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2003 DIGILAW 746 (KER)

State of Meghalaya v. Union of India

2003-12-05

C.N.RAMACHANDRAN NAIR

body2003
Judgment :- The Government of Meghalaya and an Association of Lottery Traders, petitioners in this W.P., are challenging the constitutional validity of Rule 3(3) and Rule 24(3) of the Kerala State Lotteries and Online Lotteries (Regulation) Rules, 2003, hereinafter called the “Rules” and Ext.P4 notice issued there under by the third respondent. Substantially the very same issues came up in this Court in W.P.C.Nos.35368 of 2003 and connected cases and this Court upheld the validity of Rule 24(3) of the Rules and the very same notice impugned in this W.P. However, the petitioners have raised some additional points questioning the correctness of the earlier decision and virtually sought review of the said judgment and therefore this W.P. was admitted and petitioners and respondents were heard on the various issues raised and reliefs sought. 2. I have heard senior counsel, Sri. Dushyant Dave, appearing for the petitioners and Sri. V.K. Beeran, Addl. Advocate General appearing for the respondents. 3. The first contention raised by the petitioner is that Rules 3(3) and 24(3) of the Rules are unconstitutional and are also against the Lotteries (Regulation) Act, 1998. As already stated, the validity of Rule 24(3) of the Rules was upheld by this Court in the batch cases and the only question to be considered is whether the argument of the petitioners would necessitate review of the findings in that judgment. Rule 3(3), the validity of which was not separately considered in the earlier judgment is as follows: 3. Conduct of State Lottery: - (1) …… (2) ….. (3) The authority shall also be vested with the powers to monitor the sale of lotteries of other States/Union Territories or any country having bilateral agreements or treaty with the Government of India, in accordance with the provisions of the Act and the Rules made there under. The petitioners contended that requirement of approval under Rule 24(3) by the State Government for sale of lottery tickets of other States in Kerala and the authority vested in the Enforcing Agencies under Rule 3(3) to monitor the lottery business of other State Governments are unconstitutional and against the federal principle visualized in the Constitution as no State Government has authority to oversee and supervise the transactions of another Government. It is further contended that it is in recognition of this federal principle that the authority to ban a lottery is vested under the Lotteries Regulation Act only in the Central Government under Section 6. In support of this contention the Senior counsel has also cited the decision of the Gauhati High Court in a case filed by the Nagaland Government against ban of their lotteries by the Maharashtra Government. The Addl. Advocate General appearing for the State on the other hand contended that the respondents do not want to exercise any control or authority over the first petitioner and for that matter any other state Government and what is contemplated under the Rules is to ensure that lottery conducted by other State Governments in Kerala conform to the provisions of the Lotteries Regulation Act. He further submitted that there is nothing inconsistent in the Kerala Rules against any provision of the Act and so long as the petitioners do not question the constitutional validity of the Act which is law made by the Parliament, what the Court has to see is whether the Rules are consistent with the provisions of the Act. According to him, the Rules do not give authority to any officer of the State Government to interfere with the financial matters of other State Government, as projected by the petitioners. The Additional Advocate General submitted that Rules are only regulatory and in support of the justification and the objects sought to be achieved by the Rules, he has relied on the findings of the Supreme Court in B.R. Enterprises V. State of U.P., (1999) 9 S.C.C. 700, which are as follows: 64. For this, we revert to scrutinize as to what made lotteries gambling and how State lotteries cleanses this character. As we have already recorded, the difference between gambling and trade is that gambling inherently contains a chance with no skill, while trade contains skill with no chance. What makes lottery pernicious is its gambling nature. Can it be said that in the State organized lotteries this element of gambling is excluded? There could possibly be no two opinions that even in the State lotteries the same element of chance remains with no skill. It remains within the boundaries of gambling. What makes lottery pernicious is its gambling nature. Can it be said that in the State organized lotteries this element of gambling is excluded? There could possibly be no two opinions that even in the State lotteries the same element of chance remains with no skill. It remains within the boundaries of gambling. The stringent measures and the conditions imposed under the State lotteries are only to inculcate faith in the participant of such lottery, that it is being conducted fairly with no