B.R. Enterprises Etc, Etc vs State Of U.P. And Grs. Etc: Etc on 7 May, 1999

Supreme Court of India

Bench: K Venkataswami, A.P.Misra

           CASE NO.:
Appeal (civil)  2747 of 1999

PETITIONER:
B.R. ENTERPRISES ETC, ETC.

RESPONDENT:
STATE OF U.P. AND GRS. ETC: ETC.

DATE OF JUDGMENT: 07/05/1999

BENCH:
K VENKATASWAMI & A.P.MISRA

JUDGMENT:

JUDGMENT

1999 (2) SCR 1111

The Judgment of the Court was delivered by

MISRA, J. Special leave granted in all the special leave petitions. We are
witnessing in this case exhibition of Federalism in true spirit. Contrary
to the usual pouring in of citizen’s writ petitions for vending their
grievances against the States, here we are drawn to decide issue inter se
between two distinct sets of States, one challenging and the other
upholding certain provisions of The Lotteries (Regulation) Ordinance 1997
(Ordinance No. 20 Of 1997) (hereinafter referred to as the “Ordinance No
20″) and now the Lotteries (Regulation) Act, 1998 (hereinafter referred to
as the ” 1998 Act”). The Union Government, of course has joined this issue
with one such set of States for upholding its Act. The issue here is
confined to the State lotteries under Entry 40, List I of the Seventh
Schedule of the Constitution of India. As a consequence of the order passed
by the State of U.P. banning State lotteries of other States by virtue of
power entrusted under Section 5 of the impugned Ordinance Act, various
affected States, challenged the provisions in different High Courts. In
some of them, interim orders were passed and in others, the High Courts
finally disposed of the petitions. The Gujarat High Court upheld the
validity, while the Guwahati High Court struck down some of its provisions
as ultra vires. Against all the aforesaid orders and Judgments, the
aforesaid appeals have been filed. One writ petition under Article 32 has
also been filed raising the same issue. Some of the aforesaid petitions are
transfer petitions seeking transfer of petitions pending in the various
High Courts raising similar issues. We permitted learned counsel for the
petitioners in these transfer petitions to argue the common points which,
if fact, is the bone of contentions of all the parties. As in all these
petitions, common issues are raised, we are disposing of all, after hearing
learned counsel for the parties, by this composite judgment. Apart from the
common issues, we are not disposing of nor propose to dispose of any of the
individual residuary points, if any, remain after pur this adjudication.

In order to adjudicate issues in this case, one of the fundamental question
raised is, what is the character of State lotteries. If lotteries are
gambling in nature, does it loose its character as such when it takes on
the cloak of State lotteries? Whether such cloak dissolves its character as
res extra Commercium? In any case, even it is legalised, would it qualify
to be or can it be held to be a trade within the meaning of Chapter XIII of
the Constitution of India? If it is a trade, are the provisions of the
impugned Act violative of the Articles of Chapter XIII? Challenge to some
of the provisions are based on the ground of it being discriminatory and
arbitrary, hence violative of Article 14 of the Constitution. Finally;
entrustment of power to the States under Section 5 is attacked as it being
unbridled without any guideline thus liable to be struck down,

Before taking up for consideration the various points raised, it is
necessary to dwell Certain bare facts to reveal the resulting cause of
filing of various petitions in the various High Court is before finally
reaching this Court for adjudication. The whole gambit of sale of lottery
tickets in India, both private and State lotteries, from the very inception
is drawing with concern attention of various authorities and Government
including courts, as to how to control the evil effects of lotteries on its
people at large, more so, when in complete banning, it effects in times of
need, the Very useful source of State revenue. Basically, lotteries are
gambling and its business is res extra commercium; but to shed off this,
the State in the interest of State revenue has been finding avenues to
legitimate it through some legitimisation under the law to eliminate the
impediments in collecting the State revenue and dilute, if possible, the
exploitation of the people. The details of which we shall be referring
hereinafter. The immediate reference to which we are concerned is Ordinance
No. 20 of 1997 which was issued on 1st October, 1997, which came into force
on 2nd October, 1997 which restricted the lottery business organised by the
States and enabled the State Government to prohibit sale of tickets of
lotteries of other States. Under the said Ordinance, the State of U.P.
issued notification dated 7th October, 1997 banning sale of lottery tickets
of the State of Nagaland in the State of U.P- This notification and the
aforesaid Ordinance was challenged by the State of Nagaland in the Gauhati
High Court in Civil Rule No, 4986 of 1997. The High Court stayed this
notification. This Ordinance was also subject matter of challenge in the
High Court of Gujarat where in Special Civil Appeal No. 7903 of 1997 ( The
Gujarat Lottery Sellers Association v. The State of Gujarat and another),
the High Court upheld this Ordinance and the notification of Gujarat
Government which banned the State lotteries within the State of Gujarat.
Against this, Civil Appeal arising out of SLP (C) No, 22423 of 1997 has
been filed which we are considering and disposing of by means of this
judgment. The State of U.P. filed Civil Appeals arising out of SLP(C) Nos.
21304-21307 of 1997 as against the aforesaid interim; order passed by the
Guwahati High Court staying the Ordinance in which this Court directed the
State of U.P. to move the Gauhati High Court. This order was passed as an
interim measure. In a Writ Petition No. 2200 of 1997 filed before the
Allahabad High Court (Lucknow Bench) by M/s. Ganga Agencies (Manipur State
Lotteries), the High Court ordered that so long the interim order of the
Gauhati High Court is operative the sale of lottery tickets shall be
permitted to be sold in U.P. this Court finally disposed of SLP (C) Nos.
21304-21307 of 1997 (Civil Appeal No. 8858-8861 of 1997) by observing that
Gauhati High Court is free to dispose of the petition pending before it in
accordance with law, since hearing had already completed. As the Ordinance
No. 20 was lapsing, Ordinance No. 31/97 (second Ordinance) was promulgated.
Under it, the notification dated 29th October, 1997 of the State of U.P.
was also stayed by the Guwahati High Court. Against this order, also SLP
(C) No, 4710-4712 of 1998 State of U.P. v. State of Mizoram and otters, was
filed in this Court. Finally, the Guwahati High Court declared the
Ordinance No. 20 to be unconstitutional on the ground that Ordinance was
not legislation by the Parliament within Article 298 of the Constitution of
India, hence it could not restrict executive powers of the State to carry
on lottery business. It also held Section 5 to be ultra vires the Central
Legislative powers on the ground of excessive delegation and also violative
of Articles 301 and 303 of the Constitution. It further held mat Section
4(a), (f) and (g) imposes unreasonable restrictions, therefore,
unconstitutional. Against this, the State of U.P. filed Civil Appeals
arising out of SLP (C) No. 5224-28 of 1998 and the Union of India filed
Civil Appeals arising out of SLP (C) Nos. 5081-5085 of 1998, which is also
the subject matter of consideration through this judgment.

In order to maintain the continuity, the Central Government issued the
Lotteries (Regulation) Ordinance, 1998 (No. 6 of 1998) (third Ordinance) on
23rd April, 1998. This last Ordinance was also challenged along with
Notification dated 29th October, 1997 of State of U.P. in Civil Rule 2315
of 1998 Ms. Jyoti Agencies & Anr. v. Union of India & Ors. before the
Gauhati High Court which was also stayed by means of interim order dated
22nd May, 1998. Civil Appeal arising out of SLP (C) No. 15978 of 1998 has
been filed against this order by the State of U.P. The Ordinance No. 6 of
1998 (third ordinance) has finally rolled into the Lotteries (Regulation)
Act, 1998 (No. 17 of 1998) (hereinafter referred to as `1998 Act’). This
Act along with Notifications dated 29th October, 1997, 17th March, 1998 and
20th April, 1998 of the State of U.P. were challenged in Civil Rule No.
3296 of 1998 State of Nagaland v. Union of India & Ors. before the Guwahati
High Court, The Guwahati High Court by order dated 10th July, 1998 stayed
the provisions of Section 4(a), (g), (h), (j) Sections 5 and 6 of the 1998
Act and also the aforesaid notifications issued by the State of U.P. : Even
SLP against this order has been filed before this Court being SLP (C) No.
17566 of 1998. The Gujarat Lottery Sellers’ Association has challenged the
constitutional validity of the Ordinance No. 20 promulgated on 1st October,
1997 and also challenged the Notification dated 30th September, 1997,
issued by Government of Gujarat, banning the instant lotteries within the
State w.e.f. 1st November, 1997. One of the grounds raised by the
petitioner before the Gujarat High Court was that the State notification
dated 30th September, 1997 was issued even before the Ordinance which came
into force on 2nd October, 1997, hence without authority of law. The
Gujarat High Court by its judgment and order dated 24th. October, 1997
dismissed the petition holding that instant lottery is gambling and can be
restrained by the State Government. The High Court held the Ordinance No,20
to be valid. Aggrieved by this, the aforesaid Civil Appeal raising out of
SLP(C) No, 22423 of 1997 was filed. Similar matter also came in the Delhi
High Court, when it, by means of interim order dated 3rd December, 1997 in
Civil Writ Petition No. 5105 of 1997 disagreed with the view of the
Guwahati High Court and agreeing with the view of the Gujarat High Court,
declined to stay the impugned Ordinance. Hence, the Stale Ordinance
remained in operation within the National Capital Territory of Delhi. The
Guwahati High Court on 30th March, 1998 in Miscellaneous Case No. 310 of
1998 in C.R. No. 31 of 1998 State of Nagaland v. U.O.I. and Others stayed
me order of the Government of Delhi directing implementation of the
aforesaid order passed by the Delhi High Court. Thereafter, on 30th April,
1998 the Delhi High Court observed that the Delhi Government may move the
appropriate forum against this order of the Guwahati High Court, This led
to filing of Transfer Petition by the National Capital Territory of Delhi
in this Court being Transfer Petition No. 670 of 1998.

A Writ Petition (C) No. 226 of 1998 is also filed in this Court by the
Government Lottery Agencies and Sellers Association (Regid.) and another
challenging the aforesaid Ordinances 20 and 31 of 1997 including the
notification issued by Government of National Capital Territory of Delhi
pursuant to the power conferred under Section 5, During the pendency, the
Parliament enacted the Lottery (Regulation) Act 17 of 1998 repealing/
substituting the earlier Lottery (Regulation) Ordinance of 1997.
Thereafter, various State Governments including the State of Arunachal
Pradesh and Nagaland as Weil as other distributors filed writ petition
challenging the legality and validity of Section 4(a), (f), (g), (i),
Section 5 and Section 7 of the said 1998 Act being ultra vires. On 17 July,
1998 the High Court of Guwahati observed that the provisions, under
challenge, of this Act as well as provisions of the Ordinances being pairi
materia and since provisions of the Ordinances have already been struck
down by that Court, hence, granted stay of the aforesaid provisions
including the notification of the Government of National Capital Territory
of Delhi and other States. In the aforesaid writ petition filed by the
Government Lottery Agencies and Sellers Association (Regd.) and others, an
amendment was sought to challenge the aforesaid 1998 Act as it substituted
the earlier Ordinance. Except for Section 5 of the Ordinance, in which some
modification was brought through this Act, to which we shall be referring
to later, other provisions remained the same.

Civil Appeal arising out of S.L.P c No. 10356 of 1997 (B.R. Enterprises V.
State of UP, & Anr.,) is against the order of the Allahabad High Court
dismissing the writ petition filed by an agency of State lottery Manipur
holding such dispute between the State of Manipur and State of U.P. could
only be decided by the Supreme Court. It held, so far manipur lotteries,
unless it was declared to be State lottery, the petitioner has no locus
standi, hence writ was dismissed. Another Civil Appeal arising out of SLP c
No. 10357 of 1998 is filed by the State of U.P. against an order passed by
the Allahabad High Court confirming the interim stay order. Civil Appeal
arising out of SLP c No. 15978 of 1998 is filed by the State of U.P.
against an interim order of Guwahati High Court staying the Ordinance No.
6/98. Civil Appeals arising Out of SLP @ Nos. 16021, 16617, 17566 and
17782 of 1998 are all filed against the interlocutory orders passed by the
Guwahati High Court staying Section 4 (a), (g), (h), Sections 5 and 7 of
the Central Act No. 17/98. The first and third Of these SLPs are filed by
the State of U.P. and the second by Government of N.C.T. of Delhi.
Remaining petitions are transfer petitions seeking transfer of the cases
from Madras High Court, Karnataka High Court. Andhra Pradesh High Court and
Delhi High Court to this Court. These also challenge either the Ordinances
or Lotteries (Regulation) Act, 1998 (ActNo. 17/98) (hereinafter referred to
as `Lotteries Act’). They all raise the same issues, as aforesaid. For
proper appreciation of the submissions of learned counsels for the parties,
we herewith quote Sections 4, 5 and 7 of the Act, which are the subject
matter of challenge :

“4. A State Government may organise, conduct or promote a lottery subject
to the following conditions, namely :-

(a) prizes shall not be offered on any preanounced number or on the basis
of a single digit;

(b) the State Government shall print the lottery tickets bearing the
imprint and logo of the State in such manner that the authenticity of the
lottery ticket is ensure;

(d) the proceeds of the sale of lottery tickets shall be credited into the
public account of the State,

(e) the State Government itself shall conduct the draws of all the
lotteries;

(f) the prize money unclaimed within such time as may be prescribed by the
State Government or not otherwise distributed, shall become the property of
that Government;

(g) the place of draw shall be located within the state concerned; (h) no
lottery shall have ntore than one draw in a week;

(i) the draws of all kinds of lotteries shall be conducted between such
period of the day as may be prescribed by the State Government;

G) the number of bumper draws of a lottery shall not be more than six in a
calendar year;

(k) such other conditions as may be prescribed by the Central Government.

5. A State Government may, within the State prohibit the sale of tickets of
a lottery organised, conducted or promoted by every other State.

7(1) Where a lottery is organized, conducted or promoted after the date on
which mis Act receives the assent of the President, in contravention of the
provisions of this Act, by any Department of the State Government, the Head
of the Department shall be punishable with rigorous imprisonment for a term
which may extend to two years or with fine or with both ;

Provided that nothing contained in this section shall render such Head of
the Department liable to any punishment if he proves that the contravention
was committed without his knowledge or that he exercised all due diligence
to prevent the commission of such contravention.

(2) Notwithstanding anything contained in sub-section (1) where a
contravention under this Act has been committed by a Department of
Government and it is proved that the contravention has been committed with
the consent or connivance of, or is attributable to any neglect on the part
of, any officer, other than the Head of the Department, such officer shall
also be deemed to be guilty of that contravention and shall be liable to be
proceeded against and punished accordingly.

(3) If any person acts as an agent or promoter or trader in any lottery
organised, conducted or promoted in contravention of the provisions of this
Act or sells, distributes or purchases the ticket of such lottery, he shall
be punishable with rigorous imprisonment for a term which may extend to two
years or with fine or with both.

There are some changes in the various sub-clauses of Section 4 and Section
7, and also in Section 5 from what was contained in the Ordinance.

Before we proceed to consider the issues, we herewith refer to the short
submissions poured by learned counsel for the parties. The first we refer
to such set of submissions who challenge either the Ordinance or the Act.
Learned senior counsel, Shri K.K. Venugopal, appearing on behalf of the
State of Sikkim, submits that when there is sale of lottery tickets by the
State it looses its pernicious nature, hence it is no more res extra
commercium: Attacking Section 5 of the Act, he submits that it violates
Article 303 of the Constitution as this authorizes the State Government to
give preference to one State over the other. It can ban the lotteries of
other States though it can run its own lotteries. Clause 2 of Article 303,
which is only an exception to Article 303(1) would not be attracted as it
is restricted to a situation arising from scarcity of goods in any part of
the territory of India, Repelling submission on behalf of the Union of
India that Section 5 safeguards the interest of such State Governments
which as a matter of policy do not desire to have such lotteries in their
own State to stop sale of lotteries of other Governments within its
jurisdiction. Submission is that it may though reduces the extent of
discrimination to a great extent but would not completely neutralise the
violation of Article 303(1) of the Constitution. In the counter affidavit
of the Union, it is not sought to establish any public interest in banning
such State lotteries specially when such lotteries contribute towards State
revenue. This, in fact, ameliorates poverty and funding welfare projects,
especially so far the State of Sikkim is concerned which is an industrially
backward State and has very little source of revenue. It is violative of
Article 302 of the Constitution. A reference was made to the case of
Nataraja Mudaliar v. State of Madras, [1968] 3 SCR 829 at p. 852-853, a
decision by the Constitution Bench, that burden under Article 302 to
establish public interest is on the State. He further submits that stand
for the Union that even a lottery organized by the Union of India or a
State is res extra commercium does not stand for the following reasons :

(a) “The concept of res extra commercium applies when a right is claimed
against a State so that the Court looks into the nature of the right and
holds that if such claim relates to a trade in noxious goods or a trade
which is essentially vicious, it cannot be elevated to the status of a
trade or business. This can have no application whatsoever when the state
itself is running that business or trade,

(b) The purpose for which the venture is undertaken is of significance for
deciding whether the venture is a trade or is res extra commercium. A
citizen runs a lottery for his private pecuniary benefit while the State
runs for public good for raising revenues for funding welfare projects. The
State’s endeavour in raising revenues for the benefit of its citizens would
involve public interest which would be absent in the case of a citizen
undertaking the same business or trade. What is not trade or business in
the trade or business in the hands of the citizen would, therefore, for
this reason be a trade or business in the hands of the State.

(c) When the State undertakes any such venture, as State, it would ensure
that sufficient safeguards are imposed on the carrying on of the trade by
itself so that larger public interest is sub-served while reducing its
deleterious effect to the extent necessary to safeguard public interest.
Qualitatively, therefore, there is a difference between the same venture or
enterprise being undertaken by the individual or the citizen, solely with
profit motive, as against the State which has no profit motive but has the
interest of its citizens at heart by raising revenue for the welfiare of
its citizens.

