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Article 14 in The Constitution Of India 1949
Article 47 in The Constitution Of India 1949
Cooverjee B. Bharucha vs The Excise Commissioner Andthe ... on 13 January, 1954
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Article 226 in The Constitution Of India 1949

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Andhra High Court
Mcdowell & Co, Limited And Others vs Government Of Andhra Pradesh And ... on 8 September, 2000

THE HONOURABLE SRI JUSTICE GODA RAGHURAM

WRIT PETITION NO. 11581 OF 2000

08/09/2000

McDowell & Co, Limited and others

petitioner

Government of Andhra Pradesh and others

respondent

<CONSTITUTION OF INDIA - Articles 14 & 19 - A.P. (Regulation of wholesale trade and retail trade in Indian Liquor, Foreign Liquor, Wine and Beer) Act, 1993 (Act 15/93) - A.P.(Regulation of wholesale trade and distribution of Indian Liquor, Foreign Liquor, Wine and Beer) Rules, 1993 - A.P. Foreign Liquor and Indian Liquor Rules, 1970 and A.P. Excise (Lease of right to sell Indian Liquor and Foreign Liquor in Retail) Rules, 1993 - Trade and business in liquor - Res extra Commercium - No individual can claim - Where the State opens its exclusive privilege to private participation - Art.14 applies.

>Held: Trade and business in liquor is res extra commercium. No individual may assert a claim thereto under Art.19. Where the State throws open its exclusive privilege to private participation, however, Art.14 applies and prohibits discriminatory treatment by the State in the matter of choosing individuals for the benefits of State largesse in the area.

Case law analysed.

CONSTITUTION OF INDIA - Article 14 - Test by the State to identify the appropriate price for procurement of liquor - Has to rationally relate to the asserted State policy - Avoidance of undue profiteering is a rational State policy - Test evolved by the State is incapable of achieving the said policy - Hit by Art.14.

Held: The test evolved by the State to identify the appropriate price at which liquor is to be procured from suppliers has to rationally relate to the asserted State Policy. Avoidance of undue profiteering by the suppliers is a rational State Policy. The test evolved and applied by Andhra Pradesh is, however, incapable of achieving the said policy in regard to all suppliers who form one class. The test in its application discriminates against some and favours others in relation to the asserted policy. The test is thus irrational and hit by Article 14.

CONSTITUTION OF INDIA - Article 14 and Liquor Trade - Latitude and deference accorded to State experiment in the trade in liquor - Not a charter of immunity from Constitutionally prohibited conduct - Hostile and discriminatory consequences of State action-Judicial review and correction.

Held: The latitude and deference accorded to State experiment in the area of trade in liquor is not a charter of immunity from Constitutionally prohibited conduct nor a licence for uncanalised and discriminatory dealing with individuals. Hostile and discriminatory consequences of State action are subject to Judicial review and correction.

For the petitioners: Sri F.S.Nariman, Senior Counsel (Mr.C.Kodanda Ram, Advocate with him)

For the respondents: Advocate General of A.P.(Government Pleader for Prohibition & Excise with him)

Sri G.Manohar, Standing Counsel for APBCLtd.

:ORDER:

The petitioners are manufacturers of Indian Made Foreign Liquor (IMFL). They have distilleries in the State of Andhra Pradesh licensed to manufacture IMFL under the provisions of A.P. Distilleries Rules, 1970. They manufacture various brands of IMFL.

The 2nd respondent is a Corporation wholly owned and controlled by the State of A.P. and is an instrumentality of the State. Consequent upon the enactment of the A.P.(Regulation of wholesale trade and retail trade in Indian Liquor, Foreign Liquor, Wine and Beer) Act, 1993 (Act 15/93) (for short 'the Act'), which replaced A.P. Ordinance No.5 of 1993, the 2nd respondent has been invested with the exclusive privilege of importing, exporting and carrying on wholesale trade and distribution in Indian Liquor, Foreign Liquor, Wine and Beer on behalf of the State of A.P. through out the territory of the State. All other persons are excluded the privilege of importing, exporting and supplying the same, in wholesale or distributing the same for the whole or any part of the State.(Sec.4 of the Act). This privilege conferred on the 2nd respondent is fortified by an appropriate statutory prohibition (Sec.7 of the Act). Sec.6 enables regulation of retail trade in the aforesaid species of liquor, by appropriate rules to be made by the State Government.

The legislative history and the philosophy underlying the Act as set out in the statement of objects and reasons accompanying the bill, enacted as the Act, reads as under:

" STATEMENT OF OBJECTS AND REASONS

The Government have taken notice of the evils of consumption of intoxicating liquors and have been thinking of prohibiting the consumption of intoxicating liquors in pursuance of Article 47 of the Constitution of India. The Government had appointed a Sub-Committee of the Cabinet to examine the entire matter relating to the prohibition on the consumption of toddy, arrack and liquor in the State. The said Committee has submitted a detailed report to the Government.

The Government have carefully examined the said report and decided that the privilege of supplying in wholesale the Indian liquor, Foreign liquor, Wine and Beer in the whole of the State of Andhra Pradesh should be vested exclusively in the Andhra Pradesh Beverages Corporation Limited and that the right to sell the same in retail shall be auctioned by the State in the place of the present practice of granting licences. Government have also decided to cancel the existing licences for supplying in wholesale the Indian liquor, Foreign liquor, Wine and Beer and also the licences for selling the same in retail with effect from the appointed date in order to achieve the object of minimising in public interest their consumption, by making appropriate law, as a prelude to totally prohibiting the consumption of the same in the course of time. To achieve the aforesaid objective, Government have decided to undertake legislation.

As the Legislative Assembly of the State was not then in session having been prorogued and it was decided to give effect to the above decision immediately, the Andhra Pradesh 9Regulation of Wholesale Trade and Distribution and Retail Trade in Indian liquor, Foreign Liquor, Wine and Beer) Ordinance, 1993 (Andhra Pradesh Ordinance 5 of 1993) was promulgated by the Governor on the 21st July, 1993 - Bill No. 9 of 1993).

An act to provide for the taking over of the Wholesale Trade and Distribution in Indian Liquor, Foreign Liquor, Wine and Beer and to Regulate the Retail Trade thereof as a prelude to totally prohibit the consumption of intoxicating liquors.

Whereas the Government have taken notice of the evils of consumption of intoxicating liquors and have been thinking of prohibiting the consumption of intoxicating liquors in pursuance of Article 47 of the Constitution of India; And whereas the Government have accordingly imposed ban on the sale of arrack in retail in Nellore District for the Excise Year 1992-1993; And whereas the Government have decided not to lease out the right to sell arrack in retail in any part of the State with effect from the appointed date with a view to totally ban the consumption of arrack; And whereas the Government have been thinking of taking over the wholesale trade and distribution in Indian Liquor, Foreign Liquor, Wine and Beer from the private sector in order to have an effective control over the wholesale supply and distribution in Indian liquor, Foreign liquor, Wine and Beer to facilitate the eventual prohibition of consumption of intoxicating liquors of any kind; And whereas the Government have also been thinking of terminating all the existing licences to sell Indian Liquor, Foreign liquor, Wine and Beer in retail and lease and right to sell Indian liquor by way of auction in order to facilitate easy imposition of total prohibition;

And whereas the Government have carefully considered the whole matter and have taken a policy decision that in public interest the exclusive privilege of supplying in wholesale the Indian liquor, Foreign liquor, Wine and Beer in the whole of the State of Andhra Pradesh shall be vested in the Andhra Pradesh Beverages Corporation Limited, a Corporation wholly owned and controlled by the Government, and that the right to sell the same in retail shall be auctioned by the State in place of the present practice of granting licences; And whereas the licences already granted in respect of privilege of supplying in wholesale and retail Indian liquor, Foreign liquor, Wine and Beer under the existing rules will expire on the 30th September, 1997; And whereas the Government have decided to terminate all existing licences for wholesale trade and distribution of Indian liquor, Foreign liquor, Wine and Beer and also the licences for selling the same in retail with effect from the appointed ate in order to achieve the aforementioned object in public interest as a preclude to totally prohibiting the consumption thereof in course of time; Be it enacted by the legislative Assembly of the State of Andhra Pradesh in the Forty-fourth year of Republic of India as follows: "

To effectuate the purposes of the Act, in particular the regulation of retail trade in liquor, the State Government made the A.P.(Regulation of wholesale trade and distribution of Indian Liquor, Foreign Liquor, Wine and Beer) Rules, 1993 (for short, 'the Rules'). Rule 11 of the Rules, relevant and material for adjudication of the issues arising in these proceedings reads as under: "11. Getting supplies of Indian Liquor or Foreign Liquor :- The Corporation shall get the supplies of Indian Liquor and Foreign Liquor from such manufacturers within or outside the State, in such quantities and at such prices as it may consider necessary and appropriate. "

Rule 14 of the Rules enables the 2nd respondent to sell Indian liquor through its permitted wholesale depots only to holders of retail licenses issued under the A.P. Foreign Liquor and Indian Liquor Rules, 1970 and A.P. Excise (Lease of right to sell Indian Liquor and Foreign Liquor in Retail) Rules, 1993. The said Rule also ordains the movement of the liquor from the liquor depots of the Corporation to the licensed premises of the retailer shop, only under a transport permit.

