A 3-judge bench of the Supreme Court comprising of Chief Justice of India HL Dattu, Justice RK Agrawal and Justice Arun Mishra in a recent judgment dated 5th November 2015 in All Kerala Online Lottery Dealers Association v. State of Kerala & Others (Civil Appeal No. 3518 of 2007) ruled that state governments are at liberty to ban online lotteries, despite the fact that such states conduct paper lottery schemes. In doing so, the apex court interpreted Section 5 of the Lotteries (Regulation) Act, 1998 (“the Act”) to note that online and paper lotteries are two separate classes or categories of lotteries and separate treatment can be meted out to both these classes.
Justice Agrawal speaking for the court, noted that the concept of online lotteries did not exist at the time of passage of the Act and hence constructive interpretation of the lotteries legislation to prevent mischief was required.
The government of Kerala issued a notification dated 13th January 2005 under the Act declaring Kerala to be a lottery free zone, wherein no lottery draws would be conducted by the state and simultaneously sale of other states’ lottery tickets would also not be permitted in lines with the division bench Supreme Court judgment of BR Enterprises v. State of Uttar Pradesh (AIR 1999 SC 1867). Consequently on 22nd April 2005, the Kerala government modified the notification to allow itself to conduct paper lotteries. The new notification however noted that online or computerised lotteries would remain banned.
Aggrieved by this notification, the All Kerala Online Lottery Dealers Association challenged the notification in the Kerala High Court stating that banning only online lotteries was discriminatory and against Section 5 of the Act, particularly as the Act does not make any classification or categorisation of lotteries into paper or online schemes. Both the single and division benches of the Kerala High Court dismissed the petitions of the lottery dealers.
Simultaneously, one Bibhash Karmakar also approached the Supreme Court in public interest stating that online lottery schemes run by states like Nagaland, Sikkim and Goa are being conducted in contravention of the Act. The apex court clubbed all the matters but did not particularly pass any directions relating to Karmakar’s petition, stating that lotteries violating Section 4 of the Act can be banned by the central government.
Judgment and reasoning
The apex court noted that classification of lotteries into paper and online lotteries was not discriminatory and thus was constitutionally permissible. Further, it noted that the scheme of the Act indicates that it was designed to prevent the ill-effects of gambling and therefore courts should interpret the Act in a manner as to prevent the mischief that was designed to be curtailed by the Act. The court also observed that there was no unbridled or unfettered delegation of powers under the Act to state governments as the BR Enterprises judgment had inserted guidelines to be followed by states while banning lotteries under Section 5 of the Act (the guideline being that state governments can only ban sale of lotteries of other states if they decide not to themselves conduct lottery schemes).
Effectively, the court approved the interpretation laid down in BR Enterprises and noted that a state can either ban either one or both categories of lotteries, run by other states, subject to the guideline that the particular state government does not by itself run that particular class of lotteries. For instance, a state is free to ban all forms of paper lotteries if it conducts only online lotteries and vice-versa.
Analysis and impact of the judgment
The judgment has only interpreted the position that was already followed by the state governments and therefore a larger bench only gives clarity on the issue of online lotteries and ratifies the division bench Supreme Court judgment in BR Enterprises on interpretation of Section 5 of the Act. In fact, a careful perusal of Rule 3(1) of the Lotteries (Regulation) Rules, 2010 (“the Rules”) will also indicate that states can run either paper lotteries or online lotteries or both. Consequently, interpretation of the Act and Rules also indicate the power of states to ban either one or both species of lotteries
Contrary to the perception created in the media, certain adverse observations of the apex court on online lotteries and gambling were obiter dicta and do not have any precedential or binding value. Notably, Kerala has been the only state which has worked aggressively to ban lotteries (both online and offline) conducted by other states. Additionally, popular belief in the gaming industry that the decision will prompt the remaining lottery conducting states to ban online lotteries may not entirely be correct. The decision of the Supreme Court is not likely to have an impact on the online lottery schemes conducted by other governments, especially since such online lotteries are very popular and contribute significantly to the state exchequers.