State of Arunachal Pradesh and Others vs Union of India (UOI) and Others

K. Sreedhar Rao, J.—In all the above cases, the second respondent vide Notification dated 27.3.2007 - Annexure - A imposed ban on sale of "paper, on-line and internet lotteries" prohibiting sale of all types of paper, computerised and on-line lottery of Karnataka and other States and lotteries organised by other countries marketed and operated through vending machines, terminals electronic machines and tickets sold through internet in Karnataka with effect from 1.4.2007 and declaring the Karnataka State as a lottery free zone henceforth.

The appellants in all the three appeals, filed writ petitions challenging that Notification dated 27.3.2007 (Annexure- A) issued in exercise of power u/s 5 of the Lottery (Regulation) Act, 1998 (Central Act No. 17 of 1998) as ultra vires Articles 14, 19(1)(g), 245, 298, 301 to 304 and Entry 40 List I in VII Schedule to the Constitution of India and that Notification is colourable exercise of power.

In the budget of Karnataka State for the year 2007-08, it is stated that as a policy measure, the Government has proposed to abolish all kinds of lotteries in the State of Karnataka including the lotteries run by the Karnataka State. Pursuant to the declaration in the budget, the Notification at Annexure -A is issued. One of the appellants is the State of Arunachal Pradesh. The other appellants are the associate dealers, stockists and agents etc., dealing in the lotteries of all the States including that of State of Karnataka.

It is the contention of the appellants that Section 5 of the Lottery (Regulation) Act, 1998 (Central Act No. 17 of 1998) (hereinafter called "the Lotteries Act"), ultra vires the provisions of Articles 14, 19(1)(g), 245, 298, 301 to 304 as Entry 40 List I in VII Schedule to the Constitution of India. It is further submitted that the sudden imposition of ban is made, without hearing the affected parties and would affect about 7 lakhs people who are directly and indirectly dependant on the trade and would deny their livelihood. Therefore the ban imposed violates Article 21 of the Constitution. Besides there would be revenue loss to the Government to the extent of 300 crores per year.

The learned Single Judge rejected the contention of the appellants and upheld the validity of Constitution of Annexure -A and dismissed the petition. Hence these appeals.

The learned Sr. Counsel - Sri R.N. Narasimha Murthy, submitted that the Supreme Court in the case of M/s. B.R. Enterprises Vs. State of U.P. and Others, , has held that the State while exercising the power U/s. 5 of the Lotteries Act has to necessarily comply with the provisions of Article 258(1) of the Constitution. It is contended that when the State has to exercise power over a subject covered by List No. I, it is mandatory that the President with the consent of the State Government should confer the power either conditionally or unconditionally to the State Government or to its officers, to function in relation to any matter in which the executive power of Union extends. In the present case, the lotteries organised by the Union of India and other State Governments is within the domain of the executive power of the Union covered by Entry 40 of List I of Schedule VII. Although Section 5 of the Lotteries Act may empower the State Government to exercise the executive power of the Union, but it has to be done only by proper confirmation of power by the President on the State concerned. In the absence of such compliance, the respondent No. 2 has no jurisdiction to issue the notification at Annexure-A.

Sri B.V. Acharya, learned Senior Counsel appearing for some of the appellants, argued that the ban on the sale of lotteries in the Karnataka State is done in hasty manner in violation of principles of natural justice and without opportunity to the affected persons. About 1,50,000 employees engaged in the trade of lotteries would be deprived of their lively hood and also it will have a telling impact on over 7 lakhs people who depend upon the employment in the trade and that ban is imposed without providing an opportunity to the affected persons. It is submitted that respondent No. 2 also banned sale of Arrack, but gave 3 months time for the persons in the trade to have a comfortable time for winding up and search for other avocations. Whereas in the case of lotteries, the ban is effected giving time of 3 days which is almost with immediate effect. The persons employed in the trade are put to great hardship on account of sudden deprivation of employment. It is therefore submitted, the State should have granted some reasonable time to give effect to the proposed ban.

