DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA, SABBAVARAM, VISAKHAPATNAM - 531035

ANDHRA PRADESH, INDIA

TITLE OF THE RESEARCH PAPER

Interpretation of cases under lotteries (regulation) Act, 1998

By

Name of the Student: SHAIK J RAHAMAN

Roll No.: 2017083

Semester: 6th

Name of the Program: 5 year (B.A., LL.B. / LL.M.)

Name of the Faculty Member: Mr. R. Bharat Kumar

Date of Submission: 12-12-2020

 TABLE OF CONTENTS

Sl. No. Contents Pg. No.

1. Table of Contents 1
2. List of Abbreviations 1
3. List of Cases 2
4. Introduction 3
5. History 3
6. Definition 3
7. The constitutional provisions 4-5
8. Case Analysis 6-30
9. Conclusion 31
10. References 31

LIST OF ABBREVIATIONS

Sl. No. Short From Abbreviation

1. AIR All India Reporter
2. Anr. Another
3. GLR Gujarat Law Reporter
4. L. Ed. Lawyers’ Edition
5. Ltd. Limited
6. Ors. Others
7. Pvt. Private
8. SC Supreme Court
9. SCC Supreme Court Cases
10. SLP Special Leave Petition
11. TADA Terrorist and Disruptive Activities (Prevention) Act
12. ULFA United Liberation Front of Assam
13. UOI Union of India
14. W.P. Writ Petition
List of Cases

1. H. Anraj v. State of Maharashtra

2. J.K. Bharati v. State of Maharashtra
3. All Kerala Online Lottery Dealers Association v. State of Kerala and Ors.
4. BR Enterprises v. State of Uttar Pradesh 
5. M/S. Tashi Delek Gaming Solutions Ltd. & Anr. v. State Of Karnataka
6. M/s B.R. Enterprises etc. v. State of U.P. & Ors.
7. The Gujarat Lottery Sellers Association v. The State of Gujarat and Anr.
8. United States v. Kahriger

1
 9. Lewis v. United States
10. State of U.P. v. State of Mizoram and others
11. M/s. Jyoti Agencies and Anr. v. Union of India and Ors.
12. State of Nagaland v. Union of India and Ors.
13. Dilu Sahu v. State of Orissa
14. Sri Indra Das v. State of Assam
15. Arup Bhuyan v. State of Assam
16. Rajeev Puri v. State of H.P. and Ors.
17. State of Mizoram and Ors. v. Pooja Fortune Pvt. Ltd.
18. Union of India (UOI) & Ors. v. MartIn Lottery Agencies Ltd.
19. State of Sikkim and ors. v. State of Tamil Nadu and Ors.
20. Federation of Hotel and Restaurant Assn. of India v. Union of India

Introduction

Lotteries are a species of gambling. 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. 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

2
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.

History

India has a complicated and lengthy history with gaming. Archaeologists have found dice made
from cubes of sandstone and terracotta that date back to the Indus Valley civilization in 3300
BC, and there is evidence that the Indus Valley people engaged in cockfighting and betting.
Some of the ancient Indian mythologies also have a strong reference to gaming.

Lotteries are specifically excluded from the ambit of gambling through the states’ gambling acts.
Until 1998 there was no law with respect to regulation of lotteries. Parliament enacted the
Lotteries (Regulation) Act 1998 with the object of regulating lotteries, and to provide for matters
connected therewith and incidental thereto. On 1 April 2010, the government of India issued the
Lotteries (Regulation) Rules 2010, further regulating the lotteries in the country with regards to
number of draws, minimum prize payout, etc.

“Definition ‘Lottery’ has been defined in the Lotteries (Regulation) Act 1998 under Section
2(b), as follows: ‘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.”1

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.

1
The Lotteries (Regulation) Act, 1998, India Code, https://www.indiacode.nic.in/show-data?
actid=AC_CEN_5_24_00017_199817_1517807323788&sectionId=6734&sectionno=2&orderno=2.

3
Article 19(1) (g) of the Constitution declares that all citizens shall have the right to practice 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.

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 Maharashtra2 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
organized 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 Maharashtra3 the Supreme
2
H. Anraj v. State of Maharashtra, 1984 SCC 2 292.
3
J.K. Bharati v. State of Maharashtra, 1984 SCC 3 704.

4
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.

Case Analysis

“All Kerala Online Lottery Dealers Association v. State of Kerala and Ors.

Facts

The government of Kerala issued a notification dated 13th January 2005 under the Act declaring
Kerala to be a lottery free zone, wherein no lottery draws would be conducted by the state and
simultaneously sale of other states’ lottery tickets would also not be permitted in lines with the
division bench Supreme Court judgment of BR Enterprises v. State of Uttar Pradesh (AIR 1999
SC 1867). Consequently on 22nd April 2005, the Kerala government modified the notification to

5
allow itself to conduct paper lotteries. The new notification however noted that online or
computerized lotteries would remain banned.

Aggrieved by this notification, the All Kerala Online Lottery Dealers Association challenged the
notification in the Kerala High Court stating that banning only online lotteries was
discriminatory and against Section 5 of the Act, particularly as the Act does not make any
classification or categorization of lotteries into paper or online schemes. Both the single and
division benches of the Kerala High Court dismissed the petitions of the lottery dealers.

Simultaneously, one Bib hash Karmakar also approached the Supreme Court in public interest
stating that online lottery schemes run by states like Nagaland, Sikkim and Goa are being
conducted in contravention of the Act. The apex court clubbed all the matters but did not
particularly pass any directions relating to Karmakar’s petition, stating that lotteries violating
Section 4 of the Act can be banned by the central government.

Reasoning

The apex court noted that classification of lotteries into paper and online lotteries was not
discriminatory and thus was constitutionally permissible. Further, it noted that the scheme of the
Act indicates that it was designed to prevent the ill-effects of gambling and therefore courts
should interpret the Act in a manner as to prevent the mischief that was designed to be curtailed
by the Act. The court also observed that there was no unbridled or unfettered delegation of
powers under the Act to state governments as the BR Enterprises judgment had inserted
guidelines to be followed by states while banning lotteries under Section 5 of the Act (the
guideline being that state governments can only ban sale of lotteries of other states if they decide
not to themselves conduct lottery schemes).

Effectively, the court approved the interpretation laid down in BR Enterprises and noted that a
state can either ban either one or both categories of lotteries, run by other states, subject to the
guideline that the particular state government does not by itself run that particular class of
lotteries. For instance, a state is free to ban all forms of paper lotteries if it conducts only online
lotteries and vice-versa.

