STATE OF MADHYA PRADESH & ORS. v. NANDLAL JAISWAL & ORS.

~- ment in the writ petitions, did not make any comments against the conduct of the State Government in granting to the existing contrac- tors the right to construct distil!eries and manufacture and make wholesale supply of country liquor from such distilleries but merely F A proceeded to invalidate what he called the second part of the policy ' decision dated 30th December 1984 on the ground that it violated Article 14 of the Constitution. But Justice B.M. Lal delivered a sepa- rate concurring opinion and in this opinion, he made certain observa- tions which have been strongly objected to by the learned Attorney General appearing on behalf of the State of Madhya Pradesh. It is G necessary to set out in extenso what the learned Judge has said in this + .connect.ion because .an application has been made to us by the learned Attorney General that the objectionable remarks made by the learned Judge should be expunged: H "This new mischievous device gives scope to respondents ,

40 SUPREME COURT REPORTS [1987] 1 S.C.R.

No.5 to 11 to monopolize the entire trade of liquor distil- A lery in Madhya Pradesh and also make the State dance at their tips while fixing the rates according to their wishes.

However, it appears that the sinister of under-hand , dealing of the agreement has persuaded the State Govern- ment to make the statement before this court during the B course of second day of arguments, that they have reduced the period of the: agreement dated 2.2.1985 from 30 years to a mere of 5 years period i.e. w.e.f. 1.4.86 to 31.3.1991 with no condition of renewing it thereafter without adher- . , ing to the provisions of rule XXII (Supra). By making this statement at the bar, I presumJ: that, the State is trying to c minimise the extent of depletion of public revenue, but still the loss of 56 crores, as argued by Shri Venugopal, con- tinues if licence in D-1 form is granted to the respondents Nos.5 to 11 even for a period of five years.

Making any relaxation in contracts illegally arrived at D by violating statutory provisions of rule XXII (Supra) which gives abnoxious smell of malafide involving public revenue in crores, then, in my opinion, even for a moment it cannot l5e allowed to stand in the eye of law. ·

It appears that by reducing the period of 30 years to a E mere five years period, the State still wants to extend benefit to respondents 5 to 11, so that the amount so far spent by them in working out the contract in approaching the concerning authorities of the State may be compensa- ted. Why this urndue favour is being triea to be extended to F the respodents Nos.5 to 11, speaks in itself in volume and is 1 really a matter of the domain of the State Government.

The facts relating to under hand dealing brought to our notice during the course of arguments by pointing out from the record are so startling."

G These are undoubtedly strong and highly disparaging remarks attribut- ing mala fides, corruption and underhand dealing to the State Govern- ment. Are they justified by the record, is a question which we have to consider.

We may first consider the question of !aches or delay in filling the. H

------------------c---;---c-- ---- l I

STATE OF MADHYA PRADESll v. N. JAISWAL [BHAGWATI, CJ.] 41

writ petitions because that is the question which has been decided by A the High Court against the petitioners and the petitioners have chal- langed the correctness of the finding re·ached by the High Court of this point .. The policy decision impugned in the writ petitions was taken 30th December, 1984. The Letter -0f Intent was issued in favour of each of respondent Nos. 5 to 11 on !st February 1985 and the Deed of Agreement was executed on 2nd February 1985. Each of resp0ndents B nos. 5 to 11 thereafter proceeded to purchase land where the new disilleries were to be located and incurred large expenditure in purch- ase of such land and security deposit in a fairly large amount was also h paid by each of respondents Nos.5 to ll. Thereafter civil construction · work for putting up the distillery buildings was entrusted to reputed builders and various steps were taken by each of respondents Nos.5 to C 11 for obtaining requisite permission/consent from Madhya Pradesh Pradushan Nivaran Mandal. The construction of the distillery buil- dings was started and in many cases considerable progress was made in the construction. Each of respondents Nos. 5 to 11 also placed orders for plant and machinery and this too involved considerable amount of expenditure'. All this had to be done with quick despatch because the D · distilleries were required to be ready for production by !st April 1986. Each of respondent Nos. 5 to 11 worked indefeatably, ceaselessly and in all earnestness and spent considerable time, energy and resources in setting up the distilleries at the new sites and by the time the writ petitions came to be filed each of resp0ndent Nos'. 5 to 11 had spent at least Rs.1.5 crores it not more, on acquisition of land, purchase of E · plant and machinery; construclion of distillery buildings and other incidental and ancillary expenses. The first writ petition was filed by Nand Lal Jaiswal on 28th November, 1985 about 11 months after the date of the impugned policy decision, while the second writ petition came to be filed by Sagar Agarwal even later on 24th January 1986 and the third writ petition of M/s Doongaji & Co. was filed when the F · hearing of the first two writ petitions was actually going on in the High Court. There can be no doubt that the petitioners were guilty of gross delay in filin1£the writ petitions with the result that by the tiine the writ petitions came to be filed, respondent Nos.5 to 11 had, pursuant to the policy decision dated 30th December 1984, altered their position by . _incurring huge expenditur~ towards setting up the distilleries. G

Now, it is well settled that the power of the High Court to issue. an appropriate writ under article 226 of the Constitution is'discreti-0- · nary and the High Court in the exercise of its· discretion does not ordinarily assist the tardy and the indolent of the acquiescent and the ' lethargic. If there is inordinate delay on the part of the petitioner in H • /

42 S,UPREME COURT REPORTS (1987) 1 S.C.R.

A filing a writ petition and such delay is not satisfactorily explained, the High Court may decline, to intervene and grant relief in the exercise of its writ jurisdiction. The evolution of this rule of !aches. or delay is premised upon a number of factors. The High Court. does not ordi- narily permit a belated resort to the extraordinary remedy under the writ jurisdiction because it is likely to cause confusion :ind public in- a convenience and bring in its train new injustices. The rights of third parties may intervene and if the writ jurisdiction is excercised on a writ petition filed after unreasonable delay, it may have the effect of inflic- ting not only hardship and inconvenience but also injustice on third parties. When ~he writ jurisdiction of the High Court is invoked, unex- . · plained delay coupled with the creation of third party rights in the meanwhile is an important factor which always weighs with the High C Court in deciding whether or not to exercise such jurisdiction. We do not think it necessary to burden this judgment with reference to vari- ous decisions of this Court where it has been emphasised time and again that where there is inordinate and unexplained delay and third party rights are created in the intervening period, the High Court D would decline to interfere, even if the State action complained of is unconstitutional or illegal. We may only mention in the passing two · decision of this Court one in Ramanna Dayaram She tty v. Intemational Airport Authority of India & Ors., (1979] 3 SCR 1014 and the other in Ashok Kumar Mishra & Anr. v. Collector Raipur & Ors., [1980] 1 SCR 49C We may point out that in R.D. Shetty's case (supra), even E though the State action was held to be unco~stitutional as being viola- tive of Article 14 of the Constitution, this Court refused to grant relief to the petitioner on the ground that the writ petition had been filed by · the petitioner more than five months after the acceptance of the tender of the fourth respondent and during that period, the fourth respondent had incurred considerable expenditure, aggregating to about Rs.1.25 ' F . lakhs, in making arrangements for putting up the restaurant and the Snllcl.~ bar of course, this rule of !aches or delay is not a rigid rule which c:in'te cast in a straitjacket formula, for there may be cases where despite delay and creation of third party rights the High Court may still in the exercise of its discretion interfere and 'grant relief to the petitioner. But, such cases where the demand of justice is so compel- . G ·ling that the High Court would be inclined to interfere inspite of delay or creation of third party rights would by their very nature be few and ·for between: Ultimately it would be a matter within the discretion of the Court ex-hypothese every discretion must be exercised fairly and . justly so as to promote justice and not to defeat it.

