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Lotteries, Revenues and Social Costs: A Case for Total Ban on State-Sponsored Gambling
by Dr Arun Kumar Barthakur*
Cite as : (2003) 2 SCC (Jour) 1
Lotteries are a species of gambling.1 Indian paper lottery business run by private parties on behalf of various State Governments is estimated to be exceeding 500 billion rupees annually, and every day nearly 20 million people buy lottery tickets issued by the State Governments.2 These lotteries are therefore being dished up as generators of great revenue bonanzas to the State Governments. They have also spawned powerful protagonists across the country as dealers and agents. Recently, the online lotteries styled as the "Super Lotto" pioneered by the Government of Sikkim have been added to the scene with much media hype. Other State Governments are also joining the bandwagon with their versions of online lotteries, which are likely to hit the streets soon. These lotteries are now gradually infesting the entire community of the young and the old alike by entering through the electronic media the inner sanctum of every dwelling.
The constitutional provisions
The legislative field with respect to lotteries organized by the Government of India or the Government of a State falls in Entry 40 of the Union List and that of betting and gambling in Entry 34 of the State List. As such, under clause (1) of Article 246 of the Constitution, Parliament is competent to make law qua lotteries organized by the Government of India or the Government of a State; and under clause (3) thereof a State Legislature is competent to make law qua betting and gambling within the State. A State Legislature is also competent to make law qua taxes on betting and gambling under Entry 62 of the State List.
Article 19(1)(g) of the Constitution declares that all citizens shall have the right to practise any profession, or to carry on any occupation, trade or business, subject to reasonable restrictions under clause (6), which the State may impose in the public interest. Part XIII of the Constitution, comprising Article 301 to Article 307, provides for trade, commerce and intercourse within the territory of India. Article 301 provides that subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.
It is pertinent to note here that the seers and lawgivers in India looked upon gambling as a sinful and pernicious vice and deprecated its practice. The Colonial Government declared public gambling unlawful as back as 1867 by enacting the Bengal Gaming Act. Lotteries not authorized by the State have been made an offence since 1870 under Section 294-A of the Indian Penal Code. Section 30 of the Indian Contract Act, 1872 declares wagering agreements to be void. Against such social interdict and the attitude of law towards gambling, can the State-organized lotteries claim the status of trade, commerce and intercourse under the provisions of Chapter XIII of the Constitution? Can such lotteries claim protection under Articles 14, 19(1)(g) and 301 when prohibited or discriminated by a State within its boundaries? Do they really bring in revenue bonanzas to the States? What are the social costs of these lotteries? This article proposes to explore these questions in the context of the constitutional provisions, the relevant law, and established precedents in this regard.
RMDC case
The Supreme Court had the opportunity to deal with these provisions in R.M.D. Chamarbaugwalla v. Union of India3 In this case, a five-Judge Constitution Bench of the Supreme Court observed that lotteries encourage a spirit of reckless propensity for making easy gain by lot or chance, which leads to the loss of the hard-earned money of the undiscerning and improvident common man and thereby lower his standard of living and drive him into a chronic state of indebtedness and eventually disrupt the peace and happiness of his humble home. Therefore, such activities could not possibly have been intended by our Constitution-makers to be raised to the status of trade, commerce and intercourse and to be made the subject-matter of a fundamental right guaranteed by Article 19(1)(g). The Court ruled that gambling was never intended to form part of this ancient country's trade, commerce or intercourse to be declared as free under Article 301. When Article 19(1)(g) guarantees or Article 301 declares the freedom of trade they describe human activities in a specific aspect. They single out attributes which the act or transaction may wear and make the freedom, which they confer, depend upon these attributes. The Court rejected the contention that just because regulatory provisions have been enacted to control gambling by imposing licences and by imposing taxes the inherent character of gambling as vicious and pernicious is in any way altered.
State-organized lotteries
Until 1998 there was no law made by Parliament with respect to State lotteries. Many States were running such lotteries after obtaining Presidential Orders under Article 258(1) of the Constitution entrusting on such States the executive power of the Union in this regard. However, in H. Anraj v. State of Maharashtra4 the Supreme Court ruled that the executive power of the State to carry on trade or business under Article 298 for which the State Legislatures are not entitled to make laws under List II of the Seventh Schedule shall be subject to legislation by Parliament—but not subject to the executive power of the Union, or the executive or legislative powers of other States. The Court ruled that when Parliament has not made any law on lotteries organised by a State, there is no need for a State to obtain permission of the Union Government for organizing State lotteries, but this power shall not extend to banning sale of lottery tickets organized by other States. Subsequently, in J.K. Bharati v. State of Maharashtra5 the Supreme Court ruled that while lotteries organized by the Government of India or the Government of a State have been taken out of the ambit of Entry 34, List II by Entry 40, List I, there is no question about the competence of the State Legislature to legislate in respect of the sale or distribution of tickets, including prohibition, of all lotteries organized by any agency whatsoever other than the Government of India or the Government of a State.