Conclusion

6
The judgment has only interpreted the position that was already followed by the state
governments and therefore a larger bench only gives clarity on the issue of online lotteries and
ratifies the division bench Supreme Court judgment in BR Enterprises on interpretation of
Section 5 of the Act. In fact, a careful perusal of Rule 3(1) of the Lotteries (Regulation) Rules,
2010 (“the Rules”) will also indicate that states can run either paper lotteries or online lotteries or
both. Consequently, interpretation of the Act and Rules also indicate the power of states to ban
either one or both species of lotteries

Contrary to the perception created in the media, certain adverse observations of the apex court on
online lotteries and gambling were obiter dicta and do not have any precedential or binding
value. Notably, Kerala has been the only state which has worked aggressively to ban lotteries
(both online and offline) conducted by other states. Additionally, popular belief in the gaming
industry that the decision will prompt the remaining lottery conducting states to ban online
lotteries may not entirely be correct. The decision of the Supreme Court is not likely to have an
impact on the online lottery schemes conducted by other governments, especially since such
online lotteries are very popular and contribute significantly to the state exchequers.”4

“M/S. Tashi Delek Gaming Solutions Ltd. & Anr. v. State Of Karnataka

Facts

It is not in dispute that the States of Sikkim and Meghalaya commenced online lotteries, inter
alia, in the State of Karnataka. It is, however, otherwise a lottery playing State. In exercise of its
power conferred upon it under Section 5 of the Lotteries (Regulation) Act, 1998 (for short, ‘the
Act’) a declaration was made that the State of Karnataka shall be free zone from online and
internet lotteries. By reason of the said notification sale of all computerized and online lottery
4
All Kerala Online Lottery Dealers Association v. State of Kerala and Ors., MANU/SC/1281/2015.

7
tickets marketed and operated through vending machines, terminals, electronic machines and
through internet in the State of Karnataka became prohibited with immediate effect.

Writ Proceedings: The States of Sikkim and Meghalaya together with its agents filed writ
petitions before the Karnataka High Court, challenging the legality and/or validity of the said
notification, inter alia, on the ground that the State of Karnataka, having itself been organizing
lotteries, could not have imposed the said ban having regard to the decision of this Court in M/s
B.R. Enterprises etc. v. State of U.P. & Ors.5

The contention of the State of Karnataka, on the other hand, was that online lotteries had nothing
to do with the conventional lotteries and as the State of Karnataka has put an embargo on online
lotteries without any discrimination, B.R. Enterprises case cannot be said to have any
application.

A preliminary objection was taken on behalf of the State that as the dispute involved in the writ
petitions related to two State Governments, the writ petitions were not maintainable, in view of
the constitutional bar under Article 131 of the Constitution of India. The said contention was
upheld by a learned Single Judge of the High Court holding, inter alia, that the agents of the State
of Sikkim and State of Meghalaya had no locus stand to maintain the writ petitions in view of the
fact that they did not have any independent right in that behalf. The agents of the State of Sikkim
preferred an intra-court appeal there against. The State of Meghalaya and its agents thereafter
also preferred writ appeals.

The contention of the Appellants herein being agents and distributors of the State of Sikkim is as
under: Section 4(c) of the Act permits the State Governments to sell tickets either itself or
through distributors or selling agents and in terms thereof the First Appellant M/s Tashi Delek
Gaming Solutions Ltd, was appointed by the State of Sikkim as an agent for sale of online
lotteries. The Second Appellant, Pan India Network Infravest Pvt. Ltd., is a distributor of the
First Appellant.

It was contended that the Appellants herein have invested a huge amount of 300 crores for
setting up the online lotteries network infrastructure and 861 retail outlets therefor. They have
been paying sales tax and other taxes running into crores of rupees to the Respondent-State and

5
M/s B.R. Enterprises etc. v. State of U.P. & Ors. (1999) 9 SCC 700.

8
have entered into diverse third party arrangements with distributors and retailers. It was
contended that by reason of the impugned notification, their investments made in this behalf
would go totally waste and they would be seriously prejudiced as they have borrowed funds from
banks and financial institutions on which interest is mounting manifold.

The State of Meghalaya and its agent, M/s Best & Co. in their writ petition, inter alia, contended
“The petitioner State for the purposes of sale of the online and internet lotteries appointed
Petitioner No.2 & 3 as its agent/sub agent to sell the said internet and online lotteries in various
States. Accordingly, the agent appointed other persons, retailers etc. for the purposes of
establishing computerized retail outlets in the State of Karnataka. At present there are 1000
number of retail outlets of the Petitioner State in the State of Karnataka and more than 30000
number of persons are dependent on the said business. The Petitioner No.2 and its agents have
spent more than Rs.100 crores for the establishment of the network of retail computer lottery
outlet. The sale from computerized online and internet lotteries in the State of Karnataka was
presently approximately Rs.90 lakhs per day.

Issue

The short question which arises for consideration is as to whether the writ petitions filed by the
Appellants herein were maintainable.

Reasoning

The Appellants herein were appointed as agents of the State, which were governed by contract,
in terms whereof, they had invested a huge amount. If the statements made in the writ petitions
to which we have adverted to hereinbefore are correct, in the event the impugned notification is
implemented the Appellants would not only loose a huge amount of money which they have
invested but also would be liable to pay compensation to a large number of work force appointed
by them in view of the fact that they would have to close their business. The Appellants are the
agents coupled with interest. Such agencies are contemplated under the laws of contract. The Act
also postulates that in the event an agent violates the notification issued by the State, he would
face the penal consequences laid down therein. The notification has the force of law. In the
aforementioned backdrop, the question which arises for consideration is as to whether the
Appellants herein had any independent right to question the validity of the said notification.

9
The learned Single Judge, as noticed hereinbefore, held that they did not have any such right. On
the other hand, the Division Bench was of the opinion:”....May be, the appellants also got
adversely affected with the prohibition imposed by the State of Karnataka but it is only
incidental because they are the agents of the State of Sikkim and can have their rights only
through their principal. We cannot subscribe to the said view.

‘Agent’ has been defined in Section 182 of the Indian Contract Act, 1872, to mean a person
employed to do any act for another or to represent another in dealings with third persons. The
person for whom such act is done, or who is so represented, is called the ‘principal’. Section 185
of the Contract Act postulates that no consideration is necessary to create an agency. The
authority of an agent may be express or implied in terms of Section 186 thereof. Section 202 of
the Contract Act provides that where the agent has himself an interest in the property which
forms the subject-matter of the agency, the agency cannot, in the absence of an express contract,
be terminated to the prejudice of such interest. The right of an agent to sue or be sued in its own
name is governed by Section 230 of the Contract Act, which reads as under:”

Section 230: Agent cannot personally enforce, nor be bound by, contracts on behalf of principle.

In the absence of any contract to that effect an agent cannot personally enforce contracts entered
into by him on behalf of his principal, nor is he personally bound by them.

