The State of Bombay Vs. R. M. D.
Chamarbaugwala  INSC 33 (9 April 1957)
DAS, SUDHI RANJAN (CJ) AIYYAR, T.L.
VENKATARAMA SINHA, BHUVNESHWAR P.
CITATION: 1957 AIR 699 1957 SCR 874
Lottery--Prize competitions, if and when of a
gambling mature--Legislation taxing Promoters of such competition carried on
through newspaper printed and Published outside the
State--Validity-Test-Territorial nexus--Gambling, if trade and commerce within
the meaning of the Constitution--Constitutionality of enactment--Bombay
Lotteries and Prize Competition Control and Tax Act (Bom. LIV of 1948), as
amended by the Bombay Lotteries and Prize Competition Control and Tax
(Amendment) Act (Bom. XXX of 1952), ss. 2(I) (d), 12 A--Constitution of India, Arts.
19(1) (g), 301.
The first respondent was the founder and
Managing Director of a company, the second respondent in the appeal, which was
incorporated in the State of Mysore and conducted a Prize Competition called
the R. M. D. C. Cross-words through a weekly newspaper printed and published at
Bangalore. This paper had a wide circulation in the State of Bombay, where
the respondents set up collection depots to receive entry forms and fees,
appointed local collectors and invited the people by advertisements in the
paper to participate in the competitions. On November 20, 1952, the Bombay
Legislature passed the Bombay Lotteries and Prize Competitions Control and Tax
(Amendment) Act of 1952, and widened the scope of the definition of 'prize
competition ' contained in S. 2(1) (d) of the Bombay Lotteries and Prize
Competition Control and Tax Act of 1948, so as to include prize competitions
carried on through newspapers printed and published outside the State and
inserted a new section, S. 12A, levying a tax on the promoters of such
competitions for sums collected from the State. Thereupon, on December 18, 1952, the respondents moved the High Court of Bombay under Art. 226 of the
Constitution and contended that the Act as amended and the Rules framed there under
in so far as they applied to such prize competitions were ultra vires the State
Legislature and violated their fundamental rights under Art. 19(1) (g) and
freedom of inter-State trade under Art. 301 of the Constitution. The Single
Judge who heard the matter in the first instance as also the court of appeal
found in favour of the respondents, though on somewhat different grounds, and
the State of Bombay preferred the appeal. The principal question canvassed in
this Court related to the validity. or otherwise of the impugned Act. It was
contended on behalf of the appellant that the impugned Act was -a law relating
to betting and gambling and as such was covered 875 by Entries 34 and 62 of
List II in the Seventh Schedule to the Constitution, whereas the contention of
the respondents was that the Act was with respect to trade and commerce and
came under Entries 26 and 60 of that List.
Held, that in testing the validity of an Act
it was necessary, in the first place, to decide whether it was with respect to
a topic assigned to the legislature and, secondly, where it was so and the
legislature was a State Legislature and the Act purported to operate beyond the
State, whether there was sufficient territorial nexus to validate such
operation and, lastly, whether the powers of the legislature were in any other
way fettered by the Constitution. So judged, the impugned Act was a perfectly
valid legislation and its constitutionality was beyond question.
Regard being had to the purpose and scope of
the Act read as a whole there could be no doubt that all the categories of
prize competitions included in the definition contained in s. 2(1) (d) of the
Act were of a gambling nature. The qualifying' clause appearing at the end of
cl. (1) must apply to each of the five kinds enumerated therein, and the word
'or' appearing after the word I promoters' and before the word 'for' in the
clause must be read as 'and'.
Similarly, cl. (ii), properly construed,
could not include any prize competitions other than those of a gambling nature.
Elderton v. Totalisator Co. Ltd., (1945) 2
All E. R. 624, held inapplicable.
The impugned Act was, therefore, a
legislation with respect to betting and gambling and fell under Entry 34 of
List II of the Seventh Schedule to the Constitution and was within the
competence of the State Legislature.
Taxes on gambling are a well recognised group
of indirect taxes and s. 12A of the Act in seeking to tax the gross collections
in the hands of the promoters, and not their profits, was only following an
easy and convenient way of getting at the gambler's money in their hands and
this made no difference in the character of the tax, essentially one on betting
and gambling and not on any trade, and, consequently, the section fell within
Entry 62 and not Entry 6o of List II of the Seventh Schedule to the
A prize competition that did not to a
substantial degree depend upon the exercise of skill for its solution would be
of a gambling nature and a scrutiny of the prize competitions offered by the
respondents clearly showed that there was an element of chance to start with,
and, consequently, they must be of a gambling nature and fell within the
mischief of the Act.
The doctrine of territorial nexus was a
well-established doctrine and could apply only when (1) the territorial
connection between the persons sought to be taxed and the legislating State was
real and not illusory and (2) the liability sought to be imposed was pertinent
to that connection. The existence of sufficient 876 territorial nexus in a
particular case was essentially a question of fact. There could hardly be any
doubt in the instant case that the impugned Act satisfied all these tests and,
consequently, it was unassailable on the ground of extra-territoriality.
Gambling activities were in their very nature
and essence extra-commercium although they might appear in the trappings of
trade. They were considered to be a sinful and pernicious vice by the ancient
seers and law-givers of India and have been deprecated by the laws of England,
Scotland, United States of America and Australia. The Constitutionmakers of
India, out to create a welfare State, could never have intended to raise
betting and gambling to the status of trade, business, commerce or intercourse.