Lotteries (Regulation) Act, 1998
In State of Haryana v. Suman Enterprises6 the Supreme Court laid down certain conditions for organizing State lotteries. By the Lotteries (Regulation) Ordinance, 1997 (Ordinance 20 of 1997) the Central Government for the first time made provisions for State-organized lotteries incorporating therein the conditions laid down by the Supreme Court. Eventually, by Act 17 of 1998, Parliament enacted the Lotteries (Regulation) Act, 1998 with the object of regulating the lotteries and to provide for matters connected therewith and incidental thereto. The relevant provisions of the Act for the purpose of this article are reproduced below:
"2. (b) 'lottery' means a scheme, in whatever form and by whatever name called, for distribution of prizes by lot or chance to those persons participating in the chances of a prize by purchasing tickets;
4. Conditions subject to which lotteries may be organized, etc.—A State Government may organize, conduct or promote a lottery, subject to the following conditions, namely-
(a) prizes shall not be offered on any pre-announced number or on the basis of a single digit;
(d) the proceeds of the sale of lottery tickets shall be credited into the public account of the State;
(e) the State Government itself shall conduct the draws of all the lotteries;
(h) no lottery shall have more than one draw in a week;
(i) the draws of all kinds of lotteries shall be conducted between such period of the day as may be prescribed by the State Government;
(j) the number of bumper draws of a lottery shall not be more than six in a calendar year;
(k) such other conditions as may be prescribed by the Central Government.
5. Prohibition of sale of tickets in a State.—A State Government may, within the State, prohibit the sale of tickets of a lottery organized, conducted or promoted by every other State.
6. Prohibition of organization etc. of lottery.—The Central Government may, by order published in the Official Gazette, prohibit a lottery organized, conducted or promoted in contravention of the provisions of Section 4 or where tickets of such lottery are sold in contravention of the provisions of Section 5.
7. Penalty.—(1) Where a lottery is organized, conducted or promoted after the date on which this Act receives the assent of the President, in contravention of the provisions of this Act, by any department of the State Government, the Head of the Department shall be punishable with rigorous imprisonment for a term which may extend to two years or with fine or with both:
Provided that nothing contained in this section shall render such Head of the Department liable to any punishment if he proves that the contravention was committed without his knowledge or that he exercised all due diligence to prevent the commission of such contravention.
(2) Notwithstanding anything contained in sub-section (1), where a contravention under this Act has been committed by a department of Government and it is proved that the contravention has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any officer, other than the Head of the Department, such officer shall also be deemed to be guilty of that contravention and shall be liable to be proceeded against and punished accordingly.
(3) If any person acts as an agent or promoter or trader in any lottery organized, conducted or promoted in contravention of the provisions of this Act or sells, distributes or purchases the ticket of such lottery, he shall be punishable with rigorous imprisonment for a term which may extend to two years or with fine or with both.
8. Offences to be cognizable and non-bailable.—The offence under this Act shall be cognizable and non-bailable."
B.R. Enterprises case7
Pursuant to the promulgation of Ordinance 20 of 1997 by the Union Government the State of U.P. banned lotteries of other States in exercise of its power under Section 5. This caused various affected States and lottery dealers to challenge the provisions of the said Ordinance, and subsequently the Act of 1998 itself, in various High Courts of the country. The High Courts of Gujarat and Delhi upheld the validity, while the Gauhati High Court struck down some of its provisions as ultra vires. Ultimately, these matters were brought to the Supreme Court where they came to be decided by a two-Judge Division Bench of the Supreme Court comprising K. Venkataswami and A.P. Misra, JJ.
Justice Misra delivering the judgment of the Court, addressed the question whether lotteries cloaked with the linen of State authority when presented as State-organized lotteries, lose their pernicious character and become trade or commerce within Article 301 of the Constitution. Relying on the Constitution Bench decision in RMDC case3 he ruled that there is no difference between lotteries run by private parties under a State law and lotteries organized by the State under the law made by Parliament. The only difference is: in one case, the authority is that of the State (legislature) and in the other, Parliament. He ruled that the inherent character of the State-organized lotteries is the same as any other lotteries, and the apparel of the State donned by the State-organized lotteries would not make any difference. He thus held that State-organized lotteries could not be elevated to the status of commerce within the ambit of the expression "trade, commerce and intercourse" in Article 301 of the Constitution. He ruled that the right of sale of lottery tickets whether by the State or others could neither be a fundamental right nor a right under Article 301.
