PETITIONER: THE STATE OF BOMBAY Vs. RESPONDENT: R. M. D. CHAMARBAUGWALA DATE OF JUDGMENT: 09/04/1957 BENCH: DAS, SUDHI RANJAN (CJ) BENCH: DAS, SUDHI RANJAN (CJ) AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P. DAS, S.K. GAJENDRAGADKAR, P.B. CITATION: 1957 AIR 699 1957 SCR 874 ACT: Lottery--Prize competitions, if and when of a gambling mature--Legislation taxing Promoters of such competition carried on through newspaper printed and Published outside the State--Validity-Test-Territorial nexus--Gambling, if trade and commerce within the meaning of the Constitution--Constitutionality of enactment--Bombay Lotteries and Prize Competition Control and Tax Act (Bom. LIV of 1948), as amended by the Bombay Lotteries and Prize Competition Control and Tax (Amendment) Act (Bom. XXX of 1952), ss. 2(I) (d), 12 A--Constitution of India, Arts. 19(1) (g), 301. HEADNOTE: The first respondent was the founder and Managing Director of a company, the second respondent in the appeal, which was incorporated in the State of Mysore and conducted a Prize Competition called the R. M. D. C. Cross-words through a weekly newspaper printed and published at Bangalore. This paper had a wide circulation in the State of Bombay, where the respondents set up collection depots to receive entry forms and fees, appointed local collectors and invited the people by advertisements in the paper to participate in the competitions. On November 20, 1952, the Bombay Legislature passed the Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act of 1952, and widened the scope of the definition of 'prize competition ' contained in S. 2(1) (d) of the Bombay Lotteries and Prize Competition Control and Tax Act of 1948, so as to include prize competitions carried on through newspapers printed and published outside the State and inserted a new section, S. 12A, levying a tax on the promoters of such competitions for sums collected from the State. Thereupon, on December 18, 1952, the respondents moved the High Court of Bombay under Art. 226 of the Constitution and contended that the Act as amended and the Rules framed thereunder in so far as they applied to such prize competitions were ultra vires the State Legislature and violated their fundamental rights under Art. 19(1) (g) and freedom of inter-State trade under Art. 301 of the Constitution. The Single Judge who heard the matter in the first instance as also the court of appeal found in favour of the respondents, though on somewhat different grounds, and the State of Bombay preferred the appeal. The principal question canvassed in this Court related to the validity. or otherwise of the impugned Act. It was contended on behalf of the appellant that the impugned Act was -a law relating to betting and gambling and as such was covered 875 by Entries 34 and 62 of List II in the Seventh Schedule to the Constitution, whereas the contention of the respondents was that the Act was with respect to trade and commerce and came under Entries 26 and 60 of that List. Held, that in testing the validity of an Act it was necessary, in the first place, to decide whether it was with respect to a topic assigned to the legislature and, secondly, where it was so and the legislature was a State Legislature and the Act purported to operate beyond the State, whether there was sufficient territorial nexus to validate such operation and, lastly, whether the powers of the legislature were in any other way fettered by the Constitution. So judged, the impugned Act was a perfectly valid legislation and its constitutionality was beyond question. Regard being had to the purpose and scope of the Act read as a whole there could be no doubt that all the categories of prize competitions included in the definition contained in s. 2(1) (d) of the Act were of a gambling nature. The qualifying' clause appearing at the end of cl. (1) must apply to each of the five kinds enumerated therein, and the word 'or' appearing after the word I promoters' and before the word 'for' in the clause must be read as 'and'. Similarly, cl. (ii), properly construed, could not include any prize competitions other than those of a gambling nature. Elderton v. Totalisator Co. Ltd., (1945) 2 All E. R. 624, held inapplicable. The impugned Act was, therefore, a legislation with respect to betting and gambling and fell under Entry 34 of List II of the Seventh Schedule to the Constitution and was within the competence of the State Legislature. Taxes on gambling are a well recognised group of indirect taxes and s. 12A of the Act in seeking to tax the gross collections in the hands of the promoters, and not their profits, was only following an easy and convenient way of getting at the gambler's money in their hands and this made no difference in the character of the tax, essentially one on betting and gambling and not on any trade, and, consequently, the section fell within Entry 62 and not Entry 6o of List II of the Seventh Schedule to the Constitution. A prize competition that did not to a substantial degree depend upon the exercise of skill for its solution would be of a gambling nature and a scrutiny of the prize competitions offered by the respondents clearly showed that there was an element of chance to start with, and, consequently, they must be of a gambling nature and fell within the mischief of the Act. The doctrine of territorial nexus was a well-established doctrine and could apply only when (1) the territorial connection between the persons sought to be taxed and the legislating State was real and not illusory and (2) the liability sought to be imposed was pertinent to that connection. The existence of sufficient 876 territorial nexus in a particular case was essentially a question of fact. There could hardly be any doubt in the instant case that the impugned Act satisfied all these tests and, consequently, it was unassailable on the ground of extra-territoriality. Gambling activities were in their very nature and essence extra-commercium although they might appear in the trappings of trade. They were considered to be a sinful and pernicious vice by the ancient seers and law-givers of India and have been deprecated by the laws of England, Scotland, United States of America and Australia. The Constitution- makers of India, out to create a welfare State, could never have intended to raise betting and gambling to the status of trade, business, commerce or intercourse. The petitioners, therefore, had no fundamental right under Art. 19(1) (g) or freedom under Art. 301 Of the Constitution in respect of their prize competitions that could be violated and the validity of the impugned Act, in pith and substance an Act relating to gambling, did not fall to be tested by Arts. 19(6) and 304 Of the Constitution. judicial decisions on Art. 1, s. 8, sub-s. (3) Of the Constitution of the United States and S. 92 of the Australian Constitution should be used with caution and circumspection in construing Arts. 19(1) (g) and 301 of the Indian Constitution. State of Travancore-Cochin v. The Bombay Co. Ltd. (1952) S.C.R. 1112 and P. P. Kutti Keya v. The State of Madras, A.I.R. (1954) Mad. 621, referred to. The King v. Connare, (1939) 61 C.L.R. 596, The King v. Martin, (1939) 62 C.L.R. 457, Commonwealth of Australia v. Bank of New South Wales, L.R. (195o) A.C. 235, Mansell v. Beck, Australian Law journal Vol. 3o, NO. 7, P. 346, Champion v. Ames, 47 L.Ed. 492, Hipolite Egg Co. v. United States, 55 L.Ed. 364, Hoke v. United States, 57 L.Ed. 523, United States v. Kahriger, 97 L.Ed. 754 and Lewis v. United States, 99 L.Ed.475, discussed. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 134 of
1956.
Appeal under articles 132 (1) and 133 (I) (c) of the
Constitution of India from the Judgment and Order dated
January 12, 1955, of the Bombay High Court in Appeal No. 72
of 1954 arising out of the Judgment and Order dated April
22, 1954, of the Bombay High Court in its Original Civil
Jurisdiction in Miscellaneous Application No. 365 of 1952.
C. K. Daphtary, Solicitor-General of India, H. M. Seervai,
Porus A. Mehta and R. H. Dhebar, for the appellant.
877
M. C. Setalvad, Attorney-General for India, Sir N. P.
Engineer, N. A. Palkhivala, R. A. Gagrat, S. V. Subramanian,
and G. Gopal Krishnan, for the respondents.
G. R. Ethirajulu Naidu, Advocate-General, Mysore, Porus
A. Mehta and T. M. Sen, for the intervener.
1957. April 9. The Judgment of the Court was delivered by
DAS C.J.-This is an appeal by the State of Bombay from the
judgment and order passed on January 12, 1955, by the Court
of Appeal of. the High Court of Judicature of Bombay
confirming, though on somewhat different grounds, the
judgment and order passed on April 22, 1954, by a single
Judge of the said High Court allowing with costs the present
respondents’ petition under Art. 226 of the Constitution of
India. The said petition was presented before the High
Court of Judicature at Bombay on December 18, 1952. In the
said petition there were two petitioners who are now the two
respondents to this appeal. The first petitioner is an
individual who claims to be a citizen of India and the
founder and Managing Director of the second petitioner,
which is a company incorporated in the State of Mysore and
having its registered head office at 2, Residency Road,
Bangalore in that State. That petition was further
supported by an affidavit sworn by the first petitioner on
the same day.
The allegations appearing in the said petition and affidavit
may now be shortly stated. In July, 1946 the first
petitioner applied for and obtained from the then Collector
of Bombay a licence, being Licence No. 84 of 1946, for the
period ending March 31, 1947, to conduct what was known as
the Littlewood’s Football Pool Competitions in India. That
licence was granted to the first petitioner under the
provisions of the Bombay Prize Competitions Tax Act, (Bom.
XI of 1939) (hereinafter referred to as the 1939 Act), which
was then in force. The said licence was renewed for a
period of one year from April 1, 1947 to March 31, 1948.
During that period the first petitioner paid, by way of
competition tax, to the Bombay Provincial
113
878
Government a sum of rupees one lakh per annum. The
Government of Bombay having declined to renew the first
petitioner’s licence for a further period, the first
petitioner filed a petition under s. 45 of the Specific
Relief Act in the High Court of Bombay, which was
eventually, after various proceedings, dismissed by the
court of appeal on or about March 28, 1949.
In the meantime, in view of the delay and difficulty in
obtaining a renewal of the licence in Bombay, the first
petitioner in or about August, 1948, shifted his activities
from Bombay to the State of Mysore, where he promoted and on
February 26,1949, got incorporated a company under the name
of R.M.D.C. (Mysore) Limited, which was the second
petitioner in the High Court and is the second respondent
before us. The first petitioner, who was the promoter of
the second petitioner became the Managing Director of the
second petitioner. All the shareholders and Directors of
the second petitioner are said to be nationals and citizens
of India. The second petitioner also owns and runs a weekly
newspaper called ” Sporting Star “, which was and is still
printed and published at Bangalore in a Press also owned by
the second petitioner. It is through this newspaper that
the second petitioner conducts and runs a Prize Competition
called the R.M.D.C. Crosswords for which entries are
received from various parts of India including the State of
Bombay through agents and depots established in those places
to collect entry forms and fees for being forwarded to the
head office at Bangalore.
The 1939 Act was replaced by the Bombay Lotteries and Prize
Competition Control and Tax Act (Bom. LIV of 1948),
(hereinafter referred to as the 1948 Act) which came into
force on December 1, 1948. The 1939 Act as well as the 1948
Act, as originally enacted, did not apply to prize
competitions contained in a newspaper printed and published
outside the Province of Bombay. So the Prize Competition
called the R.M.D.C. Crosswords was not affected by either of
those two Acts.
On June 21, 1951, the State of Mysore, however, enacted the
Mysore Lotteries and Prize Competition
879
Control and Tax Act, 195 1, which was based- upon the lines
of the said 1948 Act. That Mysore Act having come into
force on February 1, 1952, the second petitioner applied for
and obtained a licence under that Act and paid the requisite
licence fees and also paid and is still paying to the State
of Mysore the tax at the rate of 15% (latterly reduced to
121%) of the gross receipts in respect of the R.M.D.C.
Crosswords Prize Competition and continued and is still
continuing the said Prize Competition through the said
weekly newspaper “The Sporting Star” and to receive entry
forms with fees from all parts of the territory of India
including the State of Bombay. It is said, on the strength
of the audited books of account, that after distribution of
prizes to the extent of about 33% of the receipts and after
payment of taxes in Mysore amounting to about 15% and
meeting the other expenses aggregating to about 47%, the net
profit of the second petitioner works out to about 5% only.
On November 20, 1952, the State of Bombay passed The
Bombay Lotteries and Prize Competitions Control and Tax
(Amendment) Act (Bom. XXX of 1952). This Act amended the
provisions of the 1948 Act in several particulars. Thus,
the words ” but does not include a prize competition
contained in a newspaper printed and published outside the
Province of Bombay”, which occurred in the definition of
Prize Competition in s. 2 (1) (d) of the 1948 Act, were
deleted and the effect of this deletion was that the scope
and the application of the 1948 Act so amended became
enlarged and extended so as to cover prize competitions
contained in newspapers printed and published outside the
State of Bombay. After cl. (d) of s. 2 (1) the Amending Act
inserted a new cl. (dd) which defined the word “Promoter “.
