The Madhya Pradesh High Court has clarified that the suspension of excise licences is lawful when employees or agents of a licensee are convicted of offences involving revenue loss through forged permits, even if the company itself is not named as an accused in the criminal proceedings. The judgment reinforces the principle that corporate liability under excise law extends to acts committed by those acting on behalf of the licensee.
Background & Facts
The Dispute
The petitioners, Som Distilleries Pvt. Ltd. and Som Distilleries and Breweries Pvt. Ltd., challenged the suspension of eight excise licences issued to them by the Excise Commissioner, Madhya Pradesh, through an order dated 04.02.2026 (Annexure P-8). The suspension was based on a show cause notice dated 26.02.2024 (Annexure P-3), which relied on a criminal conviction passed by the Additional Sessions Judge, Depalpur, on 23.12.2023 in S.T. No. 21/2021. The conviction involved multiple individuals associated with the petitioners’ operations, including supervisors, directors, and transport personnel, for offences under Sections 420, 467, 468, 471, and 120-B of the Indian Penal Code, as well as Section 34(2) of the Madhya Pradesh Excise Act, 1915.
Key Facts
- On 14.12.2011, a truck (MP09-HF-5185) carrying 1200 boxes of Bluechip whiskey was intercepted at Ghatabillod on the Mhow-Neemuch road. The transport permits were found to be forged.
- The convicted individuals included:
- Santosh Gadariya and Omprakash Lodhi (truck driver and cleaner) - convicted under Section 34(2) of the Excise Act
- Umashankar, Dinkar, Mohansingh (supervisors)
- Deenanath Singh, Shailendra Singh, Gurudarshan Arora (directors)
- Surjeet Lal (Managing Director of both petitioner companies) - convicted under IPC sections
- The show cause notice named five individuals explicitly and included "and others".
- The petitioners submitted two replies to the show cause notice: on 04.03.2024 and 18.07.2024.
- The petitioners claimed their licences for 2024-25 and 2025-26 were "fresh grants" and not renewals.
- The petitioners argued that the show cause notice was issued for the 2023-24 period and could not affect licences granted thereafter.
- The petitioners contended that Surjeet Lal’s name was omitted from the show cause notice, violating natural justice.
- The petitioners asserted that the criminal appeals against the conviction had been stayed, rendering the show cause notice invalid.
Procedural History
- 14.12.2011: Incident - forged permits used to transport liquor from Raisen to Diu
- 23.12.2023: Conviction order passed by Additional Sessions Judge, Depalpur, in S.T. No. 21/2021
- 26.02.2024: Show cause notice (Annexure P-3) issued by Excise Commissioner
- 04.03.2024: First reply filed by petitioners, claiming stay on conviction
- 18.07.2024: Second reply filed, denying liability of company for driver’s conviction
- 04.02.2026: Impugned order (Annexure P-8) suspending eight licences
- 20.03.2026: Partial arguments heard in writ petition
- 23.03.2026: Final order delivered by Justice Vivek Agarwal
The Parties' Positions
Petitioners (Som Distilleries Pvt. Ltd. and Som Distilleries and Breweries Pvt. Ltd.):
- Argued that the show cause notice was time-barred as it related to a licence period (2023-24) that had expired.
- Claimed that fresh licences issued for 2024-25 and 2025-26 were independent and could not be suspended based on prior allegations.
- Asserted that the conviction of drivers and cleaners (Santosh and Omprakash) could not bind the company as they were not employees.
- Contended that omission of Surjeet Lal’s name from the show cause notice violated natural justice.
- Relied on N.S. Shethna v. Vinubhai Harilal Panchal to argue that renewal of licence extinguishes prior show cause notices.
Respondent (State of Madhya Pradesh):
- Argued that the show cause notice was valid as it was issued within the statutory period and referenced the conviction order.
- Stated that Santosh and Omprakash were agents of the petitioners’ transport contractor, acting on behalf of the licensee.
- Highlighted that Surjeet Lal’s conviction was on record and his omission from the notice was immaterial as "and others" was included.
- Cited Iridium India Telecom Ltd. v. Motorola Inc. to invoke the "alter ego" doctrine, attributing mens rea to the company.
- Emphasized that the petitioners never disputed the core allegation - use of forged permits to evade excise revenue.
Relief Sought
The petitioners sought quashing of the suspension order dated 04.02.2026, restoration of all eight licences, and a direction to cease any further action based on the show cause notice.
The Legal Issue
The central questions were: (1) Whether the suspension of excise licences under Section 31(1)(c) of the Madhya Pradesh Excise Act, 1915, is valid when employees or agents of the licensee are convicted of offences causing revenue loss, even if the company is not separately prosecuted; (2) Whether a show cause notice issued for a prior licence period can justify suspension of subsequently renewed licences; and (3) Whether omission of a convicted managing director’s name from the show cause notice vitiates the proceedings under the principles of natural justice.
