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TMI Blog2021 (5) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 The Kerala Rules as originally enacted applied only to lotteries organised by the Government of Kerala.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 Nagal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f being intra vires and that if two constructions are possible, attempt must be made to make the rule valid and if found offensive, recourse can be made by reading down the provisions so as to make it in consonance with the parent statute. In the reply arguments, Sri. Shishodia decried the concept of the Host State being relegated to a position of a helpless observer while naked violation of the Act and the Rules are going on and submitted that such a situation is not contemplated by the Act. He further submitted that when the subjects of Kerala State are exploited and are suffering, an elected State cannot remain as mute spectators. 8. On the other hand, the three learned Senior Counsel for the respondents referred to the doctrine of occupied field and argued that the State has no authority to enact the Amended Rules. Relying upon the decision in B.R Enterprises case (supra) it was argued that no State can prohibit the conduct of lottery by another State if the Host State was not a lottery free zone. Sri. Harish Salve bolstered his submissions by referring to the Central Rules as a complete package available to the Host State to complain and urged that nothing was spared for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the States to legislate. More often than not, the Constitutional Courts will, through a process of interpretation, limit the State from exercising its statutory powers, in a manner that will undermine the federal authority of the Union as well as curtail the Union from undermining the States power to legislate on entries they are entitled to legislate. The case on hand deals with the alleged transgression by the State of Kerala into Entry 40 of List I, as well as exceeding the power conferred by section 12 of the Act. While patrolling the respective borders, this court, in the instant appeal, will have to decide whether the Amended Rules have forayed into Entry 40 of List I, and also whether the Amended Rules are beyond the letter of section 12 of the Act or contrary to the Central Rules of 2010. 12. While patrolling the above-referred frontiers, We remind ourselves that there shall be judicial restraint when judging the validity of even a delegated legislation. It was held in Hinsa Virodhak Sangh v. Mirzapur Moti Kuresh Jamat and Others [(2008) 5 SCC 33), that "the court should exercise judicial restraint while judging the constitutional validity of statutes. In our opinion, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), in its entirety. "87. 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 State. There is also nothing in the language reading by itself so as to say, whether such power can be exercised by the 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 interpretations, 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 that the 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 delegatee is tied down by this limitation which itself is a clear guide to a State hence cannot be said to be unbridled delegation. So even to the first part it cannot be said to be arbitrary or unbridled. So, we have no hesitation to approve the interpretation given by the Union to uphold the validity of Section 5. 88. It is true, as submitted on behalf of some of the North Eastern States Nagaland etc. or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliminated and it is felt that a Central legislation to regulate the conduct of lotteries is necessary to protect the interest of the gullible poor." 19. When the Act is viewed in the light of the above-extracted statement of objects and reasons, it is apparent that the underlying purpose of the Act is to balance the revenue generating interests of the State with the pernicious nature of lottery, without it being exploitative of those who are gullible to such practices. Sufficient safeguards are provided under the Act to initiate prosecution proceedings and to impose punishment which may extend to 2 years or with a fine or with both as per section 7 of the Act. The Central Government has the power under section 10 of the Act to give directions for carrying into execution any of the provisions of the Act or the Rules made thereunder. The Act also vests the Central Government with the power to make rules to carry out the provisions of the Act. Apart from the above-referred provisions, the Parliament has also bestowed the State with a power to legislate the contours of which are called upon in question in this case. 20. Instances are numerous where Central legislation delegates to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of this Court in W.A. No.1464 of 2010 stating that "The State Government means the Government which organises, conducts or promotes any lottery". 23. The use of the indefinite article 'A' in section 4 of the Act and the definite article 'The' in section 12 before the word 'State' may indicate a different meaning when viewed in a grammatical perspective. However, a strict application of grammatical constructions while interpreting statutory enactments can occur to be delusive at times. If the strict grammatical application of words and sentence construction leads to results that are anomalous or even to results not contemplated by the Act, adherence to strict rules of grammar can be departed from. 24. In the decision in N.T. Veluswami Thevar v. G.Raja Nainar and Others (AIR 1959 SC 422) and K. Prabhakaran v. P. Jayarajan [(2005) 1 SCC 754), it was held that, if the grammatical construction leads to some absurdity or some repugnance or inconsistency with the rest of the instrument, it may be departed from, to avoid that absurdity and inconsistency. In Tirath Singh v. Bachittar Singh and Others (AIR 1955 SC 830), it was held that "where the language of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e compliance with the Act or to form an opinion about the nature of the lottery. 