The Supreme Court observed that if the amendment via substitution is intended to reduce the quantum of penalty for better administration and regulation of foreign liquor, there is no justification to ignore the subject and context of the amendment and permit the State to recover the penalty as per the unamended Rule.

The Court observed thus in an appeal filed by a company against the State of Madhya Pradesh in which the short question for consideration was the applicability of the relevant rule for imposition of penalty.

The two-Judge Bench comprising Justice P.S. Narasimha and Justice Aravind Kumar held, “If the amendment by way of a substitution in 2011 is intended to reduce the quantum of penalty for better administration and regulation of foreign liquor, there is no justification to ignore the subject and context of the amendment and permit the State to recover the penalty as per the unamended Rule. The subject of administration of liquor requires close monitoring and the amendment must be seen in this context of bringing about good governance and effective management. Seen in this context, the principle of Section 10 of MP General Clauses Act, 1957, relating continuation of a repealed provision to rights and liabilities that accrued during the subsistence of the Rule does not subserve the purpose and object of the amendment.”

The Bench said that the subordinate legislation, by its very nature, rests upon the executive’s understanding of the primary legislation and when a Court is of the opinion that such an understanding is not in consonance with the statute, it sets it aside for being ultra-vires to the primary statute.

Senior Advocate Pratap Venugopal appeared on behalf of the appellant while AAG Saurabh Mishra appeared on behalf of the respondents.

Brief Facts -

The appellant company was a sub-licensee under the M.P. Excise Act, 1915 for manufacture, import, and sale of Foreign Liquor, regulated under the Madhya Pradesh Foreign Liquor Rules, 1996. Sub-licensees importing foreign liquor were granted transit permits in which the origin, quality, and point of delivery of the imported liquor were recorded. At the point of destination, the consignment was verified for quality and quantity, and a certificate under Rule 13 was granted. Rule 16 prescribes the permissible limits of loss of liquor in transit due to leakage, evaporation, wastage etc. and the purpose and object of this Rule is to prevent illegal diversion of liquor for unlawful sale and also to prevent evasion of excise duty. If the permissible limits of loss of liquor are exceeded, the 1996 Rules prescribe imposition of penalty.

Rule 19 providing for penalty that could be imposed during the relevant license period of 2009-2010 was about four times the maximum duty payable on foreign liquor. However, no action was initiated during the license year of 2009-2010 and in 2011, Rule 19 was substituted by an amendment. Eight months after the said amendment, a demand notice was issued directing payment of penalty for exceeding permissible limits during the license year 2009-2010. It demanded penalty of four times the duty as per the old Rule 19. The appellant contended that penalty can only be under the substituted Rule 19 as the old rule stood repealed. The Deputy Commissioner rejected such objections and hence, the appellant filed a writ petition before the High Court. The Single Judge set aside the orders of the statutory authorities and remanded the matter to them for determining penalty as per substituted Rule. However, the Division Bench reversed such decision and hence, the appellant approached the Apex Court.

The Supreme Court in view of the facts and circumstances of the case noted, “In the ultimate analysis, interpretation statutes or definitions in interpretation clauses are only internal aids of construction of a statute. Who do they aid? Interpretation is the exclusive domain of the Court.25 A Constitutional Court is tasked with the sacred duty of interpreting the Constitution, Acts of Parliament or States, subordinate legislations, regulations, instructions and even to practices having force of law. Whichever or wherever the instrument, interpretation is the exclusive province of the Court.”

The Court further noted that the regulatory process requires the Government to deal with the problem of diversion and unlawful sale of foreign liquor and also provide an appropriate penalty and punishment and that the process of identifying a crime and prescribing an appropriate punishment is a complex and delicate subject that the State has to handle while making rules and enforcing them.

“The gravity of the offence, its impact on society and human vulnerability are taken into account to provide the required measure of deterrence and reform. Day to day working of the Rules, reposing their effectiveness, ineffectiveness, deficiency of deterrence, disproportionate penalty having a chilling effect on genuine businesses, are some routine factors which require the executive to make necessary amendments to the rules. In this context, depending on the nature of offence, the proportionate penalty is required to be modulated from time to time. In light of this, we can appreciate that the felt need of the State to amend and substitute Rule 19 which provided a higher penalty at four times the duty, with a simple penalty not exceeding the duty payable”, it added.

The Court said that it is wrong to assume that the substituted Rule is given retrospective effect if its benefits are made available to pending proceedings or to those that have commenced after the substitution. It also said that the Rule operates retroactively and thus saves it from arbitrarily classifying the offenders into two categories with no purpose to subserve.

“The substituted penalty only mollifies the rigour of the law by reducing the penalty from four times the duty to value of the duty. Therefore, the bar of Article 20(1) of imposing a penalty greater than the one in force at the time of the commission of the offence has no application. While rejecting the reasoning of the single Judge as well as the Division Bench, we seek to underscore the importance of a simple and plain understanding of laws and its processes, keeping in mind the purpose and object for which they seek to govern and regulate us”, it observed.

“We further hold that the penalty to be imposed on the appellants will be on the basis of Rule 19 as substituted on 29.03.2011”, it concluded.

Accordingly, the Apex allowed the appeals and set aside the judgment of the Division Bench.

Cause Title- Pernod Ricard India (P) Ltd. v. The State of Madhya Pradesh (Neutral Citation: 2024 INSC 327)


Appellant: Senior Advocate Pratap Venugopal, Advocates Surekha Raman, Amarjit Singh Bedi, Abhishek Anand, Unnimaya S, and Shreyash Kumar.

Respondents: AAG Saurabh Mishra, AOR Sunny Choudhary, and Advocate Ajay Singh.

Click here to read/download the Judgment