The second part of the said provision does not envisage a situation where the right of an agent is
protected in terms of Section 202 of the Contract Act. We have noticed hereinbefore that Section
4(c) of the Act envisages appointment of agents, which empowers the State Government to sell
the tickets either itself or through distributors or selling agents. Such distributors or selling
agents may also be companies or body corporates. Section 7(3) of the Act, as noticed
hereinbefore, provides for a penal consequence. If any person acts as an agent or promoter or
trader in any lottery, he may be subjected to punishment if he sells, distributes or purchases
tickets of such lottery in contravention of the provisions of the said Act, which may include any
notification issued under Section 5 of the Act - Right to Sue.

An agent coupled with interest has a right to sue. He may in certain situations be sued as regard
his own liabilities independent of his principal...”

Conclusion

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It has not been contended, nor could it be contended that the Appellants are mere smoke screens
of the States of Sikkim and Meghalaya. In absence of such a plea and in view of the fact that the
Appellants here not been held to be mere strangers without having any legal right, we are of the
opinion that the writ petitions were maintainable. The impugned judgment, therefore, cannot be
sustained, which is set aside accordingly.

The appeals are allowed.

Keeping in view the fact that the Appellants are out of business, the High Court is requested to
consider the desirability of disposing of the writ petition as expeditiously as possible and
preferably within a period of two months from the date of communication of this order. The
Chief Justice of the High Court, having regard to the importance of the question, may also
consider the desirability of getting the matter heard out and disposed of by a Division Bench.
The Appellants are entitled to costs throughout. Counsel fee assessed at Rs. 25,000/- in each
appeal.”6

“B.R. Enterprises v. State of U.P. and Ors.

Facts

The whole gambit of sale of lottery tickets in India, both private and State lotteries, from the very
inception is drawing with concern attention of various authorities and Government including
courts, as to how to control the evil effects of lotteries on its people at large, more so, when in
complete banning, it effects in times of need, the very useful source of State revenue. Basically,
lotteries are gambling and its business is res extra commercial; but to shed off this, the State in

6
M/S. Tashi Delek Gaming Solutions Ltd. & Anr. v. State Of Karnataka, MANU/SC/2391/2005.

11
the interest of State revenue has been finding avenues to legitimate it through some
legitimization under the law to eliminate the impediments in collecting the State revenue and
dilute, if possible, the exploitation of the people. The immediate reference to which we are
concerned is Ordinance No. 20 of 1997 which was issued on 1st October, 1997, which came into
force on 2nd October, 1997 which restricted the lottery business organized by the States and
enabled the State Government to prohibit sale of tickets of lotteries of other States. Under the
said Ordinance, the State of U.P. issued notification dated 7th October, 1997 banning sale of
lottery tickets of the State of Nagaland in the State of U.P. This notification and the aforesaid
Ordinance was challenged by the State of Nagaland in the Gauhati High Court in civil Rule No.
4986 of 1997. The High Court stayed this notification. This Ordinance was also subject matter of
challenge in the High Court of Gujarat where in Special civil Appeal No. 7903 of 1997 (The
Gujarat Lottery Sellers Association v. The State of Gujarat and Anr.7), the High Court upheld
this Ordinance and the notification of Gujarat Government which banned the State lotteries
within the State of Gujarat, Against this, civil Appeal arising out of SLP (C) No. 22423 of 1997
has been filed which we are considering and disposing of by means of this judgment. The State
of U.P. filed civil Appeals arising out of SLP(C) Nos. 21304-21307 of 1997 as against the
aforesaid interim order passed by the Gauhati High Court staying the Ordinance in which this
Court directed the State of U.P. to move the Gauhati High Court. This order was passed as an
interim measure. In a Writ Petition No. 2200 of 1997 filed before the Allahabad High Court
(Lucknow Bench) by M/s. Ganga Agencies (Manipur State Lotteries), the High Court ordered
that so long the interim order of the Gauhati High Court is operative the sale of lottery tickets
shall be permitted to be sold in U.P..

Issues

1. Contrary to the usual pouring in of citizen’s writ petitions for vending their grievances
against the States, here we are drawn to decide issue inter se between two distinct sets of
States, one challenging and the other upholding certain provisions of The Lotteries
(Regulation) Ordinance 1997 (Ordinance No. 20 of 1997) (hereinafter referred to as the
Ordinance No 20) and now the Lotteries (Regulation) Act, 1998 (hereinafter referred to
as the 1998 Act). The Union Government, of course has joined this issue with one such

7
The Gujarat Lottery Sellers Association v. The State of Gujarat and Anr., 1997 SCC ONLINE GUJ 192.

12
 set of States for upholding its Act. The issue here is confined to the State lotteries under
Entry 40, List I of the Seventh Schedule of the Constitution of India. As a consequence of
the order passed by the State of U.P. banning State lotteries of other States by virtue of
power entrusted under Section 5 of the impugned Ordinance Act, various affected States
challenged the provisions in different High Courts. In some of them, interim orders were
passed and in others, the High Court’s finally disposed of the petitions. The Gujarat High
Court upheld the validity, while the Gauhati High Court struck down some of its
provisions as ultra vires. Against all the aforesaid orders and judgments, the aforesaid
appeals have been filed. One writ petition under Article 32 has also been filed raising the
same issue. Some of the aforesaid petitions are transfer petitions seeking transfer of
petitions pending in the various High Courts raising similar issues.
2. “In order to adjudicate issues in this case, one of the fundamental question raised is, what
the character of State lotteries is. If lotteries are gambling in nature, does it loose its
character as such when it takes on the cloak of State lotteries? Whether such cloak
dissolves its character as res extra Commercial? In any case, even it is legalized, would it
qualify to be or can it be held to be a trade within the meaning of Chapter XIII of the
Constitution of India? If it is a trade, are the provisions of the impugned Act violates the
Articles of Chapter XIII? Challenge to some of the provisions are based on the ground of
it being discriminatory and arbitrary, hence violate of Article 14 of the Constitution.
Finally, entrustment of power to the States under Section 5 is attacked as it being
unbridled without any guideline thus liable to be struck down.

Reasoning

We have summarized the relevant portions of the various decisions given by the Australian,
American and English Courts to show how they have received the lotteries in their countries, its
nature, impact on public at large, their concern about its regulation and control. There can be no
doubt, on the perusal of the said decisions that these courts considered lottery as gambling and
even where such lotteries were permitted under the regulating power of the state but were not
given the status of ‘trade and commerce’ as understood at common parlance. It is significant,

13
within the fertile and exclusive zone of interpretation, when situation arose, to interpret the word
‘commerce’ which normally would not have included ‘gambling’ within it, in the wider public
interest as to bring jurisdiction to the legislature to control or restrict ‘betting and gambling’
interpreted this also to come within commerce clause. This wider definition to the commerce
clause was given by the American Court with an objective to control such lotteries rather giving
absolute freedom to trade in it. Thus, the law in Champion case penalizing even carriage of
lottery tickets from one State to another was upheld. In cases United States v. Kahriger8 and
Lewis v. United States9, the Supreme Court of United states held that there is no constitutional
right to gambling.

