# MADRAS CITY WINE MERCHANTS' ASSON. AND ANR v. STATE OF TAMIL NADU AND ANR - **Citation:** [1994] Supp. 2 S.C.R. 281 - **Court:** Supreme Court of India - **Decided:** 1994-07-27 - **Case number:** Civil Appeal No. 4981 of 1994 - **Bench:** S. Mohan, M.K. Mukherjee - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/madras-city-wine-merchants-asson-and-anr-v-state-of-tamil-nadu-and-anr-12407 - **Pages:** 38 ## Headnote B Administrative Law : Doctn·ne of legitimate expectation-May arise in apress promise, regular practice and administrative decision-Change of policy by legislaC tion-17tis doctrine cannot be invoked-Tamil Nadu Liquor (Retail vending in Bar) Rules, 1992. ' The appellants are licence holders to carry on business in the retail vending of Indian made foreign spirits (I.M.F.S.). Persuant to representation from the appellants, the respondents framed Tamil Nadu Liquor D (Retail vending in Bar) Rules 1992 (Bar Rules) which permitted them to have Bars attached to their shops. As the drinking in the Bar led to law and order problems, the Bar Rules were rescinded by the respondents. The appellants challenged this decision before the High Court but were not successful. Aggrieved by the E High Court's judgment, the appellants preferred the present appeal. On behalf of the appellants it was contended that a privilege once accrued cannot be taken away; that the rules relating to retail trade in IMFS and the rules relating to sale in Bars formed an integral scheme; F and that the change in policy affected their legitimate expectation. On behalf of the respondents it was contended that it is always open to a State to change its policy; that Bar licence is a privilege so right to renewal does not arise; and that legislative action is not subject to natural justice. G Dismissing the appeals, this Court HELD : 1. The Retail vending rules and the Bar Rules are two separate sets of rules. It is incorrect to contend that both these Rules form an integrated scheme. Merely because for obtaining the Bar licence, one H 281 282 SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R. A must bea holder of retail vending licence, they cannot become integrated schemes. Each set of Rules take care of different situations. (300-E] State of M.P. v. Nandlal Jaiswal, (1984] 4 SCC 566, held inapplicable. 2. It is clear that legitimate expectation may arise if there is an B express promise given by a public authority; or because of the existence of a regular practice which the claimant can reasonably expect to continue; such an expectation must be reasonable. (301-F] State of H.P. v.Kai/aslt Cltand Mahajan, (1992] Supp. 2 SC 351; Food Corporation of India v. M/s. Kamdhemt Cattle Feed Industries, JT (1992) 6 C S.C. 259 and Union of India v. Hind1istan Development Corporation, JT (1993) 3 S.C. 15, relied on. Council of Civil Service Unions v. Minister for tlte Civil Services, (1984] 3 All ER 935 and Halsbury's Laws of England, Vol. 1(1) Fourth Edition D para 81 at pp 151-152, referred to. 3. The licence under the Bar Rules is for a period of one year which . could be renewed by a payment of a privilege amount as lixed by the State Government. Therefore, there is no room for any expectation. At best, it could be a hope. Long before the Bar licensee could apply for renewal the E policy decision has been taken not to renew. It is clear that there was absoJutely no promise of renewal at all. (312-E-F] F 4. The Bar Rules have been repealed by exercise of the powers under Sections 17C, 17D, 21 and 54 of the Tamil Nadu Prohibition Act, ·1937. Therefore, this is a case oflegislation. The doctrine of legitimate expectation arises only in the lield of administrative decisions. There is no possibility of invoking the doctrine as against the legislation. (314-C-D] Supreme Cowt Advocates - on - Record Association v. Union of India, (1993] 4 SCC 441 and R. Vijaykumar v. The Commissioner of Excise, JT G (1993) 6 S.C. 325, held inapplicable. 5. It is a settled principle that legislative action, plenary or subordinate, is not subject to natural justice. When the consumption of liquor in Bars resulted in law and order problems, certainly in public interest the State could repeal the grant of Bar licences. There is nothing unH reasonable. (315-E, 316-D] : WINE MERCHANTS' ASSON. "· STATEOFT.N. [MOHAN,J.] 283 Indian Express Newspapers (Bombay) Pvt. Ltd. v. Union of India, A (1985) 2 SCR 287, relied ## Text _Characters 0–39,906 of 81,530. This is a partial read: ask again with offset=39906 for what follows._ MADRAS CITY WINE MERCHANTS' ASSON. AND ANR. A v. STATE OF TAMIL NADU AND ANR. JULY 27, 1994 (S. MOHAN AND M.K. MUKHERJEE, JJ.j B Administrative Law : Doctn·ne of legitimate expectation-May arise in apress promise, regular practice and administrative decision-Change of policy by legislaC tion-17tis doctrine cannot be invoked-Tamil Nadu Liquor (Retail vending in Bar) Rules, 1992. ' The appellants are licence holders to carry on business in the retail vending of Indian made foreign spirits (I.M.F.S.). Persuant to representation from the appellants, the respondents framed Tamil Nadu Liquor D (Retail vending in Bar) Rules 1992 (Bar Rules) which permitted them to have Bars attached to their shops. As the drinking in the Bar led to law and order problems, the Bar Rules were rescinded by the respondents. The appellants challenged this decision before the High Court but were not successful. Aggrieved by the E High Court's judgment, the appellants preferred