Arguments Presented
For the Petitioner
The petitioners relied on N.S. Shethna v. Vinubhai Harilal Panchal to argue that a renewed licence is a distinct legal entity from the expired one, and thus a show cause notice tied to the prior licence cannot be invoked against the new one. They contended that Section 31(1)(c) applies only to the holder or his servants, and since Santosh and Omprakash were not employees but independent contractors, their conviction could not trigger liability. They further argued that the show cause notice failed to specify which entity was responsible for the acts of the convicted persons, violating the principle of specificity. The petitioners also claimed that the Excise Commissioner’s delay of two years in acting on the conviction amounted to acquiescence and that the omission of Surjeet Lal’s name, despite his conviction, demonstrated mala fide intent. They cited Mohinder Singh Gill v. Chief Election Commissioner to assert that reasons not stated in the order cannot be supplemented later.
For the Respondent
The State argued that Section 31(1)(c) explicitly covers offences committed by "any one acting on behalf of the holder with express or implied permission," which included the truck drivers and cleaners engaged by the petitioners’ transport contractor. The State relied on Iridium India Telecom Ltd. to establish that corporate liability arises when the "alter ego" - here, Surjeet Lal - commits the offence. It was submitted that the petitioners’ own replies admitted the use of forged permits, thereby constituting an implicit admission of guilt. The State further contended that Rule 3(11) of the Madhya Pradesh Distillery Rules, 1995, explicitly provides for annual renewal subject to compliance with the Act, distinguishing the case from N.S. Shethna, where no such renewal clause existed. The State also emphasized that the show cause notice’s reference to "and others" was sufficient to include Surjeet Lal, and that the petitioners’ failure to raise procedural objections in their replies waived any claim of violation of natural justice.
The Court's Analysis
The Court undertook a detailed examination of Section 31(1) of the Madhya Pradesh Excise Act, 1915, particularly Clause (c), which permits suspension if "the holder thereof, or any of his servants, or any one acting on his behalf with his express or implied permission, is convicted of any offence under this Act or any other law for the time being in force relating to revenue." The Court held that the transport of liquor using forged permits directly results in loss of excise revenue, thereby squarely falling within the ambit of Clause (c). The Court rejected the petitioners’ argument that Santosh and Omprakash were independent contractors, noting that they were engaged by the petitioners’ agent to transport excisable goods, and thus acted on behalf of the licensee.
"The expression 'anyone acting on his behalf with his express or implied permission', will include the driver and cleaner of the truck in which material was transported. Therefore, their conviction under Section 34(2) of the Madhya Pradesh Excise Act, will bind the licencee in terms of the language of Clause (c) of Sub-section (1) of Section 31 of the Excise Act."
The Court distinguished N.S. Shethna on the ground that the Bombay Cinema Rules did not contain an express renewal clause, whereas Rule 3(11) of the Madhya Pradesh Distillery Rules explicitly states that licences are renewed annually "subject to due observance of the provisions of the Act and the Rules framed thereunder." This made the present case one of renewal, not fresh grant, thereby allowing the suspension to be based on prior misconduct.
The Court further held that the omission of Surjeet Lal’s name from the show cause notice did not vitiate the proceedings. The notice included "and others," and Surjeet Lal’s conviction was a matter of public record. The petitioners’ failure to challenge the notice’s scope in their replies amounted to acquiescence. The Court also rejected the claim of procedural delay, noting that the Excise Commissioner acted within statutory powers once the conviction became final.
The Court applied the doctrine of "alter ego" as affirmed in Iridium India Telecom Ltd., holding that the company’s liability arises when its controlling mind - here, Surjeet Lal - commits the offence. The Court emphasized that the petitioners never disputed the factual allegations of using forged permits, which constituted an admission of violation.
The Court also found that the requirements of Section 31(1-A) - recording reasons, furnishing a statement, and affording opportunity of hearing - were fully satisfied. The show cause notice clearly outlined the allegations, and the petitioners were given two opportunities to respond.
The Verdict
The writ petition was dismissed. The Court upheld the suspension order dated 04.02.2026, confirming that the licences of Som Distilleries Pvt. Ltd. and Som Distilleries and Breweries Pvt. Ltd. may remain suspended pending compliance with the conditions of renewal under the Madhya Pradesh Excise Act, 1915. The Court directed that the petitioners may apply for revocation of suspension upon demonstrating compliance with the Act and submission of a satisfactory action plan to prevent recurrence. No monetary relief was granted to either party.
What This Means For Similar Cases
Conviction of Agents Triggers Corporate Liability
- Practitioners must now treat the conviction of transporters, drivers, or contractors as potential triggers for licence suspension under Section 31(1)(c) if they act on behalf of the licensee.
- Companies cannot avoid liability by claiming third-party contractors are "independent" if they are routinely engaged for excisable transport.
- Legal notices and compliance audits must now include scrutiny of third-party logistics partners.
Renewal Clauses Override Fresh Grant Doctrine
- Where statutory rules explicitly provide for annual renewal "subject to compliance," the N.S. Shethna principle does not apply.
- Licensees cannot assume that a new licence year automatically wipes out prior misconduct.
- Excise authorities may now rely on past convictions to suspend renewals, even if the misconduct occurred years earlier.
Omission of Names Does Not Vitiates Proceedings
- Use of "and others" in show cause notices is legally sufficient if the accused persons are identifiable from the record.
- Failure to object to the scope of the notice in replies waives the right to challenge it later.
- Courts will not entertain belated claims of natural justice violations if the party had full opportunity to respond.
