TaxTMI 
TaxTMI 
1999 (5) TMI 498
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....ishra, L.P. Singh, Ms. Pratibha Jain, V.G. Pragasam, Kailash Vasdev, Rajiv Mehta, K.H. Nobin Singh, Ms. H. Wahi, Goodwill Indeevar, Ms. Sumita Hazarika, Hari Shankar, K., Brijender Chahar, Vimal Dave, Ms. Indu Malhotra, Vijay Hansaria, J.K. Bhatia, Ajay Kumar Gupta, S.K. Agnihotri, Ms. Madhur Dadlani, Arunshwar Gupta, Srilok Nath Rath, G. Prakesh and Ms. Beena Prakash, Advocates JUDGMENT A.P. MISRA, J. 1. Special leave granted in all the special leave petitions. 2. We are witnessing in this case exhibition of Federalism in true spirit. Contrary to the usual pouring in of citizen's writ petitions for vending their grievances against the States, here we are drawn to decide issues 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 set of States for upholding its Act. The issue here is confined to the State lotteries under entry 40....
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....ons in the various High Courts 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 affects in times of need, the very useful source of State revenue. Basically, lotteries are gambling and its business is res extra commercium; but to shed off this, the State in the interest of State revenue has been finding avenues to legitimate it through some legitimisation under the law to eliminate the impediments in collecting the State revenue and dilute, if possible, the exploitation of the people. The details of which we shall be referring hereinafter. The immediate reference to which we are concerned is Ordinance No. 20 of 1997 which was issued on October 1, 1997, which came into force on October 2, 1997 which restricted the lottery business organised by the States and enabled the State Governments to prohibit sale of tickets of lotteries of other States. Under the said Ordinance,....
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....excessive delegation and also violative 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 S.L.P. (C) Nos. 5224-28 of 1998 and the Union of India filed Civil Appeals arising out of S.L.P. (C) Nos. 5081-5085 of 1998, which is also the subject-matter of consideration through this judgment. 5. In order to maintain the continuity, the Central Government issued the Lotteries (Regulation) Ordinance, 1998 (No. 6 of 1998) (third Ordinance) on April 23, 1998. This last Ordinance was also challenged along with notification dated October 29, 1997 of State of U.P. in Civil Rule No. 2315 of 1998 (Jyoti Agencies v. Union of India) before the Gauhati High Court which was also stayed by means of interim order dated May 22, 1998. Civil Appeal arising out of S.L.P. (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 "the 1998 Act"). This Act along with n....
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....) No. 226 of 1998 is also filed in this Court by the Government Lottery Agencies and Sellers Association (Regd.) and another 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 enacted the Lotteries (Regulation) Act 17 of 1998 repealing/ substituting the earlier Lotteries (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 July 17, 1998, the High Court of Gauhati observed that the provisions, under challenge, of this Act as well as provisions of the Ordinances being pari materia 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 Gove....
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.... imprint and logo of the State in such manner that the authenticity of the lottery ticket is ensured; (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. 5. A State Government may, within the State, prohibit the sale of tickets of a lottery organised, or conducted or promoted by ev....
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....y an exception to article 303(1), would not be attracted as it is restricted to a situation arising from scarcity of goods in any part of the territory of India. Repelling submission on behalf of the Union of India that section 5 safeguards the interest of such State Governments which as a matter of policy do not desire to have such lotteries in their own State to stop sale of lotteries of other Governments within its jurisdiction. Submission is that it may though reduce the extent of discrimination to a great extent but would not completely neutralise the violation of article 303(1) of the Constitution. In the counter-affidavit of the Union, it is not sought to establish any public interest in banning such State lotteries specially when such lotteries contribute towards State revenue. This, in fact, ameliorates poverty and funding welfare projects, especially so far the State of Sikkim is concerned which is an industrially backward State and has very little source of revenue. It is violative of article 302 of the Constitution. A reference was made to the case of State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC) at page 395; [1968] 3 SCR 829 at pages 852-853, a decis....
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.... using the morality or the vice aspect of gambling to interfere with the right of the State to raise revenues for the benefit of its own citizens. As a result, entry 40 of List I recognises the right of the Union and of the States to run lotteries without the morality or the vice aspect affecting such lotteries, subject, of course, to regulation by laws made by Parliament. In other words, the entry 40 of List I itself is proof of the fact that a lottery run by the Union of India or by the States is not affected by the aspect of morality or vice which is present only in entry 34 of List II and is, therefore, not res extra commercium. (e) This would also follow from article 298 of the Constitution which extends the executive power of the Union and each State to carrying on any trade or business, without limitation, except to the extent of the provisos therein which are not relevant for the present purpose. In other words, the entirety of the executive power of the State is exhausted by article 162 of the Constitution and article 298 and there is no third category of executive power covering the carrying on of a venture or enterprise which is res extra commercium. If so the c....
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....y'. It is submitted that a State lottery always stood on a different footing from a lottery run by an individual for private profit, which alone would be the lottery covered by the R.M.D.C. judgment (See: [1957] SCR 874)." 11. Next, challenging the validity of section 5, he submits that the power conferred on the State for banning the lotteries of every other States is bereft of any guidelines and, therefore, a piece of excessive delegation. It is an uncanalised power conferred on a State at its whim and fancy. There is nothing in the objects, preamble, or any other provisions of the Act from which guideline could be collected specially that it is only a State which does not run its own lottery, can impose such a ban on every other State. For this, he relied on the case of Hamdard Dawakhana (Wakf) Lal Kuan, Delhi v. Union of India [1960] 2 SCR 671 at pages 696 and 697. Further, section 5 is capable of being exercised arbitrarily State of West Bengal v. Anwar Ali Sarkar [1952] SCR 284 at 314. 12. Shri F.S. Nariman, learned Senior Counsel for the State of Nagaland, submits that carrying on State organised lottery is permitted by the Constitution by placing it within the exc....
