants and bars selling liquor coming up in the
near vicinity of the existing ones. The existing restaurants and
hotels have caused sufficient damage to the younger B
generation, and it is to prevent further damaging effects on the
health of the society that the subsequent amendments had been
brought in, by introducing Rule (3E) in the year 2012. The High
Court should not have interfered, and held this added rule as
unconstitutional on the ground of alleged discrimination against c
parties which had not set up their hotels as yet. The State was
trying to do its best in furtherance to the Directive Principle
contained in Article 47 of the Constitution, and as Article 37 of
the Constitution states, the principles laid down in the Directive
Principles are fundamental in the governance of the country, and D
the State has the duty to apply them in making the laws. He
submitted that as held in Khoday Distilleries Ltd. (supra) the
correct way to describe the Fundamental Rights under Article
19(1) is to call them 'Qualified Fundamental Rights'. The right
to practice any profession, or to carry on any occupation, trade E
or business guaranteed under Article 19(1 )(g) of the
Constitution is subject to the reasonable restrictions under sub-
article (6) thereof, and there was no reason to hold that the
restrictions imposed under the present rules are in any way
unreasonable. Mr. Giri, referred to Section 69 of Kerala Abkari
Act, and submitted that the rules framed under the statute must F
be considered as a part of the statute. They are on a higher
pedestal as against rules framed by notifications de hors any
statute, and cannot be challenged on the grounds as sought by
the respondents. He referred to a judgment of this Court in State
of Kera/a Vs. Maharashtra Distilleries Ltd & Ors. reported in G
2005 (11) SCC 1 wherein the Constitution Bench held in para
79 of that judgment that permissive privilege to deal in liquor
is not a right. He asked that if the step taken by the Government
is in the right direction and is a bonafide one, should the State
be restricted from taking such a step? H
1080 SUPREME COURT REPORTS [2014] 3 S.C.R.
A 21. It was submitted by Mr. Giri that the decision of the
Government to deny FL-3 licences to new three star hotels does
not operate against the objective of tourism, and even under
the Government of India policy on tourism, it was not necessary
for the three star hotels to have the bar licence. He, however,
B stated that to begin with the Government be allowed to act in
public interest, and if at a later point in time it finds that the
decision requires reconsideration, it will review the decision.
The villagers are objecting to the new liquor shops coming up
and so are the organizations of women and social activists. The
C state cannot be oblivious to the requirements of the citizens.
The distance rule will apply across the board, and no new
licences will be given if any liquor vending shop is sought to
be set up within the prohibited distance. Mr. Giri submitted that
Article 14 is wrongly invoked in the present matter. It should not
be permitted to be invoked in matters of public policy and
D where public interest was involved. He relied upon the judgment
of this Court in Javed and Ors. vs. State of Haryana reported
in 2003 (8) sec 369 where this Court was concerned with the
prohibition imposed by Haryana Panchayat Raj Act for people
having more than two children from taking up office as a
E member of Panchayat. This Court held in that matter that
Fundamental Rights are not to be read in isolation, and they
have to be read alongwith the Chapter on Directive Principles.
Under Article 47 the State has the duty to raise the level of
nutrition and standard of living and to improve public health.
F These aspects cannot be ignored. He thereafter referred to
paragraph 93 of the judgment of this Court in Ba/co Employees
Union vs. Union of India reported in 2002 (2) SCC 333 to
submit that it is not for the Court to decide the policy matters.
The affected persons are women and children also, and the
G State has taken steps to protect their interest.
22. The submissions of Mr. Giri were supported by learned
senior counsel Mr. Bali. He represented the earlier referred
Kerala Pradesh Madhya Virudha Samithy. It has filed a
H separate SLP challenging the impugned judgment bearing No.
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1081
ETC. [H.L. GOKHALE, J.]