Conclusion

In view of the findings recorded by us above, holding lotteries organized by the State is also
gambling in nature, thus the principle as laid down in RMDC case would equally be applicable
to the case of State lottery Section. Thus, State lotteries cannot be construed to be a ‘trade and
business’ within the meaning of Articles 301 to 303 of the Constitution of India. We also hold
that the impugned provisions are not violate of Article 14 nor the delegation of power by the
Parliament to the State Government could 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
Sub-clauses of Section 4 to be valid piece of legislation.

Accordingly, the decision of the Gauhati High Court which holds the provisions of the
Ordinance to be ultra vires and consequently staying the provisions of the impugned Act cannot
be sustained which is hereby quashed. Any decision of any Court or any interim order contrary
to the decision, as aforesaid, are hereby set aside. The various petitions which have been
transferred and which are subject matter of decision, as aforesaid, stand disposed of in terms of
this decision. We will be failing in our duty if we do not express our gratitude to learned Counsel
for the parties whose contribution to this vexed issue has been commendable. Their contributions
helped us greatly to decide this case.

8
United States v. Kahriger (1953) 345 U.S.22; 97 L. Ed. 754.
9
Lewis v. United States (1955) 348 U.S.419; 99 L. Ed. 475.

14
In view of the aforesaid findings, all the aforesaid matters stand disposed of by upholding the
impugned provisions and the Act to be valid. Costs on the parties Section B.K.M.
Appeals/Petitions dismissed.”10

M/S. B R Enterprises v. State Of UP11

Facts

Before taking up for consideration the various points raised, it is necessary to dwell certain bare
facts to reveal the resulting cause of filing of various petitions in the various High Court is before
finally reaching this Court for adjudication. The whole gambit of sale of lottery tickets in India,
both private and State lotteries, from the very inception is drawing with concern attention of
various authorities and Government including courts, as to how to control the evil effects of
lotteries on its people at large, more so, when in complete banning, it effects in times of need, the
very useful source of State revenue. Basically, lotteries are gambling and its business is res extra
commercial; but to shed off this, the State in the interest of State revenue has been finding
avenues to legitimate it through some legitimization under the law to eliminate the impediments
in collecting the State revenue and dilute, if possible, the exploitation of the people. The
immediate reference to which we are concerned is Ordinance No. 20 of 1997 which was issued
on 1st October, 1997, which came into force on 2nd October, 1997 which restricted the lottery
business organized by the States and enabled the State Government to prohibit sale of tickets of
lotteries of other States. Under the said Ordinance, the State of U.P. issued notification dated 7th
October, 1997 banning sale of lottery tickets of the State of Nagaland in the State of U.P. This
notification and the aforesaid Ordinance was challenged by the State of Nagaland in the
Guwahati High Court in civil Rule No. 4986 of 1997. The High Court stayed this notification.
This Ordinance was also subject matter of challenge in the High Court of Gujarat where in
Special civil Appeal No. 7903 of 1997 (The Gujarat Lottery Sellers Association v. The State of
Gujarat and Anr.), the High Court upheld this Ordinance and the notification of Gujarat
Government which banned the State lotteries within the State of Gujarat, Against this, civil
Appeal arising out of SLP (C) No. 22423 of 1997 has been filed which we are considering and

10
B.R. Enterprises v. State of U.P. and Ors., MANU/SC/0330/1999.
11
M/S. B R Enterprises v. State Of UP, AIR 1999 SC 1867.

15
disposing of by means of this judgment. The State of U.P. filed civil Appeals arising out of
SLP(C) Nos. 21304-21307 of 1997 as against the aforesaid interim order passed by the Guwahati
High Court staying the Ordinance in which this Court directed the State of U.P. to move the
Guwahati High Court. This order was passed as an interim measure. In a Writ Petition No. 2200
of 1997 filed before the Allahabad High Court (Lucknow Bench) by M/s. Ganga Agencies
(Manipur State Lotteries), the High Court ordered that so long the interim order of the Guwahati
High Court is operative the sale of lottery tickets shall be permitted to be sold in U.P.

This Court finally disposed of SLP (C) Nos. 21304-21307 of 1997 (Civil Appeal No. 8858-8861
of 1997) by observing that Guwahati High Court is free to dispose of the petition pending before
it in accordance with law, since hearing had already completed. As the Ordinance No. 20 was
lapsing, Ordinance No. 31/97 (second Ordinance) was promulgated. Under it, the notification
dated 29th October, 1997 of the State of U.P. was also stayed by the Guwahati High Court.
Against this order, also SLP (C) No. 4710-4712 of 1998 State of U.P. v. State of Mizoram and
others was filed in this Court. Finally, the Guwahati High Court declared the Ordinance No. 20
to be unconstitutional on the ground that Ordinance was not legislation by the Parliament within
Article 298 of the Constitution of India; hence it could not restrict executive powers of the State
to carry on lottery business. It also held Section 5 to be ultra vires the Central Legislative powers
on the ground of excessive delegation and also violate of Articles 301 and 303 of the
Constitution. It further held that Section 4(a) (f) and (g) imposes unreasonable restrictions,
therefore, unconstitutional. Against this, the State of U.P. filed civil Appeals arising out of SLP
(C) No. 5224-28 of 1998 and the Union of India filed civil Appeals arising out of SLP (C) Nos.
5081-5085 of 1998, which is also the subject matter of consideration through this judgment.

In order to maintain the continuity, the Central Government issued the Lotteries (Regulation)
Ordinance, 1998 (No. 6 of 1998) (third Ordinance) on 23rd April, 1998. This last Ordinance was
also challenged along with Notification dated 29th October, 1997 of State of U.P. in civil Rule
2315 of 1998 M/s. Jyoti Agencies and Anr. v. Union of India and Ors. before the Guwahati
High Court which was also stayed by means of interim order dated 22nd May, 1998. Civil
Appeal arising out of SLP (C) No. 15978 of 1998 has been filed against this order by the State of
U.P. The Ordinance No. 6 of 1998 (third ordinance) has finally rolled into the Lotteries
(Regulation) Act, 1998 (No. 17 of 1998) (hereinafter referred to as ‘1998 Act’). This Act along

