N.M. Mani vs State Of Kerala & Ors.

The focal issue for determination stems from the interpretation of the Proviso under Rule 13B(3) of the Kerala Foreign Liquor Rules, 1953 (for short, 'the Rules'). An FL-3 licence was issued in the joint names of the 4^th respondent and the petitioner, on behalf of M/s.Chembarathy Garden, Thaliparamba. The same was sought to be renewed by the petitioner in his name alone, after removing the 4^th respondent as the joint licence holder. The application was dismissed vide Ext.P3 Order by the 2^nd respondent/Excise Commissioner, which is under challenge.

The factual premise are as under: The petitioner claims to be the founder and Managing Partner of M/s.Hotel Chembarathy Garden, a bar-attached hotel situated at Taliparamba, Kannur. It is his further claim that he alone was the FL-3 licence holder of that hotel. One K.V.Karunakaran, a partner of the firm, passed away; and his son, the 4^th respondent herein, was inducted into the firm as per partnership deed dated 30.08.2024 (produced along with a bunch of documents forming part of Ext.P1, at running page no.123 of the Writ Petition - a practice which has to be deprecated). Consequently, the FL-3 licence certificate was renewed in the joint names of the 4^th respondent and the petitioner, obviously both representing the firm, M/s.Hotel Chembarathy Garden. The renewal certificate is also produced along with Ext.P1, available at running page no.85.

Petitioner would contend that there arose serious disputes after the induction of the 4^th respondent as a partner. Petitioner avers the necessity to file a Writ Petition seeking police protection, allegedly against the threat of the 4^th respondent. In such circumstances, all the partners, except the 4^th respondent, conducted a meeting on 05.04.2026 and resolved to seek renewal of the FL-3 licence for 2026-2027 in the name of the petitioner alone, after removing the 4^th respondent as joint FL-3 licence holder, subject to prior sanction of the 2^nd respondent/Excise Commissioner. The said resolution is also produced as part of Ext.P1, available at running page no.72. On the strength of that resolution, petitioner filed Ext.P1 application before the 2^nd respondent/Excise Commissioner, seeking prior sanction to remove the 4^th respondent as joint FL-3 licence holder in respect of M/s.Hotel Chembarathy Garden and to renew the FL-3 licence in the name of the petitioner alone. This application is the first document produced at Ext.P1, available at page no.13 in the Writ Petition. Several other documents which accompanied that application are also produced and marked under Ext.P1. When the application was not considered, the petitioner filed a Writ Petition before this Court, which culminated in Ext.P2 judgment, directing consideration of Ext.P1 application. It is accordingly that the impugned Ext.P3 Order was passed, rejecting Ext.P1 application, finding that the petitioner violated Rules 13B(3) and 19 of the Rules and condition no.13 of Form FL-3 licence. Ext.P3 also found that Ext.P1 application is not filed by the joint licence holders, but only by one among them, i.e. the petitioner. Nor was there any consent from the left-out licensee, signifying his no objection to the renewal of licence in the name of the petitioner alone.

Heard Sri.Abhilash K.N, learned counsel for the petitioner; Sri.Sudhi Vasudevan, learned Senior Counsel – duly instructed by Adv.Jose Jones Joseph – on behalf of 4^th respondent; and Sri.Sreehari Indukaladharan, learned Government Pleader on behalf of other respondents. Perused the records.

The first point to be taken note of is that Ext.P1 application is not one for renewal simplicitor. Instead, it is one for removal of the major stakeholder, namely the 4^th respondent; and to renew FL-3 licence in the name of the petitioner alone. The second limb of Rule 13B(3) contemplates renewal of licences issued under the Rules, except FL-6 licence. The Proviso to Rule 13B(3) is relevant to the context. The Rule and its Proviso are extracted herebelow:

(underlined, for emphasis)

B. It is in the backdrop of the above statutory provision that Ext.P1 application, as also, the correctness of Ext.P3 Order has to be adjudged. As already indicated, the prayer in Ext.P1 to remove the 4^th respondent as a joint licensee makes all the difference, taking Ext.P1 out of the purview of a renewal simplicitor.

