All Kerala Online Lottery Dealers Association Vs. State of Kerala & Ors. [NOVEMBER 5, 2015]
2015 Latest Caselaw 740 SC

All Kerala Online Lottery Dealers Association Vs. State of Kerala & Ors.

[Civil Appeal No. 3518 of 2007]

[Civil Appeal No. 3519 of 2007]

[Civil Appeal No. 3520 of 2007]

[Writ Petition (C) No. 641 of 2007]

[Writ Petition (C) No. 233 of 2010]

R.K. Agrawal, J.

Civil Appeal Nos. 3518-3520

1. These appeals are directed against the common final judgment and order dated 23.05.2006 passed by the Division Bench of the High Court of Kerala at Ernakulam in Writ Appeal Nos. 2011, 2012 and 2235 of 2005 whereby the High Court dismissed the appeals filed by the appellants herein against the judgment and order dated 27.07.2005 passed by learned single Judge of the High Court in Writ Petition (C) Nos. 14495, 16063 and 19582 of 2005.

2. Brief facts:

a. The State of Kerala, by notification dated 13.01.2005, issued in exercise of the power conferred by Section 5 of the Lotteries (Regulation) Act, 1998, (in short 'the Act'), prohibited the sale of all computerized and online lottery tickets marketed and operated through vending machines, terminals, electronic machines and tickets sold through internet in the State with immediate effect and declared that Kerala shall be a free zone from online and internet lotteries.

b. By a subsequent notification dated 27.01.2005, the State of Kerala decided to prohibit the sale of all lotteries organized, conducted or promoted by the State as well as by every other State Government in the State of Kerala with immediate effect and declared that the State shall hereafter be a Lottery Free Zone.

c. The State of Kerala, in partial modification of the notification dated 27.01.2005, issued a subsequent notification dated 22.04.2005, permitting the sale of paper lotteries organized, conducted or promoted by every State Government including the State of Kerala and the prohibition imposed on the sale of computerized and on-line lottery tickets organized, conducted or promoted by every State Government continued to remain in force declaring the territory of the State of Kerala to be online, internet and computerized lotteries free zone.

d. Being aggrieved by the notification dated 22.04.2005 discriminating between the paper lotteries and online lotteries, the All Kerala Online Lottery Dealers Association, State of Sikkim and one Sreekala and others filed Writ Petition (C) Nos. 19582, 14495 and 16063 of 2005 respectively before the High Court.

e. A learned single Judge of the High Court, by judgment and order dated 27.07.2005, dismissed the writ petitions.

f. Being aggrieved by the decision of the learned single Judge, the petitioners therein preferred Writ Appeal Nos. 2011, 2012 and 2235 of 2005 before the Division Bench of the High Court.

g. The Division Bench, by a common judgment and order dated 23.05.2006, dismissed the appeals.

h. Against the said order, the appellants have preferred these appeals by way of special leave before this Court.

Writ Petition (C) Nos. 641 of 2007 and 233 of 2010

a. One Bibhash Karmakar-the petitioner herein has filed the above petitions in public interest alleging that the States of Sikkim, Nagaland and Goa are running lottery business contrary to the provisions of the Act which is detrimental to the society as a whole.

b. This Court, by order dated 27.11.2009 in Writ Petition (C) No. 641 of 2007, directed the State to explain as to whether the State of Sikkim is running lottery business contrary to the provisions of Section 4 of the Act. In response to the above, the State Government filed an affidavit dated 10.12.2009 before this Court denying all the irregularities as claimed by the petitioner herein and cited various provisions of the Act as well as the Sikkim Online Network Lottery Rules, 2001 to show that the lottery business in the State is in consonance with the pre-existing rules and regulations.

c. This Court, by order dated 21.06.2010, tagged Writ Petition (C) No. 233 of 2010 with Writ Petition (C) No. 641 of 2007.

3. Heard the arguments advanced by learned senior counsel for the parties and perused the records. Since a common question of law and facts arise in these appeals and petitions, they are being disposed of by this common judgment. Points for Consideration:

4. The sole question for consideration before this Court is whether the State Government can discriminate between the paper lottery and online lottery in pursuance of the provision of Section 5 of the Act. Rival Submissions:

5. Learned senior counsel for the appellants contended before this Court that online lottery is also a lottery, as defined under Section 2(b) of the Act. So, if the State Government intends to prohibit the same, it has to prohibit all the lotteries whether paper or online. The selective prohibition of the sale of online lottery tickets is impermissible, in the light of Section 5 of the Act, as interpreted by this Court in B.R. Enterprises vs. State of U.P. and Others (1999) 9 SCC 700. The distinction drawn by the State Government between paper lottery and online lottery is discriminatory and violative of Article 14 of the Constitution of India.

Learned senior counsel further contended that the impugned notification is vitiated by mala fides. It was further alleged that the State Government is being controlled by the paper lottery mafia and under its influence the sale of online lottery tickets has been prohibited. The State Government does not have the competence to issue the impugned notification. Though the State Government is competent to legislate on lotteries by virtue of Item 34 of List II concerning betting and gambling, the power to legislate on lotteries organized by the Government of India or the Government of a State is the exclusive preserve of the Parliament by virtue of Entry 40 of List I of the Seventh Schedule. So, the State Government, which is incompetent to legislate on lotteries run by other States, has no power to issue the impugned notification. The State Government, without legislative competence, has ventured to prohibit online lottery which is totally fraudulent and colourable exercise of the power.

6. Learned senior counsel for the appellants further pointed out that the contention that online lottery was not in the contemplation of the Parliament or the Court, cannot be accepted. The Act has to be interpreted to adapt it to the changing times. According to learned senior counsel, the Parliament was well aware about the growing advancement of science and technology and the use of electronic media in future days to come and, therefore, when it defined 'lottery' under Section 2(b) of the Act, it included also the online lottery or internet lottery which may come into existence in future.