The decision of the Supreme Court in the case of State of Assam and Another Vs. Bharat Kala Bhandar Ltd. and Others, , has held that "when the effect of orders passed under Sub-rule (4) can be so far-reaching and so wide in its impact we would be loath to hold that such wide and far-reaching powers were conferred on Government to be exercised purely on its subjective satisfaction without even consulting the interests concerned specially when the language is not plain and unambiguous and there is no indication in the sub-rule itself that the power can be exercised purely on the subjective satisfaction of Government. Xxxxxxxxxxxxxxxxxxxxxxxxx (4) it should even in a real emergency consult the interests concerned before taking action thereunder. The decision of the Supreme Court in the case of Godawat Pan Masala Products I.P. Ltd. and Another Vs. Union of India (UOI) and Others, , it is observed that "xxxxxxxxxxxxx this Court emphasised that in the third type of case the satisfaction of the delegate must necessarily be based on objective considerations and, irrespective of whether the exercise of such power is a judicial or quasi-judicial function, still it has to be treated to be one which required objective consideration of relevant factual data pressed into service by one side, which could be rebutted by the other side, who would be adversely affected if such exercise of power is undertaken by the delegate."

It is submitted in the budget speech, the Hon''ble Finance Minister made a statement on the floor of the house that the Government is also aware that many people have become unemployed and assurance was given on the floor of the house that preference would be given to the people who are affected by the ban under the ''Suvarna Kayaka Scheme'' in case they come forward to undergo training in the skill development. But the Hon''ble Minister, within couple of days after the budget speech made a statement, reported in the newspaper that ''it is not possible for the Government to provide alternative jobs for persons involved in lottery and arrack business. But, we will think of providing them aid to establish their own business.''

It is argued that the 2nd respondent, without proper study of the impact of ban on lotteries as popularist measure, has imposed the ban hastily without proper policy scheme to help the persons who become unemployed because of ban. It is submitted that the ban imposed although is a administrative decision, nonetheless, the Supreme Court in the above cited cases has laid down that it is always necessary that the affected persons have to be heard in the matter. In the instant case, no such public hearing is conducted to give opportunity to the affected persons to express their views in the matter.

Sri Udaya Holla, learned Advocate General for the State argued that ban on the lotteries is a part of budget speech, the consequence of the ban has been thoroughly considered and consequential job provisions have been made. Any interference by the Court, in the matter of ban, would amounts to interfering with the budget, which is impermissible under law. Further it is submitted that the ban on lotteries is not a administrative order but executive policy of the Government.

The Supreme Court in the case of BALCO Employees Union (Regd.) Vs. Union of India and Others, , has held that in case of implementation of economic/executive policy, the principle of natural justice which requires prior notice and hearing of affected persons would not arise.

With regard to validity of Section 5, the learned Advocate General placed reliance on the decision of the Supreme Court in B.R. Enterprise''s case to contend that the exercise of power u/s 5 of the Lotteries Act is perfectly in accordance with law and the Constitution. The decision of the Supreme Court in the case of S. Tamilarasan v. Government of Tamilnadu and Ors. SLP No. 1535 of 2003, a case pertaining to similar ban on lotteries imposed by the Tamil Nadu by the Government Order, is upheld. The notification in question is similar to the one issued by the Government of Tamil Nadu. Therefore the contention that Annexure-A is unconstitutional and illegal is untenable contention.

The Supreme Court in B.R. Enterprise''s case as copiously dealt with the concept of gambling and in particular with the lotteries as one of the facets of gambling. The views of the American Courts, Australian Courts, English common law, Religious texts have been extensively referred to by their Lordships in coming to the conclusion that the lottery is game of chance and it is one of the forms of gambling which is an immoral act with perilous consequences on the welfare and lives of common people in the society. Although gambling/lotteries organised has the features of trade, nonetheless it would not get the status of "Respondent extra commercium" and cannot be considered as trade and commerce within the meaning of Articles 301 to 304 of the Constitution of India.

The Supreme Court upheld the Constitutional validity of Section 5 of the Lotteries Act, however laid down that the State while exercising the powers u/s 5, cannot impose ban on the lotteries conducted by other States unless it imposes ban of its own lotteries and all types of lotteries and there should not be any selective ban, otherwise it offends the Rule of equality envisaged under Article 14 of the Constitution of India. In view of the ratio laid down by the Supreme Court in B.R. Enterprise''s case it is no longer tenable for the appellants to contend that Section 5 of the Lotteries Act violates the Constitution.