A new section was substituted for the old s. 12 and another
new section was inserted after s. 12 and numbered as a. 12A.
By this new s. 12A provision was made for the levy in
respect of every prize competition contained in a newspaper
or a publication printed outside the State of Bombay for
which a licence was obtained under the Act of a tax at such
rates as might be specified not exceeding the
880
rates specified in s. 12 or in a lump sum having regard to
the circulation or distribution of the newspaper or
publication in the State of Bombay. It is pointed out that
the margin of net profit being only 5%, if tax has to be
paid to the State of Bombay under the 1948 Act, as amended,
(hereinafter referred to as the impugned Act) the second
petitioner will be unable to carry on its prize competition
except at a loss.
Reference is also made to the rules framed by the State of
Bombay called the Bombay Lotteries -and Prize Competition
Control and Tax Rules, 1952 (herein-‘ after called the said
Rules), which came into force on and from December 8, 1952.
The said Rules require the petitioner to apply for and
obtain a licence in Form ” H ” which imposes certain onerous
conditions. The petitioners point out that it would be
impossible for them, in a commercial sense and from a
practical point of view, to run the prize competitions in
the territory of India if they are required to comply not
only with the restrictions and conditions imposed by the
Mysore State where the newspaper is printed and published
but also with the varying and different restrictions,
conditions and taxes imposed by the State of Bombay and
other States in the territory of India where the said
newspaper containing the advertisements; of the said prize
competitions are circulated. The petitioners submit that
the provisions of the impugned Act and the Rules, in so far
as they apply to prize competitions contained in newspapers
and other publications printed and published outside the
State of Bombay, are ultra vires void and inoperative in
law.
Upon the presentation of the petition a Rule was issued
calling upon the State of Bombay to appear and show cause,
if any it had, why the writ or orders prayed for should not
be issued or made. The State of Bombay filed an affidavit
raising several technical legal objections to the
maintainability of the petition and refuting the allegations
and submissions contained therein and in the supporting
affidavit. It submitted that, as the second petitioner was
a corporation , and the first petitioner, who was a Managing
Director
881
thereof, had no rights independent of the second petitioner,
neither of them could lay any claim to any fundamental right
under Art. 19(1) (g) and no question could arise of any
violation of the petitioner’s alleged fundamental rights.
It further submitted that, having. Regard to the fact that
lotteries and prize competitions were opposed to public
policy, there could be no ” business ” in promoting a
lottery or a prize competition and the question of the
violation of the petitioners’ alleged rights under Art.
19(1) (g) of the Constitution did not arise. It was also
contended that if the provisions of the Act and the Rules
operated as restrictions, then the same were reasonable and
in the interest of the general public. Likewise it was
submitted that, having regard to the fact that lotteries and
prize competitions are opposed to public policy, there could
be no “business ” in promoting a lottery or a prize
competition and the question of the violation of the
provisions of Art. 301 of the Constitution did not arise.
It was denied that ss. 10 and 12 of the Act violated the
equal protection clause of the Constitution. An affidavit
in reply was filed by the first petitioner traversing the
allegations, submissions and contentions set forth in the
affidavit in opposition filed on behalf of the State of
Bombay.
The main contentions of the present respondents before the
trial Judge were:-
(a)The impugned Act and particularly its taxing provisions
were beyond the competence of the State Legislature and
invalid inasmuch as they were not legislation with respect
to betting and gambling under Entry 34 or with respect to
entertainments and amusements under Entry 33 or with respect
to taxation on entertainments and amusements, betting. and
gambling under Entry 62 of the State List. The legislation
was with respect to trade and commerce and the tax levied by
the Impugned Act was a tax on the trade or calling of
conducting prize competitions and fell within Entry 60 of
the State List.
(b) The respondents’ prize competition was not a lottery
and could not be regarded as gambling
882
inasmuch as it was a competition in which skill, knowledge
and judgment had real and effective play.
(c) The impugned Act itself contained distinct provisions
in respect of prize competitions and lotteries ,-thereby
recognising that prize competitions were not lotteries.
(d) The said tax being in substance and fact a tax on the
trade or business of carrying on prize competitions it
offended against s. 142A (2) of the Government of India Act,
1935 and Art. 276 (2) of the Constitution which respectively
provide that such a tax shall not exceed fifty rupees and
two hundred and fifty rupees per annum.
(e) The impugned Act was beyond the legislative competence
of the Bombay Legislature and invalid as it was legislation
with respect to trade and commerce not within but outside
the State.
(f) The impugned Act operated extra-territorially inasmuch
as it affected the trade or business of conducting prize
competitions ‘ outside the State and was, therefore, beyond
the competence of the State Legislature and invalid.
(g) The impugned Act offended against Art. 301 of the
Constitution inasmuch as it imposed restrictions on trade,
commerce and intercourse between the States and was not
saved by Art. 304 (b) of the Constitution.
(h) The restrictions imposed by the impugned Act on the
trade or business of the petitioners were not reasonable
restrictions in the interests of the general public and,
therefore, contravened the fundamental right of the
petitioners, who were citizens of India, to carry on their
trade or business under Art. 19 (1) (g) of the Constitution.
(i) That ss. 10, 12 and 12A of the said Act offended
against Art. 14 of the Constitution inasmuch as they
empowered discrimination between prize competitions
contained in newspapers or publications printed and
published within the State and those printed and published
outside the State.
The State of Bombay, which is now the appellant before us,
on the other hand, maintained that
883
(a) The prize competitions conducted by the petitioners
were a lottery.
(b) The provisions of the impugned Act were valid and
competent legislation under Entries 33, 34 and 62 of the
State List.
(c)The impugned Act was not extra-territorial in its
operation.
(d)The prize competitions conducted by the petitioners were
opposed to public policy and there could therefore be no
trade or business of promoting such prize competitions.
(e)As the petitioners were not carrying on a trade or
business, no question of offending their fundamental rights
under Art. 19 (1) (g) or of a violation of Art. 301 of the
Constitution could arise.
(f)The second petitioner being a Corporation was not a
citizen and could not claim to be entitled to the
fundamental right under Art. 19 (1) (g) of the Constitution.
(g)In any event the restrictions on the alleged trade or
business of the petitioners imposed by the Act were
reasonable restrictions in the public interest with in the
meaning of Art. 19 (6) and Art. 304 (b) of the Constitution.
The trial Judge held:
(a)The tax levied under ss. 12 and 12A of the Act was not
a tax on entertainment, amusement, betting or gambling but
that it was a tax on the trade or calling of the respondents
and fell under Entry 60 and not under Entry 62 of the State
List.
(b)The prize competition conducted by the petitioners was
not a lottery and it could not be said to be either betting
or gambling inasmuch as it was a competition in which skill,
knowledge and judgment on the part of the competitors were
essential ingredients.
(c)The levy of the tax under the said sections was void as
offending against Art. 276 (2) of the Constitution.
(d)The restrictions imposed by the impugned Act and the
Rules thereunder offended against Art. 301 of the
Constitution and were not saved by Art,
884
304(b) inasmuch as the restrictions imposed were neither
reasonable nor in the public interest.
(e)The second petitioner, although it was a company, was a
citizen of India and was entitled to the protection of Art.
19 of the Constitution.
(f)The restrictions imposed by the impugned Act and the
Rules made thereunder were neither reasonable nor in the
interests of the general public and were void as offending
against Art. 19 (1) (g) of the Constitution.
In the result the rule nisi was made absolute and it was
further ordered that the State of Bombay, its servants and
agents, do forbear from enforcing or taking any steps in
enforcement, implementation, furtherance or pursuance of any
of the provisions of the impugned Act and the 1952 Rules
made thereunder and particularly from -enforcing any of the
penal provisions against the petitioners, their Directors,
officers, servants or agents and that the State of Bombay,
its servants and agents, do allow the petitioners to carry
on their trade and business of running the Prize Competition
mentioned in the petition and do forbear from demanding,
collecting or recovering from the petitioners any tax as
provided in the impugned Act or the said Rules in respect of
the said Prize Competition and that the State of Bombay do
pay to the petitioners their costs of the said applications.
Being aggrieved by the decision of the trial Judge, the
State of Bombay preferred an appeal on June 8, 1954. The
Court of Appeal dismissed the appeal and confirmed the order
of the trial Judge, though on somewhat different grounds.
It differed from the learned trial Judge on the view that he
had taken that there was no legislative competence in the
Legislature to enact the legislation. It held that the
topic of legislation was I gambling’ and the Legislature was
competent to enact it under Entry 34 of the State List. It,
however, agreed with the learned trial Judge that the tax
levied under s. 12A was not a tax on gambling but that it
was a tax which fell under Entry 60. It held that there was
885
legislative competence in the Legislature to impose that tax
but that the tax was invalid because it did not comply with
the restriction contained in Art. 276 (2) of the
Constitution. It also took the view that the tax, even
assuming it was a tax on betting or gambling, could not be
justified -because it did not fall under Art. 304 (b). It
differed from the learned trial Judge when he found as a
fact that the scheme underlying the prize competitions was
not a lottery and came to the conclusion that the Act
applied to the prize competitions of the respondents. It
held that the challenge of the petitioners to the impugned
provisions succeeded because the restrictions contained in
the impugned Act controlling the business of the petitioners
could not be justified as the requirements of the provisions
of Art. 304 (b) had not been complied with. The High Court
agreed with the learned trial Judge that the petitioners’
prize competitions were their “business ” which was entitled
to the protection guaranteed under the Constitution. It
took the view that although the activity of the petitioners
was a lottery, it was not an activity which was against
public interest and, therefore, the provisions of Part XIII
of the Constitution applied to the respondents’ business.
Being aggrieved by the said judgment of the Court of
Appeal, the appellant applied for and obtained under Arts.
132(1) and 133(1) of the Constitution a certificate of
fitness for appeal to this Court and hence this appeal
before us.
The principal question canvassed before us relates to the
validity or otherwise of the impugned Act. The Court of
Appeal has rightly pointed out that when the validity of an
Act is called in question, the first thing for the court to
do is to examine whether the Act is a law with respect to a
topic assigned to the particular Legislature which enacted
it. If it Is, then the court is next to consider whether,
in the case of an Act passed by the Legislature of a
Province (now a State), its operation extends beyond the
boundaries of the Province or the State, for under the
provisions conferring legislative powers on it such
Legislature can only make a law for its territories or any
part thereof
114
886
and its laws cannot, in the absence of a territorial nexus,
have any extra territorial operation. If the impugned law
satisfies both these tests, then finally the court has to
ascertain if there is anything in any other part of the
Constitution which places any fetter on the legislative
powers of such Legislature. The impugned law has to pass
all these three tests.
Taking the first test first, it will be recalled that the
1948 Act was enacted by the Provincial Legislature of Bombay
when the Government of India Act, 1935, was in force. Under
ss. 99 and 100 of that Act the Provincial Legislature of
Bombay had power to make laws for the Province of Bombay or
any part thereof with respect to any of the matters
enumerated in List 11 in the Seventh Schedule to that Act.
It will also be remembered that the 1948 Act was amended by
Bombay Act XXX of 1952 after the Constitution of India had
come into operation. Under Arts. 245 and 246, subject to
the provisions of the Constitution, the Legislature of the
State of Bombay has power to make laws for the whole or any
part of the State of Bombay with respect to any of the
matters enumerated in List II of the Seventh Schedule to the
Constitution. The State of Bombay, which is the appellant
before us, claims that the impugned Act including s. 12A is
a law made with respect to topics covered by Entries 34 and
62 of List II in the Seventh Schedule to the Constitution
which reproduce Entries 36 and 50 of List II in the Seventh
Schedule to the Government of India Act, 1935. On the other
hand, the petitioners, who are respondents before us,
maintain that the impugned Act is legislation under Entries
26 and 60 in List 11 of the Seventh Schedule to the
Constitution corresponding to Entries 27 and 46 of List II
in the Schedule to the Government of India Act, 1935, and
that, in any event, s. 12A of the impugned Act, in so far as
it imposes a tax, comes under Entry 60 of List II in the
Seventh Schedule to the Constitution corresponding to Entry
46 of List II in the Seventh Schedule to the Government of
India Act, 1935, and not under Entry 62 of List 11 in the
Seventh Schedule to the Constitution corresponding to Entry
50 of List 11 in the Seventh Schedule to the
887
Government of India Act, 1935, and that as the tax imposed
exceeds Rs. 250/- it is void under Art. 276 (2) which
reproduces s. 142A of the Government of India Act, 1935.