It was further submitted that the provision contained in Section 5 of the Act would empower the State Government to prohibit the sale of tickets of all the lotteries and it cannot be restricted only to online or internet lotteries. He further submitted that if it is to be taken that the online lottery is a class of lotteries for which the State Government is empowered to prohibit then it is only the Parliament which can classify the same and the State of Kerala has no power to do so. According to him, the Central Government framed the Lotteries (Regulation) Rules, 2010 (in short 'the Rules') under sub-section (1) of Section 11 of the Act and defined online lotteries under Rule 2(e) of the Rules that too for the first time in the year 2010, therefore, the State Government had no right or jurisdiction to prohibit the online lottery in the year 2005.

The principles laid down in B.R. Enterprises (supra) will apply to all types of lotteries and a judgment of this Court cannot be ignored merely by saying that it failed to consider some point or other.

7. Learned senior counsel further contended that this Court, in B.R. Enterprises (supra), has read down Section 5 of the Act, to save it from the vice of unconstitutionality, emanating from conferring unbridled power on the State, which may be termed as abdication of the essential legislative function, by failing to provide guidelines for the exercise of that power. In the said decision, in paragraphs 84 and 87, it was held as follows:

"84. In Section 2(b) lotteries are defined to be a Scheme for distribution of prizes by a lot or chance. This definition itself recognizes that even in State lotteries the prizes are to be collected by chance without any skill, hence gambling in nature. Section 3 prohibits that no State lotteries can be organized without the condition stipulated under clauses (a) to (k) of Section 4. Section 4 provides the conditions to be complied with by the State lotteries.

To initiate any State lottery it is left to the policy of each State, for this Act is silent. The only control is, in case it decides, then it must follow the conditions as laid down under Section 4. Next comes Section 5 which is subject matter of challenge, the delegation of power to the State to prohibit the sale of lottery tickets organized by every other State. If a State desires not to subject its people to the lottery gambling, it has no power to restrict lotteries organized by other States. It is to remove this mischief that power is conferred through delegation to the States to do it in terms of their own policy. By virtue of this, now the State Government can prohibit sale of lottery tickets of every other State within its territory. Next, Section 6 seeks strict compliance with Section 4.

Under this the Central Government may prohibit any State lottery which is being conducted in contravention of the conditions as laid down under Section 4 or Section 5. Section 7 shows the rigour of this Act by making it a penal offence as against all, who violate the provisions of this Act, be it is Head of the Department of the Government or the agent, promoter or trader to be punishable with two years rigorous imprisonment. Section 8 makes such an offence cognizable and non- bailable. Similarly, Section 9 deals with offences committed by the companies. Section 10 entrusts the Central Government power to give directions to the State Government for carrying into execution the provisions of this Act, Rule or Order. Sections 11 and 12 are the rule- making power entrusted to the Central and the State Governments respectively. Section 13 repeals the Ordinance.

Thus, the whole Act makes clear that the subject it is dealing with is gambling in nature. The object of the Act is not to control the policy decision of each State to start or to close its lotteries, but to regulate it in case a State decides to run its own lottery through modalities and conditions laid down therein. Emphasis of the whole Act is to abide by the conditions strictly if you want to run a lottery. Thus, regulation is through conditions to eliminate even the remotest possibility of malpractices by providing stringent measures for its compliance.

Perusal of the Act reveals, the scheme of the Act is limited in its application, and it admits the subject it is dealing is gambling in nature. As we have said, the decision to collect or not to collect revenue through State lotteries is exclusively within the policy decision of the State and for this, neither the Union nor Parliament interferes nor is there any indication under the Act. Thus, the question which remains is, if any State decides that it does not want any lotteries but if it feels helpless as having no jurisdiction over the lotteries organized by other States, what is the way out?

This can only be done by Parliament or by entrusting this power on such State desiring so, which has been done through Section 5. In this background, for this helplessness of a State as recorded in Anraj case-I [(1984) 2 SCC 292] the remedy is provided by entrusting this power on the State under the impugned provision. This helps such State to achieve its objective of lottery (gambling) free zone within its territory. A well-concerned remedy. Next question is what could have been the guideline?

If State lotteries are gambling and it cannot be terms as 'trade and commerce' at common parlance for any free right under the Constitution. Such right though recognized under Article 298, so other States may continue to enjoy till prohibited by valid law, and if any State wants within its State lottery-free zone and for which the power is entrusted to such State, it cannot be said in this setting and background and the nature of the subject that such a delegation is of its essential legislative power. The only guideline necessary in such delegation is to see that the State does not pick and choose one State from the other, which guideline is already provided in this Section.

It provides that such a ban could only be if it is applied to every other State. The only residual field of attack so far as this delegation could be, which has been attacked in this case, that the State could on one hand ban lotteries of every other State but run its own lotteries. It is argued that while a State bans lotteries of other States not to permit any gambling activity in the public interest as a policy but this very public interest is flouted by having lotteries of its own. It is true that unless this provision is read down to mean a State can only ban lotteries of other States when it bans as a policy its own lotteries it is bound to be subjected to the vagaries as pointed out and on deeper scrutiny it may not successfully stand.

But, by reading down the provision, which has to be read that it is only that State which decides lottery-free zone within its State can prohibit lotteries of other States clearly provides the guidance for the exercise of such a power. It is inbuilt and inherent in the provision itself in view of the scheme of the Act and nature of subject in issue. If interpretation as given on behalf of the State of Tamil Nadu is accepted that delegation of power is absolute, then the submission that such delegation is unbridled without any guideline carries great weight.

