JUDGMENT : [30519/2024] Heard Mr E K Nandakumar (Sr) assisted by Ms Akhila Nambiar, Mr M Krishnakumar, Mr Jawahar Jose, Mr Raju K Mathews, Mr N Raghuraj (Sr) assisted by Mr Vivek Menon, Mr Tom Thomas, Mr Joseph Markos (Sr) assisted by Mr Abraham Joseph Markos, Mr M G Karthikeyan, Mr Saiby Jose Kidangoor, Mr Millu Dandapani learned Counsel for the petitioners, and Mr V Manu learned Special Government Pleader to the Advocate General. 2. The petitioners in this batch of writ petitions are private limited companies, except for United Breweries Limited, United Spirits Ltd, and the Lalit Resort and Spa, Bekal, which is owned by M/s Bharath Hotels Limited, which are listed public companies. The petitioner - Janatha Tourist Home, is run by a partnership firm, and the partners are the family members, M/s Kannur Surya Residency is run by a Limited Liability Partnership. The petitioners are either distilleries/breweries having licenses under the Brewery Rules 1967 and Kerala Distillery and Warehouse Rules 1968 or hotels/resorts having FL-3 licenses for the bars attached to the hotels/resorts. The petitioners are aggrieved by the orders passed by the Excise Commissioner imposing penalty purportedly under Sections 67(1) and (2) of the Abkari Act. 2.1 Almost common questions of law and facts are involved in these writ petitions. Therefore, these writ petitions are being decided by this common judgment. Facts and Petitioners’ submission: W.P.(C) No.35003/2023 – United Breweries Limited 3. The petitioner is a listed public company primarily engaged in the business of brewing, manufacturing and selling beer. The petitioner is a licensee under the Brewery Rules, 1967. The Brewery is situated in Kanjikode, Palakkad District, State of Kerala. 3.1 The petitioner has challenged the order dated 26.09.2023 imposing a penalty of Rs.30 lakhs by the Excise Commissioner under Section 67(1) and (2) of the Abkari Act, on the ground that the petitioner had ‘reconstituted its Director Board’ without prior permission from the Excise Commissioner. Therefore, the petitioner had acted in violation of the provisions of Sections 67 (1) and (2) of the Abkari Act. The petitioner has also prayed for the quashing of the demand notices in pursuance of the penalty order. Therefore, the petitioner had acted in violation of the provisions of Sections 67 (1) and (2) of the Abkari Act. The petitioner has also prayed for the quashing of the demand notices in pursuance of the penalty order. 3.2 The contentions raised on behalf of the petitioners are that Section 67(3) of the Abkari Act is inapplicable to the petitioner as the petitioner is a licensed ‘Brewery’ and does not have any hotel or restaurant holding a license under the Abkari Act. The petitioner is a licensee under the Brewery Rules 1967, and the Brewery Rules do not contain any restrictions or constraints insofar as the ‘reconstitution of the Director Board’ is concerned. The jurisdictional fact necessary for imposing the penalty on the petitioner under Section 67 of the Abkari Act, the ‘contravention of any Rule’ by a person holding a license or permit issued under the Abkari Act is absent in the case. 3.3 It is not the case of the respondents that the petitioner has contravened any Rule(s) under the Abkari Act or the Brewery Rules 1967. Therefore, without there being present a jurisdictional fact necessary for imposing any penalty on the petitioner, the order impugned is unsustainable and liable to be quashed. It is further submitted that imposing the penalty under Section 67(2) of the Abkari Act is wholly unjustified inasmuch as the petitioner holds the license for manufacture etc, under the Brewery Rules 1967 and not on the strength of any ‘deed’ as described under Section 67(2) of the Abkari Act. Even if it is assumed that the Memorandum of Association (MoA)/Articles of Association (AoA) of the petitioner could be termed a ‘deed’ for the purposes of Section 67(2), a change in the composition of the Board of Directors would not amount to reconstitution/alteration/modification of the MoA or AoA of the petitioner. 3.4 Furthermore, the Division Bench judgment of this Court in State of Kerala v. Panamoottil Investments, (2010) 1 KLT 557 relied by the respondent-State is not applicable to the petitioner’s case. In the present case, the petitioner is a listed public limited company and a licensee under the Brewery Rules 1967. The Foreign Liquor Rules have no applicability to the petitioner. It is submitted that Sections 149 to 172 of the Companies Act 2013 deal with the appointment of Directors to the Board of a Company. In the present case, the petitioner is a listed public limited company and a licensee under the Brewery Rules 1967. The Foreign Liquor Rules have no applicability to the petitioner. It is submitted that Sections 149 to 172 of the Companies Act 2013 deal with the appointment of Directors to the Board of a Company. Sections 152(6) and 160 of the Companies Act 2013 provide for the manner in which a person can be appointed as a Director of a Company. A person can be appointed as a Director in a Company in its general meeting after complying with the requirements under the said section, such as a fourteen-day notice of candidature. Therefore, it would not be feasible for a Company to secure the prior permission of the Excise Commissioner for every appointment/reconstitution of its Board of Directors as one would not know the outcome of the situation described under Section 160 of the Companies Act. It would be impossible for a Company to predict the voting pattern of its shareholders and ascertain beforehand the result of an agenda or the resolution. Furthermore, the maxim ‘lex non cogit ad impossibilia’, i.e., the law does not compel the impossible, is applicable in the present case, and no penal consequences should be attracted for change in the Board of Directors of the Company. W.P.(C) No.16596/2024 – M/s Cassanova Distilleries Pvt Ltd 4. The petitioner Distillery is engaged in distilling, blending, and bottling Indian-made foreign Liquor. It has been issued various licenses under the Kerala Distillery and Warehouse Rules 1968 to conduct the business. 4.1 It is submitted that, unlike the Kerala Foreign Liquor Rules, the Kerala Distillery and Warehouse Rules 1968 do not contain any provision prescribing a procedure imposing restrictions or levying a fee/fine for the reconstitution of the Board of Directors of a Company. As there is no violation of any Rule, the jurisdictional fact for exercising the power by the Excise Commissioner by imposing penalty under Section 67(1) and (2) is not present in the case. Therefore, the imposition of penalty on the ground of reconstitution of the Board of Directors without prior permission of the Commissioner is wholly unjustified and liable to be set aside. Therefore, the imposition of penalty on the ground of reconstitution of the Board of Directors without prior permission of the Commissioner is wholly unjustified and liable to be set aside. 