the present appeal. On behalf of the appellants it was contended that a privilege once accrued cannot be taken away; that the rules relating to retail trade in IMFS and the rules relating to sale in Bars formed an integral scheme; F and that the change in policy affected their legitimate expectation. On behalf of the respondents it was contended that it is always open to a State to change its policy; that Bar licence is a privilege so right to renewal does not arise; and that legislative action is not subject to natural justice. G Dismissing the appeals, this Court HELD : 1. The Retail vending rules and the Bar Rules are two separate sets of rules. It is incorrect to contend that both these Rules form an integrated scheme. Merely because for obtaining the Bar licence, one H 281 282 SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R. A must bea holder of retail vending licence, they cannot become integrated schemes. Each set of Rules take care of different situations. (300-E] State of M.P. v. Nandlal Jaiswal, (1984] 4 SCC 566, held inapplicable. 2. It is clear that legitimate expectation may arise if there is an B express promise given by a public authority; or because of the existence of a regular practice which the claimant can reasonably expect to continue; such an expectation must be reasonable. (301-F] State of H.P. v.Kai/aslt Cltand Mahajan, (1992] Supp. 2 SC 351; Food Corporation of India v. M/s. Kamdhemt Cattle Feed Industries, JT (1992) 6 C S.C. 259 and Union of India v. Hind1istan Development Corporation, JT (1993) 3 S.C. 15, relied on. Council of Civil Service Unions v. Minister for tlte Civil Services, (1984] 3 All ER 935 and Halsbury's Laws of England, Vol. 1(1) Fourth Edition D para 81 at pp 151-152, referred to. 3. The licence under the Bar Rules is for a period of one year which . could be renewed by a payment of a privilege amount as lixed by the State Government. Therefore, there is no room for any expectation. At best, it could be a hope. Long before the Bar licensee could apply for renewal the E policy decision has been taken not to renew. It is clear that there was absoJutely no promise of renewal at all. (312-E-F] F 4. The Bar Rules have been repealed by exercise of the powers under Sections 17C, 17D, 21 and 54 of the Tamil Nadu Prohibition Act, ·1937. Therefore, this is a case oflegislation. The doctrine of legitimate expectation arises only in the lield of administrative decisions. There is no possibility of invoking the doctrine as against the legislation. (314-C-D] Supreme Cowt Advocates - on - Record Association v. Union of India, (1993] 4 SCC 441 and R. Vijaykumar v. The Commissioner of Excise, JT G (1993) 6 S.C. 325, held inapplicable. 5. It is a settled principle that legislative action, plenary or subordinate, is not subject to natural justice. When the consumption of liquor in Bars resulted in law and order problems, certainly in public interest the State could repeal the grant of Bar licences. There is nothing unH reasonable. (315-E, 316-D] : WINE MERCHANTS' ASSON. "· STATEOFT.N. [MOHAN,J.] 283 Indian Express Newspapers (Bombay) Pvt. Ltd. v. Union of India, A (1985) 2 SCR 287, relied on. Vasantkwnar Radhakishan Vohra v. Board of Tmstees of the Pon of Bombay, [1991) 1 SCC 761, held inapplicable. 6. If no right or privilege in the matter of Bar licences could operate B beyond 31.5.1993, the benefit of Section 8 of the Tamil Nadu General Clauses Act, cannot be had. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4981 of 1994 etc etc. From the Judgment and Order dated 30.6.93 of the Madras High Court in W.A. No. 658 of 1993. K. Parasaran, R.K. Garg, A.Sasidharan, P.N. Ramalingam, V. Balaji and A.T.M. Sampath for the Appellants. Umapathy, K. Swami and Ms. Pragati for the Appellant in C.A.No. 4982/94. K.K. Mani for the Petitioner in W.P. Nos. 648/93. V.R. Reddy, Additional Solicitor General, G.L. Sanghi and P.R. Seetharaman for the Respondents. The Judgment of the Court was delivered by MOHAN, J. Leave granted. The first appellant in C.A. No. 4981 of 1994 arising out of SLP(C) No. 9854 of 1993 is an Association registered under the Societies Registration Act. The members of the association have been granted licences to carry on business in the retail vending of India made foreign spirits (hereinafter referred to as '1.M.F.S.'). The second appellant is a licensee of l.M.F.S. Shop No. 336 at No. 7, Thyagaraja Road, Madras - 17 for the year 1992-93. c D E F G The respondent, the Government of Tamil Nadu framed the Tamil Nadu Liquor (Licence and Permit) Rules 1981. Under these rules, Indian H A B 284 SUPREME COURT REPORTS (1994J SUPP. 2 S.C.R. made foreign spirit and foreign liquor was to be sold only by persons who are granted licence for personal consumption. In the year 1989, the Go\'ernment of Tamil Nadu decided to grant the pri\'ilege of selling by retail of l.M.F.S. and Beer through auction/tender system. Accordingly, the Gmcrnment framed Tamil Nadu Liquor (Retail Vending) Rules 1989 by G.O. Ms. N. 506 Home (Prohibition) dated 15.4.1989. In the auction. the successful bidder was granted the licence to carry on the business of \'ending I.M.F.S. in retail in their respecti\'e shops. The licence was valid for a period of one year. Under the said Rules, it was pro\ided for a renewal of the licence for two successi\'e years on the licensee offering to pay 15~·i and 10% respectil'ely more than the privilege amount at which C the sale was confirmed in his fa\'our during the pre\ious