3825112012. He drew our attention to various judgments. The A
salient from amongst them are mentioned hereafter. Firstly he
referred to the judgment of this Court in State ·of Andhra
Pradesh and Ors. vs. Mc Dowell and Co. reported in 1996 (3)
SCC 709, wherein a bench of three Judges of this Court laid
down:- B
"43 .... .... A law made by the Parliament or the Legislature
can be struck down by Courts on two grounds and two
grounds alone, viz., (1) lack of legislative competence
and (2) violation of any of the fundamental rights C
guaranteed in Part-II/ of the constitution or of any other
constitutional provision. There is no third ground. We do
not wish to enter into a discussion of the concepts of
procedural unreasonableness and substantive
unreasonableness concepts inspired by the decisions of
United States Supreme Court. Even in U.S.A., these D
concepts and in particular the concept of substantive due
process have proved to be of unending controversy, the
. latest thinking tending towards a severe curtailment of this
ground (substantive due process). The main criticism
against the ground of substantive due process being that E
it seeks to set up the courts as arbiters of the wisdom of
the Legislature in enacting the particular piece of
legislation. It is enough for us to say that by whatever
name it is characterised, the ground of invalidation must
fall within the four comers of the two gro1,mds mentioned F
above. In other words, say, if an enactment is challenged
as violative of Article 14, it can be struck down only if it
is found that it is violative of the equality clause/equal
protection clause enshrined therein. Similarly, if an
enactment is challenged as violative of any of the G
fundamental rights guaranteed by Clauses (a) to (g) of
Article 19(1), it can be struck down only if it is found not
saved by any of the Clauses (2) to (6) of Article 19 and
so on. No enactment can be struck down by just saying
that it is arbitrary or unreasonable. Some or other H
1082 SUPREME COURT REPORTS [2014] 3 S.C.R
A constitutwnal infirmity has to be found before invalidating
an Act An enactment cannot be struck down on the
ground that Court thinks it unjustified The Parliament
and the Legislatures, composed as they are of the
representatives of the people, are supposed to know and
B be aware of the needs of the people and what is good and
bad for them. The Court cannot sit in judgment over their
wisdom ....... "
(emphasis supplied)
C 23. Thereafter, he referred to the judgment in Mis Ugar
Sugar Works Ltd. vs. Delhi Administration & Ors. reported in
2001 (3) SCC 635. That was a case where a notification was
issued laying down the terms and conditions for registration of
different brands of IMFL for supply within the territory of Delhi
D on the basis of Minimum Sales Figures (MSF), as a criterion
of eligibility for grant of licence. It was challenged as violating
Article 14 and 19(1){g) of the Constitution. This Court held that
laying down the requirement for achieving minimum sale figure
of a particular brand of liquor in other States, as a mode for
E determination of the acceptability of that brand of liquor, could
not be held to be irrelevant, irrational or unreasonable.
24. Mr. K. Padmanabhan Nair, learned senior counsel
appeared for respondent No. 3 in SLP No. 14956/2003.
Respondent No. 3 is one Shashidharan, a resident of a village
F in Distt. Thrissur. He is objecting to a bar hotel being set up in
his village, and his submission was that he should be heard in
case a licence is to be given to set up a hotel in that village.
He supported the policy of the State Government and the
submission of Mr. Giri and Mr. Bali.
G
Reply on behalf of the respondents:-
25. The learned senior counsel appearing for the
respondents submitted that as can be seen from paragraph 5
H of the impugned judgment, the High Court has considered the
STATE OF KERALA & ORS. v. 8. SURENDRA DAS 1083
ETC. [H.L. GOKHALE. J.]
relevant observations of this Court in Khoday Distilleries A
(supra), wherein this Court has held that although there is no
right to carry on liquor business as a Fundamental right,
wherever it is permitted by the state, there should not be any
room for discrimination. It was submitted that this observation
is supported by paragraph 60(g) of the very judgment which B
reads as follows:-
"(g) When the State permits trade or business in the
potable liquor with or without limitation, the citizen has the
right to carry on trade or business subject to the C
limitations, if any, and the State cannot make
discrimination between the citizens who are qualified to
carry on the trade or business."
26. The judgment of this Court in State of M.P. vs. Nandlal
Jaiswal & Ors. reported in 1986 (4) SCC 566 and particularly D
last part of paragraph 33 was pressed into service which reads
as follows:-
"33......... No one can claim as against the State
the right to carry on trade or business in liquor and the E
State cannot be compelled to part with its exclusive right
or privilege of manufacturing and selling liquor. But when
the State decides to grant such right or privilege to others
the State cannot escape the rigour of.Article 14. It cannot
act arbitrarily or at its sweet will. It must comply with the F
equality clause while granting the exclusive right or
privilege of manufacturing or selling liquor. It is, therefore,
not possible to uphold the contention of the State
Government and respondent Nos. 5-11 that Article 14
can have no application in a case where the licence to
manufacture or sell liquor is being granted by the State G
Government. The State cannot ride roughshod over the
requirement of that Article."