4.2 It is further submitted that the Memorandum of Association (MoA) and Articles of Association (AoA) are the primary documents of the Company and they are not altered or modified due to a change in the composition of its Board of Directors. Thus, Section 67(2) of the Abkari Act would not be applicable to a Company that only undergoes changes in its directors without any alteration in the ownership of its shares. 4.3 Furthermore, the State Government does not have the authority to impose a fine or penalize the exclusion or inclusion of a person on a company's Board of Directors. Even after new Directors are inducted, removed, or changed, the petitioner Company continues to be the licensee under the Act and the Rules. W.P.(C) No.34328/2023 – Indo Scottish Brand Pvt Ltd 5. The petitioner holds the license for the manufacture of Indian-made foreign Liquor. In W.P.(C) No.34328/2023, its Board of Directors was reconstructed by inducting one person as an additional Director on 06.05.2015. Subsequently, that person was appointed as the Managing Director. The Excise Commissioner approved the appointment of the Managing Director and so it relates back to the original appointment. The submission is that any infirmity in the initial appointment stands condoned by the approval of the Excise Commissioner. It is further submitted that three others were later inducted for a short period for the purposes of availing a loan from the Bank. When the attempt failed to secure the loan, these persons left the Board. None of them held any shares in the Company. The impugned order imposing the penalty of Rs.15 lakhs was on the basis of some audit objections on the grounds of alleged unauthorized reconstitution of the Board of Directors. 5.1 It is submitted that Section 67(1) of the Abkari Act enables the levy of a fine prescribed by the Rules on any person holding a license or permit issued under the Act for the contravention of the provisions of the Rules framed under the Act. 5.1 It is submitted that Section 67(1) of the Abkari Act enables the levy of a fine prescribed by the Rules on any person holding a license or permit issued under the Act for the contravention of the provisions of the Rules framed under the Act. Section 67(2) empowers the Commissioner to impose a fine on any person or persons holding a license for the violation by way of reconstitution, alteration, or modification without the permission of the Commissioner of any ‘deed’ on the strength of which any license is granted. Section 67(3) refers to the FL-3 licensee alone and, unlike sub-section (2), specifically refers to the reconstitution of the Board of Directors and provides for the regularization of the violation. 5.1.1 Learned Counsel for the petitioner submits that the combined readings of sub-sections (1), (2) and (3) of Section 67, along with Rule 19 of the Foreign Liquor Rules, makes it abundantly clear that Section 67 applies only to FL-3 licensees. 5.2 It is further submitted that the reconstitution of the Board of Directors does not amount to ‘reconstitution, alteration, or modification without the permission of the Commissioner of any ‘deed’ on the strength of which any license is granted as mentioned in Section 67(2) of the Abkari Act. Therefore, the penalty imposed under Section 67(2) is unsustainable. 5.3 Furthermore, there is no provision under the Abkari Act or the Distillery and Warehouse Rules that mandates prior permission from the Commissioner for the reconstitution of the Board of Directors of the Company holding a manufacturing license. Section 67 is a penal provision that empowers the Commissioner to punish an offender. Without a substantive provision creating an offence, Section 67 is unworkable and is a dead letter. Therefore, invoking the provisions of Section 67 to impose a penalty on the petitioner is unsustainable and liable to be quashed. W.P.(C) No.3153/2024 – United Spirits Ltd 6. The petitioner is a listed public limited company that holds the license for the manufacture of Indian-made Foreign Liquor. It is a Public Limited Company, and its shares are publicly traded on stock exchanges. Any member of the public can purchase the shares of the Company. The petitioner has been imposed a fine of Rs.48 lakhs by the Excise Commissioner on the grounds of reconstitution of the Board alleging that the Director Board of the petitioner Company was reconstituted sixteen times. Any member of the public can purchase the shares of the Company. The petitioner has been imposed a fine of Rs.48 lakhs by the Excise Commissioner on the grounds of reconstitution of the Board alleging that the Director Board of the petitioner Company was reconstituted sixteen times. The other arguments have been adopted as made in the case of Indo Scottish Brand Pvt Ltd. W.P.(C) No.3377/2024 – M/s Imperial Spirits Limited W.P.(C) No.10622/2024 – M/s Imperial Spirits Limited 7. The petitioner holds a license for the manufacture of Indian-made Foreign Liquor. The petitioner has been fined Rs.6 lakhs for the allegation that the Director Board of the petitioner's company was reconstituted twice. It is also submitted that Section 67(3) refers to ‘Hotel and Restaurant’ i.e., FL-3 licensee alone, and a combined reading of sub-sections (1), (2) and (3) of Section 67, along with Rule 19 of the Foreign Liquor Rules makes it abundantly clear that Section 67 applies only to hotels and restaurants holding FL-3 licenses. 7.1 Learned Counsel for the petitioner has drawn the attention of this Court to the Kerala Excise Manual Volume II revised in 2018 by the Excise Commissioner himself. The purpose of amendment by the introduction of a new sub-section (3) to Section 67 is mentioned as under: “(e) A new subsection 67(3) was inserted wherein provision for regularization of an authorized reconstitution, alteration or modification of any deed of a partnership firm or a company having a hotel holding a license under this Act on payment of fine.” 7.2 The provisions of Section 67 are meant for partnership or Companies that holds licenses to vend liquor and not manufacture it. It is further submitted that the reconstitution of the Board of Directors does not amount to ‘reconstitution, alteration, or modification without the permission of the Commissioner of any ‘deed’ on the strength of which any license is granted’. Further, there is no provision in the Abkari Act or the Distillery and Warehouse Rules that mandates prior permission from the Commissioner for the reconstitution of the Board of a Company holding a manufacturing license. W.P.(C) No.2778/2024 – M/s Kerala Alcoholic Products Private Limited 8. The petitioner holds a license for the manufacture of Indian-made Foreign Liquor. The arguments have been adopted as made in the case of M/s Imperial Spirits Limited. W.P.