possibility of fraud, misappropriation or deceit and assure the hopeful recipients of high prizes that all is far and safe. That assurance is from stage one to the last with full transparency. No doubt, holding of the State lotteries for public revenue has been authorised, legalised and once this having been done it is expected from the State to take such measure to see that people at large, faithfully and hopefully participate in larger number for the greater yield of its revenue with no fear in their mind. The Act further ensures by virtue of Section 4(d) that the proceeds of the sale of such lottery tickets is credited to the public accounts of the State. This is to give clear message to the participants that the proceeds are not in the hands of an individual group or association but is ensured to be credited in the State accounts. But, as we have said, this by itself would not take it outside the realm of gambling. It remains within the same realm. In this regard, there is no difference between lotteries under Entry 34 List II and a lottery organised by the State under Entry 40 List I. When character of both the State organised lotteries and other lotteries remains the same by merely placing the apparel of the State with authority of law, would not make any difference; it remains gambling as element of chance persists with no element of skill. Even Other lotteries under entry 34 List II could only be run under the authority of the State or the law of the State. The only difference is in one case, authority is that of state and in the other, parliament. That is why, what is excluded from the penal consequences under Section 294-A IPC is the lotteries authorised by the State, not merely lotteries organised by the State. The only difference is in one case, authority is that of state and in the other, parliament. That is why, what is excluded from the penal consequences under Section 294-A IPC is the lotteries authorised by the State, not merely lotteries organised by the State. So, on the reasoning as put forward even lotteries under Entry 34 List II cannot be said to be pernicious. The lotteries authorised by the State also have a sanction in law. As we have said a gambling may be taxed and may be authorised for a specified purpose, but it would not attain the status of trade like other trades or become res commercium. No gambling could be commercium hence in our considered opinion the principle of RMDC case would equally be applicable even to the State organised lottery. In no uncertain terms the said decision recorded that the Constitution-makers could never have conceived to give protection to gambling either under Article. 19(1) (g) or it as a trade under Art. 301 of the Constitution. The Gauhati High Court in the judgment cited by the petitioners in W.A. 400 of 2001 and connected cases held as follows: The organisation and sale of lottery tickets is a business in which the vying States are always in competition to suffle out other rivals in order to garner maximum sale and thereby earn maximum profit to the coffer of their State. The provision in clause (1) of the Rule 9 of the Rules of 2000 makes an unreasonable distinction between the State of Maharashtra and other States. The other States are organizing such lottery and selling tickets in the State of Maharshtra are required to submit their entire scheme for the sale of tickets with all the details and relevant materials, such as, specimen tickets, the name of the lottery, the information relating to the number of prizes, list of its authorised agents and distributors and other relevant material information to the Director of Maharashtra State Lotteries and they can sell their tickets only after the approval is granted by the State Directorate of the appellant State. This same to be simply a ploy to oust the business rivals. One cannot force their business rivals to divulge their business secrets and for their prior approval for organizing the lottery. This same to be simply a ploy to oust the business rivals. One cannot force their business rivals to divulge their business secrets and for their prior approval for organizing the lottery. On the other hand, it is submitted on behalf of the appellant that the above pre-caution is necessary to see or examine whether the lotteries are being conducted in accordance with the Act or not. In case of alleged contravention of the provision of the Act, the States are at liberty under the Act to refer the material to the Central Govt. who is the only authority to take action. With due respect to the Gauhati High Court, I am unable to appreciate the kind of secrecy about the lottery business organised by a State Government that could not be divulged to another Government. The very purpose of the Act as explained by the Supreme Court as above is to provide transparency in business and to ensure that no fraud or deceit is involved in the lottery business which is only gambling even when sponsored by State Governments. Therefore I feel the finding of the Gauhati High Court in the decisions relied on by the petitioners is contrary to what is held by the Supreme Court and if followed, will defeat the very object of