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Legality of Lottery in India: Understanding the law

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The legislative powers to enact laws in India are divided into three lists namely: Union List (where the union government has sole authority to enact laws), State List (where states have the authority to enact laws) and Concurrent List (where both the Union and State have the powers). 

“Lottery”, being enumerated under Entry 40 of the Union List, has been generally excluded from the ambit of “gambling”, which is a State subject under Entry 34 of the State List. 

Entry 40 List I-Union List Entry 34 List II-State List 
Lotteries organized by the Government of India or the Government of a StateBetting and Gambling

The Parliament, by virtue of Entry 40, has got exclusive power to legislate on State lotteries. By virtue of Entry 34 in the State List, concerning betting and gambling, State Legislatures have the power to legislate on lotteries, other than State Lotteries because it is also one of the forms of gambling ((2016) 2 SCC 161). 

It is under Entry 40 that the Union Government had enacted The Lottery Regulation Act, 1998 (Regulation Act). As per the Regulation Act, to initiate any State lottery it is left to the policy of each State by following the conditions as laid down under Section 4 of the Regulation Act. Further, Section 5 of the Regulation Act empowers a State to prohibit the sale of lottery tickets organized by every other State. 

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The conditions laid down in Section 4 states that the entire sale proceeds have to be credited in the public account of the State. Sale of tickets is permitted through the state itself or agents or through distributors. Draws of all the lotteries have to be conducted by the State Government. No lottery can have more than one draw in a week. Bumper draws shall not be more than six in a calendar year. The cumulative effect of the conditions impose that a State can run only 52 ordinary lotteries and six bumper lotteries in a year.

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The validity of the Regulation Act was challenged before the Supreme Court in BR Enterprises v. State of UP AIR 1999 SC 1867. In this case, the Court had held that a lottery is a game of chance and is not a trade and commerce under Article 301 of the Constitution of India:

“.…………we have no hesitation to hold that sale of lottery tickets organised by the State could not be construed to be trade and commerce and even if it could be construed to be so, it cannot be raised to the status of ‘trade and commerce’ as understood at common parlance or ‘trade and commerce’ as used under Article 301.

Upholding the validity, the Supreme Court held that under Section 5 of the Regulation Act a state could not exclude other states (organising states) from distributing lotteries while permitting its own lottery:

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 Section There is also nothing in the language reading by itself so as to say, whether such power can be exercised by 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 interpretation, 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 State could only exercise such discretion if it decides not to have any lottery within its territory including its own lottery.”

In a subsequent judgment, in All Kerala Online Lottery Dealers Associations v. State of Kerala  (2016) 2 SCC 161, the Supreme Court held that online lotteries and paper lotteries are different as a class and a state can prohibit one class while permitting the other class:

Meaning thereby, if a paper lottery is being prohibited by a particular State then that paper lottery has to be prohibited as a whole. Likewise, if online or internet lottery is to be prohibited by a State then that online lottery or internet lottery of all States including that State also has to be prohibited.

In doing so, the Supreme Court distinguished from the principle of the BR Enterprises case. Prior to the Regulation Act, different States have enacted a legislation regulating the lotteries which in some cases were the legislations even prior to the enforcement of the Constitution, levying tax on the sale of lottery tickets. The states, in absence of specific central legislation, had obtained consent to legislate by way presidential orders 

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After the enactment of the Regulation Act, the central government has issued the Lottery (Regulation) Rules, 2010 (Central Rules) and states have enacted state specific rules. For example, Meghalaya has enacted Mizoram Lotteries (Regulation) Rules, 2011. The Regulation Act, Central Rules, and state specific rules form the law governing the regulation of State lotteries in India. 

As said earlier, sale of tickets alone is permitted through itself or through the agents or through distributors. The oraganising states have accordingly appointed distributors and selling agents for lotteries in accordance with rules framed by the states.  You are required to obtain necessary licenses and registrations from organising states if you wish to do business in state lottery distribution and sales.

As on date, only a handful of states permit lotteries which predominantly are form North East India. The states that permit state run lotteries are as follows:

StateStatus 
Arunachal PradeshPermitted (paper and online)
KeralaPermitted (only paper)
Maharashtra Permitted (paper and online)
Manipur Permitted (paper and online)
Mizoram Permitted (paper and online)
MeghalayaPermitted (paper and online)
NagalandPermitted (paper and online)
Punjab Permitted (only paper)
Sikkim Permitted (paper and online)
West Bengal Permitted (only paper)

West Bengal is the biggest market for the paper lottery business.

As said earlier, private lottery qualify as gambling under Entry 34 and so far no state has enacted a law regulating or permitting private lotteries. This means it is illegal to operate a private lottery business in India.

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