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TMI Blog2021 (5) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... her be a fundamental right nor a right under Article 301 and that none could seek it as free trade, like other trades, even though it may have the authority of law. The Court went on to hold that the authorization under the Act to States to conduct lottery is solely for the purpose of earning revenue. A reading of section 12 of the Act will reveal that a general power is conferred upon the State Government to make rules to carry out the provisions of the Act. There is no indication either in the Act or in section 12, that the power conferred on the States to make rules, is confined only to the Organising State. Such a narrow interpretation is not warranted under the terms employed. If such an interpretation is adopted, the same will lead to an anomalous situation - Under section 12 of the Act, apart from the general rulemaking power, specific power is also conferred upon the State Government to make rules in respect of time to be fixed for claiming prize money and the period to be fixed for draws of all lotteries. That power, no doubt, relates to Organising States. In exercise of the general power conferred upon the State Government to make rules, the State Government cannot tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttery is vested with the Organizing State under section 4 of the Act. When the right to conduct the lottery is vested with the Organizing State, rule 4(4) of the Amended Rules, to the extent it specifies that the Secretary to the Government Department of Taxes, Kerala, shall be the authority for the conduct of lotteries run/organized/promoted by other States, infringes upon the right of the Organising State to conduct lotteries as per the provisions of the Act - the plain meaning of the word 'conduct' in rule 4(4) of the Amended Rules gives a meaning that conduct of lottery of the Organizing State shall be by an officer of the Host State. This is a clear intrusion into the authority of the Organising State and is contrary to the provisions of the parent Act. The said Rule is a clear infraction of the Act. It is a settled principle that when a provision of law is found to infract the Constitution or the parent statute, the entire statute or even the entire provision need not be struck down, if the offending portion could be severed from the non-offending portion of the provision or statute - Applying the said principle to rule 4(4) of the Amended Rules, it can be seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State Governments alone, to conduct lottery was made with the fervent belief that the pestilent nature of lottery could be diluted to some extent while nourishing the State exchequer at the same time. 2. The Lotteries (Regulation) Act, 1998 (for brevity 'the Act') was enacted by the Parliament. The source of legislative power for the Act is traced to Entry 40 of List 1 of the VII Schedule to the Constitution of India. The Government of Kerala enacted the Kerala Paper Lotteries (Regulation) Rules, 2005 (for short 'Kerala Rules'), in exercise of the powers under section 12 of the Act. The Kerala Rules as originally enacted applied only to lotteries organised by the Government of Kerala. Thereafter, the Central Government enacted the Lotteries (Regulation) Rules, 2010 (for short 'Central Rules'). The subject matter of this dispute centers on an amendment brought in by the Kerala Government in 2018, known as the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 (for short 'Amended Rules'). By the said amendment, the Kerala Rules have been amended to incorporate allegedly restrictions/regulations for the conduct of outside State lotteries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncil for Teacher Education and Another [(2003) 3 SCC 321] to justify his contentions. It was inter alia argued that the subordinate legislation also, always, starts with the presumption of being intra vires and that if two constructions are possible, attempt must be made to make the rule valid and if found offensive, recourse can be made by reading down the provisions so as to make it in consonance with the parent statute. In the reply arguments, Sri. Shishodia decried the concept of the Host State being relegated to a position of a helpless observer while naked violation of the Act and the Rules are going on and submitted that such a situation is not contemplated by the Act. He further submitted that when the subjects of Kerala State are exploited and are suffering, an elected State cannot remain as mute spectators. 8. On the other hand, the three learned Senior Counsel for the respondents referred to the doctrine of occupied field and argued that the State has no authority to enact the Amended Rules. Relying upon the decision in B.R Enterprises case (supra) it was argued that no State can prohibit the conduct of lottery by another State if the Host State was not a lottery fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution to the extent required, as the third issue. Issue No.1 11. Under the federal structure of our Constitution, this Court is entitled to patrol the frontiers of the rights of the Union and of the States to legislate. More often than not, the Constitutional Courts will, through a process of interpretation, limit the State from exercising its statutory powers, in a manner that will undermine the federal authority of the Union as well as curtail the Union from undermining the States power to legislate on entries they are entitled to legislate. The case on hand deals with the alleged transgression by the State of Kerala into Entry 40 of List I, as well as exceeding the power conferred by section 12 of the Act. While patrolling the respective borders, this court, in the instant appeal, will have to decide whether the Amended Rules have forayed into Entry 40 of List I, and also whether the Amended Rules are beyond the letter of section 12 of the Act or contrary to the Central Rules of 2010. 