(d) Entry 34 of List II “betting and gambling” conferred authority on the
State legislatures to ban gambling, based on the morality aspect and based
on the vice of gambling, for protecting its citizens against such a vice.
By Entry 40 of List I the Constitution has carved out lotteries of a
particular nature even though they constitute gambling, namely, lotteries
organised by the States so as to prevent a State legislature from using the
morality or the vice aspect of gambling to interfere with the right of the
state to raise revenues for the benefit of its own citizens. As a result,
Entry 40 of List I recongnizes the right of the Union and of the states to
run lotteries without the morality or the vice aspect affecting such
lotteries subject, of course, to regulation by laws made by Parliament. In
other words, the Entry 40 of List I itself is proof of the fact that a
lottery run by the Union of India or by the States is not affected by the
aspect of morality or vice which is present only in Entry 34 of List II and
is, therefore, not res extra commercium.

(e) This would also follow from Article 298 of the Constitution which
extends the executive power of the Union and each State to carrying on any
trade or business, without limitation, except to the extent of the provisos
therein which are not relevant for the present purpose. In other words, the
entirety of the executive power of the State is exhausted by Article 162 of
the Constitution and Article 298 and there is no third category of
executive power covering the carrying on of a venture or enterprise which
is res extra cotnmercivm. If so the concept of trade in Article 298 has to
be the same as the trade in Part XIII of the Constitution.

(f) The judgment of this Court in Fateh Chand’s, case [1977] 2 SCC 670,
brings out the difference between money lending in the traditional sense,
by money lenders who exploit the borrowers, and money lending by
institutions including Banks. It is this difference which would equally
apply to lotteries carried on by individuals and lotteries carried on by
the State.

(g) This issue is no more res integra by reason of the decision in the
Khoday case [1955] 1 SCC 574 being the judgment of a Constitution Bench of
this Hon’ble Court, where the judgment of the RMDC case has also been
considered and wherein paras 9, 24,35, 30, 41,55,60, 62 and 63 this Hon’
ble Court has held that the carrying on of trade in liquor would be a
legitimate business and not illegal when carried on by the State.

(h) Even on the interpretation by the Union of India of Section 5 of a
selection ban which could be imposed only by those States which have
themselves given up the right to carry on the lottery business, there would
be a violation of Article 303 of the Constitution of India as the State of
Sikkim and other States, which are covered by Entry 40 of List I, can carry
on the lottery business only in some States and not in others, thus
impeding the free flow of goods for a reason which is not traceable to
clause (2) of Article 303 of the Constitution. The only exception to
Article 303 (1) of the Constitution is a situation arising out of scarcity
of goods. The concept of reasonable classification present in Article 14
would have no relevance to a preference or discrimination under Article 303
of the Constitution.

, (i) Lotteries run by the States as a means of raising revenues have
always been recognised as early as 1935 as seen in Entry 48 of List I of
the 7th Schedule of the Government of India Act, 1935 covered under “State
Lotteries” while Entry 36 of List II of the 7th Schedule of the 1935 Act
covered “Betting and gambling”. Consequent upon the Government of India
Act, 1935 the adoption of Laws Order 1937 has included in Section 294-A of
the Indian Penal Code, 1860 an exception to the offence of keeping a
lottery office by excluding from the scope thereof “any lottery not being a
State lottery.” It is submitted that a State lottery always stood on a
different footing from a lottery run by an individual for private profit,
which alone would be the lottery covered by the RMDC judgment (See: [1957]
SCR 874.)”

Next, challenging the validity of Section 5, he submits that the power
conferred on the State for banning the lotteries of every other States is
bereft of any guidelines and, therefore, a piece of excessive delegation.
It is an uncanalised power conferred on a State at its whim and fancy.
There is nothing in the objects, preamble, or any other provisions of the
Act from which guideline could be collected specially that it is only a
State which does not fun its own lottery, can impose such a ban on every
other State. For this, he relied on the case of Hamdard Dawakhana (Wakf)
Lal Kuan, Delhi & Anr, v. Union of India & Ors., [1960] 2 SCR 671 at P.
696, and 697. Further, Section 5 is capable of being exercised arbitrarily,
State of West Bengal v. Amvar Ali Sarkar, [1952] SCR 284 at 314.

Shri F.S. Nariman, learned senior counsel for the State of Nagaland,
submits that carrying on State organised lottery is permitted by the
Constitution fay placing it within the exclusive competence of Parliament
(Item 40 of List I of the Seventh Schedule). A distinction is drawn between
State organised lotteries and State authorised lotteries in State of
Haryana v. Suman Enterprises, (1994) 4 SCC 217 (5 Judges). A reference was
also made to Article 298, the executive power of the State which extend to
carry on any trade or business, even beyond its territory. It is only
because of Article 298 and the premise implicit therein that the business
of organising State lotteries by the State was comprehended within its
extended executive power.

He further submits that State lotteries are legitimized and run with
authority of the law hence it is no more pernicious. This can be traced
back to the year 1844 when the India Act 5 of the 1844 was first enacted.
The historical account of this is referred in Sesha Ayyar V. Krishna Ayyar,
AIR (1936) Madras 225 (Full Bench). This referred to the English Lotteries
Act, 1823 and its preamble, the underline public policy which declared the
lotteries to be common public nuisances, because they promoted gambling and
speculation to draw great sums from servants, children and unwary persons
to the great impoverishment and utter ruin of many families. Reference of
1844 Act was also made which is quoted hereunder :

“Whereas great mischief has been found to result from the existence of
lotteries : (1) it is hereby enacted, that in the Territories subject to
the Government of the East India Company, all lotteries not authorised by
Government, shall from and after 31st day of March 1844, be deemed, and are
hereby declared common and public nuisances and against law: (2) and it is
hereby enacted, that from and after the day aforesaid, no person shall in
the said Territories, publicly or privately, keep an office or place for
the purpose of drawing any lottery not authorised by Government, or shall
have any such lottery drawn, or shall knowingly suffer any such lottery to
the drawn in his or her house; and any person so offending shall for every
such offence, upon conviction, before a justice of the Peace, or
Magistrate, be punished by fine not exceeding Rs. 5000.”

He referred to this judgment to make distinction between the State
lotteries and other lotteries. He also referred to the amendment brought in
the Indian Penal Code through Act 27 of 1870 (Section 10) by introducing
Section 294 A. This excludes the State lotteries from its penal purview, in
contrast to the other lotteries. Similar distinction is to be found under
the Government of India Act 1935, when the Government lotteries were placed
under Entry 48 of List I while betting and gambling (other forms of
lotteries) was placed under Entry 36 of List II. Referring back to the
State of Bombay v. R.M.D. Chamarbagwala, [1957] SCR 874 (RMDC case) case,
it was submitted that it was a case of a private lotteries and not State
organised lotteries. It was on these facts it held that it was opposed to
public policy (private lotteries were in fact opposed to public policy)
could not be characterised as trade or business or trade, commerce or
intercourse. Repelling further submission of Union with reference to the
Australian case cited in RMDC case (supra), he submits that even these
cases made a distinction between private lotteries and lotteries conducted
under the authority of the Government. Hence, the fact that the private
lotteries are pernicious and had to be suppressed and were suppressed in
India right from the year 1844, docs not mean that lotteries organised by
the State could be similarly stigmatised as pernicious. The ratio of RMDC
case (supra) has to be read with another decision of the Constitution Bench
of five Judges in Fateh Chand case (supra). This decision holds that there
are `aspects of business or trade’ which in one sense may be noxious when
conducted by a given class of persons and in another would be permissible.
He also referred to a ease of H. Anraj & Ors. v. State of Maharashtra,
[1984] 2 SCC 292, (hereinafter referred to as “Anraj case-I”), also
referred by other counsel. In paras 5 and 9, this Court held that the right
to conduct lotteries by States in India was a part of the right to carry on
business granted under Article 298 of the Constitution, hence it could
hardly be said that it would be outside the purview of trade, commerce or
intercourse under Articles 301 to 303. He also referred to H. Anraj & Ors.
v. State of Maharashtra, [1986] 1 SCC 414, (hereinafter referred to as
“Anraj case-II”), in which notification issued by the Tamil Nadu under the
Sales Tax Act was struck down on the ground that it violated Article 304

(a). This case further holds that lottery tickets in respect of lotteries
organised by a State were “goods”. It is significant that a note of caveat
of Sabyasachi Mukherjee, J. inAnraj case-II, (Para 46) is recorded :

“It should, however not be understood to accept the position that if
private lotteries are permissible and legal, a point which need not be
decided in these cases, in such cases sale of goods was involved or not.”

Next, he challenged Section 5 to be violative to Articles 301, 302 and 303
of the Constitution. Article 302 is an exception to Article 301 under which
a Parliament is permitted to impose such restriction on freedom of trade,
commerce or intercourse between one State and another as may be required in
the public interest. He placed reliance on the case of Parag h it was held
that the restrictions contemplated by Article 302 must bear a reasonable
nexus with the need to serve public interest. He contested the stand of the
Union as referred in para 5 of the letter dated 27th November, 1998,
reference of which is quoted hereunder :

“Consequently, the Central Government decided to enact an appropriate
legislation to regulate the conduct of lotteries so as to protect the poor
and gullible persons….”

He submits the discrimination on one hand Union through statutes controls
the State lotteries (Section 4) but in contra distinction as revealed by
Union’s letter dated 2nd March, 1955, free trade and commerce without
control of the Bhutan lottery were permitted for a period of ten years
under the Treaty. This Treaty falls under Entry 14 of List I is an
exclusive Union subject. Thus, no law of a State can legitimately impinge
upon the implementation of a Treaty entered into by the Union Government
with any foreign State. Further, repelling the affidavit of Union of India
in para 7 with reference to Section 5 of the Act that :

“Section 5 may be invoked by the State Government for prohibiting sale of
lottery tickets of other States even if they fulfill all the conditions
laid down in section 4. However, the ban shall be applicable to the
lotteries of all the States uniformly. Hence, the State Government cannot
discriminate in any way.”

This submission is contrary to the plain language of Section 5 under which
the State Government may continue to sell its own lotteries still prohibit
the sale of lotteries organised by other States. No public interest is
shown nor any reasonable nexus disclosed between the restriction and the
need to serve public interest, hence, it violates Article 302. Thus, he
concludes that Section 5 is invalid enabling discriminatory preference by
one State over the other. Thus, he submits that the sale of Bhutan
lotteries unrestricted in the States of India, while prohibiting State
organised lottery would amount to discrimination and violative of Article
14 and Article 303 of the Constitution. He also attacked sub-Section (g)
of Section 4. The place of draw should only be in the State concerned,
cannot be said to be in “public interest”. He specifically referred to the
condition as prevailing in Nagaland, there being grave problem of law and
order, hence the discrimination set up in Section 4(g) so far in relation
to the State of Nagaiand cannot be said to be in public interest In the
last, it is submitted that condition imposed under Section 4 (g) is not to
be construed as mandatory.

Learned senior counsel, Shri Shanti Bhushan, on behalf of the State of
Nagaland, also supported the aforesaid submissions. He made three main
submissions. Point No.l. The whole Act in its entirety is a discriminatory
piece of legislation contravening Article 14 of the Constitution, Though
the impugned Act imposes restrictions on the lotteries organised by the
State but does not impose any restrictions on the lotteries organised by a
foreign government (Bhutan lotteries). Section 4 reveals itself with its
opening words that the restrictions contained thereunder are to a State
organised lotteries, instead of restricting the lotteries organised by the
Government of Bhutan, the Union has promoted its lotteries. He referred to
the treaty dated 28th February, 1995, to remain in force for a period of 10
years. He referred to the circular dated 20th January 1998 by Government of
India which refers that Section 5 applies to the State lotteries and not to
the lotteries of Bhutan. He submits that the reason to justify the placing
of restriction on lotteries organised by the State Government should
equally be applicable to the lottery organised by a foreign Government. It
cannot be said that sale of lottery tickets by the State causes mischief or
harm to the people of India but would not cause mischief or harm in case it
is organised by a foreign Government. No defence could be made in meeting
the challenge of discrimination under Article 14 that there is difference
between the Government of Indian State and the Government of foreign State,
since this has no rational or nexus with the object sought to be achieved.
This clearly demonstrates hostile discrimination about which the State
Government can complain to this Court. He repelled fee submission for the
Union that State could prohibit restrictions on Bhutan lotteries under
Entry 34, List II. He submits mat such acceptance of such proposition would
totally upset the constitutional scheme of allocation of subjects between
the Parliament and the State. He made reference to Entry 14 which refers to
Treaty, Entry 41 to trade and commerce with foreign countries and Entry 97
to the residuary power of the Union under List 1. His point No. 2. is the
challenge of Section 5 viz.- (1) the legislature has delegated its
essential legislative powers without laying down any policy; (2) it
authorises the State Government to prohibit that sale of lottery tickets
organised by every other State, thus, per se discriminates between its own
lotteries and lotteries of other State; and (3) it also contravenes the
provisions of Article 301 read with Article 303 of the Constitution when it
gives preference to one State over the other. His submission is, it is
impossible to discern from any provision of the impugned Act as to what is
the policy in regard to the prohibition of the sale of tickets of a lottery
in a particular State. This policy has to be laid down by the parliament.
In the absence of any policy, there has been total abdication of
legislative power by the Parliament and it is a naked delegation of a
legislative power to the State Governments. In support of this
discrimination, he referred to the State of Tamil Nadu where the State has
prohibited the sale of lottery tickets of all other States but continues to
sell its own lotteries. If the State Government prohibits the sale of
lottery tickets of other States and promotes sale of its own lottery, it
violates Article 301 read with Article 303. With reference to Article 298,
the submission is mat the State gets right to organise the business of
lottery only because State lottery is trade or business. If State lotteries
are not, no State Government would have right to organise and conduct its
own lotteries. The last point No. 3 is challenge to sub-clauses (a), (g),

(h) and (j) of Section 4 as they are unreasonable and arbitrary The special
reference was made with emphasis on clause (g). This clause requires that
place of draw shall be located within the State concerned. With reference
to State of Nagaland, it was submitted that in view of the situation
prevailing there, it is not safe to draw lotteries within the State of
Nagaland itself.

Mr. R.F. Nariman, appearing for the respondent in Civil Appeal arising out
of SLP c No, 16021 of 1998, with reference to Article 301, submits that
trade, commerce and intercourse is free throughout the territory of India.
Article 302 is an exception but only in public interest. Article 303 puts
an embargo both on the Parliament and the legislation of the States not to
make any law giving preference to one State over another with respect to
any Entry relating to trade and commerce in the Seventh Schedule. Thus,
Section 5 of the impugned Act which enables the State to prohibit the
lotteries of others amount to restrict free trade and commerce hence
violative both of Articles 301 and 303 of the Constitution. It also
discriminates inter se between one State and the other wherein the State
which prohibits lotteries in its territory may have liberty to do trade and
business of the sale of lottery tickets throughout the territory of India
while others will have territorial limitation to sell lotteries hence
violative of Article 303 of the Constitution of India. In support, he
relied on the case of Atiabari Tea Ca. Ltd. v. The State of Assam & Ors.,
[1961] I SCR 809, and also the case of Automobile Transport (Rajasthan)
Ltd. v. The State of Rajasthan & Ors., [1962] 1 SCR 491, where the
restrictive interpretation given to Article 303, namely, to be limited to
the Entries relating to trade and commerce in any of the List in Seventh
Schedule, namely, Entries 41 and 42 of List 1, Entry 26 of List II and
Entry 33 of List III was rejected. In these cases even the impediment of
the movement of vehicle or taxation on vehicle on the given facts was held
to be a barrier in a free trade within the meaning of Article 301 of the
Constitution. Hence, the submission was, Section 5 entrusting the State to
prohibit the sale of lottery tickets organised by every other State, would
fall within the mischief of the principle laid down in the aforesaid
decisions, hence it impede free trade within the territory of India thus
violative of Article 301 and 303 of the Constitution.

Learned senior counsel, Shri S.S. Ray, appearing for the State of Nagaland,
submits that organizing lotteries by the Government of India by any State
Government is a legitimate business activities. He drew this inference in
view of Article 40, List I of the Seventh Schedule and Article 298 of the
Constitution. He relied and referred to the case of Anraj case-I (supra),
that the Government of every State had the unrestricted right to organise
lotteries of its own (in the absence of legislation by the Parliament on
the subject). The executive power of a State by virtue of Article 298
extends to lotteries organised by itself but not to lotteries organised by
the other States. Next, he referred to Anraj case -II (supra) that the
legislative competence of the States to levy a tax on the sale of lottery
tickets is under Entry 54, List II and not under Entry 34, List II. There
cannot be discriminatory taxes imposed by a State between lottery tickets
organised by other States and sold within the taxing State, and Lottery
tickets organised and sold by the taxing state itself. Such discrimination
would be violative of Articles 301 and 304 (a) of the Constitution. He also
referred to the case of Ms. Suman Enterprises & Ors., (supra) in which a
distinction between lotteries organised by the State and lotteries
authorised by the States has been made out. Lotteries organised by the
State would fall under Entry 40, List I and will not fall under the
regulatory power of other States under Entry 34, List II. It lays down
certain conditions which would be essential for the lotteries organised by
the State. He also made reference to Khoday Distilleries Ltd. & Ors. v.
State of Karnataka & Ors., [1995] I SCC 574. The question raised therein
was, whether the State could create monopoly for the manufacture, trade or
business in liquor? In this case the argument was that the State cannot
carry on trade in liquor in view of Article 47 of the Constitution.
Submission in this case was, if a citizen has no fundamental right to do an
act including any trade, then Article 19 (6) cannot confer such right on
the State. What a citizen cannot do under Article 19(1), the State cannot
do under Article 19(6). Further, the State power to carry on trade in
liquor dehors Article 19 (6) and Article 298 of the Constitution cannot be
extended to trade in liquor. This is so because Union of India has no
executive power to trade in a commodity which under Article 47 is enjoined
to prohibit. This submission was rejected and it was held:

“… that the State’s power to regulate and to restrict the business in
potable liquor impliedly includes the power to carry on such trade to the
exclusion of others. Prohibition is not the only way to restrict and
regulate the consumption of intoxicating liquor. The abuse of drinking
intoxicants can be prevented also by limiting and controlling its
production, supply and consumption. The State can do so also by creating in
itself the monopoly of the production and supply of the liquor. When the
State does so, it does not carry on business in illegal products…
regulated in the interests of the health, morals and welfare of the
people.,. When the State permits trade or business in the potable liquor
with or without limitation, the citizen has the right to carry on trade or
business subject to the limitations, if any and the State cannot make
discrimination between the citizens who are qualified to carry on the trade
or business.