The petitioners, therefore, had no
fundamental right under Art. 19(1) (g) or freedom under Art. 301 Of the
Constitution in respect of their prize competitions that could be violated and
the validity of the impugned Act, in pith and substance an Act relating to
gambling, did not fall to be tested by Arts. 19(6) and 304 Of the Constitution.
judicial decisions on Art. 1, s. 8, sub-s.
(3) Of the Constitution of the United States and S. 92 of the Australian
Constitution should be used with caution and circumspection in construing Arts.
19(1) (g) and 301 of the Indian Constitution.
State of Travancore-Cochin v. The Bombay Co.
Ltd. (1952) S.C.R. 1112 and P. P. Kutti Keya v. The State of Madras, A.I.R.
(1954) Mad. 621, referred to.
The King v. Connare, (1939) 61 C.L.R. 596,
The King v. Martin, (1939) 62 C.L.R. 457, Commonwealth of Australia v. Bank of
New South Wales, L.R. (195o) A.C. 235, Mansell v. Beck, Australian Law journal
Vol. 3o, NO. 7, P. 346, Champion v. Ames, 47 L.Ed. 492, Hipolite Egg Co. v.
United States, 55 L.Ed. 364, Hoke v. United States, 57 L.Ed. 523, United States
v. Kahriger, 97 L.Ed. 754 and Lewis v. United States, 99 L.Ed.475, discussed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 134 of 1956.
Appeal under articles 132 (1) and 133 (I) (c)
of the Constitution of India from the Judgment and Order dated January 12,
1955, of the Bombay High Court in Appeal No. 72 of 1954 arising out of the
Judgment and Order dated April 22, 1954, of the Bombay High Court in its Original
Civil Jurisdiction in Miscellaneous Application No. 365 of 1952.
C. K. Daphtary, Solicitor-General of India,
H. M. Seervai, Porus A. Mehta and R. H. Dhebar, for the appellant.
877 M. C. Setalvad, Attorney-General for
India, Sir N. P. Engineer, N. A. Palkhivala, R. A. Gagrat, S. V. Subramanian,
and G. Gopal Krishnan, for the respondents.
G. R. Ethirajulu Naidu, Advocate-General,
Mysore, Porus A. Mehta and T. M. Sen, for the intervener.
1957. April 9. The Judgment of the Court was
delivered by DAS C.J.-This is an appeal by the State of Bombay from the
judgment and order passed on January 12, 1955, by the Court of Appeal of. the
High Court of Judicature of Bombay confirming, though on somewhat different
grounds, the judgment and order passed on April 22, 1954, by a single Judge of
the said High Court allowing with costs the present respondents' petition under
Art. 226 of the Constitution of India. The said petition was presented before
the High Court of Judicature at Bombay on December 18, 1952. In the said
petition there were two petitioners who are now the two respondents to this
appeal. The first petitioner is an individual who claims to be a citizen of
India and the founder and Managing Director of the second petitioner, which is
a company incorporated in the State of Mysore and having its registered head
office at 2, Residency Road, Bangalore in that State. That petition was further
supported by an affidavit sworn by the first petitioner on the same day.
The allegations appearing in the said petition
and affidavit may now be shortly stated. In July, 1946 the first petitioner
applied for and obtained from the then Collector of Bombay a licence, being
Licence No. 84 of 1946, for the period ending March 31, 1947, to conduct what
was known as the Littlewood's Football Pool Competitions in India. That licence
was granted to the first petitioner under the provisions of the Bombay Prize
Competitions Tax Act, (Bom. XI of 1939) (hereinafter referred to as the 1939
Act), which was then in force. The said licence was renewed for a period of one
year from April 1, 1947 to March 31, 1948.
During that period the first petitioner paid,
by way of competition tax, to the Bombay Provincial 113 878 Government a sum of
rupees one lakh per annum. The Government of Bombay having declined to renew
the first petitioner's licence for a further period, the first petitioner filed
a petition under s. 45 of the Specific Relief Act in the High Court of Bombay,
which was eventually, after various proceedings, dismissed by the court of
appeal on or about March 28, 1949.
In the meantime, in view of the delay and
difficulty in obtaining a renewal of the licence in Bombay, the first
petitioner in or about August, 1948, shifted his activities from Bombay to the
State of Mysore, where he promoted and on February 26,1949, got incorporated a
company under the name of R.M.D.C. (Mysore) Limited, which was the second
petitioner in the High Court and is the second respondent before us. The first
petitioner, who was the promoter of the second petitioner became the Managing
Director of the second petitioner. All the shareholders and Directors of the
second petitioner are said to be nationals and citizens of India. The second
petitioner also owns and runs a weekly newspaper called " Sporting Star
", which was and is still printed and published at Bangalore in a Press
also owned by the second petitioner. It is through this newspaper that the
second petitioner conducts and runs a Prize Competition called the R.M.D.C.
Crosswords for which entries are received from various parts of India including
the State of Bombay through agents and depots established in those places to
collect entry forms and fees for being forwarded to the head office at
The 1939 Act was replaced by the Bombay
Lotteries and Prize Competition Control and Tax Act (Bom. LIV of 1948),
(hereinafter referred to as the 1948 Act) which came into force on December 1,
1948. The 1939 Act as well as the 1948 Act, as originally enacted, did not
apply to prize competitions contained in a newspaper printed and published
outside the Province of Bombay. So the Prize Competition called the R.M.D.C.
Crosswords was not affected by either of those two Acts.
