2015 (11) TMI 1698 - SC - Indian Laws

State Government discrimination between the paper lottery and online lottery in pursuance of the provision of Section 5 of Lotteries (Regulation) Act, 1998 - Held that - If a paper lottery is being prohibited by a particular State then that paper lottery has to be prohibited as a whole. Likewise, if online or internet lottery is to be prohibited by a State then that online lottery or internet lottery of all States including that State also has to be prohibited. Viewed from this angle, we are of the considered opinion that State of Kerala was well within its rights to prohibit the sale of online or internet lotteries in its State and there is no fault in it. It is well within the powers conferred on it under Section 5 of the Act. A State Government can organize, conduct or promote a lottery subject to conditions mentioned in Section 4 and if there is any violation of the conditions mentioned in Section 4, it would be always open to the State Government to prohibit such lottery and that would be within the legislative power vested with the State under Section 5 of the Act as in that case the State would be only complying with the provisions of the Act made by the Parliament. The learned Single Judge while examining the facts of the case, manner and method in which the sale of online lotteries are conducted, has already held that it violates the provisions contained in Section 4 of the Act. In fact, during the course of arguments, no effort was made to dislodge the findings recorded by the courts below. The view adopted from the observation made by this Court in B.R. Enterprises (1999 (5) TMI 498 - SUPREME COURT OF INDIA), in any case, is possible. Learned single Judge of the High Court rightly mentioned in his judgment that in fairness, it must be conceded that Section 5, in the light of the interpretation in B.R. Enterprises (1999 (5) TMI 498 - SUPREME COURT OF INDIA), admits two interpretations. One is that the State can prohibit any form of lottery, if only it is not running any lottery at all. The second interpretation is that the State can prohibit a particular form of lottery, if it is not running that form of lottery, even if it is running other types of lotteries. The Act has been designedly made to suppress the mischief of lottery. Therefore, we feel that an interpretation, which advances the object of the Act, should be favoured. That means, the State can prohibit online lotteries, if it is not running the said type of lotteries. The decision in B.R. Enterprises (supra), which was dealing with the prohibition of paper lotteries, does not stand in the way of accepting such an interpretation. Accordingly, the main challenge against the impugned notification that it violates Section 5 of the Act is repelled. In view of the foregoing discussion, we do not find any infirmity in the order passed by the Division Bench of the High Court dated 23.05.2006.

Issues Involved:
1. Discrimination between paper lottery and online lottery.
2. Legislative competence and power of the State Government to issue prohibitory notifications.
3. Validity of the notifications issued by the State of Kerala.
4. Interpretation of Section 5 of the Lotteries (Regulation) Act, 1998.
5. Impact of online lotteries on society and compliance with the Act.

Issue-wise Detailed Analysis:

1. Discrimination between paper lottery and online lottery:
The appellants argued that online lottery, being a form of lottery under Section 2(b) of the Lotteries (Regulation) Act, 1998, should not be selectively prohibited. They contended that the selective prohibition of online lotteries by the State of Kerala was discriminatory and violated Article 14 of the Constitution of India. The respondents, however, supported the prohibition, arguing that online lotteries are distinct from paper lotteries and can be treated as a separate class. The court concluded that online lotteries are indeed a separate class, and the State Government has the power to prohibit them while allowing paper lotteries.

2. Legislative competence and power of the State Government to issue prohibitory notifications:
The appellants questioned the State Government's competence to issue the impugned notifications, arguing that 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. The court, however, held that the Parliament, by virtue of Entry 40 under List I, has exclusive power to legislate on State lotteries, and by virtue of Entry 34 in List II, the State Legislatures have the power to legislate on lotteries other than State Lotteries. The delegation of power to the States under Section 5 of the Act was upheld, allowing the State of Kerala to prohibit online lotteries.

3. Validity of the notifications issued by the State of Kerala:
The court examined the notifications issued by the State of Kerala, which prohibited the sale of all computerized and online lottery tickets while allowing paper lotteries. The court found that the State Government acted within its powers under Section 5 of the Act and that the notifications were valid. The court emphasized that the State Government can prohibit a particular type of lottery if it does not run that type of lottery itself.

4. Interpretation of Section 5 of the Lotteries (Regulation) Act, 1998:
The court interpreted Section 5 of the Act, which empowers the State Government to prohibit the sale of tickets of lotteries organized, conducted, or promoted by every other State Government. The court referred to the decision in B.R. Enterprises vs. State of U.P. and Others (1999) 9 SCC 700, which held that a State can prohibit the sale of lottery tickets of other States only if it does not run its own lotteries. The court concluded that the State of Kerala was within its rights to prohibit online lotteries while allowing paper lotteries, as online lotteries are a distinct class.

5. Impact of online lotteries on society and compliance with the Act:
The court considered the adverse impact of online lotteries on society, including issues such as gambling addiction, financial ruin, and social problems. The court noted that online lotteries involve frequent draws, which can lead to continuous gambling and financial losses for participants. The court also observed that online lotteries were not in contemplation when the Act was enacted and that the 2010 Rules specifically defined online lotteries as a separate class. The court upheld the State Government's decision to prohibit online lotteries in the interest of public welfare.

Conclusion:
The court dismissed the appeals and upheld the notifications issued by the State of Kerala, prohibiting the sale of online lotteries while allowing paper lotteries. The court held that the State Government acted within its legislative competence and powers under Section 5 of the Lotteries (Regulation) Act, 1998. The court emphasized that the prohibition of online lotteries was in the interest of public welfare and did not violate the principles laid down in B.R. Enterprises. The appeals and writ petitions were dismissed, and the parties were left to bear their own costs.

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