H Here,' obyiously, there was considerable delay on the part of the

STATE OF MADHYA PRADESH v. N. JAISWAL (BHAGWATI, CJ.] 43

petitioners in filing the writ petitions and in the intervening period, A respondent Nos.5 to 11 acquired land, constructed distillery buildings, purchased plant and machinery and spent considerable time, money and energy towards setting up the distilleries. These circumstances would, in our opinion, be sufficient to disentitle the petitioners to relief under Article 226 of the Constitution. The petitioners however contended that they were not aware of the policy decision dated 30th B December 1984 nor had they any knowledge of the fact that the right t0 construct distilleries and to manufacture and supply wholesale country liquor from such distilleries was granted to the existing -con- tractors and it was only when they came to know about this that they immediately proceeded to file the writ petitions. Now, it is difficult to believe that the petitioners were not aware of the policy decision dated C _ 30th December 1984. The consideration of this matter started'as far

-· back as July 1983 and there were prolonged artd wide ranging delibera- tions lasting several months, coupled with spot inspections by the Vijayvargi Committee· and the Excise Department and it was after considerable discussion and deliberation that the policy decision was ' ·: arrived at on 30th December 1984. The petitioners were, on their own D showing, liquor contractors by profession and they were "associated with the trade of country liquor in the State since the last several years" and it would be wholly unrealistic and naive to suppose that the petitioners were not aware of the change in the policy which was being I discussed at various levels o_ver a period of almost 12 months and ~-· ~ which was ultimately brought about by the policy decision dated 30th E December 1984. Those who are in the liquor. trade would immediately know what is happening and whether any change is taking place in the policy in. regard to grant of licences for nianufacture and wholesllle supply of country liquor. It is also difficult to believe that the peti· tioners did not know that new distilleries were being constructed at / new sites by respondent Nos.5 to 11. The feigned ignorance of ihe petitioners is completely exposed by the letter dated !st April 1985 addressed by Sagar Agarwal to the Commissioner of Excise where it has.been stated categorically:-· ·

"I have learnt that in order to prevent pollution the Government has taken a decision to transfer the distilleries from the densely populated areas and to establish them in areas having less thinner population. Government deserves . to be congratulated for this decision in the face of pollution prevailing throughout the·world. ·

For this work existing distillers have taken a decision H

44 SUPREME COURT REPORTS (1987) 1 S.C.R.

to construct new distilleries at their own cost and they are being granted long-term permanent type licences for the same. Besides this, the exis~ing supply areas would be kept in tact with existing distillers." _ --- This letter clearly shows that Sagar Agarwal very well knew about the policy decision dated 30th December 1984 and that he was aware that , long-term permanent licences were being granted to the existing con- tractors for constructing new distilleries and operating the same. It may also be pointed out that there was considerable publicity in news- - papers in regard to the construction of new distillery at village Khapri ~ in Chhatisgarh area and information fo that effect appeared in the issues of Yugdhar dated 7th June 1985, Navbharat dated 8th June 1985 C . and Amrit Sandesh. There was also informatio1i in regard to transfer of the Badawah distillery to village Khodi in the issue of Nai Dunia published from Indore on 12th July 1985. Of course, the petitioners have stated in their affidavits that they did not see this newspaper publicity but it is difficult to aci:ept their statement. We may also point D out that, apart from the letter dated !st April 1985, there was also another letter dated 25th September 1985 addressed by Sagar Agarwal to the Commissioner of E>.cise where he made a specific reference to the policy decision dated 30th December 1984 which shows that in any event, Sagar Agarwal knew specifically about the policy decision as far back as 25th September, 1985 and yet no action was taken by him until _E 24th January 1986. M/s Doongaji & Company also _knew by April 1985 that the distilleries were being given 'permanently' to the existing con- - tractors, vide iheir letter dated 12th April 1985 addressed to the Chief Secretary, Government of U.P. The next letter in point of t,ime, -- namely, that dated t:lth May 1985 addressed by M/s Doongaji & Com- pany to the Prime Minister, also shows that M/s Doongaji & Company F _ were aware by this time that the distilleries werr being given 'perma- nently' to the existing contractors. M/s Doongaji & Company addres- sed another letter to the Prime Minister on 7th November 1985 in which they once again complained that the distilleries were being made 'permanent' to the existing contractors-. Now if Sagar Agarwal and M/s Doongaji & Company knew a5 far back as April 1985 that the distilleries "!ere being given in private ownership to the· existing con- tractors, it is difficult to believe that Nand Lal Jaiswal who is also in the liquor trade for years did not known about it. Iii fact, every person_-- in the liquor trade _would have know about this change in policy which had been made by the State Government under the policy decision dated 30th December 1984. We do not therefore see any reason to up set the finding of the High Court that the petitioners were guilty of

STATE OF MADHYA PRADESH v. N. JAISWAL (BHAGWATI, CJ.I 45

enormous delay in filing the writ petitions and that in the meanwhile, during the intervening period, the rights of third parties had inter- vened in that respondent Nos.5 to 11, acting on the basis of the policy decisicn dated 30th December 1984, had incurred huge expenditure towards setting up the distilleries. If the policy decision dated 30th December 1984 were now to be set aside at the instance of the petition- ' · ers, it would work immense hardship on respondent Nos. 5 to 11 and cause grave injustice to them, since enormous amount of time, money and energy spent by them in setting up the distilleries would.be totally wasted. Obviously, respondent Nos.5 to 11 would not have proceeded . L with the work of setting up the distilleries by spending considerable . · _,--time and energy and .incurring huge expenditure, if the writ petitions had been· filed in time, for in that event they would have known that .... ~ they would be running a serious risk of losing time;· money and re- sources in case the writ potitions were allowed. But since no writ ):ietitions were filed by any liquor oontractors challenging the policy decision dated 30th Decemb~r 1984 for well nigh over IO months. respondent Nos.5 to 11 oould not be blamed for embarking on the task of setting up the distilleries pursuant to the policy decision dated 30th.r D December 1984. It would be most inequito1ts,:now to tell respondent Nos. 5 to 11 that they policy decision dated 30th December 1984 was unoonstitutional and void and that all the time and energy spent and the enormous expenditure incurred by them in setting up the distil- . . - leries is therefore futile and they cannot be permitted to enjoy its benefits. E \ . The High Court. however, fell into an error in splitting up the policy decision dated 30th. December 1984. into two parts. one part ) . relating to th. e grant for oonstruction of new distilleries by the existing ~ oontractors and the. other part relating to the grant of licences for , · manufacture and wholesale supply of liquor to the existing contractors F on construction of new distilleries by them and in holding that delay on the part of the petitioners in filing the writ petitions disentitled.them to relief in respect of only the first part and not in respect of the second. The High Court took the view that by reason of the delay in filing of the writ petitions. the petitioners oould not be permitted to assail the grant made to the existing oontractors for oonstruction of new distil- G leries but so far as the grant of licences for manufacture and wholesale supply of liquor from the new distilleries was concerned, the challenge to the same was not precluded by the doctrine of !aches or delay and taking this view, the High Court proceeded to hold that the grant of licences for manufacture and wholesale supply of liquor made to the existing contractors was violative of the equality dause of the Con- H ..

46 SUPREME COURT REPORTS [1987) 1 S.C.R.

stitution. This view taken by the High Court is in our opinion plainly erroneous. The policy dt:cision dated 30th December 1984 was a single integrated decision arrived at by the State Government. taking a holistic view of all the aspects involved in the decision and it is difficult to appreciate how the High Court could sustain one part of the policy and strike down the other. Either the policy as a whole could be sustained or as a whole, it could be declared to be invalid, but certainly one part could not be sustained, whatever be the ground and the other pronounced invalid. That would be making a new policy for the State Government which it was not competent for the High Court to do. Once the High Court came to the conclusion that on account of delay or !aches in the filing of the writ petitions or the creation of third.party rights in the meanwhile, the Court would not interfere with one part of J C the policy decision, the Court could not interfere with the second part of the policy decision as well. The consequence of sustaining one part of the policy decision and striking'down the other would not only be to create a new policy for the State Government but it would also cause considerable hardship and injustice to respondent Nos. 5 to 11 and o also result in public mischief and inconvenience detrimental to the interest of the State.