In Ch. Khazan Singh& Ors. v. State of U.P. & Ors., [1974] 1 SCC 295, it
was held that Article 298 envisages carrying on of trade and business by a
State without any territorial limitations and the restriction, if any, on
the executive power of the State is contained in clause (b) of the proviso
to Article 298. Learned counsel, Mr. Ray, submitted even if it could be
said that lotteries are social evil, the same can be regulated or
restricted, keeping with public policy or public interest It cannot be
placed as a crime which is universally condemned or punished. Even in the
past the proceeds of lotteries have been utilized for welfare,
developmental or growth activities by the State, especially when the
economic and social evolution of the State is at a nascent stage. He
referred that proceedings of State lotteries have been contributed
substantially in building of major European and American cities, even Art
Galleries in U.K. Hence, it cannot be submitted that State lotteries are
wholly against public morality or public conscience. He referred to 38,
A.M. Jur. 2nd, p; 152,57:

“57. Generally-… But experience demonstrated the evil tendency and effect
of such schemes and the need for public control and regulations. At the
present day, both state and private lotteries are forbidden, or at least
regulated in some manner, by constitution or statute, or both, in many, if
not all, states. Congress has closed the mails against them.

Most of the governments of the continent of Europe have at different
periods raised money for public purposes by means of lotteries, and a small
sum was raised in America during the Revolution by a lottery authorised by
the continental Congress. He also referred to Halsbury’s Laws of England,
(4th Ed.) Vol. 4, paras 142, 143 and 144:

“142. Offences in connection with unlawful lotteries. All lotteries in
Great Britain which do not constitute gaming are, with the exception of
those subsequently mentioned, unlawful.

1.43. Statutory defences. It is a defence to the person charged with any
offence in connection with a lottery to prove that it was one declared by
statute not to be an unlawful lottery, and that, at the date of the alleged
offence, he believed and had reasonable-ground for believing that none of
the statutory conditions required to be Observed in connection with the
promotion and conduct of the lottery had been broken.

It is also a defence to prove that the lottery in question was not promoted
wholly or partly outside Great Britain and constituted gaming as well as a
lottery.

144. Art unions. There are certain exceptions to the general rule that
lotteries are illegal. An art union is permitted to hold lotteries, under
certain conditions, and is made a lawful association, and the members,
subscribers and contributors are exempted from penalties as are all persons
acting under their authority or on their behalf.”

He also referred to the Betting, Gambling and Lotteries Act, 1963 at page
539 of the Halsbury’s Statutes of England 3rd Ed. Vol. 14 in particular
Section 41 at page 583 that subject to the provisions of mis Act, all
lotteries are unlawful. He also referred to Section 45 which exempts
certain small lotteries conducted for charitable, sporting or other
purposes.

Next, while dealing with challenge to Section 5, he submits that in Suman
Enterprises case (supra) lotteries were divided into five different
categories and on the facts of the present case, there would be sixth
category, namely, lottery organised by a foreign State. The position which
emerges is that Government of India and the Bhutan Lotteries can be
organised and conducted anywhere in India without any conditions while
State lotteries can only be organised in other States only if those States
do not prohibit them by virtue of Section 5. Even if a State prohibits the
lotteries of other States it can organise its own lotteries in its State.
He referred to Section 8 of the U.P. Unauthorized Lottery (Prevention) Act,
1995 which gives the U.P. State Government power to grant permission to
private persons to conduct lotteries in certain cases and under certain
conditions. Challenging the power given under Section 5 to a State
Government to prohibit lotteries of every other State, he submits that
there is no rational basis or policy behind such empowerment. There is no
nexus, reasonable or otherwise between the object of the prohibition and
the actual prohibition. Hence, it is unreasonable, arbitrary and
discriminatory. He also reiterates the submissions by other counsel that
Section 5 confers an unauthorised delegation of an essential legislative
function without any guidelines. Negativing the submission by the Union and
the State of U.P. that the State which as a policy prohibits sale of its
own lottery tickets, could only prohibit the sale of lotteries of every
other State, refers to the stand taken by the State of Tamil Nadu which
though supports Union for upholding the provision but differ on
interpretation that power under it is not conditional but absolute. It is
open to a State to bring the prohibition of sale of lotteries in phased
manner, hence while running its own lotteries could prohibit lotteries of
other States. This reveals the sphere of discrimination which is absolute
and remains as unguided delegation. Thus, this Section is violative of
Article 14. Apart from this, it is also not in public interest. Further,
sale of such lottery tickets are trade and business falling under Part XIII
of the Constitution and is violative of Article 301 and 303 of the
Constitution.

He drew our attention that on one hand granting right to Bhutan to organise
and sale its lotteries everywhere in India while prohibiting Indian States
exercising such right is violative against pubic policy. On the contrary, a
public policy demands that no Indian States can be denied of prohibited
entry into any Indian market where a foreign State is allowed. Hence, Union
Government instead of spelling out public interest for any public policy
its act constitutes contrary to public interest, public good, public
welfare, subvert societal goals and contrary to the social milieu of the
country today. He refers to some decisions of the Courts in England, USA
and India on the meaning and scope of “public policy”. In Central Inland
Water Transport Corporation & Anr. v. Brojo Nath Gangly & Anr., AIR (1986)
SC 1571; 17 Am. Jur. 2nd P. 533, 534, it held that there must be no injury
or harm to the public interest, public good, and public welfare; in Rattan
Chand Hirai Chand v. Askar Nawaz Jurig(dead) by Lirs. & Ors,, [1991] 3 SCC
67, it held that Public policy must not subvert societal goals or endanger
the public good. What constituted an injury to public interest or welfare
would depend upon the times and climes. The social milieu in which the
contract is sought to be enforced would decide the factum, the nature, and
the degree of me injury. Courts must move in to fill the lacuna if the
legislature fails to keep pace with the changing needs and values; Courts
must promote the goals of society; must be tethered to the ethos of society
and furnish the felt necessities of the time, Rattan Chand Hira Chand case
(supra); Doctrine of public policy extends not only to harmful acts, but
has to be applied to harmful tendencies, Fender v. St. John-Mildmay, (1938)
AC 1, Gherulal Parakh v. Mahadeodas, [1959] Suppl. 2 SC R 406; It is
community’s common sense and common conscience. Black’s Law Dictionary (6th
d.) p. 1231; Public policy is the public law equivalent to private law
equitable principles such as that which states that no person can benefit
from his own wrong. Thus, the courts will presume that Parliament did not
intend to imperil the welfare of the State or its inhabitants, De Smith-
Judicial Review of Administrative Action (5th Ed.) p. 329, R. v. Registrar
General, Exparte Smith, (1991) 2 All ER 88

Next, learned senior counsel, Shri Rajeev Dhawan, appearing for the
respondents in Civil Appeal arising out of SLP C No. 15196 of 1998 and
Transfer Petition (civil) Nos 806-807 of 1998, reiterated the submissions
made by the preceding senior counsel. He submits that there could be no
dispute that the lottery tickets are `goods’ hence res commercium. The
lotteries can be conducted by the State, subject to the four conditions as
laid down in the case of Suman Enterprises (supra). Till Parliament makes
the law it can do so under Article 298 of the Constitution of India, The
lotteries are commercial activity, therefore, commercium which attract
sales tax and the States are not competent to regulate its own State
lotteries in their States. This power vests exclusively with the union. The
exclusionary principle, like res extra commercium have the effect of
eliminating the invocation of a fundamental right at the threshold which
has to be used rarely and always with circumspection and must be narrowly
construed as a principle of public policy. The principle of constitutional
unworthiness is that certain kind of rights are so morally repugnant that
they are not entitled to constitutional protection at all. The effect of
the principle of constitutional unworthiness has a devastating effect. It
narrows the scope of fundamental right. It takes out certain claims from
the protection of the constitution at the threshold, and since it is
rejected at the threshold, such right is not even tested for
reasonableness. He referred to the case of Krishna Kumar Narula v. The
State of Jammu and Kashmir & Ors., [1967] 3 SCR 50 at 54 in which this
Court refused to accept the broad argument. The reliance is placed on the
following passage:

“,,..that dealing in noxious and dangerous goods like liquor was dangerous
to the community and subversive of its morals….Such an approach leads to
incoherence in thought arid expression. Standards of morality can offer
guidance to impose restrictions, but cannot limit the scope of the right,”

This Court held that right to trade in liquor was business; However, a
contrary view was taken by this Court in the case of Khodav Distilleries,
(supra) in which it was held that the right to trade in liquor was not
constitutionally protected. After taking note of the Krishna Kumar’s case,
(supra), the Court did make three exceptions, namely, {a) trade in alcohol
is not per se prohibited for medicinal and industrial goods; (b) even
though trade in potable alcohol was res extra commercium, the State itself
may sell potable alcohol, set up a monopoly business for that purpose and
maximise its revenue by any mode of sales; and (c) the State may on a non-
discriminatory bases permit sale of the alcohol by private parties. Next,
he submits that the RMDC case (supra) is limited in its scope confined to
private lotteries, He referred to the case of Gherulal Parekh v. Mahadeodas
Malya, [1959] Suppl, 2 SCR 406, that in it, a narrow interpretation was
given to the said RMDC case (supra). Hence, in the case of State lotteries,
the principle decided therein would not be applicable. The State lotteries
are a distinct constitutional class. He referred to the ancient text, to
substantiate the legitimacy of the State lotteries and consequently
exercise of its power by showing that even in the ancient time the
lotteries under the Government were sanctioned by the Rings which yielded
revenue which is an important part of the ancient Indian jurisprudence.
Thus, he submits that since the State lotteries and activities connected
thereto are a permissible trade and not res extra commercium, Part XIII of
the Constitution is attracted. With reference to Article 303 he submits
that neither the Union nor the State can discriminate between one State and
the others. This constitutional prohibition is absolute with only one
exception under Article 303(2), namely, scarcity of goods. Meeting the
interpretation of the Union with reference to Section 5 that it permits the
total ban which is non-discriminatory, he submits that it is not the form
but the substance which has to be considered. The effect of total ban could
mean, it would affect some State more than others; it would affect the
North Eastern States to make their lotteries unviable; and in any case this
affects the free trade and public interest. Article 301 confers freedom of
trade and it could only be curtailed for public interest under Article 302
which the Union of India has not shown, pleaded and proved. With reference
to Bhutan lotteries he submits that validity and scope of Bhutan lotteries
is not in issue. The State has no power under the Act or the Constitution
to regulate Bhutan lotteries. Finally, with reference to the challenge of
some of the provisions of the Act, it is submitted that the Act has to be
read as a whole, hence Sections 3,4,5 and 6 are to be read together and
Section 5 is not to be read independently. In the configuration from
Sections 3 to 6, Section 5 is placed between Sections 4 and 6. Thus this
Section vests the power to the States to prohibit non-conforming lotteries
(lotteries which do not conform to the requirement of Section 4). This
Section is only a declaration of a prohibition and not a prohibitory effect
This section suffers from excessive delegation, lack of guidelines etc., as
submitted by other counsel.

Shri P.K. Gowami, learned senior counsel, appearing for the State of
Arunachal Pradesh, adopted the arguments raised by other learned senior
counsel He also made references to sub-section (1) of Section 4 which
prohibits the `single digit’ lottery which is said to be arbitrary as there
is no rational nexus for this restriction. The submission is that the
continuance of the single digit lottery does not have an adverse affect on
the purchasers.

Learned senior counsel, Shri G.L. Sanghi, also appearing for the State of
Nagaland in Civil Appeals arising out of SLP c Nos. 5081-5085 of 1998,
submitted that with reference to Bhutan lotteries, the effect of treaty is
that the Bhutan lotteries can be sold throughout India without fulfilling
any obligations under the Lotteries Act without complying with the
conditions under Section 4 of the Act, on the other hand, State organised
lotteries has to comply with the conditions and cannot be sold through its
territory by virtue of exclusion, if any, by the order of the State. The
Lotteries Act in question which is intended to control and prevent the
earnings through lotteries results in conferring complete monopoly in
favour of a foreign lottery, thus the evil sought to be arrested is let
loose in most irrational, objectionable and arbitrary manner, hence
violative of Articles 14 and 302 of the Constitution. He submits that the
Parliament should not have under Section 5 given a carte blanche to the
executive of all the States to decide, whether any restrictions be imposed
on lotteries organised by other States, This delegation of power is
arbitrary, unbridled and also in breach of Articles 302 and 303 of the
Constitution. He referred to the case of Hamdard Dawakhana, (supra) and
also in Arminder Singh v. State of Punjab. [1979] 1 SCR 845 at 855-856. He
also made reference to the invalidity of the sub-section(g) of Section 4 of
the Act, this refers to the place of draw to be located within the State
concerned,

Mr, Rakesh Dwivedi, learned senior counsel appearing for the State of
Manipur in Civil Appeals arising but of SLP Nos. 5224-28 of 1998, submits
by posing a question, namely, whether it is permissible to the Parliament
under Article 298 to delegate power to the State Government Vide Section 5
of the impugned Act to impose ban on the state organised lottery of other
States? Secondly, as has been submitted by other counsel, whether state
Organised lottery can be said to be res extra commercium? He referred to
the Government of India Act, 1935 and also to the draft Constitution before
the Constituent Assembly and also the debate which led to bring in Article
298 in the present from. His submission is that the draft Article 266 which
is now Article 289 provided for trade and business of States being subject
matter of union taxation. To this, Provinces protested which led to the
insertion of Article 298 as a compromise to enable the States to carry on
trade and business throughout the country, even with respect to subject
matter in List I for earning more revenue. This expanded power was made
subject to legislation by the Parliament. He referred to the case of S.R.
Bommai & Ors. v. Union of India & Ors., [1994] 3 SCC 1 at page 216, to
contend that federalism is a basic feature of our Constitution and thus
Article 298 should be understood in the light of federalism. Proviso (b) to
Article 298 is not merely a repetition of the Article 248 read with List I
entries of Seventh Schedule. This was with a purpose to enhance the revenue
earning power of the States. Thus, he submits that the Parliament
cannot make a law empowering the State Government of one State to perform
the functions with respect to another State or with respect to an acquired
foreign territory (with reference to Bhutan lotteries). One State
Government cannot be delegated the power to increase or diminish the area
of the activity of another State. He also referred to Articles 292 and 293
(1), namely, borrowing by the Government of India and borrowing by States
respective. Articles 269(3) and 286(3) refer to the faxes levied and
collected by the Union but assigned to the States and restrictions as to
imposition of tax on the sale or purchase of goods respectively and finally
Article 289(3) which refers to the exemption of property and income of a
State from Union taxation just to show the demarcation under the
Constitution and the distribution of revenue between Union and the States,
Thus, he submits that the power to totally prohibit the carrying on of any
trade or business by the State executives is only with the Parliament and
it must be done by legislation. The carrying on of business or the non-
carrying on are both comprehended under Article 298. This cannot be
delegated to any State executive. His submission is that Article 298 has
also to be interpreted in the light Of the basic feature of federalism
under which all the States are co-equal. One State cannot be sub-ordinated
to another State with respect to the matters which are in the Central List.
Repelling the argument on behalf of the State of Uttar Pradesh by Shri R.N.
Trivedi, learned Additional Solicitor General, that Article 258 empowers
the Parliament to delegate powers and duties upon the State or its officers
or authorities of the State, he submits that under Article 258(1) the
President can only entrust power to the State Government with the consent
of the State Government. This starts with the words, “notwithstanding
anything in this Constitution”. But Article 258(2) does not begin with the
non-obstante clause thus, if Article 298 inhibits delegation of powers to
the State Government, then Article 258(2) cannot be used by the Parliament
for delegating the power to the State Government.

Next, Shri A.K, Ganguli, learned senior counsel on behalf of the State of
Tamil Nadu in Transfer Petition Nos. 806-807 of 1998, supported the
interpretation of Section 5 of the Act by Union of India for upholding its
validity but differed partly its interpretation that the State Government
can only exercise power to ban State lotteries of other States, if it does
not have its own lottery tickets for sale. Submission is that on plain
reading of Section 5, once power is delegated to the State it can still be
exercised even while having its own lottery. He submits that lotteries are
a form of gambling hence such transaction does not belong to the commercial
business of the country. He supported the submission made on behalf of the
Union that such activities cannot be said to come within the purview of
free trade, commerce and intercourse.