Misra, J. thus held that gambling is not res commercium. He then referred to the decision in H. Anraj v. Govt. of T.N.8 and observed that the lottery tickets have already been held to be "goods" and the sale of lottery tickets results in a contract between the seller, the State or its agent and the purchaser who buys such tickets for a consideration. Thus, such a contract would qualify to be a "contract for any purpose" used in Article 298. Misra, J. then ruled that though Article 298 includes "trade" within the ambit of Article 301, every "trade or business" covered by Article 298 would not qualify to be "trade or commerce" within the ambit of Article 301. The object of Article 298 is to widen the scope of the State's revenue-earning activities, and as such its scope and ambit should not be confined to "trade" only as understood under Article 301, as otherwise, there was no need to use the words "trade or business" and "contract for any purpose" in Article 298. Thus, Misra, J. ruled that any other transaction or activity apart from "trade" would be "business" of that State, including the activity of running State lotteries.9 Therefore, the sale of lottery tickets by the State Government, even if not trade as understood in common parlance (perhaps, meaning under Article 301) as it is gambling, would be covered within the executive power of the State under Article 298 being an activity in the nature of "business" and would in any case also be covered by the words "contract for any purpose".10 Misra, J., therefore, rejected the contention that the same meaning be given to the word "trade" in Article 298 as in Article 301 and that the sale of lottery tickets is necessarily "trade and commerce" under Article 301. Misra, J. concluded thus:
"Thus, the right of sale of lottery tickets whether by the State or others could neither be a fundamental right nor a right under Article 301. No one could seek it as a free 'trade' like other 'trades', even though it may have the authority of law. This authorisation under the Act is solely for the purpose of the States to earn revenue."11 (emphasis supplied)
Misra, J. also ruled that in the absence of any parliamentary law relating to treaties relating to the Kingdom of Bhutan or with foreign countries about running their lotteries in India the Bhutan lotteries shall also be subject to the relevant law in India, and be subject to prohibition by a State under Section 5 of the Act, and hence Section 5 does not discriminate against the States vis-a-vis the Kingdom of Bhutan.
Reading down Section 5 was not warranted
Misra, J. then addressed the challenge to Section 5 on the ground that it suffers from excessive delegation by Parliament of its essential legislative power to the State Government without laying down any policy or guidelines. The learned counsel for the Union of India and for Uttar Pradesh had suggested that Section 5 should be read down so as to entitle only such State, which, as a policy, does not run its own lottery, to ban lotteries organized by every other State. But the learned counsel for Tamil Nadu objected to such an interpretation, and submitted that there could only be one interpretation on a plain reading of Section 5, which is: a State can, even when running its own lottery, ban lotteries organized by other States. He also argued that the delegation is in the public interest, which is writ large and implicit in view of the nature of activity.
Misra, J., inter alia, referred to the decision in Registrar of Coop. Societies v. K. Kunjabmu12 wherein Chinnappa Reddy, J., speaking for the Court, at SCC p. 343, para 3, ruled thus:13
"The legislature may guide the delegate by speaking through the express provision empowering delegation or the other provisions of the statute, the preamble, the scheme or even the very subject-matter of the statute. If guidance there is, wherever it may be found, the delegation is valid." (emphasis supplied)
Thereafter referring to various provisions of the Act, Misra, J. observed that the whole Act including the preamble thereto makes it clear that the subject it is dealing with is regulation of gambling and not controlling the policy decision of a State to collect or not to collect revenue through State lotteries. Misra, J. then ruled thus:
"87. We find on plain reading of Section 5, it empowers the State Government within its State to prohibit the sale of tickets of the lotteries organised by every other State. There is also nothing in the language reading by itself so as to say, whether such power can be exercised by the State while running its own lottery or can be exercised only where such State does not run its own lottery. This leads to two possible interpretations, as referred to above. In view of settled principle of interpretations, the interpretation given by the Union to read down the provision has substance. This would mean that the State could only exercise such discretion if it decides not to have any lottery within its territory including its own lottery."14 (emphasis supplied)
Thus, Misra, J. held that though on a plain reading Section 5 empowers the State Government to prohibit within the State the sale of tickets of a lottery organized by every other State, it leads to two interpretations. To appreciate that there is no such sequitur, first it is necessary to discuss the developments leading to enactment of the impugned Act.15 To recap, in exercise of the power under Section 5 of Ordinance 20 of 1997 the State Governments of Uttar Pradesh and Gujarat banned within their States lotteries organized by other States by publishing notifications. The said notifications and the Ordinance were challenged by the parties concerned before the High Courts of Gauhati, Gujarat and Delhi. While the High Courts of Gujarat and Delhi upheld the validity of the Ordinance and the notifications, the Gauhati High Court ultimately declared Ordinance 20 to be unconstitutional, quashed the notification of the Government of Uttar Pradesh and held Section 5 to be ultra vires the Central legislative powers on the grounds of excessive delegation and violation of Articles 301 and 303 of the Constitution. Meanwhile, on lapsing of Ordinance 20 of 1997 the Central Government on two occasions continued the selfsame provisions by Ordinance 31 of 1997 and by Ordinance 6 of 1998. The Gauhati High Court once again by order dated 22-5-1998 stayed the third Ordinance. Against this backdrop, Parliament enacted the Lotteries (Regulation) Act, 1998 (Act 17 of 1998), which came into force from 7-7-1998, with the full knowledge of the said orders of the High Courts. The Act, inter alia, reproduced ipsissima verba Section 5 of Ordinance 20 of 1997 without making any modification therein. These developments make the intention of Parliament more than clear. It is to confer unconditional power on the Government of a State to prohibit within the State lotteries organized by every other State.