Rule 22 of the Rules reaffirms the exclusive privilege conferred on the 2nd respondent in the matter of import, export and carrying on of the wholesale trade and distribution of the specified species of liquor. In the above legal environment, the 2nd respondent, an instrumentality of the 1st respondent, holds exclusive privilege and therefore a monopoly in the area of wholesale trade in respect of the specified species of liquor. Functionally the 2nd respondent is in the nature of a canalising agency between the manufacturers and the retailers of liquor, the demurral of the learned Advocate General on behalf of the 2nd respondent on this aspect notwithstanding. The Mysore Sales International Ltd., which performs substantially identical functions in the State of Karnataka has been observed to perform a channelising role, by the Supreme Court in KHODAY DISTILLERIES & Ors. vs STATE OF KARNATAKA & Ors.1

The validity of the Act was assailed on various grounds. The vires of the Act was however up held in M/s SONA LIQUORS (P) LTD., rep. by its DIRECTOR, SHRI RAJENDRA KUMAR & Ors. Vs UNION OF INDIA, rep. By its SECERETARY, MINISTRY OF HOME AFFAIRS, NEW DELHI, & Ors.,2 by a Division Bench of this Court and later by the Supreme Court in KHODAY DISTILLERIES LTD. Vs STATE OF KARNATAKA3. The State Government issued G.O.Ms.No.1158 Revenue (Ex.III) Department, dt.20.11.93 setting out the guidelines to contour the functioning of the 2nd respondent. Inter alia the guidelines ordain that the 2nd respondent procure stocks of IMFL and Beer on a rate contract following the system of all India tender notification, that the tenders received pursuant to the notification be processed including wherever necessary by negotiations with regard to price and other terms and conditions of the tender, that the 2nd respondent give appropriate weightage for the existing market shares of different tenderers as also the relativity of the prices quoted by different manufacturers while deciding upon the quantity of IMFL to be ordered from different suppliers, that the purchase order quantities and reorder quantities be arrived at according to the said formula and that the formulae and guidelines prescribed in this behalf inter alia be based on the actual sales of the products as also the fastness of movement of various brands. The guidelines also enable the Board of Directors of the 2nd respondent to fix appropriate percentage of wholesale margins to be charged for each period of rate contract as also with respect to fixing of different percentages for different categories of the procured liquor, so however, that while fixing margins the Corporation shall take into consideration the consumer rates of different products. Guideline No.4 of the above guidelines mandates the 2nd respondent to ensure that the procedure, methodology and formula adopted by it in all matters connected with identification of suppliers, fixation of procurement prices and arriving at quantities to be ordered on various suppliers, are rational, transparent and fool-proof and that no undue advantage is given to any supplier or group of suppliers. For the year 1993-94 the 2nd respondent entered into rate contracts with various manufacturers. During the currency of the 1994 contracts, the State Government enacted Act 17 of 1995(w.e.f. 16.1.95) introducing prohibition. Resultantly, renewal of manufacturing and distillery licences was refused. In course of time Ordinance 12 of 1995 introduced Sec.7A to the provisions of Act 17 of 1995, which Ordinance was replaced by amending Act 35 of 1995 and prohibition of manufacture was enacted. The provisions of the Amending Act 35/95 were challenged in STATE OF ANDHRA PRADESH & Ors. vs MCDOWELL AND CO. & Ors.3a but the Supreme Court up held the validity of the Act including Sec.7A. Thereafter, by amending Act 5 of 1997 Chapter IV of Act 17/95 was substituted permitting regulation of manufacture of liquor, other than arrack, in accordance with the provisions of the Act(15 of 1993). Consequent on these legislative changes, the 2nd respondent resumed operations w.e.f. 1.4.97. The 2nd respondent issued a tender notification on 31.3.97 for the period of 1.4.97 to 31.3.98. Clause 2.7 of the terms and conditions of the above tender is as under:

"The tenderers should quote the prices for their products on a competitive basis. It shall be open to the Corporation to conduct negotiations with any or all tenders, if necessary. The tenderers shall ensure that the basic rates quoted by them for their products should not be higher than the rates quoted for supplies of the same brands of the other states. The tenderer shall furnish the rates at which their brands are being supplied to similar corporations in Tamil Nadu, Kerala and Karnataka (TASMAC, KBCL and MSIL respectively)with the details of basic price, excise duty, sales tax as given in the Annexure-V." Annexure-I to the tender notification sets out the form wherein the rate at which a product is supplied to similar Corporations and the prevailing retail rates in the three States above has to be set out by the tenderer. The requirement that a tenderer shall quote brand specific comparative prices qua the rates quoted in the three neighbouring States, was thus introduced by this clause.

However, the negotiations committee approved rate contracts for the brands quoted at rates higher than the rates quoted in the neighbouring States, notwithstanding Clause 2.7.

For the subsequent years 1998-99 and 1999-2000 also higher rates quoted by manufacturers were approved and indents placed on the manufacturers (notwithstanding Cl.2.7 supra).

In its letter No.25967/Ex.III-1/98-3, dt.18.6.98, the Government addressed the 2nd respondent in response to the 2nd respondent's letter dt.28.4.98, stating that after careful consideration the Government has approved the rates negotiated by the negotiations committee for the year 1998-99, even though they are higher than the rates obtaining in Tamil Nadu. By this letter the 2nd respondent was also directed to closely monitor the implementation of the current policy and submit its views once in a quarter to the Government to facilitate the formulation of policy for the next year. This letter, in the contention of the petitioners, constitutes a positive act of eschewing the specific prescription of Clause 2.7 of the tender terms, in recognition of market realities. It is also contended that this recognition of impracticability of the rates quoted for similar brands in adjoining States, constitutes an integral part of Government policy.

In G.O.Ms.No.234 Revenue (Ex.II) Department, dt.22.3.99, the Government enunciated the excise policy for the year 1999-2000. it is stated that the Government having reviewed the excise policy in the light of the experience gained during the current year and after careful examination decide to continue the existing policy for the year 1999-2000. Para 4 of the G.O. permitted the 2nd respondent to extend the agreements entered into with distilleries, for supply of various categories of liquor, on the same conditions as in the previous year.

The petitioners consequently entered into rate contract agreements with the 2nd respondent. Despite the existence of Clause 2.7 of the terms of tender, rate contract agreements were entered into at rates higher than those quoted by some manufacturers including the petitioners, in the adjoining States, for identical brands.

Thus for the 3 years ending with the year 1999-2000, Cl.2.7 of the terms of the tender did obligate the manufacturers to quote rates not higher than those quoted by them in adjoining States for similar brands, but the Corporation nevertheless entertained the tenders and also entered into rate contracts at rates substantially higher. There were marginal variations in the rates in each of the years but the rates, both quoted and agreed, were not comparable to the Tamil Nadu rates.

For the current year i.e., 2000-2001 the 2nd respondent Corporation notified two invitations to tenders, both dated 31.3.2000 - one invitation in respect of A and B categories and the second for categories C and D. The categorisation was arrived at by the Corporation on the basis of basic price per case as under: CATEGORY BASIC PRICE/CASE

AUpto Rs.400

BRs.401 to 600

CRs.601 to 900

DAbove Rs.900

The terms and conditions accompanying the tender notification contained a definition clause (3.1), which defines the basic price as ex-factory price, which includes cost of bottles, excise adhesive labels, packing material, freight charges and handling charges for loading and unloading. The expression 'case' is also defined, on which there being no contention between the parties, is not dilated upon. Clause 2.7 of the terms and conditions underwent a modification in the current year as under:

"The offerers shall quote prices for their products on competitive basis keeping in view the existing price. Prices will be one of the main considerations to accept or reject the offer. It shall be open to the Corporation to conduct negotiations with any or all offerers." (Emphasis)

The lis is confined to certain brands in C category, in respect of which the petitioners submitted their tenders pursuant to the notification dt.31.3.2000. As there was delay in finalising rate contracts, by the circular dt.2.5.2000 the 2nd respondent Corporation extended the validity of the purchase order up to 15.5.2000. The supplies were procured from the manufacturers including the petitioners after 31.3.2000 at the prices agreed to during the year 1999-2000. While supplies were procured from the manufacturers including the petitioners' up to 15.5.2000 at prices agreed for the previous year 1999-2000, procurement was discontinued from the petitioners after 15.5.2000 and no rate contract was also entered into. The petitioners contend that agreements were not entered into on account of the 2nd respondents insistence that the petitioners should agree to supply at Tamil Nadu prices (+9%). The petitioners submitted their offers in response to the tender notification for A and B categories also. Rate contract agreements have been entered into between the parties and there is no dispute between them in respect of A and B categories. Even in respect of the notification for C and D categories, the petitioners have submitted their offers and in respect of some of the brands in C category, rate contracts have been entered into. The lis between the parties is thus confined to a few brands.

The fact however is, that the brands in respect of which an agreement could not be reached in particular No.1 McDOWELL Whisky, No.1 McDOWELL Brandy and BAGPIPER Whisky, constitute more than 90% in the sale volumes and sale value of the brands supplied by the petitioners to the 2nd respondent Corporation. This is the petitioners' assertion at the hearing of the writ petition which is supported by a statement drawn up, apparently from the audited accounts of the company, in respect of which there is no denial entered by the respondents and is therefore considered as an established fact.

The failure of agreement between the parties in respect of these brands demonstrably impacts the writ petitioners adversely. It is also an established fact that rate contract agreement could not be reached only in respect of such brands, which are sold by the petitioners either in the State of Tamil Nadu or Kerala or both, under the same brand names as offered in the State of A.P. The petitioners variously addressed letters dt.19.5.2000 to the 2nd respondent Corporation offering to supply the few products aforementioned at the existing prices (1999-2000 prices). These letters state that as stock position of the "fast moving star brands" are coming down in most depots of the 2nd respondent and rate contracts could not be finalised, they are prepared to supply the products at existing prices in order to meet the customers' demand. The letters also sought release of purchase order.