To repeal and withstand the storm of submissions by one set of parties, as
aforesaid, the submission on behalf of the Union of India by Mr, C.S.
Vaidainathan, learned Addl, Solicitor General of India, and on behalf of
the State of Uttar Pradesh by Mr. R,N. Trivedi, learned Addl. Solicitor
General of India, is that the lotteries, whether organised by the State or
otherwise partakes the vice of betting and gambling and is thus res extra
commercium. Lotteries are inherently pernicious. Dealing in any such
lotteries does not have the protection of Articles 14, 19(1) (g) or 301.
Submission was that all sorts of betting and gambling which includes State
lotteries are outside the pale of protection of Article 19(1) (g) as well
as of Part XIII of the Constitution, as betting and gambling is neither
“trade” nor “commerce” and when the Parliament enacts the law under Entry
40 of List 1 as the impugned Act, no State can invoke the provisions of
Articles 301,302 or 303 of the Constitution since the source of the power
under Entry 40, List I is really betting and gambling, J. Bharati v. State
of Maharashtra, [1985] 1 SCR 201 at 203, Lotteries Organised by the
Government of India or by a Government of State, in fact, is taken out of
Entry 34 of List II arid placed under Entry 40 of List 1 must likewise be
held to be neither trade or commerce. The sheet anchor in support of this
submission is the decision by the Constitution Bench of the RMDC case
(supra). Running of the lotteries unless authorised by the State is an
offence under Section 294A, IPC, The executive power of the State under
Article 162 read with Article 246(3) and Entry 34 of List II extends to
prohibiting Bhutan lotteries. The submission is that crime could not be a
business which could receive the protection of Article 19(l)(g). Section 5
should be so read and interpreted as to entitle only such State which does
not permit its own lottery to be sold before it could prohibit lotteries of
every other States and, if this is interpreted so, neither there would be
any violation of Article 14 nor Article 301, Further, Article 298 does not
confer any plenary right on any State to carry on any trade or business.
Although, Article 298 does not provide specifically but in substances it is
subject to the other provision of the Constitution. Thus, a State cannot
without obtaining licence under the provisions of the Industries
Development Regulation Act start an Industry mentioned in the Schedule of
the Industries Development Regulation Act. Similarly, a State cannot insist
as a matter of right to sell liquor in another State where there is
complete prohibition., Thus, the extended executive power of the State to
carry on any trade or business for any purposes should only be such trade
or purpose, which, under the scheme of the Constitution, is permissible and
not prohibited. Article 298 is subject to the Parliamentary legislation,
thus, is subject to provisions of Articles 245 and 246. The provisions of
Article 298 should be read to be subject to the provisions of Articles 53
and 258 of the Constitution. A State can carry on a trade, subject to the
executive power of the Union under Article 53 and any entrustment made
under Article 258. The submission was that Article 298 is subject to the
aforesaid limitations and it does not refer to trade or business which are
not so recognised under Article 19(1) (g). Thus, lotteries organised by the
State would not be lawful in the absence of legislation by the Parliament
or entrustment by Union under Article 298. Thus, Article 301 would not be
applicable in the present case. Even if applicable, the Parliament can
impose restrictions in public interest. However, this Article cannot be
extended for dealing in lotteries as it is neither trade nor commerce. In
the present case, the public interest is writ large and is implicit in view
of the nature of the activity, namely, trade in pernicious matter. He
referred to pars 6 and 8 of the counter affidavit filed by the Union, the
Statement of Object and Reasons, and the Debates. Reference was made to the
Anraj case-II (supra). Relevant portion of the paragraph 27 is quoted
hereunder:

“.,.. transfer of the right to participate in the draw which takes place on
the sale of a lottery ticket would be transfer of beneficial interest in
movable property to the purchase and therefore amounts to transfer off
goods and to that extent, it is not transfer of an actionable claim to the
extent that it involves a transfer of the right to claim a prize depending
on a chance, it will be an assignment.”

Based on that, it was submitted that there are two rights which flow from
sale of lottery tickets, right to participate and right to claim a prize,
the right to participate would be sale of goods covered by Entry 54 of List
II but if both the rights were subject to sales tax, namely, the right to
participate and claim a prize, it would be covered by Entry 62 of List II.
The inference is, therefore, the sale of lottery tickets is sale of goods
per se is not justified as it is only the right to participate which fell
for consideration in Anraj case-II (supra).

Next submission is that the provisions of Section 5 should be read down, as
submitted earlier, as it would be incongruous that a State, which, as a
policy and in public interest, does not permit sale of its own lotteries
has to permit sale of lotteries of other States. Thus, it is only when a
State as a policy, decides not to sale its own lottery in public interest
would be entitled to prohibit sale of lotteries of other States, Next, that
Section 5 does not suffer from any vice of excessive delegation of
essential legislative policy as public interest and public policy is
implicit in exercise of power by me State. Guidelines can be found from the
subject matter of the Act itself. It can also be deduced from the objects
and reasons of the Act. The circumstances leading to legislation can also
be taken into account. So far as Bhutan lotteries are concerned they are
not covered by the present Act. This lottery not being the lottery
organised by the State, would not fall under Entry 40, List I, but under
Entry 34 of List II. That is not a conscious legislation referable to Entry
10 of List I or Entry 14 of List I. the treaty itself is subject to laws in
force in the territory of India. It would also be subject to legislation by
the State so long as there is no legislation made by the Parliament with
reference to Entries 10 or 14 of List 1. At present, in the State of Uttar
Pradesh there is a legislation prohibiting the sale of lotteries which
would also apply to Bhutan lotteries as they are not State organised
lotteries. Defending the attack, it is submitted, Section 12(3} does not
amount to effacement or abdication of the powers by the Parliament.
Conferment of rule making power on the State does not amount to exercise of
legislative powers by the State but it acts as delegate of the Parliament
Reliance is placed on the cases of Jayantilal Amrit Lal Shodhan v. F.N.
Rana & Ors, [1964] 5 SCR 294, and Tripura v. Sudhir Ranjan, [1997] 3 SCC

665. Augmentation of revenues by a State by sale of lottery tickets, cannot
override the interest of another State which does not permit sale of any
lottery tickets.

Within the parameter of the aforesaid submissions, now we proceed to decide
issues of great importance, namely, the nature and character of lotteries,
whether they by their very nature even if legitimised could be classified
commercium hence trade and business at the common parlance? or it is
distinct class by itself, legalised for a limited purpose, for achieving
specialised objectives to be used for a temporary period. What is the
reason for gambling to the legitimized, if in a given situation it has to
be for a wider and purposeful objectives which leads to imposing conditions
to reduce its evil consequences as suggested by this Court through Suman
Enterprises (supra), adopted through Section 4 of the impugned Act, does it
loose its original character of being pernicious. Even if it could be said
to have diluted it, could it still be classified as commercium and equated
with every other form of trade and commerce? Its effect on its citizens has
been cause of concern which had drawn attention of the kings and his
subject since ancient time, the Government and the courts of various
countries including ours. On the one hand, sometimes justifying for the
benevolent and good cause like charitable purpose and public benefit, but
later reiterating even from this stand on account of its pernicious effect
on the public at large on account of its condemnation to such a magnitude
that it resulted into complete banning of such lotteries. Justification, as
in the present case, is for the augmentation of public revenue which swells
through voluntary contributions contrary to the exaction through compulsion
as in the cases of taxes. This scenario was in the past and is going on not
only in this country but other countries pf the world also.

In this background, now we proceed to consider first, what is the nature
and character of the lotteries? What changes, if any, is brought in when
lottery becomes State lottery? So far as lotteries are concerned, it can
neither be denied nor has been denied that lotteries are form of gambling.
The question next is, whether a lottery, which is not a State lottery, if
it is gambling, does it loose its character as such when it becomes a State
lottery? The lotteries as such are pernicious in nature cannot be denied.
However, the submission is, when it cloaks itself with the linen of State
authority and is presented as State organised lottery, it looses its
pernicious character and what could be said before he puts on the cloak to
be res extra commercium becomes commercium. Hence, for this we have to
understand what is trade and business, and what is lottery? Unless their
true nature and character is understood, submissions could not be properly
appreciated. We are also conscious, the resultant conclusion of it would
not be proper if based on views of one or two individual judges but has to
be based on what was and is understood at the common law. For this, we have
to turn our pages to the ancient history to gather wholesome view as to
what was understood then and what is understood now, which is revealed
through the ancient texts and various decisions of our courts and courts of
other countries.

In this context, we may first refer-to the Constitution Bench decision of
this court in the RMDC case (supra), which is a leading case, which has
truly dwelled on this subject at some length. It holds that gambling
activities are in its very nature and essence extra commercium. They were
considered to be a sinful and pernicious vice by the ancient seers and law
givers of India. It also records that it has been deprecated even by the
laws of England, Scotland, United States of America and Australia, In
support, it quoted what seers and law givers of India in (he ancient time
looked upon gambling. A reference was made of Hymn XXXIV of the Rigveda
which proclaims the demerits of gambling and quoted verses 7, 10 and 13. It
referred to Mahabharata which deprecates gambling by depicting the woeful
conditions of the Pandavas who had gambled away their kingdom. Manu in
verse 221 advises the king to exclude from his realm gambling and betting,
since these two vices cause the destruction of the kingdom of princes.
Verse 226 describes a gambler as secret thieves who constantly harass the
good subjects by their forbidden practices. Verse 227 referred to the
gambling as a vice causing great enmity and advises wise men not to
practice it even for amusement. As is the present case, even in the ancient
time, inspite of condemnation of gambling, Yajnavalkya permitted it is
under State control. Vrihaspati on this subject records that gambling had
been totally prohibited by Manu because it destroys truth, honesty and
wealth while some other law givers permitted it when conducted under the
control of the State so as to allow the king a share of every stake.
However, the Supreme Court of America as far back as in 1850 considered
this issue as recorded in Phalen v. Virginia, case (1850) 49 U.S. 163; 12L
Ed. 1030, 1033, for useful appreciating its adjudication is quoted
hereunder:-

“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. After
quoting the passage from Phalen case (supra) 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?”

In die said decisions, a reference was made to the decision of Australian
High court in The King v. Connare, [1939] 5I CLR 596 Evatt, J. did not
think that lottery tickets can be regarded as goods or commodities entitled
for protection of Section 21 of the common wealth of Australian
Constitution Act. He held at page 628:

“If they are goods or commodities they belong to a very special category,
so special in the interests of its citizens the state may legitimately
exile them from the realm of tirade, commerce of 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.”

In the same decision, McTiernan J. held :

“Some trades are more adventurous or speculative than others, but trade or
commerce as a branch of human activity belongs to an order entirely
different from gaming or gambling. Whether a particular activity falls
within the one or the other order is a matter of social

opinion rather than jurisprudence………. It is gambling to buy a ticket

or share in a lottery. Such a transaction does not belong to the commercial
business of the country. The purchaser stakes money in a scheme for
distributing prizes by chance. He is a gamester.”Mc Tiernan J. reiterated
his view in another case in King v. Connare (1938) 61 CLR 59

“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.”

In the same decision the view of Taylor J.. is also quoted hereunder:

“No simple legislative expedient purporting to transmutes 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,”

With reference to the history of lotteries in England, the learned judge
quoted:

“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.”

It is significant that American congress faced with the difficulty to
include gambling activity within the commerce clause of Article 1, Section
8 sub-section 3 of the Constitution of the United States in the interests
of controlling its activity including ban or penalising a person,
interpreted the commerce clause to include gambling activity. The relevant
portion as recorded in RMDC case is quoted hereunder :

“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 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, (1903)
188 US 321;47 L, Ed. 492 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.”

We have summarised the relevant portions of the various decisions given by
the Australian, American and English Courts to show how they have received
the lotteries in their countries, its nature, impact on public at large,
their concern about its regulation and control. There can be no doubt, on
the perusal of the said decisions that these courts considered lottery as
gambling and even where such lotteries were permitted under the regulating
power of the state but were not given the status of `trade and commerce” as
understood at common parlance. It is significant, within the fertile arid
exclusive zone of interpretation, when situation arose, to interpret the
word `commerce’ which normally would not have included `gambling’ within
it, in the wider public interest as to bring jurisdiction to the
legislature to control or restrict `betting and gambling1 interpreted this
also to come within commerce clause. This wider definition to the commerce
clause was given by the American Court with an objective to control such
lotteries rather giving absolute freedom to trade in it. Thus, the law in
Champion case (supra) penalising even carriage of lottery tickets from one
State to another was upheld. In cases United States v. Kahriger (1953)345
U.S.22; 97 L, Ed. 754 and lewis v. United States, (1955) 348 U.S.419; 99 L
Ed. 475, the Supreme Court Of United states held that there is no
constitutional right to gambling.

We have referred to some of the quotations in ancient Dharmasastra as
referred in RMDC case, we are shortly giving few more of the views in
Dharmasastra on this point in issue. Kautilya in III-20 referred to in
Chapter 26 of the Dyutasamahvaya, allowed gambling in a central place under
States supervision as it led to the detection of thieves. According to the
view of some others it was also allowed to be carried in the presence of
master of the gambling hall and provided it yielded revenue to the king, If
they indulge in gambling openly but gives to the king share in the stakes
then such a person does not incur in punishment, Rigveda Chapter X Verse 34
records :

“Gambling is One of the most ancient vices,

Brahmapurna condemns it in the strong language. It says that the gambler’s
wife is always in distress and the gambler on seeing the condition of his
wife is also worried. Some of the historical background of the lottery is
recorded in Encyclopedia Britannica 1980 Ed. at page 327-328 which is
quoted hereunder :

“Lottery a scheme for the distribution of prizes to be determined by
chance, was reputedly and invention of the Romans………. Lottery in the
modem sense originated in Italy during the middle ages spreading to France,
Germany and Austria where rulers used them to raise revenue……….First
English tottery was drawn in 1569………. However, lotteries encouraged
mass gambling and fraudulent drawing and after they had been attacked
.,……….. Parliament provided for their discontinuance in 1823.
Thereafter large scale lotteries contrived to inhibit prosecution by
giving large sums to charities………… A century later following
agitation for legalised lotteries, the betting and Lotteries Act, 1934
adopted the recommendation of royal commission and continued the
prohibition on all lotteries.”

In United States it records :

“American colonial lotteries on the English pattern were used to raised
money for public improvements and to insist in the financing of colleges
including Colukmbia, Harvard, Dutmouth and Williams. In 1762 the
Pennsylvania Provincial assembly denounced lotteries, declaring they were
responsible for vice and idleness and were injurious to trade………….
In 1833 legislation enacted in Massachusetts, New

York and Pennsylvania outlawed lotteries and early in 1834 similar action
was taken by Ohio, Vermont, Maine, New Jeersey, New Hampshire and Illinois,
Provisions prohibiting legislatures from authorising lotteries in the
future were inserted in many state constitutions………… Congress
responded by enacting legislation making it a federal crime to deposit
lottery matter in the United States mails. In the Louisiana election of
1982, the lottery was the sole issue in the governor’s contenst. The
antilottery candidate won and the lottery was outlawed.”

In the Lotteries, Revenues and Social Costs ; A historical examination of
State-Sponsored gambling, it records in Boston College Law Revenue Vol.34:
11 at page 12:

“Two hundred years ago, government sanctioned lotteries were common
throughout America. Lacking a strong central government and burdened with a
weak tax base, early Americans viewed lotteries as legitimate vehicles for
raising revenue. Lottery proceeds were used to build cities, establish
universities, and even to help finance the Revolutionary War, They were
gradually abandoned throughout the 1800s as governments developed better
forms of taxation. Lottery fraud became a concern and social problems
stemming from excessive gambling developed. In 1893, the Librarian of
Congress wrote of a general public conviction that lotteries are to be a
regarded, in direct proportion to their extension, as among the most
dangerous -and prolific sources of human misery. Soon thereafter, federal
legislation brought an end to the last remaining legal American lottery.”

At page 22 if further records :

“Front 1709 until 1826, the English Government conducted annual lotteries
to raise revenue. These were so popular that they soon became a matter of
concern. English lotteries were attacked for `weakening the habits of
industry,’ diminishing `permanent sources of the public revenue,’
encouraging other forms of gambling, and being

`injurious in the highest degree, to the morals of the
people………………….

Finally, in 1823, at about the same time that lotteries were beginning to
be phased out in America, England abolished lotteries in that country,”

At page 32 it further records ;

“Until the early 1800s, there was little opposition to state conducted
lotteries, State regulation, including bonding of operators and supervision
of receipts, quieted opponents. Churches usually benefited from lotteries,
so they were not quick to condemn. As the country’s dependency on lotteries
increased, however, so did the opportunity for abuse. Serious lottery
opposition began to mount in the early to mid-l800s as part of general
social reform that included movements for temperance, peace, women’s
rights, educational reform, prison reform and abolition of slavery. As one
authority has noted :

In 1842, Democrats swept to power because of their opposition to lotteries.
The lotteries in turn were portrayed merely as an adjunct to a corrupt
monopolistic banking system dominated by the wealthy Whig power elite.”

At page 70 it further records :

“Because legalized gambling leads to increased illegal gambling state-
sponsored lotteries inevitably increase crime. Legalized gambling’s impact
on criminal behaviour, however, is not limited to an increase in illegal
gambling. Perhaps the most serious concern is that legal gambling creates
problem gamblers, and problem gamblers often turn to more serious criminal
activity to support their habits.”

From the references from Dharamshastra, opinions of distinguished authors,
references in the Encyclopedia of Britannica and Boston Law Review and
others, we find that each concludes, as we have observed, lottery remains
in the realm of gambling. Even where it is state sponsored still it was
looked down as an evil. Right from ancient time till the day all expressed
concern to eliminate this, even where it was legalised for raising revenue
either by the king or in me modern times by the State. Even this
legitimisation was for the sole purpose of raising revenue, was also for a
limited period, since this received condemnation even for this limited
purpose. All this gives clear picture of the nature arid character of
lottery as perceived through the consciences of the people, as revealed
through ancient scriptures, also by various courts of the countries. It is
in this background now we proceed to examine, if lotteries are goods, could
a contract for sale of such goods be conferred the status of trade and
commerce as used in Chapter XIII of our Constitution.