On a consideration of the object, the various provisions of the Act and the background in which it came to be enacted, there is no doubt that the discretion under Section 5 is to be exercised by a State in the public interest and also for preserving the sources of revenue within the State, which would otherwise be drained out by sale of lottery tickets organized by every other State. Because if the sole vindication of these lotteries is their purported ability to generate much-needed revenue for the States, a State should be entitled to claim monopoly in running its own lotteries within the State to the exclusion of all other States.16 For obviously, no State can claim any extra-territorial right to tap revenue from the subjects of other States. Moreover, it is settled that the law cannot be attacked merely on the ground that they create monopoly. Properly speaking, there can be a monopoly only when a trade, which could be carried on by all persons, is entrusted to one or more persons to the exclusion of the general public.17 Such, however, is not the case with State-organized lotteries. Therefore, considering the circumstances leading to the enactment of the 1998 Act and the retention therein is verbatim Section 5 of the Ordinance, there is no scope for two interpretations of the said section as visualized by Misra, J.
This view is supported by the decision in Delhi Transport Corpn. v. D.T.C. Mazdoor Congress18 wherein P.B. Sawant, J., with respect, lucidly explained the doctrine of reading down thus: (SCC p. 728, para 255)
"It is an extension of the principle that when two interpretations are possible—one rendering it constitutional and the other making it unconstitutional, the former should be preferred. The unconstitutionality may spring from either the incompetence of the legislature to enact the statute or from its violation of any of the provisions of the Constitution. The second situation which summons its aids is where the provisions of the statute are vague and ambiguous and it is possible to gather the intentions of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made. However, when the provision is cast in a definite and unambiguous language and its intention is clear, it is not permissible either to mend or bend it even if such recasting is in accord with good reason and conscience. In such circumstances, it is not possible for the court to remake the statute. Its only duty is to strike it down and leave it to the legislature if it so desires, to amend it."19 (emphasis supplied)
To apply this rule, first of all we need to enquire whether Section 5 suffers from any unconstitutionality, springing from either the incompetence of the legislature to enact the statute or from its violation of any of the provisions of the Constitution. It will be noticed that the impugned Act was competently enacted by Parliament under Entry 40, List I, and there was no challenge on this score. It will also be seen that Section 5 is cast in a definite and unambiguous language. Moreover, relying on RMDC case3 Misra, J. has already rejected the contention that Section 5 is violative of Articles 14, 19(1)(g) and 301 and 303, ruling that there is no fundamental right or any right under Article 301 of the Constitution to run State lotteries. Moreover, in RMDC case3 it was also ruled that the appeal against the stringency and harshness, if any, of the law relating to gambling does not lie to a court of law. Against this settled legal position, and the Court's own finding in this regard, Section 5 could not have been construed to be discriminatory under Article 14 of the Constitution.
This view is also fortified by the decision in J.K. Bharati case5 wherein the writ petitioner challenged before the Supreme Court the order of the Government of Maharashtra banning within the State the sale of tickets of lotteries authorized but not organized by the Governments of other States under the Bombay Lotteries (Control and Tax) and Prize Competition (Tax) Act, 1958. Section 3 of the Act declares: "Save as provided by this Act, all lotteries are unlawful." By Section 32(c), it is provided that nothing in the Act shall apply to "a lottery specially authorised by the State Government". The petitioner challenged the constitutionality of Section 32(c) on the ground that it was discriminatory, and claimed that the exemption should be extended to all lotteries authorized by the Government of any State whatsoever. Rejecting this contention and upholding the impugned provision of the Bombay Act, Chinnappa Reddy, J., speaking for a three-Judge Division Bench of the Court ruled thus:
"The reason for exempting lotteries authorised by the Government of Maharashtra from the applicability of the Act and not lotteries authorised by the Governments of other States is patent. In the case of lotteries authorised by the Government of Maharashtra, the Government of Maharashtra may retain to itself all necessary powers for the regulation and control and the prevention of misuse of funds and exploitation of guileless members of the public. In the case of lotteries authorised by the Governments of other States it may be difficult and even impossible for the Government of Maharashtra to take adequate regulatory steps to prevent abuse of the authority given by Governments of other States to non-governmental agencies to organise lotteries. It may be equally difficult for the Governments of other States to take adequate measures for prevention of abuse of such authority within the State of Maharashtra. We are, therefore, satisfied that no hostile discrimination whatever is involved in not extending the exemption from the applicability of the Act to lotteries authorised but not organised by the Governments of other States."20 (emphasis supplied)
Inasmuch as Misra, J. has ruled that there is no difference between the State-organized lotteries and the State-authorized or sponsored lotteries, it is submitted that the ratio of J.K. Bharati5 must proprio vigore also apply to the sale of State-organized lotteries as well, as they are also sold only by private dealers, agents and subagents to the ultimate gamblers. It is also pertinent to note here that in Suman Enterprises6 the Supreme Court had already visualized the possibility of sale of fake tickets. Naturally, the scope of exploitation of the guileless members of the public, and frauds associated with sale of lottery tickets would be much wider if all other State-organized lottery tickets are allowed to be sold in a State, inasmuch as the 1998 Act does not provide any regulatory mechanism for prevention of exploitation of the gullible poor and preventing frauds. Moreover, even otherwise, administratively it is not possible for a State to monitor and regulate the sale of lottery tickets of other States by their myriad agents and subagents through the unwieldy network of sales outlets spread across every nook and corner of the State. Therefore, in the light of the ratio of J.K. Bharati case5 there was enough reason for Parliament to empower a State to prohibit within the State sale of lottery tickets of all other States. Indeed, this is what Parliament has consciously done by enacting Section 5.