Submission for the State of Tamil Nadu is that the lotteries may be prohibited in phases, viz. while running its own lotteries yet prohibiting other lotteries, may be as a public policy, for law and order, for political reasons, morality, etc. For surviving such an interpretation given by Mr. Ganguli, Parliament should have provided some guidelines. Such an interpretation falls into the trap of the submission that this delegation is unbridled. So, if there are two interpretations, the interpretation which upholds the validity should be accepted. So, the interpretation as given by Mr. Ganguli cannot be accepted.

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 organized 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. In this situation, the delegate is tied down by this limitation which itself is a clear guide to a State hence cannot be said to be unbridled delegation. So even to the first part it cannot be said to be arbitrary or unbridled. So, we have no hesitation to approve the interpretation given by the Union to uphold the validity of Section 5." Relying on the above quoted paragraphs, learned senior counsel for the appellants vehemently contended that the State shall either prohibit the sale of all lotteries or allow the sale of all lotteries in the State. Selective prohibition of a particular type of lottery is impermissible in the light of the above binding judgment.

8. In support of this submission learned senior counsel apart from the decision in B.R. Enterprises (supra) relied on the following decisions, viz., The Senior Electric Inspector and Others vs. Laxmi Narayan Chopra and Others 1962 (3) SCR 146, State (Through CBI/New Delhi) vs. S.J. Choudhary (1996) 2 SCC 428 and SIL Import, USA vs. Exim Aides Silk Exporters, Bangalore (1999) 4 SCC 567.

9. The learned senior counsel for the State of Kerala-the respondent herein supported the impugned notification by contending that the State Government is competent to prohibit a particular type of lottery. There is no fetter on the power of the Government under Section 5. Learned senior counsel further submitted that when the Parliament enacted the Act in the year 1998, there was nothing before it to presume that in times to come online lotteries will also come into existence apart from the paper lotteries and, therefore, the provision of Section 5 which empowers the State Government to prohibit the sale of tickets of a lottery organized, conducted or promoted by every other State necessarily relate to paper lottery. Even otherwise, online lottery is different from paper lottery and can be treated as a class in itself.

The State Government is, therefore, empowered under Section 5 of the Act to prohibit the sale of online lotteries or internet lotteries in its State. He further submitted that the Central Government itself treated online lotteries as a different class in itself and, therefore, framed the Rules providing the rules and regulations for organizing paper lottery or online lottery or both subject to certain terms and conditions. Thus, the intention of the Parliament was to treat paper lotteries and online lotteries a different class. The decision in B.R. Enterprises (supra) would therefore necessarily be understood to relate to paper lotteries only. The said decision cannot be construed as a precedent. So, the declaration of law, made therein, is not applicable to online lotteries.

It is also submitted that prohibition of sale of online lotteries has been made bona fide and the classification is reasonable and not arbitrary. Learned senior counsel further submitted that the scheme of Section 4 would show that the Act was framed with a view to deal with paper lotteries which were in vogue at that point of time whereas the distributors of online lotteries do much more than selling the tickets. They decide and implement the lottery schemes, provide infra- structure and technology, print lotteries and participate in the conduct of draws. Section 4(h) of the Act prohibits holding of draws, more than once in a week. This restriction has been made taking into account the conduct of paper lotteries. But, in online lotteries, 70 to 100 draws are made every day in a week. On the above grounds the respondents prayed for dismissal of the appeals.

Discussion:

10. Before going into the validity of the impugned notification, it is fruitful to refer to certain provisions of the Act. The relevant portion of the Statement of Objects and Reasons for framing this legislation is as under: "The conduct of certain types of lottery trade in the country, the malpractices thereof and their impact on the poorer sections of the society has been under scrutiny of the Government for quite some time. The continued prevalence of the popularly known single digit and instant lotteries and the temptation offered by them proved to be the undoing of many families, especially poor daily wagers and low income groups. In spite of the guidelines issued by the Central Government over a period of time as also the guidelines issued in the recent past by the Honourable Supreme Court.

In the matter, the evil has not been totally eliminated and it is felt that a Central legislation to regulate the conduct of lotteries is necessary to protect the interest of the gullible poor." Section 2(b) defines 'lottery' which reads as follows: "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."

3. Prohibition of lotteries.-Save as otherwise provided in Section 4, no State Government shall organize, conduct or promote any lottery. Section 4 enumerates the conditions, subject to which a State Government may organize, conduct or promote a lottery, which reads as follows:

"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;

(b) the State Government shall print the lottery tickets bearing the imprint and logo of the State in such manner that the authenticity of the lottery ticket is ensured;

(c) the State Government shall sell the tickets either itself or through distributors or selling agents;

(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;

(f) the prize money unclaimed within such time as may be prescribed by the State Government or not otherwise distributed, shall become the property of that Government;

(g) the place of draw shall be located within the State concerned;

(h) no lottery shall have more than one draw in 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 ticket 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."

11. From the above provisions, it can be seen that the tickets of a State- run lottery shall be printed by the State itself. Sale of tickets alone is permitted through the agents or through distributors. The entire sale proceeds have to be credited in the public account of the State. Draws of all the lotteries have to be conducted by the State Government. No lottery can have more than one draw in a week. Bumper draws shall not be more than six in a calendar year.

The cumulative effect of sub-sections (h) and (j) appears to be that a State can run only 52 ordinary lotteries and six bumper lotteries in a year. Section 5 empowers the State Government to prohibit the sale of tickets of lotteries organized, conducted or promoted by every other State Government. Section 6 empowers the Central Government to prohibit the conduct of lotteries, which are in violation of the provisions of Section 4 or which are sold in contravention of the prohibition imposed by the State Government under Section 5. Section 7 provides the penalty for running a lottery in violation of the provisions of the Act.