16
with Notifications dated 29th October, 1997, 17th March, 1998 and 20th April, 1998 of the State
of U.P. were challenged in civil Rule No. 3296 of 1998 State of Nagaland v. Union of India
and Ors.12 before the Guwahati High Court. The Guwahati High Court by order dated 10th July,
1998 stayed the provisions of Section 4(a)(g)(h)(j) Sections 5 and 6 of the 1998 Act and also the
aforesaid notifications issued by the State of U.P. : Even SLP against this order has been filed
before this Court being SLP (C) No. 17566 of 1998.6. The Gujarat Lottery Sellers’ Association
has challenged the constitutional validity of the Ordinance No. 20 promulgated on 1st October,
1997 and also challenged the Notification dated 30th September, 1997, issued by Government of
Gujarat, banning the instant lotteries within the State i.e. 1st November, 1997. One of the
grounds raised by the petitioner before the Gujarat High Court was that the State notification
dated 30th September, 1997 was issued even before the Ordinance which came into force on 2nd
October, 1997, hence without authority of law. The Gujarat High Court by its judgment and
order dated 24th. October, 1997 dismissed the petition holding that instant lottery is gambling
and can be restrained by the State Government. The High Court held the Ordinance No. 20 to be
valid. Aggrieved by this, the aforesaid civil Appeal raising out of SLP(C) No. 22423 of 1997 was
filed. Similar matter also came in the Delhi High Court, when it, by means of interim order dated
3rd December, 1997 in civil Writ Petition No. 5105 of 1997 disagreed with the view of the
Guwahati High Court and agreeing with the view of the Gujarat High Court, declined to stay the
impugned Ordinance. Hence, the State Ordinance remained in operation within the National
Capital Territory of Delhi. The Guwahati High Court on 30th March, 1998 in Miscellaneous
Case No. 310 of 1998 in C.R. No. 31 of 1998 State of Nagaland v. UOI and Ors. Stayed the
order of the Government of Delhi directing implementation of the aforesaid order passed by the
Delhi High Court. Thereafter, on 30th April, 1998 the Delhi High Court observed that the Delhi
Government may move the appropriate forum against this order of the Guwahati High Court.
This led to filing of Transfer Petition by the National Capital Territory of Delhi in this Court
being Transfer Petition No. 670 of 1998.

A Writ Petition (C) No. 226 of 1998 is also filed in this Court by the Government Lottery
Agencies and Sellers Association (Regd.) and Anr. Challenging the aforesaid Ordinances 20 and
31 of 1997 including the notification issued by Government of National Capital Territory of
Delhi pursuant to the power conferred under Section 5. During the pendency, the Parliament
12
State of Nagaland v. U.O.I. and Ors., 1998 (2) GLR 453.

17
enacted the Lottery (Regulation) Act 17 of 1998 repealing/ substituting the earlier Lottery
(Regulation) Ordinance of 1997. Thereafter, various State Governments including the State of
Arunachal Pradesh and Nagaland as well as other distributors filed writ petition challenging the
legality and validity of Section 4(a) (f) (g) (I), Section 5 and Section 7 of the said 1998 Act being
ultra vires. On 17 July, 1998 the High Court of Guwahati observed that the provisions, under
challenge, of this Act as well as provisions of the Ordinances being pan material and since
provisions of the Ordinances have already been struck down by that Court, hence, granted stay of
the aforesaid provisions including the notification of the Government of National Capital
Territory of Delhi and other States. In the aforesaid writ petition filed by the Government Lottery
Agencies and Sellers Association (Regd.) and others, an amendment was sought to challenge the
aforesaid 1998 Act as it substituted the earlier Ordinance. Except for Section 5 of the Ordinance,
in which some modification was brought through this Act, to which we shall be referring to later,
other provisions remained the same.

Civil Appeal arising out of S.L.P. (c) No. 10356 of 1997 (B.R, Enterprises v. State of U.P. and
Anr.) is against the order of the Allahabad High Court dismissing the writ petition filed by an
agency of State lottery Manipur holding such dispute between the State of Manipur and State of
U.P. could only be decided by the Supreme Court. It held, so far Manipur lotteries, unless it was
declared to be State lottery, the petitioner has no locus stand, hence writ was dismissed. Another
civil Appeal arising out of SLP (c) No. 10357 of 1998 is filed by the State of U.P. against an
order passed by the Allahabad High Court confirming the interim stay order. Civil Appeal
arising out of SLP (c) No. 15978 of 1998 is filed by the State of U.P. against an interim order of
Guwahati High Court staying the Ordinance No. 6/98. Civil Appeals arising out of SLP (c) Nos.
16021, 16617, 17566 and 17782 of 1998 are all filed against the interlocutory orders passed by
the Guwahati High Court staying Section 4(a) (g) (h), Sections 5 and 7 of the Central Act No.
17/98. The first and third of these SLPs are filed by the State of U.P. and the second by
Government of N.C.T. of Delhi. Remaining petitions are transfer petitions seeking transfer of the
cases from Madras High Court, Karnataka High Court, Andhra Pradesh High Court and Delhi
High Court to this Court. These also challenge either the Ordinances or Lotteries (Regulation)
Act, 1998 (Act No. 17/98) (hereinafter referred to as ‘Lotteries Act’). They all raise the same
issues, as aforesaid. For proper appreciation of the submissions of learned Counsels for the

18
parties, we herewith quote Sections 4, 5 and 7 of the Act, which are the subject matter of
challenge:

A State Government may organize, conduct or promote a lottery, subject to the following
conditions, namely :(a) prizes shall not be offered on any preannounced 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 ensure;(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 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.

A State Government may, within the State prohibit the sale of tickets of a lottery organized,
conducted or promoted by every other State.

(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

19
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.

There are some changes in the various Sub-clauses of Section 4 and Section 7, and also in
Section 5 from what was contained in the Ordinance.

Issue

In order to adjudicate issues in this case, one of the fundamental question raised is, what the
character of State lotteries is. If lotteries are gambling in nature, does it loose its character as
such when it takes on the cloak of State lotteries? Whether such cloak dissolves its character as
res extra Commercial? In any case, even it is legalized, would it qualify to be or can it be held to
be a trade within the meaning of Chapter XIII of the Constitution of India? If it is a trade, are the
provisions of the impugned Act violating the Articles of Chapter XIII? Challenge to some of the
provisions are based on the ground of it being discriminatory and arbitrary, hence violate of
Article 14 of the Constitution. Finally, entrustment of power to the States under Section 5 is
attacked as it being unbridled without any guideline thus liable to be struck down.

Reasoning

In this case, neither there was 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.
This decision proceeded as if it is trade and commerce, hence after applying various decisions of
this Court, right from Adiabatic Tea Co. Ltd to the later decisions on the touch stone of principle
laid down therein on a question whether these ‘lottery tickets’ of others when subjected to sales
tax while not imposing sales tax on the lottery tickets sold by the State of Tamil Nadu, are
violate of Article 301 read with Article 304(a) of the Constitution being discriminative or not
was held to be so. Hence, this case does not go beyond holding lottery tickets as ‘goods’ for the
purpose of adjudicating the issue before us. It does not test nor there is any issue, whether sale of
such ‘goods’ viz. lottery tickets would or would not be a ‘trade or commerce’ within the meaning
of Chapter XIII of the Constitution.