Moreover, it is respectfully submitted that rewriting of Section 5 in this manner amounts to legislation and not only is it no part of the court's duty to undertake such exercise, but it is also beyond its jurisdiction to do so.21 The reading down of the provision also defies the conclusive ruling of the Court itself, which runs thus: (SCC p. 773, para 90)
"We also hold that the impugned provisions are not violative of Article 14 nor could the delegation of power by Parliament to the State Government be said to be delegation of its any essential legislative power or a delegation, which is unguided or unbridled. Thus, we uphold Section 5 and various clauses of Section 4 to be valid piece of legislation." (emphasis supplied)
It is therefore respectfully submitted that the Court should not have succumbed to the interpretation suggested by the two learned Additional Solicitors-General of India by reading down Section 5 to mean "that the State could only exercise such discretion if it decides not to have any lottery within its territory including its own lottery". Therefore, insofar as interpretation of Section 5 of the Act is concerned B.R. Enterprises7, with our utmost respect, was not properly decided, and hence not a good law.
Counsel on behalf of Nagaland vehemently argued that in view of the prevailing law and order situation in the State of Nagaland, it was not safe to draw lotteries within that State, and hence the condition requiring the place of draw to be located within the State concerned is unreasonable. Such a contention was downright preposterous. For the same argument should also apply to running the State treasuries, carrying on banking and various financial businesses through the network of branches in the State, and so forth. By this argument all these institutions, including the State treasuries, which publicly deal in pure cash, unlike the business of drawing lotteries, should be located outside the State of Nagaland. The petitioners also attacked some other conditions laid down in Section 4 of the Act as being unreasonable. For instance, one condition provides that the prizes shall not be offered on any pre-announced number or on the basis of single digit. Its object was to remedy the mischief of its large-scale rigging suspected by the public and the temptation offered by them proving to be the undoing of many families, especially poor daily-wagers and low-income groups. Another condition provides that no lottery shall have more than one draw in a week. Its object was to keep on leash the gambling frenzy in the country in the public interest. Yet another condition provides that the draws of all kinds of lotteries shall be conducted between such periods of the day as may be prescribed by the State Government. However, the Court rejected these contentions as meritless.
Social costs
On behalf of the North-Eastern States it was much argued that curtailment of the right to sell their lottery tickets in other States would badly affect their revenue. But these States did not place any statistics before the Supreme Court to buttress their claim. To investigate the truth of this claim the author has looked up the figures in the Annual Budgets of these States for the contemporary years, as were available. The results are interesting: for the State of Sikkim the year-end receipts and expenditures respectively in crores of rupees from 1997-98 are as follows: year 1998: 800 and 886.8; year 1999: 993 and 978; year 2000: 1004 and 978; year 2001: 382.6 and 355.
For Nagaland the available figures in lakhs of rupees are: year 2000: 500 and 192.40; year 2001: 500 and 197.74; year 2002: 100 and 51.25 respectively. For Manipur, the available figures in lakhs of rupees are: year 2001: 167.03 and 39.39; year 2002: 7 and 47.89 respectively. For Assam the available figures of receipts in lakhs of rupees are: year 1998: 39.25; year 1999: 44.5; year 2000: 44.48. In the year ending 2001 the receipts are Rs 41.08 lakhs against expenditures of Rs 40.03 lakhs.
In the case of Maharashtra, the figures of receipts and expenditures respectively in crores of rupees are: year 1999: 30 and 24; year 2000: 31.7 and 30.5; year 2001: 39.46 and 22.44; and year 2002: 130 and 122. Figures for 2002 shot up for introduction of daily lotteries camouflaged as weekly lotteries. The State is presently running four types of lotteries viz. monthly draws, bumper/festival draws, daily draws, camouflaged as weekly draws—also popularly known as two-digit lotteries, and weekly lotteries. It is interesting to note here that out of the total receipts of Rs 130 crores in 2002, receipts from the daily-conducted two-digit lotteries alone amounted to Rs 102 crores, as against expenditure of Rs 96.7 crores. As such, profit from the two-digit lotteries works out to be a relatively measly Rs 5.3 crores against the expenditure of Rs 96.7 crores—a huge social cost. The receipts from other lotteries are Rs 28 crores against an expenditure of Rs 25.3 crores leaving a profit of only Rs 2.76 crores. For a State like Maharashtra the net profit is a mere bagatelle in its annual revenue. The same modus operandi reportedly obtains in case of other State-organized lotteries.
The expenditure figures include payment of prize money to a few lucky gamblers, establishment costs, travel and conveyance and salaries of the employees of the Directorate of State Lotteries, but not the dealers' commissions. The State treasuries sell the tickets to the dealers or agents at a discount equivalent to the commission, which varies from lottery to lottery and State to State. But no such explanation has been furnished in the budget documents, though the break-ups of expenditures incurred on different heads, except for dealers'/agents' commissions, have been provided. The figures of receipts therefore do not depict the actual turnovers of sale of tickets. The method of not accounting for the dealers' commissions in the expenditure figures plays down the huge social opportunity costs entailed in these lotteries. Only when the dealers' commissions are furnished and added to the expenditures the actual social costs would become explicit. But the contemporary statistics debunk the tall claims of the States that the lotteries are great revenue bonanzas boosting their welfare programmes. Rather, they are cash bonanzas for the dealers, agents, subagents and the few successful gamblers at the cost of the society. Indeed, in the teeth of the huge social costs the welfare argument strongly smacks of a kakistocratical22 simulation or pretension.