the Act; that is to ensure that lotteries run are in conformity with the statute. The supervision and control are required all the more when lottery business is given on contract by State Governments to private agencies. The Gauhati High Court also recognizes the right of the state Government to recommend to the Central Government for action under Section 6 of the Act. I do not know how a State agency can test lottery business against statutory provision without the required details being rendered to it. Therefore, I am unable to accept the claim of immunity from scrutiny made by the first petitioner. The senior counsel appearing for the petitioners contended that no control or supervision by one State Government over the other State Government or Union Territory in the lottery business is visualized under the Act because Section 6 specifically reserves authority only to the Central Government to prohibit any lottery of a state Government if it is found to be conducted in violation of the Act. Therefore according to counsel, the first petitioner, i.e., Meghalaya Government is entitled to carry on lottery business in Kerala, which is not a “lottery free zone” and at the maximum Kerala State can recommend to the Central Government for prohibition of any lottery under Section 6 of the Act if there is violation of the Act. In other words, according to counsel for the first petitioner without any clearance whatsoever and without any control by the State agencies in Kerala is entitled to carry on lottery business in Kerala until such lottery is prohibited by the Central Government under Section 6 of the Act. It is to be noted that the Act itself recognizes separate Rules to be framed by the Central Government as well as by the State Governments, under Sections 11 and 12 respectively. It is conceded that though the Central Government is vested with authority to prescribe Rules for implementation of the Act, they have not chosen to do so. It is to be noted that Section 12 gives concurrent and complete authority to the State Governments also to prescribe Rules for the purposes of the Act. In this regard, a reference to Section 12 has to be made, which is as follows: 12. Power of State Government to make Rules: - (1) The State Government may, by notification in the Official Gazette, make rules to carry out the provisions of this Act. (2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely,- (a) time to be fixed for claiming prize money under Cl. (f) of Section4; (b) period to be fixed for draws of all lotteries under clause (1) of Section 4; and, (c) any other matter which is required to be, or may be, prescribed. (3) Every rule made by the State Government under this Section shall be laid, as soon as may be after it is made, before each House of the State Legislature where it consists of two Houses, or where such Legislature consists of one House, before that House. From the above Section, particularly, Section 12(2) (c), it is clear that parliament has left complete authority to the State Government to make Rules consistent with the provisions of the Act. The minimum features of a permissible lottery are specified in Section 4 of the Act. From the above Section, particularly, Section 12(2) (c), it is clear that parliament has left complete authority to the State Government to make Rules consistent with the provisions of the Act. The minimum features of a permissible lottery are specified in Section 4 of the Act. Needless to mention that, in order to scrutinize and ensure that a lottery organized and run by a State Government is in conformity with Section 4 of the Act, there has to be some agency to be set up under the Rules with the required powers. Similarly even when the lotteries started are found to be properly organized by any State Government in terms of Section 4 of the Act, the running of such lotteries has to be continuously monitored by the authorities to see that even lotteries properly organized are conducted and completed and prizes declared and given without any deviation from it’s scheme. In other words, in order to ensure that law is compiled with there has to be an enforcement machinery and that is only what Rules 3(3) and 24(3) seek to achieve. I do not find Rule 24(3) requiring approval from the State Government in any way goes against the Act or affects the federal set up in any manner whatsoever and Rule 3(3) is only an enabling power to the State Agencies to ensure that approved lotteries are continuously carried on without any violation of the Act. Rule 24(10) gives to the State Agencies a temporary power of suspension of illegal On-line lotteries pending final orders by Central Government under Section 6 of the Act. Unless such an incidental power is provided to the State, it cannot prevent irreversible injury to the public during pendency of decision by Central Government under Section 6 on the State request. Of course suspension of any on-line lottery under Rule 24(10) arises only in respect of approved on-line lotteries carried on in violation of the conditions and this provisions should not be interpreted to mean that on-line lottery can be commenced without prior approval under