Reference will hereafter be made only to the relevant
Entries of List II in the Seventh Schedule r, to the
Constitution, for they are substantially in the same terms
as the corresponding Entries of List 11 in the Seventh
Schedule to the Government of India Act, 1935. For easy
reference, the relevant Entries in List II in the Seventh
Schedule to the Constitution are set out below:
” 26. Trade and commerce within the State subject to the
provisions of Entry 33 of List III.
34. Betting and gambling.
60. Taxes on professions, trades, callings, and
employments.
62. Taxes on luxuries, including taxes on entertainments,
amusements, betting and gambling.”
In order to correctly appreciate the rival contentions and
to come to a decision as to the particular Entry or Entries
under which the impugned Act including s. 12A thereof has
been enacted, it is necessary to examine and to ascertain
the purpose and scope of the impugned legislation. It may
be mentioned that the 1939 Act was enacted to regulate and
levy a tax on prize competitions in the Province of Bombay.
It did not deal with lotteries at all. That Act was
repealed by the 1948 Act which was enacted to control and to
levy a tax not only on prize competitions but on lotteries
also. It is not unreasonable to conclude that the clubbing
together of lotteries and prize competitions in the 1948 Act
indicates that in the view of the Legislature the two topics
were, in a way, allied to each other. As already indicated,
the 1948 Act was amended in 1952 by Bombay Act XXX of 1952
so as to extend its operation to prize competitions
contained in newspapers printed and published outside the
State of Bombay. In s. 2(1) (d) of the impugned Act will be
found the definition of ” prize competition ” to which
reference will be made hereafter in greater detail. Clause
(dd) was inserted in s. 2(1) in 1952 defining “promoter”.
Section 3 declares that subject to the
888
provisions of the Act, all lotteries and all prize com-
petitions are unlawful. This is a clear indication that the
legislature regarded lotteries and prize competitions as on
the same footing and declared both of them to be unlawful,
subject, of course, to the provisions of the Act. Section 4
creates certain offences in connection with lotteries and
competitions punishable, as therein mentioned. We may skip
over ss. 5 and 6 which deal exclusively with lotteries and
pass on to s. 7. Section 7 provides that a prize competition
shall be deemed to be an unlawful prize competition unless a
licence in respect of such competition has been obtained by
the promoter thereof. There are two provisos to the section
which are not material for our present purpose. Section 8
imposes certain a additional penalty for contravention of
the provisions of s. 7. -Section 9 regulates the granting of
licences on such fees and conditions and in such form as may
be prescribed, that is to say prescribed by rules. Section
10 makes it lawful for the Government, by general or special
order, to, inter alia, prohibit the grant of licences in
respect of a lottery or prize competition or class of
lotteries or prize competitions throughout the State or in
any area. Section II empowers the Collector to suspend or
cancel a licence granted under this Act in certain
circumstances therein specified. Section 12 authorises the
levy of a tax on lotteries and prize competitions at the
rate of 25% of the total sum received Or due in respect of
such lottery or prize competition. This section directs
that the tax shall be collected from the promoter of such
lottery or prize competition as the case may be. Sub-section
(2) of s. 12 empowers the State Government by a Notification
in the official Gazette, to enhance the rate of tax up to
50% of the total sum received or due in respect of such
prize competition as may be specified in the Notification.
Section 12A, which is of great importance for -the purpose
of this appeal, runs as follows:
” 12A. Notwithstanding anything contained in section 12,
there shall be levied in respect of every lottery or prize
competition contained in a newspaper or publication printed
and published outside the State,
889
for which a licence has been obtained under section 5, 6 or
7 , a tax at such rates as may be specified by the State
Government in a notification in the Official Gazette not
exceeding the rates specified in section 12 on the sums
specified in the declaration made under section 15 by the
promoter of the lottery or prize competition as having been
received or due in respect of such lottery or prize
competition or in a lump sum having regard to the
circulation or distribution of the newspaper or publication
in the State.”
Section 15 requires every person promoting a lottery or
prize competition of any kind to keep and maintain accounts
relating to such lottery or prize competition and to submit
to the Collector statements in such form and at such period
as may be prescribed. It is not necessary for the purpose
of this appeal to refer to the remaining sections which are
designed to facilitate the main purpose of the Act and deal
with procedural matters except to s. 31 which confers power
on the State Government to make rules for the purpose of
carrying out the provisions of the Act. In exercise of
powers so conferred on it, the State Government has, by
Notification in the Official Gazette, made certain rules
called the Bombay Lotteries and Prize Competitions Control
and Tax Rules, 1952, to which reference will be made
hereafter.
The petitioners contend that the object of the impugned Act
is to control and to tax lotteries and prize competitions.
It is not the purpose of the Act to prohibit either the
lotteries or the prize competitions. They urge that the
impugned Act deals alike with prize competitions which may
partake of the nature of gambling and also prize
competitions which call for knowledge and skill for winning
success and in support of this contention reliance is placed
on the definition of “prize competition” in s. 2(1)(d) of
the impugned Act. We are pressed to hold that the impugned
Act in its entirety or at any rate in so far as it covers
legitimate and innocent prize competition is a law with
respect to trade and commerce under Entry 26 and not with
respect to betting and gambling under Entry 34. They also
urge that in any event the taxing provisions,
890
namely ss. 12 and 12A, are taxes on the trade of running
prize competitions under Entry 60 and not taxes on betting
and gambling under Entry 62. We are unable to accept the
correctness of the aforesaid contentions for reasons which
we proceed immediately to state.
As it has already been mentioned, the impugned Act replaced
the 1939 Act which dealt only with prize competitions.
Section 2(2) of the 1939 Act defined “prize competition” in
the terms following:—-
2(2) “Prize Competition ” includes-
(a) crossword prize competition, missing words
competition, picture prize competition, number prize
competition, or any other competition, for which the
solution is prepared beforehand by the promoters of the
competition or for which the solution is determined by lot;
(b)any competition in which prizes are offered for
forecasts of the results either of a future event or of a
past event the result of which is not yet ascertained or not
yet generally known; and
(c) any other competition success in which does not depend
to a substantial degree upon the exercise of skill,
but does not include a prize competition contained in a
newspaper or periodical printed and published outside the
Province of Bombay.”
The 1948 Act s. 2(1)(d), as originally enacted, sub-
stantially reproduced the definition of ” prize competition
” as given in s. 2(2) of the 1939 Act. Section 2(1)(d) of
the 1948 Act, as originally enacted, ran as follows:
2(1)(d) “Prize Competition ” includes
(i) cross-word prize competition, missing words
prize competition, picture prize competition, number prize
competition, or any other competition for which the solution
is, prepared beforehand by the promoters of the competition
or for which the solution is determined by lot;
(ii)any competition in which prizes are offered for
forecasts of the results either of a future event or of a
past event the result of which is not yet ascertained or not
yet generally known; And
891
(iii)any other competition success in which does not depend
to a substantial degree upon the exercise of skill,
but does not include a prize competition contained in a
newspaper printed and published outside the Province of
Bombay; ”
The collocation of words in the first category of the
definitions in both the 1939 Act and the 1948 Act as
originally enacted made it quite clear that the qualifying
clause “for which the solution is prepared beforehand by the
promoters of the competition or for which the solution is
determined by lot ” applied equally to each of the five
kinds of prize competitions included in that category and
set out one after another in a continuous sentence. It
should also be noted that the qualifying clause consisted of
two parts separated from each other by the disjunctive word
“or”. Both parts of the qualifying clause indicated that
each of the five kinds of prize competitions which they
qualified were of a gambling nature. Thus a prize
competition for which a solution was prepared beforehand was
clearly a gambling prize competition, for the competitors
were only invited to guess what the solution prepared
beforehand by the promoters might be, or in other words, as
Lord Hewart C. J. observed in Coles v. Odhams Press Ltd.
(1), ” the competitors are invited to pay certain number of
pence to have the opportunity of taking blind shots at a
hidden target.” Prize competitions to which the second part
of the qualifying clause applied, that is to say, the prize
competitions for which the solution was determined by lot,
was necessarily a gambling adventure. On the language used
in the definition section of the 1939 Act as well as in the
1948 Act, as originally enacted, there could be no doubt
that each of the five kinds of prize competitions included
in the first category to each of which the qualifying clause
applied was of a gambling nature. Nor has it been
questioned that the third category, which comprised ” any
other competition success in which does not depend to a
substantial degree upon the exercise of skill constituted a
(1) L.R. (1936) 1 K.B. 416.
892
gambling competition. At one time the notion was that in
order to be branded as gambling the competition must be one
success in which depended entirely on chance. If even a
scintilla of skill was required for success the competition
could not be regarded as of a gambling nature. The Court of
Appeal in the judgment under appeal has shown how opinions
have changed since the earlier decisions were given and it
is not necessary for us to discuss the matter again. It
will suffice to say that we agree with the Court of Appeal
that a competition in order to avoid the stigma of gambling
must depend to a substantial degree upon the exercise of
skill. Therefore, a competition success wherein does not
depend to a substantial degree upon the exercise of skill is
now recognised to be of a gambling nature. From the above
discussion it follows that according to the definition of
prize competition given in the 1939 Act as in the 1948 Act
as originally enacted, the five kinds of prize competitions
comprised in the first category and the competition in the
third category were all of a gambling nature. In between
those two categories of gambling competitions were squeezed
in, as the second category, “competitions in which prizes
were offered for forecasts of the results either of a future
event or of a past event the result of which is not yet
ascertained or is not yet generally known.” This
juxtaposition is important and significant and will
hereafter be discussed in greater detail.
As already stated the 1948 Act was amended in 1952 by Bombay
Act XXX of 1952. Section 2(1)(d) as amended runs as
follows:
Prize competition ” includes-
(i) (1) cross-word prize competition,
(2) missing word prize competition,
(3) picture prize competition,
(4) number prize competition, or
(5) any other prize competition, for which
the solution is or is not prepared beforehand by the
promoters or for which the solution is determined by lot or
chance;
(ii) any competition in which prizes are offered for
forecasts of the results either of a future event or of
893
a past event the result of which is not yet ascertained or
not yet generally known; and
(iii) any other competition success in which does not depend
to a substantial degree upon the exercise of skill;
It will be noticed that the concluding sentence ” but does
not include a prize competition contained in a newspaper
printed and published outside the Province of Bombay” has
been deleted. This deletion has very far reaching effect,
for it has done away with the exclusion of prize
competitions contained in a newspaper printed and published
outside the State of Bombay from the scope of the
definition. In the next place, it should be noted that the
definition of prize competition still comprises three
categories as before. The second and the third categories
are couched in exactly the same language as were their
counterparts in the earlier definitions. It is only in the
first category that certain changes are noticeable. The
five kinds of prize competitions that were included in the
first category of the old definitions are still there but
instead of their being set out one after another in a
continuous sentence, they have been set out one below
another with a separate number assigned to each of them.
The qualifying clause has been amended by inserting the
words “or is not” after the word “is” and before the word
“prepared” and by adding the words “or chain ce” after the
word “lot”. The qualifying clause appears, as before, after
the fifth item in the first category. It will be noticed
that there is a comma after each of the five items including
the fifth item. The mere assigning a separate number to the
five items of prize competitions included in the first
category does not, in our judgment, affect or alter the
meaning, scope and effect of this part of the definition.
The numbering of the five items has not dissociated any of
them from the qualifying clause. If the qualifying clause
were intended to apply only to the fifth item, then there
would have been no comma after the fifth item. In our
opinion, therefore, the qualifying clause continues to apply
to each of the five items as before the amendment. There is
grammatically no difficulty in reading
115
894
the qualifying clause as lending colour to each of those
items.