years. Rule 13 contained all these clauses. Under Rule 14(3), a provision was made that it was open to the Licensing Authority to refuse the renewal by an order recording the reasons for refusal. However, before such refusal, the Licensing Authority was obligated to give a reasonable opportunity to the licensee D of being heard. The successful bidders obtained licences for the year 1989-90 and carried on the business. Most of them obtained renewal for the subsequent excise year 1991-92. E The Government issued orders in G.O. Ms. No. 90 Prohibition dated 21.4.1992 to the effect that fresh auction may be conducted for all the liquor retail vending sbops whose licence p<:riod expires on or before 31.5.1992 as well as those licence period expires on or after 31.5.1992 by restricting the period of licence to 31.5.1992 and refunding the proporF tionate portion of the pri'1lege amount. This course was adopted in order to facilitate the Government to evolve fresh scheme of upset price for auctioning of the liquor retail vending shops in the State. The Notification also pro\ided that the licence to be issued for the year 1992-93 shall be renewed for the second and third years after collectG ing increased pri\ilege fees. The prescription relating to increased fees was pro'1ded under Rule 14(1) and (2) of the 1989 Rules made under the Tamil Nadu Prohibition Act, 1937. An ordinance was passed terminating the validity of licences which enured beyond 31st May, 1992 with the expiry of the said period. Subsequently, Tamil Nadu Act 42 of 1992 came into H force with from 12.5.92. By this Act Section 23(b) of the Tamil Nadu WINE MERCHANTS' ASSON. '"STATE OFT.N [MOHAN.J.[ 285 Prohibition Act, 1937 was substituted. In accordance with G.O.Ms. No. 90, Prohibition, dated 21.4.92, auctions came to be conducted. The successful bidders were issued the licences. At that slagc. the (Jo\'crnrnent recch·ed representations form these dealers for the establishment of a bar within or adjoining licence premises. The Go\"crnmcnt fnr\\'ardeilege by issue of license to a person holding a licence granted under Rule 13 of the 1989 Rules for retail vending of liquor in the Bar. The Rules stated retail vending of liquor in open bottles, glasses or pegs for consumption in the Bar. Rule 4 required every person holding a licence granted under Rule 13 of 1989 Rules and who intends to obtain the privilege of retail vending A B c of liquor in the Bar shall make an application in the prescribed form to D the Licensing Authority for the grant of privilege and issue of licence for retail vending or liquor in the Bar. Every liecensee o.f retail l.M.F.S. shop was entitled to apply for and obtain a Bar licence on payment of a licence fee and the privilege amount ranging from Rs. 18,750 to Rs. 75,000 depending upon the area in which the shop was located. The case of the appellant is, in order to obtain the privilege of vending l.M.F.S. in retail for the excise year 1992-93, the members of the first appellant Association increased their offer. This huge offer was to enable them to have a bar attached and thereby increased the volume of sale of liquor. On obtaining licences under retail vending rules, the members of the Appellant association spent considerable sums of money for acquiring the adjoining premises to locate the Bar in accordance with the Bar Rules. They were carrying on business in accordance with the rules with the fond hope of making good the investment and also earn a profit during the period to come. E F G It appears that the Government received various complaints. The drinking in the Bars led to law and order problem. Therefore, by impugned G.O. Ms. No. 44, Prohibition and Excise dated 33.1993, the Tamil Nadu Liquor (Retail Vending in Bar) Rules 1992 were rescinded with effect from 1.6.1993. The said G.O. was challenged before the High Court of Madras H 286 SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R. A in W.P. No. 7776/93. The writ petition was dismissed on the ground that the Court could not interfere with the policy decisions taken by the State. Aggrieved by the same, Writ Appeal No. 658/93 was preferred. By the impugned judgment dated 13.6.1993, the writ appeal was dismissed holding that the policy of the Government is one step marching towards the total B c prohibition. The appellants could not base their case on legitimate expectation, nor was their any violation of Article 14 of the Constitution. Thus, the present civil appeals. •I Ramanathapuram District Liquor Retail Sellers' Association has preferred Writ Petition (Civil) No. 648 of 1993 under Article 32 of the Constitution of India, challenging G.O. Ms. No. 44 dated 3.3.1993. ., Mr. K. Parasaran, learned senior counsel, appearing for the appellants inbvil Appeal No. 4981 of 1994 arising out of SLP(C) No. 9854 of 1993 submits that change of policy must pass muster of Article 14 of the Constitution of India. When the State Government has permitted the sale · D of liquor,' the change of policy can be tested on the touchstone of Article 14 of the,Constitution of India. In S.C. Advocates-on-Record Association v. U11io11 of I11dia, [1993] 4 SCC 441 at page 703, this Court has taken the view that due consideration of every legitimate expectation in the decisionmaking process is a requirement of the rule of non-arbitrariness. Again, in E Kumari_ Shrilekha Vidyarthi v. State of UP., [ 1990] Supp. 1 SCR 625 at 650 this Court has taken the view, a change in policy should not be done