12. While patrolling the above-referred frontiers, We remind ourselves that there shall be judicial restraint when judging the validity of even a delegated legislation. It was held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorization under the Act to States to conduct lottery is solely for the purpose of earning revenue. 16. It may be pertinent in this context to extract paragraphs 87 and 88 of the decision in B.R.Enterprises case (supra), in its entirety. 87. We find on plain reading of Section 5, it empowers the State Government within its State to prohibit the sale of tickets of the lotteries organised by every other State. There is also nothing in the language reading by itself so as to say, whether such power can be exercised by the State while running its own lottery or can be exercised only where such State does not run its own lottery. This leads to two possible interpretations, as referred to above. In view of settled principle of interpretations, the interpretation given by the Union to read down the provision has substance. This would mean that the State could only exercise such discretion if it decides not to have any lottery within its territory including its own lottery. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 19. When the Act is viewed in the light of the above-extracted statement of objects and reasons, it is apparent that the underlying purpose of the Act is to balance the revenue generating interests of the State with the pernicious nature of lottery, without it being exploitative of those who are gullible to such practices. Sufficient safeguards are provided under the Act to initiate prosecution proceedings and to impose punishment which may extend to 2 years or with a fine or with both as per section 7 of the Act. The Central Government has the power under section 10 of the Act to give directions for carrying into execution any of the provisions of the Act or the Rules made thereunder. The Act also vests the Central Government with the power to make rules to carry out the provisions of the Act. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make rules under section 12 of the Act. Much argument revolved around the semantics of the term 'The State' used in section 12 of the Act as compared to the word 'A State' deployed in Section 4 of the Act apart from the observations of a co-ordinate Bench of this Court in W.A. No.1464 of 2010 stating that The State Government means the Government which organises, conducts or promotes any lottery . 23. The use of the indefinite article 'A' in section 4 of the Act and the definite article 'The' in section 12 before the word 'State' may indicate a different meaning when viewed in a grammatical perspective. However, a strict application of grammatical constructions while interpreting statutory enactments can occur to be delusive at times. If the strict grammatical application of words and sentence construction leads to results that are anomalous or even to results not contemplated by the Act, adherence to strict rules of grammar can be departed from. 24. In the decision in N.T. Veluswami Thevar v. G.Raja Nainar and Others (AIR 1959 SC 422) and K. Prabhakaran v. P. Jayarajan [(2005) 1 SCC 754), it was held that, if the grammatical c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te in reality, printed the tickets, and whether the logo of the State is imprinted in the ticket? Are the proceeds of the lottery for real being credited into the accounts of the State? These are some of the questions, the answers to which are required to be known even to the Host State to ensure compliance with the Act or to form an opinion about the nature of the lottery. 28. Ensuring compliance with the provisions of the Act is different from prohibiting the conduct of lottery. If the power under section 12 of the Act, is interpreted to mean as only the Organising State that can make rules to carry out the provisions of the Act, it may lead to an absurd situation. When the subjects of a Host State are being exploited and when a person is conducting the lottery wholly in violation of the Act, should the Host State be deprived of even a mechanism to at least assess or identify the nature of the conduct of such lotteries? It would lead to absurdity if the Host State is entirely powerless in such a scenario. It would also effectuate an inconsistency where an offence committed under the Act is punishable, but the Host State is incapable of identifying the nature of offences commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 SCC 768] that reliance on the decision without looking into the factual background of the case before it, is clearly impermissible. A decision is a precedent on its own facts. Each case presents its own features. It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates: (i) finding of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. The enunciation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of areas where the Act and the Central Rules are silent, it cannot be said that the Host State is powerless to make rules. Doctrine of occupied field 35. The doctrine of occupied field can have no application in the instant case since the State has not entered into a field occupied by the Central legislation. Though the Act covers the entire field of lottery, States have been given the power to make rules. When the Parliament has enacted a law on the basis of an entry in List I and when the said Central legislation confers power upon the State to make rules, it cannot be countenanced that, when such rules are made, the same ought to be branded as beyond the rule making power of the States. The doctrine of occupied field cannot be invoked to test the validity of a State rule enacted in exercise of the power conferred by the Central legislation. If a Central legislation confers general rule-making power upon the State, in areas where the Central Government has not framed rules, the State Government will be entitled to frame rules. The doctrine of occupied field will not in such instances be applicable, unless there is an intrusion. In simple terms, the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come within the scope and purview of the rule-making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void . 