On June 21, 1951, the State of Mysore,
however, enacted the Mysore Lotteries and Prize Competition 879 Control and Tax
Act, 195 1, which was basedupon the lines of the said 1948 Act. That Mysore Act
having come into force on February 1, 1952, the second petitioner applied for
and obtained a licence under that Act and paid the requisite licence fees and
also paid and is still paying to the State of Mysore the tax at the rate of 15%
(latterly reduced to 121%) of the gross receipts in respect of the R.M.D.C. Crosswords
Prize Competition and continued and is still continuing the said Prize
Competition through the said weekly newspaper "The Sporting Star" and
to receive entry forms with fees from all parts of the territory of India
including the State of Bombay. It is said, on the strength of the audited books
of account, that after distribution of prizes to the extent of about 33% of the
receipts and after payment of taxes in Mysore amounting to about 15% and
meeting the other expenses aggregating to about 47%, the net profit of the
second petitioner works out to about 5% only.
On November 20, 1952, the State of Bombay
passed The Bombay Lotteries and Prize Competitions Control and Tax (Amendment)
Act (Bom. XXX of 1952). This Act amended the provisions of the 1948 Act in
several particulars. Thus, the words " but does not include a prize competition
contained in a newspaper printed and published outside the Province of
Bombay", which occurred in the definition of Prize Competition in s. 2 (1)
(d) of the 1948 Act, were deleted and the effect of this deletion was that the
scope and the application of the 1948 Act so amended became enlarged and
extended so as to cover prize competitions contained in newspapers printed and
published outside the State of Bombay. After cl. (d) of s. 2 (1) the Amending
Act inserted a new cl. (dd) which defined the word "Promoter ".
A new section was substituted for the old s.
12 and another new section was inserted after s. 12 and numbered as a. 12A.
By this new s. 12A provision was made for the
levy in respect of every prize competition contained in a newspaper or a
publication printed outside the State of Bombay for which a licence was
obtained under the Act of a tax at such rates as might be specified not
exceeding the 880 rates specified in s. 12 or in a lump sum having regard to
the circulation or distribution of the newspaper or publication in the State of
Bombay. It is pointed out that the margin of net profit being only 5%, if tax
has to be paid to the State of Bombay under the 1948 Act, as amended,
(hereinafter referred to as the impugned Act) the second petitioner will be
unable to carry on its prize competition except at a loss.
Reference is also made to the rules framed by
the State of Bombay called the Bombay Lotteries -and Prize Competition Control
and Tax Rules, 1952 (herein-' after called the said Rules), which came into
force on and from December 8, 1952.
The said Rules require the petitioner to
apply for and obtain a licence in Form " H " which imposes certain
onerous conditions. The petitioners point out that it would be impossible for
them, in a commercial sense and from a practical point of view, to run the
prize competitions in the territory of India if they are required to comply not
only with the restrictions and conditions imposed by the Mysore State where the
newspaper is printed and published but also with the varying and different
restrictions, conditions and taxes imposed by the State of Bombay and other
States in the territory of India where the said newspaper containing the
advertisements; of the said prize competitions are circulated. The petitioners
submit that the provisions of the impugned Act and the Rules, in so far as they
apply to prize competitions contained in newspapers and other publications
printed and published outside the State of Bombay, are ultra vires void and
inoperative in law.
Upon the presentation of the petition a Rule
was issued calling upon the State of Bombay to appear and show cause, if any it
had, why the writ or orders prayed for should not be issued or made. The State
of Bombay filed an affidavit raising several technical legal objections to the
maintainability of the petition and refuting the allegations and submissions
contained therein and in the supporting affidavit. It submitted that, as the
second petitioner was a corporation , and the first petitioner, who was a
Managing Director 881 thereof, had no rights independent of the second
petitioner, neither of them could lay any claim to any fundamental right under
Art. 19(1) (g) and no question could arise of any violation of the petitioner's
alleged fundamental rights.
It further submitted that, having. Regard to
the fact that lotteries and prize competitions were opposed to public policy,
there could be no " business " in promoting a lottery or a prize
competition and the question of the violation of the petitioners' alleged
rights under Art.
19(1) (g) of the Constitution did not arise.
It was also contended that if the provisions of the Act and the Rules operated
as restrictions, then the same were reasonable and in the interest of the
general public. Likewise it was submitted that, having regard to the fact that
lotteries and prize competitions are opposed to public policy, there could be
no "business " in promoting a lottery or a prize competition and the
question of the violation of the provisions of Art. 301 of the Constitution did
It was denied that ss. 10 and 12 of the Act
violated the equal protection clause of the Constitution. An affidavit in reply
was filed by the first petitioner traversing the allegations, submissions and
contentions set forth in the affidavit in opposition filed on behalf of the
State of Bombay.
The main contentions of the present
respondents before the trial Judge were:(a)The impugned Act and particularly
its taxing provisions were beyond the competence of the State Legislature and
invalid inasmuch as they were not legislation with respect to betting and
gambling under Entry 34 or with respect to entertainments and amusements under
Entry 33 or with respect to taxation on entertainments and amusements, betting.
and gambling under Entry 62 of the State List. The legislation was with respect
to trade and commerce and the tax levied by the Impugned Act was a tax on the
trade or calling of conducting prize competitions and fell within Entry 60 of
the State List.
(b) The respondents' prize competition was
not a lottery and could not be regarded as gambling 882 inasmuch as it was a
competition in which skill, knowledge and judgment had real and effective play.