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....otteries from its penal purview, in contrast to the other lotteries. Similar distinction is to be found under the Government of India Act, 1935, when the Government lotteries were placed under entry 48 of List I while betting and gambling (other forms of lotteries) was placed under entry 36 of List II. Referring back to the State of Bombay v. R.M.D. Chamarbaugwala [1957] SCR 874 (RMDC case) case, it was submitted that it was a case of a private lotteries and not State organised lotteries. It was on these facts it held that it was opposed to public policy (private lotteries were in fact opposed to public policy) could not be characterised as trade or business or trade, commerce or intercourse. Repelling further submission of Union with reference to the Australian case cited in RMDC case 1957 SCR 874, he submits that even these cases made a distinction between private lotteries and lotteries conducted under the authority of the Government. Hence, the fact that the private lotteries are pernicious and had to be suppressed and were suppressed in India right from the year 1844, does not mean that lotteries organised by the State could be similarly stigmatised as pernicious. The ratio of....
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.... of lotteries so as to protect the poor and gullible persons......" 16. He submits the discrimination, on the one hand Union through statutes controls the State lotteries (section 4) but in contra distinction as revealed by Union's letter dated March 2, 1955, free trade and commerce without control of the Bhutan lottery were permitted for a period of ten years under the Treaty. This treaty falls under entry 14 of List I is an exclusive Union subject. Thus, no law of a State can legitimately impinge upon the implementation of a treaty entered into by the Union Government with any foreign State. Further, repelling the affidavit of Union of India in paragraph 7 with reference to section 5 of the Act that: "Section 5 may be invoked by the State Government for prohibiting sale of lottery tickets of other States even if they fulfil all the conditions laid down in section 4. However, the ban shall be applicable to the lotteries of all the States uniformly. Hence, the State Government cannot discriminate in any way." 17. This submission is contrary to the plain language of section 5 under which the State Government may continue to sell its own lotteries still prohibit th....
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....Government. No defence could be made in meeting the challenge of discrimination under article 14 that there is difference between the Government of Indian State and the Government of foreign State, since this has no rational or nexus with the object sought to be achieved. This clearly demonstrates hostile discrimination about which the State Government can complain to this Court. He repelled the submission for the Union that State could prohibit restrictions on Bhutan lotteries under entry 34, List II. He submits that such acceptance of such proposition would totally upset the constitutional scheme of allocation of subjects between the Parliament and the State. He made reference to entry 14 which refers to treaty, entry 41 to trade and commerce with foreign countries and entry 97 to the residuary power of the Union under List I. His point No. 2 is the challenge of section 5, viz., (1) the Legislature has delegated its essential legislative powers without laying down any policy; (2) it authorises the State Government to prohibit the sale of lottery tickets organised by every other State, thus, per se discriminates between its own lotteries and lotteries of other St....
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....t also discriminates inter se between one State and the other wherein the State which prohibits lotteries in its territory may have liberty to do trade and business of the sale of lottery tickets throughout the territory of India while others will have territorial limitation to sell lotteries hence violative of article 303 of the Constitution of India. In support, he relied on the case of Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809, and also the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491, where the restrictive interpretation given to article 303, namely, to be limited to the entries relating to trade and commerce in any of the List in Seventh Schedule, namely, entries 41 and 42 of List I, entry 26 of List II and entry 33 of List III was rejected. In these cases even the impediment of the movement of vehicle or taxation on vehicle on the given facts was held to be a barrier in a free trade within the meaning of article 301 of the Constitution. Hence, the submission was, section 5 entrusting the State to prohibit the sale of lottery tickets organised by every other State, would fall within the mischief of the principle laid down ....
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....r, the State power to carry on trade in liquor de hors article 19(6) and article 298 of the Constitution cannot be extended to trade in liquor. This is so because Union of India has no executive power to trade in a commodity which under article 47 is enjoined to prohibit. This submission was rejected and it was held: ".........that the State's power to regulate and to restrict the business in potable liquor impliedly includes the power to carry on such trade to the exclusion of others. Prohibition is not the only way to restrict and regulate the consumption of intoxicating liquor. The abuse of drinking intoxicants can be prevented also by limiting and controlling its production, supply and consumption. The State can do so also by creating in itself the monopoly of the production and supply of the liquor. When the State does so, it does not carry on business in illegal products............regulated in the interests of the health, morals and welfare of the people....... When the State permits trade or business in the potable liquor with or without limitation, the citizen has the right to carry on trade or business subject to the limitations, if any, and....
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.... "142. Offences in connection with unlawful lotteries.-All lotteries in Great Britain which do not constitute gaming are, with the exception of those subsequently mentioned, unlawful. 143. Statutory defences.-It is a defence to the person charged with any offence in connection with a lottery to prove that it was one declared by statute not to be an unlawful lottery, and that, at the date of the alleged offence, he believed and had reasonable ground for believing that none of the statutory conditions required to be observed in connection with the promotion and conduct of the lottery had been broken. It is also a defence to prove that the lottery in question was not promoted wholly or partly outside Great Britain and constituted gaming as well as a lottery. 144. Art unions.-There are certain exceptions to the general rule that lotteries are illegal. An art union is permitted to hold lotteries, under certain conditions, and is made a lawful association, and the members, subscribers and contributors are exempted from penalties as are all persons acting under their authority or on their behalf." 23. He also referred to the Betting, Gambling and Lotte....
