JUDGMENT

CHINNAPPA REDDY, J.:— This case has made political history, but those concerned for the Rule of Law must remain unmindful and unruffled by the ripples caused by it. The legality of the action of the Government of the State of Karnataka in awarding contracts for bottling arrack to the appellants and others was questioned in the High court of Karnataka and the order of the State Government was struck down on the ground that it was unlawful, arbitrary, capricious, in flagrant violation of the rule of law and as shocking the judicial conscience. Some of the persons, to whom the bottling contracts had been awarded by the Government, have preferred these appeals under Art. 136 of the Constitution.

2. By general concurrence of opinion since days of yore, manufacture and sale of intoxicating liquor has always been considered to be a dangerous and obnoxious trade requiring the strictest vigilance and supervision and even prohibition. It is now firmly established that the Government is the exclusive owner of the privilege of manufacturing and selling intoxicating liquor and that the Government may farm out these privileges for the purpose of raising revenue. The legislatures of the various States in India have enacted excise laws which enable them to raise public revenue by farming out these privileges and further to regulate and supervise the manufacture and sale of intoxicating liquor. The Karnataka Excise Act, 1965 is one such law. The Preamble to the Act States that it is enacted "to provide for a uniform law relating to the production, manufacture, possession, import, export, transport, purchase and sale of liquor and intoxicating drugs and the levy of duties of excise thereon in the State of Karnataka and for certain other matters hereinafter Appearing". S. 2(15), (16), (18) and (19) of the act define the expression Indian liquor, intoxicant, liquor and manufacture. Section 2(25) defines sale or selling as including any transfer otherwise than by way of gift. Section 2(2) defines "to bottle" as meaning "to transfer liquor from a cask or other vessle to a bottle, whether any process of manufacture be employed or not. and includes re-bottling". Sections 3, 4 and 5 provide for the appointment of Excise Commissioner, Deputy Commissioner and Superintendents and Deputy Superintendents of Excise. Chapter III (Ss. 8 to 12) deals with import, export and transport of intoxicants while Chapter IV (Ss. 13 to 21) deals with their manufacture. possession and sale. Section 13(1)(e) prescribes that no person shall bottle liquor for sale except under the authority and subject to the terms and conditions of a licence granted by the Deputy Commissioner in that behalf or under the provisions of S. 18. Section 16 provides for the establishment of distilleries and warehouses. Section 17 authorises the Government to lease to any person, on such conditions and for such periods as it may think fit the exclusive or other right - (a) of manufacturing or supplying by wholesale or of both; or (b) of selling by wholesale or by retail; or (c) of manufacturing or supplying by wholesale, or of both and of selling by retail any Indian liquor or intoxicating drug within any specified area. Chapter VI provides for the grant of licences and permits and Chapters VII and VIII deal with offences and penalties and detection, investigation and trial of offences. Section 71 invests the Government with the power to make rules, generally and particularly. Pursuant to the power given under S. 71, the Government of Karnataka has made various sets of rules. We are primarily concerned with the Karnataka Excise (Bottling of Liquor) Rules 1967. Prior to November 30, 1984, Rr. 3, 4, 5 and 6 of the Karnataka Excise (Bottling of Liquor) Rules, were as follows:

"3. Restrictions on the grant of licences to bottle liquor - (1) No liquor shall be bottled except at a warehouse.

Provided that Arrack may also be bottled in an arrack Depot licensed under the Karnataka Excise (Sale of I