The Head of the Department and other officers responsible for the conduct of the lottery shall be punished with imprisonment, which may extend to two years or with fine or with both. Similar punishment can be imposed on those who sell or purchase the tickets of such a lottery. Section 8 makes the offences under the Act cognizable and non-bailable. Cognizable offence means an offence for which a police officer may arrest the accused without warrant (Section 2(c) of the Code of Criminal Procedure, 1973 (in short 'the Code'). In this background, it is also relevant to quote Section 4 of the Code which reads as follows:

"4. Trial of offences under the Indian Penal Code and other laws:-

(1) All offences under the Indian Penal Code (45 of 1860) shall be investigated, inquired into, tried, and otherwise dealt with according to the provisions hereinafter contained.

(2) All offences under any other law shall be investigated, inquired into, tried, and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiring into, trying or otherwise dealing with such offences." Since no provision is made for investigating the offences under the Act, the provisions under the Code will apply to its investigation, by virtue of Section 4(2) of the Code quoted above.

12. It is also relevant to mention the Notifications issued by the State Government from time to time.

"Government of Kerala

Reg. No. KL/TV(N)/12/2003-2005

2005

KERALA GAZETTE

EXTRAORDINARY

PUBLISHED BY AUTHORITY

Vol.L Thiruvananthapuram

13th January, 2005

Volume 50 No. 77 Pousha

Thursday 23rd1926

GOVERNMENT OF KERALA

Taxes (H) Department

NOTIFICATION G.O.(P) No. 4/2005/TD dated, Thiruvanathapuram, 13th January, 2005.

S.R.O. No. 34/2005 - In exercise of the powers conferred by Section 5 of the Lotteries (Regulation) Act, 1998 (Central Act 17 of 1998), the Government of Kerala hereby prohibit the sale of all Computerised and Online lottery tickets marketed and operated through vending machines, terminals, electronic machines and tickets sold through Internet in Kerala, with immediate effect and declare that Kerala shall be the free zone from Online and Internet

By order of the Governor.

P. MARA PANDYAN,

Secretary to Government

Explanatory Note

(This does not form part of the Notification, but is intended to indicate its general purport).

Government have decided to prohibit the sale of computerized and online lottery tickets in the State of Kerala with immediate effect This notification is intended to achieve the above object."

"Government of Kerala

Reg. No. KL/TV(N)/12/2003-2005

2005

KERALA GAZETTE

EXTRAORDINARY

PUBLISHED BY AUTHORITY

Vol.L Thiruvananthapuram

27th January, 2005

Volume 50 Thursday 7th 1926

No. 169 Magga

GOVERNMENT OF KERALA

Taxes (H) Department

NOTIFICATION G.O.(P) No. 11/2005/TD

dated, Thiruvanathapuram, 27th January, 2005. S.R.O. No. 73/2005 - WHEREAS Notification II G.O. (P) No. 4/2005/TD dated 13th January, 2005 published as S.R.O. No 34/2005 in Kerala Gazette Extraordinary No. 77 dated the 13th January, 2005 prohibiting the sale of computerized and online lottery tickets in the State of Kerala has been issued under Section 5 of the Lotteries Regulation Act, 1998 (Central Act 17 of 1998).

AND WHEREAS the Government of Kerala have decided to prohibit the sale of all lotteries organized, conducted or promoted by the State of Kerala with immediate effect. AND WHEREAS the Government of Kerala have decided to prohibit the sale of tickets of all lotteries organized, conducted or promoted by every other State Government also;

NOW THEREFORE, in exercise of the powers conferred by Section 5 of the Lotteries (Regulation) Act, 1998 (Central Act 17 of 1998) and all other powers enabling for it, the Government of Kerala hereby prohibit the sale of tickets of all lotteries organized, conducted or promoted by every other State Government including lotteries organized, conducted or promoted by the Government of Kerala in the State of Kerala with immediate effect and declare that the State of Kerala shall hereafter be a Lottery Free Zone.

By order of the Governor.

P. MARA PANDYAN,

Secretary to Government

Explanatory Note

(This does not form part of the Notification, but is intended to indicate its general purport). Government of Kerala have decided to make the State of Kerala a Lottery Free Zone.

This notification is intended to achieve the above object.

II

G.O.(P) No.11/2005/TD dated, Thiruvananthapuram, 27th January, 2005. S.R.O.No. 74/2005, - In exercise of the powers conferred by subsections (1) and (2) of section 12 of the Lotteries (Regulation) Act, 1998 (Central Act 17 of 1998), the Government of Kerala hereby make the following rules to repeal the Kerala State Lotteries (Regulation) Rules, 2003 issued in G.O.(P) No. 118/2003/TD dated the 16th July, 2003 and published as S.R.O.No 646/2003 in the Kerala Gazette Extraordinary No. 1278 dated the 16th July, 2003, as amended subsequently, namely:-

Rules 1. Short title, application and commencement:-

(1) These rules may be called the Kerala State Lotteries (Regulation) (Repeal) Rules, 2005.

2. These rules shall apply to the whole of the State of Kerala.

3. They shall come into force at once.

2.

Repeal:- The Kerala State Lotteries (Regulation) Rules, 2003 is hereby repealed.

By order of the Governor.

P. MARA PANDYAN,

Secretary to Government

Explanatory Note

(This does not form part of the Notification, but is intended to indicate its general purport). Government of Kerala by notification issued as G.O.(P)No.11/2005/TD dated 27th January, 2005 and published as S.R.O.No 73 in Kerala Gazette Extraordinary No. 169 dated 27th January, 2005 has prohibited the sale of lottery tickets organized, conducted or promoted by the Government of Kerala. Accordingly the Kerala State Lotteries (Regulation) Rules, 2003 has to be repealed. This notification is intended to achieve the above object."