It is necessary in this regard to refer to the respective stakeholding of the partners, including the petitioner and the 4^th respondent, in the firm. The reconstitution deed dated 30.08.2024, as per which the 4^th respondent was inducted to the firm, is produced along with Ext.P1, at running page no.123 of the Writ Petition. As per Clause 25 of the reconstitution deed (at running page no.136), the petitioner has 40% rights, and the 4^th respondent has 50% rights, in the entire fixed assets of the business. The partner Sri.Nidhin Jose has 10%. Clause 25 expressly stipulates that the partners, Sri.Sojan N.K. and Sri.Johnson Chembarathy, shall have no right over the fixed assets of the firm. The last sentence in Clause 25 is quite relevant, which is extracted herebelow:

D. The reconstitution deed dated 30.08.2024, being a document produced and relied upon by the petitioner, it could safely be concluded that the said deed - especially Clause 25 thereof - binds all the parties, including the petitioner and the 4^th respondent. It could thus be seen that, the major shareholder is the 4^th respondent, both in respect of the business and the Bar licence. This explains the reason why the name of the 4^th respondent figures first in the FL-3 licence (at running page no.85 of the Writ Petition). It is this majority stakeholder, who is sought to be removed by the petitioner and other partners from his capacity as the joint licence holder of the FL-3 licence. Even if it is taken that the petitioner, along with the partner by name Nidhin Jose, has 50% share, they do not constitute the majority stake in the partnership firm, the 4^th respondent being an equal partner having 50% stake.

E. I will now analyze whether the request in Ext.P1 to remove the 4^th respondent as a joint licence holder is backed by adequate material, recognisable in law. Straightaway, it requires to be noticed that the 4^th respondent is not a party to the meeting claimed to have been held on 05.04.2026, which resolved to remove the 4^th respondent and to seek renewal in the name of the petitioner alone. The 4^th respondent would assert a case that no notice even was issued to him, of that meeting; and that decisions were taken behind his back. Having regard to the scope of the Writ Petition, it would not be appropriate for this Court to enter into a specific finding with respect to the validity of the decisions taken in that meeting, especially on the allegation that the same was conducted without notice to the 4^th respondent, against whom decisions have been taken. However, it is noteworthy in this regard that the above stand of the 4^th respondent in the counter affidavit has not been controverted by the petitioner. The solitary material forthcoming in this regard is an abstract of the minutes of an alleged meeting held on 05.04.2026, which is produced along with Ext.P1, at running page no.72 of the Writ Petition. The heading of that document misleads in its content that the minutes is drawn by the majority partners of the partnership firm, whereas it is not, as a matter of fact. In Part-3 of the minutes, at running page no.77, a decision is purported to have been taken to remove the 4^th respondent as joint licence holder of the FL-3 licence of Hotel Chembarathy Garden. Another decision taken is to renew the licence in the name of the petitioner alone.

F. Suffice to find that the above minutes is grossly inadequate in terms of law to dis-entitle the 4^th respondent of his rights as a joint licence holder of the FL-3 licence in question, he being the 50% stakeholder of the partnership firm. No procedure has been adopted to remove the 4^th respondent from the partnership firm. Nor is there any application by the majority stakeholders to remove the 4^th respondent from his capacity as a joint licence holder of the FL-3 licence in question.

What Rule 13B(3) speaks of is about 'renewal'. A renewal can only contemplate the revalidation of an existing thing, for a further period. It presupposes that what is being revalidated is the self-same thing which was in existence, which means that the FL-3 licence - as it stood as on the date of renewal - is getting revalidated for a further period. There is no quarrel that the existing FL-3 licence stood in the joint names of the 4^th respondent and the petitioner. If that be so, a request for renewal, preceded by a substantive demand for removal of an existing licence holder, can hardly partake the character of a 'renewal'. The solitary exception which can be thought of is a situation where all the partners, including the outgoing partner, consent to such renewal; which is not the case in the instant facts. The 4^th respondent has seriously opposed his removal as a joint licence holder of the FL-3 licence by lodging an objection before the 2^nd respondent/Excise Commissioner. In such circumstances, one can hardly find fault with the course adopted in Ext.P3 Order, negating the request made in Ext.P1 application. In fact, this is one of the important reasons found in Ext.P3 that Ext.P1 application is bereft of the junction of the 4^th respondent, which can only be fatal.