In the first place, under the policy decision dated 30th December 1984, new distilleries were to be constructed by the existing con- tractors, not with a view to making them available for manufacturing liquor to any other person who might give a more acceptable bid or tender for D-1 and D-2 licences in the open market, but in order that the existing contractors who put up the new distilleries should be able to manufacture liquor and make wholesale supply of it under D-1 and D-2 licences to be granted to them for a period of 5 years. The grant of D-1 and D-2 licences to the existing contractors for a period of 5 years for manufacturing liquor in the new distilleries constructed by them and supply it in wholesale to retail vendors, was an integral part of the policy decision dated 30th December 1984. If D-1 and D-2 licences were. not be granted to the existing contractors but they were to be disposed of by auction or tender to any one who offers the most favourable rate, why should the existing contractors or for the matter of that any one, spend so much time, energy and resources and incur so much expenditure for constructing the distjlleries. Obvisouly the inducement to the existing contractors for constructing new distilleries at enormous cost was that they would be granted D-1 and D-2 licences at least for a period of 5 years. Otherwise, we do not see why they should agree to construct new distilleries spending so much time and energy and incurring such huge expenditure. Moreover, according to

STATE OF MADHYA PRADESH v. N. JAISWAL [BHAGWATI, CJ.] 47

the policy decision dated 30th December 1984, the rate chargeable for supply of liquor manufactured in the new distilleries was to be de- termined from year to year by an Expert Committee appointed by the State Government, but if such rate were to depend on the bid which may be mad" at the auction or tender and obviously the auction or tender could take place only at the end of 3 or 5 years and not from year to year-the entire policy of rate fixation laid down by the State B Government would be set at naught. What would happen in effect is that the old policy which was being followed up to 3 lst March 1986 and which was sought to be changed by foe State Government would be revived but now the distilleries forming the subject matter of that · policy would not be the old distilleries of which the land and building belonged to the State Government and the .plant and machinery was C subject to transfer at a valuation but the new distilleries constructed by the existing contractors with their own monies and resources under the Letter of Intent dated !st February 1985 and the Deed of Agreement dated 2nd February 1985, neither of which provided for transfer of the land and building or the. plant and machinery to any other person who might be granted D-1 and D-2,licences as a.result of auction or tender. D The entire policy of the State Government contained in the policy decision dated 30th December 1984 would be frustrated and a new policy would be made out which patently the High Court has no jurisd- iction or power to do.

Secondly, it is obvious that respondent Nos.'5 to 11 took tre- E mendous trouble by ~ay of acquiring land, constructing buildings, purchasing and instaliing plant and machinery and procuring and

- utilising large resources in setting up new distilleries with a view to· working them and manufacturing liquor for wholesale supply at such rate or rates as may be fixed by the Expert Committee appointed by the State Government. Now ifD-1 and D-2 licences are not granted to F them but are disposed of through auction or tender to another person the entire effort pui in by them would be wasted and they would be disappointed of a legitimate expectation created by the policy decision dated 30th December 1984 which remained unchallenged for a period of over 10 nionths. There can be no doubt that this would cause consi- derable hardship and inconvenience to respondent Nos. 5 to 11. G Moreover, it is difficult to see how D-1 and D-2 licences could be disposed of in favour of the most acceptable bidder or tenderer, when such bidder or tenderer has no distillery in which he can manufacture liquor. D- l licence, as we have pointed out above, cannot be granted to a person who does not hold D-2 licence and the grant of D-2 licence postuiates that a distillery would be available to the licencee where he H

48 SUPREME COURT REPORTS [1987] 1 S.C.R.

A can work for manufacturing liquor. Here, barring the new distilleries which are being set up by respondent Nos. 5 to 11 and the Ratlam and Nowgaon distilleries, there are no other distilleries in the State of Madhya Pradesh where liquor can be .manufactured and hence D-1 and D-2 licences cannot be granted to any person other than respon- dent Nos. 5 to 11, unless the new distilleries constructed,by respondent B Nos. 5 to 11, are transferred to such other person either by agreement or after acquisition by the State Government. We can plainly rule out the possibility of any agreement on the part of respondent Nos. 5 to 11 to transfer the new distilleries to any other person to whom D-1 and D-2 licences may be granted by the State Government and the only alternative left open to the State Government would therefore be to acquire the new distilleries. But that would again frustrate the policy c of the State Government to transfer the distilleries to private owner- ship and the old policy would be revived, though i.n a different garb. Moreover, the State Government would have to produce over 40 crores of rupees by way of compensation for the acquisition of the new distilleries and that would be a heavy drain on the public revenues which might otherwise be used for developmental and welfare acti- vities. Further more, the entire process of acquisition would take con- siderable time, may be yf:ars, and during this period, there would be no production of liquor and the State Government would have to purchase liquor from outside the State at higher prices in order ..._ to satisfy the demand of the consuming public, resulting in loss of licence fee as well as excise duty. Even if the person to whom D-1 and D-2 licences may be granted a1lfees to set up a new distillery, it would take considerable time and during the period taken up in the construction of the new distillery, the State Government would lose revenue. Of course, it may be urged that if respondent Nos. 5 to 11 are not granted D-1 and D-2 licences but such lieences are granted to any other person - F or persons who offer a more acceptable bid or tender, respondent Nos. 5 to 11 would be constrained to transfer the new distilleries to such other person or persons because otherwise the new distilleries in their hands would remain idle investment. But the State Government can- not wait for such chance to materialise and in the meanwhile, lose public revenue. G We have therefore no doubt that the High Court was not at all justified in splitting up the policy decision dated 30th December 1984 into two parts and in striking down the second part, while sustaining· the first. The Policy decision dated 30th December 1984 was one in- tegrated policy decision and it could either be sustained or struck down .H as a whole. We must accordingly hold that since the petitioners were

STATE OF MADHYA PRADESH v. N. JAISWAL [BHAGWATI, CJ.) 49 • guilty of e"normous delay in filing thewrit petitions and in the interven- .A "-\ ing period, the rights of respondents Nos 5 to 11 were created in that they spent considerable amount of time, energy and resources and incurred huge expenditure in setting up the new distilleries and sus- taining one part of the policy decision while striking down the other would amont to creating a new policy for the State Government and would also entail considerable hardship and inconvenience to respon- B /'. dent Nos. 5 to 11 and would also be detrimental to the interest of the State, it would be unjust and inequitous to grant relief to the petition- ers against the policy decision and the petitioners must in the circumst- ' ances be held to be disentitled to relief in respect of the policy decision ~-) in its entirity. On this ground alone we would dismiss the writ petitions and allow. the appeals of the State Government and respondent Nos, 5 c to 11. "7· But since considerable arguments were advanced before us in regard to the validity of the policy decision dated 30th·December 1984 ·with reference to Article 14 of the Constitution, we ,shall proceed to consider this question. It would, however, be convenient if we first examine two minor contentions urged on behalf of M/s. Doongaji & Co. as they are relatively unimportant and can be briefly disposed of in a few words. The first contention raised by the learne_d counsel appear- ing on behalf of M/s. Doongaji & Co. was that it was not competent to \he State Government to give effect to the policy decision dated 30th. ).,. December 1984 until after the publication of Rules made for that purpose under section 62(2) (h) of the Act. The learned counsel pointed out that D-2 licence in its existing form does not contemplate any construction licence at all: it is only a licence to manufacture liquor ~ and not a licence to construct a distillery and hence without publishing Rules relating to licence for con~truction of a distillery, the State } Government could not implement the change of policy under the policy decision dated 30th December 1984. This argument was l elaborated by the l1;arned counsel by putting forward the following content\on which we may reproduce in his own words: ·"Rule XXII contemplates the disposal of licences either by tender, auction or fixed licen.:e fee or in such other manner as the State Government may by general or special order direct. It does not enable the State Govern- G ment without publishing the rules to licence construction and working of a distillery under a changed policy: i.e. a policy which does not