"Government of Kerala

Reg. No.KL/TV(N)/12/2003-2005 2005

KERALA GAZETTE

EXTRAORDINARY

PUBLISHED BY AUTHORITY

Vol.L Thiruvananthapuram

22nd April, 2005

Volume 50 Friday No. 837 2nd Vaisakha 1927

GOVERNMENT OF KERALA

Taxes (H) Department NOTIFICATIONS G.O.(P) No. 382/2005/TD dated, Thiruvanathapuram, 22nd April, 2005. S.R.O. No. 73/2005 - WHEREAS Notification II G.O. (P) No. 4/2005/TD dated 13th January, 2005 published as S.R.O. No. 34/2005 in Kerala Gazette Extraordinary No. 77 dated the 13th January, 2005 prohibiting the sale of computerized and online lottery tickets in the State of Kerala.

AND WHEREAS, by Notification No. I issued as G.O. (P)No.11/2005/TD dated 27th January, 2005 and published as S.R.O.No. 73 in the Kerala Gazette Extraordinary No. 169 dated the 27th January, 2005, the Government of Kerala prohibited the sale of tickets of all lotteries organized, conducted or promoted by every State Government including that of State of Kerala and declared the State as a Lottery Free Zone.

NOW THEREFORE, in exercise of the powers conferred by Section 5 of the Lotteries (Regulation) Act, 1998 (Central Act 17 of 1998) and in partial modification of the Notification issued as S.R.O. No. 73/2005 dated the 27th January, 2005, the Government of Kerala hereby lift the prohibition partially by permitting the sale of paper lotteries organized, conducted or promoted by every State Government including the State of Kerala provided that the prohibition imposed on the sale of computerized and online lottery tickets organized, conducted or promoted by every State Government shall continue to remain in force and the territory of the State of Kerala shall be online, internet and computerized lotteries free zone.

By order of the Governor.

P. MARA PANDYAN,

Secretary to Government

Explanatory Note

(This does not form part of the Notification, but is intended to indicate its general purport).

Government of Kerala by notification issued as G.O. (P) No. 66/2005/TD dated 20th April, 2005, have reconsidered the issue of the prohibition imposed on the sale of all Lottery Tickets in the State of Kerala and have decided to reintroduce Paper Lottery conducted by the State Government with the same pattern and prize Structure as it prevailed before 27th January, 2005."

From a perusal of the Notification dated 13.01.20015, issued by the Government of Kerala, we find that the State had prohibited the sale of all computerized and online lottery tickets marketed and operated through vending machines, terminals, electronic machines and tickets sold through internet in Kerala. However, by notification dated 27.01.2005, the State had prohibited the sale of tickets of all lotteries in the State of Kerala. Vide notification dated 27.01.2005, the Government of Kerala made the Kerala State Lotteries (Regulation) (Repeal) Rules, 2005 which repealed the entire Kerala State Lotteries (Regulation) Rules, 2003.

Vide another notification dated 22.04.2005, the Government of Kerala lifted the prohibition of sale of paper lotteries organized, conducted or promoted by every State Government including the State of Kerala. However, the prohibition imposed on the sale of computerized and online tickets continued to remain in force.

13. In the 2010 Rules, framed by the Central Government, online Lottery has been defined under Rule 2(1)(e) which is as under- "'online lottery' means a system created to permit players to purchase lottery tickets generated by the computer or online machine at the lottery terminals where the information about the sale of a ticket and the player's choice of any particular number or combination of numbers is simultaneously registered with the central computer server;" Rule 3 permitted the State Government to organize a paper lottery or online lottery or both subject to the conditions specified in the Act and these rules. Thus from the Rules, it is clear that online lottery is being treated as a separate lottery from paper lottery and it is a class in itself.

14. In the case on hand, we are mainly concerned with the provisions of Section 5 and Section 6 of the Act. These two Sections cover different fields. Section 5 deals with prohibition of sale of tickets, whereas Section 6 deals with prohibition of conduct of the lottery itself. So, Section 5 enables the State Government to prohibit the sale of tickets of lotteries run by every other State Government. The grounds on which prohibition of sale of tickets can be made are not detailed under Section 5. But, the same can be gathered from other provisions of the Act and also by reference to the Object and Scheme of the Act. Going by the scheme of the Act, it appears that violation of any of the conditions contained in Section 4 could be a ground for the State Government to prohibit the sale of tickets of a particular lottery, organized, conducted or promoted by any other State Government.

If the State Government thinks it fit, it may prohibit the sale of all lottery tickets in the State and make it a lottery free zone. Section 6 empowers the Central Government to prohibit a lottery run by the State Government. The Central Government can prohibit the running of a lottery by a State Government if it is found that the same is in violation of the provisions of Section 4. The Central Government can also prohibit the running of a lottery if it is found that the tickets of that lottery are sold in a State, where the sale of the same has been prohibited by the concerned State Government under Section 5.

15. In view of the above, it is relevant to mention Entry 40 under List I and Entry 34 in List II of the Seventh Schedule and Article 246 of the Constitution of India which are as under:- Entry 40 List I-Union List "40. Lotteries organized by the Government of India or the Government of a State."

Entry 34 List II-State List

"34.Betting and Gambling."

Article 246 of the Constitution

"246. Subject matter of laws made by Parliament and by the Legislatures of States.-

(1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the "Union List").

(2) Notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List").

(3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the "State List").