Rule 13B(3) mandates that the licence can be renewed, provided there is no change in the nature, content or scope of the licences or premises. Nature of the licence can be understood to mean its type, namely FL-1, FL-2 etc. The next two concepts are relevant, namely the 'content' and 'scope' of the licences or premises. Even if the terms 'content' or 'scope' is read conjunctively or disjunctively, both would take within its sweep all aspects pertaining to (1). the purpose of the licence, (2). the person or persons in whose favour the licence is issued, (3). the premises in respect of which the licence is issued, (4). the activities which are permitted by virtue of the licence, and (5). the period for which the licence is issued. In other words, all material particulars and aspects of the licence constitute its 'content', as also, the 'scope'. It is only when the nature, content and scope of the licences or premises undergoes no change that a renewal, as contemplated in Rule 13B(3), can be effected. Thought in the above perspective, removal of one among the joint licence holders - that too, a joint licence holder who have 50% stake, as against the 40% stake of the petitioner - surely constitutes a change in the 'content' and 'scope' of the FL-3 licence sought to be renewed, wherefore, its refusal, vide Ext.P3, is only to be affirmed, for violation of the Proviso to Rule 13B(3), as precisely quoted in Ext.P3.

A. Rule 19(i) prohibits the sale, transfer or sub-renting of any licence obtained under the Rules, without the previous sanction of the Excise Commissioner. Rule 19(ii) clarifies that reconstitution of a partnership by addition or deletion of members, resulting in the change of ownership, which owns/manages or operates any licence, shall be deemed to be transfer of licence. It further clarifies that addition of a partner or the change of name of the licensee due to the death of a partner shall also be deemed to be transfer of licence, which is quite important in the attendant facts.

B. The 4^th respondent would contend that by executing Ext.R4(b) document, the petitioner had violated Rule 19 (i) and (ii). Ext.R4(b) is a document executed by the petitioner in favour of a stranger by name Rajeevan Moolayil and the above-referred Nidhin Jose, another partner having 10% share in the business. The relevant recitals, based upon which the 4^th respondent would allege violation of Rule 19 (i) and (ii), are extracted herebelow:

C. It is the specific case of the 4^th respondent that rights in respect of Hotel Chembarathy Garden, as also, the rights to run the same, has been transferred, thus squarely attracting the vice tabooed in Rule 19(i) and (ii). As against the above allegation, it is the petitioner's case that what has been transferred is the rights in respect of the land and building where the hotel is situated, and there is no transfer of FL-3 licence, so as to attract the prohibition under Rule 19(i) and (ii) of the Foreign Liquor Rules. It is true that Ext.R4(b) does not specifically recite transfer of any interest in the FL-3 licence. However, it does speak about transfer of the right to run the bar-attached hotel, which preponderantly points to the transfer of the rights obtained under the FL-3 licence, for, the right to run a Bar attached to the hotel, emanates from the subject FL-3 licence. Elaboration on this point can only be academic, for this Court has already found violation of Rule 13B(3). Suffice to note that the rejection vide Ext.P3 is also justified, when serious doubt has been generated as regards the violation of Rule 19(i) and (ii) also. Be that as it may. It cannot be held as a proposition of law that even in the midst of such apparent violation, the person who violated has a vested right to get his licence renewed. Ext.P3 is sustained on that count as well.

A. The first judgment relied by the petitioner is Mallika Residency, (M/s.) and Another v. State of Kerala and Others [2012 KHC 514]. The proposition urged based on this judgment is that sale/transfer of licensed premises cannot be deemed as equivalent to transfer of the licence under the Foreign Liquor Rules, in the absence of an enabling provision to that effect in Rule 19(i) of the Rules. In a case where the licensed premises are transferred and the licensee continues to be in possession of the premises by virtue of a lease arrangement, the prohibition in Rule 19(i) is not attracted, wherefore the petitioner firm is not disabled from getting the licence renewed. The factual matrix in Mallika Residency (supra) was as follows:-The FL-3 licence for Hotel Mallika Residency was issued to the Managing Partner, which was being periodically renewed. After the renewal for the year 2010-2011, the partners of the firm transferred the land and building, where the hotel is situate, to respondents 5 to 8, who are partners of another firm M/s.Bee Bees Palace, as per a sale deed. On the same day, the purchaser firm leased back the property to the petitioner firm as per a lease deed (produced at Ext.P3 in that Writ Petition) for a period of five years, fixing a rental per mensem. Ext.P3 stipulated that the petitioner firm will be at liberty to use the entire hotel building and the premises, besides being entitled to obtain licence for running the bar-attached hotel as well. The 5^th respondent in that Writ Petition raised a claim that Ext.P3 lease deed is a forged document. It is in the backdrop of the above objection of the 5^th respondent that the learned Single Judge held that, mere transfer of the premises where the hotel is situate - when the petitioner firm had not parted with possession of licence or the right to exploit licence to anyone else -cannot attract the bar under Rule 19(i).

