No Online Liquor Sale Permissible When Excise Rules Do Not Allow It : Karnataka High Court

The ban on online sale of liquor will continue in the State of Karnataka. On Thursday the Karnataka High Court dismissed an appeal filed by 'HIP Bar Private Limited' which challenged the order of the single judge bench which had refused to declare that the company can do business of Online Order processing and Delivery of Indian and Foreign Liquor including Beer, Wine and Low Alcoholic Beverages ("LAB").

A division bench of Justice Satish Chandra Sharma and Justice V Srishananda  while dismissing the appeal said "The licence issued under the Excise Act and the Rules framed thereunder in no way authorizes any agent/intermediary to transport the liquor and under Rule 3 of the sale of Indian and Foreign liquor Rules, 1968 only CL-2 and CL -11(c) licensees are entitled to vend licence to public in retail. It is only a take away transaction in a sealed bottle for MRP from shop premises."

Case background:

The company was offering a Semi-Closed Prepaid Payment Instrument (Mobile Wallet) to its customers among other services. The Reserve Bank of India (RBI) had issued a certificate of Authorization to the petitioner for operation, under the Payment and Settlement Systems Act, 2007, which is valid till September 30, 2021.

The licence issued by the Government of Karnataka enabled it to carry on the business of distributor, supplier, transporter, wherein the petitioner is permitted to carry on food business relating to Ready-to-eat savouries; Beverages, excluding dairy products. On August 1, 2017, Letter of Authority was issued by the respondent for Online Order Processing and Delivery of Indian and Foreign Liquor including Beer, Wine and LAB (Low Alcoholic Beverages) to – Hip Bar with certain conditions.

Allegedly pursuant to news reports the LOA was withdrawn abruptly without providing an opportunity to show cause. Petitioner was compelled by the respondent to give an affidavit stating that it has disabled the online delivery of liquor, without prejudice to its rights. Being aggrieved, the company moved the high court seeking declaration that it does not does not require any license or permission to conduct business of Online Order processing and Delivery of Indian and Foreign Liquor including Beer, Wine and Low Alcoholic Beverages ("LAB").

A Single Judge bench S Sujatha on September 18, 2019 dismissed the petition filed by the company holding that online sale of liquor cannot be allowed in the absence of enabling provisions under the Karnataka Excise Act to grant such licenses or permissions. Following which the company filed an appeal.

Contentions of the appellant:

Relying on the judgment in the case of Sodexo SVC India Private Limited v. State of Maharashtra and others (2015) 16 SCC 479, contended that company is also entitled to deliver liquor to the purchaser as it is simply acting as a facilitator and the medium between the affiliates and the consumers.

Further, reliance was placed on the judgment in the case of Kerala Bar Hotels Association and another vs. State of Kerala and others, (2015) 16 SCC 421 and argued that the right to trade any liquor is a right guaranteed under Article 19(1) of the Constitution of India.

It was also contended that the order passed by the Excise Commissioner withdrawing LOA is violative under Article 19(1)(g) and the impugned order shows non-application of the mind. Moreover, the company raised a ground of violation of principles of natural justice and fair play. In so far as the LOA was withdrawn without following principles of natural justice and fair play. No show cause notice was issued at any point of time.

Submission of the state :

It was submitted that the petitioner has no fundamental right to trade in liquor. Entry 8 of List II Schedule VII of the Constitution empowers the State Government to legislate with regard to intoxicating liquors i.e., production, manufacture, possession, transport, purchase and sale of intoxicating liquors and Entry 51 empowers the State legislature to levy duties of Excise and countervailing duties and under Entry 8, there may be an absolute prohibition of sale of liquor. A citizen has no fundamental right to carry on trade or business in liquors.

The state also contended that petitioner does not have licence granted by the RBI for sale and purchase of the liquor and the contention of the petitioner that it is only a facilitator and delivering liquor in respect of the purchase which has taken place at the shop itself is not correct.

"Initially a letter of authority (LOA) issued to the petitioner for processing online order and delivery was only on a trial and experimental basis, he was operating only in Bengaluru BBMP limits. The Excise Department at some point of time felt that the same was not adaptable due to the huge objections from existing licensed stakeholders and media buzz on social concerns underage drinkers were turning to online retailers to buy alcohol, which is not permissible in law and therefore keeping in view the various objections from all corners, the LOA was withdrawn," the state told the court.