(C) No.30153/2022 – SDF Industries Limited 9. W.P.(C) No.2778/2024 – M/s Kerala Alcoholic Products Private Limited 8. The petitioner holds a license for the manufacture of Indian-made Foreign Liquor. The arguments have been adopted as made in the case of M/s Imperial Spirits Limited. W.P.(C) No.30153/2022 – SDF Industries Limited 9. The petitioner holds a license for the manufacture of Indian-made Foreign Liquor. The arguments have been adopted as made in the case of M/s Imperial Spirits Limited. W.P.(C) No.28577/2020 – Water World Tourism Company Pvt Ltd W.P.(C) No.25407/2023 – Sevens Hotels Pvt Ltd W.P.(C) No.13939/2021 – M/s Fragrant Nature Retreat and Resorts Pvt Ltd W.P.(C) No.40231/2023 – Escapade Resorts Pvt Ltd W.P.(C) No.44294/2023 – Xandari Resorts Pvt Ltd W.P.(C) No.30328/2024 – Sahadevan Sons Pvt Ltd W.P.(C) No.2229/2024 – Greeshmam Resorts Wayanad 10. The petitioners are the private limited companies which own star hotels and have FL-3 licenses. It is submitted that Section 67 would have no application to the facts of the case of the petitioners. The reconstitution did not result in any change of ownership of the Company. The Directors of the Company are not the owners. There is no alteration or modification of the Memorandum of Association or the Articles of Association of the Company as a result of the appointment of the new Directors. Nowhere in the Act or the Rules the change in the Board of Directors of a Company without the permission of the Excise Commissioner is made an offence. In the absence of any violation of the provisions of the Act or the Rules attracting a penalty for an offence having been created in the Act or the Rules, imposing a penalty under Section 67(2) of the Abkari Act in change of the Board of Directors of the Company as a result of the appointment of a retirement of a Director cannot be penalized under Section 67(2) of the Abkari Act alleging alteration or modification of the ‘deed’. W.P.(C) No.44186/2023 – Sreebala Developers and Hotel Pvt Ltd 11. Apart from incorporating the above submissions, the learned Counsel for the petitioner who is an FL-3 licensee has submitted that a bare perusal of Rule 19(ii) of the Foreign Liquor Rules 1953 would reveal that the reconstitution of the Board of Directors of a company will be treated as transfer of ownership if it has resulted in the change of ownership of the Company which owns the license issued under the Rules. In the present case, the shareholders of the Company continue to be the very same persons who were the shareholders at the time when the Company was incorporated and therefore, there was no ownership change of the Company. The demand of Rs.1 lakh each as a fee for regularizing the reconstitution cannot be countenanced. 11.1 It is further submitted that the induction and resignation of the Directors of a Company registered under the Companies Act are governed by subsections 303(2), 264(2) or 266(1)(a) and 266(1)(b)(iii) of the Companies Act 1956. The petitioner Company has submitted the necessary forms before the Registrar of Companies, as and when a Director resigns from the Board of Directors or a new Director has been inducted. A change in the Board of Directors does not constitute a change of ownership of the Company. Therefore, a fine of Rs.3 lakhs is wholly illegal. W.P.(C) No.21968/2022 – The Lalit Resort and Spa Bekal Pvt Ltd 12. The learned Counsel for the petitioner has submitted that the impugned penalty has been imposed on the change of independent Director. A change of independent Director would not in any manner amount to a change of ownership of the Company. The jurisdictional fact for imposing the penalty under Sections 67(1) and (2) and Rule 19 of the Foreign Liquor Rules is a change of ownership as a result of a change of the Board of Directors or the partners in a partnership firm. 12.1 In the present case, only the independent Director has changed. Therefore, there was no question of change of ownership, and in the absence of jurisdictional fact, the imposition of penalty is wholly unjustified. It is further submitted that Section 149(6) of the Companies Act 2013 defines an Independent Director in relation to a Company as a Director other than a Managing Director, or a Whole Time Director or Nominee Director. An Independent Director should not have a pecuniary relationship with the Company, its subsidiary or associate Company or its promotors or Directors. An Independent Director does not hold any security or interest in the Company or its subsidiary or associate Company. 12.2 Section 150 of the Companies Act prescribes the manner of selection of the Independent Director. The qualification of an Independent Director is further prescribed in the Companies (Appointment and Qualification of Directors) Rules 2014. An Independent Director cannot have any ownership/interest in the Company. 12.2 Section 150 of the Companies Act prescribes the manner of selection of the Independent Director. The qualification of an Independent Director is further prescribed in the Companies (Appointment and Qualification of Directors) Rules 2014. An Independent Director cannot have any ownership/interest in the Company. It is, therefore, submitted that the jurisdictional fact for imposing the penalty is absent in the present case and the impugned order is to be set aside. W.P.(C) No.9792/2024 - Janatha Tourist Home 13. The petitioner is a partnership firm owned by the members of the family who have an FL-3 license. The penalty has been imposed for the induction of one partner and, on the retirement of a partner, the induction of the husband of one partner as a partner. It is further submitted that as the partnership firm is owned by family members, there is no change in the ownership of the partnership firm. Therefore, the jurisdictional fact for imposing a penalty of Rs.3 lakhs, on the ground that the constitution of the firm was changed without the permission of the Excise Commissioner, is absent. W.P.(C) No.30519/2024 – Kannur Surya Residency Limited Liability Partnership 14. The petitioner is owned by a limited liability partnership having an FL-3 license. The petitioner is aggrieved by the Order imposing a penalty of Rs.4 lakhs under Section 67(2) and Rule 19(iii) of the Foreign Liquor Rules, 1953, for alleged reconstitution without prior sanction of the Excise Commissioner. 14.1 It is submitted by the learned Counsel for the petitioner that no reconstitution has taken place, resulting in a change of ownership. Only the legal heir of the deceased partner is inducted, as evident from the impugned order. There is no change in the share pattern also. Therefore, the jurisdictional fact for invoking the penalty provision under Section 67(2) of the Abkari Act and Rule 19 of the Foreign Liquor Rules are absent in the present case. 14.2 The legal heir of the deceased partner has stepped into the shoes of the deceased partner. Therefore, there is no change in the ownership, which requires prior permission of the Excise Commissioner. Therefore, the impugned order is to be set aside. Government's submission: 15. 