(c) The impugned Act itself contained
distinct provisions in respect of prize competitions and lotteries ,-thereby
recognising that prize competitions were not lotteries.
(d) The said tax being in substance and fact
a tax on the trade or business of carrying on prize competitions it offended
against s. 142A (2) of the Government of India Act, 1935 and Art. 276 (2) of
the Constitution which respectively provide that such a tax shall not exceed
fifty rupees and two hundred and fifty rupees per annum.
(e) The impugned Act was beyond the
legislative competence of the Bombay Legislature and invalid as it was
legislation with respect to trade and commerce not within but outside the
(f) The impugned Act operated
extra-territorially inasmuch as it affected the trade or business of conducting
prize competitions ' outside the State and was, therefore, beyond the
competence of the State Legislature and invalid.
(g) The impugned Act offended against Art.
301 of the Constitution inasmuch as it imposed restrictions on trade, commerce
and intercourse between the States and was not saved by Art. 304 (b) of the
(h) The restrictions imposed by the impugned
Act on the trade or business of the petitioners were not reasonable
restrictions in the interests of the general public and, therefore, contravened
the fundamental right of the petitioners, who were citizens of India, to carry
on their trade or business under Art. 19 (1) (g) of the Constitution.
(i) That ss. 10, 12 and 12A of the said Act
offended against Art. 14 of the Constitution inasmuch as they empowered discrimination
between prize competitions contained in newspapers or publications printed and
published within the State and those printed and published outside the State.
The State of Bombay, which is now the
appellant before us, on the other hand, maintained that 883 (a) The prize
competitions conducted by the petitioners were a lottery.
(b) The provisions of the impugned Act were
valid and competent legislation under Entries 33, 34 and 62 of the State List.
(c)The impugned Act was not extra-territorial
in its operation.
(d)The prize competitions conducted by the
petitioners were opposed to public policy and there could therefore be no trade
or business of promoting such prize competitions.
(e)As the petitioners were not carrying on a
trade or business, no question of offending their fundamental rights under Art.
19 (1) (g) or of a violation of Art. 301 of the Constitution could arise.
(f)The second petitioner being a Corporation
was not a citizen and could not claim to be entitled to the fundamental right
under Art. 19 (1) (g) of the Constitution.
(g)In any event the restrictions on the
alleged trade or business of the petitioners imposed by the Act were reasonable
restrictions in the public interest within the meaning of Art. 19 (6) and Art.
304 (b) of the Constitution.
The trial Judge held:
(a)The tax levied under ss. 12 and 12A of the
Act was not a tax on entertainment, amusement, betting or gambling but that it
was a tax on the trade or calling of the respondents and fell under Entry 60
and not under Entry 62 of the State List.
(b)The prize competition conducted by the
petitioners was not a lottery and it could not be said to be either betting or
gambling inasmuch as it was a competition in which skill, knowledge and
judgment on the part of the competitors were essential ingredients.
(c)The levy of the tax under the said
sections was void as offending against Art. 276 (2) of the Constitution.
(d)The restrictions imposed by the impugned
Act and the Rules there under offended against Art. 301 of the Constitution and
were not saved by Art, 884 304(b) inasmuch as the restrictions imposed were
neither reasonable nor in the public interest.
(e)The second petitioner, although it was a
company, was a citizen of India and was entitled to the protection of Art.
19 of the Constitution.
(f)The restrictions imposed by the impugned
Act and the Rules made thereunder were neither reasonable nor in the interests
of the general public and were void as offending against Art. 19 (1) (g) of the
In the result the rule nisi was made absolute
and it was further ordered that the State of Bombay, its servants and agents,
do forbear from enforcing or taking any steps in enforcement, implementation,
furtherance or pursuance of any of the provisions of the impugned Act and the
1952 Rules made there under and particularly from -enforcing any of the penal
provisions against the petitioners, their Directors, officers, servants or
agents and that the State of Bombay, its servants and agents, do allow the
petitioners to carry on their trade and business of running the Prize
Competition mentioned in the petition and do forbear from demanding, collecting
or recovering from the petitioners any tax as provided in the impugned Act or
the said Rules in respect of the said Prize Competition and that the State of
Bombay do pay to the petitioners their costs of the said applications.
Being aggrieved by the decision of the trial
Judge, the State of Bombay preferred an appeal on June 8, 1954. The Court of
Appeal dismissed the appeal and confirmed the order of the trial Judge, though
on somewhat different grounds.
It differed from the learned trial Judge on
the view that he had taken that there was no legislative competence in the
Legislature to enact the legislation. It held that the topic of legislation was
I gambling' and the Legislature was competent to enact it under Entry 34 of the
State List. It, however, agreed with the learned trial Judge that the tax
levied under s. 12A was not a tax on gambling but that it was a tax which fell
under Entry 60. It held that there was 885 legislative competence in the
Legislature to impose that tax but that the tax was invalid because it did not
comply with the restriction contained in Art. 276 (2) of the Constitution. It
also took the view that the tax, even assuming it was a tax on betting or
gambling, could not be justified -because it did not fall under Art. 304 (b).
It differed from the learned trial Judge when he found as a fact that the
scheme underlying the prize competitions was not a lottery and came to the
conclusion that the Act applied to the prize competitions of the respondents.
