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IN THE HIGH COURT OF KERALA AT ERNAKULAM
S.V.BHATTI, BECHU KURIAN THOMAS, JJ.
The State Of Kerala - Appellant
Versus
Future Gaming & Hotel Services (P) Ltd., (Formerly Future Gaming Solutions India (P) Ltd.) - Respondent
WA.No.78 of 2021
Decided on : 17-05-2021
Kerala Paper Lotteries (Regulation) Rules, 2005 – Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 – Rules 2(3A), 2(6A), 4(4), 4(5), and Rule 9A – Lotteries (Regulation) Act, 1998 – Section 12 – Lotteries – Gambling – Lotteries (Regulation) Act, 1998 was enacted by the Parliament – Source of legislative power for the Act is traced to Entry 40 of List 1 of the VII Schedule to the Constitution of India. – Government of Kerala enacted the Kerala Paper Lotteries (Regulation) Rules, 2005 in exercise of the powers under section 12 of the Act. – Kerala Rules as originally enacted applied only to lotteries organised by the Government of Kerala. – Central Government enacted the Lotteries (Regulation) Rules, 2010 – Subject matter of this dispute centers on an amendment brought in by the Kerala Government in 2018, known as the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 – By the said amendment, the Kerala Rules have been amended to incorporate allegedly restrictions/regulations for the conduct of outside State lotteries in Kerala – Single Judge declared that the Amended Rules were ultra vires and unenforceable. – Single Judge also set aside Ext.P12 and Ext.P17 and restrained the appellants from interfering with the marketing and sale of lottery tickets of the State of Nagaland. – State of Kerala and its officers have preferred this appeal
Finding of the court: When the statute in question, itself confers power upon the State to enact rules, and when rules are so enacted, principles of federalism cannot be assumed to have been infringed. – In the architectural gamut of the statute under consideration, Court is of the firm view that the Amended Rules do not in any way, erode into the concept of federalism envisioned in the Constitution. – Distributor’s share alone was Rs.4522.24 Crores. – CAG of India further observed that when the State Government's revenue was only 1.24% of the total sale proceeds, the distributor's share was 98.76%. – Report of the Comptroller and Auditor General of India also indicated that collusion was writ large in the bidding process and formation of a cartel was evident which undermined the transparency and fairness required in the selection of the distributor. – After examining the profile of the four companies that participated in the bidding process, the CAG concluded that the four companies were connected directly or indirectly with each other, thereby revealing the collusive bidding process. – Though the report of the CAG cannot have any effect on the question of competence of the State legislature in enacting a rule, the Host State, which faces the brunt of the alleged exploitation by the distributor of the Organizing State, cannot remain a mute spectator or completely helpless. – An elected State, answerable to its subjects, certainly owes a duty to its citizens to take such measures as authorized by law and within the limits prescribed by law, to prevent such exploitation, even at the threshold stages. – Law being dynamic and capable of adapting to different circumstances, the Rules impugned are only measures for adapting law to varying challenges. – Judgment of the learned Single Judge is therefore set aside
Result: Appeal Allowed
JUDGMENT :
Lotteries are gambling in nature and its business is res extra commercium. To legitimize the pernicious character of lotteries, the State Governments are given the power to organise, conduct or promote lottery. Conferment of authority on the State Governments alone, to conduct lottery was made with the fervent belief that the pestilent nature of lottery could be diluted to some extent while nourishing the State exchequer at the same time.
2. The Lotteries (Regulation) Act, 1998 (for brevity 'the Act') was enacted by the Parliament. The source of legislative power for the Act is traced to Entry 40 of List 1 of the VII Schedule to the Constitution of India. The Government of Kerala enacted the Kerala Paper Lotteries (Regulation) Rules, 2005 (for short 'Kerala Rules'), in exercise of the powers under section 12 of the Act. The Kerala Rules as originally enacted applied only to lotteries organised by the Government of Kerala. Thereafter, the Central Government enacted the Lotteries (Regulation) Rules, 2010 (for short 'Central Rules'). The subject matter of this dispute centers on an amendment brought in by the Kerala Government in 2018, known as the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 (for short 'Amended Rules'). By the said amendment, the Kerala Rules have been amended to incorporate allegedly restrictions/regulations for the conduct of outside State lotteries in Kerala.
3. Future Gaming & Hotel Services (P) Ltd. -a company with its registered office at Coimbatore, Tamil Nadu, claiming to be the authorised agent of the State of Nagaland challenged the Amended Rules through W.P.(C) No.34025 of 2019. It was pleaded that the Amended Rules were unconstitutional and beyond the legislative competence of the State, apart from being ultra vires the Act. Specific challenges were raised against the validity of Rules 2(3A), 2(6A), 4(4), 4(5), and Rule 9A of the Amended Rules. Communications issued by the Government of Kerala, produced as Ext.P12 and Ext.P17, were also challenged in the writ petition.
4. By the impugned judgment, the learned Single Judge declared that the Amended Rules were ultra vires and unenforceable. The learned Single Judge also set aside Ext.P12 and Ext.P17 and restrained the appellants from interfering with the marketing and sale of lottery tickets of the State of Nagaland. The State of Kerala and its officers have preferred this appeal.
5. For easier assimilation, We employ the following terminologies also in this Judgment. 'Organizing State' means the State that conducts lotteries as defined in rule 2(f) of the Central Rules and the 'Host State' to mean the State where the lottery conducted by another State is sold. The Organizing State in the present dispute is the State of Nagaland while the Host State is the State of Kerala.
6. We heard Sri.Pallav Shishodia, learned Senior Advocate, instructed by learned Special Government Pleader, Adv.C.E.Unnikrishnan, for the appellants. We also heard Senior Advocates Sri.Harish Salve, Sri.Kapil Sibal, and Sri.Neeraj Kishen Kaul, duly instructed by Adv. A.Kumar and Adv. P.S.Sreeprasad on behalf of the respondents.
7. The learned Senior Counsel for the appellants justified the Amended Rules as being neither offensive to the Constitution nor ultra vires the parent statute since the same was in exercise of the powers under section 12 of the Act and placed reliance upon the decisions in B.R. Enterprises v. State of U.P. and Others [(1999) 9 SCC 700], All Kerala Online Lottery Dealers Association v. State of Kerala and Others [(2016) 2 SCC 161], Tashi Delek Gaming Solutions Pvt. Ltd., Mumbai and Others v. State of Kerala and Others [AIR 2004 Kerala 248], and St.Johns Teachers Training Institute v. Regional Director, National Council for Teacher Education and Another [(2003) 3 SCC 321] to justify his contentions. It was inter alia argued that the subordinate legislation also, always, starts with the presumption of being intra vires and that if two constructi
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