14.2 The legal heir of the deceased partner has stepped into the shoes of the deceased partner. Therefore, there is no change in the ownership, which requires prior permission of the Excise Commissioner. Therefore, the impugned order is to be set aside. Government's submission: 15. Mr V Manu learned Special Government Pleader to the Advocate General has submitted that Section 67(2) of the Abkari Act empowers the Commissioner of Excise to impose a fine on any person or persons holding a license or permit under the Act for the violation by way of reconstitution, alteration or modification without the permission of the Commissioner of any deed, on the strength of which any license is granted. The violation of the said requirement would constitute an offence attracting a penalty. 16. It is further submitted that Section 67(2) of the Abkari Act provides any person or persons holding a license or permit issued under this Act, and it deals with all sorts of licenses issued in terms of the provisions of the Abkari Act including licenses for manufacturing liquor in distillery, breweries, wineries or other manufacturers. Section 67(2) is all-encompassing. It takes within itself the reconstitution of partnerships and director boards by exit of existing persons or entry of new persons or simultaneous entry or exit of persons into the arrangement, etc. It is, therefore, submitted that Section 67(2) is distilleries and breweries as well as to the FL-3 licensees. 16.1 Further it is submitted that the ‘deed’ referred to in Section 67(2) of the Act does not necessarily mean only a legal document. A ‘deed’ is qualified by the words “on the strength of which any license is granted”. A ‘deed’ can be a partnership deed, an Article of Association of a Company, a resolution of a Company with regard to its Board of Directors etc. Section 67(3) of the Abkari Act enables the Commissioner to regularize the reconstitution, alteration or modification of any deed constituting such partnership or Board of Directors of the Company on the strength on which the license is granted. 16.2 Rule 19(ii) of the Foreign Liquor Rules provides that reconstitution of partnership by addition or deletion of members or reconstitution of Directors in a Company shall be deemed to be transfer of a license. The addition of a partner/director due to the death of a partner/director/licensee shall also be deemed to be a transfer of license. 16.2 Rule 19(ii) of the Foreign Liquor Rules provides that reconstitution of partnership by addition or deletion of members or reconstitution of Directors in a Company shall be deemed to be transfer of a license. The addition of a partner/director due to the death of a partner/director/licensee shall also be deemed to be a transfer of license. 16.3 The submission is that the trade of liquor is a State largesse and so the State must know who all are involved in the trade and who all are subsequently inducted into the business or gets out of the business. Liquor trade is to be ensured that it does not fall into the hands of unsavoury and criminal people. Therefore, the provisions are made that any change in the ownership of the licensee that has resulted in the reconstitution of the core of the partnership must be with the prior permission of the Excise Commissioner. By virtue of a deeming provision, reconstitution of partnership by addition or deletion of members or reconstitution of Board of Directors in the Company have been made to be a transfer of license. 16.4 This Court is Panamoottil Investments case has upheld the vires of Rule 19 of the Foreign Liquor Rules as it stood then. It is, therefore, submitted that the impugned demands are within the four corners of the law and empower the Excise Commissioner to impose penalties under Section 67 of the Abkari Act and Rule 19 of the Foreign Liquor Rules. Therefore, the writ petitions are to be dismissed. Discussion and Analysis: 17. I have considered the submissions advanced on behalf of the parties and perused the record. 18. In this batch of writ petitions, there are two sets of petitioners: (i) those who manufacture and sell alcohol and (ii) others who are licensees under the Foreign Liquor Rules 1953 for running bars attached to the star hotels/resorts. 19. Before adverting to the submissions advanced on behalf of the parties, it would be apt to take note of the relevant provisions of the Abkari Act and the Rules made thereunder. 19.1 Section 2(10) of the Abkari Act defines ‘liquor’ as: (10) Liquor:- "Liquor" includes spirits of wine, arrack, spirits, wine, toddy, beer and all liquid consisting of or containing alcohol. 19.2 Section 2(11) defines ‘Beer’ as: (11) Beer:- "Beer" includes ale, stout, porter and all other fermented liquors usually made from malt. 19.1 Section 2(10) of the Abkari Act defines ‘liquor’ as: (10) Liquor:- "Liquor" includes spirits of wine, arrack, spirits, wine, toddy, beer and all liquid consisting of or containing alcohol. 19.2 Section 2(11) defines ‘Beer’ as: (11) Beer:- "Beer" includes ale, stout, porter and all other fermented liquors usually made from malt. 19.3 ‘Foreign Liquor’ has been defined in sub-section (13) of Section 2 of the Abkari Act as: (13) Foreign Liquor:- "Foreign Liquor" includes all liquor other than country liquor. Provided that, in any case in which doubt may arise, the Government may declare by notification what, for the purposes of this Act, shall be deemed to be "country liquor" and what "foreign liquor". 19.4 ‘Indian Made Foreign Liquor’ is defined under Section 2(13B) as: (13B) "Indian Made Foreign Liquor" means any foreign liquor other than Foreign Made Foreign Liquor;” 19.5 ‘Manufacture’ is defined in Section 2(19) of the Abkari Act as: (19) Manufacture:- "Manufacture" includes every process, whether natural or artificial, by which any fermented, spirituous, or intoxicating liquor or intoxicating drug is produced, prepared compounded or blended and also redistillation and every process for the rectification of liquor. 19.6 Manufacture of liquor or intoxicating drugs is prohibited except under the authority and subject to terms and conditions of a license granted in this behalf as specified under the provisions of Section 12 of the Abkari Act. 19.7 The sale of liquor or intoxicating drugs without a license is prohibited under Section 15 of the Abkari Act. 19.8 Section 18A empowers the State Government to grant exclusive or other privileges to persons (i) manufacturing or supplying by wholesale, (ii) selling by retail, or (iii) manufacturing or supplying by wholesale and selling by retail, any liquor or intoxicating drug on payment of an amount as rental in consideration of the grant of such privilege. 