Regulating Industrial Alcohol | Day 6: Judgement Reserved

Respondents: Intoxicating Liquor refers solely to potable beverages

Senior Advocate Dhruv Agarwal appearing for Jubilant Life Sciences Ltd. argued that the Constituent Assembly Debates over draft Article 38 (now Article 47) show that the words “intoxicating liquor” and “intoxicating drinks” were used interchangeably. Article 47 says that the Parliament has the duty to make laws for the improvement of public health and standard of living. Responding to petitioners’ primary argument, Agarwal argued that “intoxicating liquor” was always meant to be in reference to alcoholic beverages suitable for consumption. 

Further, he argued that Directive Principles of State Policy have found their way into the Lists under the Seventh Schedule. Article 47, where the word “intoxicating liquor” is found, reads: “Duty of the State to raise the level of nutrition and the standard of living and to improve public health.” Entry 6 and 8 of the State List and Entries 20A, 23, and 34 of the Concurrent List correlates to Article 47. The same interpretation used in those must be applied to understanding “intoxicating liquor,” he said.

Advocate Abhimanyu Bhandari argued next for respondent Priyamvada Jaiswal. He contended that in Nusserwanji Balsara v State of Bombay (1950), the Bombay High Court correctly defined “Liquor” in “intoxicating liquor” as a beverage which is “ordinarily drunk.” He offered two reasons for this. First, it is in line with the Constitution’s meaning in Article 47. Second, because it had clearly stated that it is “apparent that from the class of alcoholic drinks [in other Entries of the Seventh Schedule], non-intoxicating drinks are excluded.” The Supreme Court in Balsara held that intoxicating liquor concerned all liquids containing alcohol. 

He then argued that Calcutta Gas Company (Proprietary) Ltd v State of West Bengal (1962) must be relied on to interpret industries under Entry 24 of the State List. Calcutta Gas Company had devised a way to separate an Entry concerning “gas and gas work” in the state list from the general meaning of “industry” in the Union List which considered whether an interpretation would render Entry 8 altogether redundant. If that rationale is followed, the Court would have to decide whether including “intoxicating liquor” as part of “industries” would render Entry 8 of State List useless. He asserted that Entry 8 will continue to apply to potable liquor, thus providing States the power to regulate them. 

Submissions of Advocate on Record Pawanshree Agrawal, Senior Advocate S. Nandakumar and Advocate Aakash Bajaj followed. In the interest of time, the Chief urged them to limit themselves to making novel points, and promptly moved on to rejoinder arguments. 

Dwivedi: States are neither appendages nor satellites of the Union, they are co-equal

Senior Advocate Dinesh Dwivedi took the lead on rejoinder arguments. “Law, as I have been taught, and as I have learned over the years, [and as] Your Lordships have hammered it in, is that we are a federal structure. But the power of the State under List II, cannot be controlled or regulated by Parliament,” he said. He added that while law made by Parliament may vest the powers over any range of industries to the Union, the Court cannot, on the “ground of Parliamentary supremacy justify this kind of encroachment on the State List.”

He reiterated his arguments from Day 1, that the Government of India Act, 1935 borrowed the meaning of “intoxicating liquor” from local legislations and must therefore have the same interpretation—of including all liquids with alcohol. 

Dwivedi argued that in Gannon Dunkerley & Co. v State of Rajasthan (1992) the Court considered the legal history of the term “sale of goods” to ascertain its meaning. This included the usage of the term in England and in the Government of India Act, 1935. “Why should that principle not be adopted here?” he asked.

Chief Justice D.Y. Chandrachud posed the respondents’ arguments before Dwivedi. If the meaning in Article 47 states that “intoxicating liquor” is for human consumption, shouldn’t Entry 8 of State List also not adopt the same interpretation? Dwivedi answered that it doesn’t require that the liquor be consumed for it to be intoxicating, and it is sufficient if it is “capable of causing intoxication.” 

“Let us read that first sentence of Balsara” Justice Hrishikesh Roy said, where the Court had made the distinction between the consumption of a drink and foreign liquor and its application. 

This is a petition by one F. N. Balsara, who is a citizen of India, has in his possession, one bottle of whiskey, one bottle of brandy, both partly used. One bottle of wine, two bottles of beer, one bottle of medicated wine, one bottle of eau de cologne, one bottle of lavender water, and some bottles of medicinal preparations.

The Chief broke into laughter and joked: “Good old Balsara, didn’t realise at that time, they would be still living in the annals of our history.”

Dwivedi explained that since Balsara was in the context of a prohibition law, it was concerned solely with drinking alcohol and not industrial alcohol. 

Dwivedi: Union cannot completely occupy the field that is vested to the state under the Seventh Schedule

On Day 5 of arguments, the Union had relied on State of Orissa v M.A. Tulloch (1964) and Hingir-Rampur Coal v State of Orissa (1960) where the Court had held that the Union occupies a field of legislation, even if a rule is not made specifically to declare Union control over a certain entry of the State List, as long as parent legislation exists. Both these referred cases concerned mines and minerals under Entry 54 of the Union List. 

