No Intelligible Differentia Between Public And Private Limited Companies: Calcutta High Court Affirms Reading Up Of Rule 5(1)(d) Of 2009 West Bengal Excise Rules

The Court was hearing an appeal against a judgment which had declared Clause (d) of the proviso to Rule 5(1) of the 2009 Rules ultra vires the Constitution and had set aside consequential excise demands raised against a private limited company operating a hotel bar licence.

A Division Bench comprising Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya observed: “this Court does not find any impropriety or illegality in the impugned judgment of the learned Single Judge, to the extent that Clause (d) of the proviso to Rule 5(1) of the 2009 Rules was read up to incorporate change in management “in the usual course of business”, keeping in parity with Clause (e) of the proviso”.

Background

The respondent company, which operated a four-star hotel in Kolkata, held excise licences under the Bengal Excise Act, 1909. It was originally incorporated as a private limited company, later became a deemed public limited company by operation of law, and was subsequently reconverted into a private limited company.

The excise authorities later raised a demand on the ground of “change in management” and “change in status” of the company, citing induction of new directors and applying Rule 5(1) of the West Bengal Excise (Change in Management) Rules, 2009, which required payment of one and a half times the initial grant fee applicable for a new licence.

The company paid certain amounts under protest but challenged subsequent revised demands before the High Court.

In the writ petition, the company assailed both the demand and the constitutional validity of Clause (d) of the proviso to Rule 5(1), which restricted exemption from payment of initial grant fee for private limited companies only to cases of death of directors, unlike Clause (e), which extended exemption to public limited companies also in cases of change in management in the “usual course of business.”

The learned Single Judge read up Clause (d) and set aside the demand. The State thereafter preferred an intra-court appeal before the Division Bench.

Court’s Observation

The Court first examined whether exemption from licence fees in the liquor trade could be tested on the touchstone of Article 14. Rejecting the State’s contention that the liquor trade is merely a privilege and not a right, the Bench held that even in matters of the grant of a licence, the State cannot act arbitrarily.

Relying on settled principles, the Court observed that distribution of State largesse, whether by grant or by exemption, must conform to rational and non-discriminatory standards. It reiterated that Article 14 applies not only to substantive legislation but also to subordinate legislation.

Turning to the scheme of the 2009 Rules, the Court noted that Rule 4 treats public and private limited companies alike in matters of change in management, approval, regularisation, and payment of fresh licence fees. No distinction is drawn between them at the stage of regulatory compliance.

However, Rule 5(1) proviso suddenly introduces a distinction at the stage of exemption from payment of the initial grant fee.

The Bench carefully analysed the expression “change in management in the usual course of business.” It held that this expression itself restricts exemption to “inevitable and unavoidable alterations in the management, necessary in the usual course of running the company.”

By confining the exemption to involuntary or business-exigency-driven changes, the Rules exclude deliberate or voluntary transfer of management. In such circumstances, the Court held that there is no rational basis to distinguish between public and private limited companies.

The State’s argument that private limited companies are closely held and therefore more susceptible to management shifts was rejected. The Court held that when the change is confined to the “usual course of business,” the element of voluntary transfer is already eliminated by the language of the Rule itself.

Applying the twin tests of reasonable classification under Article 14, intelligible differentia and rational nexus, the Court concluded that the distinction fails constitutional scrutiny.

On the question of subsequent amendments introduced by Notification dated 11 February 2020, which defined “change in management,” the Court held that the amendment was not clarificatory and could not operate retrospectively, as it introduced an entirely new definitional regime and was expressly made effective prospectively.

Conclusion

The Calcutta High Court upheld the core reasoning of the Single Judge that Clause (d) of the proviso to Rule 5(1) of the West Bengal Excise (Change in Management) Rules, 2009 was discriminatory insofar as it denied private limited companies’ exemption for change in management in the usual course of business.

However, instead of striking down Clause (d) entirely, the Division Bench clarified that the proper course was to “read up” the provision to bring it in parity with Clause (e), thereby extending the exemption to private limited companies as well.

The appeal was accordingly disposed of, affirming that intra-class discrimination between similarly situated limited companies cannot withstand scrutiny under Article 14.

Cause Title: State of West Bengal and Others v. New Kenilworth Hotel Private Limited and Others (Neutral Citation: 2026:CHC-AS:338-DB)

Appearances

Appellants: Kishore Datta, Advocate General, Advocates Sumita Shaw, Ashmita Chakraborty, Soumen Chatterjee

Respondents: Sabyasachi Choudhury, Senior Advocate, with Advocates Arvind Jhunjhunwala, Rajarshi Dutta, V.V.V. Sastry, Debjyoti Saha

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