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....us, this section is violative of article 14. Apart from this, it is also not in public interest. Further, sale of such lottery tickets are trade and business falling under Part XIII of the Constitution and is violative of articles 301 and 303 of the Constitution. 25. He drew our attention that on one hand granting right to Bhutan to organise and sell its lotteries everywhere in India while prohibiting Indian States exercising such right is violative against public policy. On the contrary, a public policy demands that no Indian States can be denied or prohibited entry into any Indian market where a foreign State is allowed. 26. Hence, Union Government instead of spelling out public interest for any public policy its act constitutes contrary to public interest, public good, public welfare, subvert societal goals and contrary to the social milieu of the country today. He refers to some decisions of the courts in England, USA and India on the meaning and scope of "public policy". In Central Inland Water Transport Corporation v. Brojo Nath Ganguly AIR 1986 SC 1571; 17 Am. Jur 2nd page 533, 534, it held that there must be no injury or harm to the public interest, public good, and p....
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....d always with circumspection and must be narrowly construed as a principle of public policy. The principle of constitutional unworthiness is that certain kind of rights are so morally repugnant that they are not entitled to constitutional protection at all. The effect of the principle of constitutional unworthiness has a devastating effect. It narrows the scope of fundamental right. It takes out certain claims from the protection of the constitution at the threshold, and since it is rejected at the threshold, such right is not even tested for reasonableness. He referred to the case of Krishan Kumar Narula v. State of Jammu and Kashmir [1967] 3 SCR 50 at 54 in which this Court refused to accept the broad argument. The reliance is placed on the following passage: ".............that dealing in noxious and dangerous goods like liquor was dangerous to the community and subversive of its morals..... Such an approach leads to incoherence in thought and expression. Standards of morality can offer a guidance to impose restrictions, but cannot limit the scope of the right." 27. This Court held that right to trade in liquor was business. However, a contrary view was taken by this ....
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....With reference to Bhutan lotteries, he submits that validity and scope of Bhutan lotteries is not in issue. The State has no power under the Act or the Constitution to regulate Bhutan lotteries. Finally, with reference to the challenge of some of the provisions of the Act, it is submitted that the Act has to be read as a whole, hence sections 3, 4, 5 and 6 are to be read together and section 5 is not to be read independently. In the configuration from sections 3 to 6, section 5 is placed between sections 4 and 6. Thus, this section vests the power to the States to prohibit non-conforming lotteries (lotteries which do not conform to the requirement of section 4). This section is only a declaration of a prohibition and not a prohibitory effect. This section suffers from excessive delegation, lack of guidelines, etc., as submitted by other counsel. 28. Shri P.K. Goswami, learned Senior Counsel appearing for the State of Arunachal Pradesh, adopted the arguments raised by other learned Senior Counsel. He also made references to sub-section (1) of section 4 which prohibits the "single digit" lottery which is said to be arbitrary as there is no rational nexus for this restriction. The ....
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....ft article 266 which is now article 289 provided for trade and business of States being subject-matter of Union taxation. To this, Provinces protested which led to the insertion of article 298 as a compromise to enable the States to carry on trade and business throughout the country, even with respect to subject-matter in List I for earning more revenue. This expanded power was made subject to legislation by the Parliament. He referred to the case of S.R. Bommai v. Union of India (1994) 3 SCC 1 at page 216, to contend that federalism is a basic feature of our Constitution and thus article 298 should be understood in the light of federalism. Proviso (b) to article 298 is not merely a repetition of the article 248 read with List I, entries of Seventh Schedule. This was with a purpose to enlarge the revenue earning power of the States. Thus, he submits that the Parliament cannot make a law empowering the State Government of one State to perform the functions with respect to another State or with respect to an acquired foreign territory (with reference to Bhutan lotteries). One State Government cannot be delegated the power to increase or diminish the area of the activity of another St....
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....wn lottery. He submits that lotteries are a form of gambling hence such transaction does not belong to the commercial business of the country. He supported the submission made on behalf of the Union that such activities cannot be said to come within the purview of free trade, commerce and intercourse. 32. To repel and withstand the storm of submissions by one set of parties, as aforesaid, the submission on behalf of the Union of India by Mr. C.S. Vaidianathan, learned Additional-Solicitor General of India, and on behalf of the State of Uttar Pradesh by Mr. R.N. Trivedi, learned Additional Solicitor-General of India, is that the lotteries, whether organised by the State or otherwise partakes the vice of betting and gambling and is thus res extra commercium. Lotteries are inherently pernicious. Dealing in any such lotteries does not have the protection of articles 14, 19(1)(g) or 301. Submission was that all sorts of betting and gambling which includes State lotteries are outside the pale of protection of article 19(1)(g) as well as of Part XIII of the Constitution; as betting and gambling is neither "trade" nor "commerce" and when the Parliament enacts the law under entry 40 of L....
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....is subject to the aforesaid limitations and it does not refer to trade or business which are not so recognised under article 19(1)(g). Thus, lotteries organised by the State would not be lawful in the absence of legislation by the Parliament or entrustment by the Union under article 298. Thus, article 301 would not be applicable in the present case. Even if applicable, the Parliament can impose restrictions in public interest. However, this article cannot be extended for dealing in lotteries as it is neither trade nor commerce. In the present case, the public interest is writ large and is implied in view of the nature of the activity, namely, trade in pernicious matter. He referred to paragraphs 6 and 8 of the counter-affidavit filed by the Union, the Statement of Objects and Reasons, and the Debates. Reference was made to the Anraj case-II [1986] 61 STC 165 (SC); (1986) 1 SCC 414. Relevant portion of the paragraph 27 (page 179 of STC) is quoted hereunder: ".......transfer of the right to participate in the draw which takes place on the sale of a lottery ticket would be a transfer of beneficial interest in movable property to the purchaser and, therefore, amounts to transf....