arbitrarily. F In support of this submission, reliance is placed on Halsbury's Law of Englqnd Vol. 1(1) Fourth Edition, Para 81 at page 151. In this background of law, the facts require to be anaylised. By G.O. Ms. No 90, Prohibition and excise dated 21.4.92 retail selling of liquor was permitted. Such licence holders were entitled to renewal as well. On their representations the bars came to be permitted. Thereafter G G.O.Ms. No. 99 dated 26.5.92 came to be passed enabling these licence holders to open Bars. It is noteworthy that under both the sets of Rules a provision is made for renewal. It was in the hope that Bar licence will be renewed for the subsequent years as well, each licensee spent huge amounts in opening the Bars. In such a case, the plea of legitimate H expectation certainly will came to the rescue of the appellants. No doubt, ,• WINE MERCHANTS' ASSON. v. STATEOFT.N. (MOHAN,J.) 21!,7 the State can change its policy but it cannot be done arbitrarily as held in A the above cases. Raising a hope in the retail vendors that they would be allowed to carry on vending in Bars, renewal being a matter of course, suddenly to deny that privilege is arbitrary. A privilege _once accrued cannot be taken away. This is a clear implication of Section 8(3) of the Tamil Nadu General Clauses Act. More so, in a case like this where the Rules are prospective in nature such a legitimate expectation cannot be denied. Section 4 of the Tamil Nadu General clauses Act does not, in any way, militate against the operation of Section 8. If retail vending of liquor is permitted there cannot be anything wrong in selling the same liquor in the Bar. Lastly, the learned counsel cites R. Vijaykumar v. The Commissioner of Excise, JT (1993) 6 S.C.325 and submits that even in policy matters Article 14 of the Constitution will apply. B c Mr. R.K. Garg, learned counsel; appearing for the appellants in C.A. D No. 4982 of 1994 arising out of SLP(C) No. 9957 of 1993 submits as follows: The Prohibition Act provides for complete prohibition. However, the Government has reserved to itself the power to grant exemption in order to augment financial resources. The Government of Tamil Nadu in the year 1992-93 decided as a policy to provide for Bar licence attached to the retail E shops in order to augment revenue on auctions of retail shops. This change in policy was notified before the auction for the year 1992-93 stating only retail vendors will be eligible for Bar licences. Out of the successful retail shop vendors 300 and odd applied and secured Bar licence in accordance with the definite condition of auction held in 1992-93 that licence for Bar F attached to the shop will be granted after application was received and the prescribed fee was paid. The State of Tamil Nadu has, by this integrated new policy, escalated the bid amounts, in addition earned Bar LicenceJees. Thus, it is submitted that the Rules relating to retail vending of IMFL and the Rules for sale of liquor in Bars attached to the shop formed a single G integrated scheme. Such a trade was to go on for a period of 3 years with automatic yearly renewal on terms specified without fresh auction. The Government cannot destroy the integrated character of trade. This arbitrary action has resulted in unjust enrichment on the part of the Government and breach of faith bordering on fraud. No demonstrable basis was disclosed for such an action. H 288 SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R.· A The Government illegally and arbitrarily delinked the retail sale from sale in the Bars. Such an integrated policy could not be so changed as to impose unjust back-breaking burdens on the retail vendors. This amounts to destruction of fairplay. It is also is violative of Article 14 of the Constitution of India. B The impugned Notification dated 3rd of March, 1993 has to be tested c on the following grounds : 1. Whether the Bar Rules could be rescinded arbitrarily? 2. Whether both the sets of Rules form integrated policy? 3. The State having made the retail vending licences part with huge amount in the hope they could have Bars if not bound to honour its commitment. D A change in policy affects not merely legitimate expectations but also credibility of State to act fairly and reasonably. The impugned Notification is also arbitrary because no examination was under taken warranting change of policy. No committee was appointed. No report was received before tlie impugned Notification was E issued the State has proceeded on unfounded apprehensions relating to law and order. F It is violative of Article 14 of the Constitution because - (i) It is destructive of the principles of natural justice ; (ii) it is not based on relevant considerations and fair determination of changed circumstances justifying prejudice and injury to the lawful interest of the retail vendors; ' (iii) No damage to public policy is established requiring all Bars had G to be closed. In support of the above submissions Mr. R.K. Garg, learned counsel, cites State of M.P. v. Nandla/ Jaiswal, (1986] 4 SCC 566. On the strength of this ruling it is submitted that an integrated policy cannot be broken. H On the questi~n of legitimate expectation reliance is placed on WINE MERCHANTS' ASSON. v. STATEOFT:N. [MOHAN,J.) 289 Council of Civil Service Unions v. Minister for the Civil Se1vice, (1984) 3 All A ER 935. Mr. G.L ;Sanghi, learned counsel, appearing for the State of Tamil Nadu traces the history relating to prohibition in Tamil