The Bid Document for Appointment of Agent for the online lotteries organized by the State of Sikkim states that 45 per cent of the revenue generated by the sale of tickets will be reserved for the prize pool to be distributed amongst the winners; 20 per cent of the revenue will be utilized by the State Government for welfare activities; and the balance 35 per cent will be utilized by the dealer for communication costs, creating infrastructure and dealers' and retailers' commissions. As such, at the very most only 20 per cent of the collected revenue may accrue to the State exchequer with the remaining 80 per cent of the revenue constituting the huge social costs eaten away by middlemen. It would be same with the online lotteries being introduced by thirteen more States including the States of Maharashtra, Karnataka and Punjab.
How is the Act circumvented?
The statistics also reveal yet another shocking state of affairs as to how by a clever invention the State Governments themselves are deliberately setting at nought the objects of the 1998 Act. Taking cognizance of the evil effects of the temptation offered by the single-digit and instant lotteries especially on the poor gullible daily-wagers and low-income groups, Parliament has prohibited the single-digit lotteries by enacting Section 4(a), and conducting more than one draw in a week of any lottery by enacting Section 4(h). Similarly, by enacting Section 4(i) Parliament has made it mandatory to conduct draws of all kinds of lotteries between such periods of the day as may be prescribed by the State Government. However, the Governments of Arunachal Pradesh, Mizoram and Maharashtra have devised an amazing stratagem to circumvent the provision of Section 4(h) to continue the daily lotteries—coupled with multiple draws. The Government of Arunachal Pradesh is selling tickets with the words "weekly lottery" printed therein in microscripts, detectable only with an endeavour by the inquisitive eye. On such tickets, daily seventy draws are being conducted each at the interval of every fifteen minutes from 8.15 a.m. onwards to the unseemly hour of 9.15 p.m. in the night; and every fifteen minutes the results for every draw are instantly conveyed on pagers to the selling clerks of the booths. Every ticket is given a different name, such as, "Pahila Daw" for the 8.15 a.m. draw, "Tea-Tea Morning" for the 8.30 a.m. draw, and so forth, with the penultimate draw for 9 p.m. being named "Akhri Sapna" and the last draw for 9.15 p.m. named "Parasmani Yatra". One draw is even called "Matka" and in some hours in the day there are even two draws at the same time. No ticket is sold in advance, nor does anyone demand the next day's tickets; tickets are being sold across the counters continuously only for the current draws one after another. Law specifically bans sale of one-digit lotteries. But, the statutory prohibition appears to have been circumvented by conducting the draws only on the basis of the last two digits, where only the last but one digit is the winning number. Otherwise there is no earthly reason why the winning digit happens to be the last but one digit of a ticket number and every punter is a sucker for it. One more thing needs to be underlined: the law requires the draw of every lottery to be conducted within the State. But the difference in the local time between Arunachal Pradesh and Mumbai being about one-and-a-half hours, if its 9.15 p.m. at Mumbai it would be around 10.45 p.m. local time at Itanagar. First, it is extremely unbelievable that the Directorate of State Lotteries in Arunachal Pradesh works deep into the night. Second, even if they do so, it would be in flagrant violation of Section 4(i), which makes it mandatory to conduct draws of all kinds of lotteries between such periods of the day as may be prescribed by the State Government. It is also quite intriguing how the Government of Arunachal Pradesh could achieve the brilliant feat of instantly furnishing the results of each draw at the end of every fifteen minutes. The Government of Mizoram adopts the same modus operandi. The Government of Maharashtra is also daily conducting twenty-four draws for its two-digit lotteries camouflaged as weekly lotteries from 9.15 a.m. to 8.45 p.m. with the same modus operandi. The close similarity in operation of these lotteries leads to the conclusion that the dealers are calling the tune with the connivance of the State Government officials. Evidently, there appears to be something seriously hanky-panky associated with these lotteries. These facts serve as testimony to the absolute absence of any regulatory mechanism for these lotteries, and the complete failure of the 1998 Act. One thing is certain: the officers concerned of the States are patently liable under the penal provision of Section 7 of the Act.
One has just to visit one of the ubiquitous crowded lottery booths in Mumbai and Pune to be instantly convinced of how the temptations offered by these lotteries are proving to be the undoing of many families, especially the improvident poor daily-wagers and low-income groups. As a marketing ploy, some of the lottery booths are even furnished with cable TVs, and adjoining snack bars where the improvident punters hang around the entire leisure time or the whole day on some days repeatedly staking their hard-earned wages on the multiple draws of the daily lotteries persistently hoping for fortune to suddenly smile on them to make them instantly rich. If there could be large-scale racketeering in non-judicial stamp papers—even when they are usually subject to scrutiny by informed people like lawyers and revenue officers—in the country, as has only recently been detected by the Pune police, there are demonstrably even stronger reasons to suspect a high incidence of sale of fake tickets to the gullible poorer sections of the society, when the activities of the dealers and the retail agents are not subject to any regulation whatsoever. The Supreme Court has recognized the possibility of such rackets in two of its recent decisions in J.K. Bharati5 and Suman Enterprises6.