By a subsequent letter dt.21.6.2000 addressed by the U.B. Group (to which the petitioners apparently belong), the 2nd respondent was requested to resume placing of orders on the three products. The relevant aspects set out in the letter are as under:

A) That of the total of 68 products comprising the consolidated offer for the current year, the 2nd respondent has after extensive negotiations with the price negotiations committee placed order for almost all products except the three brands despite agreeing to supply them at previous years prices and in the circumstances there is no justification for not acceding to the request, particularly as the request (letter dt.19.5.2000) is consistent with the principles underlying finalisation by negotiations of the procurements prices for other products;

B) That the 2nd respondent has finalised the procurement prices and placed orders in Categories C and D for the competitors brands such as Imperial Blue Whisky of M/s Seagrams Manufacturing Co Ltd., and Directors Special Black Whisky of M/s Shaw Wallace & Co, Ltd., even while it has been negotiating with the petitioners. As a result the above two competitors have gained an unfair advantage which resulted in loss and damage to the petitioner's market share in the State. This is contrary to the established practice of the 2nd respondent viz., simultaneous finalisation of procurement prices with the object of avoiding conferral of undue advantage to any manufacturer; C) That during the course of negotiations with the committee the petitioners have justified their demand for increase in procurement prices for the three products and have also duly sensitised the negotiations committee, as to the unfairness involved in taking into account the prices for the three products in only two selected States viz., Tamil Nadu and Kerala from out of the 31 States in which the petitioners sell these very three products and in most of which States the wholesale prices are in excess of the prices offered in the current year;

D) That as a result of the delay in finalising the prices the petitioners suffer enormous loss per day and the 2nd respondent and consequently the State also suffer enormous loss. Even considering the previous year's average offtake of the petitioners' products, the 2nd respondent would have stood to gain Rs.55,000/- per week since 15.5.2000 and the revenue to the Excise and Sales Tax Departments of the State would have been to the tune of Rs.1.93 crores and Rs.3.40 crores, respectively, per week;

E) That in the previous years since 1993 the 2nd respondent has always given orders for the whole range of the petitioners' products and has never excluded the three brands which are in the highest demand both on the retailers as well as consumers. It is only for the current year that there has been an exclusion of the most popular and highest selling products and that in the petitioners premise it is the consequence of the statements that have appeared in the press to the effect that "Private liquor manufacturers are permitted to sell liquor at a higher rate in Andhra Pradesh compared to neighbouring Tamil Nadu because of the alleged collusion of Beverage Corporation, which is the monopoly distributor for the State."

F) That the three brands continued to be in high consumer demand is evident from the volume of stock depletion at the 2nd respondent's depots; G) That in view of the principles enunciated in the M/s KHODAY DISTILLERIES LTD., case (1 supra), the refusal to place orders pursuant to the petitioners' offer, after 16.5.2000 in respect of the three brands results in gross discrimination and is also arbitrary.

The representation concluded with a request for resumption of placement of orders for these three brands pursuant to the petitioners' offer and consistent with the uniform policy adopted by the 2nd respondent since its inception. The justification offered by the petitioners for quoting of higher prices vis-- vis the rates quoted in the State of Tamil Nadu, being relevant, it is useful to extract this part of the letter dt.21.6.2000:

" Factually, the rates in Andhra Pradesh and in Tamil Nadu have been and are materially different over the years as is well known to you and to the trade and the material particulars of this difference are reflected as below : (a)Raw material namely Rectified spirit/Extra Neutral Alcohol which is the basic raw material for McDowell No.1 whisky, McDowell No.1 Brandy and Bagpiper Whisky, the procurement prices of this basic raw-material have been and are materially different in Tamil Nadu and much less than in Andhra Pradesh. Normally, the Rectified Spirit is manufactured by distilleries attached to sugar mills and there is no control over the price at which such Rectified Spirit may be bought by manufacturers of IMFL.

(b)Besides the label registration fee (under the Excise Rules) in Andhra Pradesh is much more than the corresponding fee in Tamil Nadu. (c)Even more importantly, the amounts spent on promotion of brand image in Andhra Pradesh works out per case to infinitely more than the expense for the said purpose in Tamil Nadu. McDowell and Company Limited was established in Tamil Nadu 100 years ago and has its Registered Office there and has scored a march over its competitors which renders it unnecessary to expend any amounts for promotion of brand image as in Andhra Pradesh. For instance, for McDowell No.1 Whisky whereas in Tamil Nadu the expense for promoting the product works out to Rs.1/- per case, the expense in Andhra Pradesh works out to Rs.50/- per case. We are willing to furnish an Auditor's Certificate in support. (d)In every State where we sell McDowell No.1 Whisky, McDowell No.1 Brandy and Bagpiper Whisky including Tamil Nadu, the cost of inputs of all the above items differs from State to State.

(e)Packaging costs in each State for the products, namely McDowell No.1 Whisky, McDowell No.1 Brandy and Bagpiper Whisky are different, since for instance in Tamil Nadu there are no mono cartons (i.e., the outer cartons) and blends, the labels are printed on plain paper whereas in Andhra Pradesh each bottle is packed in a mono carton and the label is printed on special foil. (f)For McDowell No.1 Whisky, McDowell No.1 Brandy and Bagpiper Whisky, the Corporation enjoys better returns by way of marks ups at which it supplies to retailers being a percentage of the price marked up to the Retailers. Since these three products are the most growing products preferred by the consuming public, the Corporation itself has stood to gain crores of rupees from the procurement of these three products alone.

(g)The irrelevance of a "lower" Tamil Nadu "price" will be observed from the fact that in the states of Orissa, Rajasthan, Madhya Pradesh, Karnataka and West Bengal for instance, the price of McDowel No.1 Whisky charged by the manufacturer namely, us are as follows:

Quarts

Pints

Nips

i)

Orissa

1277

1320

1351

ii)

Rajasthan

916

946

976

iii)

M.P.

1152

1185

1221

iv)

Karnataka

755

789

833

v)

West Bengal

872

904

928

The relevant sample invoices for April & May 2000 are enclosed. The same is true with regard to the other two products. "

There being no response to the petitioners' offer nor a resumption of orders, the petitioners instituted this writ petition. In substance, they seek the relief of a direction to the respondents to place orders for the three brands of liquor, the phraseology in which the reliefs are couched notwithstanding. The first and third respondent namely the State Government and the Commissioner of Prohibition and Excise filed a common counter affidavit adopting the more elaborate counter affidavit filed on behalf of the second respondent. The broad averments in this counter are to the effect that trade in liquor is not protected by Article 19 of the Constitution. Even while considering the applicability of Article 14, having regard to the decisions of the Supreme Court upon this question, the process of judicial review would not extend to interfering with the policy enunciated by the State Government, having particular regard to the nature of the trade and business, which is held to be inherently pernicious in nature and that the Government is allowed a large measure of latitude in formulating its economic policy, in this area. The counter affidavit of the second respondent which has covered a substantial area of the challenges set out in the writ petition states, on the various aspects as under:

a) That in the year 1993 itself, it has been noticed that the prices of certain brands commonly available in Tamil Nadu and Andhra Pradesh are higher in Andhra Pradesh. However, it was decided to allow free operation of the market forces. The prices fixed in the 1993 tender, w.e.f 1-4-94, formed the basis for fixing the rates in subsequent years. Thus in 1994, the prices were fixed marginally higher than in the previous year. After partial lifting of prohibition, the Corporation allowed a price increase over 1994 rates on all the existing brands of medium and regular categories of liquor. In the year 1998, the manufacturers having been persuaded, prices were reduced by a minimum of 3% over the 1997 prices on account of the increase in the volumes of sales. All the suppliers including the petitioners have reduced the prices by minimum of 3%, during the said year. On the directions of the Government, the answering respondent extended the rate contract agreement of year 1998-99 for the subsequent year also. On this account, there was a severe criticism from the public and in the media to the effect that the Corporation purchased certain brands of liquor at prices higher than those prevailing in other States, resulting in undue benefit to the distilleries. The Public Interest Litigation W.P.No. 1623 of 1999 was filed in this Court by one Sri.K.Upender Reddy questioning the payment of higher rates to certain distributors including the petitioners. b) That the Committee constituted for fixing the procurement prices of Indian Made Liquor (IML) and Beer for the current year 2000-2001 having considered all the above facts and having observed considerable variations in the brand prices of different manufacturers in the State as compared to prices at which the same brands were being supplied in the neighbouring States of Tamil Nadu and Kerala where too the whole sale in the liquor trade has been taken over by the State and entrusted to Government Corporations, and having also regard to the fact that the volumes of sales have substantially increased since 1997 to 2000 by about 2.25 times resulting decrease in the cost of production, it was recommended that certain increase in price over the prices of Tamil Nadu and Kerala be allowed keeping in view the differences in license fee, power tariff, freight charges and payment terms. Many suppliers confirmed their offers agreeing to reduce their prices in terms of the recommendations of the Committee except the petitioners and that too in respect of a few brands while agreeing to the committees recommendations in respect of many other brands. c) That as many as 809 brands of various manufacturers were offered for sale and of these, 14 brands of the petitioners and about 32 brands of other suppliers have been offered at prices higher than those at Tamil Nadu/Kerala. It is only in respect of such 14 brands of the petitioners that prices lower than that quoted but marginally higher than the prices prevailing in Tamil Nadu was followed as in respect of 32 brands of other manufacturers. The controversy was thus limited to these 14 brands offered by the petitioners. Even in regard to these brands, the other major manufacturers including M/s Mohan Meakins, M/s Andhra Liquors, M/s Seagram Manufacturers and M/s White and Mackey have agreed to the prices recommended by the Negotiating Committee. This demonstrates that the recommendations are reasonable and workable and that the production facilities of these manufacturers including the petitioners would not be materially affected by the refusal of the answering respondent in accepting the higher priced brands.

d) That it is open to the petitioners to export the disputed brands to other States in terms of the A.P. (Regulation of Wholesale Trade and Distribution of Indian Liquor, Foreign liquor, Wine and Beer) Rules, 1993 through the second respondent. No inconvenience or injury is thus suffered. e) That the answering respondent being an agent of the State has to ensure that the procurement prices are fair and reasonable and leave no avenue for providing undue advantage to any supplier. The objective behind the take over of wholesale trade being essentially regulatory in purpose and to enable exercise of effective control by the Government on the wholesale trade on liquor and not with an intention to merely maximize revenues of the State, it is the duty of the State to avoid payment of unduly high prices to the manufacturers. The answering respondent is not a mere canalising agency of the State but is an agency of the State obligated to exercise an effective control over the trade and to protect the Governmental and public interest in the fulfilment of its statutory obligations.

