What was the main challenge in Khoday Distilleries?

Manufacturers and sellers said the Karnataka rules forced them to sell only to a State-owned distributor, violating Article 19(1)(g) and exceeding delegated power.

How did the Supreme Court view the liquor trade?

No citizen has a fundamental right to trade in intoxicating liquor. The State may regulate or even prohibit it in public interest.

Was the State distributor monopoly valid?

Yes. The Act allowed licensing and control. Making a State company the sole distributor was within the Act and not arbitrary.

Did the rules exceed delegated authority?

No. Reading the Preamble and key sections, the Court held the rules were framed under valid delegation and stayed within the Act’s policy.

What is the takeaway for Article 19(1)(g)?

Reasonable restrictions for public health and safety are allowed. Liquor trade gets stricter control because it is inherently harmful.

Khoday Distilleries Ltd v. State of Karnataka

Quick Summary

Karnataka changed its excise rules. Makers and sellers of liquor could sell only to a State-owned distributor (MSIL). Khoday said this killed their Article 19(1)(g) right to trade and went beyond the Act. The Supreme Court said: the liquor trade is not a fundamental right; the State may regulate or even prohibit it for public health. The Act permits licensing and control, so the rules and the State distributor model were valid.

AIR 1996 SC 911 Art. 19(1)(g) State Distributor (MSIL) Delegated Rules Valid

Issues

Does a rule forcing sales only to a State distributor violate Article 19(1)(g)?
Are the Karnataka Excise Rules creating this model within delegated power under the Act?

Rules

Article 19(1)(g) allows trade, but the State may impose reasonable restrictions for public interest.
For intoxicating liquor, regulation can be strict or even a total ban, as it is harmful to health and safety.
Delegated rules are valid if they fit the policy and scheme of the parent Act.

Facts — Timeline

Timeline image for Khoday Distilleries case facts

Rules, 1968: Rule 3(11) enabled a distributor licence for liquor within Karnataka.

State Ownership: Distributor licence to be given only to a State-owned/controlled company.

MSIL Named: Mysore Sales International Ltd. chosen as the sole distributor.

Amendments: Manufacturers/retail licensees could sell only to the distributor (MSIL).

Challenge: Khoday and others claimed Article 19(1)(g) violation and excess delegation.

Supreme Court: Examined the Preamble and Sections 13, 15, 17, 71 of the Act and the Rules.

Arguments

Appellants (Khoday & Ors.)

Forced sales to MSIL cripple trade freedom under Art. 19(1)(g).
No clear legislative policy for a sole distributor; rules go beyond the Act.
Distributor monopoly is arbitrary and discriminatory.

Respondents (State & Ors.)

Liquor trade is harmful; State can control or ban it.
Act’s scheme supports licensing and a distributor licence.
Monopoly ensures public health, revenue control, and orderly distribution.

Judgment

Within Competence: The Act validly empowers regulation of manufacture and sale of liquor.
Delegation OK: The Rules were made under valid delegation and fit the Act’s policy.
Monopoly Valid: A State-run distributor licence is contemplated; not ultra vires.
No Fundamental Right: Citizens have no fundamental right to trade in liquor; the State may restrict or prohibit.
Result: Appeals dismissed; rules upheld.

State distributor model sustained; Article 19(1)(g) not violated in this context.

Ratio Decidendi

Because liquor is inherently harmful, the State can tighten control or ban it. A State-owned distributor monopoly created by rules under an Act that contemplates licensing and regulation is valid and does not offend Article 19(1)(g).

Why It Matters

Clarifies that no fundamental right exists to trade in liquor.
Explains how delegated legislation is tested against the policy of the parent Act.
Upholds State power to use a monopoly model to protect health and ensure control.

Key Takeaways

Rights

Art. 19(1)(g) is not absolute; liquor trade gets stricter limits.
Reasonable restrictions may include State monopolies.

Delegation

Rules must fit the Act’s scheme and policy.
Licensing power can cover a sole distributor.

Mnemonic + 3-Step Hook

Mnemonic: “Harmful Drink? State Link.”

Harmful trade → higher control.
Act allows licences → rules fit the policy.
State link as distributor → valid restriction.

IRAC Outline

Issue	Rule	Analysis	Conclusion
Do State-run distributor rules violate Art. 19(1)(g)? Are the rules ultra vires the Act?	State may impose reasonable restrictions; liquor trade can be tightly controlled or banned; rules must fit Act policy.	Act’s scheme (Preamble; Ss. 13, 15, 17, 71) supports licensing and control, including distributor licensing.	Rules and monopoly valid; appeals dismissed.

Glossary

Article 19(1)(g): Right to practise any profession or carry on any trade or business, subject to reasonable restrictions.
Delegated Legislation: Rules made under an Act. They must follow the Act’s policy and limits.
MSIL: Mysore Sales International Ltd., a State-controlled company designated as the sole distributor.