Accepting that the qualifying clause applies to each of the
five kinds of prize competitions included in the first
category, it is urged that the qualifying clause as amended
indicates that the Legislature intended to include innocent
prize competitions within the definition so as to bring all
prize competitions, legitimate or otherwise, within the
operation of the regulatory provisions of the Act including
the taxing sections. The argument is thus formulated. As a
result of the amendment the qualifying clause has been
broken up into three parts separated from each other by the
disjunctive word ” or “. The, three parts are (1) for which
the solution is prepared beforehand by the promoters, (2)
for which the solution is not prepared beforehand by the
promoters and (3) for which the solution is determined by
lot or chance. The first and the third parts of the
qualifying clause, it is conceded, will, when applied to the
preceding five kinds of prize cometitions, make each of them
gambling a ventures; gut it is contended that prize
competitions to which the second part of the qualifying
clause may apply, that is to say prize competitions for
which the solution is not prepared beforehand, need not be
of a gambling nature at all and at any rate many of them may
well be of an innocent type. This argument hangs on the
frail peg of unskilful draftsmanship. It has been seen that
in the old -definitions all the five kinds of prize
competitions included in the first categorv were of a
gambling nature. We find no cogent reason-and none has been
suggested-why the Legislature_which treated lotteries and
prize competitions on the same footing should suddenly
enlarge the first category so as to include innocent prize
competitions. To hold that the first category of prize
competitions include innocent prize competitions will go
against the obvious tenor of the impugned Act. The 1939 Act
dealt with prize competitions only and the first category in
the definition given there comprised only gambling
competitions. The 1948 Act clubbed together lotteries and
prize competitions and the first category of the prize
competitions
895
included in the definition ‘as originally enacted was purely
gambling as both parts of the qualifying clause clearly
indicated. Section 3 of the Act declared all lotteries and
all prize competitions unlawful. There could be no reason
for declaring innocent prize competitions unlawful. The
regulatory provisions for licensing and taxing apply to all
prize competitions. If it were intended to include.
innocent prize competitions in the first category, one would
have expected the Legislature to have made separate
provisions for the legitimate prize competitions imposing
less rigorous regulations than what had been imposed on
illegitimate prize competitions. It will become difficult
to apply the same taxing sections to legitimate as well as
to illegitimate competitions. Tax on legitimate
competitions may well be a tax under Entry 60 on the trader
who carries on the trade of innocent and legitimate
competition. It may be and indeed it has been the subject
of serious controversy whether an illegitimate competition
can be regarded A a trade at all and in one view of the
matter the tax may have to be justified as a tax on betting
and gambling under Entry 62. Considering the nature, scope
and effect of the impugned Act we entertain no doubt
whatever that the first category of prizecompetitions does
not include any innocent prize competition. Such is what we
conceive to be the clear intention of the Legislature as
expressed in the impugned Act read as a whole and to give
effect to this obvious intention, as we are bound to do, we
have perforce to read the word “or” appearing in the
qualifying clause after the word “promoter” and before the
word “for” as “and”. Well known canons of construction of
Statutes permit us to do so. (See Maxwell on the
Interpretation of Statutes, 10th edition, page 238).
A similar argument was sought to be raised on a construction
of cl. (ii) of s. 2(1) (d). As already stated, in between
the first and the third categories of prize competitions
which, as already seen, are of a gambling nature the
definition has included a second category of competitions in
which prizes are offered for forecasts of the results either
of a future event or of a past event
896
the result of which is not yet ascertained or not yet
generally known. It is said that forecasts of such events
as are specified in the section need not necessarily depend
on chance, for it may be accurately done by the exercise of
knowledge and skill derived from a close study of the
statistics of similar events of the past. It may be that
expert statisticians may form some idea of the result of an
uncertain future event but it is difficult to treat the
invitation to the general public to participate in these
competitions as an invitation to a game of skill. The
ordinary common people who usually join in these
competitions can hardly be credited with such abundance of
statistical skill as will enable them, by the application of
their skill, to attain success. For most, if not all, of
them the forecast is nothing better than a shot at a hidden
target. Apart from the unlikelihood that the Legislature in
enacting a statute tarring both lotteries and prize
competitions with the same brush as indicated by s’ 3 would
squeeze in innocent prize competitions in between two
categories of purely gambling varieties of them, all the
considerations and difficulties we have adverted to in
connection with the construction of the ,first category and
the qualifying clause therein will apply mutatis mutandis to
the interpretation of this second clause.
Reliance is placed on s. 26 of the English Betting and
Lotteries Act, 1934 (24 and 25 Geo. V c. 58) in aid of the
construction of the second category of prize competitions
included in the definition given in the impugned Act. The
relevant portion of s. 26 of the aforesaid Act runs thus:
” 26. (1) It shall be unlawful to conduct in or through
any newspaper, or in connection with any trade or business
or the sale of any article to the public
(a) any competition in which prizes are offered for
forecasts of the result either of a future event, or of a
past event the result of which is not yet ascertained or not
yet generally known;
(b) any other competition success in which does not depend
to a substantial degree upon the exercise of skill.
897
It will be noticed that this section is not a definition
section at all but is a penal section which makes certain
competitions mentioned in the two clauses unlawful. Clause
(a) of that section which corresponds to our second category
is not sandwiched between two categories of gambling prize
competitions. In Elderton v. Totalisator Co. Ltd. (1) on
which the petitioners rely the question was whether the
football pool advertised in newspapers by the appellant
company came within the wide language of cl. (a) of that
section which was in Part II of the Act. Whether the
appellant company’s football pool called for any skill on
the part of the “investors” or whether it was of a gambling
nature was not directly relevant to the discussion whether
it fell within cl. (a). The penal provisions of the English
Act and the decision of the Court of Appeal throw no light
on the construction of our definition clause. Seeing that
prize competitions have been clubbed together with lotteries
and dealt with in the same Act and seeing that the second
category of the definition of ” prize competition ” is
sandwiched in between the other two categories which are
clearly of a gambling nature and in view of the other
provisions of the impugned Act and in particular s. 3 and
the taxing sections, we are clearly of opinion that the
definition of ” prize competition ” on a proper construction
of the language of s. 2(1) (d )in the light of the other
provisions of the Act read as a whole comprises only prize
competitions which are of the nature of a lottery in the
wider sense, that is to say, of the nature of gambling. The
Court of Appeal took the view that although as a matter of
construction the definition did include innocent prize
competitions, yet by the application of another principle,
namely, that a literal construction will make the law
invalid because of its overstepping the limits- of Entry 26,
which comprises only trade and commerce within the State,
the definition should be read as limited only to gambling
prize competitions so as to make it a law with respect to
betting and gambling under Entry 34. It is not necessary
for us in this case to consider whether the
(1) (1945) 2 A.E.R. 624.
898
principle laid down by Sir Maurice Gwyer C. J. in the
Hindu Women’s Right to Property Act case (1) can be called
in aid to cut down the scope of a section by omitting one of
two things when the section on a proper construction
includes two things, for we are unable, with great respect,
to agree with the Court of Appeal that on a proper
construction the definition covers both gambling and
innocent competitions. In our view, the section, on a true
construction, covers only -gambling prize competitions and
the Act is a law with respect to betting and gambling under
Entry 34. As, for the foregoing reasons, we have already
arrived at the conclusion just stated, it is unnecessary for
us to refer to the language used in the third category and
to invoke the rule of construction which goes by the name of
noscitur a sociis relied on by learned counsel for the
appellant.
The next point urged is that, although the Act may come
under Entry 34, the taxing provisions of s. 12A cannot be
said to impose a tax on betting and gambling under Entry 62
but imposes a tax on trade under Entry 60. Once it is held
that the impugned Act is on the topic of betting and
gambling under Entry 34, the tax imposed ‘by such a statute,
one would think, would be a tax on betting and gambling
under Entry 62. The Appeal Court has expressed the view
that s. 12A does not fall within Entry 62, for it does not
impose a tax on the gambler but imposes a tax on the peti-
tioners who do not themselves gamble but who only promote
the prize competitions. So far as the promoters are
concerned, the tax -levied from them can only be regarded as
tax on the trade of prize competitions carried on by them.
This.’ with respect, is taking a very narrow view of the
matter. Entry 62 talks of taxes on betting and gambling and
not of taxes on the men who bet or gamble. It is
necessary,, therefore, to bear in mind the real nature of
the tax. The tax imposed by s. 12A is, in terms, a
percentage of the sums specified in the declaration made
under a. 15 by the promoter or a lump sum having regard to
the circulation and distribution of the newspaper, or
(1) (1941) F.C.R. 12.
899
publication in the State. Under s. 15 the promoter of a
prize competition carried on in a newspaper or publication
printed and published outside the State is to make a
declaration in such form and at such period as may be
prescribed. Form ‘J’ prescribed by r. 11 (c) requires the
promoter to declare, among other things, the total number of
tickets/coupons received for the competition from the State
of Bombay and the total receipts out of the sale of the
tickets/coupons from the State of Bombay. The percentage
under a. 12A is to be calculated on the total sums specified
in the declaration. It is clear, therefore, that the tax
sought to be imposed by the impugned Act is a percentage of
the aggregate of the entry fees received from the State of
Bombay. On ultimate analysis it is a tax on each entry fee
received from each individual competitor who remits it from
the State of Bombay. In gigantic prize competitions which
the prize competitions run by the petitioners undoubtedly
are, it is extremely difficult and indeed well nigh
impossible for the State to get at each individual
competitor and the provision for collecting the tax from the
promoters after the entry fees come into their hands is
nothing but a convenient method of collecting the tax. In
other words, the taxing authority finds it convenient in the
course of administration to collect the duty in respect of
the gambling activities represented by each of the entries
when the same reaches the hands of the promoters. The tax
on gambling is a well recognised group of indirect taxes as
stated by Findlay Shirras in his Science of Public Finance,
vol. II p. 680. It is a kind of tax which, in the language
of J. S. Mill quoted by Lord Hobhouse in Bank of Toronto v.
Lambe (1), is demanded from the promoter in the expectation
and intention that he shall indemnify himself at the expense
of the gamblers who sent entrance fees to him. That, we
think, is the general tendency of the tax according to the
common understanding of men. It is not difficult for the
promoters to pass on the tax to the gamblers, for they may
charge the proportionate percentage on the amount of
(1) L.R. (1887) 12 A.C. 575.
900
each entry as the seller of goods charges the sales tax or
he may increase the entrance fee from 4 annas to 5 annas 6
pies to cover the tax. If in particular circumstances it is
economically undesirable or practically impossible to pass
on the tax to the gamblers, that circumstance is not a
decisive or even a relevant consideration for ascertaining
the true nature of the tax, for it does not affect the
general tendency of the tax which remains. If taxation on
betting and gambling is to be regarded as a means of
controlling betting and gambling activities, then the
easiest and surest way of doing so is to get at the
promoters who encourage and promote the unsocial activities
and who hold the gamblers’ money in their – hands. To
collect the tax from the promoters is not to tax the
promoters but is a convenient way of imposing the tax on
betting and gambling and indirectly taxing the gamblers
themselves. It is to be noted that the tax here is not on
the profits made by the petitioners but it is a percentage
of the total sum received by them from the State of Bombay
as entrance fees without the deduction of any expense. This
circumstance also indicates that it is not a tax on a trade.
According to the general understanding of men, as stated by
Lord Warrington of Clyffe in Rex v. Caledonian Collieries
Ltd. (1), there are marked distinctions between a tax on
gross collection and a tax on income which for taxation
purposes means gains and profits. Similar considerations
may apply to tax on trade. There is yet another cogent
reason for holding that the tax imposed by s. 12A is a tax
on betting and gambling. In enacting the statute the
Legislature was undoubtedly making a law with respect to
betting and gambling under Entry 34 as here in before
mentioned. By the amending Act XXX of 1952 the Legislature
by deleting the concluding words of the definition of ‘prize
competition’, namely, ” but does not include etc., etc., ”
extended the operation of the Act to prize competitions
carried on in newspapers printed and published outside the
State of Bombay. They knew that under Art. 276 which
reproduced s. 142A of the Government of India Act,
(1) L.R. (1928) A.C. 358.
901
1935, they could not impose a tax exceeding the sum of Rs.
250 on any trade or calling under Entry 60. If the tax can
be referable either to Entry 60 or to Entry 62, -then in
view of the fact that s. 12A will become at least partially,
if not wholly, invalid as a tax on trade or calling under
Entry 60 by reason of Art. 276(2), the court must, in order
to uphold the section, follow the well established principle
of construction laid down by the Federal Court of India and
hold that the Legislature must have been contemplating to
make a law with respect to betting and gambling under Entry
62, for there is no constitutional limit to the quantum of
tax which can be imposed by a law made under that Entry.
For reasons stated above, we are satisfied that s. 12A is
supportable as a valid piece of legislation under Entry 62.
The next point urged by the petitioners is that under Arts.