27. The respondents submitted that the distance rule was
clearly going to affect the objectives of the tourism policy. This H
1084 SUPREME COURT REPORTS [2014] 3 S.C.R.
A will not permit setting up of any four star or five sta~ hotels within
the prohibited distance even from hotels which do not meet the
minimum standards of health, hygiene and safety, and which
have, on occasions, supplied spurious liquor. They relied upon
paragraph 31 of the judgment of this Court in State of Jammu
B and Kashmir vs. Triloki Nath Khosa & Ors. reported in 1974
(1) SCC 19, wherein this Court has held that such classification
may lead to artificial inequalities. It must be truly founded on
substantial differntia. There is no reason to make any distinction
between the new three star hotels to be set up and the existing
c three star hotels. It will create a monopoly in favour of the
existing three star hotels.
28. It was submitted by them that on the one hand the
Government itself is selling liquor from large number of depots
and shops, through the FL-1 licences, where the liquor bottles
D are purchased and taken home. The very fac.! that the
Government is earning more than 7000 crores annually shows
the consumption permitted by the Government. Although the
government is contending that it is not looking at it from the point
of revenue, it is not reducing the. number of depots and shops
E which are set up by itself. Reliance was placed in this behalf
on the judgment in the case of Rashbihari Panda vs. State of
Orissa reported in 1969 (1) SCC 414. This case involved the
creation of a monopoly, with respect to Kendu leaves, by the
Government, in favour of those licensees who had worked
F satisfactorily in the previous year and had paid the amounts due
from them regularly, to continue their licences with the added
provision that the agents with whom they had been working in
1967 will also work during 1968. This was challenged on the
ground that the Government, by offering to enter into
G agreements for advance purchases of Kendu leaves by private
offers, in preference to open competition, was favoring existing
licensees, and this was hit by Article 14 of the Constitution. This
Court accepted the contention and directed that the tenders for
purchase of Kendu Leaves be invited by the Government, in
H the next season, from all persons interested in the trade. The
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1085
ETC. [H.L. GOKHALE, J.]
Respondents relied on certain observations made by this A
Court, with respect to the creation of a monopoly that favours
private individuals, in the cloak of public interest. These are as
follows:
"19. Validity of the law by which the State assumed 8
the monopoly to trade in a given commodity has to be
judged by the test whether the entire benefit arising
therefrom is to enure to the State, and the monopoly is
not used as a cloak for conferring private benefit upon a
limited class of persons. The scheme adopted by the C
Government first of offering to enter into contracts with
certain named licensees, and later inviting tenders from
licensees who had in the previous year carried out their
contracts satisfactorily is liable to be adjudged void on
the ground that it unreasonably excludes traders in Kendu
Leaves from carrying on their business." D
29. Reliance was also placed on the judgment of this Court
in the- case State of Maharashtra vs. Indian Hotels and
Restaurant Assn. reported in 2013 (8) SCC 519, in the case
of the bar-dancers of Mumbai, wherein the amendment to the E
Bombay Police Act introducing S 33 A and 33 B was held to
be bad in law. Section 33 A prohibited performances of dances
in eating houses in permit rooms and beer bars. This was on
the ground that whereas the dance in three star hotels and
above was permitted under 33 B, those in these establishments F
were frowned upon under S 33 A. While striking this down the
.Court held that such a classification is wholly unconstitutional
and contrary to Article 14. The judgment of this Court earlier
referred in the matter of Tri/oki Nath Khosa (supra) was
referred to, wherein, it has been laid down that the classification G
to be made is to be founded on a substantial differentia. With
respect to the judgment in the case of B. Six Holiday Resorts
(supra) it was submitted !)y the respondents herein that there
was no challenge in that matter on the basis of Article 14.
Thereafter, reliance was placed on paragraph 36 and 39 from
.H
1086 SUPREME COURT REPORTS (2014) 3 S.C.R.
A the judgment of this court in Reliance Eflergy Limited vs.
Maharashtra State Road Development Corporation reported
in 2007 (8) SCC 1 wherein it was held that Article 14 requires
a level playing field, though it is subject to public interest.