This view is also supported by the universally recognized belief that the State-sponsored lotteries inevitably lead to large-scale frauds and crimes, and that as the country's dependency on lotteries increases, so does the opportunity for abuse.
The much-hyped Super Lotto of the State of Sikkim is being run by its sole dealer and distributor, a private firm named "Playwin". This firm sells the tickets through retail terminals spread across the country. A punter goes to a retailer and selects six numbers from those mentioned in a play slip. The retail agent then inserts the play slip in the terminal, and prints out the ticket on custom-made papers with the name of "Playwin" printed all over it with only a smudgy State logo appearing on it. This does not appear to comply with Section 4(b) of the Act, requiring the State Government to print the lottery tickets bearing the imprint and logo of the State in such manner that the authenticity of the lottery ticket is ensured. As such, the aforesaid device adopted by Playwin does not appear to be foolproof against fraud and hence sale of fake tickets cannot at all be ruled out.
Conclusions
(a) In RMDC case3 a five-Judge Constitution Bench of the Supreme Court ruled that lotteries cannot be elevated to the status of trade, commerce or business under Article 301 of the Constitution. They are not protected either by Article 19(1)(g) or Article 301, and the validity of the law imposing restrictions on lotteries has not be decided by the yardstick of reasonableness and public interest laid down in Articles 19(6) and 304. The appeal against the stringency and harshness of such law also does not lie to a court of law.
(b) In B.R. Enterprises7 a two-Judge Bench of the Supreme Court applied the rule in RMDC case3 holding that the lottery business is res extra commercium irrespective of whether it is conducted under the authority of law enacted by the State Legislature, or by Parliament. The Court reiterated the rule that right to sell lottery tickets whether by the State or the citizens could neither be a fundamental right nor a right under Article 301.
(c) The Court also ruled that though Article 298 includes "trade" within the ambit of Article 301, every "trade or business" covered by Article 298 would not qualify to be "trade and commerce" within the ambit of Article 301. This view of Misra, J. suggests that the expression "trade or business" in Article 298 has a different meaning from the expression "trade or business" in Article 19(1)(g), which is untenable. In RMDC case3 the Constitution Bench held that gambling cannot be raised to the status of "trade or business" either in Article 19(1)(g) or "trade, commerce and intercourse" in Article 301. Therefore, Misra, J. should have instead held that Article 298 does not refer to any "trade or business" which is not recognized under Article 19(1)(g).
(d) The Court ruled that the delegation of power by Parliament to the State Government under Section 5 of the Act is not unguided or unbridled. However, having said so, the Court succumbed to the interpretation suggested by the two learned Additional Solicitors-General of India by reading down Section 5 to mean that the State could exercise the discretion of prohibiting lotteries of other States only if it decides not to have any lottery within its territory including its own lottery. The Court also ruled that in the absence of any law made by Parliament with respect to treaty with foreign Governments, if the State prohibits within its territory not only its own lottery but also every other lottery, then the sale of lottery tickets of Bhutan would also be subjected to the laws of the State. Firstly, this interpretation of Section 5 defies its own ruling that the impugned provisions are not violative of any of the constitutional provisions. Secondly, the doctrine of reading down as lucidly enunciated by the Constitution Bench of the Supreme Court in Delhi Transport Corpn. case18 is not at all applicable to Section 5 of the Act. Thus, the interpretation given to Section 5 amounts to legislation. In this respect, B.R. Enterprises7, with our utmost respect, was not properly decided, and requires reconsideration by the Supreme Court.
(e) The North-Eastern States much argued that curtailment of the right to sell their lottery tickets in other States would badly affect their revenue. This claim, however, stands debunked by the contemporary statistics of receipts and expenditures of the lottery business of the States. The net receipts are too paltry relative to the huge expenditures borne by the States. The dealers' commissions are cleverly not accounted for in the expenditure figures perhaps with a view to play down the huge social opportunity costs entailed in these lotteries.
(f) The online lotteries are designed to yield only 20 per cent of the revenues to the States with the remaining 80 per cent constituting the social opportunity costs. Therefore, in the teeth of the huge social costs entailed in the State-organized lotteries, the social welfare argument of the State Governments for promoting these lotteries strongly smacks of a kakistocratical simulation or pretension.
(g) The 1998 Act does not provide for any regulatory mechanism for monitoring the unwieldy network of sales outlets spread across every nook and corner of the country. By a clever invention, some of the States are openly running daily lotteries—camouflaged as weekly lotteries—having daily multiple draws from early morning to late night. There appears to be something seriously hanky-panky about these lotteries. These lotteries might attract the penal provision of Section 7. This proves the failure of the 1998 Act to regulate the evil effects of the lotteries on the gullible and poorer sections of the society.
(h) The new incarnation of these lotteries as online lotteries is now insidiously engulfing the whole country as never before like a pestilence by infesting the young and the old alike. The newfangled online lotteries are, therefore, inherently far more pernicious to the society than the conventional paper lotteries, and are sure to take a heavy toll on every class of people, prying upon the hard earnings of the poor, the ignorant and the simple.