' involve tender, auction or fixed lici:nce fee. Any other construction . would. render the last clause of Rule XXII as ultra vires section 62(2)(h) and section 63 read with section 7(c)." The learned counsel also urged that . "the decision of the Cabinet in a meeting of the H

50 SUPREME COURT REPORTS [1Q87] I S.C.R.

A Cabinet is not an Order" within the meaning of Rule XXII and since no order under that Rule was produced, the Letter of Intent and the r- Deed of Agreement were without the authority of law as being in contravention of that Rule. We do not think this contention has any substance. It is a contention of despair. It is difficult to understand why the policy decision dated 30th December 1984 cannot be given effect to B without any new Rules being made by the State Government. There is nothing in the policy decision dated 30th December 1984 which is )t:: contrary to the Rules made under t.he Act. It is true that D-2 licence in its existing form does not contemplate construction of a distillery and that the Rules do not seem to have prescribed the form for a licence for constructing a distillery. But, merely because the form of a licence for (~d constructing a distillery is not prescribed by the Rules, it does not c mean that such a licence cannot be granted by the Excise Authorities. If the form of a licence is prescribed, then, of course, such form has to be followed, but if no form is prescribed, the only consequence is that :r the licence to be granted by the Excise Authorities need not conform to any particular form. Section 14(c) of the Act clearly provides that D the Excise Commissioner may license the construction and working of a distillery and there was, therefore, nothing contrary to the Act or the Rules in the Excise Commissioner issuing Letter of Intent in favour of each of respondent Nos. 5-11 granting licence for construction of a new distillery. Rule XXII, as we have already pointed out, permits any one of four modes of disposal of licence to be adopted by the Excise E Authorities and it does not prescribe that the fourth mode denoted by ~

the words "such other manner as the State Government may by gen- · eral or special order direct" can be resorted to only if the first three modes fail. Here, in the present case, the policy decision dated 30th December 1984 provided that respondent Nos. 5-11, who were the . j existing contractors, should be granted licence to construct new distil- F leries and D-1 and Dc2 ljcences should be given to them for a period of ;~ five years for manufacturing liquor in such new distilleries and making wholesale supply of it to retail vendors in the areas attached to those \ distilleries. This manner of disposal of licences was clearly covered by ' the fourth mode of disposal set out in Rule XXII. We fail to under- stand why any further Rules were necessary to be made by the State G Government in order to give effect to this policy decision arrived at by the State Government on 30th December, 1984. The fourth mode of disposal set out in Rule XXII was, in our opinion, sufficient to permit disposal of licences in the manner set out in the policy decision dated -' 30th December 1984. The argument that there was no general or spe- cial order made by the State Government pursuant to the policy deci- H sion dated 30th December 1984 which would bring the case within the

STATE OF MADHYA PRADESH v. N. JAISWAL (BHAGWATI, CJ.( 51

fo~rth mode set out in Rule XXII is equally futile. When the policy decision dated 30th December 1984 was arrived at by the State Government itself, there could be no need for separate general or special order to be made by the State Government in that behalf. This would s~em to be clear on principle, but we find that thereis a decision of this Court .in State of Orissa & Ors. v. Harinarayan Jaiswal & Ors., [ 1972] 3 SCR 784 where the same view has been accepted. There, the section which came up for consideration was section 29 of the Bihar and Orissa Excise Act,· 1915. Sub-section (2) of this section provided that the sum payable to the State Government in consideration of the grant of an exclusive privilege to manufacture and supply or liquor shall be determined as follows: "by calling tender or by auction or otherwise as the State Government may, by general or special order, c direct." The State Government adopted the metpod of selling the exclusive privilege by private negotiations and this was challenged on behalf of the petitioners on the ground that the Government could sell the exclusive privilege by private negotiations only if an order was made under section 29 sub-section (2) that the privilege in question shall be sold by private negotiations and no such order havfog been D made by the State Government, the sale effected by the State Govern- . ment was invalid. This challenge was negatived by Hegde, J., speaking on behalf of the Court in the following words:

"In the cases of public auctions or in the case of calling for tenders, orders from the Government directing its subordi- E nates to notify or hold the auctions or call for tenders is .,.,, . understandable. Public auctions as well as calling for tenders are done by subordinate officials. Further due \ ,. publicity is necessary in adopting those methods. To re- quire the Government to make an order that it is going to sell one or more of the privileges in question by negotiating F with some one is to make a mockery ,of the law. If the Government caO'enter into negotiation with any person. as we think it can, it makes no sense to require it to first make an order that it is going to negotiate with that person. We must understand a provision of law reasonably. Section 29(2)(a) does not speak of any order. It says that "the State G Government may by general or special order direct". The direction contemplated by that provision is a direction to 'r subordinate officials. It is meaningless to say that the Government should direct itself."

This decision provides a complete answer to the contention urged on H

52 SUPREME COURT REPORTS [ 1'187) I S.C.R.

behalf of M/s. Doongaji & Co. based on the language_ of the last clause of Rule XXII. It is true that what has been produced before the Court by way of policy decision dated 30th December 198-1 is the decision of the Cabinet and if its production had been objected to on behalf of the State Government, a question would perhaps have arisen whether it is barred form the scrutiny of the Court under clause (3) of Article 163 of the Constitution. But, it has been produced by the petitioners without any objection on the part of the State Government and once it is produced, the Court is entitled to look at it and it clearly contains the

-· decision of the State Government and must be held to fall within the last clause of Rule XXII. This view finds complete support from the -( . decision of this Court in L.G. Chaudhari v. Secretgry, L.S.G. lJeptt., Govt. of Bihar & Ors., AIR 1980 SC 383. c The learned counsel appearing on behalf of Mis Doongaji & Co . . also raised another contention based on the provisions of the In- dustries (Development & Regulation) Act, 1951. The argument of the learned counsel was that re:;pondent Nos. 5-11 were not entitled to set up new distilleries at the new sites without obtaining a licence from the Central Government under Section 11 of this Act and since there was nothing to show that they had obtained such licence before setting up the new distilleries, their action in setting up the new distilleries was illegal and could not give rise to any rights in their favour. But, this contention is also unsustainable. In the first place, no such contention was raised in the writ petitions and neither the State Government nor respondent Nos. 5-11 had any opportunity of answering such conten- tion. This contention is based on facts and we cannot permit the petitioners to raise it for the first time in the present appeals. The foundation· for this contention should have been laid' in the writ peti- tions and the necessary facts should have been pleaded in support of it. F No such plea having been raised and no such facts having been pleaded in the writ petitions, we cannot allow this contention to be raised before us. Moreover, it is obvious from section 11 read with the defini- tions of 'factory' and 'industrial undertaking' contained in sub-sections (c) and (d) of section 3 of this Act that licence from the Central Government for setting up new distilleries would be necessary only if G 50 or more workers would be working in such distilleries and here in the present writ petitions, there is nothing to show that 50 or more workers were going to be employed in the new distilleries. We were told at the Bar that in fact old distilleries were also working without any licence from the Central Government, presumably because less than 50 workers were employed in such distilleries. This contention of the learned counsel on behalf of Mis Doongaji & Co. must also, there- fore, be rejected. ·