The report of the Comptroller and Auditor General (CAG)
8
of India on the working of the Kerala Excise Department
for the year 2006-2007 to 2010-2011 :-
30. The respondents have relied upon the report made by
the CAG of India under Section 16 of the CAG's (Duties,
C Powers and Conditions of Service) Act, 1971. This report
contained the results of the audit on the working of the State
Excise Department for the year 2006-07 to 2010-11, and it was
submitted to the Governor of Kerala under Article 151 (2) of the
Constitution of India. In paragraph 5.3.1.1, the report deals with
D the issue as to whether the FL3 licences were issued and
renewed to non-standard hotels/restaurants. The report was
relied upon to point out that many hotels which were not
meeting the standards were permitted and regularized, initially
upto 30.6.1992. Thereafter, the regularization was extended till
E 31.3.2007, and on the next day (that is on 1.4.2007) all existing
licences were regularized. Subsequently, on 1.4.2010 all FL3
licences functional during 2009-2010 were regularized. The
report points that the licences were issued to hotels, with poor
hygiene standards, which did not abide by the working hours
F prescribed for hotels, and which sold liquor even on dry days.
The report also pointed out that in January 2011 the Excise
Commissioner of the State had sent a letter to the Government
of Kerela, highlighting the poor standards maintained by 418
unclassified bars, and requested it not to grant fresh FL-3
G licences for areas other than tourism notified areas. The
Commissioner had also pointed out that during the last one year
seven people had died due to excessive drinking in the
unclassified hotels. The report records that even though the
Excise Commissioner had requested that fresh FL-3 licences
be not issued to such establishments, they were continued to
H
STATE OF KERALA & ORS. v. 8. SURENDRA DAS 1087
ETC. [H. L. GOKHALE, J.]
be issued, and Government had made it a regular feature to A
regularize ineligible licensees. We may, however, note that the
Kerala Bar Association has filed its Written Submission placing
on record its objections with respect to the report of the
Comptroller and Auditor General.
8
31. The submission of the respondents, therefore, is that
as of now the FL-3 licences are not being permitted to 2 star
restaurants. With the amendment of 2011, the hotels with
classification of three star are also not being given FL-3
licences. This is going to discriminate against the three star
hotels which are to be set up hereafter, or where some C
investment has also been made in anticipation of such a
license. Besides, the distance rule introduced in 2012 will affect
the new hotels with classification of four star and five star. It was
submitted that this is counter productive to the policy of
encouraging tourism, since four star and five star hotels attract D
large number of foreign tourists. It will result in the monopoly of
the existing four star and five star hotels on the one hand, and
will stagnate the growth of the new ones. The consumption of
liquor in all the hotels with star classification is not even 30
percent of the total consumption in the State. The Government E
is not preventing the hotels, with poor hygiene standards, from
selling liquor and on the other hand the effect of the policy will
be to make prospect of setting up of new hotels with a
classification of four star and five star unattractive. This will
undoubtedly affect the objective of tourism which the State F
otherwise proclaims to support. The amendment of 2012 is
therefore, clearly arbitrary and unjustified according to the
respondents.
Consideration of the Submissions:-
G
32. We have considered the submissions on behalf of the
State and of those supporting the State, as well as of those on
behalf of the respondents. We do not dispute the intention of
the State of Kerala, nor do we dispute the problem that it is
facing, and the desire to curb the situation that exists in the H
1088 SUPREME COURT REPORTS [2014] 3 S.C.R.
A State. There cannot be any dispute on the proposition that,
there is no fundamental right to trade in liquor. At the same time
we cannot ignore the dicta of the Supreme Court in Khoday
Distilleries (supra) and particularly in para 60(g) where the
Apex Court has laid down that where such a trade is permitted,
8 there can not be any room for discrimination.
33. There are two amendments which are under challenge.
We will have to deal with these two amendments in the light of
the factual scenario and the law governing the same. As far as
the deletion of three star hotels is concerned, we do have a
C judgment of this Court in the case of B. Six Holiday Resorts
(supra), wherein, the previous deletion of two star hotels from
the eligibility of FL-3 licences was upheld by this Court. It has
been submitted by the respondents that the plea under Article
14 was not specifically canvassed when the matter was
D considered and decided. In this behalf we have already referred
to paragraphs 30 and 31 of this judgment. In paragraph 30 this
Court has held that promotion of tourism should be balanced
with general public interest. Paragraph 31 permits a periodical
reassessment of policy, and holds that if policy is not open to
E challenge the amendment of the rules to effect the policy can
also not be challenged This being the position the grievances
made by the hoteliers with respect to the deletion of three star
hotels, and to insist on a bar licence, cannot be sustained, on
this ground. Deletion of three star hotels falls in the same genre
F as the deletion of two star hotels, which was done earlier. This
Court has upheld the deletion of two star hotels in the said
judgment. This being the position the state can not be faulted
for deletion of three star hotels after a periodical revision of the
policy.