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.... is submitted, section 12(3) does not amount to effacement or abdication of the power by the Parliament conferment of rule-making power on the State does not amount to exercise of legislative powers by the State but it acts as a delegate of the Parliament. Reliance is placed on the cases of Jayantilal Amrit Lal Shodhan v. F.N. Rana [1964] 5 SCR 294 and State of Tripura v. Sudhir Ranjan Nath (1997) 3 SCC 665. Augmentation of revenues by a State by sale of lottery tickets, cannot override the interest of another State which does not permit sale of any lottery tickets. 35. Within the parameter of the aforesaid submissions, now we proceed to decide issues of great importance, namely, the nature and character of lotteries whether they by their very nature even if legitimised could be classified as commercium hence trade and business at the common parlance. Or, is it a distinct class by itself, legalised for a limited purpose, for achieving specialised objectives to be used for a temporary period. What is the reason for gambling to be legitimized, if in a given situation it has to be for a wider and purposeful objectives which leads to imposing conditions to reduce its evil consequenc....
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....to what was understood then and what is understood now, which is revealed through the ancient texts and various decisions of our courts and courts of other countries. 37. In this context, we may first refer to the Constitution Bench decision of this Court in the RMDC case [1957] SCR 874, which is a leading case, which has truly dwelt on this subject at some length. It holds that gambling activities are in their very nature and essence extra commercium. They were considered to be a sinful and pernicious vice by the ancient seers and law givers of India. It also records that it has been deprecated even by the laws of England, Scotland, United States of America and Australia. In support, it quoted what seers and law givers of India in the ancient time looked upon gambling. A reference was made of Hymn XXXIV of the Rigveda which proclaims the demerits of gambling and quoted verses 7, 10 and 13. It referred to Mahabharata which deprecates gambling by depicting the woeful conditions of the Pandavas who had gambled away their kingdom. Manu in verse 221 advises the King to exclude from his realm gambling and betting, since these two vices cause the destruction of the kingdom of princes.....
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....s. The indiscrimi- nate sale of such tickets may be regarded as causing business disturbance and loss which, on general grounds of policy, the State is entitled to prevent or at least minimize." 40. In the same decision, McTiernan, J., held: "Some trades are more adventurous or speculative than others, but trade or commerce as a branch of human activity belongs to an order entirely different from gaming or gambling. Whether a particular activity falls within the one or the other order is a matter of social opinion rather than jurisprudence..........It is gambling to buy a ticket or share in a lottery. Such a transaction does not belong to the commercial business of the country. The purchaser stakes money in a scheme for distributing prizes by chance. He is a gamester." 41. McTiernan, J., reiterated his view in another case in King v. Connare (1939) 61 CLR 596: "It is important to observe the distinction that gambling is not trade, commerce and intercourse within the meaning of section 92 otherwise the control of gambling in Australia would be attended with constitutional difficulties." 42. In the same decision the view of Taylor, J., is also quoted hereun....
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....wide meaning to the word 'commerce' so as to include gambling within the commerce clause and thereby enable the Congress to regulate and control the same. Thus, in Champion v. Ames (1903) 188 US 321; 47 Law Ed. 492(R) the carriage of lottery tickets from one State to another by an express company was held to be inter-State commerce and the court upheld the law made by Congress which made such carriage an offence." 45. We have summarised 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, 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....
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....ry later following agitation for legalised lotteries, the Betting and Lotteries Act, 1934, adopted the recommendation of Royal Commission and continued the prohibition on all lotteries." 48. In United States it records: "American colonial lotteries on the English pattern were used to raise money for public improvements and to insist in the financing of colleges including Columbia, Harvard, Dutmouth and Williams. In 1762 the Pennsylvania Provincial Assembly denounced lotteries, declaring they were responsible for vice and idleness and were injurious to trade......... In 1833 legislation enacted in Massachusetts, New York and Pennsylvania outlawed lotteries and early in 1834 similar action was taken by Ohio, Vermont, Maine, New Jeersey, New Hampshire and Illinois. Provisions prohibiting Legislatures from authorising lotteries in the future were inserted in many State Constitutions......... Congress responded by enacting legislation making it a federal crime to deposit lottery matter in the United States mails. In the Louisiana Election of 1892, the Lottery was the sole issue in the Governor's contest. The anti-lottery candidate won and the lottery was outlawed." 49....
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....otteries. The lotteries in turn were portrayed merely as an adjunct to a corrupt monopolistic banking system dominated by the wealthy whig power elite." At page 70 it further records: "Because legalised gambling leads to increased illegal gambling State sponsored lotteries inevitably increase crime. Legalised gambling's impact on criminal behaviour, however, is not limited to an increase in illegal gambling. Perhaps the most serious concern is that legal gambling creates problem gamblers, and problem gamblers often turn to more serious criminal activity to support their habits." 50. From the references from Dharmashastra, opinions of distinguished authors, references in the Encyclopedia of Britannica and Boston Law Review and others, we find that each concludes, as we have observed, lottery remains in the realm of gambling. Even where it is State sponsored still it was looked down as an evil. Right from ancient time till the day all expressed concern to eliminate this, even where it was legalised for raising revenue either by the king or in the modern times by the State. Even this legitimisation was for the sole purpose of raising revenue, was also for a limited ....