19.8.1 Sub-section 18A of the Abkari Act reads as under: 18A. Grant of exclusive or other privilege of manufacture, etc., on payment of rentals. 19.8.1 Sub-section 18A of the Abkari Act reads as under: 18A. Grant of exclusive or other privilege of manufacture, etc., on payment of rentals. – (1) It shall be lawful for the Government to grant to any person or persons, on such conditions and for such period as they may deem fit, the exclusive or other privilege- (i) of manufacturing or supplying by wholesale; or (ii) of selling by retail; or (iii) of manufacturing or supplying by wholesale and selling by retail, any liquor or intoxicating drugs within any local area on his or their payment to the Government of an amount as rental in consideration of the grant of such privilege. The amount of rental may be settled by auction, negotiation or by any other method as may be determined by the government, from time to time, and may be collected to the exclusion of, or in addition to the duty or tax leviable under Sections 17 and 18. (2) No grantee of any privilege under sub-section (1) shall exercise the same until he has received a licence in that behalf from the Commissioner. (3) in such cases, if the Government shall by notification so direct, the provisions of Section 12 relating to toddy and toddy producing trees shall not apply.” 19.8.2 The petitioners/Companies which manufacture beer and liquor have been granted licenses under Section 18A of the Abkari Act read with the relevant provisions of the Kerala Brewery Rules 1967 and Kerala Distillery and Warehouse Rules 1968, as the case may be. 19.9 Section 29 of the Abkari Act empowers the State Government to make Rules for the purposes of the Act, inter alia regulating the mode in which toddy may be supplied to licensed vendors or the persons who distil spirits from toddy or who use toddy in the manufacture of bread. 19.9.1 The Rulemaking powers as prescribed under Section 29 of the Abkari Act read as under: “29. Power to make rules. – (1) The Government may, by notification in the Gazette either prospectively or retrospectively, make rules for the purposes of this Act. 19.9.1 The Rulemaking powers as prescribed under Section 29 of the Abkari Act read as under: “29. Power to make rules. – (1) The Government may, by notification in the Gazette either prospectively or retrospectively, make rules for the purposes of this Act. (2) In particular and without prejudice to the generality of the foregoing provision, the Government may make rules:- (a) regulating the mode in which toddy may be supplied to licensed vendors of the same, or to persons who distinct spirits from it or who use it in the manufacture of bread; (b) for determining the number of licenses of each description to be granted in any local area; (c) for regulating the number, size and description of stills, utensils, implements and apparatus to be used in any distillery, brewery, winery or other manufactory in which liquor is manufactured; (d) prescribing the instruments to be used in the testing of liquor and the tables of corrections according to temperature to be used therewith; (e) prescribing the weights to be used for the sale of intoxicating drugs and measures to be used for the sale of liquor; (f) fixing for any local area the maximum and minimum prices above and below which any liquor or intoxicating drug shall not be sold; (g) for the warehousing of liquor and intoxicating drugs and for the removal of the same from any warehouse in which they are deposited for deposit in any other warehouse or for local consumption or for export; (h) for the inspection and supervision of stills, distilleries, breweries, wineries, or other manufactories in which liquor is manufactured and warehouses; (i) for the management of any public distillery, brewery or winery or public warehouse established under Section 14; (j) for placing the storage, import, export, possession, transit or transport of liquor or intoxicating drugs under such supervision; and control as may be deemed necessary for the purposes of this Act; (k) prohibiting the use of any article which the Government shall deem to be noxious or otherwise objectionable in the manufacture of liquor or of any intoxicating drug; (1) (1) declaring the process by which spirit manufactured in or imported into [the State] shall be denatured; (2) for causing such spirit to be denatured through the agency or under the supervision of Excise Officers; (3) for ascertaining whether such spirit has been denatured; (m) regulating the bottling of liquor for purposes of sale; (n) declaring in what cases or classes of cases and to what authorities appeals shall lie from orders, whether original or appellate, passed under this Act or under any rule made thereunder, or by what authorities such orders may be revised and prescribing the time and manner of presenting appeals and the procedure for dealing therewith; [(o) ***] (p) regulating the power of Abkari Officers to summon witnesses from a distance under Section 44; (q) for the disposal of articles confiscated and of the proceeds thereof. (r) for the forfeiture notwithstanding provisions to the contrary contained in the Indian Contract Act,1872 or in any other law, of the whole or any portion of the kists deposited by persons who purchase the right to sell toddy, arrack, foreign liquors or ganja, in addition to damages recoverable by Government on account of the breach of conditions of sale laid down by the Government from time to time.” 19.10 Section 67 of the Abkari Act empowers the Excise Commissioner to impose a fine as may be prescribed in the Rules on any person holding a license or permit issued under this Act for contravention of any Rule made under the Act. 19.10.1 Section 67 is extracted hereunder for ready reference: “67. Power to impose fine. – (1) The Commissioner shall be competent to impose such fine as may be prescribed in the rules, on any person holding a licence or permit issued under this Act, for contravention of any rule made under this Act. Provided that no order imposing any fine under this section shall be made without giving the person an opportunity of being heard. (2) The Commissioner may impose a fine of Rs. 3,00,000 (Rupees three lakhs) each on any person or persons holding a licence or permit under this Act for the violation by way of reconstitution, alteration or modification without the permission of the Commissioner of any deed on the strength of which any licence is granted. (3) Where a partnership firm or a company having a hotel (restaurant) holding a licence under this Act has, without the previous permission of the Commissioner, re-constituted, altered or modified any deed constituting such partnership or Board of Directors of the company, on the strength of which such licence is granted, the Commissioner may, on payment of the fine imposed under sub-section (2) and on an application from such licensee and subject to the other provisions of this Act and the rules made there under, regularise such re-constitution, alteration or modification after accepting such fee as may be prescribed by rules.” The petitioners, who run bars attached to their hotels/resorts, have been granted FL-3 licenses under the Foreign Liquor Rules 1953, read with Section 18A of the Abkari Act. 20. The relevant Rules for the purposes of a decision in this case, i.e., Rule 19 read as under: “19. 