2021 (5) TMI 927 - HC - Indian Laws

Validity of Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 upheld; certain provisions struck down as ultra vires.

The court held that the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 are valid and within the legislative competence of the State of Kerala. ... Conduct of lotteries - Power of Host State 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 - Doctrine of occupied field - Doctrine of ultra vires - Federalism. Whether a Host State is entitled to enact rules for monitoring the conduct of lotteries by other Organising States within the territory of the Host State? - HELD THAT:- In BR. ENTERPRISES VERSUS STATE OF UP. AND OTHERS [1999 (5) TMI 498 - SUPREME COURT] it has been held in paragraph 71 that State lotteries are gambling and that it would not be a trade to qualify itself to be 'a trade and commerce' as used in Article 301 and neither the individual, far less the State, can seek enforcement of such right for it to be declared free, throughout the territory of India. It further held that the right of sale of lottery tickets whether by the State or others could neither 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 transgress areas that are already covered by the Act or the Central Rules. However, if in 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 - HELD THAT:- 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 of the doctrine of occupied field is that if the Parliament legislates on a particular subject, and thereby occupies the field, the State legislature is completely debarred from legislating on the same subject. When the very legislation enacted by the Parliament confers power upon the State Government to make rules to carry out the provisions of the Act, the doctrine of occupied field has no application, unless the State entrenches upon the field already occupied. Doctrine of ultra vires - HELD THAT:- The Central Rules have not eroded the power of the Host State under section 12 of the Act also on account of rule 3(22) and rule 5(1) of the Central Rules. In fact, according to us, the enactment of Central Rules enhanced the need for the Host State to enact rules. As mentioned earlier, to ensure compliance of the conduct of lottery of the Organizing State, within the territory of the Host State, in accordance with the Act and also for the Host State to form an opinion about any violation or irregularities in organizing or conducting lottery in the Host State, rules are essential - 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. Whether any of the provisions of the Amended Rules are ultra vires the Act? - HELD THAT:- Rule 4(4) of the Amended Rules shows that the Secretary of the Kerala Government, Taxes Department shall be the authority for conduct of lotteries organized by other States. The right to conduct a lottery is vested with the State Government under section 4 of the Act. The right to conduct a lottery 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 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. The provision under rule 9A(3) can also be viewed in another perspective. If the Host State forms an opinion that the conduct of lottery by an Organizing State within the territorial jurisdiction of the Host State is in contravention of the Act or the Rules, then it need not continue to let its subjects be exploited by the Organizing State or its promoter, until the Central Government takes a decision. From the time it forms an opinion, till a decision is taken by the Central Government, if such lotteries continue unabashedly to exploit the subject of the Host State, a remedy must be available to the Host State. Rule 9A(3) comes into play in such instances. Such a provision cannot be regarded as intruding into the powers of an Organizing State. Federalism - HELD THAT:- The Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 are valid and within the legislative competence of the State of Kerala and made validly in exercise of the powers under section 12 of the Act. The words “including lotteries run/organized/promoted by other States” in Rule 4(4) shall stand severed from the remaining provision of the Amended Rules and the severed portion is hereby held as ultra vires the Act. Appeal allowed - decided in favor of appellant. Issues Involved:1. Competence of the Host State (Kerala) to enact rules under Section 12 of the Lotteries (Regulation) Act, 1998.2. Validity of specific provisions of the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018.3. Federalism and its implications on the enactment of the Amended Rules.Issue No.1: Competence of the Host State to Enact RulesAnalysis:The court examined whether the Host State (Kerala) has the authority to enact rules under Section 12 of the Lotteries (Regulation) Act, 1998. It was argued that the term 'The State' in Section 12 refers to both the Organizing State and the Host State. The court emphasized that judicial restraint should be exercised when judging the validity of delegated legislation. The court also referred to the decision in *B.R. Enterprises v. State of U.P.* which held that the power to prohibit the sale of lottery tickets by another State is available only if the Host State is a lottery-free zone. The court concluded that the Host State must have the power to monitor and ensure compliance with the Act to prevent exploitation of its subjects. The court held that the Host State is entitled to make rules under Section 12 of the Act to monitor the conduct of lotteries by Organizing States within its territory.Issue No.2: Validity of Specific Provisions of the Amended RulesAnalysis:The court examined the validity of specific provisions of the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018, particularly Rules 2(3A), 2(6A), 4(4), 4(5), and Rule 9A. The court found that Rules 2(3A) and 2(6A) merely define the authority and enforcement agency and do not infringe on the rights of the Organizing State. Rule 4(5) was deemed necessary for ensuring compliance with the Act. However, Rule 4(4) was found to infringe upon the right of the Organizing State to conduct lotteries as it specified 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. The court applied the doctrine of severability and severed the offending portion of Rule 4(4) as ultra vires the Act. Rule 9A was found to be a measure for monitoring and ensuring compliance and not a prohibition of lottery.Issue No.3: FederalismAnalysis:The court addressed the contention that the Amended Rules interfere with the principles of federalism. It emphasized that the federalism contemplated under the Constitution is cooperative federalism, requiring a harmonious existence between the Union and State Governments. The court referred to the decision in *Government of NCT of Delhi v. Union of India* which highlighted the need for a collaborative federal architecture. The court concluded that the Amended Rules do not erode the concept of federalism as envisioned in the Constitution. The court also referred to the report of the Comptroller and Auditor General of India (CAG) which highlighted the exploitation by the distributor of the Organizing State, emphasizing the need for the Host State to take measures to prevent such exploitation.Conclusion:The court held that except for the words 'including lotteries run/organized/promoted by other States' in Rule 4(4), the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 are valid and within the legislative competence of the State of Kerala. The judgment of the learned Single Judge was set aside to the extent indicated.