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....or sold in the market." 53. 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 pro- ceeded as if it is trade and commerce, hence after applying various decisions of this Court, right from Atiabari Tea Co. Ltd. [1961] 1 SCR 491, 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 violative 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. 54. So, now we proceed to examine what is "lottery", what would be the ingredients in the "sale of lottery tickets" and then to ....
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....Butterworths, 3rd Edition at page 70: "A lottery has been described as a scheme for distributing prizes by lot or chance." At page 71: "..........It must not be entirely forgotten in the construction of these Acts of Parliament [see now the Lotteries and Amusements Act, 1976] that the evil which the lottery law has sought to prevent was the evil which existed where poor people with only a few pence to feed their children would go and put these few pence into a lottery and lose them, and this sociologically was a bad thing........". In Stroud's Judicial Dictionary, 5th Edition, volume 3, at page 1507: "In Webster's Dictionary a lottery is defined to be 'A distribution of prizes by lot or chance' and a similar definition is given in Johnson. Such definitions are, in our opinion, correct." In Black's Law Dictionary, 6th Edition, at page 947: "A chance for a prize for a price. A scheme for the distribution of a prize or prizes by lot or chance, the number and value of which is determined by the operator of lottery." 55. So, we find three ingredients in the sale of lottery tickets, namely, (i)....
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....ale of stocks, bonds, or other securities." 57. Since it is relevant for the purpose of interpretation of Chapter XIII of the Constitution as it uses both the words "trade and commerce" to refer to the word "commerce". The Black's Law Dictionary, 6th edition, at page 269 the word "commerce" is defined: "The exchange of goods, productions, or property of any kind; the buying, selling and exchanging of articles." 58. On the other hand, "trade" is an exchange of any article either by barter or for money or for service rendered. In other words, it is exchange between two parties one who tenders the consideration and the other who returns for this consideration, goods, money, service or such other thing. Party paying consideration in any trade is aware for what he is paying the consideration. He receives for the consideration an ascertained thing or service. It is neither hypothetical nor it is a contract for any unascertained thing. In any case, there is no element or ingredient of chance under any "trade". This element of chance makes the lottery a gambling. On the other hand, an absence of chance inherently attached to any contract coupled with some skill makes it ....
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....e tested, qua, our constitutional provisions, they should, of course, be tested with circumspection. As said, we have referred to these decisions, not for interpreting the provisions of our Constitution but only to know the nature and character of lotteries as understood in those countries to which we find there is no difference than what is understood in our country. It is in this background, this Court in RMDC [1957] SCR 874, after recording the activities of lotteries which is condemned in this country from the ancient times and also taking note of views of the courts of other countries, found that they equally condemned, discouraged and looked it down with disfavour, viz., in England, Scotland, the United States of America and in Australia. Our Court records: "........that those activities which encourage a spirit of reckless propensity for making easy gain by lot or chance, which lead to the loss of the hard earned money of the undiscerning and improvident common man...... could possibly have been intended by our Constitution makers to be raised to the status of trade, commerce or intercourse and to be made the subject- matter of a fundamental right guaranteed by arti....
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.... not legally enforced but were allowed to fall into desuetude and it was not possible to hold that there was any definite head or principle of public policy evolved by courts or laid down by precedents directly applicable to wagering contracts." 64. This decision has not diluted the law laid down with respect to the finding that gambling would not fall within the meaning of word "trade" under article 301 of the Constitution or to have diluted that such transaction would not get protection under article 19(1)(g). What is said is that moral prohibitions in Hindu law text against gambling were not legally enforced. It is true, within the moral format, in a strict sense, if it was to be legally enforced there could not have been any legalised gambling. But it cannot be doubted and it is recognised by all the countries that gambling by its very nature promises to make poor man a rich man, to quench the thirst of a man in dire economic distress or to a man with bursting desire to become wealthy overnight draws them into the magnetic field of lotteries with crippling effect. More often than not, such hopes with very remote chance encourages the spirit of reckless prosperity in him, rui....
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.... parties. In Khoday Distilleries (1995) 1 SCC 574 this Court held: "The right to practice any profession or to carry on any occupation, trade or business does not extend to practising a profession or carrying on an occupation, trade or business which is inherently vicious and pernicious, and is condemned by all civilised societies. It does not entitle citizens to carry on trade or business in activities which are immoral and criminal and in articles or goods which are obnoxious and injurious to health, safety and welfare of the general public, i.e., res extra commercium (outside commerce). There cannot be business in crime. Potable liquor as a beverage is an intoxicating and depressant drink which is dangerous and injurious to health and is, therefore, an article which is res extra commercium being inherently harmful. A citizen has, therefore, no fundamental right to do trade or business in liquor. Hence the trade or business in liquor can be completely prohibited. For the same reason, again, the State can impose limitations and restrictions on the trade or business in potable liquor as a beverage which restrictions are in nature different from those impo....