STATE OF MADHYA PRADESH v. N. JAISWAL [BHAGWATI, CJ.) 53

That takes us to the nex.t contention urged on behalf of the petitioners in regard to the yalidity of the policy decision dated 30th December 1984 tested with reference to Article 14 of the Constitution. The High Court, of course, declined to inierfere wit!i what it called the . first part of the policy decision on account of !aches or delay on the part of the petitioners but came to the conclusion that the second part of the policy decision was violative of the equality clause. The High B > Court observed that the policy decision dated 30th December 1984 "in so far as it relates to the grant of licences for manufacture and wholesale supply of country liquor ....... .- contravenes Article 14 of the Constitution and interference to that· extent is called for". The argument which found favour with the High Court was, and that is the argument which was reiteq1ted before us on behalf of the petitioners, that the policy decision dated 30th December 1984 that licence to construct new distilleries should be given only to the existing con- tractors and D-1 and D-2 licences to manufacture and supply it in wholesale· to retail dealers liquor in such new distilleries should be granted to them alone to the exclusion of other liquor contractors without holding auction or inviting offers which would give an opportunity to all liquor contractors interested in setting up new distil- leries and manufacturing and supplying liquor to complete for the . grant of such licences, was arbitrary and irrational and there was no valid justificatjon for selectively preferring the existing contractors to other liquor contractol"S<'for grant of such licences. This contention, plausible though it may seem at first blush, is, in our opinion, wholly untenable. There are two very effective answers to it given by .the

-- learned Attorney General and the learned counsel for Respondent Nos. 5-11 and we shall immediately proceed to discuss them.

But, before we do so, we may at this stage conveniently refer to a contention of a preliminary nature advanced on behalf of the State F Government and respondent Nos. -5-11 against the applicability of Article 14 in a case dealing with the grant of liquor licences. The contention was that trade or business in liquor is s0 inherently pernici- ous that no one can claim any fundamental right in respect of it and Article 14 cannot therefore be invoked by the petitioners. Now, it is true, and it is well settled by several decisions of this Court including G the decision in Har Shanker & Ors. etc. v. Deputy Excise & Taxation Commissioner & Ors., (1975) 3 SCR 254 that there is no fundamental right in a citizen to carry on trade or business in liquor. The State under its regulatory power has tl!e power to prohibit absolutely every form of activity in relation to intoxicants-its manufacture, storage, export, import, sale and possession~'No one can claim as against the H

54 SUPREME COURT REPORTS [ 1987] 1 S.C.R.

A State the right to carry on trade or business in liquor and the 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 equality clause while granting the exclusive right or privilge of B 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 Government. The State cannot ride roughshod over the requirement of that Article~ 1 \ c case,\ But, while considering the applicability of Article 14 in such a we must bear in mind that, having regard to the nature of the trade or business, the Court would be slow to interfere with the policy laid down by the State Government for grant of licences for manu- facture and sale of liquor. The Court would, in view of the inherently pernicious nature of the commodity allow a large measure of latitude D to the State Government in determining its policy of regulating, manu- facture and trade in liquor. Moreover, the grant of licences for manufacture and sale of liquor would essentially be a matter of economic policy where the r.ourt would hesitate to intervene and strike down what the State Government has done, unless it appears to be plainly arbitrary, irrational or mala fide: 1we had occasion to consider ~ E the scope of interference by the Court under Article 14 while dealing with laws relating to economic activities in R. K. Garg etc. v. Union of India & Ors. etc. [1982] 1 SCR 947. We pointed out in that case that laws relating to economic activities should be viewed with greater - latitude than laws touching· civil rights such a~ freedom of speech, religion, etc. We observed that the legislature should be-allowed some ' F play in the joints because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket · formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. We quoted with approval the following admonition give by Frankfurter, J. in Morey v. Dond, (354 US 457):

"In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these .are added

STATE OF MADHYA PRADESH v. N. JAISWAL [BHAGWATI. CJ.) 55

-( to the complexity of economic regulation, the uncertainty, the liability to error, tlie bewildering conflict of the.ex- perts, and the number of times the judges have been over- ruled by events-self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability."

What we said in that case in regard to legislation relating to economic 8 >.' matters must apply equally in regard to executive action in ihe field of economic activities, though the executive decision may not be placed on as high a pedestial as legislative judgment in so far as judicial deference is concerned. We must not forget that in complex economic _,,_)- matters every decision is necessarily empiric and it is based on ex- perimentation or what one may call 'trial and error metliod' and, c , therefore, its validity cannot be tested on any rigid a 'priori' considera- '1 lions or on the application of any straight-jacket formula. Th~ court must while adjudging the constitutional validity of an executive deci- sion refating to eoonomic matters grant a certain measure of freedom or play in the 'joints' to the executive. "The problem of Government" as pointed out by the Supreme Court of the, United States in D Metropolis Theatre Company v. State of Chicago, 57 Lawyers Edition 730 "are practical ones and may justify, if they do not require, rough accommodations, illogical, it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not discemi- ~/ ble, the wisdom of any choice may be disputed or condemned. Mere errors of Government are not subject to our judicial review. lt,is only E its palpably arbitrary exercises which can' be declared void." The Government, as was said in Permian Basin Area Rate cases 20 Lawyers -- Edi.lion (2d) 312, is entitled to make pragmatic adjustments which may be called for by particular circumstances. The Court cannot strike down a policy decision taken by the State Government merely because ~--· it feels that another policy decision would have been fairer or wiser or more sceintific or logical. The Court can interfere only if the policy F

\ decision is patently arbitrary, discriminatory or mala.fide. His against the background of these observations and keeping them in mind that we must now proceeo to deal with the contention of the petitioners based on Article 14 of the Co.;stitution. G The first answer to the contention of the petitioners is, and this in our opinion is a fatal answer, that no liquor contractors have in fact r been excluded from consideration under the policy decision dated 30th December 1984. It is undoub.tedly true that, on the application of the existing contractors, the State Go.vemment decided to grant to them licences to construct new distilleries in lieu of the old distilleries in· H

56 SUPREME COURT REPORTS [1987] 1 S.C.R.

A Gwalior, Ujjain, Dhar, Badwaha, Chattisgarh, Bhopal Seoni as also to give them D-1 and D-2 licences to manufacture liquor in such new distilleries and to sell it in wholesale to retail vendors in the respective areas attached to such new distilleries and it might appear on a super- ficial reading of the policy decision dated 30th December 1984 that the entire cake was handed over to the existing contractclrs and all. other B liquor contractors were left out and they were denied an opportunity of asking for similar licences. But this view, in our opinion, is based on ',:. a misreading of the policy decision dated 3Uth December 1984. It ignores clause 2 of the policy decision which clearly provides that "if some such similar matters are put up, the department on the basis of . the principles recommended by the Cabinet Sub-Committee should -{~.cc= C take decisions". It is clear from this clause that the State Government envisaged the possibility of other liquor contractors making similar applications for licences to construct new distilleries and to manu- facture and supply liquor from such new distilleries and hence pro- vided that if any such applications are made, they should be disposed of by the Excise Department on merits on the basis of the principles D "recommended by the Sub-Committee" that is, on the basis of the same principles on which the licences were decided to be granted to the existing contractors. It is therefore impossible to see how it can at all be contended that other contractors were excluded from considera- tion for the grant of licences for new distilleries. If any liquor con- tractor makes an application for a licence to construct a new distillery on the same terms on which licences are granted to the existing.con- tractor his application would have to be considered on·merits by the Excise Authorities and the Excise Authorities may, if they find the proposal suitable, grant to such liquor contractor licence to construct a new distillery along with D-2 licence on the same basis. The Excise Authorities may, in such event, either (1) direct such liquor contractor to manufacture rectified spirit, denatured spirit or foreign liquor in the ,'"1 new distillery for the remaining period of the D-1 and D-2 licences of \ the existing contractors and thereafter consider him along with other liquor contractors for grant of D-1 and D-2 licences in respect of the new distillery or (2) reduce and/or alter the area of supply· of any of the existing contractors and grant D-1 licence to such liquor contractor in respect of the carved out area. If the Cabinet decision dated 30th December 1984 while granting licences to the existing contractors leaves it open to other liquor contractors to come in and apply for similar licences, it is difficult to see how the challenge based on Article 14 can be sustained. H This view taken by us it; sufficient to dispose of the contention