39. To identify the extent of transgression by the State, it is necessary to look into the Central Rules, 2010. It is not in dispute that under the Act, the power to prohibit a lottery is vested only with the Central Government. However, rule 3(22) of the Central Rules confers an obligation upon the Host States to ensure proper conduct of lottery within its jurisdiction. Rule 5 of the Central Rules provides the procedure in which the Central Government can prohibit the sale of lottery tickets. For a better comprehension, it is necessary to extract rule 3(22) and rule 5(1) of the Central Rules, which are as follows: Rule 3(22). Every State Government shall ensure that no lottery, in any form, is organised by any authority other than the Organising State or its appointed distributors or selling agents within its jurisdiction Rule 5(1) If a State Government is of the opinion that the Organising State or the distributors or selling agents are organising lotteries in violation of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical contentions as in the present case were raised. However rejecting the contention regarding the absence of legislative competence, this Court held that The first contention of the appellants is that the lotteries marketed by them are lotteries organised by the Governments of other States in India and therefore in view of Article 246 of the Constitution read with Entry 40 in the Union List, only the Parliament has power to make laws with respect to the conduct or marketing of those lotteries and consequently the Government of Kerala is not competent to make a rule like sub-rule (3) of Rule 24, which provides that no lottery shall be marketed until appropriate orders under sub-rule (2) are issued by the Secretary to Government, Taxes Department and that the Enforcement Agency can seize the tickets marketed before passing any order in this regard. According to the appellants sub-rule (3) of rule 24 is therefore unconstitutional. Sub-rule (3) of rule 24 is only part of the Kerala State Lotteries and On-line Lotteries (Regulation) Rules, 2003, made by the Government of Kerala in exercise of the powers conferred by sub-sections (1) and (2) of Section 12 of the Lotteries (Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on the other hand the Central Rules strengthens the need for the State for appropriate rules. In such circumstances, we are of the view that the State of Kerala has the competence to enact the impugned rules. 46. In view of the above discussion, we answer the first issue in favour of the appellants. We hold that the Host State is entitled to make rules under section 12 of the Act to monitor the conduct of lotteries of Organising States within the territory of the Host State. Issue No.2 47. Having held as above, we proceed to consider as to whether the provisions of the amended rules are ultra vires or contrary to the Act or the Central Rules. Challenges were specifically raised against rule 2(3A), rule 2(6A), rule 4(4), rule 4(5) and rule 9A. For easier comprehension the amendments carried out to the Kerala Rules through the Amended Rules are extracted as below: The Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 Rule 2(3A): 'Authority' means the Secretary to Government, Department or authority or officer specifically appointed by the Government to organize State Lottery and regulate the sale of other State lotteries within the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in sub-rule (1) the Secretary to Government may return the scheme to the State Government/Union Territory concerned directing to furnish the complete details within a period of 15 days. The Secretary to Government of Kerala, Taxes Department shall assess the report independently taking into account of various other information available with him from the Goods Services Tax Department, Police or any other source if any, and decide as to whether the scheme satisfies all the provisions of the Act and shall pass appropriate orders. Rule 9A(3): No lottery shall be marketed in the State until appropriate orders under sub-rule (2) above are passed by the Secretary to Government. Enforcement agencies may seize such tickets marketed before passing any order in this regard. Rule 9A(4): The enforcement agency may - (a) seize for the purpose of further examination or securing information or investigation, any lottery, thing, machine, document, account books or data on or in such premises or facility which has a bearing on conduct of lottery. (b) seal or otherwise secure any such premises, facility, thing or machine or in which any document or data which has a bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the agent has a night to access, at any reasonable time, if such entry is necessary for the public interest or protection of the integrity and interest of the lottery. (b) Examine or inspect anything, machine, document or data captured in any form found on or in the premises or facility and make copies of or make extracts from that thing, machine, document or data. (c) to take