B. The facts in Mallika Residency (supra) are clearly distinguishable from facts involved in this Writ Petition. In the instant facts, the rights to run the bar hotel was specifically transferred to the purchasers under Ext.R4(b), simultaneous with the transfer of interest in the land and building, where the hotel is situate. That apart, Mallika Residency (supra) will not come to the rescue of the petitioner herein, since the impugned Ext.P3 Order is upheld not only for violation of Rule 19(i) of the Rules, but for Rule 13B(3) as well. Moreover, unlike in the case of the Mallika Residency (supra), the attendant facts involve a change in the licence, that is to say removal of a major joint licence holder and renewal of the same in the name of the petitioner alone.

C. I must also record that, despite all the respect in my command, I find myself unable to attorn to the law laid down in Mallika Residency (supra). Rule 19 interdicts sale, transfer or sub rental of any licence issued under the Rules, without the previous sanction of the Excise Commissioner. Rule 19(ii) deems certain actions as amounting to transfer of licence. Accordingly, reconstitution of a partnership by addition or deletion of members; reconstitution of Directors in a company resulting in the change of ownership; and even addition of partner/director, or for that matter, the change of name of the licensee due to the death of a partner/director/ licensee are also deemed to constitute transfer of licence. It could thus be seen that actions constituting transfer are not confined to the licence issued, rather not licence centric alone. Instead, actions effecting change in the partnership or the company, in whose favour licence is issued, also amounts to transfer of licence. As indicated, a reconstitution of a partnership or reconstitution of the Directors in a company and even addition of a partner or Director amounts to transfer of licence. Even a change in the licence occasioned by the death of a partner/ director/licence amounts to transfer of licence. If that be so, an outright sale of the partnership firm - in whose favour there was a licence issued - cannot be, by any such of imagination, construed or interpreted as an action, which would not attract Rule 19. Significance is not of the person in whose favour the licence is issued, but on the entity, on whose behalf the licence is issued. Therefore, the law laid down in Mallika Residency (supra) to the effect that Rule 19 is not violated since the licensee remains the same - though there has been an outright sale of the partnership in whose favour the licence was issued -in my humble opinion requires a re-look.

D. However, this Court is not choosing to refer the matter for consideration by a larger Bench, since the facts are distinguishable as already noticed, and also in view of the fact that a Bench decision of this Court in Binu Jose v. State of Kerala and connected cases [W.A.No.2412/2016] governs the fact situation involved herein. In the circumstances, reconsideration, if any, required to the dictum laid down in Mallika Residency (supra) can be made in an appropriate case, where the facts warrant such a course.

A. The next decision relied upon by the petitioner is George Joseph v. Commissioner of Excise and others [2015 KHC 873]. The issue involved therein, as could be seen from paragraph no.22, was whether the licence issued in the name of the 4^th respondent therein is one issued on behalf of the petitioner firm, the 4^th respondent holding licence only in a representative capacity. Answering in the affirmative in paragraph nos.25 to 27, it was held that licence is granted in the name of a particular person in his capacity as the Managing Partner of the firm. In arriving at that conclusion, the learned Single Judge in George Joseph (supra) relied on a Bench decision of this Court in State of Kerala and others v. M/s.Panamoottil Investments and others [2010 (1) KLT 557] to hold that the licence, in fact, has been issued in favour of the partnership firm.

B. The second question raised in George Joseph (supra) is the legality of the findings in the Order impugned therein that the petitioner failed to take steps to reconstitute the partnership firm, or to have the licence transferred in terms of the Rule 19(iv) of the Rules and the rejection of the renewal sought for on those grounds. On that question, the learned Single Judge held that the impugned Order is bad in law, when 70% of the stake holders are in unison to continue the business. Though the 4^th respondent, a 30% stake holder, opposed the same, it was found that the 4^th respondent should ventilate his grievance by initiating appropriate legal remedial steps.