It held that the challenge of the petitioners to the impugned provisions
succeeded because the restrictions contained in the impugned Act controlling the
business of the petitioners could not be justified as the requirements of the
provisions of Art. 304 (b) had not been complied with. The High Court agreed
with the learned trial Judge that the petitioners' prize competitions were
their "business " which was entitled to the protection guaranteed
under the Constitution. It took the view that although the activity of the
petitioners was a lottery, it was not an activity which was against public
interest and, therefore, the provisions of Part XIII of the Constitution
applied to the respondents' business.
Being aggrieved by the said judgment of the
Court of Appeal, the appellant applied for and obtained under Arts.
132(1) and 133(1) of the Constitution a
certificate of fitness for appeal to this Court and hence this appeal before
The principal question canvassed before us
relates to the validity or otherwise of the impugned Act. The Court of Appeal
has rightly pointed out that when the validity of an Act is called in question,
the first thing for the court to do is to examine whether the Act is a law with
respect to a topic assigned to the particular Legislature which enacted it. If
it Is, then the court is next to consider whether, in the case of an Act passed
by the Legislature of a Province (now a State), its operation extends beyond
the boundaries of the Province or the State, for under the provisions
conferring legislative powers on it such Legislature can only make a law for
its territories or any part thereof 114 886 and its laws cannot, in the absence
of a territorial nexus, have any extra territorial operation. If the impugned
law satisfies both these tests, then finally the court has to ascertain if
there is anything in any other part of the Constitution which places any fetter
on the legislative powers of such Legislature. The impugned law has to pass all
these three tests.
Taking the first test first, it will be
recalled that the 1948 Act was enacted by the Provincial Legislature of Bombay
when the Government of India Act, 1935, was in force. Under ss. 99 and 100 of
that Act the Provincial Legislature of Bombay had power to make laws for the
Province of Bombay or any part thereof with respect to any of the matters
enumerated in List 11 in the Seventh Schedule to that Act.
It will also be remembered that the 1948 Act
was amended by Bombay Act XXX of 1952 after the Constitution of India had come
into operation. Under Arts. 245 and 246, subject to the provisions of the
Constitution, the Legislature of the State of Bombay has power to make laws for
the whole or any part of the State of Bombay with respect to any of the matters
enumerated in List II of the Seventh Schedule to the Constitution. The State of
Bombay, which is the appellant before us, claims that the impugned Act
including s. 12A is a law made with respect to topics covered by Entries 34 and
62 of List II in the Seventh Schedule to the Constitution which reproduce
Entries 36 and 50 of List II in the Seventh Schedule to the Government of India
Act, 1935. On the other hand, the petitioners, who are respondents before us,
maintain that the impugned Act is legislation under Entries 26 and 60 in List
11 of the Seventh Schedule to the Constitution corresponding to Entries 27 and
46 of List II in the Schedule to the Government of India Act, 1935, and that,
in any event, s. 12A of the impugned Act, in so far as it imposes a tax, comes
under Entry 60 of List II in the Seventh Schedule to the Constitution
corresponding to Entry 46 of List II in the Seventh Schedule to the Government
of India Act, 1935, and not under Entry 62 of List 11 in the Seventh Schedule
to the Constitution corresponding to Entry 50 of List 11 in the Seventh
Schedule to the 887 Government of India Act, 1935, and that as the tax imposed
exceeds Rs. 250/it is void under Art. 276 (2) which reproduces s. 142A of the
Government of India Act, 1935.
Reference will hereafter be made only to the
relevant Entries of List II in the Seventh Schedule r, to the Constitution, for
they are substantially in the same terms as the corresponding Entries of List
11 in the Seventh Schedule to the Government of India Act, 1935. For easy
reference, the relevant Entries in List II in the Seventh Schedule to the
Constitution are set out below:
" 26. Trade and commerce within the
State subject to the provisions of Entry 33 of List III.
34. Betting and gambling.
60. Taxes on professions, trades, callings,
62. Taxes on luxuries, including taxes on
entertainments, amusements, betting and gambling." In order to correctly
appreciate the rival contentions and to come to a decision as to the particular
Entry or Entries under which the impugned Act including s. 12A thereof has been
enacted, it is necessary to examine and to ascertain the purpose and scope of
the impugned legislation. It may be mentioned that the 1939 Act was enacted to
regulate and levy a tax on prize competitions in the Province of Bombay.
It did not deal with lotteries at all. That
Act was repealed by the 1948 Act which was enacted to control and to levy a tax
not only on prize competitions but on lotteries also. It is not unreasonable to
conclude that the clubbing together of lotteries and prize competitions in the
1948 Act indicates that in the view of the Legislature the two topics were, in
a way, allied to each other. As already indicated, the 1948 Act was amended in
1952 by Bombay Act XXX of 1952 so as to extend its operation to prize
competitions contained in newspapers printed and published outside the State of
Bombay. In s. 2(1) (d) of the impugned Act will be found the definition of
" prize competition " to which reference will be made hereafter in
greater detail. Clause (dd) was inserted in s. 2(1) in 1952 defining
Section 3 declares that subject to the 888
provisions of the Act, all lotteries and all prize competitions are unlawful.
This is a clear indication that the legislature regarded lotteries and prize
competitions as on the same footing and declared both of them to be unlawful,
subject, of course, to the provisions of the Act. Section 4 creates certain
offences in connection with lotteries and competitions punishable, as therein
mentioned. We may skip over ss. 5 and 6 which deal exclusively with lotteries
and pass on to s. 7. Section 7 provides that a prize competition shall be
deemed to be an unlawful prize competition unless a licence in respect of such
competition has been obtained by the promoter thereof. There are two provisos
to the section which are not material for our present purpose. Section 8
imposes certain a additional penalty for contravention of the provisions of s.
