No 'Vested Right' To Renew Liquor License: Karnataka HC Sets Aside Stay On Excise Rules Amended For E-Auction & Forfeiture Of License
The Karnataka High Court has recently held that the government policy to conduct E-auctions for liquor licenses and to set reservation norms is constitutionally valid, since the applicants (expired licensees) have no 'vested right' to license renewal.
The Division Bench of Chief Justice Vibhu Bakru and Justice CM Poonacha, while setting aside a single bench judge's interim stay order from November 2025, also permitted the continued operation of amended Rules 5 & 5A of the Karnataka Excise (Sale of Indian & Foreign Liquors) Second Amendment Rules, 2025.
“…There is no dispute that the licence granted is for a term of one year commencing 1st of July. Thus, the right to deal in liquor under the licence is for a fixed term. There is no indefeasible right to continue to enjoy the licence beyond its terms. The licence, in the prescribed form, also expressly states the period for which it is granted…”, the Division Bench of Chief Justice Vibhu Bakhru and Justice C.M. Poonacha held.
Rule 5 and Rule 5A of the amended rules introduce fresh conditions for renewal of a liquor license, namely reservation-based eligibility criteria and automatic forfeiture, respectively.
The Division Bench further clarified the legal position by saying that the right to renewal depends upon the rules existing at the time of renewal. There is no 'vested right of renewal in perpetuity', and the rules applicable at the time of the grant of the license need not continue towards the next term. The bench sitting in Bengaluru observed so by relying on State of Kerala v. B. Six Holiday Resorts (P) Ltd.(2010). In B Six Holidays, the apex court observed that no applicant can claim a vested right to liquor license and their applications will be decided based on the rules applicable at the time of decision, and not on the basis of the application date.
Context
The new proviso to Rule 5 states that “…the Deputy Commissioner may grant CL-2A[Retail Shop], CL-9A [Bars & restaurants] Licences to a successful bidder in e-auction with the previous approval of the Excise Commissioner, following the reservation norms fixed for this purpose by the Government…”. Similarly, the new proviso to Rule 5A suggests that the licenses in the CL-2, CL-9, and CL-11(C) categories that have not been renewed as of the date of publication of the 'impugned' amended rules would stand 'lapsed and forefeited'.Such forfeited licenses would form a part of the auction pool available for public bidding again, as per the new rules.
In the appeal preferred by the state against the interim order, the writ petitioners, a group of CL-9 (Bar and restaurant) licensees, ex-licensees, and legal heirs of such licensees, argued that such provisos travel beyond the scope of the enabling provisions of the parent Karnataka Excise Act, 1965.
Further Observations
Before the High Court, the petitioner bar licensees contended that the proviso enables the government to grant a liquor licence through e-auction in accordance with the government-fixed reservation norms, which exceeds its delegated powers. However, the court opined that under Section 71 of the Excise Act, the State has the power to make rules regarding 'the persons or classes of persons to whom' licenses may be granted.
“…it is important to bear in mind that the matters of manufacture, distribution, sale and possession of intoxicants are a privilege of a State. The powers of the State under Article 162 of the Constitution would extend to matters dealing with such privileges. Thus, even in the absence of any legislation in this regard, the decision to grant licences would be a matter of policy”, the court observed by relying on Kuldeep Singh vs Govt. of NCT Of Delhi(2006).
The principal bench also noted in the judgment that the trade of intoxicants is a 'state privilege' rather than an enforceable 'fundamental right'. Therefore, not agreeing with the single bench order staying the operation of amended excise rules, the division bench underscored that E-auction of 'forefeited and lapsed' liquor licenses under Rule 5A is within the purview of the state.
"The Excise Act does not provide for renewal of licences. The provision for renewal is a right conferred by the Rules. Plainly, if the Rules can provide for the renewal of the licence, they could also provide for curtailing the said right…”, the court further said.
On the point of excessive delegated legislation specifically, the court noted that the delegatee and sub-delegatee under Rule 5 were the same, i.e., the government itself.
“In the present case, the Excise Act empowered the State Government to frame rules. If we read the proviso to Rule 5 as sub-delegating the power to specify the reservations for licences, then it is also important to consider that the delegatee is no other than the State Government itself. This would imply that the delegatee and the sub-delegatee are the same”, the court said that when the discretion is given to the Government itself and not to a subordinate authority, there is no scope for the contention of excessive and uncontrolled delegation.
The Bench further clarified that the proviso to Rule 5-A does not cancel an existing license but merely curtails the right to renew a lapsed one. However, based on the submissions made by AG, the court noted that the state would take essential steps to provide the norms of reservations within the Rules.
The court also emphasised that there is a 'presumption of constitutionality' about any legislative instrument, including subordinated legislation.
“The grounds on which delegated or subordinate legislation can be challenged are essentially the same, except that delegated legislation may also be challenged on the ground that it is ultra vires the principal legislation. However, the presumption that the legislation is valid applies equally to subordinate legislation”, the court said.
The court held that the lack of uniformity in terms of different licenses does not violate Article 14 of the Constitution.
“…The contention that selecting only three categories of licences or providing for the forfeiture of only three categories of lapsed licences is discriminatory and offends Article 14 of the Constitution of India is also without any merit. Article 14 of the Constitution of India permits reasonable classification. In the present case, Rule 3 of the Rules sets out various classes of licences issued for different establishments. It is erroneous to contend that all licences must be governed by similar terms”, the court opined that the state is entitled to grant privileges to licensees on varied terms.
“There is no principle of law, that confines the State to enter into only one type of contract and restricts its freedom to enter into contracts with varying terms”, the court further said. This principle would apply as long as the state doesn't discriminate between parties in the participation for securing contracts.
In the end, the court set aside the single bench order and allowed the writ appeal. It was clarified that the merits of the challenge to the proviso to Rule 12 (exempting CL-2A licenses from the cap on the number of licenses) were not being finally adjudicated right now. It would be heard before the single judge bench in the due course of proceedings
Case Title: State of Karnataka & Anr. v. Sri Guruswamy & Ors.
Case No: Writ Appeal No. 541 of 2026 (EXCISE) Date of Order: April 15, 2026