C. Having scanned George Joseph (supra), this Court notice that the fulcrum of the dictum centers around the fact that the majority stake holders seek renewal of licence, whereas the minority stake holder opposed it. The licence in question was issued previously in the name of the Managing Partner, who was only a 30% stake holder, as agreed to by all other partners. It is when he refused to renew the licence, that the other majority stake holders passed a resolution (marked as Ext.P2 in that judgment) to seek renewal in the name of another partner. The following findings in paragraph no.31 are relevant and are extracted hereinbelow:-

Having regard to the essential factual distinction in the case at hand where the petitioner, who seeks renewal in his name alone is not a majority stake holder, George Joseph (supra) cannot be profitably pressed into service by the petitioner herein.

The third decision relied by the petitioner is the one in Suresh Babu v. State of Kerala and Others [2000 KHC 299]. There also, the issue was similar, wherein the primacy of the opinion of the majority partners has been upheld. The bar licence was issued in the name of the Managing Partner originally, which was sought to be issued in the name of another partner, on the basis of the request of the majority partners. This Court held that the business and the bar licence belongs to the partnership and FL-3 licence was issued in the name of the petitioner only in his capacity as the Managing Partner. The transfer of licence was occasioned pursuant to the decision taken by the other partners, who have majority stake holding, which decision was ultimately upheld. In concluding paragraph no.10, the learned Single Judge held that it is for the majority of the partners to decide as to who should be the Managing Partner, or in whose favour the licence should be obtained. The dictum in Suresh Babu (supra) infact militates against the present petitioner's case, since he is not a majority stake holder of the partnership firm in question. Per contra, he seeks to dislodge the 4^th respondent who is the majority stake holder, out of the two joint licensees, in whose favour the FL-3 licence stands.

A. Now, this Court will come to a Bench decision of this Court in Binu Jose (supra), where again the issue was the renewal of FL-3 licence. The FL-3 licence, which stood in the name of one Sudharsanan Pillai, was refused to be renewed for the reason that the licence issued in the name of an individual was made use of by the partnership firm, pursuant to its constitution, thus altering the nature, content and scope of the licence, in the context of the Proviso to Rule 13B(3) of the Foreign Liquor Rules. As against the arguments raised to the effect that the situation envisaged in Rule 19 has not transpired, the Division Bench clarified that the refusal of the FL-3 licence was on the basis of the Proviso to Rule 13B(3) of the Foreign Liquor Rules, as per which, renewal can be made only if there is no change in the nature, content or scope of the licence or premises.

B. In paragraph no.9 of the judgment, the Division Bench found that the Proviso under Rule 13B(3) takes within its ambit a change of ownership, without the sanction of the Excise Authority, occasioned by sale, transfer or sub-rental. The Bench clarified that such a situation will attract the Proviso to Rule 13B(3) at the time of renewal; and Rule 19, during the validity period of licence. The Division Bench specifically took stock of the fact that the FL-3 licence initially issued in the name of Sudharsanan Pillai was made use of by the partnership firm after its constitution, which arrangement was without the sanction of the Excise Authorities, wherefore, the refusal to renewal the FL-3 licence was held to be unimpeachable, in the light of the prohibition under Rule 19 as well.

C. This Court is of the opinion that the attendant facts are comparable to the facts in Binu Jose (supra). In the facts at hand, the rights to run a Bar hotel has been transferred to the purchasers under Ext.R4(b) document, without the permission of the Excise Authorities. Even in the absence of a specific finding on the violation of Rule 19, this Court is of the definite opinion that the above referred circumstance, coupled with the fact that the licence is sought to be renewed in the name of the petitioner alone, squarely attracts the Proviso under Rule 13B(3) of the Foreign Liquor Rules. The request to renew the FL-3 licence - which was hitherto in the joint names of the petitioner and the 4^th respondent - in the name of the petitioner alone, after removing the 4^th respondent as the joint licence holder, amounts to clear alteration of the nature, content and the scope of the licence. Therefore, the dictum laid down in Binu Jose (supra) is on all fours to the facts situation herein.

The second judgment relied on by the learned Senior Counsel for the 4^th respondent is the one in Hindustan Petroleum Corpn Ltd. v. Darius Shapur Chenai and others [2005 KHC 1432], wherein the Hon’ble Supreme Court reiterated the settled legal position that, when the decision making process itself is in question, the power of judicial review can be exercised, if the impugned Order suffers from illegality, irrationality and procedural impropriety. Insofar as the impugned Ext.P3 Order is concerned, this Court cannot find any illegality, irrationality and procedural impropriety, warranting interference under Article 226 of the Constitution of India.

The upshot of the above discussion is that the Writ Petition fails and the same will stand dismissed.