PETER P.A v. STATE OF KERALA

THOTTATHIL B. RADHAKRISHNAN, J.= = = = = = = = = = = = = = = = = = = = = = = =WP(C).Nos.2913/2007-V, 4744/2007-M, 5890/2007-A & 6770/2007-E= = = = = = = = = = = = = = = = = = = = = = = = Dated this the 28th day of March, 2007.JUDGMENTPetitioners purchased tickets of Sports Super BumperLottery - 1285th Kerala State Lottery - conducted by theGovernment of Kerala. The tickets priced Rs.100/- each,were issued announcing a first prize of Rs.2 crores, 200second prizes of Rs.2 lakhs each, 2000 third prizes ofRs.25,000/- each, as well as different numbers of fourth,fifth, sixth, seventh and eighth prizes, apart from 19consolation prizes of Rs.1 lakh each. 2.These writ petitions are filed complaining thatthe original schedule for the draw was illegally adjournedand that the Government have, without authority, reducedthe number of prizes, after the sale of the tickets. WP(C)2913/07 & con.cases-: 2 :-3.As per the counter affidavit, the total prizemoney of the lottery tickets, going by what is stated on theface of the tickets, would be around Rs.40,19,00,000/-. TheGovernment aimed to sell at least two crores of tickets,intending to disburse the total prize money, as fixed, and toraise a further amount for being invested in variousdevelopmental activities of sports in the State of Kerala.However, the lottery did not evoke the expected response.Accordingly, the Government postponed the declared dateof draw, anticipating that more tickets could be sold.Thereafter, the lot was drawn on 10-2-2007. Out of a totalnumber of forty lakhs tickets printed, only 29,44,798 weresold leaving 10,55,202 as unsold. Therefore, the entireamount generated by the sale of tickets isRs.29,44,79,800/-. In view of that fact, acting on Clause 4of Annexure III of Ext.R1(a) G.O.(Ms.)No.117/06 dated 28-10-2006, the first prize was drawn in full, coming under theassured portion of prizes and the remaining prizes weredrawn under the variable portion, depending on the numberof tickets sold. WP(C)2913/07 & con.cases-: 3 :- 4.The learned counsel for the petitioners argued,primarily, that the Government have acted contrary to Rule9(1) of the Kerala Paper Lotteries (Regulation) Rules, 2005,hereinafter referred to as the “Rules”, for short, wherebythe Government guarantee the payment of the prizes andprize amount offered on the lotteries and that, by the forceof that rule and on counts of estoppel, the Governmentcannot go back on either the prize amount or the totalnumber of prizes offered at the time when the tickets weresold. The second contention raised is that the Governmentacted illegally and mala fide in adjourning the date ofdrawing the lot. 5.I shall first deal with the second among thecontentions. Rule 8(6) of the Rules enables the Director ofLotteries to postpone the date of draw on valid grounds,subject to ratification by Government. It also enjoins thatthe postponed date of draw shall be given wide publicity.The said rule has been made by the State Government inexercise of power under Section 12 of the Lotteries WP(C)2913/07 & con.cases-: 4 :-(Regulation) Act, 1998, hereinafter, the “Lotteries Act”, forshort, which empowers the State Government to framerules to carry out the provisions of that Act and inparticular, to make rule regarding the time to be fixed forclaiming prize money and the period to be fixed for draws ofthe lotteries. Therefore, Rule 8(6), as part of the rulerelating to draw and results, enables postponement of thedate of draw on valid grounds. Going by the counter-affidavit, the date of draw was postponed because theGovernment could not reach the anticipated target in thesale of tickets. That is a valid ground. It is also a matter ofrecord, in the counter-affidavit, that the postponed date ofdraw was given wide publicity. Therefore, the challenge tothe postponement of the draw fails. The same is rejected.6.Coming to the fundamental ground of challenge,the question raised is as to whether the Government actedwith authority, and, were justified in reducing the numberof prizes or the prize amount from what was originallyannounced at the commencement of the sale of the tickets. WP(C)2913/07 & con.cases-: 5 :-Still further, what is the legal effect of the guarantee by theGovernment contained in Rule 9(1) of the Rules? Inanswering this issue, certain vital aspects relating to thelaw governing lotteries need to be considered. 7.Even before the field of lotteries came to begoverned by statute law, it was the recognised legalprinciple, with near unanimity, that a lottery is not acontract, but only an agreement by way of wager. It ismerely a bet. It is only something that is staked on an issue.A lottery is merely a lot on which bets are laid. It is anarrangement for distribution of prizes by lot, a matter ofmere chance. The social history would show that lotteries,at times, tended to grow to be a vice endangering thefamilial situations leading to break down of the socio-financial sustenance of vulnerable slots of the citizenry,particularly those belonging to the lower economic strata. 