Conclusion

20
In view of the aforesaid findings, all the aforesaid matters stand disposed of by upholding the
impugned provisions and the Act to be valid. Costs on the parties Section B.K.M.
Appeals/Petitions dismissed.

“Dilu Sahu v. State of Orissa

Facts

The State Government has issued a notification dated 14. 10. 1999 prohibiting sale of tickets of
all lotteries organized, conducted or promoted by other States within the State of Orissa. This
notification has been issued in exercise of the power under Section 5 of the Act which is under
challenge. The copy of the said notification has been annexed as Annexure-2 to W. P. (C) No.
2893 of 2004. Prayer has also been made to declare Section 5 of the Act as inter vires. The State
government has filed its counter supporting the notification.

Reasoning

It will be clear from the language of Sub-section (2) of Section 1 that the Act extends to the
whole of India. Sub-section (3) of Section 1 further states that the Act is deemed to have come
into force on 2nd of October, 1997. Hence, all the provisions of the Act including sections 5 and
10 thereof have come into force with effect from the 2nd of October, 1997. Since Section 5 of
the Act has already come into force with effect from 2. 10. 1997, the State Government could
issue a notification on 14. 10. 1999 prohibiting the sale of tickets of a lottery organized,
conducted or promoted by every other State under Section 5 of the Act without even a direction
of the Central Government under section 10 of the Act. This is because there is no mention
whatsoever in Section 5 of the Act that the State Government could prohibit the sale of tickets of
a lottery organized, conducted or promoted by every other State only upon a direction being
given by the Central government under Section 10 of the Act. Section 10 of the Act empowers
the Central Government to give directions to the State government as to carrying into execution
of any of the provisions of the Act or of any Rule or Order made thereunder. This power appears
to have been reserved to the Central Government to be exercised when the State Government
does not execute any provision of the Act or any Rule or Order made thereunder but it the
Central Government thinks that the said provision of the Act or any Rule or order made

21
thereunder should be executed. We are thus of the view that a direction of the Central
Government under Section 10 of the Act is not a condition precedent for exercise of power by
the State Government under Section 5 of the Act.

Conclusion

FOR the aforesaid reasons we find no merit in these Writ Petitions and we accordingly dismiss
the Writ Petitions. No costs.”13

“Sri Indra Das v. State of Assam

Facts

The facts of the case are similar to the facts in Arup Bhuyan v. State of Assam14 Criminal
Appeal No.889 of 2007, which we allowed on 3.2.2011.

As in the case of Arup Bhuyan, the only evidence against the appellant in this case is his alleged
confession made to a police officer, for which he was charged under the Terrorist and Disruptive
Activities (Prevention) Act, 1987 (in short `TADA’).

The facts of the case are that one Anil Kumar Das went missing from the evening of 6.11.1991,
and his dead body was recovered after two months on 19.1.1992 from the river Dishang. Five
persons including the appellant were charged for his death. The appellant was not named in the
FIR. No prosecution witness has attributed any role to the appellant. The charge sheet in the case
was filed after a gap of nine years from the date of the commission of the offence, and charges
were framed more than four years after filing of the charge sheet. There is no evidence against
the appellant except the confessional statement.

The alleged confession was subsequently retracted by the appellant. The alleged confession was
not corroborated by any other material. We have held in Arup Bhuyan’s case that confession is
a very weak type of evidence, particularly when alleged to have been made to the police, and it is
not safe to convict on its basis unless there is adequate corroborative material. In the present case
there is no corroborative material.

13
Dilu Sahu v. State of Orissa, MANU/OR/0322/2004.
14
Arup Bhuyan v. State of Assam, 2015 SCC 12 702.

22
However, the appellant has been convicted under Section 3(5) of TADA which makes mere
membership of a banned organization a criminal act, and sentenced to five years rigorous
imprisonment and Rs.2000/- fine.

In Arup Bhuyan’s case we have stated that mere membership of a banned organization cannot
incriminate a person unless he is proved to have resorted to acts of violence or incited people to
imminent violence, or does an act intended to create disorder or disturbance of public peace by
resort to imminent violence. In the present case, even assuming that the appellant was a member
of ULFA which is a banned organization, there is no evidence to show that he did acts of the
nature above mentioned. Thus, even if he was a member of ULFA it has not been proved that he
was an active member and not merely a passive member. Hence the decision in Arup Bhuyan’s
case squarely applies in this case.

Issues

1. The facts of the case are similar to the facts in Arup Bhuyan v. State of Assam Criminal
Appeal No.889 of 2007, which we allowed on 3.2.2011.
2. As in the case of Arup Bhuyan, the only evidence against the appellant in this case is his
alleged confession made to a police officer, for which he was charged under the Terrorist
and Disruptive Activities (Prevention) Act, 1987 (in short `TADA’)..”

Reasoning

It has been submitted by the learned counsel for the Government before the TADA Court that
under many laws mere membership of an organization is illegal e.g. Section 3(5) of Terrorists
and Disruptive Activities, 1989, Section 10 of the Unlawful Activities (Prevention ) Act 1967,
etc. In our opinion these statutory provisions cannot be read in isolation, but have to be read in
consonance with the Fundamental Rights guaranteed by our Constitution.

Conclusion

The appeal is consequently allowed and the impugned judgment is set aside.”15

“Rajeev Puri v. State of H.P. and Ors.

15
Sri Indra Das v. State of Assam, MANU/SC/0106/2011.

23
Facts

The petitioner was engaged in the business of sale and purchase of lotteries in the State of
Himachal Pradesh. As an agent, he was selling and purchasing lottery tickets of State of
Nagaland earlier and at the time of filing of this petition was the stockist of lotteries organized by
Royal Government of Bhutan in accordance with the guidelines of the Hon’ble Supreme Court of
India and Lotteries (Regulation) Act, 1998. He was appointed as area stockist for sale of weekly
lotteries being organized by the Royal Government of Bhutan. Petitioner claims that for
professing business of his choice, he has a right under the Constitution of India. On 4.11.1999
the Government of H.P. had prohibited the sale of tickets of all types of lotteries organized,
conducted or promoted by all State Governments and Union Territories including the State of
H.P. within the territory of H.P. Its violation was punishable under Sections 7, 8 and 9 of the
Lotteries (Regulation) Act, 1998. This notification was rescinded by the Government on
9.12.2003 with immediate effect. Again sale of tickets of all types of lotteries etc. was prohibited
in exercise of Powers under Section 5 of the Act, by the State Government.