f) That with regard to the brands quoted by the petitioners against the two Notification Nos. 1 and 2, both dated 31.3.2000 for the categories of "A&B" and "C&D" respectively, the answering respondent has approved 56 brands and placed purchase orders on the approved brands. While not denying the assertion of the petitioners that the sale of UB group products are to the extent of 42% of the total sales and that the Negotiating Committee and the answering respondent were aware that for the year 1997-98 and 1998-99, the rates of certain brands were lesser in the neighbouring States, including Tamil Nadu, than in Andhra Pradesh, it is stated that on the basis of the letter of the Government dated 18.6.1998, the rates negotiated by the Committee for the year 1998-99 were approved, at rates higher than in Tamil Nadu. This approval was accorded as it was felt that in the absence of complete and relevant material on various factors affecting the cost of manufacture, it would not be possible to come to a definite conclusion on the reasons for the disparity in the rates. g) That the modification of the language of clause 2.7 of the Tender Notification in the current year was in recognition of the impracticability of having such a clause in the context of the complex market situation. The amendment is of no legal significance. Even otherwise, clause 2.7 as it now stands affords greater flexibility, leaves the negotiation of prices to the discretion of the Committee and enables the Committee to examine all relevant facts and circumstances while negotiating the prices. h) That the answering respondent has an obligation to ensure that the goods are available to the consumers at competitive prices. The Negotiating Committee had several rounds of discussions with the offerors and having taken into account all the relevant circumstances including those prevailing in the neighbouring States, came to the conclusion that as Tamil Nadu and Kerala have a similar regime namely the handling of wholesale trade in Liquor and Beer by Government Corporations, as in Andhra Pradesh, a comparative assessment should be made on the prices quoted vis--vis those existing in Tamil Nadu and Kerala. The petitioners failed to give an adequate justification for the substantial price difference in respect of certain brands commonly available in Andhra Pradesh, Tamil Nadu and Kerala. The Negotiating Committee having taken into account factors, which account for price increase, such as payment of license fee, power tariff and freight charges etc., arrived at a reasonable price for these brands. It accordingly recommended to allow price difference of 14% over Tamil Nadu and 7% over Kerala price in respect of "AB" category of liquor and a price difference of 9% over Tamil Nadu and 5% over Kerala price in respect of "C&D" category of liquor. Several other manufacturers and suppliers fell in line with the approach of the answering respondent in fixing the price and have also agreed to match their prices with those in Tamil Nadu and Kerala. The petitioners were adamant on insisting on existing prices. i) That several suppliers namely M/s Mohan Breweries & Distilleries Limited, M/s Andhra Liquors & Manufacturers Pvt Limited, M/s Seagrams Manufacturers Pvt., Limited, M/s White and Mackey (I) Limited and M/s Tilaknagar Industries Limited, submitted revised offers, reducing their prices in respects of brands also supplied by them in Tamil Nadu and Kerala and the answering respondent approved the rates of these brands as per the following table:

Brand Name

Existing Basic price for the year 1999-2000 (in Rupees) Q P N

Approved rates for 2000-2001 (in Rupees)

Q P N

M/s Mohan Breweries & Distilleries Ltd, Category "A", Old Monk XXX Rum. Matching the rates with 14% over T.Nadu.

477.00 484.00 505.00

322.73 339.50 343.21

M/s Andhra Liquors & Manufacturers Pvt., ltd., Category "B" Savoy Club Gin & Fresh Lime Category "C" Matching the rates with 7% over Kerala prices. 537.47 559.81 584.14

454.75 481.50 508.25

M/s Segrams Mfg Pvt .Ltd, Seagrams IMP. Blue Sup.Gr.Wh. (Matching the rates with 5% over Kerala prices.

776.20 777.40 829.80

731.85 777.00 777.00

M/s White & Mackey (I) Ltd WHITE HALL CL.WH. Matching the rates with 5% over Kerala prices.

731.71 767.79 826.22

705.60 719.25 808.50

M/s Tilaknagar Ind.Ltd, MANSION HOUSE FRENCH BRANDY Matching the rates with 5% over Kerala Prices.

898.61 925.00 949.33

761.09 784.50 794.28

j) That the petitioners not having submitted revised offers, the answering respondent did not approve the rates for the following 14 brands:

1. Mc Dowells's Ceasar-VSOP Brandy.

2. Mc Dowell's Pre.Blue Riband Ex.Dry Gin.

3. Mc Dowell's Orig. Red Riband Pre. VODKA

4. Mc Dowell's Premium Malt Whisky.

5. Mc Dowell's Vintage Classic Pre.Malt WY.

6. No.1 Mc Brandy.

7. No. 1 Mc.Whisky.

8. No.1 Mc.Dowell's Celeration XXX Rum.

9. Bag Piper Gold Premium Whisky.

10. Bag Piper Whisky.

11. Honey Bee Brandy.

12. Premium High Society Dry Gin.

13. Premium Romanv VODKA

14. Mc Dowells Diplomat World Class Whisky.

As in the case of the petitioners, in respect of other suppliers too there was no agreement in respect of certain common brands supplied by them in other States. However, there was no complaint from them, in this regard. k) That though the Tender Notification did not stipulate that if the rates at which supplies are made to other organisations are less than the rates offered to the Corporation, the tenders would be rejected, due to the adverse public and media criticism, on the fixing of higher procurement price and also in view of the public interest litigation pending in this Court, the answering respondent examined the issue in detail and based on the additional material available, fixed the rates for the current year 2000-2001 duly taking into account various factors that effect the price structure in the neighbouring States. The rates quoted by the petitioners in respect of certain brands including Mc Dowell Whisky, Mc Dowell Brandy and Bag Piper Whisky being substantially higher as compared to the rates for which these brands were offered in Tamil Nadu and being not competitive, were not accepted. During negotiations with the Committee, the petitioners did represent that comparison of the rates in other States is not proper as the business environment differs from one State to another as do other parameters such as expenditure in terms of payment, freight charges, loading and unloading charges, marketing expenditure and the like and that there being no comparative parameters, due weightage must be given to the above factors. The Negotiating Committee having considered the representations and discussed various aspects in comparison with the prices in neighbouring States of Tamil Nadu and Kerala, concluded that though the business environment may not be identical, the comparison of prices in Andhra Pradesh with those in Tamil Nadu and Kerala is justified as wholesale trade in liquor in all these States is vested with State owned Corporations. However, as the petitioners did not accept the price increase of 9% over Tamil Nadu Prices, there could be no agreement.

l)That there is neither any arbitrariness or irrationality in comparing the prices of similar brands commonly offered by the petitioners in Andhra Pradesh, Tamil Nadu and Kerala. The analyses of procurement prices and issue prices at which some of the common brands are sold in Andhra Pradesh and Tamil Nadu reveal glaring differences as apparent from the table below: Brand

Basic price A.P /Tamil Nadu (Nips) Rs. per case. Issue price A.P/Tamil Nadu (Nips) Rs. Per case.

No.I Mc.Whisky

826.22 352.39

25554.00 2217.27

Bagpiper Whisky

620.56 351.47

2133.00 2165.76

No.I.Mc.Brandy (Nips size is taken into account as it is the largest selling in the three pack sizes namely quarters, Pints and Nips. 616.95 327.20

2125.00 2165.76

l) That certain manufacturers whose brands have been approved for supply to the Corporation in Tamil Nadu and/or Kerala have taken a decision to discontinue some of their brands on the ground that the prices in those States are not remunerative. The Corporation has considered to approve these brands for supply in Andhra Pradesh at the existing prices of 1999-2000. The details of such brands are as under:

1. Haywards fine whiskyM/s Shaw Wallace & Co.Ltd.,

2. Haywards Dr's brandy -do-

3. Moghul Monarch del.wy. -do-

4.Antiquity rare prem.why-do-

5.Mc.Dowell Bl.Riband Tango M/s Mc.Dowells & Co Ltd.

6. Mcdowell Bl.Riband Duet gin M/s Mc.Dowell & Co Ltd,

7.Men's Club fine whisky "IDV Ltd.,

8.Smirnoff Vodka -do-

9.Officer Choice Whisky Ramon Distilleries Ltd.,

10.Blacknight malt whiskyMBDL.

As is apparent from the above, the brands discontinued in Tamil Nadu by the first petitioner and the others, have been approved in Andhra Pradesh at the existing prices (1999-2000). The petitioners however, continued to sell some of their brands including No.1 Mc.Whisky, Mc. Brandy and Bag Piper Whisky in Tamil Nadu obviously as the lower prices at which they are being sold in that State are remunerative.

m) That all persons who manufacture a product not produced in Tamil Nadu and Kerala have been allowed the corresponding price for the year 1999-2000. Similarly, the petitioners' products which are not being sold in Tamil Nadu were accorded identical treatment. It is only in respect of brands which are continuing to be sold by the petitioners in Tamil Nadu, that the answering respondent has declined to approve consequent on the petitioners' refusal to offer revised rates on par with rates offered for Tamil Nadu plus 9% increase over Tamil Nadu prices.

n) That there is no discrimination in the failure of the answering respondent to approve the rates for certain of the petitioners' products. No purchase orders were placed for unapproved brands of other suppliers also such as the following:

1. Old Tavern Whisky M/s Shaw Wallace & Co Ltd.

2. Directors Special Whisky. -do-

3. Royal Challenge Pre Wh -do-

4. Golconda Ruby Wine -do-

5. Golconda Brandy -do-

6. The Royal Peg Prestige Wh. M/s White & Mackey Ind ltd

7. Contessa Select XXX rum M/s Rampur Distilleries

8. Big Ben London Dry gin M/s Mohan Bre.& Dist Ltd.

9. Golden Eagle Doctor Brandy -do-

10.Triple Crown Brandy -do-

11.Boque Pure Grape French Brandy Etc. -do-

o) That the allegation that the answering respondent is indulging in hostile discrimination against the petitioners and invidious discrimination in favour of the first petitioner's competitors, is misconceived. The instances referred to by the petitioners namely M/s Shaw Wallace & Co. Ltd., and Officers Choice Whisky of M/s B.D.A. Limited are of no relevance as these brands are not being sold in Tamil Nadu and thus the prices agreed for 1999-2000 were continued for the current year. In so far as VSOP Ex-Shaw Brandy of M/s Shaw Wallace & Co. Ltd., is concerned, the prices quoted by the supplier for the current year 2000- 2001 was Rs. 647.80 as against their quotation for Rs.616.95 for the year 1998- 1999 which is substantially lower than the rate of Rs.926.00 at which the brand is being sold in Tamil Nadu and in the circumstances the price of Rs.616.95 was accepted for this product, after negotiations. The other aspects relied upon by the petitioners do not offer any analogy. No.1 Mc Whisky manufactured by the petitioners and Directors Black Whisky manufactured by Shaw Wallace and Company are not identical products, their blend and composition are different. The mere accident of identity of price of these products is not relevant. The mere accident of fact that these two brands fall in the same category price-wise does not entitle extension of similar treatment, for the purpose of price negotiations.

p) That there is no obligation on the part of the answering respondent to place purchase orders on all manufacturers merely on account of the fact that their products are in demand. The price structure offered by the petitioners in the State of Karnataka is of no relevance as the business conditions of wholesale trade in Karnataka are not identical to that in Andhra Pradesh. In Karnataka, wholesale trade in IML is not exclusively handled by the Mysore Sales International Ltd., (MSIL) and it is only one of the distributors, among others. In Andhra Pradesh however, the wholesale trade is exclusively handled by the respondent Corporation, for the entire State. The price Negotiations Committee offered a certain percentage of price increase over the rates quoted by the manufacturers and suppliers, for similar brands in Tamil Nadu and Kerala. Some suppliers having agreed to this principle, rates were accordingly revised and purchase orders placed. As the petitioners failed to agree in respect of certain existing brands as also certain new brands having similar sounding names, quoted in the offer for the year 2000-2001, no agreement could be reached.

The above are the broad justifications set out by the second respondent for the inability to enter into a rate contract agreement in respect of certain brands in category "C".

A detailed analysis of the reasons or justifications for the price variations between the quotations in Andhra Pradesh, Tamil Nadu, Kerala and Karnataka of identical or similar sounding brands would be out of place within the jurisdictional constraints of scrutiny under Article 226 of the Constitution. In the considered view of this Court, the broad pattern of the dispute between the parties that emerges is as under:

a) Either in the case of petitioners or other manufacturers and suppliers, wherever identical or similar sounding brands have either not been offered for sale in the neighbouring States of Tamil Nadu, Kerala or Karnataka or even if supplied in earlier years, have been discontinued in the current year, the second respondent has without further ado accepted a rate contract based on the prices agreed upon for such brands, in this State, in the previous Excise year 1999-2000.

b) The refusal to enter into a rate contract was occasioned solely by the factor of the petitioners continuing to supply identical brands in the neighbouring States mentioned above at prices lower (in some cases substantially) vis--vis the prices quoted in the current year, in the State. c) While there is no foolproof or scientific method for establishing identity in the products offered by various manufacturers and suppliers including the petitioners, falling within the same band width (categories such as A,B, C or D), the second respondent has determined identity of a brand only by the factor of identity in the brand label offered by the same manufacturer in the State of Andhra Pradesh as well as in the neighbouring States. It has been urged at the Bar by Sri.F.S.Nariman, learned Senior Council appearing for the petitioners, without any denial on behalf of the respondents, that customer preference is more a matter of taste than any significant preference for the contents, of a particular brand. This Court, however, declines to venture into such an uncharted area and hazard a conclusion as to what factors influence customer taste and preference. In the considered view of this Court however, the singular and linear factor of prices quoted by a manufacturer/supplier for a product bearing the same brand name in Andhra Pradesh and in the neighbouring States, with prices in the neighbouring State being lower, cannot rationally and per se constitute a ground for denying entering into an agreement on the prices quoted. The more rational factor for determining the price by the Negotiations Committee should have been the manufacturing cost of a specific brand in the State of Andhra Pradesh. The numerous factors that go into the manufacturing cost differ from State to State and include cost of labour, cost of procuring raw materials, cost of other inputs such as water and electricity, sales promotion and marketing expenditure, cost of obtaining and annual renewal of requisite licenses and permissions required for distilleries to operate, the effect of particular geo-specific Governmental policies and Governmental controls, the contemporaneous state of the market in relation to the product and other like factors. By the representation dated 21.6.2000 addressed to the second respondent, some of these factors have been urged as the underlying reason for the price differentia vis--vis the prices quoted by the petitioners in the neighbouring States. These factors have been reiterated in paragraphs 4 and 5 of the affidavit filed in support of the writ petition. In response thereto, the second respondent's counter affidavit has made the following comment: "I submit that the averments made in paragraphs 1 to 8 are broadly correct." In other paragraphs in the counter affidavit no doubt equivocal assertions have been made that all relevant factors including freight charges, power tariff, license fee and the like have been taken into consideration, but there is nothing on record to indicate that a rational analysis has been made of the reasons for the higher price quoted by the petitioners in the State of Andhra Pradesh. At paragraph 13 of the counter affidavit while it is contended that the Negotiations Committee recommended a price difference of 9% over Tamil Nadu and 5% over Kerala in respect of "C" and "D" categories of liquor for the current year, in actual practice, it is seen that the second respondent was rest content with considering the prices on the basis of a 9% increase over Tamil Nadu prices only.

At paragraph 13 of the counter affidavit, the second respondent after stating that the Negotiations Committee took into account certain factors relevant for the price increase vis- -vis neighbouring States, stated that it recommended to allow price difference of 9% over Tamil Nadu and 5% over Kerala prices in respect of "C" and "D" categories of liquor. At paragraph 15, the counter specifically asserts that the petitioners not having accepted the price increase of 9% over Tamil Nadu for the brands, agreement could not be reached. Also at paragraph 15, the counter affidavit sets out a table to demonstrate its assertion that the prices quoted by the petitioners for three of the star brands Mc.No.1Whisky, Mc.No.1Brandy and Bag Piper Whisky are substantially higher as compared to Tamil Nadu prices and were not competitive. The table at paragraph 15 is as under:

Brand Name

Tamil Nadu

Q P N

(Rs. per case)

Andhra Pradesh

Q P N

(Rs. per case)

No.1 Mc Whisky.

309.73/323.68/352.39

731.71/767.79/826.22

Bagpiper WY

313.20/342.40/351.47

576.58/591.00/620.56

No.1Mc.Brandy

281.27/303.24/327.20

572.96/591.00/616.95

To demonstrate that, contrary to the assertion at paragraph 13 that the Negotiations Committee recommended to allow price difference of either 9% over Tamil Nadu or 5% over Kerala prices, but in actual practice, the bids of the petitioners for the star brands were rejected only by reference to the factor of 9% over Tamil Nadu prices, and failed to adopt the alternative namely 5% over Kerala prices, the petitioners have submitted for the perusal of this Court a Statement to disclose that had the factor of 5% over Kerala prices been applied, the prices quoted by the petitioners for the aforementioned three star brands for the previous Excise year 1999-2000 ought to have been accepted, as was done in identical circumstances in respect of other manufacturers/suppliers. The following is the tabulation worked out by the petitioners: Brand

Size

Existing Kerala Price (2000-01

Existing Kerala plus 5%

Prices quoted in A.P. (2000-01)

Existing A.P.Price)

No.1 Mc.WY

Q

712.95

748.60

769.25

731.71

P

762.30

800.42

806.25

767.79

N

810.60

851.13

867.80

826.22

No.1 Mc.Brandy

Q

445.20

467.46

602.25

572.96

P

478.80

502.74

621.25

591.00

N

512.40

538.02

648.80

616.95

Bagpiper WY

Q

551.25.

578.81

606.25

576.58

P

567.00

595.35

621.25

591.00

N

596.40

626.22

653.80

620.50

An analysis of the above clearly fortifies the earlier premise of this Court that the prices quoted by the petitioners in the neighbouring States and in particular in Tamil Nadu was the singular determinant factor in the failure to reach agreement on the rate contract.

ANALYSIS OF THE 1ST AND 2ND REPORTS OF THE NEGOTIATIONS COMMITTEE : In the records made available to the court and referred to at the time of hearing, by the learned Advocate General, there are two reports of the Committee for price negotiations (Negotiations Committee). The 1st report covers the period of deliberations during 20.4.2000 - 3.5.2000 and the 2nd report the deliberations on 5th and 6th May, 2000.

At various places in the two reports it is noted that similarity between the States of Andhra Pradesh, Kerala and Tamil Nadu is regarding take-over of the wholesale trade and vestiture in the State owned corporations. The absence of identity in the matter of terms and conditions of payment, the business environment and other factors urged by the offerers including the differences in the promotional expenses as a result of differential competition and the number of brands available in the three States, freight charges, loading and unloading charges, Excise and other tax structures, production costs and the like were noted. The deliberations also recorded that each State would have its own policy, rules and regulations and concluded that "to partially adopt a system, prevailing elsewhere may not be possible and justified, unless the system is more superior to be adopted in its totality, or with marginal variations." Having noted the above, the committee went on to record that the comparison of prices in A.P., Tamil Nadu and Kerala cannot be ignored as the monopoly of wholesale trade is with the State owned Corporations, in all these States. In the 1st report the committee, recommended, in so far as 'C' category of liquor is concerned, that the prices may be fixed at the existing procurement price (no increase) or the quoted price, whichever is less and that in respect of common brands available in Tamil Nadu and Kerala the existing price or quoted price, whichever is less, may be allowed, if it is less than what it is in Tamil Nadu and/or Kerala. The Committee went on to add that while doing this, the price that is lower of the two (Tamil Nadu and Kerala) has to be allowed. However, quantifiable and verifiable factors on account of which cost goes up can be considered while fixing the price. In the 1st report taking the overall view, the Committee arrived at the conclusion that a price difference of about 9% over Tamil Nadu and 5% over Kerala prices, could be considered in respect of category 'C' of IML.