STATE OF MADHYA· PRADESH v. N. JAISWAL [BHAGWATI, CJ.] 57

~ based on Article 14. But apart from this answer to the contention A which has found acceptance with us, there is another answer which is equally strong and cogent. Let us consider the circumstances under which the policy decision dated 30th December 1984 came to be taken. The propsal which ultimately culminated in the policy decision was first initiated in July 1983 by the M.P. Distillers Association, which , was of course an association of existing distillers. making a representa- B " lion to the State Government for privatisation of the distilleries. The situation which prevailed at that time in regard to the distilleries was quite disturbing. Whatever might have been the position at the date

~-)- when the distilleries were constructed, considerable human habitation had grown around them over the years and, barring Gwalior and Dhar distilleries, all the other distilleries were in thickly populated localities c and even so far as Gwalior and Dhar distilleries were concerned, it was 7' apprehended that within 5 or 7 years they would also be in the same unhappy situation. The result was that the working of the distilleries at the old sites was causing• serious air, water and environmental pollu- lion. The note prepared by the separate Revenue Department for the consideration of the Cabinet Sub-Committee as also the Report of the D Vi jayvargi Committee clearly showed that there was considerable air and W(lter pollution on account of dirty water flowing out of the distil- leries and fouling air and water. There was not enough space at the old sites for constructing lagoons for removal of the polluted water coming ~, out of the distilleries. It was therefore necessary to transfer the distil- leries to new sites which would be away from human habitation and where the distilleries could be constructed keeping in mind the standards fixed by the M.P. Pradushan Nivaran Manda! for removal of ..._ polluted water and keeping the environment clean and wholesome . Moreover, the total capacity of the distilleries including Ratlam Alcohol plant and Nowgaon distillery was only 203 lakhs proof litres ~· and even this quantity of producti~n was not being reached largely on account of old plant and machinery. The result was. short supply of ~ country liquor leading to loss of licence fee as well as excise duty on the part of the State Government. Moreover, the estimated consump- tion of liquor in the State was likely to be around 482.36 lakhs proof litres by the year 1991 and by the turn of the century it was expected to reach the startling figure of 1696.80 lakhs proof litres. The existing distilleries were obviously incapable of meeting this growing demand for country liquor: The plant and machinery of the' distilleries had 'r became antiquated and worn-out and the licensees for the time being had no incentive to replace it by modern plant and machinery. The buildings in which the distilleries were housed had also become old and dilapidated and the State Government was not in a position to H

58 SUPREME COURT REPORTS [ 1987] 1 S.C.R.

A maintain them in good condition and obviously the licencees for the time being were also not inlerested in keeping the buildings in good state of repair because the buildings did not belong to them. It was therefore absolutely essential to construct new distilleries with modem technologically advanced plant and machinery at new sites where there would be no problem of air or water pollution. The question was as to B how this should be done whether the new distilleries should be con- structed by the State Government or whether they should be placed in the private sector. The proposal made by M. P. Distillers Association was that the distilleries should be transferred to private ownership and they offered to take over the existing distilleries. The Cabinet Sub- Committee considered this question in all its aspects and reached the c conclusion that it would be better to entrust the construction of the new distilleries to the private sector rather than ask the State Govern- ment to do so. There are four very good reasons why the Cabinet Sub-Committee took this view. In the first place, the distilleries were in private ownership in almost all the States barring the State of M.P. and there was no reason why the State of M.P. should not fall in line with what was happening in the other States. Secondly, the State Gov- ernment would have to invest about Rs.50 crores, in any event more than Rs.40 crores, if the State Government had to construct and cut up new distilleries. This large amount would become available for other· · developmental and welfare programme, if, instead of the State Gov- ernment the private sector was entrusted with the task of construction of new distilleries. Thirdly, the State Government would not have to incur any recurring expenditure on maintenance of the buildings and the plant and machinery, because in the event of construction of the new distilleries being entrusted to private entrepreneurs, maintenance of buildings as well as plant and machinery would become their res- - ponsibility and moreover they would have real interest in keeping and ,-1 F maintaining them in good condition. And lastly, the land and buildings \ in which the distilleries were then housed would become available to l. the State Government for sale and, situated as they were in thickly populated areas, they would fetch a very handsome price which would go to augment the resources of the State Government. The State Government for these reasons thought it desirable that the construc- G tion of new distilleries should be in the private sector and, after discus- sion with the M. P. Distillers Association the State Government de- cided to entrust the construction of new distilleries to the existing contractors who had already offered to take over the distilleries.

There was also one other factor which, according to the State H Government and respondent Nos. 5 to 11, weighed with the State

STATE OF MADHYA PRADESH v. N. JAISWAL [BHAGWATI, CJ.I 5'! / Government in arriving at the decision to entrust the construction of A ~ new distilleries to the existing contractors instead of inviting offers by advertisement and that factor was that the licences of the eiisting contractors were· coming to an end on 31st March, 1986 and it was therefore necessary that the new distilleries should be ready for manu- facture of liquor before !st April, 1986 .. The construction of new distil· leries was a time-consuming job because it involved selection of B appropriate land, approval of the authorities to the land selected, entrustment of contract for construction to a competent contractor;

L_ obtaining of sanction of the municipal and other authorities to the plans acquisition of materials and construction of buildings placing of orders for modem sophisticated plant and machinery and installation of such plant and machinery in the distilleries. This whole process was c bound to take considerable time and the State Government could not therefore be faulted if they negotiated with the existing contractors '). who had come forward with a positive offer and entrusted the con• struction of new distilleries to them so that they could be ready fo~ manufacture by !st April 1986. Moreover it may be noted ihat no other person with experience of working a distillery had co'me forward with an offer to set up a new distillery. It is not possible to believe that when the existing contractor5 'who were members of M.P. Distillers Association had made an offer to the State Government to set up new distilleries and considerable deliberations and detailed enquiries were going on at the highest level for deciding whether the new distilleries .L should be handed over to the private sector and negotiations were actually being carried on with the M.P. Distillers Association in that behalf the other liquor contractors were not aware of any such pro- ceedings. Even after the policy decision dated 30th December, 1984 _ was reached by the State Government, neither Nandlal Jaiswal nor M/s Doongaji & Co. made any application for grant of licence to } construct a new distillery on the same terms on which licences were decided to be granted to the existing contractors. It is true that Sagar \ Aggarwal did make an offer but it may be noted that in the first place he was at no time a D-2 licencee and he had no experience. of working a distillery and secondly, his main interest was in having D-l(S) licences for J abalpur and Betul districts. It is also significant that while taking a decision to grant licences to the existing aintractors to put up new distilleries, the State Government did not wish to create a mono- poly in favour of the existing contractors and the State Government y therefore, when entering into the Deed of Agreement, limited the duration of D-2 licence to be granted to each of the eilisting con- tractors to five years and also left it open to other distillery contractors to oome in on the same terms. In fact the learned Attorney General H

60 SUPREME COURT REPORTS [1987] l S.C.R.

A frankly stated that if M/s Doongaji & Co. made an application for a licence to construct a new distillery on. the basis as others, his° appli- cation would be considered by the State Government. We fail to appreciate how in these circumstances it can at all be contended that the policy decision dated 30th December, 1984 taken by the State Government was arbitrary or irrational so as to be violative of Article B 14 of the Constitution.