28. Ensuring compliance with the provisions of the Act is different from prohibiting the conduct of lottery. If the power under section 12 of the Act, is interpreted to mean as only the Organising State that can make rules to carry out the provisions of the Act, it may lead to an absurd situation. When the subjects of a Host State are being exploited and when a person is conducting the lottery wholly in violation of the Act, should the Host State be deprived of even a mechanism to at least assess or identify the nature of the conduct of such lotteries? It would lead to absurdity if the Host State is entirely powerless in such a scenario. It would also effectuate an inconsistency where an offence committed under the Act is punishable, but the Host State is incapable of identifying the nature of offences committed. Such an anomalous and incongruous situation could never have been intended by the Parliament. To prevent blatant violations of the Act or to ensure compliance with the Act, it is only appropriate to have a threshold check and balance. Such a threshold check will not amount to prohibition. 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates: (i) finding of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. (See State of Orissa v. Sudhansu Sekhar Misra and Union of India v. Dhanwanti Devi). A case is a precedent and binding for what it explicitly decides and no more". 32. The question relating to the competence of the Host Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re field of lottery, States have been given the power to make rules. When the Parliament has enacted a law on the basis of an entry in List I and when the said Central legislation confers power upon the State to make rules, it cannot be countenanced that, when such rules are made, the same ought to be branded as beyond the rule making power of the States. The doctrine of occupied field cannot be invoked to test the validity of a State rule enacted in exercise of the power conferred by the Central legislation. If a Central legislation confers general rule-making power upon the State, in areas where the Central Government has not framed rules, the State Government will be entitled to frame rules. The doctrine of occupied field will not in such instances be applicable, unless there is an intrusion. In simple terms, the principle of the doctrine of occupied field is that if the Parliament legislates on a particular subject, and thereby occupies the field, the State legislature is completely debarred from legislating on the same subject. When the very legislation enacted by the Parliament confers power upon the State Government to make rules to carry out the provisions of the Act, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government. However, rule 3(22) of the Central Rules confers an obligation upon the Host States to ensure proper conduct of lottery within its jurisdiction. Rule 5 of the Central Rules provides the procedure in which the Central Government can prohibit the sale of lottery tickets. For a better comprehension, it is necessary to extract rule 3(22) and rule 5(1) of the Central Rules, which are as follows: "Rule 3(22). Every State Government shall ensure that no lottery, in any form, is organised by any authority other than the Organising State or its appointed distributors or selling agents within its jurisdiction" Rule 5(1) If a State Government is of the opinion that the Organising State or the distributors or selling agents are organising lotteries in violation of the provisions of the Act and these rules, it shall immediately bring the violations to the notice of the Organising State concerned along with the details of such violations or irregularities noticed and the Central Government shall also be apprised of such violations or irregularities simultaneously." 40. A reading of the Central Rules extracted above, evinces that the Host State is in fact, conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Parliament has power to make laws with respect to the conduct or marketing of those lotteries and consequently the Government of Kerala is not competent to make a rule like sub-rule (3) of Rule 24, which provides that no lottery shall be marketed until appropriate orders under sub-rule (2) are issued by the Secretary to Government, Taxes Department and that the Enforcement Agency can seize the tickets marketed before passing any order in this regard. According to the appellants sub-rule (3) of rule 24 is therefore unconstitutional. Sub-rule (3) of rule 24 is only part of the Kerala State Lotteries and On-line Lotteries (Regulation) Rules, 2003, made by the Government of Kerala in exercise of the powers conferred by sub-sections (1) and (2) of Section 12 of the Lotteries (Regulation) Act, 1998. The said Act was enacted to regulate the lotteries and to provide for matters connected therewith and incidental thereto. The provisions of the Act govern lotteries organised, conducted or promoted by State Governments. Section 12 confers power on the State Government to make rules to carry out the provisions of the Act. Hence the above mentioned Rules including sub-rule (3) of Rule 24 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries of Organising States within the territory of the Host State. Issue No.2 47. Having held as above, we proceed to consider as to whether the provisions of the amended rules are ultra vires or contrary to the Act or the Central Rules. Challenges were specifically raised against rule 2(3A), rule 2(6A), rule 4(4), rule 4(5) and rule 9A. For easier comprehension the amendments carried out to the Kerala Rules through the Amended Rules are extracted as below: The Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 Rule 2(3A): 'Authority' means the Secretary to Government, Department or authority or officer specifically appointed by the Government to organize State Lottery and regulate the sale of other State lotteries within the State as provided in the Act. Rule 2(6A): 'Enforcement Agency' means the District Collector, District Superintendent of Police, Commissioner of Police or any other officer authorized by the Government or officers mentioned herein before and they shall exercise the powers of enforcement as specified in these rules. Rule 4(4): The Secretary to Government, Taxes Department or any authority specifically appointed by the Government f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall pass appropriate orders. Rule 9A(3): No lottery shall be marketed in the State until appropriate orders under