Having considered the above deliberations and conclusions of the Negotiations Committee as contained in the 1st report, the 2nd report at para 2.2 made the simplistic recommendation that in the case of existing common brands the quoted price or the price arrived at by following the above principle, whichever is less, may be allowed. No reasons are adduced for the conclusion. From the above it is apparent, at least from the state of the record, that there has been no rational analysis of the relevant factors that go into difference in prices between those quoted for A.P., Tamil Nadu and Kerala. Why, contrary to the recommendations made (9% over Tamil Nadu and 5% over Kerala prices could be considered), only the factor of 9% over Tamil Nadu was considered and not 5% over Kerala, is discernible anywhere in the report. There is also nothing in the report to indicate that there was a consideration of the impact of the plurality of differential factors that could have gone into the difference in prices.

The entirety of exercise as reflected in the report does not contain any evidence that the Negotiations Committee considered the prices offered by the other manufacturers of 'C' category (whose bids were accepted) in the context of the asserted State policy viz., avoidance of undue profiteering by them. What was the manufacturing cost/basic price including duties, promotional expenses etc., incurred by them vis--vis the prices at which their bids were accepted for particular brands and at the accepted price, what is the margin of profit to them, has not been analysed. The Negotiations Committee appears to have gone by the linear logic that prices quoted in a neighbouring State, in particular Tamil Nadu, constitute the bench mark and 9% over the same a reasonable factor, around which the agreeable price could be arrived at. By adoption of this fallacious concept the Negotiations Committee accepted the prices of manufacturers who do not supply identical brand names to neighbouring States or having so supplied in the previous year/s have discontinued supply in the current year.

Adoption of the above irrational concept and criterion has resulted in a situation where the "avoidance of undue profiteering" policy asserted by the State, has been subverted in respect of manufacturers who have not offered similar brands, as offered in the State of A.P., to the neighbouring States of Tamil Nadu and Kerala. This, in the considered view of this court, constitutes discriminatory application of an irrational test unsuited to the achievement of the asserted State policy, clearly subversive of the equality injunctions of Art.14 of the Constitution.

In the circumstances of the case on hand, the profit to a manufacturer/supplier would be the difference between the rate contract price agreed with the State of Andhra Pradesh minus the manufacturing cost and the concomitant duties or for short "Basic Price" as defined in paragraph 3.1 (D) of the invitations to tender dated 31.3.2000. By adopting price quoted in the neighbouring State of Tamil Nadu plus 9% over the same, as the singular factor for recommending an agreeable price, the Negotiations Committee and the second respondent disabled themselves from uniformly applying the asserted State policy of denying undue profit, to all the manufacturers/suppliers. It has come on record and this Court has adverted to it briefly, from the statement in the counter affidavit of the second respondent itself, that some manufacturers/suppliers have discontinued sales of similar brands in neighbouring States resulting in acceptance of their previous years prices, for the current year. The identification of the appropriate price at which a particular brand should be procured by the second respondent was thus made to depend upon the accidental factor as to whether a particular brand is being supplied by the same manufacturer in one neighbouring State which is also operating the trade through an instrumentality of the State. The mechanism adopted is thus seen to be irrelevant in achieving the stated State policy - viz., disabling excessive profit making by the manufacturer. By adopting this test, manufacturers who do not supply an identical brand to the State of Tamil Nadu, Karnataka or Kerala or those who have discontinued such supply can still make an undue profit at previous years rate contract prices. In the aforesaid circumstances, the conclusion is irresistible that an arbitrary and irrational test has been evolved by the Negotiations Committee and the second respondent in the matter of identifying the appropriate price at which the rate contract should be arrived at. As a consequence of the application of this irrational test the petitioners have been adversely impacted by accompanying economic disadvantages in the matter of participating in the largesse of the State. The State action has deprived them of the equal protection of the law.

On behalf of the petitioners Sri.F.S.Nariman has urged that the letter of the Government dated 18.6.1990 approving rates negotiated by the Negotiating Committee for the year 1998-99 despite rates being higher than the rates obtaining in Tamil Nadu, constitutes the modified policy for the said year. This has also been adopted for the subsequent year 1999-2000, despite clause 2.7 of the terms of the tender requiring the tenderers to ensure that the basic rates quoted by them should not be higher than the rates quoted for supply of the same brands to other States in particular Tamil Nadu, Kerala and Karnataka. Pursuing this logic Sri.Nariman urged that the modification of clause 2.7 in the current year, deleting the reference to an obligation to quote at prices in harmony with that quoted by them for similar brands in the neighbouring States, coupled with incorporation of the specific requirement that tenderer should quote on competitive basis keeping in view existing prices, constitutes statement of a specific policy as well as recognition of the fact that rates quoted in neighbouring States are not relevant and existing prices alone constitute the bench mark around which negotiations are to take place. This Court is unable to persuade itself that the phraseology employed in paragraph 2.7 of the current year's Tender Notification considered along with the evolutionary history of that paragraph starting from the year 1993.94, signals any such clear policy as articulated by Sri Nariman. Clause 2.7 as it currently stands comprises two components. Firstly, that the offerors should quote competitive prices keeping existing prices in view and secondly that prices will be the main consideration to accept or reject an offer. The components are distinct. One is a requirement obligated upon the offerer, the second sets out the discretionary spectrum operating on the decision making process of the respondents. There is no conjunction between the two components nor does the first component of this clause operate to diminute the spectrum of discretion available to the respondents, qua the second component, in the matter of negotiating prices. This, however, does not entitle any conclusion that the respondents have an uncanalised power to determine the prices either on whimsical or irrational basis or in a manner, which would inevitably result in hostile discrimination against some of the manufacturers/suppliers or in an undue favour being conferred upon the others. While the respondents are entitled to enter into a rate contract with the generality of the manufacturers and suppliers at competitive prices, in arriving at such competitive prices due regard must be given to all the relevant factors and all irrelevant factors must necessarily be eschewed.

The power conferred on the Negotiations Committee or the second respondent is a power in the area of contracts of public authorities and must thus conform to all applicable principles of Constitutional and Public Law. The power is a power coupled with a duty and should be exercised fairly, rationally, in public interest and in a manner that avoids inequitable treatment amongst suppliers inter se. Judicial review of administrative action is primarily concerned with the decision making process. An arbitrary or irrelevant process renders the decision invalid.

The above are the general principles operating on all contracts that are entered into by a State or an Instrumentality of a State with a citizen/manufacturer/supplier, for commodities, to the State or its instrumentality, at any rate at the threshold stage of entering into contracts. Does the fact that trade in alcoholic beverages is inherently pernicious or a business in res extra commercium, posit exclusion of the above salutary principles in the matter of transactions involving the State as one of the parties, is the question.

Every lis involving judicial review must expressly or by necessary implication answer two questions before the dispute can be adjudicated on merits: Firstly whether judicial review is available; Secondly as to the scope of the review power of the court.

The responsibility of enforcing limits on the statutory grants of authority is a judicial function and when a State instrumentality over-steps such defined limits, courts will interfere.

The respondents are all instrumentalities of the State. They are thus enjoined to confirm to the limitations on governmental conduct, enjoined by the Constitution. They are additionally obligated to confirm to the expressed and implied statutory injunctions emanating from the legislation through which they trace their powers to function, in this case, the A.P.Act 15 of 1993. Article 14 of the Constitution in terms obligates the respondents to afford, to all persons forming a class, equality before the law and equal opportunity under the law. All manufacturers and suppliers of alcoholic beverages thus constitute a class, in the context of A.P.Act.15/93. The right of this class of persons, the petitioners included, to equal treatment and avoidance of hostile discrimination by the State, is the concomitant of the constitutional obligation of the respondents qua Article 14.

What is the Constitutional position of individual rights vis--vis trade and commerce in the area of liquor qua Articles 14 and 19 ? THE POSITION UNDER ARTICLE 19 :

Eversince STATE OF BOMBAY vs F.N.BALSARA4 and up-to-date the consistent principle laid down by a uniform catena of binding authority is to the effect that the State has power to prohibit trades which are illegal, immoral and injurious to the health and welfare of the public, that citizens cannot have any fundamental right to trade or carry on business of liquor, that the State has the exclusive right or privilege in the matter of manufacture, trade or business in liquor and that it is within the discretion of the State to devise the manner in which it may farm out such rights to licensees vide COOVERJEE B. BHARUCHA vs EXCISE COMMISSIONER AND THE CHIEF COMMISSIONER, AJMER & Ors.,5; ASSAM STATE vs SRISTIKAR6 ; R.M.D.CHAMARBAYUGWALLA & Anr vs UNION OF INDIA7; NAGENDRA NATH BORA & Anr. vs COMMISSIONER OF HILLS DIVISION AND APPEALS, ASSAM & Ors.8; NASHIRWAR vs STATE OF MADHYA PRADESH9; STATE OF MADHYA PRADESH vs NANDLAL JAISWAL10; GOVERNMENT OF ANDHRA PRADESH vs M/S ANABESHAHI WINE AND DISTILLERIES PVT,LTD.,11; DOONAGAJI & CO. vs STATE OF MADHYA PRADESH & Ors.12; M/S KHODAY DISTILLERIES LTD., case (1 supra).

It is thus, the settled law that no fundamental right inheres in a citizen to carry on trade or business in liquor and that the State is, under its regulatory power, entitled to totally prohibit any form of activity in relation to intoxicants whether in relation to its manufacture, possession, import or exports.

LIQUOR AND ARTICLE 14 :

Where, however, the State has decided to part with its exclusive right and privilege in favour of others, it could still regulate such farmed out right and privilege, but consistent with the principles of equality enjoined upon it under Art.14 of the Constitution. That the aura and splendorous reach of Art.14 is not eclipsed when the State is operating in the area of liquor trade, in particular when it operates the trade through private persons or organisations, is clear from the dicta enunciated in the following decisions of the Supreme Court.