Dwivedi contended that these judgements cannot be relied upon in this case. If this interpretation were to be applied, “what is the State going to legislate on?” He went on, “There has to be some indication, if the Centre wants to regulate by law. It must pass an order and say so,” and it cannot both refuse to regulate it and preclude the states from regulating it. CJI Chandrachud, reiterating respondents’ arguments, stated that “the Centre may feel that the conditions precedent are not satisfied and therefore, [they] will not regulate.” Dwivedi responded that this was an issue of division of power under the Concurrent List where powers are shared, and not the Union List where the Centre solely exercised its power. 

Datar: Reducing States’ power to regulate only potable alcohol will cause “chaos”

As he began his rejoinder arguments, Senior Advocate Arvind Datar said that the case boils down to the nine-judge Bench’s interpretation of Balsara. “At the end of the day, the Court has to really decide whether the view taken by Justice Chagla is the better view or the view taken by Justice Fazl Ali is the better view.” Justice Chagla’s interpretation in the Bombay High Court Judgement did not consider legislative history, he said. “In a way [this is] right,” CJI Chandrachud said. Datar added that Justice Fazl Ali’s Supreme Court Judgement had considered the meaning of “intoxicating liquor” in common parlance. 

Datar stated that “there’s definitely a possible view to say the intoxicating liquor means only beverages for human consumption” but that “on a ground level, it’ll be impossible to implement.” Many sugar factories do not enter into the alcohol production process from beginning to end—they stop at neutral alcohol or rectified spirit, and do not manufacture potable alcoholic beverages. “If you accept the interpretation…who controls the distilleries? Will the Union step in?” he asked. 

Datar: Synthetics & Chemicals has unsettled the law

Datar brought the Court back to the reference order, which requires the nine-judge Bench to test the correctness of the 1989 Judgement in Synthetics & Chemicals Ltd. v State of U.P. He argued that Balsara had been consistently used for the past 38 years, until the “somersault” in Synthetics and Chemicals. CJI Chandrachud pointed out that Synthetics and Chemicals had also stood the test of time, for around 35 years. 

Datar pointed out that even the Law Commission had noticed the disruption caused by Synthetics and Chemicals, and had asked for the demarcation of power between states and the Union be clearly drawn. In Synthetics and Chemicals the Court wrongly considered rectified spirit to be industrial alcohol, and “intoxicating liquor” to only be potable liquor, Datar explained. 

Back to Basics: What is raw material?

After 6 days of hearings, during the rejoinder arguments, the proceedings came to a halt on fundamental questions of fact: What is the raw material in alcohol production? 

Solicitor General Tushar Mehta and Datar went head to head on whether Extra Neutral Alcohol (ENA) can be considered a raw material. Datar argued that ENA formed the basis for both drinking and denatured alcohol, while Mehta argued that “for every kind of alcohol, the raw material is either sugarcane, grain, grapes, molasses, etcetera.” He argued that the appellant states had confused the Court by making distinctions between denatured spirit, ENA, and other types. “The law is very clear. If it is non-potable, it is Centre. If it is potable, it is State” he said. 

Datar exclaimed that this was “fundamentally wrong.” On primary distillation of molasses or grains, rectified spirit is derived. Then, on secondary distillation, ENA is derived. This goes on to become either denatured spirit or Indian Made Foreign Liquor (potable liquor).

Datar: Occupied field must not be confused with occupiable field

Datar argued that the Section 18G of the Industries Act was an exercise of power under Entry 33 of the Concurrent List. This meant that if the Union did not exercise its power through a “notified order” as stipulated under Section 18G, that industry automatically fell within the scope of the states’ powers. Entries 26 and 27 of the State List allow the state to “Trade and commerce,” and “production, supply and distribution of goods” within the state. Where there is an absence of notification under Entry 33 of Concurrent List, Entries 26 and 27 kicks in, he argued.

CJI Chandrachud appeared unconvinced. “Can the State say that because this falls in a Concurrent List subject, and Parliament’s delegate has come to the conclusion that it is not expedient to regulate for a variety of reasons, the State will still regulate? That may be a little far-fetched.” He also stated that “The doctrine of occupied field is not dependent on the administrative exercise of power,” interpreting the issuance of a notified order as an administrative action. Instead, “it’s postulated on the existence of a legislative instrument,” which in this case is the Industries Act. 

Datar explained with an example. In cases of say timber, plywood industries, the state may regulate them, until the Union, with an explicit order directed states to quit timber regulation. But he asked, if there’s no notified order, why can’t states make laws regarding the movement of timber? As the Union has not issued an order explicitly taking over industrial alcohol regulation, “We are arguing on a law which is not being implemented at all,” Datar said.

Senior Advocates Jaideep Gupta, V. Giri and Balbir Singh joined in to make rejoinder arguments and the case concluded. Justice Hrishikesh Roy commented “This intoxicating liquor argument is going on over so many days, and today we’ve had a very long day. Are we concluding so that everyone can go and have a happy hour?”