sub-rule (2) above are passed by the Secretary to Government. Enforcement agencies may seize such tickets marketed before passing any order in this regard. Rule 9A(4): The enforcement agency may - (a) seize for the purpose of further examination or securing information or investigation, any lottery, thing, machine, document, account books or data on or in such premises or facility which has a bearing on conduct of lottery. (b) seal or otherwise secure any such premises, facility, thing or machine or in which any document or data which has a bearing on the conduct of lottery is stored. (c) take such legal action as per the Act, which are necessary to protect the Integrity and conduct of lottery. Rule 9A(5): The other States or Union Territories who organize conduct or promote their lottery tickets in the State shall ensure the following: (a) in lottery tickets issued by the Government of other States, the name of the agents in any form or their logo shall not be printed. (b) The result of the draws shall be announced by the Government of other States w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect and take copies of the information in a visible and legible form from the computer or to inspect and check the operation of any computer and any associated apparatus or materials that is or has been in use in connection with keeping of the information. Rule 9A(8): No other State selling their tickets in the State of Kerala shall use a name of prefix or suffix in the name of lottery (eg:-Kerala, name of the cities and town or any such other name which can be used as a prefix or suffix or otherwise) which could mislead people to believe that the said lottery is organised, conducted or promoted by the Government of Kerala and where the State Government is satisfied that such use is misleading or is likely to mislead people to believe that the lotteries organise, conduct or promote by the Government of Kerala, the Government may cause seizure of such tickets within the State of Kerala through its enforcing agency. Rule 9A(9): Any agent selling lottery tickets of any particular draw should have in possession, a copy of the certificate issued by the Authority to the effect that licensing fee as may be notified as per Central Lottery (Regulation) Rules, 2010 in respect of the dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 4(5) speaks about power to monitor the sale of outside lottery. This power is necessary for ensuring compliance with the Act and for identifying violations or irregularities in the sale of tickets. This power has nothing to do with prohibition of lottery and is hence valid. We also do not find any infringement of the Act or the Central Rules due to Rule 9A of the Kerala Rules. 50. Rule 4(4) of the Amended Rules, as extracted earlier, shows that the Secretary of the Kerala Government, Taxes Department shall be the authority for conduct of lotteries organized by other States. The right to conduct a lottery is vested with the State Government under section 4 of the Act. The right to conduct a lottery is vested with the Organizing State under section 4 of the Act. When the right to conduct the lottery is vested with the Organizing State, rule 4(4) of the Amended Rules, to the extent it specifies that the Secretary to the Government Department of Taxes, Kerala, shall be the authority for the conduct of lotteries run/organized/promoted by other States, infringes upon the right of the Organising State to conduct lotteries as per the provisions of the Act. Though the learned Senior Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 166]. 52. Applying the said principle to rule 4(4) of the Amended Rules, it can be seen that the offending portion of the said rule are the words "including lotteries run/organized/promoted by other States" and if the said offending portion is deleted or severed, the rule will still continue to have meaning and life. Applying the doctrine of severability, we sever the aforesaid words from rule 4(4) and hold the severed portion of the said rule as ultra vires the Lotteries (Regulation) Act, 1998. 53. Rule 9A(3) was also contended to be in confrontation with the Act and the Central Rules, apart from it being an infraction upon the authority of the Organizing State. Rule 9A(3) of the Amended Rules as extracted earlier, shows that until appropriate orders are passed by the Secretary to Government, no lottery shall be marketed in the State. This power of passing appropriate orders cannot be construed as restricting or prohibiting the conduct of other State lotteries in the State of Kerala. On the other hand, rule 9A(3) is only a measure of monitoring and ensuring compliance of conduct of outside State lotteries in accordance with the Act and the Central Rules. If the authority ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he central and state governments alike with the aim to have a holistic edifice and also that the Union and the State Governments must embrace a collaborative federal architecture by displaying harmonious co-existence and interdependence so as to avoid any possible constitutional discord. Acceptance of pragmatic federalism and achieving federal balance has become a necessity requiring discipline wisdom on the part of the Union and State Governments by demonstrating a pragmatic orientation." 56. Dealing with the contention of infraction of principles offederalism this Court had held in Tashi Delek Gaming Solutions Pvt. Ltd, Mumbai and Others v. State of Kerala (AIR 2004 Kerala 248) that "Merely because another State Government is required to satisfy the Secretary to Government, Taxes Department, Government of Kerala that the Scheme satisfies all the provisions of the Act, no violation of the principles of federalism is involved. Federalism does not mean that one State can organize or conduct activities in another State in violation of the provisions of the Act and that its activities cannot be subjected to scrutiny or monitoring by the other State to ensure that the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s revenue was only 1.24% of the total sale proceeds, the distributor's share was 98.76%. The 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. 59. 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 im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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