Thus, now we proceed to examine what are lottery tickets? What are the
ingredients of a contract of sale of lottery tickets? Whether its
ingredients constitute it to be trade and to be such trade as to receive
protection under our Constitution? In other words, could such trade qualify
to be fundamental right or a right conferred by a Statute? If it is a right
out of creature of a Statute could it not be regulated, curtailed or banned
by the same Statute? Whether a right spoken of “free trade” under Article
301 speaks about fundamental right or does it include trade Of the nature
we are concerned? Whether mere legalisation of a transaction by itself
becomes `commercium’ of the nature as to qualify to be a trade as
understood under Article 301.

In the Anraj case-l (supra), sale of lottery tickets was held to be
`goods’, hence liable for sales tax. It holds :

“A sale of a lottery ticket confers on the purchaser thereof two rights (a)
a right to participate in the draw and (b) a right to claim a prize
contingent upon his being successful in the draw. Both would be beneficial
interests in movable property. Lottery tickets, not as physical articles,
but as slips of paper or memoranda evidence not one but both these
beneficial interest in movable property which are capable of being
transferred, assigned or sold and on their transfer, assignment or sale
both these beneficial interest are made over to the purchaser for a
price……………………… The right to participate in the

draw under a lottery ticket remains a valuable right till the draw takes
place and it is for this reason that licensed agents or wholesalers or
dealers of such tickets are enabled to effect sales thereof till the draw
actually takes place and as such till then the lottery tickets constituted
their stock-in-trade and therefore a merchandsie and goods, capable of
being bought or sold in the market.”

In this case, neither there was any issue nor any contest, whether the sale
of such lottery tickets would be a `trade and commerce’ or not within the
meaning of Chapter XIII of our Constitution. This decision proceeded as if
it is trade and commerce, hence after applying various decisions of this
Court, right from Atiabari Tea Co. Ltd., (supra) to the later decisions on
the touch stone of principle laid down therein on a question whether these
`lottery tickets’ of others when subjected to sales tax while not imposing
sales tax on the lottery tickets sold by the State of Tamil Nadu, are
violative of Article 301 read with Article 304 (a) of the Constitution
being discriminative or hot was held to be so. Hence, this case does not go
beyond holding lottery tickets as `goods’ for the purpose of adjudicating
the issue before us. It does not test nor there is any issue, whether sale
of such `goods’ viz,, lottery tickets would or would not be a `trade or
commerce’ within the meaning of Chapter XIII of the Constitution.

So, now we proceed to examine what is `lottery’, what would be the
ingredients in the `sale of lottery tickets’ and then to equate with other
forms of contract pertaining to trade and commerce. Whether there is any
striking difference between the two? The `lottery” is defined as :

In Words and Phrases (Permanent Edn.) Vol. 25A at 439 :

“A `lottery’ is a species of gambling.” At Page 444 :

“The lottery statutes were enacted to suppress the widespread evil of
gambling in lotteries and to allay and rub the gambling spirit of the
public and thus prevent waste of money needed for more substantial
purposes, the term `lottery’ as popularly and generally used referring to a
gambling scheme in which chances are sold or disposed Of for value and the
sums thus paid are hazarded in the hope of winning a much larger sum, a
scheme for the distribution of prizes by chance.”

At Page 445 :

“The term `lottery’ in law is of wide signification. In Homer v. United
States, 1.3 S.Ct. 409, 147 U.S. 449, 37 L,.Ed 237, Mr. Justice Blatchford
discussed various definitions of lottery, and among others approved that
found in Worcester’s Dictionary, in which it is defined to be “game of
hazard in which small sums are ventured with the chance of obtaining a
large value, either in money or other articles.”

At Page 491 :

“The term “tickets” when speaking of the sale of lottery tickets, in
equivalent to “Chances”.

At the same page :

“In a general sense, “lottery tickets” are more in the nature of chooses in
action than merchandise, being in some respects memoranda of conditional
promises to pay.”

State v. Mabrey, 60 N.W. 2d 889, 8i93 :

“Generally, to constitute `lottery’ there must be a prize awarded by chance
for a consideration with no infusion of skill. ”

Common Wealth v. Luad, 15A.2d 839, 840, 841, 843, 845 :

“An artifice, no matter how new, is within the condemnation of the law
against lotteries if it, in effect, embodies the principle of a `lottery’
and operate as such.”

In Law Lexicon, P. Ramanatha Aiyar, 1997 Edn., at 1151 :

“Scheme for the disposal or distribution of property by chance. The term
“lottery” has not technical meaning in the law distinct from its popular
signification. A lottery is a scheme for the distribution of prizes by
chance,” In Words and Phrases, Butterworths, 3rd Edn. at P.70 :

“A lottery has been described as a scheme for distributing prizes by lot or
chance.”

At P. 71 ;

“….. It must not been entirely forgotten in the construction of

these Acts Parliament [see now the Lotteries and Amusements Act, 1976] that
the evil which the lottery law has sought to prevent was the evil which
existed where poor people with only a few pence to feed their children
would go and put these few pence into a lottery and lose them, and this
sociologically was a bad thing…”

In Stroud’s Judicial Dictionary, 5th Edn., Vol 3 at p. 1507 :

“In Webster’s Dictionary a lottery is defined to be `A distribution of
prizes by lot or chance’-and a similar definition is given in Johnson. Such
definitions are, in our opinion, correct.”

In Black’s Law Dictionary, 6th Edn., at p. 947 :

“A chance for a prize for a price, A scheme for the distribution of a prize
or by lot or chance, the number and value of which is determined by the
operator of lottery.”

So, we find three ingredients in the sale of lottery tickets, namely, (i)
prize (ii) chance and (iii) consideration. So, when one purchases a lottery
ticket, he purchases for a prize, which is by chance and the consideration
is the price of the ticket. The holder of such ticket knows, the
consideration which he has paid, may be for receiving nothing, However,
there are few who may be lucky to receive the prize which is just by
chance. The question is, could such transaction be termed as trade or
commerce? Part XIII of our Constitution deals with trade, commerce and
intercourse within the territory of India. It does not define `trade and
commerce’. Thus, we have to take word `trade’ as it is understood in common
parlance: Municipality of Chopda v. Motilal Manakchand, AIR (1958) Bom.
487, 489; ILR (1945) Kar. 409 “The connotation of `trade’ is not only
limited to an occupation which primarily concerns itself with sale and
purchase of goods. Pursuit of a skilled employment with a view to earn
profit, such employment not being in the nature of a learned professions or
agriculture must be regarded as engaging in `trade’ within the meaning of
Article 276 of the Constitution. A skilled occupation which involves the
application of manufacturing processes to a commodity submitted to the
person carrying on the occupation must be regarded as trade.”

`Trade’ is defined in Balck’s Law Dictionary, 6th Edn, At page 1492 ;

“Trade. The act or the business of buying and selling for money; traffic’
barter. May. Sloan, 101 U.S. 231, 25 L.Ed. 797. Purchase and sale of goods
and services between businesses, states or nations. Trade is not a
technical word and is ordinarily used in three senses: (I) in that of
exchanging goods or commodities by barter or by buying and seeling for
money; (2) in that of a business occupation generally; (3) in that of a
mechanical employment, in contradistinction to the learned professions,
agriculture, or the liberal arts. People v. Polar Vent of America, Inc. 10
Misc. 2d 378, 174 N.Y.S, 2d 789, 793,

An occupation or regular means of livelihood and is business one practices
or the work in which one engages regularly. One’s calling; occupation,
gainful employment; means of livelihood. People v, Carr. 163 Cal. App. 2d
568, 329 P2d 746, 752. Transaction involving purchase and sale of Stocks,
bonds, or other securities.”

Since it is relevant for the purpose of interpretation of Chapter XIII of
the Constitution as it uses both the words “Trade and commerce’ to refer to
the word `commerce’. The Black’s Law Dictionary, 6th Edn. at p. 269 the
word `commerce’ is defined :

“The exchange of goods, productions,, or property of any kind; the buying,
selling and exchanging of articles .”

On the other hand, `trade’ is an exchange of any article either by barter
or for money or for service rendered. In other words, it is exchange
between two parties one who tenders the consideration and the other who
returns for this consideration, goods, money service or such other thing.
Party paying consideration in any trade is aware for what he is paying the
consideration. He receives for the consideration an ascertained thing or
Service. It is neither hypothetical nor it is a contract for any
unasceratined thing. In any case, there is no element or ingredient of
chance under any `trade.’ This element of chance makes the lottery a
gambling. On the other hand, an absence of chance inherently attached to
any contract coupled with some skill makes it to be a `trade.’ So, trade is
always associated with some skill while in lottery there is absence of
skill predominantly and essentially with the ingredient chance. Thus, in
nutshell in `lottery’ there is no skill and element of chance, in `trade’
it is for exchange of something for consideration where there is absence of
chance and inherently with element of skill.

While deciding the validity of Section 21 of a New South Wales Statute
called the Lotteries and Art Unions Act, 1901-1929, qua Section 92 of the
Commonwealth of Australia Constitution Act, as aforesaid, the learned Evatt
J. with reference to sale of lottery tickets held :

“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.”

Mc Tiernan, J. as aforesaid on the same subject further recorded :

“,… It is gambling to buy a ticket or share in a lottery. Such a
transaction does not belong to the commercial business of the country…,”

Taylor, J. held :

“.. 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 me
forms of trade and commerce will, as trade and commerce, invoke its
protection….”

Learned counsel for the States challenging the validity of the Act submits,
since there is marked difference between our Constitution and the
Australian Constitution and Constitution of the United States of America,
hence we should not apply the principles of the decision of those Courts.
It was pointed out, there is nothing in the American Constitution
correspoding to Article 19(l)(g) or Article 301 as in our Constitution.
Similarly, in the Australian Constitution there is no provision as we have
in our Articles 19(6) or Articles 302, 304 in contrast Section 92 of the
Australian Constitution is free without any such limitations. This
submission was taken note by our Court in the case of KMDC (supra). The
reference Of these judgments of these foreign Courts were only to take the
stock of the view as to with what vision they judged and what they meant
and understood while dealing with the sale of lottery tickets. Neverthless
this apart, if reasoning of these: decisions are to be tested, qua, our
constitutional provisions, they should of course, be tested with
circumspection. As said, we have referred to these decisions, not for
interpreting the provisions of our Constitution but only to know the nature
and character of lotteries as understood in those countries to which we
find there is no difference than what is understood in our country. It is
in this background, this Court in RMPC (supra), after recording the
activities of lotteries which is condemned in this country from the ancient
times and also taking note of views of the courts of other countries, found
that they equally condemned, discouraged and looked it down with disfavour,
viz.,, in England, Scotland, the Unites of America and in Australia. Our
Court records:

“… that those activities which encourage a spirit of reckless propensity
for making easy gain by lot or chance, which lead to the loss of the hard
earned money of the undiscerning and improvident common man.,.could
possibly have been intended by our Constitution makers to be raised to the
status of trade, commerce or intercourse and to be made the subject matter
of a fundamental right guaranteed by Art. 19 (l)(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 further recorded :

“…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(l)(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. L9(l)(g) or Art. 301 of our Constitution, ”

So this decision concludes that our constitutional makers could never have
intended, with reference to the transaction of lottery tickets, to raise it
to the Status of trade, commerce or intercourse. The purpose of Articles
l9(l)(g) and 301 could not possibly have been to guarantee freedom of
gambling. To dissolve principle laid down in RMDC case (supra), on behalf
of such States challenging the validity of the Act, it is submitted that
the RMDC case was concerned with the lotteries covered by Entry 34, List II
and not the lotteries organised by the State which is covered by Entry 40,
List I, hence it would have no application. In addition, they referred to
the case of Gherulal Parekh (supra) to submit that what is recorded in RMDC
case (supra) was narrowly interpreted in this case. The question in
Gherulal case was, whether an agreement of partnership with the object of
entering into wagering transactions was illegal within the meaning of
Section 23 of the Indian Contract Act? It was held that although a wagering
contract was void and unenforceable under Section 30 of the Contract
Act, it was not forbidden by law and an agreement collateral to such a
contract was not unlawful within the meaning of Section 23 of the Contract
Act. What is narrowed down, if at all, was with reference to morality
aspect based on ancient scriptures. It holds after referring the RMDC case
:

“The moral prohibitions in Hindu Law texts against gambling were not
legally enforced but were allowed to fall into desuetude and it was not
possible to hold that there was any definite head or principle of public
policy evolved by courts or laid down by precedents directly applicable to
wagering contracts.”

This decision has not diluted the law laid down with respect to the finding
that gambling would not fall within the meaning of word `trade’ under
Article 301 of the Constitution or to have diluted that such transaction
would not get protection under Article 19(1)(g). What is said is that moral
prohibitions in Hindu Law text against gambling were not legally enforced.
It is true, within the moral format, in a strict sense, if it was to be
legally enforced there could hot have been any legalised gambling. But it
cannot be doubted and it is recognised by all the countries that gambling
by its very nature promises to make poor man a rich man, to quench the
thirst of a man in dire economic distress or to a man with bursting desire
to become wealthy overnight draws them into the magnetic field of lotteries
with crippling effect. More often than not, such hopes with very remote
chance encourages the spirit of reckless prosperity in him, ruining him and
his family. This encouraging hope with the magnitude of prize money never
dwindles. Losses and failures hi lotteries instead of discouragement
increases the craze with intoxicating hope, not only to erase the losses
but to fill his imaginative coffer. When this chance mixes with this
Utopian hope, he is repeatedly drawn back into the circle of lottery like
drug addicts. Inevitably, the happiness of his family is lost. He goes into
a chronic state of indebtedness. In this context, it is said that how the
Constitution makers could ever have conceived to give protection to
gambling under Article 19(l)(g) or Article 301 of our Constitution.

Before considering the submission, the difference between the lottery
organised by the State and other lotteries, on which basis the
applicability of the principle of RMDC case (supra) is sought to be
distinguished, we would like to refer to another realm of State activity,
the transaction which is in the nature of trade, viz., the manufacture and
sale of potable liquor, but still this Court held it to be res extra
commercium. In the Krishan Kumar Narula v. The State of Jammu & Kashmir &
Ors., [1967] 3 SCR 50 at p. 54, the submission was that potable liquor is
noxious and dangerous to the community and subversive of its morals. With
reference to potable liquor a challenge was made, the Court held;

“…that dealing in noxious and dangerous goods like liquor was dangerous
to the community and subversive of its morals..,. Such an approach leads to
incoherence in thought and expressions: Standards of morality can offer
guidance to impose restrictions, but cannot limit the scope of the right.”

The Court held that right to trade in liquor was business. However, in
Khoday Distilleries (supra) it reversed the decision of Krishan Kumar case
(supra) by holding that right to trade in liquor was not constitutionally
protected. However, the Court in this case clearly made three exceptions,

(a) trade in alcohol is not per se prohibited for medicinal and industrial
uses;

(b) even though trade in potable alcohol was res extra commercium the State
itself may sell potable alcohol, set up a monopoly business for that
purpose and maximise its revenue by any mode of sale; and (c) the state may
oh a non-discriminatory bases permit sale of alcohol through private
parties. In Khoday Distilleries (supra) this Court held:

“The right to practice any profession or to carry on any occupation, trade
or business does not extend to practising a profession or carrying on an
occupation, trade or business which is inherently vicious and pernicious,
and is condemend by all civilised societies. It does not entitle citizens
to carry on trade or business in activities which are immoral and criminal
and in articles or goods which are obnoxious and injurious to health,
safety and welfare of the general public, i,e., res extra commercium,
(outside commerce). There cannot be business in crime.

Potable liquor as a beverage is an intoxicating and depressant drink which
is dangerous and injurious to health and is, therefore, an article which is
res extra commercium being inherently harmful. A citizen has, therefore, no
fundamental right to do trade or business in liquor. Hence the trade or
business in liquor can be completely prohibited. For the same reason,
again, the State can impose limitations and restrictions on the trade or
business in potable liquor as a beverage which restrictions are in nature
different from those imposed on the trade or business in legitimate
activities and goods arid articles which are res commercium. The
restrictions and limitations on the trade and business in potable liquor
can again be both under Article 19(6) or otherwise. The restrictions and
limitations can extend to the State carrying on the trade or business
itself to the exclusion of and elimination of others and/or to preserving
to -‘itself the right to sell licences to do trade or business in the same,
to others.

The State can carry on trade or business in potable liquor notwithstanding
that it is an intoxicating drink and Article 47 enjoins it to prohibit its
consumption. When the State carries on such business, it does so to
restrict and regulate production, supply and consumption of liquor which is
also an aspect of reasonable restriction in the interest of general public.
The State cannot on that account be said to be carrying on an illegitimate
business. It carries on business in products which are not declared illegal
by ply of which is regulated in the interests of the health.; morals and
welfare of the people. It does so also in the interests of the general
public under Article 19(6).

The mere fact that the State levies taxes or fees on the production, sale
and income derived from potable liquor whether the production, sale or
income is legitimate or illegitimate, does not make the State a party to
the said activities. The power of the State to raise revenue by levying
taxes and fees should not be confused with the power of the State to
prohibit or regulate the trade or business in question. The State exercise
its two different powers on such occasions. Hence the mere fact that the
State levies taxes and fees oft trade or business in liquor or derives
income from it, does not make the right to carry on trade or business in
liquor a fundamental right, or even a legal right when such trade or
business is completely prohibited,”

(Emphasis supplied)

This decision clearly lays down and demonstrates that manufacture, sale,
purchase of potable liquor, which State carries on at common parlance is
trade and is a good still held to be an article different from goods and
article which are res commercium. This holds further that transactions in
potable liquor by sale and in spite of levy of taxes, fees on this trade or
business, it is held to be res extra commercium. Such transactions are also
not prohibited, rather authorised by law. Hence merely there is sanction in
law for a transaction or is legalised not prohibited, it would not by
itself make it to be commercium. Entry 62 of List II of the Seventh
Schedule refers to taxes on betting and gambling which inherently permits
gambling. Thus, it could be said that gambling is recognised and authorised
by law, may be through regulations, licences etc.. Thus, imposition of tax
on gambling conceives of gambling, of course has to be legal to impose tax
on it In this background, we proceed to examine State lotteries (gambling),
whether could it still qualifies to be `trade of commerce’ within the
meaning of Chapter XIII of our Constitution or could `trade’ or such
transactions seek protection under the protective umbrella of
constitutional provisions as it to be free `trade’?