245 and 246 the Legislature of a State can only make a law
for the State or any part thereof and, consequently, the
Legislature overstepped the limits of its legislative field
when by the impugned Act it purported to affect men residing
and carrying on business outside the State. It is submitted
that there is no sufficient territorial nexus between the
State and the activities of the petitioners who are not in
the State. The doctrine of territorial nexus is well
established and there is no dispute as to the principles.
As enunciated by learned counsel for the petitioners, if
there is a territorial nexus between the person sought to be
charged and the State seeking to tax him the taxing statute
may be upheld. Sufficiency of the territorial connection
involves a consideration of two elements, namely (a) the
connection must be real and not illusory and (b) the
liability sought to be imposed must be pertinent to that
connection. It is conceded that it is of no importance on
the question of validity that the liability imposed is or
may be altogether disproportionate to the territorial
connection. In other words, if the connection is sufficient
in the sense mentioned above, the extent of such connection
affects merely the policy and not the validity of the
legislation. Keeping these principles in mind we have to
ascertain if in the case before us there
116
902
was sufficient territorial nexus to entitle the Bombay.
Legislature to make the impugned law. The question whether
in a given case there is sufficient territorial nexus is
essentially one of fact. The trial court took the’ view
that the territorial nexus was not sufficient to uphold the
validity of the law under debate. The Court of Appeal took
a different view of the facts and upheld the law. We find
ourselves in agreement with the Court of Appeal. The
newspaper “Sporting Star” printed and published in Bangalore
is widely circulated in the State of Bombay. The
petitioners have set up collection depots within the State
to receive entry forms and the fees. They have appointed
local collectors. Besides the circulation of the copies of
the ” Sporting Star “, the petitioners print over 40,000
extra coupons for distribution which no doubt are available
from their local collectors. The most important
circumstance in these competitions is the alluring
invitation to participate in the competition where very
large prizes amounting to thousands of rupees and sometimes
running into a lakh of rupees may be won at and for a paltry
entrance fee of say 4 annas per entry. These advertisements
reach a large number of people resident within the Stat.
The gamblers, euphemistically called, the competitors, fill
up the entry forms and either leave it along with the entry
fees at the collection depots set up in the State of Bombay
or- send the same by poet from Bombay. All the activities
that the gambler is ordinarily expected to undertake take
place, mostly if not entirely, in the State of Bombay and
after sending the entry forms and the fees the gamblers hold
their soul in patience in great expectations that fortune
may smile on them. In our judgment the standing invita-
tions, the filling up of the forms and the payment of money
take place within the State which is seeking to tax only the
amount received by the petitioners from the State of Bombay.
The tax is on gambling although it is collected from the
promoters. All these, we think, constitute sufficient
territorial nexus which entitles the State of Bombay to
impose a tax on the gambling that takes place within its
boundaries and the law cannot be struck down on the ground
of extra territoriality.
903
Assuming that the impugned Act is well within the
legislative competence of the Bombay Legislature and that it
is not invalid on the ground of extra territorial operation,
we have next to examine and see if there is anything else in
the Constitution which renders it invalid. The petitioners
contend that even if the prize competitions constitute
gambling transactions, they are nevertheless trade or
business activities and that that being so the impugned Act
infringes the petitioners’ fundamental right under Art.
19(1)(g) ‘of the Constitution to carry on their trade or
business and that the restrictions imposed by the Act cannot
possibly be supported as reasonable restrictions in the
interests of the general public permissible under Art.
19(6). The petitioners also point out that the trade or
business carried on by them is not confined within the
limits of the State of Mysore but extends across the State
boundaries into other States within the territories of India
and even into lands beyond the Union of India and they urge
that in view of the inter-State nature of their trade or
business the restrictions imposed by the impugned Act offend
against Art. 301 which declares that, subject to the other
provisions of Part XIII of the Constitution, trade, commerce
and intercourse throughout the territory of India shall be
free and cannot be supported under Art. 304(b), for the
restrictions cannot be said to be reasonable or required in
the public interest and because the procedural requirements
of the proviso thereto had not been complied with. The
State of Bombay repudiates these contentions and submits
that as prize competitions are opposed to public policy
there can be no “trade” or “business”” in promoting a prize
competition and the question of infraction of the
petitioner’s fundamental right to carry on trade or business
guaranteed by Art. 19(1)(g) or of the violation of the
freedom of trade, commerce or intercourse declared by Art.
301 does not arise at all and that in any event if Art.
19(1)(g) or Art. 301 applies at all, the restrictions
imposed by the impugned Act are reasonable restrictions
necessary in the interest of the general public and saved by
Art. 19(6) and by Art. 304(b),of the Constitution. It is
904
conceded that the bill which became Act XXX of 1952 and
amended the 1948 Act in the manner here in before stated was
introduced in the Legislature of the State without the
previous sanction of the President and, consequently, the
condition precedent to the validity of the resulting Act as
laid down in the proviso had not been complied with but it
is submitted, we think correctly, that the defect was cured,
under Art. 255, by the assent given subsequently by the
President to the impugned Act. It is, however, admitted by
learned counsel appearing for the appellant State that under
Art. 255 the subsequent assent of the President will save
the Act if the other condition embodied in Art. 304(b) as to
the restrictions imposed by it being reasonable in the
public interest is held to be satisfied but it will not save
the rules framed under a. 31 of the impugned Act which had
never been placed before the President or assented to or
approved by him. We now proceed to examine and deal with
these rival, contentions.
The first branch of the argument on this part of the appeal
raises a question of a very far reaching nature. The
question posed before us is: Can the promotion of prize
competitions, which are opposed to public policy, be
characterised as a ” trade or business ” within the meaning
of Art. 19(1)(g) or “trade, commerce and intercourse” within
Art. 301 ? The learned trial Judge has expressed the view
that if he were able to hold that the prize competitions
conducted by the petitioners were of a gambling nature, he
would have had no difficulty in concluding that they were
outside the protection of the Constitution. The Court of
Appeal, however, took a different view. What weighed with
the Court of Appeal was the fact that the legislature had
not prohibited gambling outright but only made provisions
for regulating the same and further that the State was
making a profit out of these prize competitions by levying
taxes thereon. It is necessary to consider the arguments
that have been adduced before us by learned counsel for the
parties in support of their respective contentions.
905
It will be noted that Art. 19(1) (g) in very general -terms
guarantees to all citizens the right to carry on any
occupation, trade or business and el. (6) of Art. 19
protects legislation which may, in the interest of the
general public, impose reasonable restrictions on the
exercise of the right conferred by Art. 19(1) (g). Likewise
Art. 301 declares that trade, commerce and intercourse
throughout the territory of India shall be free but makes
such declaration subject to the other provisions of Part
XIII of the Constitution. Arts. 302305, which are in that
Part, lay down certain restrictions subject to which the
declaration contained in Art. 301 is to operate. Article
302 empowers Parliament by law to impose restrictions on the
freedom of trade, -commerce or intercourse not only between
one State and another but also within the State, provided in
either case such restrictions are required in the public
interest. Article 304 (b) authorises the State Legislatures
to impose reasonable restrictions on the freedom of trade,
commerce or intercourse with or within the States as may be
required in the public interest, provided the formalities of
procedure are complied with Arts. 19(1) (g) and 301, it is
pointed out are two facets -of the same thing-the freedom of
trade Art. 19(1)(g) looks at the matter from the point of
view of the individual citizens and protects their
individual right to carry on their trade or business, Art.
301 looks at the matter from the point of view of the
country’s trade and commerce as a whole, as distinct from
the individual interests of the citizens and it relates to
trade, commerce or intercourse both with and within the
States. The question which calls for our decision is as to
the true meaning, import and scope of the freedom so
guaranteed and declared by our Constitution. We have been
referred to a large number of -decisions bearing on the
Australian and American Constitutions in aid of the
construction of the relevant articles of our Constitution.
In the Commonwealth of Australia Constitution Act (63 and 64
Vic. c. 12) there is s. 92 from which our Art. 301 appears
to have been taken. The material part of a. 92 -runs thus:
906
On the imposition of uniform duties of customs, trade,
commerce and intercourse among the States, whether by means
of internal carriage or ocean navigation, shall be
absolutely free.
It has been held in James v. Commonwealth of Australia (1)
that the word”‘ absolutely ” adds nothing but emphasis to
the width of the section. In the same case it has also been
stated and decided that the section imposes a fetter on the
legislative power not only of the Commonwealth Parliament
but also of the Parliament of the States. It has been
equally authoritatively held that the words ” whether by
means of internal carriage or ocean navigation ” occurring
in the section do not restrict its operation to such things
and persons as are carried by land or sea but that the
section extends to all activities carried on by means of
interState transactions (Commonwealth of Australia v. Bank
of New South Wales (2) ). The Privy Council in the last
mentioned case has also said at p. 299 that it is no longer
arguable that freedom from customs or other monetary charges
alone is secured by the section. The idea underlying the
section was that the Federation in Australia should abolish
the frontiers between the different States and create one
Australia and that conception involved freedom from customs
duties, import&, border prohibitions and restrictions of
every kind, so that the people of Australia would be free to
trade with each other and to pass to and fro from one State
to another without any let or hindrance, or without any
burden or restriction based merely on the fact that they
were not members of the same State (James v. Commonwealth of
Australia(1)).
One cannot but be struck by the sweeping generality of
language used in the section. Such a wide enunciation of
the freedom of inter-State trade, commerce and intercourse
was bound to lead to difficulties. The full import and true
meaning of the general words had to be considered, as years
went past, in relation to the vicissitudes of altering facts
and circumstances which from time to time emerged. The
changing circumstances and the necessities compelled the
court
(1) L.R. (1936) A.C. 578, 627.
(2) L.R. (1950) A.C. 235, 302$-303.
907
to reach the conclusion that the conception of freedom of
trade, commerce and intercourse in a community regulated by
law presupposed some degree of restriction on the
individual. Cases arose out of statutes enacted for
restricting competition of privately owned motor vehicles
with publicly owned railways, or to compel users of motor to
contribute to the upkeep of the roads e.g. Willard v. Rawson
(1); R. v. Vizzard(2) and O. Gilpin Ltd. v. Commissioner of
Road Transport and Tramways(1). In each of these three
cases the State law was upheld as not offending against s.
92. Cases arose under statutes which were sought to be
supported on the ground of health. In Ex parte Nelson (No.
1) (4) a New South Wales statute prohibited entry of cattle
from tick infected area until dipped. Applying the
principle of pith and substance, it was held that the
restrictions looked at in their true light, were aids to and
not restrictions upon the freedom of inter-State trade,
commerce and intercourse. In Tasmania v. Victoria (5). the
absolute prohibition of imports of potatoes from Tasmania to
Victoria could not on facts be supported as a health measure
and consequently was struck down as a violation of s. 92.
In James v. Commonwealth of Australia(6) came up for
consideration the Dried Fruits Act 1928-35 which prohibited
the carrying of any dried fruit from one State to another
except under a licence and which provided for penalty for
its contravention. The regulations authorised the Minister
to direct the licensee to export a certain percentage of
dried fruits from Australia. The Minister by an order
determined that it would be a condition of the licence. that
the licensee should export a percentage of the dried fruits
as therein mentioned. The appellant having refused to apply
for a licence, his consignments of dried fruits shipped from
Aide for delivery at Sydney in performance of contracts for
sale were seized. The appellant brought an action for
damages for what he alleged to be a wrongful seizure. After
holding that the section bound the Parliament of
(1) (1933) 48 C.L.R.316. (4) (1928) 42.C.L.R. 209.
(2) (1933) 50 C.L.R. 30. (5)(1935) 52 C.L.R. 157.
(3) (1935) 52 C.L.R. 189. (6) L.R. (1936) A.C. 578,
627.
908
Commonwealth equally with those of the States the Judicial
Committee proceeded to say that the freedom declared in s.
92 must be somehow limited and the only limitation which
emerged from the context and which could logically and
realistically apply was freedom at what was the crucial
point in inter-State trade, namely at the State barrier (p.
631). In the later case of Commonwealth of Australia v.
Bank of New South Wales (1) it has been said that those
words were to be read secundum subjectam materiam and could
not be interpreted as a decision either that it was only the
passage of goods which is protected by s. 92 or that it is
only at the frontier that the stipulated freedom might be
impaired (p. 308).