Nadu. On 16th of July, 1991, the present Government, as a first step towards implementation of total prohibition policy in the State, brought complete prohibition in relation to manufacturing and trading of country liquor. This was done because the State took note of the serious social evil uprooting the family B life of very many poor people in the State. Thereafter G.O.Ms. 90 dated 21.4.92 was passed enabling auction of liquor retail vending shops. At that point of time retail vending shops were not allowed to have Bar attached C to the licence shops. They were to sell the liquor only in bottles. In the earlier year the total ·number of retail vending shops was 3, 049 whereas in the year 1992-93 the number of shops increased to 4, 216. There was also an increase in the revenue from 32 crores to 98 crores. This increase was due to the commercial expectation of the bidders and the· heavy competi- D tion among them. . The Government also thought it fit that such shop owners who have licence might be allowed to have Bars attached to the shops. It was in this view the Bar licence was granted to those persons who held the licence for shops under Tamil Nadu (Liquor Retail Vending) Rules, 1989. The E Government received various representations that such running of Bars attached to retail· vending shops had become nuisance to the public particularly to the woman folk. Therefore, the Governor of Tamil Nadu in his speech made in the Legislative Assembly on 4.2.93 announced the policy decision of the Government to abolish Bars. It was under these circumstanF ces, G.O.Ms. No. 44 dated 33.93 came to be passed discontinuing both the grant and renewal of Bar licences. This G.O. was unsuccessfully challenged before the High Court. It is submitted that only under the authority of rules the vendor was empowered to sell liquor. There are two different sets of Rules one of the year 1988 dealing with the retail vending of IMFS; 1992 Rules dealing with Bar licences. There is no question of these two different G sets of Rules becoming an integrated scheme. That being so, the principle of Nantilal's case (supra) cannot apply. In the case of a statutory rule, no question of arbitrariness would arise. It is always open to State to change its policy. If the contention of the appellants is accepted it_ would amount to fettering the Seate from repealing a Jaw. This Court in Ghaziabad H 290 I 1 SUPREME COURT REPORTS [1994) SUPP. 2 S.C.R. A Development Authority v. Delhi Auto & General Financial Pvt. Ltd., JT (1994} 3 S.C. 275 has clearly pointed out the inapplicability of the doctrine of legitim.ate expectation. The same is the position here. B As regards the principle that the Government cannot claim any immunity from the doctrine of promisory estoppel and there is no obligation to act fairly and justly, reliance is placed on Vasantkwnar Radhakishan Vohra v. Board of Trustees of the port of Bombay, [1991) 1 SCC 761. The next submission of the learned counsel is, legislative action whether plenary or subordinate is not subject to natural justice. It has been C so laid dci\Vn in Union of India v. Cyhnamide India Ltd., AIR (1987} SC 1802. To the same effect in Indian Express Newspapers (Bombay) Pvt. Ltd. v. Union of India, [1985) 2 SCR 287 at page 347. The principle that subordinate legislation cannot be questioned on the ground of violation of the principle of natural justice, has been reiterated. In the case of liquor vending licences one can expect to have renewal on payment of 15 per cent D or 10 per" cent, as the case may be. But in a Bar licence there is no possibility of renewal of the privilege because Rule 6(1}(c) States ; "A privilege.amount as may be fixed by the Government in this behalf." If, therefore, it is a privilege no question of right to renewal arises. Lastly, it is submitted that no representation was made. Therefore, the quest.ion of E promisory estoppel cannot arise. F Mr. V.R. Reddy, learned Additional Solicitor General, submits that there is no scope in this case for contending that the prineiple of legitimate expecta6on would arise. Union of India v. Hindustan Development Corporation, (1993] 3 sec 499 is an authority for the proposi6on that this principle applies only to administrative decisions. When the State completely prohibited the manufacture and sale of country liquor it brought a windfall to those selling IMPS. This accounts for the increase in the excise revenue. Support_ing the argument of Mr. G .L. Sanghi that the principle of G natural justice is not applicable to legislafrle acts H.S.S.K. Niyami v. Union of India, AIR (1990) SC '2128 is cited. With· regard to the applicability of Section 8 of the Tamil Nadu General Clauses Act it is submitted. that the repeal shall not affect the previous operation of the repealed law, has no application to the present H case. The. citation in this behalf is Indira Sohanlal v. Custodian of Evacuee WINE MERCHANTS' ASSON. v. STATE OFT.N. [MOHAN, J.] 291 Property, Delhi, [1955] 2 SCR 1117. Before we go into the questions of law arising in this case, we will briefly trace the legislative history leading to the impuged order. A Thanks to the courage and wisdom of Mr. C. Rajagopalachari (Rajaji), prohibition came to be introduced in his own native District of B Salem in the year 1937 by enacting Madras (later Tamil Nadu) Prohibition Act of 1937. By stages it was extended throughout the State in 1948. So much so the Gandhian ideal of the abolition of evil of drinking was realised. To