.We may also point out that when the State Government is grant- ing licence for putting up a new industry, it is not at all necessary that it should advertise and invite offers for putting up such industry. The State Government is entitled to negotiate with those who have come j . c up with an offer to set up such industry. This principle was clearly and unequivocally accepted by this Court in Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir, [1980] 3 SCR 1338 where contracts entered into by the state Government with three manufacturers giving them the right to set up factories in the State for the manufacture of rosin, turpentine and other derivatives and making available to them an D assured suply of 4,000, 3,500 and 8000 metric tonnes of rosin per year by giving them tapping contract were challenged as violative of Article 14 of the Constitution on the ground that the State Government had not issued any advertisement inviting offers for award of tapping con- tract or stating that the tapping conttact would be given to any party who would be prepared to put up a factory for manufacture of rosin. E turpentine and other derivatives within the State and thereby equality of opportunity to compete for obtaining such contracts was denied to other persons. This Court speaking through one of us (Bhag\vati, J., as he then was) pointed out:-

"The pre-dominant purpose of the transaction was to en- r .-'\ F sure setting up of a factor by the 2nd respondents as part of the process of industrialisation of the State and since the 2nd respondents for that purpose. If the State were giving tapping contract simplicitor there can be no doubt that the State would have to auction or invite tenders for securing the highest price, subject, of course, to any other relevant overriding considerations of public weal or in- terest, but in a case like this where the State is allocating resources such as water, power, raw materials etc. for the purpose of encouraging setting up of industries within the State, we do not think the State is bound to advertise and tell the people that it wants a particular industry to be set up within the State and invite those interested to come up

STATE OF MADHYA PRADESH v. N. JAISWAL [BHAGWATI, CJ.] 61

with proposals for the purpose. The State may choose to do so, if it thinks fit and in a given situation, it may even tum to be advantageous for the State to do so, but if any private party comes before the State and offers to set up an industry, the State would not be committing ~reach of any constitutional or legal obligation if it negotiates with such party and agrees to provide resources and other B .')<. facilities for the purpose of setting up the industry. The State is not obliged to tell such party; "Please it. I will first advertise, see whether any other offers are forthcoming and then after considering all offers, decide whether I should let you set up the industry". It would be most unrealistic to insist on such a procedure, ............. . c The State must be free in such a case to negotiate with a private entrepreneur with a view to inducing him to set up an industry within the State and if the State enters into a contract with such entrepreneur for providing resources and other facilities for setting up an industry, the contract cannot be asailed as invalid so long as the State had acted D bona fide, reasonably and in public interest. If the terms and conditions of the contract or the surrounding circum- . stances show that the State has acted mala fide or. out of improper or corrupt motives or in order to promote the private interests of some one at the cost of the State, the Court will undoubtedly interfere and strike down State E ' action as aribitrary, unreasonable or contrary to public interest. But so long as the State actionjs bona fide and reasonable, the Court will not interfere merely on the ground that no advertisement was given or publicity made or tenders invited." F Here, in the present case, the pre-domin.ant purpose of the policy decision dated 30th December, 1984 was to ensure construction and setting up of new distilleries with· modem technologically advanced plant and machinery at new sites where there would be no possibility of air and water pollution and if f<,>r achieving this purpose the State Government considered the offer of the existing contractors and G negotiated with them and ultimately decided to grant to them licences for construction of new distiJleries on the terms and conditions set out in the recommendations of the Cabinet sub-Com.mittee it is difficult to see how, in view of the decision in Kasturi Lal Lakshmi Reddy's case (supra) the State Government could be said to have acted arbitrarily or capriciously in violation of Article 1-l of the Constitution. The con- H

62 SUPREME COURT REPORTS [1987] I S.C.R.

tention ot the petitioners based on Ar.tide 14 of the Constitution must therefore stand rejected.

Before we part with this case we must express our strong disap- proval of the observations made by B.M. Lal, J. in paragraph 1,9, 17, 18, 19 and 34 of his concurring opinion. The learned Judge made sweeping observations attributing mala fides, corruptio~ and under- hand dealing to the State Government. These observations are in our opinion not at all justified by the record. In the first place it is difficult to appreciate how any such observation could be made by the learned Judge without any foundation for the saine being laid in the pleadings. It is true that in the writ petitions the petitioners used words such as 'mala fide', 'Corruption' and 'corrupt practice', but the use of such c words is not enough. What is necessary is to give full particulars of such allegations and to set out the material facts specifying the particu- lar person against whom such allegations are made so that he may have an opportunity of controverting such allegations. The requirement of law is not satisfied in so far as the pleadings in the present case are concerned and in the absence of necessary particulars and material facts, we fail to see how the learned Judge could come to a finding that the State Government was guilty of factual mala fides, corruption and under-hand dealings. The learned Judge observed that amount was spent by respondent Nos. 5 to 11 "in working out the contract in approaching the concerned authorities of the State". This observations carried a direct allegation that money passed from respondent Nos. 5 to 11 to "the concerned authorities" for getting the licences. But no such allegation was at any time made by the petitioners and when the petitioners did not make any such allegation in the pleadings, nor even stated as to which authority took monies by way of illegal gratification, it is difficult to understand how the learned Judge could possibly make - F such an observation. The petitioners also did not make any specific imputation of under hand dealing in the writ petitiones and yet the learned Judge inexplicably came to the conclusion that· the State Government was guilty of 'sinister underhand dealing'. The learned Judge was clearly not justified in doing so.

G But, quite apart from this objection based on lack of proper and adequate pleading, we think. that even on merits the observations made by B.M. Lal, J. were clearly unjustified. There is not an iota of evidence to establish or even asmuch as to indicate that the State Government was actuated by any collateral purpose or was guility of any 'sinister underhand dealing' or was prompted by any currupt motive in reaching the policy decision dated 30th December, 1984.

STATE OF MADHYA PRADESH v. N. JAISWAL IBHAGWATI. CJ.] 63

What the learned Judge has said is based entirely on conjecture and suspicion-'and approach which does not go well with judicial disposi- tion of a case. There are two important factors which throw consider- able light in determining whether a policy decision is mala fide or motivated by improper considerations. One relates to the manner and method of reaching the policy decision and the other to the circumst- ances in which the policy decision is taken and the considerations which have entered into the making of it. Now, it is clear from the detailed sta1ement of facts which we have given at the commencement of this judgment· that the entire process commencing with the re- presentation of the M.P. Distillers' Association in July 1983 and culminating in the policy decision dated 30th December 1984 was spread over a period of about 17 months and it included gathering of c information, on-spot inspection of the sites, collegiality of delibera- tions, candour of inter-departmental and intra-departmental commu- nication and a dialectical interaction of different multilateral view- points. The policy decision was an informed and reasoned decision arrived at after detailed inquiries, fact-finding efforts and reports spreading over a period of more than a year and a half. Several queries and issues were raised by the Finance Department boldly and fear- lessly and these queries and issues were fully and frankly dealth with, clarifications were given and the entire matter was fully considered. There was no attempt at any stage of suppress discussion and debate or to avoid or side-track or push under the carpet any doubts or questions raised by any of the parties involved in the deliberations. It is also significant that the policy decision was not arrived at by a single fodi- vidual in the secrecy of his chamber but it was by the entire Cabinet and it was based on the recommendations made by the Cabinet Sub- Committee ·which was composed of four Ministers.assisted by officers from different departments belonging to the highest scholars of the civil service. It may also be noted that the Cabinet Sub-Committee F considered the matter from different a~gles, obtained relevant infor~ matiorl, sent a Committee of officers for spot inspection, took stock of the valuation and the likely investment, reviewed the problem and worked out the solution and made its recommendations to the Cabinet. The entire proceedings of the Cabinet Sub-Committee were before the Cabinet including the reasons for which the recommenda- G lions were made and it was after considering these recommendations that the Cabinet reached the policy decision. The entire procee'dings , \.· show that. there was comp)ete openness of discussion and deliberation. There was no suddenness of decision, no impulsive caprice or arbitrari- ness in reaching the decision. The policy decision was plainly and H avowedly an informed and institutionalised decision and the manner in

64 SUPREME COURT REPORTS [ 1987] I S.C. R.

A which it was reached is clearly indicative that it was neither mala fide r nor guided by any corrupt or collateral considerations.