7. -Section 9 regulates the granting of licences on such fees and conditions
and in such form as may be prescribed, that is to say prescribed by rules.
Section 10 makes it lawful for the Government, by general or special order, to,
inter alia, prohibit the grant of licences in respect of a lottery or prize
competition or class of lotteries or prize competitions throughout the State or
in any area. Section II empowers the Collector to suspend or cancel a licence
granted under this Act in certain circumstances therein specified. Section 12
authorises the levy of a tax on lotteries and prize competitions at the rate of
25% of the total sum received Or due in respect of such lottery or prize
competition. This section directs that the tax shall be collected from the
promoter of such lottery or prize competition as the case may be. Sub-section
(2) of s. 12 empowers the State Government by a Notification in the official
Gazette, to enhance the rate of tax up to 50% of the total sum received or due
in respect of such prize competition as may be specified in the Notification.
Section 12A, which is of great importance for
-the purpose of this appeal, runs as follows:
" 12A. Notwithstanding anything
contained in section 12, there shall be levied in respect of every lottery or
prize competition contained in a newspaper or publication printed and published
outside the State, 889 for which a licence has been obtained under section 5, 6
or 7 , a tax at such rates as may be specified by the State Government in a
notification in the Official Gazette not exceeding the rates specified in
section 12 on the sums specified in the declaration made under section 15 by
the promoter of the lottery or prize competition as having been received or due
in respect of such lottery or prize competition or in a lump sum having regard
to the circulation or distribution of the newspaper or publication in the
State." Section 15 requires every person promoting a lottery or prize
competition of any kind to keep and maintain accounts relating to such lottery
or prize competition and to submit to the Collector statements in such form and
at such period as may be prescribed. It is not necessary for the purpose of
this appeal to refer to the remaining sections which are designed to facilitate
the main purpose of the Act and deal with procedural matters except to s. 31
which confers power on the State Government to make rules for the purpose of
carrying out the provisions of the Act. In exercise of powers so conferred on
it, the State Government has, by Notification in the Official Gazette, made
certain rules called the Bombay Lotteries and Prize Competitions Control and
Tax Rules, 1952, to which reference will be made hereafter.
The petitioners contend that the object of
the impugned Act is to control and to tax lotteries and prize competitions.
It is not the purpose of the Act to prohibit
either the lotteries or the prize competitions. They urge that the impugned Act
deals alike with prize competitions which may partake of the nature of gambling
and also prize competitions which call for knowledge and skill for winning
success and in support of this contention reliance is placed on the definition
of "prize competition" in s. 2(1)(d) of the impugned Act. We are pressed
to hold that the impugned Act in its entirety or at any rate in so far as it
covers legitimate and innocent prize competition is a law with respect to trade
and commerce under Entry 26 and not with respect to betting and gambling under
Entry 34. They also urge that in any event the taxing provisions, 890 namely
ss. 12 and 12A, are taxes on the trade of running prize competitions under
Entry 60 and not taxes on betting and gambling under Entry 62. We are unable to
accept the correctness of the aforesaid contentions for reasons which we
proceed immediately to state.
As it has already been mentioned, the
impugned Act replaced the 1939 Act which dealt only with prize competitions.
Section 2(2) of the 1939 Act defined
"prize competition" in the terms following:---2(2) "Prize
Competition " includes(a) crossword prize competition, missing words
competition, picture prize competition, number prize competition, or any other
competition, for which the solution is prepared beforehand by the promoters of
the competition or for which the solution is determined by lot;
(b)any competition in which prizes are
offered for forecasts of the results either of a future event or of a past
event the result of which is not yet ascertained or not yet generally known;
and (c) any other competition success in which does not depend to a substantial
degree upon the exercise of skill, but does not include a prize competition
contained in a newspaper or periodical printed and published outside the
Province of Bombay." The 1948 Act s. 2(1)(d), as originally enacted, substantially
reproduced the definition of " prize competition " as given in s.
2(2) of the 1939 Act. Section 2(1)(d) of the 1948 Act, as originally enacted,
ran as follows:
2(1)(d) "Prize Competition "
includes (i) cross-word prize competition, missing words prize competition,
picture prize competition, number prize competition, or any other competition
for which the solution is, prepared beforehand by the promoters of the
competition or for which the solution is determined by lot;
(ii)any competition in which prizes are
offered for forecasts of the results either of a future event or of a past
event the result of which is not yet ascertained or not yet generally known;
And 891 (iii)any other competition success in which does not depend to a
substantial degree upon the exercise of skill, but does not include a prize
competition contained in a newspaper printed and published outside the Province
of Bombay; " The collocation of words in the first category of the
definitions in both the 1939 Act and the 1948 Act as originally enacted made it
quite clear that the qualifying clause "for which the solution is prepared
beforehand by the promoters of the competition or for which the solution is
determined by lot " applied equally to each of the five kinds of prize
competitions included in that category and set out one after another in a
continuous sentence. It should also be noted that the qualifying clause
consisted of two parts separated from each other by the disjunctive word
"or". Both parts of the qualifying clause indicated that each of the
five kinds of prize competitions which they qualified were of a gambling
nature. Thus a prize competition for which a solution was prepared beforehand
was clearly a gambling prize competition, for the competitors were only invited
to guess what the solution prepared beforehand by the promoters might be, or in
other words, as Lord Hewart C. J. observed in Coles v. Odhams Press Ltd.