20. The relevant Rules for the purposes of a decision in this case, i.e., Rule 19 read as under: “19. (i) under no circumstances shall any licence obtained under this notification be sold, transferred or sub rented without the previous sanction of the Excise Commissioner. (ii) Reconstitution of partnership by addition or deletion of members or reconstitution of Directors in a Company resulting in change of ownership which owns/manages or operates any licence issued under this rule shall be deemed to be transfer of licence. Addition of partner/director or the change of name of the licensee due to death of a partner/director/licensee shall also be deemed to be transfer of licence. (iii) Reconstitution of partnership/Directors of a company may be allowed on payment of Rs.1,00,000 (Rupees one lakh only). (iv) Change of name of licensee may be allowed on payment of Rs. 2 Lakhs (Rupees two lakhs only): Provided that such change shall be allowed only if the incumbent in whose name the licence is to be granted is eligible otherwise for obtaining a licence under these rules: Provided further that no fee shall be levied for the change of name of licensee in respect of license in Form FL 4A, due to the change in the office bearer of the club. Note – ‘Hotel’ includes classified restaurants and such other hotels or restaurants having classifications or certificates issued by concerned Government departments, on the strength of which, FL3 licenses have been obtained.” 21. The questions which fall for consideration in this batch of writ petitions are: i. Whether the induction of a new Director/Independent Director or retirement/resignation/removal of a Director from the Company Board would attract the penalty under Section 67 of the Abkari Act in respect of the Companies who have been issued licenses under the Brewery Rules 1967 or the Distillery and Warehouse Rules 1968 for manufacturing, selling etc without change of ownership of the Company? ii. Whether the induction of a new Director/Independent Director or retirement/resignation/removal of a Director would constitute a change of the ‘deed’ attracting penalty under Section 67 of the Abkari Act? iii. Whether the requirement for prior permission of the Excise Commissioner for induction of a new Director/Independent Director or retirement/resignation/removal of a Director in the Board of Directors of a Company is workable and feasible as one would not know the outcome of the shareholders meeting convened for such purposes? iv. iii. Whether the requirement for prior permission of the Excise Commissioner for induction of a new Director/Independent Director or retirement/resignation/removal of a Director in the Board of Directors of a Company is workable and feasible as one would not know the outcome of the shareholders meeting convened for such purposes? iv. Whether the provisions of Rule 19 of the Foreign Liquor Rules are applicable in the case of the petitioners who are manufacturing beer/liquor in pursuance of the license issued to them under the Brewery Rules 1967 or Distillery and Warehouse Rules 1968 as the case may be? v. Whether the purposes of the provisions of Section 67 of the Abkari Act read with Rule 19 of the Foreign Liquor Rules is to see that the ownership of a licensee for vending liquor is not changed without the permission of the Excise Commissioner and if there no change in ownership, the imposition of the penalty would be justified? 22. It is not the case of the State that as a result of the induction of the Director or a partner, there has been a change in the ownership of the licensee. It is also not in dispute that Foreign Liquor Rules 1953 would not be applicable in respect of the Companies manufacturing and selling beer and liquor in pursuance of the license issued to them under the Brewery Rules 1953 or Distillery and Warehouse Rules 1968. Neither the Brewery Rules 1953 nor the Distillery and Warehouse Rules 1968 provide for prior permission from the Excise Commissioner for inducting a new Director/Independent Director or retirement/resignation/removal of a Director, which brings a change in the Board of Directors. 23. Sub-section (2) of Section 67 of the Abkari Act empowers the Commissioner to impose a fine of Rs.3 lakhs each on any person or persons holding a licence or permit under the Act if the reconstitution, alteration or modification results in a change of any ‘deed’ on the strength of which any licence is granted. The induction of a Director or change in the Board of Directors as a result of the resignation/retirement of a Director would not bring change in the Article of Association or Memorandum of Association of the Company. 24. The induction of a Director or change in the Board of Directors as a result of the resignation/retirement of a Director would not bring change in the Article of Association or Memorandum of Association of the Company. 24. Mr V Manu, Special Government Pleader to the Advocate General has not contended that the change in the Board of Directors has resulted in alteration or modifications of the Articles of Association or Memorandum of Association of the petitioner Company. 25. Sections 149 to 172 of the Companies Act 2013 deal with the appointment of Directors to the Board of a Company. Sections 152(6) and 160 of the Companies Act 2013 provide for the manner in which a person can be appointed as a Director of a Company. A person can be appointed as the Director of a Company in its general meeting after complying with the requirements under the said section. There is no scope for prior permission of the Excise Commissioner for every appointment/reconstitution of its Board of Directors as one would not know the outcome of the situation described under Section 160 of the Companies Act. In this situation, the maxim ‘lex non cogit ad impossibilia’, would be attracted. 