Next submission is, once the State lotteries are taken out of Entry 34,
List II it is no more in the realm of gambling; Not only, because the two
types of lotteries find place in two different Lists of the Seventh
Schedule of our Constitution, but it is also distinguished out as a crime
under Section 294A, I.P.C., further it being organised by the sovereign
State by taking all conceivable measures to dismantle any distrust from the
mind of participants and its income goes to enhance State revenues. In
support, reference is made to the Suman Enterprises (supra) which laid down
the conditions for organising State lotteries which ultimately, with some
modifications and additions is incorporated in Section 4 of the Impugned
Act. This Act provides stringent measures for the compliance of its
conditions. The first step in this regard is Section 6 under which those
lotteries contravening the conditions would be prohibited by the Central
Government. This is followed by penal consequences to such of the Head of
the Department, whose department of the Government is involved in
contravention, with rigorous imprisonment for two years under Section 7(1).
Penal consequences similarly is also under sub-section (3) to the agents or
traders contravening its conditions. It is submitted with this and it
having received the authority of law, such State organised lotteries no
more remains in the realm of gambling and res commercium. In support,
reliance is placed on Fateh Chand case, (supra). Submission is that this
decision on `money lending’ business holds that there are `aspects of
business or trade’, which in one sense may be noxious when conducted by a
given class of persons but when entrusted to another who are well organised
it is rationalised and is no more noxious. Just as all `money lenders and
money lending’ would not necessarily be noxious or pernicious so also all
items falling under betting and gambling (State lotteries is contrast with
other lotteries) would not be pernicious. This submission, in our
considered opinion, is misconceived. This case referred to the village
based, age-old, feudal pattern of money-lending given to the labourer, the
marginal filler and the broken farmer etc. with unvouched usurious interest
which brought such persons into perpetual labour, hereditary service etc,
of the lender. It is because of this it was said to be a pernicious species
of money lending flourishing in the rural and industrial areas of our
country; In contrast it was held that money lending when through recognised
financial institution, banks etc., it is legitimate and valid commercial
credit and financial dealing which could not be said to be pernicious
Species of money lending. We do not find that there could be any equation
or parity with this decision and with the question to which we are
adverting to. This case itself records at page 850 :

“We do not downright denounce all money-lenders but the law-makers have,
based on socio-economic facts, picked out a special class of money-lenders
whom they described as- unscrupulous.”

When this decision referred to about pernicious species of money-lending,
it confined this adjective to a limited class of persons, but it did not
hold, the business of money-lending as such to be pernicious in nature. It
held that pernicious because some class of money-lenders made the poor
artisan, bonded labourer etc. a perpetual debtors. Thus, the submission,
what otherwise was pernicious, was held in that case to be valid and
legitimate when executed by well recognised financial institutions and
banks, hence when lotteries conducted by one set of hand could be
pernicious but when organised by the State with the carved out conditions
with stringent check it no more remains pernicious or gambling, cannot be.
accepted.

For this, let us examine, why lotteries have been held to be pernicious of
gambling and what element which constitute it to be is filtered out to take
it out of gambling jacket. In the matter of money-lending the very
transaction of money-lending or borrowing is not held to be pernicious in
Fateh Chand case (supra), but only the manner in which certain class of
persons were operating made it pernicious. Thus, this case would render no
help to the challenge. Next, the historical background was referred to
distinguish between two forms of lotteries. The State lotteries are not
penal offence, which has been understood and recognised so since 1870 when
Section 294A, IPC was brought into the Indian Penal Code, 1860. This
distinction has also been recognised even in the Government of India Act,
193 5 where the State lotteries have been separately place under Entry 48,
List 1 but other form of lotteries were placed under Entry 34t List II, and
the same continues even in our Constitution when State lotteries fall under
Entry 40, List I while other lotteries fall under Entry 3 4, List II. Thus,
it is submitted that the State lotteries are a distinct class, and is run
under the authority of law hence could neither be pernicious nor res extra
commercium.

For this, we revert to scrutinize as to what tirade lotteries gambling and
how State lotteries cleanses this character. As we have already recorded,
the difference between gambling and the trade that a gambling inherently
contains a chance with no skill, while trade contains skill with no chance.
What makes lottery a pernicious is its gambling nature. Can it be said that
in the State organised lotteries this element of gambling is excluded?
There could possibly be no two opinions that even in the State lotteries
the same element of chance remains with no skill. It remains within the
boundaries of gambling. The stringent measures and the conditions imposed
under the State lotteries are only to inculcate faith to the participant of
such lottery, that it is being conducted fairly with ho possibility of
fraud, misappropriation or deceit and assure the hopeful recipients of high
prizes that all is fair and safe. That assurance is from stage one to the
last with full transparency; No doubt holding of the State lotteries for
public revenue has been authorised, legalised and once this having been
done it is expected from the State to take such measure to see that people
at large, faithfully and hopefully participate in larger number for the
greater yield of its revenue with no fear in their mind. The Act further
ensure by virtue of Section 4(d) that the proceeds of the sale of such
lottery tickets is credited to the public accounts of the State. This is to
give clear message to the participants that the proceeds is not in the
hands of individual group or association but is ensured to be credited in
the State accounts. But, as we have said, this by itself would not take it
outside the realm of gambling. It remains within the same realm. In this
regard there is no difference between lotteries under Entry 34, List II and
a lottery organised by the State under Entry 4.0, List I When character of
both the State organised lotteries and other lotteries remains the same by
merely placing the apparel of the State with authority of law, would not
make any difference, it remains gambling as element of chance persist with
no element of skill. Even other lotteries under Entry 34, List II could
only be run under the authority of the State or the law of the State. Only
difference is in one case, authority is that of State and in other, the
Parliament. That is why, what is excluded from the penal consequences under
Section 294A, IPC is the lotteries authorised by the State not merely
lotteries organised by the State, So, on the reasoning as put forward even
lotteries under Entry 34, List II cannot be said to be pernicious. The
lotteries authorised by the State is also has a sanction in law. As we have
said, a gambling may be taxed and may be authorised for a specified
purpose, but it would not attain the status of trade like other trades or
become res commercium. No gambling could be commercium hence in our
considered opinion the principle of RMDC case (supra) would equally be
applicable even to the State organised lottery. In no uncertain terms the
said decision recorded that the constitutional makers could never have
conceived to give protection to gambling either under Article 19(l)(g) or
it as a trade Article 301 of the Constitution.

Next it is submitted is that the executive power of the State extends not
only to matters under Article 162 but also to the field of proviso (b) of
Article 298 of the Constitution, thus confers extra territorial
jurisdiction. But for Article 298 State could not have organised even its
own lotteries until Parliament enacts a law. Thus, when the State runs its
own lotteries under Article 298, it does only because it is `trade and
business.’ The entrustment of executive power to the State is for carrying
on any trade or business. Under the Constitution., the word `trade’ used in
Article 298 should be given the same meaning as is given to it under
Article 301, If Article 301 does hot encompass State lotteries as `trade’,
it would also not fall under Article 298 then the State would also have no
power to run its own lotteries, until the Parliament makes the law.
Reference is made to the Anraj case-I (supra), in which holding of State
lotteries by the State under its executive power was held to fall under
Article 298. Thus, it is submitted that the lotteries organised by the
State has to be treated as trade. Mr. Rakesh Dwivedi, learned counsel for
the State of Manipur, further submits that under the Government of India
Act, 1935 and the draft Constitution by the Constituent Assembly there was
no provision like Article 298. Draft Article 266 (now Article 289) provided
for trade and business of States being subject to Union Taxation. This led
in the Constituent Assembly a considerable debate. “The Provinces were
protesting regarding this. As a consequence not only draft Article 266
underwent modification, but during the last the stages Article 298 Was
inserted as a compromise. This was brought in, so that the States could
carry on its `trade arid business’ throughout the country even with respect
to subject matter covered by list 1 and earn more revenue. He submits that
proviso(b) to Article 298 is riot merely a repetition of Article 246 read
with entries of List I of the Seventh Schedule but was for a purpose to
enhance the revenue earning of the States. Mr. R.N. Trivedi, learned
Additional Solicitor General, submitted that Article 298 does not confer
any plenary right On any State to carry to on any trade or business, even
though this Article does not provide specifically, but in substance it is
subject to other provisions of the Constitution, like a State cannot
without obtaining a licence under the provisions of the industries

Development Regulation Act start an industry mentioned in its Schedule.
Similarly, a State cannot insist as a matter of right to sell liquor in
another State where there is complete prohibition. Thus, this extended
executive power of the State to carry on any trade or business for any
purpose should be a trade which falls under the scheme of the Constitution
and not what is impliedly prohibited. Article 298 is subject to
Parliamentary legislation, it is also subject to provisions of Articles 245
and 246. He submits that the provisions of Articles 298 should be read down
to be subject to provisions of Articles 53 and 258 of the Constitution.
Meaning to the phrase `trade and business `under Article 298 should be
given with reference to Article 19(1 )(g). Thus, Article 298 does not refer
to `trade’ which are not so recognised under Article 19(1 Kg)- Mr.
R.P..Goel, learned Advocate General of U.P., also submitted to the sartie
effect. Repelling the part of the argument,, in respect of Article 258, it
is submitted by Mr. Dwivedi that under Article 258(1), the President can
entrust powers to the State Government only with consent of the State
Government and further it starts with the words “notwithstanding anything
in this Constitution” but there is no non-obstante clause under Article
258(2). Thus, Article 258(2) would be subject to Article 298. When Article
298 inhibits delegation of powers to State Government then Article 258(2)
cannot be used to submit entrustment of power by the Union to the State.

To test the submission, it is necessary to examine Whether the words “trade
or business’ used in Article 298 should be given the same meaning as the
words `trade and commerce’ used under Article 301.

Before, we do, we proceed to examine the Anraj case-I (supra). There the
Government of Maharashtra and other States requested the Union to authorise
them to conduct their lotteries, which was authorised, subject to the
conditions that their lottery tickets shall not be sold in another State
without express consent of the other State concerned. This was done through
Presidential order under Article 258(1), which also entrusted the
Government of Maharashtra the executive power of the Union, in respect of
lotteries. On this basis, the Government of Maharashtra banned the sale of
lottery tickets in its State or other States. This was challenged. This
Court held that the Government of Maharashtra cannot purport to ban the
sale of lottery tickets of other States by virtue of entrustment of the
executive power of the Union under Article 258(1). This case records;

“It appears that the Government of Maharashtra and various other State
Governments requested the Union Government to authorise them to conduct
lotteries for the purpose of “finding funds for financing their development
plans”. Such authorisation was, of course, strictly not necessary in the
absence of a law made by Parliament pursuant to Entry 40 of List I of the
Seventh Schedule to the Constitution. Article 298 of the Constitution
extends the executive power of the Union and each State to the carrying on
of any trade or business and the acquisition, holding and disposal of
property and the making of contracts for any purpose, with the stipulation
that if the trade, business or purpose is not one with respect to which
Parliament may make laws, the said executive power of Parliament shall be
subject in each State to legislation by the State..,.”

[emphasis supplied] It further records :

“…,.. Reading and considering Articles 73 and 298 together, as they
should indeed be read and considered, it is clear that executive power of a
State in the matter of carrying on any trade or business with respect to
which the State Legislature may not make laws is subject to legislation by
Parliament but is not subject to the executive power of the Union. That is
why we mentioned earlier that the Government of a State is not required to
obtain the permission of the Union Government in order to organise its
lotteries, in. the absence

of Parliamentary legislation. “.—–

(Emphasis supplied)

This merely records that there was no need for a State to Obtain the
permission of the Union for organising State lotteries, they could have
done so under Article 298. Here there was no issue, whether the words
`trade and commerce’ is used under Article 30) and the words `trade and
business’ used under Article 298 should be given the meaning or whether
State lotteries are gambling or if it is gambling, would it still be
covered by the words `trade and commerce’ Under Article 301, In view of
what is held in this Anraj Case-I, there could be no doubt that the State
could organise its own lotteries by virtue of its executive power under
Article 298 until law is made .by the Parliament

In other words, the question raised is, once it is covered by proviso(b) to
Article 298, necessarily it would fall under Chapter XIII of the
Constitution. Reply is that Article 298 does not confer any plenary right
on any State to carry on any trade or business but it is subject to other
provisions of the Constitution and for the other provisions, he referred to
Articles 53 and 258 to submit that Union can entrust power to the State
Government with the consent of the State Government under Article 258(1).
We feel that it is not necessary to go into this as this was considered in
the Anraj case-l (supra). in that case, though the Presidential Order war
issued under Article 258(1), it was held that this Presidential Order
conferring the State to run its own lotteries was not necessary, as State
could have exercised its executive power under Article 298 and the State
cannot prohibit lotteries of other States under the executive power
entrusted to it by the President,

This bring us back to Article 298 to see whether there is any significant
difference between the words used under Article 298 and Article 301. This
difference could indicate the scope and periphery of the field of operation
of these two Articles. Relevant portion of Article 298 is quoted hereunder
:

“298. Power to carry on trade, etc. -The executive power of the Union and
of each State Shall extend to the carrying on of any trade or business and
to the acquisition, holding and disposal of property and the making of
contracts for any purpose: provided that –

(a) xxx xxx

(b) the said executive power of each State shall, in so far as such trade
or business or such purpose is not one with respect to which the State
legislature may make laws, be subject to legislation by Parliament,”

[Emphasis supplied]

The executive power of the State is referable in terms of words used
therein “to the carrying on of any trade or business…. and the making of
contracts for any purpose.” Title of this Article significantly is “Power
to carry on `trade’, etc.”

Article 301 is quoted hereunder :

“301. Freedom of trade, commerce and intercourse – Subject to the other
provisions of this Part, trade, commerce and intercourse throughout the
territory of India shall be free.”

[Emphasis supplied]

In difference, we find that the words used under this Article is “trade,
commerce and intercourse.” We find Article 30) is confined to trade and
commerce while Article 298 refers to trade and business and to the making
of contracts for any purpose. The use of the words `business’ and
`contracts for any purpose’ and its title”,.,.;.,,,trade, etc:” makes the
field of Article 298 wider than Article 301 Significantly, the different
use of words in the two Articles is for a purpose, if the field of two
Articles are to be the same, the same words would have been used. It is
true, as submitted, that since `trade’ is used both in Article 298 and 301,
the same meaning should be given. To this extent, we accept it to so but
when the two Articles use different words, in a different set of words
conversely, the different words used could only be to convey different
meaning. If different meaning is given then the field of the two Articles
would be different. So, when instead of the words `trade and commerce’ in
Article 301, the words `trade or business’ is used it necessarily has
different and wider connotation than merely `trade and commerce’.
`Business’ may be of varying activities, may or not be for profit, but it
necessarily includes within its ambit `trade and commerce’ so sometime it
may be synonymous but its field stretches beyond `trade and commerce.’

The word “Business” is defined as :

In Stroud’s Judicial Dictionary, 5th Edn. ;

“Business has a more extensive meaning than the words `trade,”

In Words and Phrases, Butterworths, 3rd Edn. ;

” `Business’ is a wider term than `trade’, and not synonymous with it and
means almost anything which is an occupation as distinguished from a
pleasure; However, the term must be construed according to its context. (47
Halsbury’s Laws (4th Edn.) para 2).

`Business1 includes a professional practice and includes any activity
carried on by a body of persons, whether corporate or unincorporate.

(Medicines Act 1968, s. 132.(1)).

`Business’ includes a profession and the activities of any government
department (including a Northern Ireland department) or local or public
authority. (Sale of Goods Act 1979, S. 61 (1).”

Law lexicon, 1997 Edn. :

“The word business is of large signification, and in its broadest sense
includes nearly all the affairs in which either an individual or a
corporation can be actors.” “Business” and “Trade”.

” ….. There may, however, be a “Business” without pecuniary profit being
at all contemplated. In such a connection, “Business” is a very much larger
word than “trade” and the word “business” is employed in order to include
occupations which would not strictly come within the meaning of the word
“Trade”, The words “Trade” and “business” do not mean the same things.,…
The word “trade” is often confined to buying and selling commodities. Where
to draw the line between what is a profession and what is a trade is a
matter which it is not possible to deal with any general definition.
“Business” is a much wider term than trade. The word “business” at least
covers a continuous occupation involving liabilities to others. In re A
Debtor, (1927) 1 Ch 9-96 LJ(Ch)28(CA).”