(4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List." It is common case that the Parliament, by virtue of Entry 40 under List I of the Seventh Schedule, has got exclusive power to legislate on State lotteries,. By virtue of Entry 34 in the State List, concerning betting and gambling, State Legislatures have the power to legislate on lotteries, other than State Lotteries because it is also one of the forms of gambling

16. The State of Sikkim, in its trading capacity, has been organizing, conducting and promoting online lotteries in accordance with the provisions of the Act and lottery tickets are being sold in various lottery playing States in India including the State of Kerala. The State of Sikkim, as pleaded before this Court, substantially depends on the revenue raised by the sale of lottery tickets. It is a north eastern State with no avenues of industrialization. It is the case of the appellants that they started the business of online lottery in the State of Kerala in the year 2003.

Online lottery is a tamper proof lottery which has been designed using the aid of modern technology that eliminates all the ills of paper lottery and has greater transparency and is universally recognized as a tamper proof and safe method of conducting lotteries. Modernization led to spurt of computerization, satellite and internet connectivity which bears a great impact on every aspect of life, made things easier and faster and brought in more transparency. Thus began lottery in another form, popularly called "online lottery." The difference in the lotteries of this form is that "online" is free from possibility of any duplication, tamper etc., and is totally transparent.

17. Online lotteries became popular in our country, only recently. It made their presence felt in India from 2000-2001 onwards. Though all types of lotteries are meant to be covered by the Lotteries (Regulation) Act, 1998, the deleterious effect of paper lotteries was uppermost in the mind of the Central Government while bringing forth the above legislation as, at the relevant time, paper lotteries were most popular among the people. The various sub-sections of Section 4 will reveal that the irregularities in the conduct of paper lotteries were mainly in the contemplation of the Parliament. The decision in B.R. Enterprises (supra) also dealt with the prohibition of sale of tickets of paper lotteries invoking power under Section 5 of the Act.

Still, the general principles laid down by this Court in the abovementioned case, while interpreting Section 5, are binding. So, the power to prohibit sale of tickets is granted in relation to a particular lottery or particular type of lottery. That means, a particular lottery can be the subject-matter of prohibition. In other words, all types of lotteries need not be prohibited. But, going by that decision, a particular type of lottery can be prohibited, if only, the State Government also does not run that lottery. The online lottery is a particular lottery, which is not run by the State Government. So, going by the principles laid down in B.R. Enterprises (supra), the State Government can separately ban the sale of online lotteries as online lottery is a particular class of lottery, different and distinct from paper lotteries.

18. Learned counsel for the appellants also brought into notice para 21 of the Writ Petition filed before the High Court to show how the system of online lottery functions, which is as under: "The Online lottery involves installation of a Central Server, various terminals, which are connected to the said Central Server through a satellite and all this involves huge expenses running into hundred of crores. In this online lottery form, there are no pre-printed tickets as such. A person interested to purchase a ticket of online lottery comes to the terminal, fills a play-slip with numbers selected by him and hands it over to the person manning the terminal. This play-slip is put into the terminal and numbers selected by the player are transmitted to the central server, which registers the said numbers.

A person may not like to select any numbers and may play lucky dip in which case the computers makes random generation of numbers itself and transmit them to the central server, which registers the said numbers. In either of the cases after the central server has registered the numbers, it generates a ticket and commands the terminal, which acts like a fax on command and delivers the ticket, which is on an imported thermal paper. The ticket besides containing these numbers contains various codes, details as also bar codes, which ensures against any possibility of any duplication etc.

The game is made more interesting and entertaining since the player has option to choose numbers for himself. Like paper lottery in this case also various tickets can be printed and sold as such, however, the same may not sell at all because the player does to like to lose the charm of selecting the numbers himself. However, whatever be the position, all the details regarding the number of tickets sold, their respective playing numbers, the number to tickets sold from each terminal etc. are all available in the central server.

The generation of tickets for any particular scheme closes 30 minutes before the holding of the draw and no retail terminal can generate a ticket for such draw after such closing and at the time of draw all the details are readily available to the authorities immediately before the draw. The draw is held by the respective State themselves through a tamper free machine and is telecast on the Zee Television Network and watched by the public at large."

19. It was also contended before this Court that in exercise of the powers conferred by Section 5 of the Act and in partial modification of the notification issued earlier declaring Kerala a lottery free zone State, the Government lifted the prohibition partially by permitting the sale of paper lotteries and the prohibition imposed on the sale of computerized and online lotteries continued to remain in force declaring the territory of Kerala to be online, internet and computerized lottery free zone. The legislative competence in respect of State run lotteries vests exclusively with the Centre except where a State is a lottery free State and that only the Central Government will have the power to deal with the same. The notification dated 22.04.2005 was issued by the State on the ground that the State of Kerala shall be an online lottery free zone.

20. The State of Kerala is of the view that online lottery and conventional paper lotteries are to be dealt separately and are entirely different in every aspect by the nature and features inherent in it. The State of Kerala is of the view that online lottery does not characterize the features of a lottery as defined under the Act. In fact, the so-called online lottery is not a lottery as it is a widespread network using internet, cheating the public in a massive way in the absence of a proper regulatory system of the same standards. The online companies are merely 'gaming', but not conducting any lottery as per the guidelines issued under the Act.

It is further pleaded that though it is claimed that online lotteries are universally recognized as tamper proof lotteries, in experience, it is felt that the so-called online lotteries were cheating the massive gullible public by misusing the advancement of information technology in the field of economy. The Government of Kerala has detected and established before the Union Government that online lotteries organized by the State of Sikkim are blatantly violating the provisions of Section 4 of the Act. It was further contended that the Central Act was enacted by the Parliament on 07.07.1998. At the time of formulating the Act, only conventional paper lottery was being conducted in the country. No online lottery existed at the time of enactment of the Act.