Rule 24(3). Authority under Rule 24(3) is to be exercised in the course of supervision authorized under Rule 3(3) of the Rules. Authority under Rule 24(3) is to be exercised in the course of supervision authorized under Rule 3(3) of the Rules. The financial position, Revenue collections and projections of every State are declared in the Budget of every State Government and the State Governments’ financial transactions are subject to audit by the Comptroller and Auditor General of India. I do not think any State Government can claim secrecy or confidentially with regard to income and expenditure in respect of lottery business run by it. In fact the Act itself provides for fair returns to the prize winners of every lottery and unless the details of the lottery business are made known, it is not possible for any agency to find out whether the lottery carried on by a Government is in accordance with the provisions of the Act. Therefore I do not find Rule 3(3) or 24(3) or 24(10) in any way goes against the Act or against the Constitution and no State Government can claim immunity from disclosing the particulars of lottery business to another State Government if it wants to start or continue lottery business in such other State. If the Kerala Government wants to start or carry on lottery business in any other State in India, it is also bound to disclose the entire details about it’s lottery business called for by such other State. Therefore, and particularly when the Central Government has not chosen to make any Rules under Section 11 of the Act, the Rules made by the Government of Kerala under Section 12(1) of the Act, are in no way inconsistent with the Act. So far as the Central Government’s power to ban any lottery under Section 6 is concerned, I do not think such power is affected by virtue of Rule 3(3) or Rule 24(3) of the Kerala Rules. In fact on the contrary Rule 24(10) recognises the authority of Central Government under Section 6 of the Act and what is reserved to the State is only a temporary power of suspension without which temporary injury to the public cannot be prevented. The approval under Rule 24(3) and continued monitoring under Rule 3(3) of the Rules are essential for the purpose of making recommendations under Section 6 of the Act. The approval under Rule 24(3) and continued monitoring under Rule 3(3) of the Rules are essential for the purpose of making recommendations under Section 6 of the Act. In fact the Central Government’s authority under Section 6 of the Act will be meaningful and effective only if the State concerned collects information and makes report on violation. If on enquiry, the State Government feels that lottery cannot be permitted in the State, the State Government is absolutely free to decline permission and if it so desires it can recommend to the Central Government, which is free to conduct enquiry and ban that lottery not only in the State but also in the whole country. Therefore while the powers of the State under Rules 24(3) and 3(3) enable it to prevent the commencement or the conduct of any lottery not found to be in conformity with the Act and Rules within the State, the authority of prohibition vested with the Central Government under Section 6 authorises the said Govt. to ban such lottery in the country as a whole. So much so, Rules 24(3) and 3(3) do not in any way affect the power of the Central Government under Section 6 of the Act and the argument of the petitioners that the Rules enable the State authorities in Kerala to usurp the powers of the Central Government under Section 6 of the Act cannot be accepted and the same is rejected. 4. Even though the first petitioner maintains the contention that Kerala Lottery Rules are ultra vires, and that it is entitled to carry on online lottery sales in Kerala without any approval from the Secretary, Taxes Department under the impugned Rules, the first petitioner and distributors have filed applications under Rules 24 of the Rules for approval of the sale of lotteries which are pending before the respondents. The Addl. Advocate General submitted that the first petitioner’s application is received only on 10.11.2003 and in the course of around ten days the application will be processed and orders will be issued. Since I have already upheld the Rules, the first petitioner has to necessarily get permission from the Secretary, Taxes Department to sell its lottery tickets in Kerala. In view of the submission of Addl. Advocate General that the first petitioner’s application will be disposed of within ten days, there is no need to issue any direction in this regard. Since I have already upheld the Rules, the first petitioner has to necessarily get permission from the Secretary, Taxes Department to sell its lottery tickets in Kerala. In view of the submission of Addl. Advocate General that the first petitioner’s application will be disposed of within ten days, there is no need to issue any direction in this regard. The respondents will issue orders on the application of the first petitioner and for that matter respondents will dispose of the applications filed by other State Governments as well as distributors without any delay. 