All this clearly indicates, the word `Business’ is wider than words `trade
and commerce*. This apart, Article 298 further uses the words “contracts
for any purpose”, so far lottery tickets are concerned they are held to be
`goods’ and when they are sold it is under a contract between seller, the
State, or its agent and the purchaser buying for a consideration. The
consideration is the price for which it is purchase. Thus, such a contract
would qualify to be the `contract for any purpose’ used in Article 298. Use
of the words `business’ and `contract for any purpose’ widens the cope of
State’s activity under Article 298; This widening is for a purpose and not
to restrict only to `trade’. No doubt, it includes `trade’ also within its
field of activity. So every `trade what is covered by Article 301 would be
within the field of Article 298, may be this Article was brought in as a
compromise formula to widen the scope of the States revenue earning
activities, as submitted by Mr. Dwivedi, but this cannot be said to be
confined to the trade only, otherwise there was no need to use further
words `business’ and `contract for any purpose’. Restrictive interpretation
of Article 298, firstly, would make these additional words superfluous and,
secondly, it would curtail State executive activities which is intended to
be enlarged. Thus, any other transaction or activity other than `trade’
would be `business’ of that State, which would be apart from the `trade*
which thus in our opinion, would include activity, to run State lotteries.
Thus, the sale of lottery tickets by the State Government, even if not
trade as understood in common parlance as it is gambling, still it would be
covered within the executive power of the State under Article 298 being
activity in the nature of `business’ and would in any case also be covered
by the words `contract for any purpose,’ Hence the submission that the sale
of State lottery tickets is necessarily `trade and commerce’ as the word
`trade’ used under Article 301, the same meaning of this word `trade’ is to
be given in Article 298 cannot be accepted. So if State lotteries are
gambling it would not be `trade’ in any case, would not qualify to be
`trade and commerce’, as used in Article 301 and if that be so, neither the
individual, far less the State can seek enforcement of such right to he
declared free throughout the territory of India. If it is construed the
Constitution confers on it, would amount to conferring right to gamble
through out the territory of India. Thus, the right of sale of lottery
tickets, whether by the State or others could neither be a fundamental
right nor a right under Article 301. No one could seek it as a free `trade’
like other `trades’, even though it may have the authority of law. This
authorisation under the Act is solely for the purpose for the States to
earn revenue.

So far as Anraj case-II (supra) is concerned, it held that’ lottery
tickets’ to be `goods’ and thus subject to sales tax. We have already held
that there may be certain transactions or commodity which are goods and
subject to sales tax but still it would not qualify to be `trade?. In this
Anrgj case-II (supra) also there was no issue, whether sale of such lottery
tickets would be trade and commerce within the meaning of Chapter XIII of
the Constitution or not. Once it was held to be good, this case proceeded
to adjudicate whether by different measure to tax on the lottery tickets of
the home State and of other States there is any violation of Article 304 or
not Neither there was any occasion nor it has referred to the Constitution
Bench decision of this Court in RMDC case., (supra). So far in the present
case, neither we are concerned with any such taxation nor we are entering
into that realm to test any violation of Article 304 as it is not an issue
here.

For the aforesaid reason, we have no hesitation to hold that sale of
lottery tickets organised by the State could not be construed to be trade
and commerce and even if it could be construed to be so, it cannot be
raised to the status of `trade and commerce’ as understood at common
parlance or `trade and commerce’ as used under Article 301. Hence, question
of violation of either Articles 301 and 303 does not arise. Strong reliance
was placed on Khazan Singh case, (supra), if a State has a power to Carry
on trade in its own State it can carry on the same in every part of India.
For the finding we have recorded that State lotteries (Gambling) would not
be `trade’, this case would have no application. Hence, for these reasons,
it is not necessary to go into various submissions pertaining to violation
of Articles 301 to 303 of

Chapter XIII of the Constitution,

Next submission challenges Section 5, to be discriminative and violative,
both of Article 14 and Article 303 of the Constitution. The discrimination
is based on two counts, namely, (1) discrimination between the Bhutan
lotteries (Foreign) and the lotteries of the Indian States and (2)
discrimination between one State from another State. Challenge is also on
the ground of excessive delegation of essential legislative power of the
Parliament without any guidelines. Dealing with discrimination, it is
submitted, though it impose restrictions on the lotteries organised by the
State Government, it does not impose any restrictions on the Bhutan
lotteries. Reference was made to the treaty agreement dated 28th February,
1995 between the Government of India and the Kingdom of Bhutan which came
into force with effect from 2nd March, 1995 and which is to remain in force
for a period of 10 years. Next reference was to the Union circular letter
dated 20th January; 1998 sent to all the States and Union Territories
asserting that Section 5 covers only State Lotteries and would not extend
to Bhutan lottery. It also referred to the office memorandum of the
Ministry of External Affairs, Government of India, dated 27th April, 1998,
by which the Home Ministry was requested to advice the State Government and
the Government of Union Territories to allow the sale of Bhutan lotteries
in their States. Para 47 of the affidavit of Union of India dated 27th
November, 1998 referred and records, “Consequently, the Central Government
decided to enact an appropriate legislation to regulate the conduct

of lotteries so as to protect the poor and gullible persons…..” The
submission

is so far the sale of Bhutan lottery tickets, Union stand is clear that
Bhutan lotteries are to be sold throughout India without any conditions
contrary to the placing of stringent conditions on the Slate lotteries
which is discriminatory. On the one hand, under the garb of regulating
these lotteries, power to ban lotteries was delegated to the `State’ so as
to protect the poor and gullible persons, on the other hand to permit
Bhutan lotteries to be sold through out India without any condition clearly
demonstrates that consideration for poor and gullible a lost sight.

It is true that by perusal of these various office memorandum, circular
letters and the affidavit of Union of India depicts the state of
uncertainty in the Union and so took its oscillating stand, as it stood
then and now. Then stand was, since Bhutan lottery is under a treaty, all
States should permit its sale, now the stand is such lottery would fall
under Entry 34, List II hence would be subject to the law of the State. So
far the submission that Bhutan lottery cannot be controlled unfertile
impugned Act has merit, Impugned Act is confined to the State organised
lotteries under Union list, under Entry 40, List 1. However, submission on
behalf of the Union, which is also incorporated in its aforesaid affidavit,
is as per agreement, the sale of Bhutan lottery tickets in India and sale
of Indian Government/State Government lottery tickets in Bhutan will be
subject to the relevant laws as may be enforced in the territory of Kingdom
of Bhutan and India, as the case may be. Thus, under the terms of the
present tready itself, the sale of Bhutan lotteries has been agreed and
subjugated to be subject to the relevant laws in India. So far this treaty,
there is no law yet framed by the Parliament under Entry 14, List I.
Admittedly, Bhutan lottery does not fall under Entry 40, List 1. Thus, the
restrictions and conditions imposed under the impugned Act would only apply
to the State lotteries and not to the lotteries of the Kingdom of Bhutan.
Next, it has to be seen that when the treaty makes it obligatory for the
Bhutan lotteries to be subject to the Indian laws, and in the absence of
any law by the Parliament pertaining to the treaty under Entry 14, List I,
under which class of lottery it would fall and to which law it would be
subjected to. We also make it clear, in the present case, the aforesaid
treaty with the Kingdom of Bhutan is not subject to any challenge. Let us
examine first the relevant Entries of the list under Seventh Schedule of
the Constitution. It is admitted that it does not fall under Entry 40, List
I. Another relevant Entry is Entry 14, List I which refers to treaty. This
treaty could be under this Entry, but in the absence of any law by the
Parliament it would be governed by the terms of the treaty itself, .Entry
41, List I refers to the trade and commerce with the foreign country. Even
if it falls under it, in the absence of law by the Parliament it would be
governed by the terms of the treaty. Entry 42, List I deals with inter
state trade and commerce, under which it will not fall.

The sale of lottery tickets of Bhutan but for the aforesaid stipulation in
the treaty it possibly could have been said it cannot be subjected to the
laws of lotteries in India. But once treaty itself stipulates it to be
subject to any law in India, then if the sale of Bhutan lottery tickets are
not State organised lotteries, it necessarily falls under other lotteries
under Entry 34, List II. There is no other Entry pertaining to lottery.
Thus, it necessarily follows that its sale within India will be subject to
the laws of the State as is applicable under this Entry. In other words, if
the State prohibits sale within its State not only sale of its own lottery
but every other lottery, then the sale of lottery tickets of Bhutan will
have to be subjected to the laws of that State. Thus, prohibition to other
lotteries will equally be applicable to the sale of Bhutan lottery. In the
present case, learned Additional Solicitor General, Mr.. Vaidyainathan,
also subscribed to this interpretation on behalf of the Union. As we have
said, in the absence of law by the Parliament^ so far the treaty with the
said stipulation, there could possibly be no other interpretation. This
interpretation further eliminates possible discrimination which is subject
of attack in the present case. Thus, the Bhutan lottery could not be said
be privileged or it, in any way, discriminates with other State lotteries.

The second limb of argument pertains to discrimination between one State
and the other. We having held above, that the State lotteries cannot be
construed to be `trade and commerce’ within the meaning of Article 301,
there could possible be no question any discrimination or violation of
Article 303. Even under Article 14, there, possibly, could have been argued
discrimination, if the discretion was left on the States to choose as to
which State it likes to prohibit; but in the present case in Section 5 the
State could only exercise its discretion in case it decides to prohibit
sale of lottery tickets of every other States. If this is so, there could
possibly be no conceivable discrimination. Hence, we do not find that there
is any discrimination either on account of Article 303 or Article 14 of the
Constitution between States of the Union an the Bhutan lottery and from one
State to other State.

The last submission in respect of challenge to Section 5 is that the
delegation to the State to decide to prohibit safe of lotteries organised
by other States is a delegation by the Parliament of its essential
legislative power, without any policy or bereft of the guidelines. Thus,
there is total abdication of the legislative power of the Parliament, which
is a naked delegation, hence violative of Article 14.

Further submission is, there is no rational or policy behind conferring the
unbridled power to prohibit the lotteries of other States. There is no
nexus, reasonable or otherwise, between the object and the actual
prohibition, It is wholly unreasonable, arbitrary and discriminatory. The
interpretation of Section 5 given on behalf of the State of Tamil Nadu
clearly exposes and reveals the unguided nature of delegation of power to
the State. The submission on behalf of the State of Tamil Nadu is that
entrustment of power to ban lotteries is unconditional though it supports
Union on upholding validity of the Act So a contrary note is struck against
the interpretation given on behalf of the Union that exercise of power to
ban could only be when it decides to ban is own lottery. The lotteries of
other States were banned in Tamil Nadu though it continued to have its own
lotteries because that State felt the practical problems of law and order.
Submission for Tamil Nadu is on plain reading of Section 5, a State without
banning its own lottery can ban lotteries organised by Other States. This
may be to create monopoly or in the name of law and order or of moral or
ethical grounds or may also be for political reason. Thus, to this large
discretion left on the State is submitted it shows the delegation of
unbridled power hence violative of Article -14 Mr. Venugopal submits that
even though the interpretation sought to be given by the Union may reduce
the extent of discrimination to a great extent but cannot neutralise the
violation of Article 303(1) of the Constitution. There is nothing in the
Act or its preamble to interpret that, it is only the State which decides
not to run its own lottery could impose such a ban. Learned counsel Mr.
Shanti Bhushan also submitted that the State cannot take up a stand that
the law which is applicable to other person would not apply to the State as
it would be inconsistent with the rule of law based on the doctrine of
equality which introduce discrimination. Reliance was placed on the case of
State of West Bengal v. Corporation of Calcutta, [1967] 2 SCR 170 (Nine
Judges). So far the question of total abdication of legislative power by
the Parliament to the State Government without any guideline or policy,
reliance is placed on cases Hamdard Dawakhana (supra); -Hari Shankar Bangla
& Anr, V. The State of Madhya Pradesh, [1955] 1 SCR 380; A.N. Parasuraman
v. State of Tamil Nadu, [1989] 4 SCC 683 (685-688) and Rajnarain Singh v.
The Chairman, Patna Administration Committee, Patna & Anr., [1955] 1 SCR
290 (301-304).

For the State of Uttar Pradesh submission is the same as the Union that
Section 5 should be so read as to entitle only such State to ban which, as
a policy, does not permit its own lottery to run, If this be so, there
possibly could be no discrimination as it applies unifromly to all the
States. Thus, there would be no discrimination between one State and the
other. This delegation is on public interest which is writ large and is
implicit, in view of the nature of activity. For interpreting any provision
Statement of Objects and Reasons and the debates can be looked into, Pepper
v. Hari, (1993) 1 All.E.R 42 (HL) and P.V. Narasimha Rao v. State, [1998] 4
SCC 626 para 8C to 87, Further submission on behalf of the Union is that
Section 5 should be read down as to mean only such State which bans its own
lotteries as it would be incongruous that a State which as a policy and in
public interest does not permit sale of its own lotteries has to permit
sale of lotteries of other States. If a State wants to have “zero
tolerance” State so far as lotteries are concerned, it cannot be prevented
from doing so. In support of reading down, reliance is placed on :DTC v.
DTC Mazdoor Sabha, [1991] Supp. 1 SCC 600 paras 217, 219 and 244 to 246;
Maharao Sahib Shri Bhim Singhji v. Union of India & Ors, [1981] 1 SCC 166
at 185; Philips India Ltd. v. Labour Court, Madras & Ors., [1985] 3 SCC 103
at 112 and State of Punjab v. Kailash Nath, [1989] 1 SCC 321/329-30; 231
ITR 24; 1997 (228) ITR 68 at 78. Reference was also made to the case of
Registrar, Trivandrum v. K. Kunjambu, [1980] 1 SCC 340, to support the
submission that guidelines can be found from the subject matter of the Act.
It can also be deduced from the objects and reasons of the Act, [1997] 4
SCC 471. In fact, Section 5 is a piece of conditional legislation thus when
a State wants to exercise such power, it is left to its wisdom having
regard to its policy in public interest, P. Orr. & Sons (P) Ltd. v.
Associated Publishers (Madras) Ltd, [1991] 1 SCC 301, (para 14).

The legal principles which emerges, as submitted, is that delegation of
essential legislative power of the principle to the delegatee would amount
to abdication of its legislature power and if it is bereft of any
guidelines then it is unsustainable in the eyes of law. The authorities
cited by various learned counsel and the law on the subject, cannot be
doubted. But this principle is to be tested by scanning the impugned
legislation which may differ one from the other in its nature, setting up
or other circumstances which may have bearing to conclude. It is also well
settled, first attempt should be made by the Courts to uphold the charged
provisions and not to invalidate it merely because one of the possible
interpretation leads to such a result, howsoever attractive it may be.
Thus, where there are two possible interpretations, one invalidating the
law and the another upholding, the latter should be adopted. For this, the
courts have been endeavouring, sometimes to give restrictive or expansive
meaning keeping in view the nature of legislation, may be beneficial, penal
or fiscal etc. Cumulatively it is to subserve the object of the
legislation. Old gold rule is of respecting the wisdom of legislature that
they are aware of the law and would never have intended for an invalid
legislation. This also keeps courts within its track and checks individual
zeal of going wayward. Yet in spite of this, if the impugned legislation
cannot be saved the courts, shall not hesitate to strike it down.
Similarly, for upholding any provision, if it could be saved by reading it
down, it should be done, unless plain words are so clear to be in defiance
of the constitution. These interpretations springs out because of concern
of the courts to salvage a legislation to achieve its objective and not to
let it fall merely because of a possible ingeniously interpretation. The
words are not static but dynamic. This infuses fertility in the field of
interpretation. This equally helps to save an Act but also the cause of
attack on the Act. Here the courts has to play a cautious role of weeding
out the wild from the crop, of course, without infringing the constitution.
For doing this, the courts have taken help from preamble, objects, the
scheme of the Act, its historical background, the purpose for enacting such
a provision, the mischief if any which existed, which is sought to be
eliminated. The Kingdom of interpretation is enriched by the Rule as laid
down in Heydon’s case as far back in the 16th century. According to this,
courts must see what was the law before the impugned provision, what was
the mischief for which the then law did not provide, what is the reason to
remedy that mischief and what remedy the impugned provision has provided;
76 E.R. 63-(1584) 3 Co. Rep 7a P.76 This rule has been accepted by this
court in, Bengal Immunity Co. V State of Bihar, [1955] 2 SCR 603, AIR 1985
S.C. 1922 (l9l9).In Hamdard Dawakhana (WAKF) Lal, Kuan, Delhi and Anr. V.
Union of India & Ors., [1960] 2 SCR 671, this Court held:

“Therefore, when the constitutionality of an enactment is challenged on the
ground of violation of any of the articles in Part III of; the
Constitution, me ascertainment of its true nature and character becomes
necessary, i.e., its subject matter, the area in which it is intended to
operate, its purport and intent have to be determined. In order to do so it
is legitimate to take into, consideration all the factors such as history
of the legislation, the purpose thereof, the surrounding circumstances and
conditions, the mischief which it intended to suppress, the remedy for the
disease which the legislature resolved to cure and the true reason for the
remedy; Bengal immunity Company v. The State of Bihar, [1955] 2 SCR 603,
RMD Chamarbaghwas v. The Unions of India, [1957] SCR 93 and Mahant Moti Das
& Ors v. S.P. Sahi, AIR (1959) SC 942.

Another principle which has to borne in mind in examining the
constitutionality of a statute is that it must be assumed that the
legislature understands and appreciates the need .of the people and the
laws it enacts are directed to problems which are made manifest by
experience and that the elected representatives assembled in a legislature
enact laws which they consider to be reasonable for the purpose for which
they consider to be reasonable for the purpose for which they are enacted.
Presumption is, therefore, in favour of the constitutionality of an
enactment Charanjit Lal Chowdhuri v. The Union of India & Ors., [1950] SCR
869; The State of Bombay v. F.N. Btilsara, [1951] SCR 682 and Mahani Moti
Das v, S.P. Sahi.”

The following passage in Seervai, Constitution Law of India (3rd Edn.) page
119 found approval in Delhi Transport Corporation v, D.T.C. Mazdoor
Congress, [1991] (Suppl. 1) SCC 600. The Court held :

“Seervai in his book Constitutional Law of India (3rd Edn.) has stated at
page 119 that :

“;…. the courts are guided by the following rules in discharging their
solemn duty to declare laws passed by a legislature unconstitutional:

(1) There is a presumption favour of constitutionality and a law will not
be declared unconstitutional unless the case is so clear as to be free from
doubt; `to doubt the constitutionality of a law is to resolve it in favour
of its validity.’