Article 38 of the Constitution casts an obligation on the Government to protect the interests of the improvident daily-wagers and the poorer sections of the society as are being exploited most by these State-sponsored gambling. The State-organized lotteries under the pretext of augmenting the State's revenue only serve to nourish the middlemen by impoverishing the poor. Such pernicious scheme therefore calls for an immediate ban.
- 38 Am Jur 2nd, p. 5.
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- Government of Maharashtra Booklet on Computer Online Lottery Sign-In Ceremony of the Agreement Between the Government and its Exclusive Agent, dated 8-3-2002, published by the Commissioner of Small Savings and State Lotteries. Also see The Economic Times, 14-7-2002, Mumbai, at p. 1.
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- AIR 1957 SC 628
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- (1984) 2 SCC 292, p. 297, para 5, p. 300, para 9.
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- (1984) 3 SCC 704
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- (1994) 4 SCC 217
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- B.R. Enterprises v. State of U.P., (1999) 9 SCC 700
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- (1986) 1 SCC 414. However, though the lottery tickets could be construed to be goods under Article 366(29-A) for the limited purpose of sales tax levied under a law enacted under Entry 56, List II, this decision holding that lottery tickets are goods within the meaning of Article 301, and discriminatory treatment in the matter of levying sales tax on such imported lottery tickets by a State Government violates Articles 301 and 304(a) of the Constitution is firstly per incuriam of RMDC case (fn 3). In RMDC the Court ruled that lotteries being extra commercium cannot be elevated as trade or commerce under Article 301, and there is no fundamental right to carry on the business of lotteries. Again in J.K. Bharati case (fn 5) it was ruled that exemption granted to lotteries authorized by the Government of Maharashtra, but not to lotteries authorized by other States was not discriminatory and did not violate Article 14 of the Constitution. H. Anraj case therefore, with respect, appears to be wrongly decided. Referring to this decision in his judgment Misra, J., at SCC p. 744, para 50, with respect, wrongly observed that "neither was there any issue nor any contest, whether the sale of such lottery tickets would be a 'trade and commerce' or not within the meaning of Chapter XIII of our Constitution".
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- Supra, fn 7, at p. 759. However, the following observation at SCC p. 759, para 71 of His Lordship Misra, J., with respect, is quite confusing: "Thus, any other transaction or activity other than 'trade' would be 'business' of that State, which would be apart from the 'trade' which thus, in our opinion, would include activity, to run State lotteries." The use of the qualifying phrase "other than", which has the negative meaning of "except", before the word "trade", seems to exclude "trade" from the meaning of the word "business", which is contrary to its definition. Secondly, this phrase is inconsistent with the qualifying phrase "apart from", in the sense of "in addition to", subsequently used before the words "the trade".
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- Misra, J. suggests that the expression "trade or business" in Article 298 has a different meaning from the expression "trade or business" in Article 19(1)(g). Such a view is per incuriam of RMDC case (fn 3) and hence untenable. Instead, Misra, J. should have held that Article 298 does not refer to any "trade or business" which is not recognized under Article 19(1)(g).
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- Supra, fn 7, at p. 760, para 71.
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- (1980) 1 SCC 340
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- In the judgment (SCC pp. 766-67) Misra, J. had, however, quoted the SCC Headnote, but not the portion quoted by us here.
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- Supra, fn 7, at p. 772, para 87.
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- For an exposition of this principle, see R.M.D. Chamarbaugwalla v. Union of India, AIR 1957 SC 628, at p. 631, para 6.
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- See Khoday Distilleries Ltd. v. State of Karnataka, (1995) 1 SCC 574, wherein a five-Judge Constitution Bench of the Supreme Court, inter alia, relied on RMDC case (fn 3) and held that the right to carry on any occupation, trade or business which is inherently vicious and pernicious, and is condemned by all civilized societies is not constitutionally protected, and is not even a legal right; and further ruled that even though trade in potable alcohol is res extra commercium the State itself may sell potable alcohol, set up a monopoly business for that purpose and maximize its revenue by any mode of sale. This rule should proprio vigore also apply to sale of State lottery tickets which are res extra commercium.
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- Ibid., at p. 587.
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- 1991 Supp (1) SCC 600
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- Ibid., at p. 728, para 255.
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- Supra, fn 5, p. 706, para 2.
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- See Padma Sundara Rao v. State of T.N., (2002) 3 SCC 533, wherein a five-Judge Constitution Bench of the Apex Court at SCC p. 542, para 12, ruled thus:
"It is well-settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the legislature itself. The question is not what may be supposed and has been intended but what has been said."
It is also ruled that a court is not entitled to usurp legislative function under the guise of interpretation and that when the language of the provision is plain and unambiguous, question of supplying even casus omissus does not arise.
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- Kakistocratical—relating to government by the worst men in the State, "kakistocracy" actually originated as a combination of the Greek "kakistos" (superlative of "kakos" which means "bad") and the English suffix "-cracy" meaning, "form of government"—Webster's Encyclopaedic Dictionary.
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