recall the father of the Nation Mahatma Gandhi : "Nothing but ruin stares a nation in the face that is prey to the drink C habit." In this Act two important Sections for our purposes are sections 54 and 55. They are quoted in full- : "54. Power to make Rules. (1) The State Government may make ru/esfor the purpose of canying illlo effect the provisions of this Act. D (2) In particular and without prejudice to the generality of the E foregoing provision, the State Government may make rules • (a) for the issue of licences and permits and the enforcement of the conditions thereof : ( aa)prescribing the penalty for wastage or shortage of spirits in excess of the prescribed limits at such rate not exceeding twice the normal rate of excise duty or fee that would be payable on the quantity of the spirits lost in excess of the prescribed limits; NOTES : Clause (aa) inserted by Act 68 of 1986 (b) prescribing the powers to be exercised and the duties to be performed by paid and honourary Prohibition Officers in furtherance of the objects of the Act; (bb) prescribing the ways in which the duty under section 18-A F G may be levied; H 292 A B c D E F G SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R. NOTES Clause (bb) inserted by Act 19 of 1948 ( c) Determining the local jurisdiction of police and Prohibition Of~cers in regard to inquiries and th"e exercise of preventive ,and investigating po\vers; '(d) authorizing any officer or person to exercise any power or perform any duty under this Act; .. ( e) prescribing the powers and duties of prohibition committees and the members thereof and the intervals at which the members of such committees shall make their reports ; (t) regulating the delegation by the Commissioner or by collectors or other district officers of any powers conferred on them by or under this Act; (g) regulating the cultivation of the hemp plant, the collection of those portions of such plant from which intoxicating drugs can be manufactured and the manufacture of such drugs therefrom; (h) declaring how denatured spirit shall be manufactured; (i) declaring in what cases r• classes of cases and to what authorities appeals shall lie from orders, whether original or appellate, passed under this Act or under any rule made thereunder, or by what authorities such orders may lie revised, and prescribing the time and manner of presenting appeals, and the procedure for dealing therewith; U) for the grant of batta to witnesses, and of compensation for loss of time to persons released under sub- section (3) of section 38 on the ground that they have been improperly arrested, and to persons charged before a Magistrate with offences under this Act and acquitted; (k) regulating the power of Police and Prohibition Officers to summon witnesses from a distance under section 42; (I) for the disposal of articles confiscated and of the proceeds H thereof; WINE MERCHANTS' ASSON. v. STATE OFT.N. (MOHAN,J.) 293 (m) for the prevention of the use of medicinal or toilet preparaA lions for any purpose other than medicinal or toilet purposes and for the regulation of the use of any liquor or drug exempted from all or any of the provisions of this Act : (n) for the proper collection of duty on all kinds of liquor or drugs; (nn) for exemption from, or suspension of the operation of any rule made under this Act; B ( o) for all matters expressly required or allowed by this Act to C be prescribed. NOTES: Clauses (m (n) (o) instered by Act 8 of 1958 and clause (nn) added by Act 1 of 1975 with effect from 1.9.1974. (2-A) A rule or notification under this Act may be made or D issued so as to have retrospective effect on and from a date not earlier than, - (i) the 1st of September, 1973, in so far as it relates toddy; and (ii) the 1st of September, 1974, in so far as it relates to any liquor E other than toddy. NOTES : Sub-section 2-A inserted by Act 1 of 1975. (iii) the 1st May, 1981, in so far as it relates to the matters dealt with in sections 17-B, 17-C, 17-D, 17-E, 18-B and 18-C. F NOTES : Item (iii) added by Act 51 of 1981 Provided that a notification issued under sub- section (1) of section 16 may have retrospective effect from date not earlier than 1st November 1972 : Provided further that the retrospective operation of any rule made or notification issued under this Act shall not render any person guilty of any offence in regard to the contravention of such G rule or the breach of any of the conditions subject to which the exemption is notified in such notification when such contravention H A B c D E 294 SUPREME COURT REPORTS [1994) SUPP. 2 S.C.R. or breach occurred before the date on which the rule or notification is published, as the case may be. NOTES : The proviso's inserted by Act 68 of 1986 (3) All rules made under this Act shall, as soon as possible after they are made, be placed on the table of both the Houses of the Legislature shall be subject to such modifications by way of amendments or repeal as the Legislative Assembly may make within fourteen days on which the House actually sits either in the same session or in 1nore than one session. NOTES : Sub-section 3 added by Act 8 of 1958." ''55. Publication of Rules and Notifications. All mies made and notifications issued under this Act shall be published in the Official Gazette and upon such publication, shall have effect as it enacted in this Act." (Emphasis supplied) The operation of the Prohibition Act was temporarily suspended in August 1971. However, prohibition