The Central Act did not envisage or took into account the online lotteries in the definition clause while stipulating conditions under section 4 of the Act for organizing, conducting or promoting a lottery by a State Government. The conditions stipulated therein are only intended to cover the conduct of paper lotteries. The Government of Kerala has detected the flagrant violations and fraud inherent in the online lotteries and also the illegal activities of the appellants which directly affects more than 15 lakhs people of Kerala who have already been deceived and are being continuously cheated on minute to minute basis. The ill effects of these lotteries had assumed major dimensions in the State. The newspaper reports, petitions from the public and reports from the police reveal the magnitude of its ill effects, which include suicides, divorces, starvation and murders. This created more hardship to the respondent-State.

21. The violations in terms of the Act in the case of Meghalaya, Sikkim and Nagaland State lotteries have already been furnished to the Union Government on 12.01.2004 and 23.08.2004, some of which mentioned by the Division Bench of the High Court in the judgment are as follows:-

"(a) The online lottery tickets of Meghalaya, Sikkim and Nagaland States are printed by the terminal in violation of Section 4(b) of the Lotteries (Regulation) Act, 1998

(b) The tickets of these States are printed in the stationery of the Sole- selling agent.

(c) The draws are conducted in such a manner that the transparency and credibility of the draw process is not at all established. According to Meghalaya rules, the presence of one Judge shall form the quorum.

(d) The draws are conducted daily in a severe gambling fashion and in violation of Section 4(h) and prizes are offered on the basis of a single digit violating Section 4(a) of the Act.

(e) There are clear similarities in the name of different lotteries and they follow the same prize pattern, obviously making an attempt to circumvent Section 4(h)."

It is then pleaded that in practice, the so-called online lotteries, mislead the general public by its mesmeric gambling instinct inherent in it. People are attracted to the modern technology used in these lotteries and the instantaneous nature of it. They spend all their time in front of the online outlets and spoil all their money. They are being trapped by the simple prizes they get and they invest the remaining part of their money in a hope to get more and more big prizes. This is a continuous process starting from early in the morning and extends too late in the night.

The lotteries conducted by these online companies have draws in every 15 minutes. Technically, they call it 'weekly lotteries' in order to circumvent the objectives of the Act, but in result they are ridiculously setting aside the spirit of the Act. As a technical argument, each lottery has only one draw in a week. The draw of one lottery repeats only in the next week. But, the tactics followed by these States is that they are conducting more than 100 lotteries with very strange names and by assigning pseudonyms. The online lotteries running in Kerala were in flagrant violation of the provisions of the Act and this fact was detected by the State of Kerala.

The State of Kerala has made known this fact to the Union Government twice. The findings of the Government of Kerala revealed that the other States, on whose behalf the lotteries are being conducted in Kerala, have least control over them and major source of income from these gambling type of lotteries siphoned by the so-called middlemen who acts in the name of 'sole selling agents'. Similarly, the States of Karnataka and Arunachal Pradesh have stopped the sale of online lotteries as they have admitted the violations pointed out by the State of Kerala.

Online lotteries are being conducted under the name of other State Governments, circumventing the provisions of the Act, and also the single digit lotteries through dubious methods adopted by their distributors and agents. In some cases, some lotteries except one digit all other digits will be pre-fixed and the buyer has to choose only a single digit. In some other cases, one digit of two digit number or of three digit number will be changing continuously, but in a pre-determined cyclic manner, which shows that the draw is held only for one digit.

It was detected from the lottery terminals that the tickets of States of Meghalaya and Nagaland are being printed one after another from the same terminal and the same pool in an unbroken manner. Several tickets without the imprint and logo of other State Governments and even without signature of the authorized officer of those States have been found being sold in the State of Kerala. Standard set of rules are printed on the reverse side of the stationery and tickets of more than one States are being printed on the same material, by the same terminal in unbroken strips. The proceeds of the sale of online lotteries are rather shared by the distributors and agents without crediting in the public account of the respective States, in violation of the provisions of the Act. The details of unclaimed money are not brought to the knowledge of the other State Governments, whereas the unclaimed prize money is being appropriated by the distributors and agents.

The place of draw is not at all located within the other States, whereas the same is being conducted according to the convenience of the distributors. The lottery distributors and agents of other State Governments are resorting to such unscrupulous methods and conducting online lotteries in every 15 minutes from the lottery terminals. The Lottery Department of the State had detected the draws being conducted in lottery outlets for more than 49 draws in a day.

22. The provisions in respect of Sikkim State Lotteries was reported to the Ministry of Home Affairs, Government of India on 12.01.2004. The scheme of lotteries furnished by the Government of Sikkim revealed that they were not in conformity with the provisions of Section 4 of the Act. The irregularities/violations in respect of the Sikkim lotteries being sold in Kerala in the year 2004 were brought to the notice of the State Government earlier with a request for further documents/clarifications. Some of these violations/ irregularities are briefly mentioned below:

"i. On a perusal of the agreement between the Government of Sikkim and M/s. Tashi Delek Gaming Solutions Pvt. Ltd., the Marketing Agent, it is seen that the agreement with the marketing agent is executed seven days before the Sikkim Online Network Lottery Rules came into effect.

ii The Marketing Agent is vested with powers more than what the Lottery Regulation Act permits. The State of Sikkim was asked to offer specific remarks on this.

iii. Since a detailed description of the method of draw was not furnished by the State of Sikkim, the same was called for from this office.

iv. As per rule 12 of the Sikkim Online Network Lottery Rules, 2001, the tickets will be printed on pre-printed ticket material. On perusal of the tickets of Super-Lotto and Thunder Ball it is seen that the specimen play slips furnished by the Director of Lotteries, Sikkim bear the imprint and logo of PLAYWIN. This shows that the tickets are instantly printed at the retail computer terminal, violating Section 4(b) of the Lotteries Regulation Act, 1998.