(1), " the competitors are invited to
pay certain number of pence to have the opportunity of taking blind shots at a
hidden target." Prize competitions to which the second part of the
qualifying clause applied, that is to say, the prize competitions for which the
solution was determined by lot, was necessarily a gambling adventure. On the
language used in the definition section of the 1939 Act as well as in the 1948
Act, as originally enacted, there could be no doubt that each of the five kinds
of prize competitions included in the first category to each of which the qualifying
clause applied was of a gambling nature. Nor has it been questioned that the
third category, which comprised " any other competition success in which
does not depend to a substantial degree upon the exercise of skill constituted
a (1) L.R. (1936) 1 K.B. 416.
892 gambling competition. At one time the
notion was that in order to be branded as gambling the competition must be one
success in which depended entirely on chance. If even a scintilla of skill was
required for success the competition could not be regarded as of a gambling
nature. The Court of Appeal in the judgment under appeal has shown how opinions
have changed since the earlier decisions were given and it is not necessary for
us to discuss the matter again. It will suffice to say that we agree with the
Court of Appeal that a competition in order to avoid the stigma of gambling
must depend to a substantial degree upon the exercise of skill. Therefore, a
competition success wherein does not depend to a substantial degree upon the
exercise of skill is now recognised to be of a gambling nature. From the above
discussion it follows that according to the definition of prize competition
given in the 1939 Act as in the 1948 Act as originally enacted, the five kinds
of prize competitions comprised in the first category and the competition in
the third category were all of a gambling nature. In between those two
categories of gambling competitions were squeezed in, as the second category,
"competitions in which prizes were offered for forecasts of the results
either of a future event or of a past event the result of which is not yet
ascertained or is not yet generally known." This juxtaposition is
important and significant and will hereafter be discussed in greater detail.
As already stated the 1948 Act was amended in
1952 by Bombay Act XXX of 1952. Section 2(1)(d) as amended runs as follows:
Prize competition " includes(i) (1)
cross-word prize competition, (2) missing word prize competition, (3) picture
prize competition, (4) number prize competition, or (5) any other prize
competition, for which the solution is or is not prepared beforehand by the
promoters or for which the solution is determined by lot or chance;
(ii) any competition in which prizes are
offered for forecasts of the results either of a future event or of 893 a past
event the result of which is not yet ascertained or not yet generally known;
and (iii) any other competition success in which does not depend to a
substantial degree upon the exercise of skill;
It will be noticed that the concluding
sentence " but does not include a prize competition contained in a
newspaper printed and published outside the Province of Bombay" has been
deleted. This deletion has very far reaching effect, for it has done away with
the exclusion of prize competitions contained in a newspaper printed and
published outside the State of Bombay from the scope of the definition. In the
next place, it should be noted that the definition of prize competition still
comprises three categories as before. The second and the third categories are
couched in exactly the same language as were their counterparts in the earlier
definitions. It is only in the first category that certain changes are
noticeable. The five kinds of prize competitions that were included in the
first category of the old definitions are still there but instead of their
being set out one after another in a continuous sentence, they have been set
out one below another with a separate number assigned to each of them.
The qualifying clause has been amended by
inserting the words "or is not" after the word "is" and
before the word "prepared" and by adding the words "or chain
ce" after the word "lot". The qualifying clause appears, as
before, after the fifth item in the first category. It will be noticed that there
is a comma after each of the five items including the fifth item. The mere
assigning a separate number to the five items of prize competitions included in
the first category does not, in our judgment, affect or alter the meaning,
scope and effect of this part of the definition.
The numbering of the five items has not
dissociated any of them from the qualifying clause. If the qualifying clause
were intended to apply only to the fifth item, then there would have been no
comma after the fifth item. In our opinion, therefore, the qualifying clause
continues to apply to each of the five items as before the amendment. There is
grammatically no difficulty in reading 115 894 the qualifying clause as lending
colour to each of those items.
Accepting that the qualifying clause applies
to each of the five kinds of prize competitions included in the first category,
it is urged that the qualifying clause as amended indicates that the
Legislature intended to include innocent prize competitions within the
definition so as to bring all prize competitions, legitimate or otherwise,
within the operation of the regulatory provisions of the Act including the
taxing sections. The argument is thus formulated. As a result of the amendment
the qualifying clause has been broken up into three parts separated from each
other by the disjunctive word " or ". The, three parts are (1) for
which the solution is prepared beforehand by the promoters, (2) for which the
solution is not prepared beforehand by the promoters and (3) for which the
solution is determined by lot or chance. The first and the third parts of the
qualifying clause, it is conceded, will, when applied to the preceding five
kinds of prize competitions, make each of them gambling a ventures; gut it is
contended that prize competitions to which the second part of the qualifying
clause may apply, that is to say prize competitions for which the solution is
not prepared beforehand, need not be of a gambling nature at all and at any
rate many of them may well be of an innocent type. This argument hangs on the
frail peg of unskilful draftsmanship. It has been seen that in the old
-definitions all the five kinds of prize competitions included in the first
categorv were of a gambling nature. We find no cogent reason-and none has been
suggested-why the Legislature_which treated lotteries and prize competitions on
the same footing should suddenly enlarge the first category so as to include
innocent prize competitions. To hold that the first category of prize
competitions include innocent prize competitions will go against the obvious
tenor of the impugned Act. The 1939 Act dealt with prize competitions only and
the first category in the definition given there comprised only gambling
competitions. The 1948 Act clubbed together lotteries and prize competitions
and the first category of the prize competitions 895 included in the definition
'as originally enacted was purely gambling as both parts of the qualifying
clause clearly indicated. Section 3 of the Act declared all lotteries and all prize
competitions unlawful. There could be no reason for declaring innocent prize
competitions unlawful. The regulatory provisions for licensing and taxing apply
to all prize competitions. If it were intended to include.