The provisions of the Article 258 of the Constitution reads as follows:

Article 258(1) - Notwithstanding anything in the Constitution, the President may, with the consent of the Government of a State entwist either conditionally or unconditionally to that Government or to its officers functions in relation to any matter to which the executive power of the Union extends.

(2) - A law made by Parliament which applies in any State may, notwithstanding that it relates to a matter with respect to which the Legislature of the States has no power to make laws, confer powers and impose duties, or authorise the conferring of powers and the imposition of duties, upon the State or officers and authorities thereof.

(3) - Where by virtue of this Article powers and duties have been conferred or imposed upon a State or officers or authorities thereof, there shall be paid by the Government of India to the State such sum as may be agreed, or, in default of agreement, as may be determined by an arbitrator appointed by the Chief Justice of India, in respect of any extra costs of administration incurred by the State in connection with the exercise of those powers and duties.

The thorough scrutiny of the above provisions postulates two kinds of situations. In respect of subjects enumerated in the union list, the union will have exclusive executive power to exercise and the Parliament will have exclusive power to legislate. Sub-article 1 of Article 258 envisages situation of exercise of executive power by the President in relation to matters in list 1. Sub-article 2 deals with Parliament power to legislate on the subjects enumerated in list 1. In the absence of law made by Parliament, the President can exercise the executive power to issue notification and orders in relation to any of the matters enumerated in list 1. When once Parliament makes a law, the exercise of executive power is regulated by provisions of law made by the Parliament. It is settled proposition that exercise of executive power is always subordinate to legislative power. When the Parliament has enacted the Lotteries Act empowering the State to impose ban on the lotteries, it is unnecessary that the President should exercise power under Article 258(1) to authorize the State Government for exercise of the executive power of the Union. The provisions of Sub-article 2 makes it very clear that the Parliament may by law confer power on the State on the matters on which State has no power to act or legislate. In the instant case, Section 5 of the Lotteries Act does confer valid power on the State for imposing ban. The Supreme Court while upholding the Constitutional validity of Section 5 has held that the text of Section 5 does not positively prohibit the imposition of selective ban on the part of the State and if such situation is permitted, it offends Article 14, therefore held that the State while imposing ban should impose ban on the lotteries including its own lotteries. Only in such situation, it is held that the exercise of power u/s 5 of the Act would be in accordance with the Constitution. In the present case State has imposed blanket ban on all the lotteries including its own lotteries.

The Supreme Court in the case of Jayantilal Amrit Lal Shodhan Vs. F.N. Rana and Others, , has laid down that ''In this background we may consider the effect of the Presidential notification. It cannot be and has not been denied that it was open to the legislature by making an express provision in the Act to entrust the functions of the Central Government that is to confer powers and impose duties under Article 258(2) in relation to matters u/s 4, 5A, 7, 9 and 11 and related sections to Commissioners of Divisions in the State. Such entrustment of power could not be open to challenge on the ground that it was unauthorized. If entrusted by enactment, it would have the force of law''. In the instant case, Section 5 of the Act confer powers on the State to impose ban on lotteries. The State by Act of Parliament is conferred with necessary power. Therefore, it is unnecessary that there should be executive notification issued by the President authorizing the State to exercise the power as required under Article 258(1) of the Constitution of India.

The contention that about 1,50,000 people would be affected and 7 lakhs dependents would be deprived of their bread is not substantiated by any statistical data. The State as a welfare policy, has imposed ban on lotteries, since it is a policy decision adherence to rules of natural justice is not necessary. In B.R. Enterprise''s case the Supreme Court has held that any of the gaming activities cannot be equated or kept on par with trade and commerce and cannot be treated as "Respondent extra commercium". So much so gaming activities cannot come within the meaning of Article 19(1)(g) to call it as legal trade or profession. The notification issued at Annexure-A is perfectly in accordance with the ratio laid down by the Supreme Court in B.R. Enterprise''s Case. We find no merit in the appeals, accordingly the appeals are dismissed.