Govt Has Exclusive Privilege Over Sale & Manufacture Of Liquor, It Must Be Afforded Greater Latitude & Fair Play In The Joints: J&K High Court

Dismissing a series of writ petitions challenging the cancellation of liquor auction bids by the Government Justice Wasim Sadiq Nargal observed,

“The Court, in its power of judicial review must be conscious of the complexity of economic matters of which, of course, it is not an expert. As a consequence thereof, the validity of such decisions cannot and must not be tested on any rigid a priori considerations or on the application of any strait-jacket formula”,

Background of the Case:

These cases were initiated by petitioners who had emerged as the highest bidders (H-1) in an auction conducted by the Excise Department of Jammu and Kashmir. The petitioners were aggrieved by the subsequent cancellation of the auction on grounds of poor response and less competition.

They argued that once they were declared the highest bidders, a right accrued to them, could not be taken away without due process, especially since they were required to deposit a significant amount and were barred from participating in other bids.

Observations and Legal Analysis:

After meticulously examining the arguments presented at the bar Justice Nargal extensively addressed the scope of judicial review in matters of public contracts and tenders, referencing several key Supreme Court rulings.

Scope of Judicial Review

The Court reiterated that judicial review in tender/auction processes is extremely limited. It cited Tata Cellular v. Union of India (1994), emphasizing that courts should concern themselves only with the decision-making process, not the soundness of the decision itself. This principle was further supported by Silppi Constructions Contractors v. Union of India (2020), which reinforced the idea that public authorities have freedom of contract, and courts should defer to their decisions in the absence of manifest unreasonableness, arbitrariness, or mala fides

“The Government and other public authorities have the freedom of contract and in the absence of manifest unreasonableness, patent arbitrariness or clear mala fides, the Court should show due deference to the decision of the public authority”, the court underscored.

Vested Rights of Highest Bidders

The Court examined whether the highest bidders had any vested rights. Referring to State of Punjab v. Mehar Din (2022), it concluded that the highest bidder does not have a vested right to have the auction concluded in their favour. Acceptance of the highest bid is provisional and subject to various conditions, including the nature of the auction, the court underscored and added,

“In the facts of the present case, a perusal of the communication issued by the Excise Department to the successful bidders via e-mail reveals that the same was provisional in nature and subject to the fulfilment of certain conditions. The communication, thus, only declared the highest bidder and in light of the law laid down by the Hon‟ble Supreme Court, such bidder has no vested right to have the auction concluded in his/her favour”.

Exclusive Privilege of the Government

Justice Nargal acknowledged the argument that the liquor trade's special character grants the Government extensive powers. This perspective was supported by Lakhanlal v. State of Orissa (1976), which established that acceptance of a bid in liquor auctions does not create binding obligations until all conditions are met. The Court also referenced State of M.P. v. Nandlal Jaiswal (1986), which highlighted the latitude afforded to the State in economic policy decisions, particularly concerning the liquor trade.

Elucidating further on the matter Justice Nargal explained,

“The scope of judicial review, therefore, is not that the Court should strike down a policy decision taken by the State merely because it feels that another policy decision would have been fairer or wiser or more scientific or logical. It is only the palpably arbitrary, discriminatory or male fide exercise which can be declared as void”.

Minimum Guaranteed Revenue and Competition

Addressing the petitioner's argument that the existence of a Minimum Guaranteed Revenue (MGR) should prevent the cancellation of auctions, the Court found that the Government is not precluded from seeking re-auction to ensure better competition and response. It emphasized that the objective of promoting competition is legitimate and in the public interest, as outlined in Union of India v. Hindustan Development Corporation (1993).

“the mere fact that the policy postulated a provision for minimum guaranteed revenue does not disentitle the Government from cancelling the auction on the basis of poor response and less competition”, the court remarked.

Arbitrariness and Mala Fides

The court also addressed the petitioners' concerns about the government introducing new justifications for the cancellation in its counter-arguments. The court clarified that the government merely elaborated on the existing reasons (poor response and less competition), which logically lead to potential revenue loss.

“A holistic view of the reply makes it clear that the Government has not sought to supplement existing reasons with completely fresh reasons. What the Government has mentioned in its reply is nothing but a necessary and logical corollary of poor response and less competition in the bidding process”, the court recorded.

Additionally, the court scrutinised the cancellation decision for arbitrariness and mala fides and found none. It noted that the rationale for re-auction ie poor response and less competition was valid and aimed at ensuring better outcomes for the Government. The Court referenced PKF Sridhar Santhanam vs Airports Economic Regulatory Authority of India (2022) to assert that the Government's reasons for cancellation were justified and transparent.

In conclusion, Justice Nargal dismissed the writ petitions and maintained that the petitioners did not have a vested right to the auction's outcome as the Government's decision was neither arbitrary nor unreasonable.

Case Title: Kewal Krishan Gupta Vs UT of J&K

Citation: 2024 LiveLaw (JKL) 148

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