was re-introduced in August 1972 by abolition of toddy sbops and in September 1974 by abolition of arrack shops. Even while the prohibition was enforced the sale of IMFS continued in licenced shops to permit holders. In May 1981, once again sale of toddy and arrack was permitted. The manufacture of IMFS was also permitted. Concerning the sale of IMFS the Tamil Nadu Liquor (Licence and Permit) Rules, 1981 were framed. In the F year 1989 the Tamil Nadu Liquor (Retail Vending) Rules, 1989 (For short, Retail Vending Rules) were framed by which the 1981 Rules were repealed in so far as they related to the retail vending of IMFS and Beer. Rule 3 of these Rules states the privilege or selling liquor in licence shops would be available to persons by auction. The privilege amount was determined in G that auction. The State was enabled under Rule 4(1) to fix the maximum number of shops to be established in the State. Prior to the auction, notice of auction in Form No.I has to be published in Tamil and English dailies. As per Rule any person intending to participate in the auction has to deposit an earnest money of Rs. 10,000 H in an area falling within the limits of the Municipal Corporation or WINE MERCHANTS' ASSON. v. STATEOFT.N. [MOHAN,J.] 295 Municipality; a sum of Rs. 7,500 in other areas. Rule 8 requires offer by A tender in sealed cover as prescribed in form IV. After the confirmation of sale of privilege the auction pμrchaser has to make an application in form VI for the grant of licence. The Licensing Authority after verifying various factors, as may be necessary for satisfying itself; as to the suitability of the auction purchaser, grants a licence within three days of the order of B confirmation of sale. The licence so granted shall remain valid for a period of one year ending with 31st May of succeeding year. From the above procedure the following is clear : 1. Even if one happens to be the successful bidder in the auction, it C does not automatically entitle him to a licence. 2. The licencee once granted is valid for only one. year ending with 31st of May of succeeding year. In this regard Rule 14 of the Retail Vending Rules is relevant which is extracted below : "Renewal of licence - (1) If a licence intends to renew the licence for the second year he shall apply at least 30 days before the date of expiry of the licence for renewal in Form VIII after remitting - (i) an application fee of Rs. 100 (Rupees One hundred only): (ii) the .licence fee of Rs. 2,500 (Rupees two thousand and five hundred only); and (iii) the privilege amount determined at fifteen percent centum more than the privilege amount at which the sale of the privilege was confirmed in the previous year. (2) If a licensee intends to renew the licence for the third year, D E F he shall apply at least 30 days before the date of expiry of the G licence for renewal in Form VII after remitting - {i) an application fee of Rs. 100 (Rupees one hundred only); (ii) the licence fee of Rs. 2,500 (Rupees two thousand and five hundred only) and H 296 A SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R. (iii) the privilege amount determined ·at ten percent centum more then the privilege amount at which the sale of the privilege was confirmed in the previous year. Proviso omitted. B (3) If the licensing authority decides not to renew the licence, he may refuse renewal by an order recording the reasons for refusal: (Emphasis supplied) Provided that the licensing authority shall give a reasonable C opportunity of being heard to the licensee before such refusal. ( 4) If a licence is not renewed, the licence fee remitted by the licensee shall be refunded to him." What is important to be noted here is, under Rule 14(3) of the said D Rules the Licensing Authority is empowered either to renew or not to renew the licence. Therefore, there is no automatic renewal. These Rules were approved on 15.4.89 by G.0. Ms. 506, Home, Prohibition and Excise dated 15th April, 1989. E F The present Government assumed office in June 1991. On 16th July, 1991 complete prohibition of manufacture and trade in country liquor was imposed. u~doubtedly, this was a step in furtherance of Article 47 of the Constitution of India. On 21. 4.92, by G.O. Ms. 90 the Government ordered the auction of retail vending shops throughout the State. The sale of liquor was to be in bottles. At this stage, no Bar was allowed to be attached to the licence shop of retail vending. For the excise year 1992-93 the number of shops increased and the excise revenue also correspondingly increased. As rightly urged by learned Additional Solicitor General this increase was due to the total prohibition of country liquor, namely, toddy and arrack. The retailers made a representation that they could be allowed to have Bar G attached to the shops. It was in these circumstances, G.O. Ms. No.99, Prohibition and Excise Department dated 26th May, 1992 came to be passed. It must be made clear at this stage that these Rules called Tamil Nadu Liquor (Retail Vending in Bar) Rules, 1992 deal only with the Bar regulating the issue of licence and the privilege of retail vending of liquor in the Bar. The Rules came into force on 1st June, 1992. Under rule 4(a) H it is only a person holding a licence granted under Rules 13 of Retail WINE MERCHANTS' ASSON. v. STATEOFT.N. [MOHAN,J.] 297 Vending Rules, 1989 who can make an application for the grant of privilege A and issue of licence for retail vending of liquor in the Bar. The privilege amount varied from place to place from Rs. 18, 750 to Rs. 75,000. The period of licence was co-terminus with the period of licence B issued for vending liquor. Rule 6 dealing with renewal of licence is important. Clauses 1, 2 and 4 of Rule 6 are quoted hereunder : "6. Renewal of licence : 1. If the licensee intends to renew the licence for the second C term he shall apply not later than thirty days before the date of expiry of the licence issued under rule 4 inform III together with the following amount : a. an application for Rs. 100 (Rupees One hundred only); b. a licence fee of Rs. 500 (Rupees Five hundred only) c. A privilege amount as may be fixed by the State Government in the behalf. 