We have already discussed the circumstances under which the policy decision dated 30th December, 1984 came to be made. We need not repeat what we have said in the preceding paragraphs in regard to the making of the policy decision and the circumstances under which it was made. These circumstances plainly and unmistakably point to the >< bona tides of the policy decision. It is not possible to discern any mala tides or any improper or corrupt motive on the part of the State Government in reaching the policy decision. It is significant to note j that the State Government did not concede whatever was demanded by the existing contractors. The existing contractors wanted the land and buildings of the existing distilleries to be transferred to them at a valuation but the Cabinet Sub-Committee did not agree to this sugges- tion and insisted that the existing contractors whould have to acquire land at new sites, construct buildings for setting up new distilleries, and the land and buildings in which the existing distilleries were housed would come ba'<!k to the State Government. The Cabinet Sub- committee also insisted on the existing contractors to make the neces- sary arrangements for removing air and water pollution in the new distilleries as also to construct a laboratory with modem equipment. The State Government also changed the mode of rate fixation. Origi- nally the rates for supply of liquor to the retail vendors were fixed on the basis of tenders every five ·years with \he result that the rates accepted by the excise authorities on the basis of the tenders continued to prevail for a period of five years. Now it is a fallacy to assume that the lowest rates quoted by the tenderers would necessarily be the cheapest and the best. If the tenderers form a syndicate they can push up the rates for supply of liquor and in fact it is obvious from the rates which were accepted by the excise authorities for the five year period, Isl April, 1981 to 3 lst March, 1986, that these were not the most ' reasonable rates. The Cabinet Sub-Committee therefore felt that the j ' system of rate fixation prevalent in West Bengal was the most benefi- \ cial to the State Government because it provided for rate fixation by an expert Committee which would take into account the escalation or de-escalation in the price of raw materials, varying labour cost and fluctuating market conditions every year and arrive at a reasonable rate, fair both to the licencee and to the State Government. The Cabinet-Committee also did not recommend taking over of the plant ., and machinery of the old distilleries from the existing contractors against payment of its value with the result that the old plant and machinery remained with the existing· contractors and obviously it

STATE OF MADHYA PRADESH'· N. JAISWAL [BHAGWATI. CJ.] 65

would have no value because they would not be able to sell it to any one and it would be dead junk in their hands and the price paid by them to the out-going licences would be totally lost. It is indeed dif- ficult to see how it can at all be said that in making its recomendations, the Cabinet° Sub-Committee was guilty of any mala fides or under- hand dealing or was actuated. by any corrupt motive. The Cabinet merely accepted the recomendations made by the Cabinet Sub- B Committee and in fact when the deed of Agreement came to be ex- ecuted with each of the existing contractor the State Government actu- ally introduced a provision that D-2 licences would be given only for a period of five years. We are therefore unable to appreciate how B.M. Lal, J. could possibly pass strictures against the State Government attributing mala fides, under-hand dealing and corruption to the State Government. c ---,~

We may also in this connection refer to an allegation made by Sagar Aggarwal that by reason of the policy decision dated 30th December, 1984 the State Government would incur a loss of about Rs. 56 crores. This allegation did not find favour with Acting Chief Justice D J.S. Verma but it seemed to have impressed B.M. Lal, J. because he categorically stated in paragraph l7 of his concurring opinion that even if D-1 licences· were granted to respondent Nos. 5 to l l only for a period of five years the State Government would suffer a loss of Rs. 56 crores. We find it difficult to understand how B.M. Lal, J. could possi- bly come to a conclusion that the State Government would be incur- 'E nng a loss of Rs. 56 crores by the policy decision dated 30th December, 198.+. The figure of Rs. 56 crores was arrived at by Sagar Aggarwal on the assumption that if instead of granting licence to the existing contractors to construct new distilleries and giving them D- l and D-2 licences for a period of five years, D- l(S) licence was granted . to him for the entire territory of the State of Madhya Pradesh and he F was able to get liquor from the Ratlam Alcohol plant at the rate of Rs. l.80 per proof litre in sufficient quantity so as to be able to supply liquor to retail vendors in the entire State he would be able to save for the State Government .a sum of Rs. 56 crores on the basis that otherwise a rate of Rs . .+ per proof litre would be charged by the existing contractors. This assumption is, in our opinion, wholly un- G founded. It is totally absurd and chimerical. In the first place, the Ratlam Alcohol plant was unable to supply the requirements of even Jabalpur and Betul districts and during the period ending 3 Jst March 1986 Sagar Aggarwal himself had to purchase liquor from outside at higber rates in order to satisfy the requirements of these two districts for which he held D- l(S) licence. 1f that be so, how could Ratlam H

66 SUPREME COURT REPORTS [1'187] 1 S.C.R.

A Alcohol plant which could not produce more than 60 lakh proof litres at the outside, possibly supply liquor for the whole of the territory of the State. If Ratlam Alcohol plant could be made to supply the re- quirement of the entire State there would be no need for any other distillery at all. But obviously the capacity of the Ratlam Alcohol plant was very limited and it was not able to achieve production on up to this B capacity. Secondly, it was decided that the Ratlam Alcohol plant would manufacture only ractified spirit for making masala liquor which was more popular and which brought greater revenue to the State and obviously therefore Ratlam Alcohol plant could not be availo able for producing ordinary liquor for supply to the retail vendors. Thirdly, it is difficult to understand how the learned Judge could as- C sume that Sagar Aggarwal would continue to get liquor from Ratlam Alcohol plant atthe rate of Rs. 1.80 per prooflitre. The rate for supply of liquor by the Ratlam Alcohol plant would naturally depend upon varying market conditions. And lastly we fail to understand how the learned Judge could proceed on the assumption that a rate of Rs.4 per proof litre would be fixed by the Export <;:ommittee for supply of D liquor by the existing contractors from the new distilleries. We do not know what rate would be fixed by the Expert Committee. That would depend upon diverse considerations and of course one of the consi- derations would certainly be that Sagar Aggarwal had offered minus 2.3 l rupees per proof litre while taking D- l(S) licences for Jabalpur and Beta! districts. The figure of Rs.56 crores put forward by Sagar E Aggarwal and accepted by the learned Judge was clearly hypothetical and based on assumptions which were totally unwarranted. We do not think that the learned Judge was right in observing that the public exchequer would incur a loss of Rs.56 crores by the policy decision dated 30th December, 1984 and that the policy decision was therefore vitiated by mala fides or undf:r-hand dealing or improp<(r or corrupt - F motive.

We may observe in conclusion that Judges should not use strong 'I ), and carping language while criticisin.g the conduct of parties or their witnesses. They must act with sobriety, moderation and restraint. . They must have the humility to recognise that they are not infallible G and any harsh and disparaging strictures passed by them against any party may be mistaken and unjustified and if so, they may do consider- able harm and mischief and result in injustice. Here, in the present case, the observati"'1s made and strictures passed by B.M. Lal, J. were totally unjustified and unwarranted and they ought not to have been made. H

STATE OF MADHYA PRADESH v. N. JAISWAL [BHAGWATI, CJ.) 67

We must therefore hold that the High Court was in error in A allowing the writ petitions even to a limited extent. We accordingly allow the appeals of the State Govern,ment and respondents Nos. 5 to · 11 and dismiss the writ petitions. The special leave petitions of M/s. Doongaji & Co. ·and Nand Lal Jaiswal will also stand dismissed. We would however on the facts and circumstances of the present case B - make no orders as to costs.

S.R. Appeals allowed and Petitions dismissed.