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....spite of levy of taxes, fees on this trade or business, it is held to be res extra commercium. Such transactions are also not prohibited, rather authorised by law. Hence, merely there is sanction in law for a transaction or is legalised not prohibited, it would not by itself make it to be commercium. Entry 62 of List II of the Seventh Schedule refers to taxes on betting and gambling which inherently permits gambling. Thus, it could be said that gambling is recognised and authorised by law, may be through regulations, licences, etc. Thus, imposition of tax on gambling conceives of gambling, of course has to be legal to impose tax on it. In this background, we proceed to examine State lotteries (gambling), whether could it still qualities to be "trade or commerce" within the meaning of Chapter XIII of our Constitution or could "trade" or such transactions seek protection under the protective umbrella of constitutional provisions as it to be free "trade". 68. Next submission is, once the State lotteries are taken out of entry 34, List II it is no more in the realm of gambling. Not only, because the two types of lotteries find place in two different Lists of the Seventh Schedule of ....
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.... and valid commercial credit and financial dealing which could not be said to be pernicious species of money lending. We do not find that there could be any equation or parity with this decision and with the question to which we are adverting to. This case itself records at page 850: "We do not downright denounce all money-lenders but the law-makers have based on socio-economic facts, picked out a special class of money-lenders whom they describe as unscrupulous." 69. When this decision referred to about pernicious species of money- lending, it confined this adjective to a limited class of persons, but it did not hold, the business of money-lending as such to be pernicious in nature. It held that pernicious because some class of money-lenders made the poor artisan, bonded labourer, etc., a perpetual debtors. Thus, the submission, what otherwise was pernicious, was held in that case to be valid and legitimate when executed by well-recognised financial institutions and banks, hence when lotteries conducted by one set of hand could be pernicious but when organised by the State with the carved out conditions with stringent check it no more remains pernicious or gambling, ca....
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.... having been done it is expected from the State to take such measure to see that people at large, faithfully and hopefully participate in larger number for the greater yield of its revenue with no fear in their mind. The Act further ensure by virtue of section 4(b) that the proceeds of the sale of such lottery tickets is credited to the public accounts of the State. This is to give clear message to the participants that the proceeds is not in the hands of individual group or association but is ensured to be credited in the State accounts. But, as we have said, this by itself would not take it outside the realm of gambling. It remains within the same realm. In this regard, there is no difference between lotteries under entry 34, List II and a lottery organised by the State under entry 40, List I. When character of both the State organised lotteries and other lotteries remains the same by merely placing the apparel of the State with authority of law, would not make any difference, it remains gambling as element of chance persist with no element of skill. Even other lotteries under entry 34, List II could only be run under the authority of the State or the law of the State. Only diffe....
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.... trade and business of States being subject to Union taxation. This led in the Constituent Assembly a considerable debate. The Provinces were protesting regarding this. As a consequence not only draft article 266 underwent modification, but during the last stages article 298 was inserted as a compromise. This was brought in, so that the States could carry on its "trade and business" throughout the country even with respect to subject-matter covered by List I and earn more revenue. He submits that proviso (b) to article 298 is not merely a repetition of article 246 read with entries of List I of the Seventh Schedule but was for a purpose to enhance the revenue earning of the States. Mr. R.N. Trivedi, learned Additional Solicitor-General, submitted that article 298 does not confer any plenary right on any State to carry on any trade or business, even though this article does not provide specifically, but in substance it is subject to other provisions of the Constitution, like, a State cannot without obtaining a licence under the provisions of the Industries Development Regulation Act start an industry mentioned in its Schedule. Similarly, a State cannot insist as a matter of right to....
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.... entrustment of the executive power of the Union under article 258(1). This case records: "It appears that the Government of Maharashtra and various other State Governments requested the Union Government to authorise them to conduct lotteries for the purpose of 'finding funds for financing their development plans'. Such authorisation was, of course, strictly not necessary in the absence of a law made by Parliament pursuant to entry 40 of List I of the Seventh Schedule to the Constitution. Article 298 of the Constitution extends the executive power of the Union and each State to the carrying on of any trade or business and the acquisition, holding and disposal of property and the making of contracts for any purpose, with the stipulation that if the trade, business or purpose is not one with respect to which Parliament may make laws, the said executive power of Parliament shall be subject in each State to legislation by the State........" (emphasis supplied) It further records: "............Reading and considering articles 73 and 298 together, as they should indeed be read and considered, it is clear that the executive power of a State in the matter of ca....
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....o articles. Relevant portion of article 298 is quoted hereunder: "298. Power to carry on trade, etc.-The executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose: Provided that- ...................... (b) the said executive power of each State shall, in so far as such trade or business or such purpose is not one with respect to which the State Legislature may make laws, be subject to legislation by Parliament." [Emphasis supplied] The executive power of the State is referable in terms of words used therein "to the carrying on of any trade or business............. and the making of contracts for any purpose". Title of this article significantly is "power to carry on 'trade', etc." Article 301 is quoted hereunder: "301. Freedom of trade, commerce and intercourse.-Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free." (Emphasis supplied) In difference, we find that the words used un....
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....affairs in which either an individual or a corporation can be actors." "Business" and "trade": "..............There may, however, be a 'business' without pecuniary profit being at all contemplated. In such a connection, 'business' is a very much larger word than 'trade' and the word 'business' is employed in order to include occupations which would not strictly come within the meaning of the word 'trade'. The words 'trade' and 'business' do not mean the same thing..... The word 'trade' is often confined to buying and selling commodities. Where to draw the line between what is a profession and what is a trade is a matter which it is not possible to deal with any general definition. 'Business' is a much wider term than trade. The word 'business' at least covers a continuous occupation involving liabilities to others. In re A Debtor, [1927] 1 Ch 9 = 96 LJ (Ch) 28 (CA)." All this clearly indicates, the word "business" is wider than the words "trade and commerce". This apart, article 298 further uses the words "contracts for any purpose", so far lottery tickets are concerned they are hel....