In DOONGAJI & CO,(12 supra), the Supreme Court has stated - "... when the State has decided to part with such right or privilege to the others, then State can regulate consistent with the principles of equality enshrined under Art.14 and any infraction in this behalf at its pleasure is arbitrary violating Art.14. Therefore, the exclusive right or privilege of manufacture, storage, sale, import and export of the liquor through any agency other than the State would be subject to rigour of Art.14." The principles to the same effect, laid down in HAR SHANKER vs DY.EXCISE & TAXATION COMMISSIONER13 and NANDLAL JAISWAL(10 supra), have been reiterated in the above decision.

In KHODAY DISTILLERIES LTD., & Ors. Vs STATE OF KARNATAKA & Ors.[3 supra], the Supreme Court has summarised the law on the subject of trade and business in liquor. The decision has reiterated the law that when the State permits trade or business in potable liquor with or without limitations, the citizens have the right to carry on trade or business subject to the limitations, if any, and the State cannot discriminate between the citizens who are qualified to carry on the trade or business. In the 2nd Khoday Distilleries case (1 supra) the Supreme Court reiterated the principle that when the State decides to grant right or privilege inter alia to the trade in liquor, to others, the State cannot escape the rigour of Art.14. Responding to the apprehensions voiced by the appellants therein that in the absence of a concomitant obligation cast on the State instrumentality, to which alone the manufacturers are obliged to sell their liquor, to buy the liquor, the State instrumentality may arbitrarily or capriciously purchase or decline to purchase from particular manufacturers at its sweet will, the Supreme Court held that this apprehension is misconceived. The Supreme Court held that the Government company is expected to act bona fide and with responsibility; a Governmental agency cannot be interested only in a particular manufacturer. The court also held " Once the rules oblige the manufacturer to supply product only to the Government holding distributory licences, a corresponding duty is cast on the distributor to place orders with the suppliers concerned whenever demand of a particular product is received by it ..." Looking to the chanalizing role of MSIL the fear of discrimination between different suppliers expressed by the appellants does not appear to be justified, ruled the court.

In NANDLAL JAISWAL(10 supra) while declaring the applicability of Art.14 to situations where the State farms out its exclusive privilege to trade in liquor, a note of caution was however entered to declare that having regard to the nature of trade and business the court should be slow to interfere with the policy laid down by the State Government and that in view of the inherently pernicious nature of the commodity, would allow a large measure of latitude to the State Government in determining its policy of regulating manufacture and trade in liquor. Governmental policy in this area, declared the court, would be up held unless it appears to be plainly arbitrary, irrational or mala fide. This principle has been reiterated in later cases including KHODAY DISTILLERIES LTD (1 supra).

The above decision categorically declares the principle that the State or its instrumentality have a large measure of latitude, in recognition of the complexity of regulating the trade or business in liquor, even when it farms out its exclusive privilege in this area. The Governmental policy in this area ought not to be subjected to the strict scrutiny test and so long as the State policy or a State activity is not vitiated by wholly irrelevant and extraneous factors, which clearly tend to bring about discriminatory results, the court would exercise restraint.

THE EXPANSIVE CONTOURS OF ART.14 :

The Constitution Bench of the Supreme Court in E.P.ROYAPPA vs STATE OF TAMIL NADU14 felicitously defined the scope of the equality injunctions underlying Art.14 of the Constitution. The court held that any attempt to truncate the all embracing scope and meaning of this great principle ought not to be countenanced. Where the operative reason for State action, as distinguished from the motive inducing from the ante-chamber of the mind is not legitimate and relevant but is extraneous and outside the area of permissible considerations it would amount to malafide exercise of power hit by Art.14; malafide exercise of power and arbitrariness are different lethal variations emanating from the same vice; the later comprehending the former, declared the court. Chief Justice A.N RAY in M/S ERUSIAN EQUIPMENT & CHEMICALS LTD., vs STATE OF WEST BENGAL & Anr.15 applied the above principles to a case challenging the black-listing of a contractor and declared that the Government being a Government of law and not of men, is obligated to deal with citizens with whom it enter into contracts in compliance with the equality injunctions of the Constitution and without arbitrariness and discrimination in such transactions. When a State enters into a contract, it must do so fairly and without discrimination and without unfair procedure. The State can impose reasonable conditions regarding rejection and acceptance of bids or qualifications of bidders but an individual is entitled to fair and equal treatment with others while trading with the Government.

(Emphasis supplied)

THE VITARELLI DOCTRINE:

That an executive authority is rigorously held to the standards by which it professes its actions to be judged and must scrupulously observe those standards or otherwise the consequent action would be invalidated, has been enunciated as an integral component of administrative law and the principle placed on a firm footing in the opinion of Justice Frankfurter in VITARELLI vs SEATON [359 US 535]. This principle has been incorporated into our administrative law by the approval accorded to it in SUKHDEV vs BHAGATRAM16. This principle has been reiterated to be an emanation of the equality injunctions of Art.14, in RAMANA DAYARAM SHETTY vs INTERNATIONAL AIRPORT AUTHORITY OF INDIA & Ors.17 In KUMARI SHRILEKHA VIDYARTHI etc., vs STATE OF U.P.& Ors.18 the Supreme Court declared that the concept of unfettered discrimination is inappropriate to a public authority which possess powers exercisable only in public interest. The State when entering into a contract does not stand on the same footing as a private person. It is not at liberty to enter into a contract with whosoever it likes. Article 14 of the Constitution prohibits arbitrariness in State action and requires the State to act fairly and reasonably including in the matter of entering into contracts, in exercising the discretion in the matter of selection of persons for entering into such contracts it is required to evolve rational and fair principles to effectuate even a valid policy while entering into such contracts and relationships. Its action in this area must clearly be in conformity with standards or norms that are not arbitrary, irrational or irrelevant. While courts do allow a measure of latitude in recognition of the complexities of modern Government, such liberty cannot extend to conversion as a licence, to act at whim or caprice, - vide NEW HORIZONS LIMITED & Anr. vs UNION OF INDIA & Ors.19.

Even in the matter of entering into contracts the exercise of power is required to be structured by rational, relevant and non-discriminatory standards and norms. State instruments are not exonerated from the need to have constitutional conscience. Rational considerations and factors cannot be eschewed from consideration nor irrelevant, irrational or arbitrary factors inputted into the decision making process. This is the necessary concomitant of the duty to act under a fair procedure. Actions of State instrumentalities must be informed by reason - vide STERLING COMPUTERS LTD vs M AND N PUBLICATIONS LTD.20; LIC OF INDIA vs CONSUMER EDUCATION AND RESEARCH CENTRE21; M/S DWARAKADAS MARFATIA & SONS vs BOARD OF TRUSTEES OF THE PORT OF BOMBAY22. Where the State enunciates a policy and the policy is declared in terms of rules or instructions the respondents are bound to follow such policy as an obligation founded upon fair, rational and non-discriminatory conduct - vide A.P.AGGARWAL vs GOVERNMENT OF NCT OF DELHI23.

From the aforesaid analysis of the judicial discourse as to the state of the rights available to individuals engaged in trade, commerce or business in liquor, under Articles 14 and 16 of the Constitution, the following broad principles emerge:

Trade and commerce in alcoholic beverages meant for human consumption is undoubtedly and inherently a pernicious and socially malignant activity. The constitutional exhortation that State action should endeavour to bring about prohibition of the consumption of intoxicating drinks (Art.47 in Part IV) does not per se disable the Legislative or Executive power of the State to regulate the trade in liquor. It is in recognition of the obligations of the State, inter alia qua Part IV of the Constitution that courts have enunciated the principle that the exclusive privilege in the trade and business in liquor, inheres in the State and that no individual has a fundamental right to trade or business in this area. Such exclusive privilege, enables the State, in its discretion, to part with the privilege and to allow private participation in the manufacture, supply, distribution, import or export of this commodity. The exclusivity of the privilege however, extends to disentitle any private claims to a constitutional right in this area qua Art.19.

Where, however, the State does decide to part with its exclusive privilege and throws open any area of the trade or business to private participation, the equality injunctions of the Constitution come into play and disable the State from practising hostile or invidious discrimination between persons, entitled under such expressed State policy, to participate in the State largesse. The State can neither engender nor foster a plainly discriminatory regime on the jejune logic that the area of activity is pernicious. When permitted by the State and to the extent thus permitted, private participation in the trade and business of liquor is lawful and individuals are entitled to hold the State to the whole spectrum of its constitutional obligations under Art.14. The caveat sounded to the effect that even while testing State conduct under Art.14, due recognition must be had to the nature of the trade that the State is regulating and that Government policy in this area must receive a deferential consideration merely means that even while examining the State conduct under Art.14, where the policy enunciated by the State or the classification made by it to achieve that policy, is broadly directed towards regulating the trade with a view to ultimately achieve prohibition in the consumption of liquor, to whatever extent, such policy or the classification adopted should not be subverted on an expansive or strict application of Art.14 principles. The restraint ordained on the judicial branch in this area cannot, however, extend to abdication of its Constitutional duty, permitting the State to wily-nily pick individuals for granting favours while excluding others similarly situate. On behalf of the petitioner it is contended that rejecting the petitioner's offer solely on the ground of prices quoted in A.P. for particular brands being higher than those quoted by the petitioners in Tamil Nadu, is arbitrary and irrational particularly since in the counter affidavit filed in the PIL W.P.No.16423/99 the 2nd respondent herein categorically took the stand that the rate contract agreements were entered only during the year 1999-2000 duly taking all relevant circumstances into account and in the light of the fact that as far as the State Government is concerned higher prices would have no adverse effect on its revenues. This counter categorically took the stand that higher prices would result in higher revenue collection by way of Excise duty and Sales Tax. In the counter affidavit it has been specifically asserted that even though certain brands bore identical names, the sources of supply are different and the brands are manufactured independently by different distilleries located in different States. The rates differ from State to State due to a variety of reasons including the fact that in A.P. ENA based liquor alone is purchased, whereas in Tamil Nadu certain quantities of RS base liquor are also procured, which has a lower cost of production. The comparison of rates of Tamil Nadu is incorrect and misleading.