25.1 Section 149(6) of the Companies Act 2013 defines an ‘Independent Director’ in relation to a Company as a Director other than a Managing Director or a whole-time director or nominee director. An independent director does not have a pecuniary relationship with the Company, its subsidiary or associate Company or its promotors or Directors. Neither does he hold any security or interest in the Company or its subsidiary Company. Section 150 of the Companies Act prescribes the manner of selection of the Independent Directors. The qualifications of an Independent Director are prescribed in the Companies (Appointment and Qualification of Directors) Rules 2014. The Excise Commissioner does not have any role in the appointment of an Independent Director. 26. It is true that no one can claim a fundamental right to trade in liquor. The right of a citizen to deal with intoxicating substances, including liquor, is only to the extent it is provided for and permitted by the relevant Act and Rules made thereunder. 26. It is true that no one can claim a fundamental right to trade in liquor. The right of a citizen to deal with intoxicating substances, including liquor, is only to the extent it is provided for and permitted by the relevant Act and Rules made thereunder. In various judgments of the Supreme Court and several High Courts, it has been consistently held that no person has a fundamental right to deal or trade in intoxicating liquors and the State is entitled to prohibit and/or closely regulate their production, manufacture, possession, transport, purchase and sale. The doctrine of res extra commercium is applicable. However, the question is whether the petitioners can be imposed a fine in the exercise of the powers under Section 67 of the Abkari Act and whether Section 67 of the Abkari Act would be attracted to the facts of the case. 27. The learned Government Pleader has placed reliance on the judgment of the Supreme Court in Biharilal Jaiswal v. The Commissioner of Income Tax, 1996 KHC 1392. In the aforesaid case, the question was whether a firm has violated the license conditions prescribed by the Excise Rules of Madhya Pradesh can be treated as a genuine partnership within the meaning of Section 185(1) of the Income Tax Act 1961, whether registration can be granted to such a partnership under the provisions of the Income Tax Act and the Rules made thereunder. The Madhya Pradesh Excise Rules 1960 prohibits the transfer or sub-lease of a license and the breach of such condition would render the license issued to be cancelled by the Collector. Thus, the facts in the said judgment have no application to the facts of the present case. 27.1 The two judgments relied on by the Special Government Pleader, i.e., M/s Ksr Alankar Hotels v. State of Kerala, 2024 SCC Online Ker 3201 and Panamoottil Investments (supra), are in respect to FL-3 licenses and have no application in respect of Breweries and Distilleries. 28. The jurisdictional fact for imposing a fine under sub-section (2) of Section 67 of the Abkari Act is the alteration or modification of any ‘deed’, on the strength of which a license is granted. When there is no change in the Memorandum of Association or Article of Association, the Excise Commissioner will not get jurisdiction to impose a fine under sub-section (2) of Section 67 of the Abkari Act. When there is no change in the Memorandum of Association or Article of Association, the Excise Commissioner will not get jurisdiction to impose a fine under sub-section (2) of Section 67 of the Abkari Act. Further, induction, removal, or retirement of a director does not bring a change in the Article of Association or Memorandum of Association of Companies. Therefore, the jurisdictional fact for imposing the fine would be absent unless the ownership of the Company is changed. And so, the demand in respect of the Companies who have a license under the relevant Brewery Rules 1967, or the Distillery and Warehouse Rules 1968 are hereby set aside. 29. So far as the question regarding the imposition of fines on the Companies running hotels or resorts is concerned, sub-section (3) of Section 67 of the Abkari Act and Rule 19 of the Foreign Liquor Rules 1953 are to be considered. Sub-section (3) of Section 67 of the Abkari Act also prescribes that if as a result of reconstitution, alteration or modification of the Board of Directors or partnership, the ‘deed’ is modified on the strength of which the license is granted, then the Commissioner will have the jurisdiction to impose the fine. Sub-rule (ii) of Rule 19 of the Foreign Liquor Rules 1953 contemplates that if as a result of alteration in the Board or partnership, there is a change in the ownership, then the Commissioner will assume the jurisdiction to impose a fine if such change has been brought in without the prior permission of the Excise Commissioner. 30. The purpose of such a Rule has been explained in the judgment of the Supreme Court in Biharilal Jaiswal (supra). The object of sub-section (3) of Section 67 of the Abkari Act and Rule 19(ii) of the Foreign Liquor Rules 1953. Since a license is granted for dealing in intoxicating liquors, the business which is res extra commercium and the intoxicating liquor and substance are injurious to health and morals of the members of the society, close control is envisaged and provided over the business carried on under the license issued under the Act and the Rules made thereunder. This object would be defeated if the licensee is permitted to bring strangers into the business. This object would be defeated if the licensee is permitted to bring strangers into the business. Instead of the licensee carrying on the business, it would be carried on by others which would not be conducive to the effective implementation of the excise law and consequently deleterious to public interest. 30.1 Paragraph 19 of the said judgment is extracted hereunder: “19. In our opinion, the correct position appears to be this we are confining ourselves to partnerships entered into with respect to a license/permit granted under the State Excise enactments) : these enactments deal with intoxicating liquor, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors (Entry 8 of List-II of the Seventh Schedule to the Constitution and other noxious substances besides providing for duties of excise referred to in Entry 51 of the said List. It has been held by this Court repeatedly that no person has a fundamental right to deal or trade in intoxicating liquors and that the State is entitled to prohibit and/or closely regulate their production, manufacture, possession, transport, purchase and sale. It is enough to refer to the recent Constitution Bench Judgment in Khoday Distilleries Ltd, & OK. v. State of Kamataka and Ors. ( 1995 (1) S.C.C. 574 where in all the earlier decision of this Court have been referred and the proposition aforesaid affirmed. The right of a citizen to deal in these intoxicating liquors is only to the extent it is provided for and permitted by the Act and the Rules made thereunder. Take the Madhya Pradesh Act, with