Learned counsel for the State has strongly relied on two
decisions of the Australian High Court in both of which the
validity of a New South Wales Statute called the Lotteries
and Art Unions Act 1901-1929 was called in question.
Section 21 of that Act provided: “Whoever sells or offers
for sale or accepts any money in respect of the purchase of
any ticket or share in a foreign lottery shall be liable to
a penalty.” In the first of those two cases-The King v.
Connare(2)-the appellant offered for sale in Sydney a ticket
in a lottery lawfully conducted in Tasmania and was
convicted of an offence under s. 21. He challenged the
validity of the law on the ground that it interfered with
the freedom of trade, commerce and intercourse among the
States and consequently violated the provisions of s. 92.
It was held by Starke, Dixon, Evatt and McTiernan JJ.
(Latham C.J. and Rich J. dissenting) that the provisions of
s. 21 did not contravene s. 92 and the appellant was
properly convicted. Starke J. discussed the question as to
whether the sale in -question was an ‘inter-State or intra-
state transaction but did not think it necessary to decide
that question. After referring to the observations of Lord
Wright in James v. The Commonwealth (3) that the freedom
declared by s. 92 meant freedom at the frontier, the learned
Judge observed that the question
(1) L.R. (1950) A.C. 235, 302-303: (2) (1939) 51 C.L.R.596.
(3) L.R. (1936) A.C. 578,627.
909
whether that freedom had been restricted or burdened
depended upon the true character and effect of the Act. He
took the view (at p. 616) that the main purpose of the Act
was to prevent or suppress lotteries and particularly, in
ss. 19, 20 and 21, foreign lotteries and that it was aimed
at preventing what he graphically described as “illegitimate
methods of trading”, if sales of lottery tickets were
regarded as trading. The learned Judge took note of the
fact that New South Wales law allowed State lotteries and
concluded that the true character of the impugned Act was to
suppress gambling in foreign lottery tickets and examined
from the historical point of view, from, the character of
the Act, its function and its effect upon the flow of
commerce, the Act did not, in his view, restrict or hinder
the freedom of any trade across the frontier of the States.
Dixon J., as he then was, gave two reasons for his opinion,
namely that the transaction was not in itself a transaction
of inter-State trade’ commerce or intercourse but was a sale
in New South Wales of a ticket then in New South Wales and
that, apart from the State lottery and permitted charitable
raffles, the Act suppressed uniformly the sale of all
lottery tickets in New South Wales. Adverting to the
argument which, in substance, asked the Court to declare
that s. 92 had created an overriding constitutional right to
traffic or invest in lotteries so long as the trafficker or
investor could succeed in placing some boundary or other
between himself and the conductor of the lottery Evatt J.
said at pp. 619-20:
it in my opinion such a proposition cannot be supported in
principle or by reference to authority. For it is obvious
that the appellant’s argument also involves the assertion of
the constitutional right of a citizen, so long as he can
rely upon, or if necessary artificially create, some inter-
State connection in his business, to sell indecent and
obscene publications, diseased cattle, impure foods,
unbranded poisons, unstamped silver, ungraded fruit and so
forth.”
The obvious inconvenience and undesirability of the effects
to be produced if such extravagant arguments
117
910
were to prevail led the learned Judge to think (at p. 620)
that in the interpretation of s. 92 it was permissible to
accept some postulates or axioms demanded alike by the
dictates of common sense and by some knowledge of what was
being attempted by the founders of the Australian
Commonwealth. Making these assumptions and concessions
Evatt J. opined (at p. 621) that the guarantee contained in
s. 92 had nothing whatever,/ to say on the topic of inter-
State lotteries and could not be invoked to prevent either
the suppression or the restriction in the public interest of
the practice of gambling or investing in such lotteries.
The learned Judge did not think that lottery tickets could
be regarded as goods or commodities which were entitled to
the protection of s. 92 and concluded thus at p. 628:
” If they are goods or commodities they belong to a very
special category, so special that in the interests of its
citizens the State may legitimately exile them from the
realm of trade, commerce or business. The indiscriminate
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.”
McTiernan J. was even more forthright in placing gambling
outside the pale of trade, commerce and intercourse. At p.
631 he said:
” 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 shard 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.”
A little further down the learned Judge observed:
“It is not a commercial arrangement to sell a lottery
ticket; for it is merely the acceptance of money
911
or the promise of money for a chance. In this case the
purchase of a lottery ticket merely founds a hope that
something will happen in Tasmania to benefit the purchaser.”
Naturally enough learned counsel for the appellant State
seeks to fasten upon the observations quoted or referred to
above in support of his thesis that gambling is not trade,
commerce or intercourse within the meaning alike of s. 92 of
the Australian Constitution and our Art. 19(1)(g) and Art.
301.
In the second case-The King v. Martin (1)-the same
question came up for reconsideration. The only difference
in fact was that there was no actual sale by delivery of a
lottery ticket in New South Wales but money was received by
the agent of the Tasmania promoter in New South Wales and
transmitted to Tasmania from where the lottery ticket was to
be sent. The State law was again upheld. Latham C.J.,
Rich, Starke, Evatt and Mctiernan JJ. adhered to their
respective opinions expressed in the earlier case of The
King v. Connare (2 ). Dixon J., as he then was, gave a new
reason for his opinion that notwithstanding the inter-State
character of the transaction s. 21 of the impugned Act was
valid. Said the learned Judge at pp. 461-462:
” The reason for my opinion is that the application of the
law does not depend upon any characteristics of lotteries or
lottery transactions in virtue of which they are trade or
commerce or intercourse nor upon any inter-State element in
their nature. The only criterion of its operation is the
aleatory description of the acts which it forbids. There is
no prohibition or restraint placed upon any act in
connection with a lottery because either the act or the
lottery is or involves commerce or trade or intercourse or
movement into or out of New South Wales or communication
between that State and another
State…………………………… To say that inter-
State trade, commerce and intercourse shall be free, means,,
I think, that no restraint or burden shall be placed upon an
act falling under that description because it is trade or
commerce or
(1) (1939) 62 C.L.R. 457. (2) (1939) 61 C.L.R. 596.
912
intercourse or involves inter-State movement or
communication.”
In this view of the matter Dixon J. now upheld s. 21 of
the impugned Act on the ground that the criterion of its
application was the specific gambling nature of the
transactions which it penalised and not anything which
brought the transactions under the description of trade,
commerce or intercourse or made them interState in their
nature.
Then came the case of Commonwealth of Australia v. Bank
of New South Wales(1) commonly called the Bank case where it
was held that s. 46 of the Banking Act, 1947, was invalid as
offending against s. 92 of the Australian Constitution.
Sub-section (1) of s. 46 provided that a private bank should
not, after the commencement of the Act, carry on banking
business in Australia except as required by the section.
Subsection (2) laid down that each private bank should carry
on banking business in Australia and should not, except on
appropriate grounds, cease to provide any facility or
service provided by it in the course of its banking business
on the fifteenth day of August one thousand nine hundred and
forty seven. Sub-section (4) authorised that the Treasurer
might, by notice published in the gazette and given in
writing to a private bank, require that private bank to
cease, upon a date specified in the notice, carrying on
business in Australia. Sub-section (8) provided that upon
and after the date specified in a notice under sub-s. (4)
the private bank to which that notice was given should not
carry on banking business in Australia. It also provided a
penalty of pound 10,000 for each day on which the contra-
vention occurred. The question was: Whether this section
interfered with the freedom of trade, commerce or
intercourse among the States declared by s. 92 of the
Australian Constitution ? It was held that the business of
banking which consisted of the creation and transfer of
credit, the making of loans, the purchase and disposal of
investments and other kindred transactions was included
among those activities described as trade, commerce and
intercourse in s. 92
(1) L.R. (1950) A.C. 235.
913
and, accordingly, the impugned s. 46 which while leaving
untouched the Commonwealth and State Banks,, prohibited the
carrying on in Australia of the business of banking by
private banks, was invalid as contravening s. 92. Lord
Porter delivering the judgment of the Judicial Committee
pointed out that it was no longer arguable that freedom from
customs or other monetary charges alone was secured by the
section. Then after reviewing and explaining at some length
the two cases of James V. Cowan (1) and James v. The Common-
wealth(2), his Lordships proceeded to make certain
observations on the distinction between restrictions which
are regulatory and do not offend against s. 92 and those
which are something more than regulatory and do so offend.
His Lordship deduced two general propositions from the
decided cases, namely (1) that regulation of trade, commerce
and intercourse among the States was compatible with
absolute freedom and (2) that s. 92 was violated only when a
legislative or executive act operated to restrict trade,
commerce and intercourse directly and immediately as
distinct from creating some indirect or consequential
impediment which might fairly be regarded as remote. The
problem whether an enactment was regulatory or something
more or whether a restriction was direct or only remote or
only incidental involved, his Lordship pointed out, not so
much legal as political, social or economic considerations.
Referring to the case of Australian National Airways
Proprietory Ltd. v. The Commonwealth (3) his Lordship
expressed his agreement with the view that simple
prohibition was not regulation. A little further down,
however, his Lordship made a reservation that he did not
intend to lay down that in no circumstances could the
exclusion of competition so as to create a monopoly, either
in a State or Commonwealth agency, or in some body, be
justified and that every case must be judged on its own
facts and in its own setting of time and circumstances, and
that it might be that in regard to some economic activities
and at some stage of social development it might be
(1) L.R. (1932) A.C. 542. (3) (1945) 71 C.L.R. 29.
(2)L.R. (1936) A.C. 578, 627.
914
maintained that prohibition with a view to State monopoly
was the only practical and reasonable manner of regulation,
and that inter-State trade, commerce and intercourse thus
prohibited and thus monopolised remained absolutely free.
His Lordship further added that, regulation of trade might
clearly take the form of denying certain activities to
persons by age or circumstances unfit to perform them or of
excluding from passage across the frontier of a State
creatures or things calculated to injure its citizens.
Referring to the doctrine of “pith and substance” his
Lordship observed that it, no doubt, raised in convenient
form an appropriate question in cases where the real issue
was one of subject matter as when the point was whether a
particular piece of legislation was a law in respect of some
subject within the permitted field, but it might also serve
a useful purpose in the process of deciding whether an
enactment which worked some interference with trade,
commerce and intercourse among the States was, nevertheless,
untouched by s. 92 as being essentially regulatory in
character.
The last Australian case on the point cited before us is
Mansell v. Beck(1). In this case also the provisions of the
Lotteries and Art Unions Act of New South Wales came up for
consideration and the decisions in the King v. Connare (11)
and the King v. Martin(1). were considered and approved.
Dixon C.J. and Webb J. observed that the true content of the
State law must be ascertained to see whether the law that
resulted from the whole impaired the freedom which s. 92
protected. Their Lordships pointed out that lotteries not
conducted under the authority of Government were suppressed
as pernicious. The impugned legislation was, in their
Lordships’ view, of a traditional kind directed against
lotteries as such independently altogether of trade,
commerce and intercourse between States. McTiernan J.
reiterated the views he had expressed in the case of the
King v. Connare (2) in the following words:
(1) (Australian Law journal, Vol. 3o. No. 7 P. 346).
(2) (1939) 61 C.L.R. 596.
(3) (1939) 62 C.L.R. 457.
915
It is important to observe the distinction that gambling is
not trade, commerce and intercourse within the meaning of s.
92 otherwise the control of gambling in Australia would be
attended with constitutional difficulties.”
Williams J. did not consider it necessary to express any
final opinion on the question whether there could be inter-
State commerce in respect of lottery tickets. He took the
view that ss. 20 and 21 of the New South Wales Act were on
their face concerned and concerned only with intra-State
transactions and that their provisions did not directly
hinder, burden or delay any inter-State trade, commerce or
intercourse. His Lordship observed that there was nothing
in the reasoning in the judgment in the Bank case or in
subsequent decisions to indicate that the King v. Connare(1)
and’ King v. Martin(2) were not rightly decided. He quoted,
with approval, the observations of Dixon J. in Martin’s
case. Fullagar J. also took the view that the previous
decisions of the High Court in Connare’s case (1) and
Martin’s case(2) were rightly decided for the reasons given
by Dixon J. Kitto J. dissented from the majority view.