Further the contention of the Petitioner is that running of lotteries and holding of raffles/lucky
draws etc. by the Respondents being in violation of law, therefore, the Respondents may be
restrained and prohibited from doing so, or in the alternative the Petitioner may be allowed to
sell lottery tickets in the State.

Issues

1. Whether the sale of lotteries and holding of raffles/lucky draws etc. comes under the right
to trade and commerce as guaranteed by the Indian Constitution.
2. Whether the petitioner can be allowed to sell lotteries.

Reasoning

The Act regulates running of lottery by a State throughout the length and the breadth of the
country. And as already held Petitioner is not the State. He has no fundamental right, as lottery is
not a trade either under Article 19 or Articles 301/304 of the Constitution of India. Petitioner in

24
law cannot run the lottery because he cannot do so in view of the provisions of Section 294A of
the Indian Penal Code. Therefore, his alternate prayer to permit him to sell lottery tickets as is
being done by the Deputy Commissioners of different Districts in the State also is without merit.
No other point was urged.

Conclusion

In view of the aforesaid discussion, there is no merit in this writ petition which is accordingly
dismissed. While dismissing the same, Respondent No. 1-State is directed that till it regulates
holding of raffles/lucky draws by its functionaries at local level, no such raffle/lucky draw be
allowed to be conducted by anyone throughout the State. This direction is to be carried out by all
concerned in the State. We may clarify that this direction does not apply to raffles/lucky draws
etc. conducted by Red Cross Authorities.”16

“State of Mizoram and Ors. v. Pooja Fortune Pvt. Ltd.

Facts

Briefly stated the facts are that the Respondent No. 1-writ Petitioner filed a petition Under
Article 226 of the Constitution of India seeking quashing of the Invitation for Expression of
Interest dated 04.06.2019, issued by the Director, Institutional Finance & State Lottery for
selection and appointment of selling agents for sale of Mizoram State Lotteries, both paper and
online, and thereafter to reissue fresh tender by following Lotteries (Regulation) Rules, 2010 and
various instructions of the Ministry of Home Affairs, Government of India. The main contention
of the Respondent No. 1- writ Petitioner is that the State of Mizoram had issued an expression of
interest in total violation of the Lotteries (Regulation) Act, 1998 as well as the Lotteries
(Regulation) Rules, 2010, thereby seeking to flout Rule 4(1) of the Mizoram Lotteries
(Regulation) Rules, 2019. The main ground raised was that the Government of Mizoram does not
have a draw machine or any other mechanical method based on random technology paper lottery
draws. Another ground raised before the Single Judge was that the State has no arrangement with
any high security press for printing of tickets. It is contended that the State intended to conduct
lotteries in violation of the provisions of law and the instructions issued by the Ministry of Home
16
Rajeev Puri v. State of H.P. and Ors., MANU/HP/0324/2005.

25
Affairs, Government of India vide letter dated 16.07.2010. Another contention raised is that the
State of Mizoram has not laid down proper eligibility criteria with a view to help some traders. It
would also not be out of place to mention that the Petitioner took part in the bid process, though
under protest. The Respondent No. 1-writ Petitioner had prayed for grant of interim relief. The
learned Single Judge, having regard to the fact that the writ Petitioner had taken part in the tender
process and his bid had been accepted, permitted the State to proceed with the tender process.
Aggrieved, Respondent No. 1 had filed Writ Appeal No. 206 of 2019. The State of Mizoram has
filed these appeals against the order dated 08.08.2019 passed by the Division Bench whereby it
modified the said order passed by the learned Single Judge and directed the State to keep in
abeyance all paper lottery draws pursuant to expression of interest dated 04.06.2019 pending
final outcome of the writ petition.

Issues

1. Whether the judgment given by the Division Bench is just.

2. Whether the respondent-1 is liable for the loss incurred by the government, if stay order
is passed.

Reasoning

Respondent No. 1 herein was previously running lotteries in the State of Mizoram and at that
time it had no objection to the State not having the draw machine or not having the arrangements
with the security press. The Respondent No. 1-writ Petitioner was running a paper lottery in the
State of Mizoram with the same draw machine and with the same drawbacks in violation of the
law which it now claims in its favor. The balance of convenience does not lie in favor of such
persons. In case stay is granted, no loss or injury shall be caused to the Respondent No. 1-writ
Petitioner because it will be permitted to run the lottery as per the bid submitted by it. On the
other hand, if the lotteries are not permitted to run, the State will lose about Rs. 20 lakhs daily.
There is no way this loss can be compensated by the Respondent No. 1-writ Petitioner since it is
unwilling to furnish any bank guarantee in this regard.

Conclusion

26
In view of the above, we allow the appeals, set aside the order of the Division Bench and restore
the order of the learned Single Judge. Pending application(s), if any, stand(s) disposed of.17

“Union of India (UOI) & Ors. v. MartIn Lottery Agencies Ltd.

Facts

Respondents are agents of the State of Sikkim. The State Government floated ‘schemes’ whereby
the total number of tickets there for was prescribed. In terms of the said schemes, the respondent
purchases all lottery tickets in bulk form on ‘all sold basis’. It pays Rs. 70 per ticket for the face
value of Rs. 100/-. In turn, it sells the ticket to its principal stockists on ‘outright’ and ‘all sold
basis’: It makes a profit out of the margin out of the difference between the amounts received
from the principal stockists and the amounts paid to the State Government. The principal
stockists in turn sell the tickets to the sub-stockist and who in turn sell to the agents. The retailers
purchase tickets from the agents and in turn sell the same to the ultimate participants of the draw.

Indisputably, the entire transaction is governed by the Lottery (Regulation) Act, 1998. It is
neither in doubt nor in dispute that having regard to the circular letter issued by Commissioner
(Service Tax), Ministry of Finance, CBEC dated 14.01.2007, the nature of transactions between
the distributor and the State Government do not constitute a sale.

However, it was concluded that the activities of the distributor are that of promotion or
marketing of lottery tickets for their client (i.e. the State Governments) and, thus, would be
exigible to service tax under the heading ‘business auxiliary service’. Pursuant to and/or in
furtherance of the said opinion of the Board, the Superintendent of Central Excise, Gangtok
Range, Gangtok by a letter dated 30.04.2007 directed the respondent to obtain registration and
pay service tax under the heading `business auxiliary service’ in terms of the provisions of the
said Act.

Issues

1. Whether lottery tickets are goods or not.

2. Whether sale, promotion and marketing of lottery tickets would be exigible to ‘Service
Tax’ within the meaning of the provisions of Section 65(105) of the Finance Act, 1994.
17
State of Mizoram and Ors. v. Pooja Fortune Pvt. Ltd., MANU/SC/1883/2019.

