1999 (5) TMI 498 - SC - VAT / Sales Tax

Nature and character of State lotteries - gambling in nature or res extra commercium - violation of the article 14 of the Constitution - entrustment of power to the States under section 5 - sale of lottery tickets in India both private and State lotteries - distinction between the State lotteries and other lotteries - Word business - Validity of specific conditions under Section 4 of the Act - HELD THAT - We have no hesitation to hold that sale of lottery tickets organised by the State could not be construed to be trade and commerce and even if it could be construed to be so it cannot be raised to the status of trade and commerce as understood at common parlance or trade and commerce as used under article 301. Hence question of violation of either articles 301 and 303 does not arise. Strong reliance was placed on Khazan Singh case 1973 (12) TMI 94 - SUPREME COURT if a State has a power to carry on trade in its own State it can carry on the same in every part of India. For the finding we have recorded that State lotteries (gambling) would not be trade this case would have no application. Hence for these reasons it is not necessary to go into various submissions pertaining to violation of articles 301 to 303 of Chapter XIII to the Constitution. The State lotteries cannot be construed to be trade and commerce within the meaning of article 301 there could possibly be no question of any discrimination or violation of article 303. Even under article 14 there possibly could have been argued discrimination if the discretion was left on the States to choose as to which State it likes to prohibit; but in the present case in section 5 the State could only exercise its discretion in case it decides to prohibit sale of lottery tickets of every other States. If this is so there could possibly be no conceivable discrimination. Hence we do not find that there is any discrimination either on account of article 303 or article 14 of the Constitution between States of the Union and the Bhutan lottery and from one State to other State. We find on plain reading of section 5 it empowers the State Government within its State to prohibit the sale of tickets of the lotteries organised by every other States. There is also nothing in the language reading by itself so as to say whether such power can be exercised by 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 interpretation 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 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 delegatee 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 nor unbridled. So we have no hesitation to approve the interpretation given by the Union to uphold the validity of section 5. Lastly the challenge is to section 4(a) (g) and (h) of the Act. The main contention with some specific vehemence to which various counsel have referred to is condition (g) of section 4 which deals with place of draw to be located within the State concern. Argument is the condition of law and order in the State of Nagaland is not such where a draw of any lottery could be held. We do not find any merit in the submission. It is again a question of policy and it is for the State executive to take decision pertaining to law and order for that reason no legislation can be held to be ultra vires or to be struck down. Similar condition of (a) that prizes shall not be offered on any pre-announced number or on the basis of single digit or that no lottery shall have more than one draw in a week; (h) or other conditions in section 4 are all those which cannot be said to be such to hold these provisions to be ultra vires or invalid. None of them are such which would constitute to be violative of any provision of the Constitution. Hence we have no hesitation to conclude that this last submission is also without any merit. In view of the findings recorded by us above holding lotteries organised by the State is also gambling in nature thus the principle as laid down in RMDC case 1957 (4) TMI 56 - SUPREME COURT would equally be applicable to the case of State lotteries. 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 violative 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. Thus all the matters stand disposed of by upholding the impugned provisions and the Act to be valid.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

• Whether State lotteries constitute gambling and if so, whether they lose this character when organized by a State, and whether they can be considered as trade or business under Chapter XIII of the Constitution of India.
• Whether the provisions of the Lotteries (Regulation) Act, 1998, particularly sections 4 and 5, are discriminatory, arbitrary, and violative of Article 14 of the Constitution.
• Whether the delegation of power to State Governments under section 5 of the Act constitutes excessive delegation without guidelines.
• Whether the Act's provisions violate Articles 301 to 303 of the Constitution concerning the freedom of trade, commerce, and intercourse.
• Whether the sale of Bhutan lottery tickets in India without restrictions constitutes discrimination against State lotteries.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature of State Lotteries

• Relevant legal framework and precedents: The Court considered the nature of lotteries as gambling, referencing the Constitution Bench decision in the RMDC case, which held that gambling activities are inherently pernicious and extra commercium.
• Court's interpretation and reasoning: The Court held that State lotteries, despite being organized by the State, remain gambling activities. The character of gambling is not altered by State organization or regulation.
• Application of law to facts: The Court concluded that State lotteries do not qualify as trade or commerce under Articles 301 to 303 of the Constitution.
• Conclusions: State lotteries are gambling and do not enjoy constitutional protection as trade or commerce.

Issue 2: Validity of Sections 4 and 5 of the Act

• Relevant legal framework and precedents: The Court examined the conditions under section 4 and the power of prohibition under section 5, considering principles of non-discrimination and delegation of legislative power.
• Court's interpretation and reasoning: The Court held that section 5 should be read down to mean that a State can only prohibit lotteries of other States if it does not run its own lotteries. This interpretation prevents discrimination and aligns with the Act's objectives.
• Key evidence and findings: The Court found that the Act's provisions, when interpreted correctly, do not result in arbitrary or discriminatory application.
• Conclusions: Sections 4 and 5 are valid, and the delegation of power to States is not excessive or unguided.

Issue 3: Discrimination Against State Lotteries

• Relevant legal framework and precedents: The Court considered the treaty with Bhutan and the application of the Act to foreign lotteries.
• Court's interpretation and reasoning: The Court concluded that Bhutan lotteries are subject to Indian laws under the treaty, and thus, there is no discrimination against State lotteries.
• Conclusions: The sale of Bhutan lottery tickets is not privileged over State lotteries, and the Act does not violate Article 14.

3. SIGNIFICANT HOLDINGS

• The Court held that State lotteries are gambling in nature and do not qualify as trade or commerce under Articles 301 to 303 of the Constitution.
• The Court upheld the validity of sections 4 and 5 of the Lotteries (Regulation) Act, 1998, interpreting section 5 to mean that a State can only prohibit other States' lotteries if it does not run its own.
• The Court found no discrimination against State lotteries in favor of Bhutan lotteries, as the latter are subject to Indian laws under the treaty.
• The decision of the Gauhati High Court, which held the provisions of the Ordinance to be ultra vires, was quashed.