Citing the Karnataka State Excise Act the state submitted that "The Excise Act does not provide online selling of alcohol and the petitioner being the user of the mobile application initiated the sale transactions by purchasing the liquor from CL-2 licence holder and in turn had sold the same to the end consumer meaning thereby the liquor has not been sold directly by the CL-2 licence holder to the end use consumer, which is not permissible under the Act."

Finally, it was said that the Excise Department is the sole authority of controlling the liquor trade in the State of Karnataka and therefore the petitioner cannot be permitted to carry out liquor business without having any licence under the Excise Act and the Rules framed thereunder.

Court findings:

The bench in its order noted that "The Payments and Settlement Act (PSS Act) of 2007, empowers issuance of Certificate of Authorisation (COA) by the RBI only for a limited purpose of making online payments. The Act nowhere empowers a person to deliver the goods. It is only a payment system through electronic mode and therefore once the COA under the PSS Act, 2007 does not empower processing/delivery/facility of online order in respect of foreign liquor including Beer, Wine and LAB, the appellant cannot be permitted to deliver liquor by making online payment to end use consumer.

In regard to the arguments of the company of Right to trade any liquor is a right guaranteed under Article 19(1) of the Constitution of India. The court said "The State Government has a right to impose restrictions in respect of liquor trade and it is not an absolute right and can be subjected to restrictions by the State Governments."

Remarking on the issuance of LOA being issued to the company, the bench said "State Government (Excise Commissioner) has certainly granted LOA in spite of the fact that the Excise Act and the Excise Rules did not provide for granting of such LOA. Grant of LOA was void ab-initio in the light of the statutory provisions and therefore it was rightly withdrawn by the impugned order."

The court also opined on the contention raised of violation of Principle of natural justice, it said "As in the first place, the Excise Commissioner was not having any authority to issue such LOA. The LOA could not have been issued as there is no provision under the Excise Act nor under the Excise Rules and under the Karnataka Excise Licences (General Conditions) Rules, 1967 and therefore as there was no legal statutory right in favour of the appellant for grant of LOA, the question of violation of principles of natural justice and fair play does not arise."

The bench accordingly noted "The statutory provisions make it very clear that no intoxicating drugs can be sold without licence and contrary to the terms and conditions of the licence. The intoxicating drugs are also defined under the Karnataka Excise Act and they include bhang/ganja. If the plea canvassed by the learned counsel for the appellant is accepted , then he will also be entitled to act as a facilitator to supply bhang/ganja apart from supply of liquor to the citizens of Bengaluru Township."

It further held that "Restrictions have been rightly imposed under the Excise Act. It provides that no intoxicating drugs can be sold without licence contrary to the conditions of the licence."

The court, citing Rule 5 of Karnataka Excise Licences (General Conditions) Rules, 1967, said "It provides for restriction in respect of location of shops. It provides that no licence shall be granted for sale of liquor to a liquor shop or premises within a distance of 100 mtrs. from any religious or educational institution or Hospital as well as certain other places. Therefore, if the plea canvassed by the appellant-company is accepted, it will be contrary to the statutory provisions as contained under Rule 5 of the Rules, 1967 and as there will be no restriction in respect of place of location of shops."

Referring to Rule 10, which provides for restriction in respect of sale of liquor to certain category of persons like insane persons, persons below 21 years of age etc., and the same can be checked in case liquor is being bought from the authorized shops. "It is going to be very difficult to check persons like the appellant company who are acting as alleged facilitators," the court said.

It was concluded by saying "Restrictions under the Karnataka Excise Act, 1965 and Rules framed thereunder are reasonable restrictions. By no stretch of imagination the appellant-company can be permitted to trade any liquor as prayed under the relief clause. The learned Single Judge was justified in dismissing the writ petition and no case for interference is made out in the matter. Accordingly, the writ appeal also stands dismissed."

Case Title: HIP BAR PVT. LTD And STATE OF KARNATAKA

Case No: WRIT APPEAL NO.3834/2019

Date of Order: 18^th February 2021

Coram: Justice Satish Chandra Sharma and Justice V.SRISHANANDA

Appearance: Senior Advocate K.G.RAGHAVAN, a/w Advocate HITESH KUMAR AND Advocate NIVEDITA SHENOY for appellant.

Advocate I.THARANATH POOJARY for respondents

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