27
Reasoning

On the authority of the Constitution Bench of the Supreme Court which delivered its judgment in
the Sunrise Associates Case18 lottery tickets have to be held to be actionable claims. As such
those would not be goods within the meaning of the definition clause in the Sale of Goods Act. If
the lottery tickets are not goods, the writ petitioners cannot be said to be rendering any service in
relation to the promotion of their client’s goods, or marketing of their client’s goods, or sale of
their client’s goods. A transaction may involve two taxable events in its different aspects, as has
been held by the Constitution Bench of this Court in Federation of Hotel and Restaurant Assn.
of India v. Union of India19, in terms whereof whereas, on the one hand, service tax can be
levied on the services provided by the respondent to the Government of Sikkim in promoting and
marketing of lotteries; the State Government is also empowered to impose tax on the
organization and conduct of lotteries in the State in exercise of its powers under Entries 34 and
62 of List II of the Seventh Schedule read with Articles 245 and 246 of the Constitution of India,
despite the fact that the same transaction creates two taxable events, namely, the organization of
the lotteries itself and secondly, the services rendered in the promotion and marketing of
lotteries.

Conclusion: The writ petition succeeds on this simple point. There will be no order as to costs.
On appeal the Supreme Court upheld the decision of High Court.”20

State of Sikkim and ors. v. State of Tamil Nadu and Ors.21

Facts

The State of Sikkim has limited resource-generating capacity, it is highly underdeveloped. The
petitioner-State has been exploring possibilities to generate and enhance its own revenue by
various means and is engaged in the business of organizing lotteries and has formulated several
schemes such as - (i) paper lotteries which are sold throughout the country by distributors,
wholesalers, etc., (ii) On-line lottery organized by the petitioner-State and marketing through its
marketing agent.

18
Sunrise Associates Case (2006) 5 SCC 603.
19
Federation of Hotel and Restaurant Assn. of India v. Union of India, 1989 3 SCC 634.
20
Union of India (UOI) & ors. v. MartIn Lottery Agencies Ltd., (2009) 12 SCC 209.
21
State of Sikkim and ors. v. State of Tamil Nadu and Ors., AIR 2004 Sik 11.

28
Short term tender notice at National level was floated on 8th July, 9th July and 10th July 2001
inviting applications/quotations for said On-line lottery. Agreement for the On-line lottery
executed at Gangtok between the petitioner-State and M/s. Tashi Delek Gaming Solutions Pvt.
Ltd. whereby the said company was appointed as the Marketing Agent for the petitioner-State.

Sikkim On-line lottery launched all over India. First draw held on 29th March 2002. Till now
there have been about 58 draws of Super lotto and 48 draws of Thunder Ball and petitioner-State
has earned revenue to the tune of Rs. 73.32 crores approximately.

When the Lottery Ordinance was in force the State of Tamil Nadu under Section 5 of the said
ordinance passed G.O.Ms. No. 1203 Home (Courts II) Department dated 24th November 1997
prohibiting the sale of lottery tickets of other States from 1st January 1998. Such a ban was
imposed when the State of Tamil Nadu was running its own lotteries. In B. R. Enterprises case22,
the said G.O. Ms. was held to be invalid in view of the interpretation rendered by the Supreme
Court on Section 5 of the Act. In the above case the Supreme Court interpreted Section 5 to
mean that the State can prohibit other State lotteries only if it does not conduct its own lotteries.

Respondent State of Tamil Nadu refused to accept the Sales tax from the sub agents of the
petitioners on the ground that no approval of the State of Tamil Nadu has been obtained in
compliance with the Tamil Nadu State Lotteries (Regulation) Rules, 2002.

Rule 20 and 21 of the Tamil Nadu State Lotteries (Regulation) Rules, 2002 has been framed in
order to avoid competition and illegally prohibit the sale of tickets organized by other State
Government. The petitioners filed a Writ Petition No. 36067 of 2002 in the High Court of
Madras, challenging the validity of Rule 20 of the Rules.

Issues

1. Whether the impugned G.O.Ms. No. 20 Home (Courts II) Department dated 8th January
2003 is unconstitutional and invalid.
2. If the impugned G.O. is valid, whether the same acts only prospectively prohibiting the
sale of lottery tickets from 9th January 2003 onwards and cannot affect the lottery
schemes announced up to 8th January 2003 and the tickets meant and issued therefore.

Reasoning
22
B.R. Enterprises v. State of U.P., (1999) 9 SCC 700.

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The writ petitioners in the instant case could not highlight or prove the fact that the State of
Tamil Nadu is not a lottery-free zone State. The council for respondents submitted that the State
of Tamil Nadu is not organizing or conducting or promoting any lottery of its own and as such it
is a lottery-free zone State and that being the position the State of Tamil Nadu can prohibit the
sale of lottery tickets within its territory of all lotteries organized, conducted or promoted by
every State including the State of Tamil Nadu under the impugned notification.

Conclusion

For the reasons, observations and discussion made above, the writ petition is finally disposed of,
but no order as to costs. The earlier ad-interim orders passed in this case are hereby merged with
this judgment. However, the State of Sikkim or its authorized agents shall be at liberty to sell its
own State lottery tickets within the territory of the State of Tamil Nadu as and when the State of
Tamil Nadu organize, conduct or promote a lottery of its own State.

Conclusion

“The Central Lotteries Regulation Act of 1998 was amended in 2010 in order to provide clearer
definitions and language to meet modern needs. The additions made to the original Lotteries
Regulation Act of 1998 were made under the new amendment called the Lotteries Regulation
Rules of 2010 in which terms like ‘Central computer server’, ‘online lottery’, ‘prizes’, ‘security
deposits’, etc. where explicitly defined. Not only that, Section 3 of the Central Lotteries
Regulation Acct of 1998 was completely rephrased, and new guidelines were made to keep track
of the sale of lottery tickets in individual states. This new amendment strengthened the Lotteries
Regulation Act of 1998. While the Central Lotteries Regulation Act is still effective and
applicable throughout India and remains a general guideline to determine the restrictions and
conduct of lotteries within each State, the newly enacted Lotteries Regulation Rules of 2010

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have provided much needed legal language to help guide the sale of lottery tickets online and the
conduct of such over the internet.”23

References

1. JSTOR. https://www.jstor.org/ (last accessed on December 5, 2020).

2. SCC Online, https://www.scconline.com/ (last accessed on December 2, 2020).
3. Westlaw India, https://www.westlawindia.com/ (last accessed on November 24, 2020).
4. Manupatra, https://www.manupatrafast.com/ (last accesses on November 20, 2020)

23
THE CENTRAL LOTTERIES REGULATION ACT OF 1998, LEGALONLINECASINOS.IN,
https://www.legalonlinecasinos.in/laws/central-lotteries-act-1998/.

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