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....thers could neither be a fundamental right nor a right under article 301. No one could seek it as a free "trade" like other "trades ", even though it may have the authority of law. This authorisation under the Act is solely for the purpose for the States to earn revenue. 78. So far as Anraj case-II [1986] 61 STC 165 (SC); (1986) 1 SCC 414 is concerned, it held that "lottery tickets" to be "goods" and thus subject to sales tax. We have already held that there may be certain transactions or commodity which are goods and subject to sales tax but still it would not qualify to be "trade". In this Anraj case-II [1986] 61 STC 165 (SC); (1986) 1 SCC 414 also there was no issue, whether sale of such lottery tickets would be trade and commerce within the meaning of Chapter XIII of the Constitution or not. Once it was held to be goods, this case proceeded to adjudicate whether by different measure to tax on the lottery tickets of the home State and of other States there is any violation of article 304 or not. Neither there was any occasion nor it has referred to the Constitution Bench decision of this Court in RMDC case [1957] SCR 874. So far in the present case, neither we are concerned w....
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....f Bhutan lotteries in their States. Paragraph 47 of the affidavit of Union of India dated 27th November, 1998, referred and records, "consequently, the Central Government decided to enact an appropriate legislation to regulate the conduct of lotteries so as to protect the poor and gullible persons.............." The submission is, so far the sale of Bhutan lottery tickets, Union stand is clear that Bhutan lotteries are to be sold throughout India without any conditions contrary to the placing of stringent conditions on the State lotteries which is discriminatory. On the one hand, under the garb of regulating these lotteries, power to ban lotteries was delegated to the "State" so as to protect the poor and gullible persons, on the other hand to permit Bhutan lotteries to be sold throughout India without any condition clearly demonstrates that consideration for poor and gullible a lost sight. 81. It is true that by perusal of these various office memorandum, circular letters and the affidavit of Union of India depicts the state of uncertainty in the Union and so took its oscillating stand, as it stood then and now. Then stand was, since Bhutan lottery is under a treaty, all States....
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.... be subjected to the laws of lotteries in India. But once treaty itself stipulates it to be subject to any law in India, then if the sale of Bhutan lottery tickets are not State organised lotteries, it necessarily falls under other lotteries under entry 34, List II. There is no other entry pertaining to lottery. Thus, it necessarily follows that its sale within India will be subject to the laws of the State as is applicable under this entry. In other words, if the State prohibits sale within its State not only sale of its own lottery but every other lottery, then the sale of lottery tickets of Bhutan will have to be subjected to the laws of that State. Thus, prohibition to other lotteries will equally be applicable to the sale of Bhutan lottery. In the present case, learned Additional-Solicitor General Mr. Vaidyanathan, also subscribed to this interpretation on behalf of the Union. As we have said, in the absence of law by the Parliament, so far the treaty with the said stipulation, there could possibly be no other interpretation. This interpretation further eliminates possible discrimination which is subject of attack in the present case. Thus, the Bhutan lottery could not be said....
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....il Nadu is on plain reading of section 5, a State without banning its own lottery can ban lotteries organised by other States. This may be to create monopoly or in the name of law and order or of moral or ethical grounds or may also be for political reason. Thus, to this large discretion left on the State is submitted it shows the delegation of unbridled power hence violative of article 14. Mr. Venugopal submits that even though the interpretation sought to be given by the Union may reduce the extent of discrimination to a great extent but cannot neutralise the violation of article 303(1) of the Constitution. There is nothing in the Act or its preamble to interpret that, it is only the State which decides not to run its own lottery that could impose such a ban. Learned counsel Mr. Shanti Bhushan also submitted that the State cannot take up a stand that the law which is applicable to other persons would not apply to the State as it would be inconsistent with the rule of law based on the doctrine of equality which introduce discrimination. Reliance was placed on the case of Superintendent of Rememberances of Legal Affairs, West Bengal v. Corporation of Calcutta [1967] 2 SCR 170 (nine....
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.... thus when a State wants to exercise such power, it is left to its wisdom having regard to its policy in public interest, P. Orr Sons (P) Ltd. v. Associated Publishers (Madras) Ltd. (1991) 1 SCC 301 (para 14). 87. The legal principles which emerges, as submitted, is that delegation of essential legislative power of the principal to the delegatee would amount to abdication of its legislative power and if it is bereft of any guidelines then it is unsustainable in the eyes of law. The authorities cited by various learned counsel and the law on the subject, cannot be doubted. But this principle is to be tested by scanning the impugned legislation which may differ one from the other in its nature, setting up or other circumstances which may have bearing to conclude. It is also well-settled, first attempt should be made by the courts to uphold the charged provisions and not to invalidate it merely because one of the possible interpretation leads to such a result, howsoever attractive it may be. Thus, where there are two possible interpretations, one invalidating the law and the another upholding, the latter should be adopted. For this, the courts have been endeavouring, sometimes to g....
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...., its subject-matter, the area in which it is intended to operate, its purport and intent have to be determined. In order to do so it is legitimate to take into a consideration all the factors such as history of the legislation, the purpose thereof, the surrounding circumstances and conditions, the mischief which it intended to suppress, the remedy for the disease which the Legislature resolved to cure and the true reason for the remedy; Bengal Immunity Company Ltd. v. State of Bihar [1955] 6 STC 446 (SC); [1955] 2 SCR 603, R.M.D. Chamarbaughwala v. Union of India [1957] SCR 930; Mahant Moti Das v. S.P. Sahi AIR 1959 SC 942. Another principle which has to be borne in mind in examining the constitutionality of a statute is that it must be assumed that the Legislature understands and appreciates the need of the people and the laws it enacts are directed to problems which are made manifest by experience and that the elected representatives assembled in a Legislature enact laws which they consider to be reasonable for the purpose for which they are enacted. Presumption is, therefore, in favour of the constitutionality of an enactment. Charanjit Lal Chowdhuri v. Union of India ....