G 34. We must as well note that the two star and three star
hotels stand on a different footing as against the hotels with four
star and higher classification under the tourism policy of the
Government of India. It is relevant to note that the Ministry of
Tourism (H&R Division) of the Government of India has issued
H
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1089
ETC. [H.L. GOKHALE, J.]
the amended guidelines for classification/re-classification of A
hotels on 28.6.2012. The classification of the hotels into star
. categories and heritage categories is done thereunder, and it
is a voluntary scheme. Annexure-2 contains the provisions
concerning classification/re-classification of operational hotels.
Para 8(f) thereof provides as follows: B.
"B(f) Bar License (necessary for four star, five
star, five star deluxe, heritage classic & heritage grand
categories). Wherever bar license is prohibited for a
hotel as per local law, the bar will not be mandatory and C
wherever bar is allowed as per local laws, then the hotel
will have to obtain bar license first and then apply for
classification to the Ministry of Tourism."
This being the position, it is not necessary for a three star hotel
to have a bar licence. In fact as can be seen the para 8(f) above D
also states that if a local law prohibits the issuance of a bar
licence to four star, five star, five star deluxe, heritage classic
and heritage grand categories, which is otherwise necessary,
such local law will prevail. In any case three star hotels will have
to be placed in a different category as against the hotels with E
four star and higher classification, since it is not necessary for
three star hotels to have an FL3 licence.
35. The position with respect to the distance rule
introduced in 2012 is, however, different. As far as the
F
amendment brought in 2012 introducing the distance rule is
concerned, we cannot ignore the hard realities which are
recorded in the report of the Comptroller and Auditor General
who is a constitutional functionary, and who has made the report
on receiving the necessary information from the State
Government. This above referred para 5.3.1.1 of this report G
speaks for itself and reads as follows:-
"5.3.1.1 Were FL3 licenses issued and renewed to
non-standard hotels/restaurants?
H
1090 SUPREME COURT REPORTS [2014] 3 S.C.R.
A The minimum standard eligible for obtaining an
FL3 licence was 2-star standards from April 1982 and 3-
star and above from April 2002. We noticed that licenses
were issued and renewed to 418 bar hotels, ie. 61 per cent
of the total bar hotels in the state even though they were
B not eligible for the FL3 licenses as per the Rules.
We noticed that the Government first allowed time
up to 30 June 1992 for those licensees who had not
attained the prescribed two star standards to attain the
prescribed standard and subsequently extended the
c period. During the review period, we noticed that the
Excise Commissioner submitted his proposals for the
Abkari policy for the year 2007-08 vide letter dated 11
January 2007 which did not include the proposal for
regularisation of 418 non standard bar hotels, the list of
D which was sent to the Government in January 2006.
However, based on a discussion with the Hon'ble Minister
for Labour and Excise on 22 January 2007, the Excise
Commissioner sent a revised proposal on 23 January
2007 including the proposal that "Bar Licenses (FL3
E licences) which have not attained 2-star classification and
functioning at present may be regularised".
After we pointed out the matter the Govemtf1ent
stated (November 2011) that there are certain bar hotels
F functioning with standard below two star specifications. As
these hotels were functioning for long periods, they were
regularised based on Abkari Policy 2007-08.
. The point is not acceptable for the reason that as
per Rules the licences are issued each year and the
G standard for granting licence are still three star standard.
We noticed that the Government, 15 years after
extending time limit for the first time, again extended (12
March 2007) the time limit up to 31 March 2007 and
H stated that failure to comply with the standards would lead
STATE OF KERALA & ORS. v. B. SUREN ORA DAS 1091
ETC. [H.L. GOKHALE, J.]
to cancellation of licences. However, on the very next d~w. A
i.e. 13 March 2007 the Government added a proviso'to
Rule 13 that all existing licensees not having the above
classification and which were functional as on 31 March
2007 shall be regularised. The Abkari policy for 2008-
09 (February 2008) stated that the Government would B
insist on minimum facility and hygienic conditions in all
the 418 bar hotels which did not have 2-star status, but
which were regularised during 2007-08.