copies of any document including any information kept by the distributors, agents, and selling agents relating the lottery or all other ancillary activity within the State. (d) assist to inspect and take copies of the information in a visible and legible form from the computer or to inspect and check the operation of any computer and any associated apparatus or materials that is or has been in use in connection with keeping of the information. Rule 9A(8): No other State selling their tickets in the State of Kerala shall use a name of prefix or suffix in the name of lottery (eg:-Kerala, name of the cities and town or any such other name which can be used as a prefix or suffix or otherwise) which could mislead people to believe that the said lottery is organised, conducted or promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the respondents in unison, argued that the right of the Organizing State to conduct lotteries conferred under the Act, have been taken away by the Amended Rules, which is a direct infringement upon the Act. Specific reference was made to rule 4(4) of the Amended Rules. 49. Rule 2(3A) only names an authority for regulating the sale of other lotteries in the State, while Rule 2(6A) creates an enforcement agency. These two rules cannot under any circumstances be regarded as infringing any right of the Organising State. It does not amount to taking away the right of the Organising State to conduct lotteries in the Host State. Rule 4(5) speaks about power to monitor the sale of outside lottery. This power is necessary for ensuring compliance with the Act and for identifying violations or irregularities in the sale of tickets. This power has nothing to do with prohibition of lottery and is hence valid. We also do not find any infringement of the Act or the Central Rules due to Rule 9A of the Kerala Rules. 50. Rule 4(4) of the Amended Rules, as extracted earlier, shows that the Secretary of the Kerala Government, Taxes Department shall be the authority for conduct of lotteries or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand though the last fall. The point is not whether they are contained in the same section for the distribution into sections is purely artificial; but whether they are essentially and inseparably connected in substance. If, when the unconstitutional portion is stricken out, that which remains is complete in itself, and capable of being executed in accordance with the apparent legislative intent, wholly independent of that which was rejected, it must be sustained. The above observations were relied upon by the Constitution Bench of the Supreme Court in Harakchand Ratanchand Banthia and Others v. Union of India and Others [(1969) 2 SCC 166]. 52. Applying the said principle to rule 4(4) of the Amended Rules, it can be seen that the offending portion of the said rule are the words including lotteries run/organized/promoted by other States and if the said offending portion is deleted or severed, the rule will still continue to have meaning and life. Applying the doctrine of severability, we sever the aforesaid words from rule 4(4) and hold the severed portion of the said rule as ultra vires the Lotteries (Regulation) Act, 1998. 53. Rule 9A(3) was also contended to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be of significance to mention at this juncture that the federalism contemplated under our Constitution is a co-operative federalism and a pragmatic approach ought to be adopted for creating a harmonious existence. As held by the Constitution Bench in the decision in Government of NCT of Delhi v. Union of India and Another [(2018) 8 SCC 501), t hat Our Constitution contemplates a meaningful orchestration of federalism and democracy to put in place an egalitarian social order, a classical unity in a contemporaneous diversity and a pluralistic milieu in eventual cohesiveness without losing identity. It further held that the constitutional vision beckons both the central and state governments alike with the aim to have a holistic edifice and also that the Union and the State Governments must embrace a collaborative federal architecture by displaying harmonious co-existence and interdependence so as to avoid any possible constitutional discord. Acceptance of pragmatic federalism and achieving federal balance has become a necessity requiring discipline wisdom on the part of the Union and State Governments by demonstrating a pragmatic orientation. 56. Dealing with the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Government of Nagaland. The CAG pointed out in Ext.R2(e) after an audit, that the selection of distributors for conducting lottery for the State of Nagaland was not transparent and that instead of sale proceeds being paid to the State Government, what was paid by the distributor to the State was only a minimum guaranteed revenue. It was startling to note that the minimum guaranteed revenue received by the State of Nagaland was only ₹ 56.93 Crores as against total sale proceeds of ₹ 17653.76 Crores for the period 2010-11 to 2015-16. In the aforesaid figure, the distributor s share alone was ₹ 4522.24 Crores. The CAG of India further observed that when the State Government's revenue was only 1.24% of the total sale proceeds, the distributor's share was 98.76%. The report of the Comptroller and Auditor General of India also indicated that collusion was writ large in the bidding process and formation of a cartel was evident which undermined the transparency and fairness required in the selection of the distributor. After examining the profile of the four companies that participated in the bidding process, the CAG concluded that the four companies were conne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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