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....h it the power to delegate. But excessive delegation may amount to abdication. Delegation unlimited may invite despotism uninhibited. So the theory has been evolved that the Legislature cannot delegate its essential legislative function. Legislate it must, by laying down policy and principle and delegate it may to fill in detail and carry out policy. The Legislature may guide the delegate by speaking through the express provision empowering delegation or the other provisions of the statute, such as the preamble, the scheme or even the very subject-matter of the statute. If guidance there is, wherever it may be found, the delegation is valid. A good deal of latitude has been held to be permissible in the case of taxing statutes and on the same principle a generous degree of latitude must be permissible in the case of welfare legislation, particularly those statutes which are designed to further the Directive Principles of State Policy." 88. This case holds that guidelines can be gathered from the subject- matter of the Act. 89. Before entering to decide the rival contentions within the approved wide field of interpretation, we look back to the history of the law pertaining to ....
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....a public purpose it has been legalised but cannot be equated with other trade or business. It is distinct and different kind in itself, i.e., a class of gambling. Thus, merely putting on the apparel of the State, the State lotteries cannot change from its basic character. 90. As revealed from Anraj case-I (1984) 2 SCC 292, some of the States sought permission of the Union as a policy to raise its revenue through these lotteries, which was conferred by the Presidential Order under article 258(1), though it records, the State could have exercised their discretion as a policy to have their own lotteries without such permission in view of its extended executive power under article 298. It further reveals, till the Parliament makes any law, decision to start its lottery or to close it is exclusively within the executive power of each State. This is because it is the policy decision of a State which has to decide as a principle whether it desires to collect in this form the revenue or not. The benefit of article 298 is, it is extra territorial, applicable beyond its territory, it is for this State lotteries are placed in entry 40, List I. So in a federal structure, Union has to play a....
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....y it is left to the policy of each State, for this the Act is silent. The only control is, in case it decides, then it must follow the conditions as laid down under section 4. Next comes section 5 which is subject-matter of challenge, the delegation of power to the State to prohibit the sale of lottery tickets organised by every other State. If a State desires not to subject its people to the lottery gambling, it has no power to restrict lotteries organised by other States. It is to remove this mischief the power is conferred through delegation to the States to do it in terms of its own policy. By virtue of this, now the State Government can prohibit sale of lottery tickets of every other States within its territory. Next, section 6 seeks strict compliance of section 4. Under this the Central Government may prohibit any State lottery which is being conducted in contravention of the conditions as laid down under section 4 or 5. Section 7 shows the rigor of this Act by making it a penal offence as against all, who violate the provisions of this Act, may be the Head of the Department of the Government or the agent, promoter or trader, to be punishable with two years rigorous imprisonm....
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....ate lottery free zone and for which the power is entrusted to such State, it cannot be said in this setting and background and the nature of the subject that such a delegation is of its essential legislative power. The only guideline necessary in such delegation is to see State does not pick and choose one State from the other, which guideline is already provided in this section. It provides that such a ban could only be if it is applied to every other State. Only residual field of attack so far this delegation could be, which has been attacked in this case, that State could on one hand ban lotteries of every other State but run its own lotteries. It is argued while a State bans lotteries of other States not to permit any gambling activity in the public interest as a policy but this very public interest is flouted by having lotteries of its own. It is true that unless this provision is read down to mean a State can only ban lotteries of other States when it bans as a policy its own lotteries it is bound to be subjected to the vagaries as pointed out and on deeper scrutiny it may not successfully stand. But by reading down the provision, which has to be read that it is only that Sta....
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....The submission further is, if the ban of sale of lottery tickets of every other State is as a public policy, affecting the morality and resultant ill effect on its subject then there is no justification that State may run its own lottery affecting the very subject for which the power is exercised prohibiting the lotteries of other States. It is true, if such an interpretation is accepted then this submission has a force. On the other hand, on behalf of the Union the submission is that language of the section has to be read down. The decision to have its lottery or not to have its lottery has to be in the public interest. Every decision to have either lotteries authorised by the State or organised by the State has to be in public interest. May be for collection of public revenue or for a public purpose. It has been held in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly AIR 1986 SC 1571 at para 93: "There must be no injury or harm to the public interest, public good and public welfare." 94. Thus, the decision to run State lottery has to be made with the conscience of its evil consequences on its subject, thus before deciding the State has to equate ....
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....mitted on behalf of some of the North-Eastern States, Nagaland, etc., or the State of Sikkim that in the exigencies they are placed with the lack of harnessing their revenue, if this right is curtailed it would badly affect their revenue. It may be true to some extent so far as these States are concerned. However, we find that the impugned provision does not prohibit such State not to run its own lotteries. Such State can continue to have their own lotteries. Only where any State decides not to have any lottery the territorial area of such State is only curtailment. What would be the shortfall of the revenue, if any, the figure of which has not been effectively placed before us, whether there is going to be of any substantial loss, but if at all there is, it is for that State to find an alternative or for the Union to lend support if that is essential within its permissible limits. These again are matters in the realm of policy which this Court has no jurisdiction to enter into. But this cannot mean to permit any such State to have right to its lotteries (gambling) in other territory in spite of other State prohibiting such activity in its territory. That right could have been if S....