8.More than a century and a half ago, the SupremeCourt of America in Phalen v. Commonwealth of WP(C)2913/07 & con.cases-: 6 :-Virginia, (1850) 49 U.S.163) observed:“Experience has shown that the commonforms of gambling are comparativelyinnocuous when placed in contrast withwidespread pestilence of lotteries. The formerare confined to a few persons and places, but,the latter infests the whole community; itenters every dwelling; it reaches every class; itpreys upon the hard earnings of the poor; itplunders the ignorant and the simple.”The aforesaid observations were quoted with approval inDouglas v. Commonwealth Kentucky, 1897-168U.S.488, to uphold legislative power to protect publicmorals against the evils of lotteries. The said decisions werequoted with approval by the Apex Court in State ofBombay v. R.M.D.Chamarbaugwala, AIR 1957 SC 699,to conclude that a citizen cannot claim any fundamentalright under Article 19(1)(g) of the Constitution in respect ofsuch competitions and to hold that the prize competitionsare gambling in nature. WP(C)2913/07 & con.cases-: 7 :-9.The aforesaid fact situations led to the growth oflaw by the enactment of different legislations to control andregulate lotteries, leading ultimately to the Lotteries(Regulation) Act, 1998 that now holds the filed. That Act isa statute to regulate the lotteries and to provide for mattersconnected therewith and incidental thereto. The validity ofthe Lotteries Act fell for consideration in B.R.Enterprisesv. State of U.P. and others, (1999) 9 SCC 700.Upholding the legislation, the Apex Court laid down that theholding of lotteries organised by the State is also gamblingin nature. 10.If lotteries run by the State are gambling innature, a sale or purchase of a ticket in such a lottery wouldstill be an agreement by way of wager and would begoverned by Section 30 of the Contract Act, the relevantportion of which reads as follows:“30. Agreements by way of wager,void.-Agreements by way of wager are void;and no suit shall be brought for recovering WP(C)2913/07 & con.cases-: 8 :-anything alleged to be won on any wager, orentrusted to any person to abide the result ofany game or other uncertain event on whichany wager is made.”The only exception to Section 30 is relating to horse-race, tothe extent provided in the Exception provided at the foot ofSection 30.11.As noticed in B.R.Enterprises (supra), even inState sponsored lotteries, what is involved is only anelement of chance, with no skill. The measures provided inthe Lotteries Act are meant only to encourage faith in theparticipants that the lotteries are being conducted fairlywith no possibility of fraud and misappropriation and toassure the hopeful recipients of high prizes that all is fairand safe. In spite of the Lotteries Act being available, thejurisprudential quality of the transactions in lottery does notchange. It continues to be a form of gambling and in itsvery nature and essence, is res extra commercium and doesnot contain any concept of trade, commerce or business. In WP(C)2913/07 & con.cases-: 9 :-the realm of contracts, it would easily slip to fall withinSection 30 of the Indian Contract Act, 1872. I may alsonotice in this context the decision of the Division Bench ofthe Madhya Pradesh High Court in Subhash KumarManwani v. State of M.P., AIR 2000 Madhya Pradesh109, rendered following the decision of the Apex Court inB.R.Enterprises (supra). It was held by the learned Judgesthat the agreement for payment of a prize on a lotteryticket, even if the lottery is conducted by the State,continues to be a wager, to which the provisions of Section30 of the Contract Act would be applicable and therefore, asuit for recovery of the prize money would not lie. I am incomplete and respectful agreement with the said ratio ofthat decision. 12.The right of a person who buys a lottery ticket isonly a right to participate in the lottery, i.e., in a gambling,which is not forbidden by law and nothing more. The legalrights of a person participating in a lottery do not get abetter flair, merely because of the enactment of the WP(C)2913/07 & con.cases-: 10 :-Lotteries Act. The Lotteries Act does not give any legal rightto any of the participants to be paid a particular prize or tocompel the State Government to draw lot for all the prizesdeclared before the sale of the tickets. That statute doesnot contain any such provision. This is because, there canbe no such legislation compelling the Government to do soon the face of the fact that lottery is only an agreement byway of wager and a mere gamble and any recognition of anylegal right to enforce payment of the prize due thereunderor a legal right to regulate the prize money on the assertionthat particular number of prizes have to be compulsorilydrawn by lot cannot be there. Any such statutory provisionwould not only amount to enforcing an agreement that isvoid in terms of Section 30 of the Contract Act, but wouldalso be contrary to public policy and public interest. Sinceit would be opposed to public policy, it would also violateSection 23 of the Contract Act. Hence, any statutorycompulsion on a State Government, which runs a lottery, topay the amount declared as a prize or to conduct a lot for allthe prizes enumerated in the ticket would not have the WP(C)2913/07 & con.cases-: 11 :-sanction of law and will be contrary to Rule of Law. 13.In the backdrop of what is aforesaid, the legaleffect of Rule 9(1) of the Rules requires to be considered. 