v. The contractual agreement between the Play Win sub-agent and the distributors was not furnished. So also the names of distributors for certain districts in Kerala were not furnished.

vi. The Government has furnished the details of 926 retail outlets operating in the State. But the contractual agreement between the distributor and these retail outlets were not submitted.

vii. The marketing Agent under the Sikkim State Lotteries is empowered to set-up the required infrastructure and use of technology for the draw purpose. It is clearly more than what is statutorily permissible under Section 4(c) of the Act.

viii. As per Section 4(e) of the Central Act, 'the State Government itself shall conduct the draws of all the lotteries.' But actual conduct of the draws is done by the Marketing Agent, reducing the role of the State Government to that of a mere spectator, thereby violating the above provision.

ix. The Thunderball, the last prize amount of Rs.20/- is 'when one main number and the Thunder ball (fixed) are matched.' Until clarifications to the contrary are provided with evidence, it has to be presumed that this is a camouflaged single digit lottery specifically prohibited under Section 4(a) of the Central Act."

It was also pointed out in the letter to the Government of India that Sikkim has delegated more rights and responsibilities to the Marketing Agents than what is statutorily permissible under the Act. However, regarding the appointment of Marketing Agents, the State of Sikkim has informed that they will discuss the matter with the legal wing. The State of Sikkim has admitted that the tickets are printed on PLAYWIN Stationery, clearly admitting violation of Section 4(b) of the Act.

With regard to the allegation that 'Thunder Ball' lottery is being organized on the basis of single digit, the State of Sikkim has not offered any reasonable explanation or furnished any document instead the State has merely refuted the same. Even though the State of Sikkim was requested to furnish details/documents/clarifications regarding the allegations raised, no reply was received from it. The Government of Sikkim was reminded on 11.05.2004 and 15.06.2004 to furnish the details called for earlier and also to provide details of the new lotteries introduced by them in Kerala.

There has been no response from the State so far. Thus the violations and irregularities pointed out in respect of Sikkim State Lotteries as in January, 2004 continue unabated. This shows that the Government of Sikkim is not inclined to address the serious issues pointed out by the Government of Kerala with regard to the illegalities and violations connected with Sikkim State Lottery tickets which are being sold among the public in Kerala.

Conclusion:

23. The conduct of certain types of lottery trade in the country, the malpractices thereof and their impact on the poorer sections of the society have been under scrutiny of the Government for quite some time. The continued prevalence of the popularly known single digit and instant lotteries and the temptation offered by them proved to be the undoing of many families, especially poor daily wagers and low income groups. In spite of the guidelines issued by the Central Government over a period of time as also the guidelines issued in the recent past by this Court, the evil has not been totally eliminated.

24. The relevant provisions of the Act clearly demonstrate that even though all types of lotteries are meant to be regulated by the said Act, online lotteries were not under the contemplation of the Central Government at the time when the Act came into force. It is otherwise also not a disputed fact that online lotteries became popular insofar as India is concerned only recently and in any case after the enforcement of the Act and that is why the Government of India while framing the 2010 Rules specifically defined 'online lotteries'.

Having this background in mind, the Scheme of the Act would clearly show that the Government at that stage was concerned with paper lotteries of all kinds. From the preamble of the Act spelled out from the Statement of Objects and Reasons as re-produced hereinbefore, the necessity to bring about legislation in the matter of regulating lotteries was felt on account of continued prevalence of single digit and instant lotteries. It was primarily done to curb malpractices in the conduct of such lotteries which at that time were paper lotteries only when the Act came into force.

25. With regard to the contention regarding the function of the online lottery, we are of the considered view that any type of manipulation can be done in the printing of tickets at the terminal. The customer cannot know whether the ticket is printed at the terminal based on the command from the central server or not. The State of Sikkim does not have any control over its thousands of terminals all over India. As per Section 4(h) of the Act, the draw should be held once in a week.

It means a fortune seeker, after purchasing the ticket, will get a week's cooling time to wait for the result of the draw. But, under the scheme of online lotteries, a number of lotteries run simultaneously. So, by holding several lotteries, there can be several draws with a gap of few minutes in a day and the gullible will remain glued and there is every likelihood of purchase of tickets repeatedly, till all his savings are exhausted.

So, if the Government takes a decision in public interest to prohibit online lotteries, this Court should not interfere with the said decision unless there are compelling grounds. As held earlier, going by Section 5, as interpreted by this Court in B.R. Enterprises (supra), the sale of ticket of a particular lottery can be prohibited provided the concerned State Government is not running that lottery. While interpreting a Statute of this nature meant to suppress the mischief of gambling, this Court should accept the concept of purposive interpretation and if possible save the notification intending to save the people from the vice of gambling.

26. It is common case that lottery is a species of gambling. Gambling is considered as a pernicious vice by all civilized societies from time immemorial. The Rigvedas, Smritis and Arthashastras have condemned gambling as a vice. Several Judges and learned authors are unanimous in their condemnation of gambling. Experience has shown that the common forms of gambling are comparatively innocuous when placed in contrast with widespread pestilence of lotteries. The former are confined to a few persons and places, but the latter infests the whole community; it enters every dwelling; it reaches every class; it preys upon the hard earnings of the poor; it plunders the ignorant and the simple.

27. In Words and Phrases, Butterworths, 3rd Edition at page 71, it is stated as follows: "It must not be entirely forgotten in the construction of these Acts of Parliament (see now the Lotteries and Amusements Act, 1976) that the evil which the lottery law has sought to prevent was the evil which existed where poor people with only a few pence to feed their children would go and put these few pence into a lottery and lose them, and this sociologically was a bad thing..."

28. Even in B.R. Enterprises (supra), t