which are concerned herein. Clause (VI) of the General Licence Conditions - it is not disputed that those conditions are statutory in character - provides expressly that a holder of a 10:40 AM 2/12/2008 shall not enter into a partnership for the working of such privilege in any way or manner without the written permission of the Collector, which permission shall be endorsed on the licence. This condition is binding upon the licencce. If so, he cannot enter into a partnership nor can there be, in law, a partnership with respect to (he privilege (business) granted under the licence. No person, and no licencce, can claim any right contrary to the said provision. The object underlying the said clause is self-evident. This condition is binding upon the licencce. If so, he cannot enter into a partnership nor can there be, in law, a partnership with respect to (he privilege (business) granted under the licence. No person, and no licencce, can claim any right contrary to the said provision. The object underlying the said clause is self-evident. Since the licence is granted for dealing in intoxicating liquors, the business wherein is Res extra conunercium - and also because they are supposed to be harmful and injurious to health and morals of the members of the society - close control is envisaged and provided over the business carried on under the licence. This object will be defeated if the licencee is permitted to bring in strangers into the business, which would mean that instead of the licencee carrying on the business, it would be carried on by others - a situation not conducive to effective implementation of the excise law and consequently deleterious to public interest. It is for this very reason that transfer or sub-letting of licence is uniformly prohibited by several State Excise enactments. It, therefore, follows that any agreement whereunder the licence is transferred, sub-let or a partnership is entered into with respect to the privilege/business under the said licence, contrary to the prohibition contained in the relevant excise enactment, is an agreement prohibited by law. The object of such an agreement must be held to be of such a nature that if permitted it would defeat the provisions of the excise law within the meaning of Section 23 of the Contract Act. Such an agreement is declared by Section 23 to be unlawful and void. The question is whether such an unlawful or void partnership can be treated as a genuine partnership within the meaning of Section 185(1) and whether registration can be granted to such a partnership under the provisions of the Income Tax Act and the Rules made thereunder. We think not. When the law prohibits the entering into a particular partnership agreement, there can be in law no partnership agreement of that nature. The question of such an agreement being genuine cannot, therefore, arise. We think not. When the law prohibits the entering into a particular partnership agreement, there can be in law no partnership agreement of that nature. The question of such an agreement being genuine cannot, therefore, arise. Where, of course, the statutory provisions or the conditions of licence do not prohibit the entering into of partnership, it is obvious, such a partnership cannot be held to be illegal, unlawful or void, as held by this Court in Jer and Company. But where there is a specific prohibition as in the case before us, any partnership entered into would be unlawful and void agreement within the meaning of Section 23 and no other law, whether State or Central, can recognise such an agreement. The fact that such a partnership can be permitted by the Collector does not detract from the mandatory character of the clause. As pointed out above, Licence Condition No. 14 expressly provides that for breach of any condition of licence or of the Act or the Rules made thereunder, the licence may be cancelled. The context - that it is an excise enactment - should not be forgotten. The grant of registration under Income Tax Act, it must be remembered, confers a substantial benefit upon the partnership firm and its members. There is no reason why such a benefit should be extended to persons who have entered into a partnership agreement prohibited by law. One arm of law cannot be utilised to defeat the other arm of law. Doing so would be opposed to public policy and bring the law into ridicule. It would be wrong to think that while acting under the Income Tax Act, the Income Tax Officer need not look to the law governing the partnership which is seeking registration. It would probably have been a different matter if the Income Tax Act had specifically provided that registration can be granted notwithstanding that the partnership is violative of any other law - but it does not say so.” Conclusion: 31. From the above discussions, it is held that without a change of ownership or ‘deed’ on the induction of a New Director or retirement/resignation/removal of a Director, a penalty under Section 67 of the Abkari Act is not attracted. From the above discussions, it is held that without a change of ownership or ‘deed’ on the induction of a New Director or retirement/resignation/removal of a Director, a penalty under Section 67 of the Abkari Act is not attracted. 31.1 The maxim ‘lex non cogit ad impossibilia’ is applicable in the present case, as one would not know the outcome of the situation described under Section 160 of the Companies Act, as obtaining prior permission from the Excise Commissioner is not feasible. So, no penal consequences would be attracted for change in the Board of Directors of the Company. 31.2 The Brewery Rules 1953 or Distillery and Warehouse Rules 1968 govern the Companies manufacturing and selling beer and liquor in pursuance of the license issued to them. Neither the Brewery Rules 1953 nor the Distillery and Warehouse Rules 1968 provide for prior permission from the Excise Commissioner for inducting a new Director/Independent Director or retirement/resignation/removal of a Director, which brings a change in the Board of Directors. Hence imposing a penalty on this ground is not justifiable. 31.3 If the change brought in the Board of Directors or partnership does not bring a transfer or change of the license to some other person, this Court is of the view that jurisdictional fact for imposing the fine would not be present. If there is no change in the ownership of the license, the imposition of a fine under Section 67, read with Rule 19 of the Foreign Liquor Rules, would not be justified. Therefore, the Excise Commissioner would not have the power to impose the fine. Result: In view of the above discussions, the present writ petitions are allowed. The impugned demand of imposition of penalty and fine is set aside. However, without costs. All Interlocutory Applications regarding interim matters stand closed.