2. If the licensee intends to renew the licence for the third term, he shall apply not later than thirty days before the date of expiry of the licence renewed, in Form III ...... 3. The licensing authority may refuse the renewal of a licence by an order in writing for reasons to be recorded therein; Provided that the licensing authority shall give a reasonable opportunity of being heard to the licensee before such refusal." D E F It has to be carefully noticed that under Rule 6(1)(c) the privilege amount may be fJXed by the State Government in that behalf. Further there G is power to refuse renewal; of course, for valid reasons subject to right of appeal and revision under Rules 16 and 17. On 4th February, 1993 the Governor of Tamil Nadu made the following address: "Prohibition as a key issue of State Policy is a Constitutional directive. Honourable Members of the House are aware that the H A B c D E F G . H 298 SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R. Government, under the leadership of the Chief Minister Dr. J. Jayalalitha, implemented as its first decision the abolition of cheap liquor shops throughout the State, in keeping with its announced policy of prohibition, although this involved an annual loss of revenue of Rs. 390 crores. The drive against bootlegging and illicit liquor was intensified with the formation of the Prohibition Enforcement Wing. The Chief Minister's drive against erring officials resulted in a noticeable reduction in the incidence of illicit liquor. A massive multi-media propaganda offensive against the evils of liquor has also been launched. We have decided to give a decisive edge to the offensive against illicit liquor by strengthening further the Prohibition Enforcement Wing at a cost of Rs. 7 crores. With one enforcement unit in each Police sub division, the Enforcement Wing will act effectively against the anti-social elements engaged in the illicit liquor trade. This Government places the highest emphasis on the welfare of the people, revenue considerations yielding place to consideration of maximum social good. Members of the House will wholeheartedly welcome the decision of the Government to withdraw the licences for bars attached to foreign spirit shops with effect from the excise year commencing from June, 1993." Pursuant to this, the impugned G.O.Ms. 44, Prohibition and Excise Department came to be passed on 3rd March, 1993. That reads as under: "Prohibition and Excise (vi) Department G.0.Ms. No.44 Read:- G.0. Ms. No. 99, Prohibition Excise, dated 26.5.1992 ORDER Dated : 3.3.1993 The Government have decided to discontinue the granting/renewal of licences for bars attached to the Indian Made Liquor retail vending shops under the Tamil Nadu Liquor (Retail Vending in Bar) Rules, 1992 with effect from the excise year commencing from the 1st Jnne, 1993 . WINE MERCHANTS' ASSON. v. STATE OF T.N. [MOHAN, J.J 299 2. The following Notification will be published in the Tamil Nadu A Go1•e111n1e11t Gazette. Notification In exercise of the powers conferred by Sections 17-C, 17-D, 21 and 54 of the Tainil Nadu Prohihition Act, 1937 (Tamil Nadu Act B X of 1937). The Governor of Tamil Nadu hereby rescinds the Tamil Nadu Liquor (Retail Vending in Bar) Rule~ 1992, with effect on and from the 1st June, 1993. (By Order of the Governor) K. Malaisamy Secretary to Govt." c The effect of the above G.O. is, on and from 1st June, 1993 the Tamil Nadu Liquor (Retail Vending in Bar) Rules, 1992 came to be rescinded. D Both the learned Single Judge and the Division Bench of the High Court under the impugned judgment have upheld the validity of G.O. Ms. No. 44 dated 3rd March, 1993. In the light of the above discussion the correctness of the following contentions may be examined : 1. Whether the Tamil Nadu Liquor (Retail Vending) Rules, 1989 E (For short Retail Vending Rules) and Tamil Nadu Liquor (Retail Vending in Bar Rules, 1992 (for short Bar Rules ) form an integral scheme? 2: Whether the appellants can claim the benefit of the doctrine of legitimate expection? 3. Whether under the impugned G.O. by rescinding of the Bar Rules- (a) The State has not acted fairly; (b) violation of Article 14, the action being arbitrary? 4. Whether the appellants could claim the benefit of Section 8 of the Tamil Nadu General Clauses Act? Point No. 1: F G In view of what is stated above, it is clear that privilege of retail H 300 SUPREME COUR:T REPORTS (1994] SUPP. 2 S.C.R. A vending could only be under licence. Such a licence is obtained after a successful bid. The mere success in the bid does not ensure the privilege. Still, as seen above, even after the confirmation of sale the auction pur· chaser will have to apply in form No. VI to the Licensing Authority fur the grant of licence along with the requisite fee.