In the considered view of this court despite the State having taken the aforesaid categorical stand in respect of the prices at which the liquor was procured from the petitioners during the previous Excise year, it is not debarred from considering the relevance of prices at which the petitioners sell identical brands in the State of Tamil Nadu. If all the relevant factors that go into the cost of manufacture and of supply to the State of Tamil Nadu are equally applicable to the State of A.P., the State would be well within its rights to consider this factor in determining the appropriate prices at which the rate contract could be entered into. The spectrum of discretion available to the State under Clause 2.7 of the terms of the current tender notification is not in any manner circumscribed by the stand taken by the 2nd respondent, in response to the allegations in W.P.16423/99, adverted to above. It is contended on behalf of the petitioner that tender notifications were separately issued one for 'A' and 'B' categories and the other for 'C' and 'D' categories both on 31.3.2000. The categorisation is based on the basic price for each of the categories. As the petitioners have submitted their bids (for the price disputed brands) in response to the tender for 'C' category, the price negotiations could only be within the spectrum of prices relevant to the 'C' category and any negotiations which would bring the prices below the 'C' category would be prohibited. It is urged that if this is not so then the very principle on which separate invitations to tender have been made for would be frustrated and the tenderer disabled from consideration of their bids as they would not have tendered the brands as for 'A' or 'B' categories. This logic is contested by the learned Advocate General appearing for the respondents and rightly so. In case a tenderer for 'C' category, on negotiation agrees to a price which would make a brand fall into a lower category 'A' or 'B', then the parties including the State would be well within their rights to agree to a rate contract on such negotiated prices, albeit the price arrived at would make the brand fall into a lower category 'A' or 'B' and the tenderer had not factually tendered in response to the 'A' or 'B' invitation to tender.

The petitioners would further contend that the Legislative philosophy underlying Act 15/93 as apparent from the statement of objects and reasons accompanying the bill introduced in the Legislature, is to eventually prohibit the consumption of intoxicating liquors of any kind and that the take over of wholesale trade and distribution of IMFL is with a view to achieve the said object. If this be the object of the Act, as it is, then the negotiation mechanism with a view to reduce the procurement price thereby enabling supply of the commodity to consumers at lower prices, would be in subversion of the object of the legislation and thus liable to be characterised as ultravires the ratio legis. This contention, in the considered view of this court, is without substance. Bringing about total prohibition is a constitutional desideratum. The statement of objects and reasons merely reiterates this principle. The provisions of Act 15/93 constitute one among the numerous and continuing effort of the State to achieve the constitutionally exhorted results. The history of the struggles of civil society to eradicate the social evil is replete with instances of consistent failure to substantially contain this evil. No responsible body of opinion has however, suggested that earlier failures should signal a stop to future State effort to grapple with this problem. The Governments have always been recognised as endowed with the right to experiment, to proceed by trial and error and trial yet again. The regulation of the wholesale trade under Act 15/93 is a continuum of the generic legislative effort in this area. The statement of objects and reasons signifies the abstract goals of the legislation in no less a measure than it does the proximate and the concrete. Having acknowledged and for the present the failure of the experiment with total prohibition the Legislation incorporated a contemporaneous limited agenda. This does not entitle any rational interpretation that the State is disabled from procuring the commodity in the course of its trading activity at a competitive price. This contention is, for the above reasons, rejected. Sri Nariman would contend that the earlier form of Clause 2.7, prohibiting quotation of a price higher than that quoted in the neighbouring States was extant during the Excise year 1998-99 and 1999-2000 and has been amended only in 2000-2001. However, for the year 1998-99 prices at rates higher than in the neighbouring States were accepted and rate contracts entered into consequent upon the approval to the rate accorded by the Government vide its letter No.25967/Ex.III-1/98-3, dt.18.6.98. This letter categorically approved the rates despite being higher than the rates obtaining in Tamil Nadu and further went on to state that the current policy should be monitored to facilitate formulation of a policy for the next year. Thereafter G.O.MS.No.234 Revenue (Ex.II) Department, dt.22.3.99, set out the policy for the year 1999-2000 duly stating that after careful examination the Government has "decided to continue the existing policy for the year 1999-2000." Clause 4 of this G.O. enables the 2nd respondent to extend the agreements entered into with the distilleries for supply of various categories of IML and Bear on the same conditions as in the previous year. For the current year 2000-2001 the Excise policy is contained in G.O.Ms.No.168, dt.31.3.2000. Para 2 of the said G.O. asserts that "the essential features of the Excise policy for the year 2000-2001 will remain the same as in the previous year. The major component of the policy is as follows: ..... (1) For protecting the well-being of the people, the manufacture, distribution and consumption of the liquor will be regulated as per the policy of the Government." G.O.Ms.No.179 also dated 31.3.2000 reiterates the effectuation of the policy for the current year as enunciated in G.O.Ms.No.168 and empowers the 2nd respondent to invite tenders and initiate the process of agreements for procuring IML.

In the above chronology of events, and succession of policy instruments, the clear policy of the Government is to continue the previous years price policy for the current year also, asserts Sri Nariman. On the articulated policy, the negotiations committee or the 2nd respondent are disabled from relying on the prices of the neighbouring States in particular Tamil Nadu as such reliance would be beyond the charter of their powers qua the policy formulation by the Government, is the contention. A nuance of this contention is also that the amended Clause 2.7 in the current year's tender notification doing away with the requirement of quoting rates comparable to those quoted in neighbouring States, signifies the content of the changed policy.

Relying upon the "Vitarelli doctrine" Sri Nariman would strenuously contend that the respondents, who are State instrumentalities, should be rigorously held to the standards (the policy for the year 2000-2001) they profess and that in the admitted State position that rate contract with the petitioners for certain specific brands in the 'C' category was rejected on comparison with rates in Tamil Nadu, the State action must, being plainly inconsistent with the professed standards, be declared invalid.

The contention does not commend itself to this court. Entering into rate contracts with the petitioners and others at prices higher than those offered for comparable brands in neighbouring States, in the Excise years 1998-99 and 1999-2000, cannot be said to constitute an essential feature of the Excise policy for the year 2000-2001. It is only the essential feature that are professed, will continue, as evident from Para 2 of G.O.Ms.No.168 dt.31.3.2000. This court has already held, earlier in this judgment, that Clause 2.7 of the current year's terms of tender cannot be construed as restricting the scope of the negotiations committee or the 2nd respondent. The prices quoted in the neighbouring States could well form a bench mark for deciding the rationality of prices quoted in this State if identical parameters go into quotation of prices in the relevant States compared.

As for the policy incorporated in Para 2.1 of G.O.Ms.No.168, suffice it to state that the expression 'well-being of the people' is an open textured one and State conduct in negotiating the prices with a view to bring down the procurement price cannot be per se be held to subvert the policy of protecting the well- being of the people. The discretion of the State and its instrumentalities in this area is in a broad compass and cannot be whittled down by curial value judgments as to what constitute the well being of the people. For the reasons above this contention of the petitioners is rejected. In the light of the foregoing analysis of the facts and law, this court is of the considered view that -

A) the refusal of the State to enter into a rate contract with the petitioners in respect of the 14 brands quoted in the 'C' category, on the sole ground of the prices being higher than Tamil Nadu prices + 9%, is illegal; B) the insistence of Tamil Nadu prices + 9% as the singular benchmark to determine a rational price is invalid on account of the test being inconsistent with State policy viz., avoidance of enabling undue profit to the manufacturers and suppliers. This singular test demonstrably fails to avoid enabling of undue profiteering by such of those manufacturers who either do not supply in the neighbouring States of Tamil Nadu, Kerala and Karnataka or who have discontinued such supplies in the current year;

C) avoidance of undue profiteering by manufacturers/suppliers being the asserted policy, a test rationally evolved to achieve the said policy must needs be evolved by the State in determining the agreeable price for entering into rate contracts, and such test must be uniformly applied to all offerers; D) on the basis of pleadings and arguments this court is, prima facie, of the view that the appropriate test the State should consider applying, is the manufacturing cost in Andhra Pradesh including the cost of freight, cartons, duties, promotional expenses and other cognate factors which go into the basic price, as the bench mark for arriving at a negotiated price. It could consider the appropriate price for agreement with the petitioners, on the basis of the above factors + a margin of profit as would enure to the manufacturers/suppliers with whom rate contracts have already been entered into in the 'C' category for the current year. As indicated, this is only a prima facie view and it is open to the respondents to evolve any other rational test, which in the plenitude of their expertise in this field, they are best suited evolve, but consistent with the principles and obligations enjoined on them under Art.14 of the Constitution, as declared in the judgment.

Having regard to the possible adverse economic impact on the petitioners as well as the respondents, if the decision making process ordained above, is delayed, the respondents are directed to reconsider the offer of the petitioners in the light of the principles and conclusions indicated in this judgment, expeditiously and in any case within a period of four weeks from the date of receipt of a copy of this order.

The writ petition is allowed to the extent above. No order as to costs.

?1 AIR 1996 SC 911

2 1993 ALT SUPP.(1) 21

3 (1995) 1 SCC 574

3a AIR 1996 SC 1627

4 AIR 1951 SC 218

5 AIR 1954 SC 220

6 AIR 1957 SC 414

7 AIR 1957 SC 628

8 AIR 1958 SC 398

9 AIR 1975 SC 360

10 AIR 1987 SC 251

11 AIR 1988 SC 771

12 AIR 1991 SC 1947

13 AIR 1975 SC 1121

14 AIR 1974 SC 555

15 (1975)1 SCC 70

16 (1975)1 SCC 421

17 (1979)3 SCC 489

18 AIR 1991 SC 537

19 (1995)1 SCC 478

20 (1993)1 SCC 445

21 AIR 1995 SC 1811

22 AIR 1989 SC 1642

23 (2000)1 SCC 600