We noticed that the field officers of the Department
had reported violation of licence conditions like C
unhygienic conditions, lack of facilities, non adherence
of the time schedule, selling on dry days, opening more
than one counter, etc. in these bar hotels. However, no
action was taken by the Department on these reports.
D
The Excise Commissioner sent a letter (January
2011) to the Government highlighting the poor standards
maintained by the 418 unclassified bars and requested
not to grant fresh FL3 licenses for areas other than
tourism notified areas. In the letter the Excise E
Commissioner, inter alia, stated that the restaurant
segment of the unclassified hotels were functioning for
name sake only and during the last one year seven
people had died due to excessive drinking in the
unclassified .hotels. He also pointed out that he had F
personally seen that almost all the customers went there
to drink liquor and not for taking food.
We noticed that even though the Excise
Commissioner had requested not to issue fresh FL3
licenses, seven more FL3 licenses were issued between G
12 January and 31 March 2011. Moreover in the Abkari
Policy for 2010-11, the Government declared that the FL3
licensees not having the requisite star qualification and
who were functional during 2009-10 should be
regularised. Thus, the Government has made it a regular H
1092 SUPREME COURT REPORTS [2014) 3 S.C.R.
A feature to regularise ineligible licensees We are of the
opinion that the Government has not taken a firm stand
to ensure that only hotels of a minimum standard are
issued FL3 licenses. Further, we opine that the
Government has seriously compromised public safety by
B (a) regularising 418 unclassified bars, though they were
not able to attain the minimum standards despite
repeated extension of time and (b) by turning a blind eye
towards the various complaints against these unclassified
bars. On this being pointed out in audit the Department
c stated (June 2011) that the Government is the competent
authority to issue orders allowing relaxation, if any, for the
functioning of FL3 licensees/bar hotels.
36. As rightly submitted by the counsel for the respondents
the consequences of the amendment of 201'2 will be that four
D star and five star hotels would not be permitted to have FL-3
licences only on the ground that they are within the prohibited
distance from such hotels which have poor hygiene standards,
and which are not following norms laid down by the State
Government. We may mention that the FL3 licences are issued
E on an annual basis, and it is quite within the powers of the
Government not to renew these licenses if such serious
violations are reported. But the Government appears to be slow
in taking any such action. It will surely be counter-productive to
the objective of Rule 13 (3), which is to promote tourism, as
F well as to the State's avowed policy of improving the health and
nutrition standards of its citizens. The criticism of the
respondents, particularly of the hotels which have been
permitted under the 6th and 7th proviso to Rule 13(3), is
therefore quite justified.
G
37. In the circumstances, although we do not dispute the
power of the State Government to bring about the necessary
reform, by modifying the rules, it has got to be justified on the
touchstone of the correlation between the provision and the
objective to be achieved. If that correlation is not established,
H
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1093
ETC. [H.L. GOKHALE, J.]
surely the rule will suffer from the vice of arbitrariness, and A
therefore will be hit by Article 14. The State Government has
· introduced awareness programmes in this behalf and, it ought
to continue with that. It should also take steps to see to it that
hotels with poor hygiene standards are not allowed to function.
We are informed that the State Government has appointed a B
one-man commission for reviewing the Abkari Policy, by
issuing a necessary notification on 23.1.2013. We hope that
the commission will take into consideration the hard realities
which are reflected in the report of the CAG and make
necessary recommendations. As far as this Court is concerned, c
we cannot uphold the validity of the amendment of 2012, in the
present circumstances.
38. We may as well refer, at this stage, to the judgment of
this Court in P.N. Kausa/ and Ors. vs. Union of India & Ors.
reported in 1978 (3) SCC 558. In that matter what the Punjab D
Government had done was to prohibit the sale of liquor on
Tuesdays and Fridays, but that was applicable only to hotels,
restaurants and other institutions, and was not applicable to the
institutions run by the Government. The Court held this to be
prima-facie discriminatory. In the words of Krishna lyer,J who E
wrote the judgment for a bench of three Judges "It suggests a
dubious dealing by State Power". The Learned Judge
observed that "such hollow homage to Article 47 and the Father
of the Nation gives diminishing credibility mileage in a
democratic polity". Thankfully, the Additional Solicitor General F
made a statement to the Court which is recorded in paragraph
42 of that judgment that the Government readily agreed that the
ban would be observed by the State Government also.