5. Sri. Dushyant Dave senior counsel appearing for the first petitioner pressed for interim orders for permission to the first petitioner to sell lottery tickets through their distributors and dealers/agents pending final orders being issued by the Secretary, Taxes Department. In spite of the persuasive argument of senior counsel appearing for the first petitioner, I am not inclined to grant any interim order for more than one reason. In the first place, similar relief was declined to the distributors of lottery of outside State Governments including that of the petitioner’s. Ext.P1 is the agreement between the State of Meghalaya and it’s distributors for marketing of lottery tickets in Kerala. Relying on the clauses in the said agreement senior counsel appearing for the petitioners contended that prima facie the lottery tickets sold by the first petitioner are organized by that State and it’s online lotteries conform to Section 4 of the Act, and so much so the first petitioner should be allowed to sell through it’s distributors without break. In this regard, he seeks a review of the earlier judgment wherein interim relief of this nature was declined among others to the distributor of the first petitioner. In support of his contention, he referred to the statement of the petitioners in W.P. that revenue from lottery business is sizable for that Government and so much so stoppage of business even for a short period will affect the revenue of the State. I am rather surprised to hear that the State Government depends upon the income from a gambling business like lottery for it’s sustenance. I am rather surprised to hear that the State Government depends upon the income from a gambling business like lottery for it’s sustenance. Even though a general statement of this nature is made in the Writ Petition, during the argument no details of the revenue collection from the lottery in relation to other source of revenue of the State Government are furnished to Court, if at all the same has any relevance. Further on going through Ext.P1 agreement between the first petitioner and it’s distributor particularly clauses 6 and 7, I find apparently the entire online lottery business is set-up, commissioned and run by the distributor and not directly by the Government. The Central computing office has to be set up by the distributor at the cost of the distributor. The distributor has to operationalise and conduct lottery. Apart from this, it is stated in clause 10 that the distributor is paying only a fixed amount of Rs. 20 lakhs per draw of online lotteries of Meghalaya Government. Clause 13 provides that the total cost for setting up Computer infrastructure required software and maintenance for organising and running the Meghalaya State Computerized on-line lotteries shall be borne by the Distributor. Apparently, the terms of agreement show that the distributor has freedom in setting up and running the lottery. Of course certain conditions provided in Section 4 and other provisions of the Act are incorporated in the agreement between the first petitioner and it’s distributor. The incorporation of statutory provisions in the agreement does not go to establish that the lottery business is in conformity with the statutory provisions. What is to be seen is whether the relationship and transactions between the first petitioner-Government and it’s distributor evident from terms of agreement establish that the lottery business carried by the distributor is the one organised by the State Government in conformity with Section 4 and other provisions of the Act. Therefore the incorporation of statutory provisions in the agreement would not by itself rendering credibility to the agreement. Anyhow the agreement is to be scrutinised by respondents three and five while considering the application of the first petitioner. Therefore it is not proper for this Court to go into the details of the agreement or consider the eligibility of the first petitioner-Government for permission from the Government of Kerala under Rule 24(3) of the Rules. Anyhow the agreement is to be scrutinised by respondents three and five while considering the application of the first petitioner. Therefore it is not proper for this Court to go into the details of the agreement or consider the eligibility of the first petitioner-Government for permission from the Government of Kerala under Rule 24(3) of the Rules. Even though the Additional Advocate General contended that the provisions of Meghalaya Lottery Rules are also objectionable. I do not think, this Court should consider the same as it is open to respondents 3 and 5 to consider the Rules and agreement while considering the application from the first petitioner and it’s distributor. 6. In these circumstances I do not think this Court will be justified in permitting the first petitioner to conduct lottery, particularly online lottery, though its distributors before a decision is taken by the Secretary, Taxes Department, on it’s application for approval filed under Section 24(3) of the rules. Therefore the interim relief prayed for is declined. W.P. is disposed of with the above observations and directions.