(2) A statute cannot be declared unconstitutional merely because in the
opinion of the court it violates one or more of the principles of liberty
of the spirit of the Constitution, unless such principles and that spirit
are found in the terms of the Constitution.”

218. On a proper consideration of the cases cited herein before as well as
the observations of Seervai in his book Constitutional Law of India and
also the meaning that has been given in the Australian Federal
Constitutional Law by Colin Howard, it is clear and apparent that where any
term has been used in the Act which per se seems to be without jurisdiction
but can be read down in order to make it constitutionally valid by
separating and excluding the part which is invalid or by interpreting the
word in such a fashion in order to make it constitutionally valid and
within jurisdiction of the legislature which passed the said enactment by
reading down the provisions of the Act

(sic)”

This principle of reading down, however, will not be available where the
plain and literal meaning from bare reading of any impugned provisions
clearly shows that it confers arbitrary, uncanalised on unbridled power.
The Delhi Transport Corporation case (supra) was with reference to the
challenge to the provisions relating to termination of service of a
permanent employee. In The Registrar of Co-operative Societies, Travandrum
& Anr. v. K.K. Kunjabmu & Ors., [1980] 1 SCC 340, this Court held :

“…, The power to legislate carries with it the power to delegate. But
excessive delegation may amount to abdication. Delegation unlimited may
invite despotism uninhibited. So the theory has been evolved that the
legislature cannot delegate its essential legislative function. Legislate
it must, by laying down policy and principle and delegate it may to fill in
detail and carry out policy. The legislature may guide the delegate by
speaking through the express provision empowering delegation or the other
provisions of the statute such as the preamble, the scheme or even the very
subject-matter of statute. If guidance there is, where it may be found, the
delegation is valid. A good deal of latitude has been held to be
permissible in the case of taxing statutes and on the same principle
generous degree of latitude must be permissible in the case of welfare
legislation, particularly those statute which are designed to further the
Directive Principles of State Policy.”

This case holds that guidelines can be gathered from the subject-matter of
the Act.

Before entering to decide the rival contentions within the approved wide
field of interpretation, we look back to the history of the law pertaining
to lotteries which is the subject matter for consideration. We have already
recorded the concern, ill impact of these lotteries on the public at large
not only in this country but all parts of the globe, where this subject
allured the public to bring miseries in their life except few lucky one’s
ultimately leading to ban all forms of lotteries. It is true that some
permitted and protected lottery transactions under the garb of benefit for
charitable purposes or arugmenting State revenue. Even in India this
lottery was looked down as evil of the Society, and diagnosed as pernicious
in nature. It is this which ultimately |ed to bringing in Section 294A of
the IPC in the 19th Century making it a penal offence. It excluded from its
purview the State authorised lotteries, i.e., both falling under Entry 40,
List I and falling under Entry 34, List II. Collection of funds through
lotteries was never considered laudable or consicienceable but has been and
is resorted on the exigencies of the situations recognised for :a limited
purpose may be a limited period. Why not `laudable or conscienceable’ ?
Because it is a gambling as we have held, How can gambling be held to be
conscienceable though it may he legitimised for limited objectives. So some
States, some countries legitimize it for sometime. May be because of lack
of financial potentiality or expertise to achieve a desired financial
target. Some other records since gambling is so intoxicating as it goes so
deep into the blood, it is difficult to eliminate, hence lotteries are
legalised so that participants are not trapped in the clandestine lotteries
but be confined to the controlled, regulated lotteries authorised, whether
by the State or Union. This eliminates or reduces to the minimum the
prospering clandestine lotteries. The State lotteries or State authorised
lotteries have been excluded from the purview of Section 294A IPC. They are
placed in distinct entries in the lists of the Seventh Schedule, both in
the Government of India Act and Constitution of India. In spite of all
this, in India and in other countries this battle to overcome the effect of
its pernicious nature goes on which led to in some countries completely
banning the lotteries. So, lotteries continue to be mark of interrogation
and never looked upon as a fair or universally accepted way to collect
funds. It is true that for a public purpose it has been legalised but
cannot be equated with other trade or business. It is distinct and
different kind in itself, i.e., a class of gambling. Thus, merely putting
on the apparel of the State, the State lotteries cannot change from its
basic character.

As revealed from Anraj case-I (supra), some of the States sought permission
of the Union as a policy to raise its revenue through these lotteries,
which was conferred by the Presidential Order under Article 258(1), though
it records, the State could have exercised their discretion as a policy to
have their own lotteries without such permission in view of its extended
executive power under Article 298. It further reveals, till the Parliament
makes any law, decision to start its lottery or to close it is exclusively
within the executive power of each State. This is because it is the policy
decision of a State which has to decide as a principle whether it desire to
collect in this form the revenue or not. The benefit of Article 298 is, it
is extra territorial, applicable beyond its territory, it is for this State
lotteries are place in Entry 40 List I. So in a federal structure, Union
has to play a role coordinate between one State with the other. So by
regulation it has to subserve the objectives. Union cannot enforce a State
to gamble if such a State does not want to gamble. To run its own lotteries
or to Close it is left on the discretion of each State. It is each State
which has to decide its policy and has be concerned about its subject. In
any ease, the Union cannot force any States that it must run its own
lotteries. But control of State lotteries running in the territory of other
States is left on the Union. State cannot restrict sales of lotteries
organised by the other States even in its territory unless authorised by
the Union. This difficulty was felt by the State which is indicated in the
Anraj case-I (supra). That seems to be the reason that the Parliament has
delegated this power to the State under Section 5. In this background, we
have to see, whether this delegation could be constituted to be such as
amounting to delegation of its essential legislative power and that too
unguided or unbridled. As we have said to interpret a provision, its pith
and substance, its objects and reasons should be gathered, and it is that
interpretation which subserve the object of the Act should be accepted. The
Preamble of the Act states :

“to regulate the lotteries and to provide for matters connected therewith
an incidental thereto.” Thus, the object of this enactment is to regulate
the State lotteries and other connected matter therewith. We have already
observed above, once as a policy State embarks upon to collect revenue
through lotteries, it is necessary to regulate it in such a manner, as to
infuse confidence to the participants. This has been done under this Act by
providing strict compliance of the conditions imposed under it. In case of
violation by any State or others, they brought to the books by penal
consequences.

In Section 2(b) lotteries are defined to be a scheme for distribution of
prizes by a lot or chance. This definition itself recognises that even in
State lotteries the prizes are to be collected by chance without any skill,
hence gambling in nature. Sections prohibits that no State lotteries can be
organised without the condition stipulated under sub-sections (a) to (k) of
Section 4. Section 4 provides, the conditions to be complied with by the
State lotteries. To initiate any State lottery it is left to the policy of
each State, for this the Act is silent. The only control is, in case it
decides, then it must follow the conditions as laid down under Section 4.
Next comes section 5 which is subject matter of challenge, the delegation
of power to the State to prohibit the sale of lottery tickets organised by
every other State. If a State desires not to subject its people to the
lottery gambling, it has no power to restrict lotteries organised by other
States. It is to remove this mischief the power is conferred through
delegation to the States to do it in terms of its own policy. By virtue of
this, now the State Government can prohibit sale of lottery tickets of
every other States within its territory. Next, Section 6 seeks strict
compliance of Section 4. Under this the Central Government may prohibit and
State lottery which is being conducted in contravention of the conditions
as laid down under Sections 4 or 5. Section 7 shows the rigor of this Act
by making it a penal offence as against all, who violate the provisions of
this Act, may be the Head of the Department of the Government or the agent,
promoter or trader, to be punishable with two years rigorous imprisonment.
Section 8 makes such an offence cognizable and non-bailable. Similarly,
Section 9 deals with offences committed by the Companies Section 10
entrusts the Central Government power to give directions to the State
Government for carrying into execution the provisions of this Act, Rule or
Order. Sections 11 and 12 are the rule making power entrusted to the
Central and the Government respectively. Section 13 repeals the Ordinance.
Thus, the whole Act makes clear that the subject it is dealing is gambling
in nature. The object of the Act is not to control the policy decision of
each State to start or to close it lotteries, but to regulates it in case a
State decides to run its own lottery through modalities and conditions laid
down therein. Emphasis of the whole Act is to abide by the condition
strictly if you want to run a lottery. Thus, regulation’s through
conditions to eliminate even the remotest possibility of mal practices by
providing stringent measures for its compliance. Perusal of the Act
reveals, the scheme of the Act is limited in its application, and it admits
the subject it is dealing is gambling in nature. As we have said, decision
to collect or not to collect revenue through State lotteries is exclusively
within the policy decision of the State and for this, neither the Union nor
the Parliament interferes nor there is any indication under the Act. Thus,
the question which remains is, if any State decides that it does not want
any lotteries but if it feels helpless as having no jurisdiction over the
lotteries organised by other States, what is the way out? This can only be
done by Parliament or by entrusting this power on such State desiring so
which has been done through Section 5. In this background, for this
helplessness of a State as recorded in the Anraj case-1 (supra) remedy is
provided by entrusting this power on the State under the impugned
provisions. This help such State to achieve its objective of lottery
(gambling) free zone within its territory. A well concerned remedy. Next
question is what could have been the guideline? If State lotteries are
gambling and it cannot be termed as `trade and commerce’ at common parlance
for any free right under the Constitution. Such right though recognised
under Article 298 so other States may continue to enjoy till prohibited by
valid law, and if any State want within its State lottery free zone and for
which the power is entrusted to such State, it cannot be said in this
setting and background and the nature of the subject that such a delegation
is of its essential legislative powers. The only guideline necessary in
such delegation is to see State does not pick and choose one State from the
other, which guideline is already provided in this Section. It provides
that such a ban could only be if it is applied to every other State. Only
residual’ field of attack so far this delegations could be, which has been
attacked in this case, that State could on one hand ban lotteries of every
other State but run its own lotteries. It is argued while a State bans
lotteries of other State not to permit any gambling activity in the public
interest as a policy but this very public interest is flouted by having
lotteries of its own. It is true that unless this provision is read drown
to mean a State can only ban lotteries of other States when it bans as a
policy its own lotteries it is bound to be subjected to the vagaries as
pointed out and on deeper scrutiny it may hot successfully stand. But by
reading down the provision, which has to be read that it is only that State
which decides lottery free zone within its State can prohibit lotteries of
other State clearly provides the guidance for the exercise of such a power.
It is inbuilt and inherent in the provision itself in view of the scheme of
the Act and nature of subject in issue. If interpretation as given on
behalf of the State of Tamil Nadu is accepted that delegation of power is
absolute, then the submission that such delegation is unbridled without any
guideline carries great weight. Submission for the Tamil Nadu is that the
lotteries may be prohibited in phases, viz, while: running its own
lotteries yet prohibiting other, may be as a public policy, for law and
order, for political reasons, morality, etc. For surviving such an
interpretation given by Mr, Ganguli the Parliament should have provided
some guidelines. Such an interpretation falls into the trap of the
submission that this delegation is unbridled. So if there are two
interpretations, the interpretations which upholds the validity should be
accepted. So the interpretations as given by Mr. Ganguly cannot be
accepted.

There are two parts of the attack of the delegation of power to the State
under Section 5. The later part, by which it can prohibit sale of lottery
tickets organised by every other States which leaves no scope of any
discretion on the States to discriminate from one State to other. SO if it
decides no lottery tickets of any State to be sold it cannot pick or choose
from one State to the other Once it, as a policy decides to prohibit the
sale of lottery tickets of other States it must prohibit every other State,
that is to say, all the States and such a delegation cannot be said to be
either abdication of the legislative power of the Parliament or to be
unbridled or unguided. As we have said looking to the nature of subject and
object of the Act which is to help each State in its endeavour to run State
lotteries which would include starting or closing its lotteries and when a
State want to have lottery free zone in its State, then such a delegation
to ban lottery of every other State cannot be said to be invalid. To the
first part, there are two interpretations, one on the plain reading of
Section 5, a State may run its own lottery yet may prohibit the sale of
lotteries of other States. This construction leads to discrimination and
opens for criticism of unbridled delegation. The submission further is, if
the ban of sale of lottery tickets of every other State is as a public
policy, affecting the morality and resultant ill effect on its subject then
there is no justification that State may run its own lottery affecting the
very subject for Which the power is exercised prohibiting the lotteries of
other States. It is true, if such an interpretation is accepted then this
submission has a force. On the other hand, on behalf of the Union the
submission is that language of the Section has to be read down. The
decision to have its lottery or not to have its lottery has to be in the
public interest. Every decision to have either lotteries authorised by the
State or organised by the State has to be in public interest. May be for
collection of public revenue or for a public purpose. It has been held in
Central Inland Water Transport Corp. Ltd. & Aw. v. Brojo Nath Ganguly &
Anr., AIR (1986) SC 1571 para 93 :

“There must be no injury or harm to the public interest, public good and
public welfare:”

Thus, the decision to run State lottery has to be made with the conscience
of its evil consequences on its subject, thus before deciding the State has
to equate the public welfare with the injury on its public. It may be in a
given ease within the limitation of its financial capacity with the need of
the hour it has to decide to run its own lotteries to augment its revenue
in the larger interest of the public which if weighed with the evil
consequence on its subject, the public welfare gains more by running it
then the evil consequences on its subject has to give way till situation
changes by finding better way for this additional source or evil
consequences inflicting on its subject over weighing. This exercise has to
be by each State, Union not coming in its way. It is for each State to
decide what is its public welfare and what constitutes an injury to the
public interest. Rattan Chand Hira Chand v. Askar Nawaz Jung, [1991] 3 SCC
67 (Para. 17) holds, .what constitutes public interest or welfare would
depend upon the time. The social milieu in which the contract is sought to
be enforced would decide the factum, the nature and the degree of injury.

So., whenever a State decides to run or not to run its lotteries it is the
State which has to decide as a public policy in the Public interest. Once
such a decision is taken to have in its State lottery free zone, the
entrustment of power by the Parliament cannot be said to be ultra vires.

We find on plain reading of Section 5, it empowers the State Government
within its State to prohibit the sale of tickets of the lotteries organised
by every other States. There is also nothing in the language reading by
itself so as to say, whether such power can be exercised by State while
running its own lottery or can be exercised only where such State does not
run its own lottery. This leads to two possible interpretation, as referred
to above. In view of settled principle of interpretations, the
interpretation given by the Union to read down the provision has substance.
This would mean State could only exercise such discretion if it decides not
to have any lottery within its territory including its own lottery. In this
situation, the delegate is tied down by this limitation which itself is a
clear guide to a State hence cannot said to be unbridled delegation. So
even to the first part it cannot be said to be arbitrary nor unbridled. So,
we have no hesitation to approve the interpretation given by the Union to
uphold the validity of Section 5: It is true, as submitted on behalf of
some of the North-Eastern States, Nagaland etc. or the State of Sikkim that
in the exigencies they are placed with the lack of harnessing their
revenue, if this right is curtailed it would badly affect their revenue. It
may be true to some extent so: far as these States are concerned. However,
we find that the impugned provision does not prohibit such State not to run
its own lotteries. Such State can continue to have their own lotteries.
Only where any State decides not to have any lottery the territorial area
of such State is only curtailment. What would be the short fall of the
revenue, if any, the figure of which has not been effectively placed before
us, whether there is going to be of any substantial loss, but if at all
there is, it is for that State to find an alternative or for the Union to
lend support if that is essential Within its permissible limits. These
again are matters in the realm of policy to which this Court tyas no
jurisdiction to enter into. But this cannot mean to permit any such State
to have right to its lotteries (gambling) in other territory in spite of
other State prohibiting such activity in its territory. That right could
have been if State Lotteries were trade as understood under Chapter XIII of
our Constitution.

Lastly, the challenge is to Section 4(a), (g) and (h) of the Act. The main
contention with some specific vehemence to which various counsel have
referred to is Condition (g) of Section 4 which deals with place of draw to
be located within the State concern. Argument is the condition of law and
order in the State of Nagaland is not such where a draw of any lottery
could be held. We do not find any merit in the submission. It is again a
question of policy and it is for the State executive to take decision
pertaining to law and order, for that reason no legislation can be held to
be ultra vires or to be struck down. Similar condition of (a) that prizes
shall not be offered on any pre-announced number or on the basis of single
digit or that no lottery shall have more than one draw in a week (h); or
other conditions in Section 4 are all those which cannot be said to be such
to hold these provisions to be ultra vires, or invalid. None of them are
such which would constitute to be violative of any provision of the
Constitution. Hence we have no hesitation to conclude that this last
submission is also without any merit.

In view of the findings recorded by us above, holding lotteries organised
by the State is also gambling in nature, thus the principle as laid down in
RMDC case (supra) would equally be applicable to the case of State
lotteries. Thus, State lotteries cannot be construed to be a `trade and
business’ within the meaning of Articles 301 to 303 of the Constitution of
India. We also hold that the impugned provisions are not violative of
Article 14 nor the delegation of power by the Parliament to the State
Government could be said to be delegation of its any essential legislative
power or a delegation, which is unguided or unbridled. Thus, we uphold
Section 5 and various sub-clauses of Section 4 to be valid piece of
legislation.

Accordingly, the decision of the Guwahati High Court which holds the
provisions of the Ordinance to be ultra vires and consequently staying the
provisions of the impugned Act cannot be sustained which is hereby quashed.
Any decision of any Court or any interim order contrary to the decision, as
aforesaid, are hereby set aside. The various petitions which have been
transferred and which are subject matter of decision, as aforesaid, stand
disposed of in terms of this decision. We will be failing in our duty if we
do not express our gratitude to learned counsel for the parties whose
contribution to this vexed issue has been commendable. Their contributions
helped us greatly to decide this case.

In view of the aforesaid findings, all the aforesaid matters stand disposed
of by upholding the impugned provisions and the Act to be valid.

Costs on the parties.

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B.R. Enterprises Etc, Etc vs State Of U.P. And Grs. Etc: Etc on 7 May, 1999

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