Paragraph 42 of the said judgment reads as follows:-
G
"42. We must here record an undertaking by the
Punjab Government and eliminate a possible confusion.
The amended rule partially prohibits liquor sales in the
sense that on Tuesdays and Fridays no hotel, restaurant
or other institution covered by it shall trade in liquor. But H
1094 SUPREME COL!RT REPORTS [2014) 3 S.C.R.
A this prohibition is made non-applicable to like institutions
run by the Government or its agencies. We, prima facie,
felt that this was discriminatory on its face. Further, Article
47 charged the State with promotion of prohibition as a
fundamental policy and it is indefensible for Government
B to enforce prohibitionist restraints on others and itself
practise the opposite and betray the constitutional
mandate. It suggests dubious dealing by State Power.
Such hollow homage to Article 47 and the Father of the
nation gives diminishing credibility mileage in a
c democratic polity The learned Additional Solicitor General,
without going into the correctness of propriety of our initial
view-probably he wanted to controvert or clarify-readily
agreed that the Tuesday-Friday ban would be equally
observed by the State organs also. The undertaking
recorded, as part of the proceedings of the Court, runs
D
thus:-
The Additional Solicitor General appearing for the
State of Punjab states that the Punjab State undertakes
to proceed on the footing that the 'Note' is not in force and
E that they do not propose to rely on the 'Note' and will, in
regard to tourist bungalows and resorts run by the Tourism
Department of the State Government, observe the same
regulatory provision as is contained in the substantive part
of Rule 37 Sub-rule 9. We accept this statement and treat
F it as an undertaking by the State. Formal steps for deleting
the 'Note' will be taken in due course."
39. We are of the view that if the Government is really
serious about reducing the consumption of liquor, it should also
G take steps to reduce its own shops and depots and in any case
should not open new ones. In view of the very high consumption
of liquor, which the State Government intends to reduce, what
we expect is that the Government should consider not issuing
further FL-1 licences. If it is not possible for the Government to
H reduce the existing FL-1 shops, with respect to which it enjoys
STATE OF KERALA & ORS. v. B. SURENDRA DAS 1095
ETC. [H L. GOKHALE, J.)
a monopoly, it is of no use for it to direct the private sector alone A
to function in a particular manner. The Government must as well
behave in conformity with the mandate of Article 47.
40. Before we conclude the proceedings, we may refer to
one more development in this matter. In as much as this court
8
had not granted any stay of the impugned judgment and order
of the High Court, an order was passed by this Court on 19/9/
2012 that the applications of the claimants for the licenses be
considered in eight weeks. Since no decision was forthcoming,
some of the respondents filed Contempt Petitions bearing Nos.
449 of 2012 and other contempt petitions. A notice was issued C
on the Contempt Petition no. 449 of 2012 filed by respondent
B. Surendra Das. A reply was filed on behalf of the appellants
on 25.01.2013 that they had considered the applications, some
of them were rejected, and in the rest further information was
sought. These steps were initiated within the time stipulated by D
this court, and due to the large number of applications, the
decision was taking its own time. On 8.02.2013, this court
directed that the Contempt Petitions be heard alongwith the
special leave petitions. Since the Civil appeals arising out of
these SLPs are being disposed of with this order, no separate E
orders are required on the contempt petitions. The Appellants
will have to act now in terms of the order being passed herein.
41. For the reasons stated above we allow these appeals
in part and hold as follows: . F
(i) The judgment rendered by the Division Bench is set-
aside to the extent it interferes with the amendment brought in
the year 2011. The deletion of three star hotels from the category
of hotels eligible for FL3 licenses under Rule 13(3) is held valid.
G
(ii) As far as the amendment brought in 2012 introducing
the distance rule by way of addition of Rule (3E) in Rule 13(3)
is concerned, the same is held to be bad in law. The judgment
of the High Court is confirmed to that extent.
H
1096 SUPREME COURT REPORTS [2U14J 3 S.C.R.
A (iii) The state government will not proceed to deny FL3
licenses to hotels with a classification of four star and above
by resorting to their deletion under Rule 13 (3) until the report
of the one-man commission is received, and until it takes action
against the non-standard restaurants which have been
B permitted under the sixth and seventh proviso of Rule 13(3).
(iv) No order is necessary on the contempt petitions and
they stand disposed of.
(v) All parties will bear their own costs.
c
·o.G. Appeals partly allowed.
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