Taylor J. who was also in favour of the validity of the
impugned law, observed:
” No simple legislative expedient purporting to transmute
trade and commerce into something else will remove it from
the ambit of s. 92. But whilst asserting the width of the
field in which s. 92 may operate it is necessary to observe
that not every transaction which employs the forms of trade
and commerce will, as trade and commerce, invoke its
protection. The sale of stolen goods, when the transaction
is juristically analysed, is no different from the sale of
any other goods but can it be doubted that the Parliament of
any State may prohibit the sale of stolen goods without
infringing s. 92 of the Constitution ? The only feature
which distinguishes such a transaction from trade and
commerce as generally understood is to be found in the
subject of the transaction; there is no difference in the
means adopted for carrying it out. Yet it may be said that
in essence such a transaction
(1) (193) 61 C.L.R. 596. (2) (1939) 62 C.L.R. 457.
916
constitutes no part of trade and commerce as that expression
is generally understood. Numerous examples of other
transactions may be given, such as the sale of a forged
passport, or, the sale of counterfeit money, which provoke
the same comment and, although legislation prohibiting such
transactions may, possibly, be thought to be legally
justifiable pursuant to what has, on occasions, been
referred to as a “Police power”, I prefer to think that the
subjects of such transactions are not, on any view, the
subjects of trade and commerce as that expression is used in
s. 92 and that the protection afforded by that section has
nothing to do with such transactions even though they may
require, for their consummation, the employment of instru-
ments, whereby inter-State trade and commerce is commonly
carried on.”
After referring to the history of lotteries in England the
learned Judge concluded:
” The foregoing observations give some indication of the
attitude of the law for over two and a half centuries
towards the carrying on of lotteries. But they show also
that, in this country, lotteries were, from the moment of
its first settlement, common and public nuisances and that,
in general, it was impossible to conduct them except in
violation of the law. Indeed it was impracticable for any
person to conduct a lottery without achieving the status of
a rogue and a vagabond.”
In the Constitution of the United States of America there
is no counterpart to Art. 301 of our Constitution or s. 92
of the Australian Constitution. The problem of gambling
came up before the courts in America in quite different
setting. Article 1, s. 8, sub-s. (3) of the Constitution of
the United States compendiously called the commerce clause
gives power to the Congress to regulate commerce with
foreign nations and among the several States and with the
Indian tribes. Congress having made law regulating gambling
activities which extended across the State borders, the
question arose whether the making of the law was within the
legislative competence of the Congress, that is to say
whether it could be brought within the commerce
917
clause. The question depended for its answer on the further
question whether the gambling activities could be said to be
commerce amongst the States. If it could, then it was open
to Congress to make the law in exercise of its legislative
powers under the commerce clause. More often than not
gambling activities extend from State to State and, in view
of the commerce clause, no State Legislature can make a law
for regulating inter-State activities in the nature of
trade. If betting and gambling does not fall within the
ambit of the commerce clause, then neither the Congress nor
the State Legislature can in any way control the same. In
such circumstances, the Supreme Court of America thought it
right to give a 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(1) 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. In Hipolite
Egg Co. v. United States(2) the Pure Food Act which
prohibited the importation of adulterated food was upheld as
an exercise of the power of the Congress to regulate
commerce. The prohibition of transportation of women for
immoral purposes from one State to another or to a foreign,
land has also been held to be within the commerce clause
(see Hoke v. United States (3) ). SO has the prohibition of
obscene literature and articles for immoral use. Reference
has also been made to the cases of United States v.
Kahriger(4) and Lewis V. United States(5) to support the
contention of the appellant State that the Supreme Court of
the United States looked with great disfavour on gambling
activities. In the last mentioned case it was roundly
stated at p. 480 that “there is no constitutional right to
gamble “.
(1) [1903] 188 U.S. 321 ; 47 L. Ed. 492.
(2) [1911] 220 U.S. 45 ; 55 L. Ed. 364.
(3) [1913] 227 U.S. 308 ; 57 L. Ed. 523.
(4) [1953] 345 U.S. 22 ; 97 L. Ed. 754.
(5) [1955] 348 U.S. 419; 99 L. Ed. 475.
918
In construing the provisions of our Constitution the
decisions of the American Supreme Court on the commerce
clause and the decisions of the Australian High Court and of
the Privy Council on s. 92 of the Australian Constitution
should, for reasons pointed out by this Court in State of
Travancore-Cochin 1. The Bombay Co. Ltd. (1), be used with
caution and circumspection. Our Constitution differs from
both American and Australian Constitutions. There is
nothing in the American Constitution corresponding to our
Art. 19(1) (g) or Art. 301. In the United States the
problem was that if gambling did not come within the
commerce clause, then neither the Congress nor any State
Legislature could interfere with or regulate inter-State
gambling. Our Constitution, however, has provided adequate
safeguards in cl. (6) of Art. 19 and in Arts. 302-305. The
scheme of the Australian Constitution also is different from
that of ours, for in the Australian Constitution there is no
such provision as we have in Art. 19(6) or Arts. 302-304 of
our Constitution. The provision of s. 92 of the Australian
Constitution being in terms unlimited and unqualified the
judicial authorities interpreting the same had to import
certain restrictions and limitations dictated by common
sense and the exigencies of modern society. This they did,
in some cases, by holding that certain activities did not
amount to trade, commerce or intercourse and, in other
cases, by applying the doctrine of pith and substance and
holding that the impugned law was not a law with respect to
trade, commerce or intercourse. The difficulty which faced
the judicial authorities interpreting s. 92 of the
Australian Constitution cannot arise under our Constitution,
for our Constitution did not stop at declaring by Art. 19(1)
(g) a fundamental right to carry on trade or business or at
declaring by Art. 301 the freedom of trade, commerce and
inter. course but proceeded to make provision by Art. 19(6)
and Arts. 302-305 for imposing in the interest of the
general public reasonable restrictions on the exercise of
the rights guaranteed and declared by Art. 19 (1) (g) and
Art. 301. As one of us said in P. P. Kutti Keya
(1) (1952) S.C.R. 1112 at p. 1121
919
v. The State of Madras(1) the framers of our Constitution,
being aware of the problems with which the Australian
Government had been confronted by reason of s. 92, sought to
solve them by enacting limitations in Part XIII itself on
the freedom guaranteed in Art. 301. Our task, therefore,
will be to interpret our Constitution and ascertain whether
the prize competitions falling within the definition of the
impugned Act, all of which are of a gambling nature, can be
said to be a “trade or business” within the meaning of Art.
19(1) (g) or “trade, commerce and intercourse ” within the
meaning of Art. 301 of our Constitution.
The scheme of our Constitution, as already indicated, is to
protect the freedom of each individual citizen to carry on
his trade or business. This it does by Art. 19(1)(g). This
guaranteed right is, however, subject to Art. 19(6) which
protects a law which imposes, in the interest of the general
public, reasonable restrictions on the exercise of the
fundamental right guaranteed by Art. 19(1) (g). Our
Constitution also proclaims by Art. 301 the freedom of
trade, commerce and intercourse throughout the territory of
India’ subject to the provisions of Arts. 302-305 which
permit the imposition of reasonable restriction by
Parliament and the State Legislatures. The ‘underlying idea
in making trade, commerce and intercourse with, as well as
within, the States free undoubtedly was to emphasise the
unity of India and to ensure that no barriers might be set
up to break up the national unity. One important point to
note is that the language used in Art. 19(1) (g) and Art.
301 is quite general and that the provisions for restricting
the exercise of the fundamental right and the declared
freedom of the country’s trade, commerce and intercourse are
made separately, e.g., by Art. 19(6) and Arts. 302-305.
This circumstance is fastened upon by learned counsel for
the petitioners for contending that the right guaranteed by
Art. 19(1)(g) and the freedom declared by Art. 301 should,
in the first instance and to start with, be widely and
liberally construed and then reasonable restrictions may be
superimposed on that right under Art. 19(6) or Arts. 302-305
in the interest of the general public. According
(1) A.I.R. (1954) mad. 621.
920
to him the words “trade” or “business” or “commerce” should
be read in their widest amplitude as meaning any activity
which is undertaken or carried on with a view to earning
profit. There is nothing in those two Arts. 19(1)(g) and
301, which, he says, may qualify or cut down the meaning of
the critical words. He contends that there is no
justification for excluding from the meaning of those words
activities which may be looked upon with disfavour by the
State or the Court as injurious to public morality or public
interest. The argument is that if the trade or business is
of the last mentioned character, then the appropriate
Legislature may impose restrictions which will be
justiciable by the courts and this restriction may, in
appropriate cases, even extend to total prohibition. Our
attention has been drawn to Art. 25 where the limiting words
” subject to public order, morality and health ” are used
and it is pointed out that no such limiting words are to be
found in Art. 19(1)(g) or Art. 301. In short the argument
is that Art. 19(1) (g) and Art. 301 guarantee and declare
the freedom of all activities undertaken and carried on with
a view to earning profit and the safeguard is provided in
Art. 19(6) and Arts. 302-305. The proper approach to the
task of construction of these provisions of our
Constitution*, it is urged, is to start with absolute
freedom and then to permit the State to cut it down, if
necessary, by restrictions which may even extend to total
prohibition. On this argument it will follow that criminal
activities undertaken and carried on with a view to earning
profit will be protected as fundamental rights until they
are restricted by law. Thus there will be a guaranteed
right to carry on a business of hiring out goondas to commit
assault or even murder, of housebreaking, of selling obscene
pictures, of trafficking in women and so on until the law
curbs or stops such activities. This appears to us to be
completely unrealistic and incongruous. We have no doubt
that there are certainactivities which can under no
circumstance be regarded as trade or business or commerce
although the usual forms and instruments are employed
therein. To exclude those activities from the meaning of
those words is not to cut down their meaning at all
921
but to say only that they are not within the true meaning of
those words. Learned counsel has to concede that there can
be no “trade” or “business” in crime but submits that this
principle should not be extended and that in any event there
is no reason to hold that gambling does not fall within the
words “trade” or “business” or “commerce” as used in the
Articles under consideration. The question arises whether
our Constitution makers ever intended that gambling should
be a fundamental right within the meaning of Art. 19(1)(g)
or within the protected freedom declared by Art. 301.
The avowed purpose of our Constitution is to create a
welfare State. The directive principles of State policy set
forth in Part IV of our Constitution enjoin upon the State
the duty to strive to promote the welfare of the people by
securing and protecting, as effectively as it may, a social
order in which justice, social, economic and political,
shall inform all the institutions of the national life. It
is the duty of the State to secure to every citizen, men and
women, the right to an adequate means of livelihood and to
see that the health and strength of workers, men and women,
and the tender age of children are not abused, to protect
children and youths against exploitation and against moral
and material abandonment. It is to be the endeavour of the
State to secure a living wage, conditions of work ensuring a
decent standard of life and full enjoyment of leisure and
social and cultural opportunities, to protect the weaker
sections of the people from social injustice and all forms
of exploitation, to raise the standard of living of its
people and the improvement of public health. The question
canvassed before us is whether the Constitution makers who
set up such an ideal of a welfare State could possibly have
intended to elevate betting and gambling on the level of
country’s trade or business or commerce and to guarantee to
its citizens, the right to carry on the same. There can be
only one answer to the question.
From ancient times seers and law givers of India looked
upon gambling as a sinful and pernicious vice and deprecated
its practice. Hymn XXXIV of the
922
Rigveda proclaims the demerit of gambling. Verses 7, 10 and
13 say:
” 7 Dice verily are armed with goads and driving hooks,
deceiving and tormenting, causing grievous woe. They give
frail gifts and then destroy the man who wins, thickly
anointed with the player’s fairest good.
10 The gambler’s wife is left forlorn and wretched: the
mother
mourns the son who wanders homeless.
In constant fear, in debt, and seeking riches, he goes by
night unto the home of others.
11 Play not with dice: no, cultivate thy corn-
land.
Enjoy the gain, and deem that wealth sufficient.
There are thy cattle, there thy wife, O gambler. So this
good
Savitar himself hath told me.”