14.As already noticed, Rule 9(1) provides that theGovernment guarantee the payment of prizes and prizeamount offered on the lotteries. The conditions subject towhich lotteries may be organised are prescribed in Section4 of the Lotteries Act. Section 3 provides that save asotherwise provided in section 4, no State Government shallorganise, conduct or promote any lottery. Therefore, whena State Government conducts a lottery, it can be only interms of the conditions enumerated in Section 4. WhileClause (k) of Section 4 enjoins that a State Governmentshall also follow such other conditions as may be prescribedby the Central Government, a State Government is notauthorised to prescribe any further condition or create anyfurther term for the lottery. There is no authorisation in theAct, for the State Government to do so. More importantly, WP(C)2913/07 & con.cases-: 12 :-Section 3 contains a prohibition against organising,conducting or promoting any lottery otherwise than inaccordance with the conditions laid down in Section 4. Somuch so, a State Government has no authority to make orimpose any further condition, even upon itself, in relation toorganising, conducting or promoting any lottery. 15.Reading the rule making power of the StateGovernment in terms of Section 12 of the Lotteries Act incontradistinction to the power of the Central Government tomake rules under Section 11 of that Act, it can be noticedthat the power of the State Government to make rulesstands confined to matters relating to conducting the lotteryin so far as it relates to matters directly referable to Section4. Section 12(2) gives sufficient legislative guidance tointerpret Section 12(1) to hold that the generality of Section12(1) stands guided by the contents of sub-section (2) ofSection 12. Therefore, the rule making power of the StateGovernment under Section 12 does not, in any manner,authorise the State Government to add any further WP(C)2913/07 & con.cases-: 13 :-condition to those enumerated in Section 4 of the LotteriesAct as regards organising, conducting and promotinglotteries. 16.Inclusion of any condition by the StateGovernment cannot, at any rate, run contrary to the interestof the Exchequer since the primary intention of theLotteries Act is to regulate lotteries, the need for which iswell reflected by the social and legal history on the subject.So much so, there is no intention discernible from theLotteries Act by which a State Government organising,conducting or promoting a lottery could create any situationimpairing the Exchequer to the disadvantage of the funds ofthe State. Therefore, while a State Government mayorganise, conduct or promote a lottery, it cannot guaranteethe payment of the prizes or prize amount offered on thelotteries. If it does so, it will be guaranteeing theperformance of an agreement by way of wager. 17.An agreement by way of wager is not a contract, WP(C)2913/07 & con.cases-: 14 :-but is void by reason of Section 30 of the Contract Act. Itwould not, therefore, amount to a contract and hence,would not be enforceable, going by Clauses (g) and (h) ofSection 2 of the Contract Act, which read as follows:“2. Interpretation clause.-In this Actthe following words and expressions are usedin the following senses, unless a contraryintention appears from the context:xxxxxxxxxxxxxxxxxxxxx(g)An agreement not enforceable bylaw is said to be void;(h)An agreement enforceable by lawis a contract.” 18.Hence, if Government guarantee the payment ofprizes and prize amount offered on the lotteries, it will beguaranteeing a transaction which is not a contract, but only WP(C)2913/07 & con.cases-: 15 :-an agreement by way of a wager. Such guarantee of awager would immediately contradict public policy. It wouldnot withstand the test of law because what is beingguaranteed is not any liability under a contract. It cannever be recognised as a part of the State's obligation or forthat matter, the Government's obligation to be a party to atransaction which would not be a contract in terms of theContract Act. Therefore, a Government cannot guaranteethe performance of the payment of lottery prizes. 19.In the conspectus of law as noticed above, Rule 9(1) of the Rules by which the Government are shown asguaranteeing the payment of prizes or prize amount offeredon the lotteries is a rule that is one made not only in excessof the rule making power under the Lotteries Act, but onecontrary to the Constitution and the laws and therefore,arbitrary, against public interest and against the interest ofthe State Exchequer and cannot be upheld on the face ofPart III of the Constitution, particularly Article 14. Everyindividual citizen and the citizens as a collective lot have WP(C)2913/07 & con.cases-: 16 :-the constitutional right including the fundamental right, toensure that their collective wealth, the State Exchequer, isnot subjected to any action as is referable to Rule 9(1) ofthe Rules. 20.While the writ petitioners seek to sustain theircontentions on Rule 9(1) of the Rules, it is the constitutionalobligation of the writ court to examine the validity of thatrule because, a piece of primary or subordinate legislation,which is unconstitutional cannot be the foundation of anylegal right. Examining the sustainability of Rule 9(1), forthe foregoing reasons, it has to be held that Rule 9(1) of theRules whereby the Government are shown to guarantee thepayment of prizes and prize amount offered on the lotteries,is unconstitutional, void and inoperative. The said rule isunsustainable and cannot be enforced. So much so, thecontentions of the petitioners on the basis of Rule 9(1) ofthe Rules fail.For the aforesaid reasons, these writ petitions fail. WP(C)2913/07 & con.cases-: 17 :-They are accordingly dismissed. No costs. THOTTATHIL B. RADHAKRISHNAN,Sha/- JUDGE.