The Mahabharata deprecates gambling by depicting the
woeful conditions of the Pandavas who had gambled away their
kingdom. Manu forbade gambling altogether. Verse 221
advises the king to exclude from his realm gambling and
betting, for those two vices cause the destruction of the
kingdom of princes. Verse 224 enjoins upon the king the
duty to corporally punish all those persons who either
gamble or bet or provide an opportunity for it. Verse 225
calls upon the king to instantly banish all gamblers from
his town. In verse 226 the gamblers are described as secret
thieves who constantly harass the good subjects by their
forbidden practices. Verse 227 calls gambling a vice
causing great enmity and advises wise men not to practise it
even for amusement. The concluding verse 228 provides that
on every man who addicts himself to that vice either
secretly or openly the king may inflict punishment according
to his discretion. While Manu condemned gambling outright,
Yajnavalkya sought to bring it under State control but he
too in verse 202(2) provided that persons gambling with
false dice or other instruments should be branded and
punished by the king. Kautilya also advocated State control
of gambling and, as a practical person that he was, was
923
not-averse to the State earning some revenue therefrom.
Vrihaspati dealing with gambling in chapter XXVI, verse 199,
recognises that gambling had been totally prohibited by Manu
because it destroyed truth, honesty and -wealth, while other
law givers permitted it when conducted under the control of
the State so as to allow the king a share of every stake.
Such was the notion of Hindu law givers regarding the vice
of gambling. Hamilton in his Hedaya, vol. IV, book XLIV,
includes gambling as a kiraheeat or abomination. He says:
“It is an abomination to play at chess, dice or any other
game; for if anything is staked it is gambling, which is
expressly prohibited in the Koran; or if, on the other band,
nothing be hazarded it is useless and vain.” The wagering
con. tracts of the type which formed the subject-matter of
the case of Ramloll v. Soojumnull (1) and was upheld by the
Privy Council as not repugnant to the English Common Law
were subsequently prohibited by Act XXI of 1948 which was
enacted on the suggestion of Lord Campbell made in that case
and introduced in India provisions similar to those of the
English Gaming Act (8 & 9 Vict. c. 109). Bengal Gambling
Act (Ben. II of 1867) provided for the punishment of public
gambling and the keeping of common gaming house in the
territories subject to the Lieutenant Governor of Bengal.
Lottery has been, since 1870, made an offence, under s. 294A
of the Indian Penal Code. Gambling agreements have been
declared to be void under the Indian Contract Act, 1872 (s.
30). This in short is how gambling is viewed in India.
Before the Legislature intervened, gambling and wagering
were not prohibited by the English Common Law although the
English courts looked upon it with disfavour and discouraged
it on grounds of public policy by denying procedural
facilities which were granted to other litigants. The
Scottish courts, however, have always refused to recognise
the validity of wagering contracts and have held that
sponsiones ludicroe, as they style such contracts, are void
by the Common Law of Scotland. Gambling and Betting Act,
(1) (1848) 4 M.I.A. 339.
924
1664 (16 Car. 11, c. 7) was directed against fraudulent and
excessive gambling and betting at games or sports. This was
followed by the Gaming Act of 1710 (9 Anne.c. 19). The
Marine Insurance Act 1745 (19 Geo. 11 C. 37) for the
first time prohibited wagering policies on risks connected
with British shipping. This was supplemented by the Marine
-Insurance Act 1788 (28 Geo. III c. 56). The Life
Insurance Act, 1774 (14 Geo. III c. 48) though not intended
to prohibit wagering in general, prohibited wagering under
the cloak- of a mercantile document which purported to be a
contract of insurance. Then came the Gaming Act of 1845 (8
and 9 Vict. c. 109) which for the first time declared all
contracts made by way of gaming or wagering void
irrespective of their form or subject-matter. The
provisions of this Act were adopted by our Act XXI of 1948
as here in before mentioned. The Gaming Act of 1892 (55 and
56 Viet. c. 9) further tightened up the law.
As far back as 1850 the Supreme Court of America in Phalen
v. Virginia(1) observed:
” Experience has shown that the common forms of gambling
are comparatively innocuous when placed in contrast with
widespread pestilence of lotteries. The former are confined
to a few persons and places, but the latter infests the
whole community; it enters every dwelling; it reaches every
class; it preys upon the hard earnings of the poor; it
plunders the ignorant and the simple.
The observations were quoted, with approval, in Douglas v.
Kentucky (2 ). After quoting the passage from Phalen v.
Virginia (1) the judgment proceeded:
“Is the state forbidden by the supreme law ‘of the land
from protecting its people at all times from practices which
it conceives to be attended by such ruinous results? Can
the Legislature of a State contract away its power to
establish such regulations as are reasonably necessary from
time to time to protect the public morals against the, evils
of lotteries ?”
(1) [1850] 49 U.S. 163; 12 L. Ed. 1030,1033.
(2) [1897] 168 U.S. 488 ; 42 L. Ed. 553, 555.
925
It will be abundantly clear from the foregoing observations
that the activities which have been condemned in this
country from ancient times appear to have been equally
discouraged and looked upon with disfavour in England,
Scotland, the United States of America and in Australia in
the cases referred to above. We find it difficult to accept
the contention 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 and thereby
lower his standard of living and drive him into a chronic
state of indebtedness and eventually disrupt the peace and
happiness of his humble home 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 Art.
19(1) (g). We find it difficult to persuade ourselves that
gambling was ever intended to form any part of this ancient
country’s trade, commerce or intercourse to be declared as
free under Art. 301. It is not our purpose nor is it neces-
sary for us in deciding this case to attempt an exhaustive
definition of the word “trade”, “business”, or
“intercourse”. We are, however, clearly of opinion that
whatever else may or may not be regarded as falling within
the meaning of these words, gambling cannot certainly be
taken as one of them. We are convinced and satisfied that
the real purpose of Arts. 19(1) (g) and 301 could not
possibly have been to guarantee or declare the freedom of
gambling. Gambling activities from their very nature and in
essence are extra-commercium although the external forms,
formalities and instruments of trade may be employed and
they are not protected either by Art. 19 (1) (g) or
Art. 301 of our Constitution.
The Court of Appeal; we have already said, took the view
that it was not open to the State, which had not thought fit
to prohibit these prize competitions but had sought to make
a profit out of them by levying a tax, to contend at the
same time that it was illegal or was not a “trade” at all.
But as pointed out in United
119
926
States v. Kahrigar (1), the fact of issuing a licence or
imposing a tax means nothing except that the licensee shall
be subject to no penalties under the law if he pays it.
Lewis v. United States of America (2) also recognises that
the Federal Government may tax what it also forbids and that
nobody has a constitutional right to gamble but that if he
elects to do, so, though it be unlawful, he must pay the
tax. In this connection reference may be made to the
observation of Rowlatt J. in Mann v. Nash (3) :
” The revenue authorities, representing the State, are
merely looking at an accomplished fact. It is not condoning
it or taking part in it.
Further down he said:
” It is merely taxing the individual with reference to
certain facts. It is not a partner or a sharer in the
illegality.”
That crime is not a business is also recognised in F. A.
Lindsay, A. E. Woodward and W. Hiscox v. The Commissioners
of Inland Revenue (4)(per Lord President Clyde and per Lord
Sands) and in Southern (H. M. Inspector of Taxes) v. A. B.
The fact that regulatory provisions have been enacted to
control gambling by issuing licences and by imposing taxes
does not in any way alter the nature of gambling which is
inherently vicious and pernicious.
We also arrive at the same result by applying the doctrine
of ‘pith and substance’. As Lord Porter pointed out: ” The
phrase raised in a convenient form an appropriate question
in cases where the real issue is one of subject matter and
it may also serve a useful purpose in the process of
deciding whether a particular enactment is a law with
respect to trade, commerce or intercourse as such or whether
it is a law with respect to some other subject which
incidentally trenches upon trade, commerce and intercourse.”
Reference has already been made to the observations
(1) 345 U.S. 22; 97 L. Ed. 754.
(2) 348 U.S. 49 ; 99 L. Ed- 475.
(3) L. R.(1932) 1 K.B.D. 752 at P. 757.
(4) 18 T.C. 43.
(5) L.R. (1933) 1 K.B. 713; 18 T.C. 59.
927
of Dixon J., as he then was, in King v. Martin (1). Adapt-
ing his language, we may say that when Art. 19(1)(g)
guarantees or Art. 301 declares the freedom of trade they
describe human activities in a specific aspect. They single
out attributes which the act or transaction may wear and
make the freedom, which they confer, depend upon those
attributes. The freedom secured by the two Articles, we
think, implies that no unreasonable restraint or burden
shall be placed upon an act falling under that description
because it is trade or commerce or intercourse. We have
analysed the provisions of the impugned Act and it is quite
clear that the Act does not purport directly to interfere
with trade, commerce or intercourse as such, for the
criterion of its application is the specific gambling nature
of the transaction which it restricts. The purpose of the
Act is not to restrict anything which brings the
transactions under the description of trade, commerce or
intercourse. In other words, the Act is in pith and
substance an Act with respect to betting and gambling. To
control and restrict betting and gambling is not to
interfere with trade, commerce or intercourse as such but to
keep the flow of trade, commerce and intercourse free and
unpolluted and to save it from anti-social activities. In
our opinion, therefore, the impugned Act deals with gambling
which is not trade, commerce or business and, therefore, the
validity of the Act has not to be decided by the yardstick
of reasonableness and public interest laid down in Arts.
19(6) and 304. The appeal against the stringency and
harshness, if any, of the law does not lie to a court of
law.
In the view we have taken, it is not necessary for us to
consider or express any opinion on this occasion as to the
vexed question whether restriction, as con. templated in
Arts. 19(6) and 304(b), may extend to total prohibition and
this is so because we cannot persuade ourselves to hold that
Art. 19(1)(g) or Art. 301 comprises all activities
undertaken with a view to profit as “trade” within the
meaning of those Articles. Nor is it necessary for us on
this occasion to consider
(1) (1939) 62 C.L.R. 457.
928
whether a company is a citizen within the meaning of Art’ 19
and indeed the point has not been argued before us.
The last point urged by the petitioners is that assuming
that the impugned Act deals only with gambling and that
gambling is not “trade” or “business” or “commerce” and is,
therefore, not entitled to the protection of our
Constitution, the prize competitions run by them are in fact
not of a gambling nature. The trial court accepted this
contention while the Court of Appeal rejected it. We have
examined the scheme and the rules and the official solutions
and the explanations in support thereof and we have come to
the conclusion that the competition at present run by the
petitioners under the name of R.M.D.C. Crosswords are of a
gambling nature. Our view so closely accords with that of
the Court of Appeal that we find it unnecessary to go into
the details of the scheme. To start with, we find that the
Board of Adjudicators pick up nine of the clues and -select
only those competitors whose answers correspond with ‘the
official solution of those nine clues. Those nine clues may
be from the top, may be from the bottom or may be selected
at random. It is said that they-are like nine compulsory
questions in a school examination but then in a school
examination, the students are told which are the nine
compulsory questions and they can take particular care with
regard to those; but in this scheme there is no knowing
which nine will be selected and those competitors whose
answers do not accord with the official solution are
debarred from being considered for the first prize. A
competitor may have given correct answers to eight of the
nine selected clues and may have given correct answers to
the remaining eight so that he has sent in sixteen correct
answers but he will, nevertheless, not be considered for the
first prize because his answers to the nine selected
questions did not agree with the official solutions of those
nine clues. This is a chance element to start with. We
have then seen that the competing words out of which one is
to be selected are in some cases equally apt. We are not
satisfied that the word selected by the Board is the
929
more apt word in many. cases. The reasons given by them
appear to us to be laboured and artificial and even
arbitrary in some cases. On the whole, we have come to the
conclusion that the Court of Appeal was right in its
conclusion that in point of fact the prize competitions run
by the petitioners partake of a gambling nature and,
therefore, fall within the definition and are to be governed
by the regulatory and taxing provisions of the Act.
For the reasons stated above, we have come to the
conclusion that the impugned law is a law with respect to
betting and gambling under Entry 34 and the impugned taxing
section is a law with respect to tax on betting and gambling
under Entry 62 and that- it was within the legislative
competence of the State Legislature to have enacted it.
There is sufficient territorial nexus to entitle the State
Legislature to collect the tax from the petitioners who
carry on the prize competitions through the medium of a
newspaper printed and published outside the State of Bombay.
The prize competitions being of a gambling nature, they
cannot be regarded as trade or commerce and as such the
petitioners cannot claim any fundamental right under Art.
19(1)(g) in respect of such competitions, nor are they
entitled to the protection of Art. 301. The result,
therefore, is that this appeal must be allowed and the order
of the lower court set aside and the petition dismissed and
we do so with costs throughout.
Appeal allowed.
930