innocent prize competitions in the first
category, one would have expected the Legislature to have made separate
provisions for the legitimate prize competitions imposing less rigorous
regulations than what had been imposed on illegitimate prize competitions. It
will become difficult to apply the same taxing sections to legitimate as well
as to illegitimate competitions. Tax on legitimate competitions may well be a
tax under Entry 60 on the trader who carries on the trade of innocent and
legitimate competition. It may be and indeed it has been the subject of serious
controversy whether an illegitimate competition can be regarded A a trade at
all and in one view of the matter the tax may have to be justified as a tax on
betting and gambling under Entry 62. Considering the nature, scope and effect
of the impugned Act we entertain no doubt whatever that the first category of
prizecompetitions does not include any innocent prize competition. Such is what
we conceive to be the clear intention of the Legislature as expressed in the
impugned Act read as a whole and to give effect to this obvious intention, as
we are bound to do, we have perforce to read the word "or" appearing
in the qualifying clause after the word "promoter" and before the
word "for" as "and". Well known canons of construction of Statutes
permit us to do so. (See Maxwell on the Interpretation of Statutes, 10th
edition, page 238).
A similar argument was sought to be raised on
a construction of cl. (ii) of s. 2(1) (d). As already stated, in between the
first and the third categories of prize competitions which, as already seen,
are of a gambling nature the definition has included a second category of
competitions in which prizes are offered for forecasts of the results either of
a future event or of a past event 896 the result of which is not yet
ascertained or not yet generally known. It is said that forecasts of such
events as are specified in the section need not necessarily depend on chance,
for it may be accurately done by the exercise of knowledge and skill derived
from a close study of the statistics of similar events of the past. It may be
that expert statisticians may form some idea of the result of an uncertain
future event but it is difficult to treat the invitation to the general public
to participate in these competitions as an invitation to a game of skill. The
ordinary common people who usually join in these competitions can hardly be
credited with such abundance of statistical skill as will enable them, by the
application of their skill, to attain success. For most, if not all, of them
the forecast is nothing better than a shot at a hidden target. Apart from the
unlikelihood that the Legislature in enacting a statute tarring both lotteries
and prize competitions with the same brush as indicated by s' 3 would squeeze
in innocent prize competitions in between two categories of purely gambling
varieties of them, all the considerations and difficulties we have adverted to
in connection with the construction of the ,first category and the qualifying
clause therein will apply mutatis mutandis to the interpretation of this second
Reliance is placed on s. 26 of the English
Betting and Lotteries Act, 1934 (24 and 25 Geo. V c. 58) in aid of the
construction of the second category of prize competitions included in the
definition given in the impugned Act. The relevant portion of s. 26 of the
aforesaid Act runs thus:
" 26. (1) It shall be unlawful to
conduct in or through any newspaper, or in connection with any trade or
business or the sale of any article to the public (a) any competition in which
prizes are offered for forecasts of the result either of a future event, or of
a past event the result of which is not yet ascertained or not yet generally
(b) any other competition success in which
does not depend to a substantial degree upon the exercise of skill.
897 It will be noticed that this section is
not a definition section at all but is a penal section which makes certain
competitions mentioned in the two clauses unlawful. Clause (a) of that section
which corresponds to our second category is not sandwiched between two
categories of gambling prize competitions. In Elderton v. Totalisator Co. Ltd.
(1) on which the petitioners rely the question was whether the football pool
advertised in newspapers by the appellant company came within the wide language
of cl. (a) of that section which was in Part II of the Act. Whether the
appellant company's football pool called for any skill on the part of the
"investors" or whether it was of a gambling nature was not directly
relevant to the discussion whether it fell within cl. (a). The penal provisions
of the English Act and the decision of the Court of Appeal throw no light on
the construction of our definition clause. Seeing that prize competitions have
been clubbed together with lotteries and dealt with in the same Act and seeing
that the second category of the definition of " prize competition "
is sandwiched in between the other two categories which are clearly of a
gambling nature and in view of the other provisions of the impugned Act and in
particular s. 3 and the taxing sections, we are clearly of opinion that the
definition of " prize competition " on a proper construction of the
language of s. 2(1) (d )in the light of the other provisions of the Act read as
a whole comprises only prize competitions which are of the nature of a lottery
in the wider sense, that is to say, of the nature of gambling. The Court of
Appeal took the view that although as a matter of construction the definition
did include innocent prize competitions, yet by the application of another
principle, namely, that a literal construction will make the law invalid
because of its overstepping the limitsof Entry 26, which comprises only trade
and commerce within the State, the definition should be read as limited only to
gambling prize competitions so as to make it a law with respect to betting and
gambling under Entry 34. It is not necessary for us in this case to consider
whether the (1) (1945) 2 A.E.R. 624.
898 principle laid down by Sir Maurice Gwyer
C. J. in the Hindu Women's Right to Property Act case (1) can be called in aid
to cut down the scope of a section by omitting one of two things when the
section on a proper construction includes two things, for we are unable, with
great respect, to agree with the Court of Appeal that on a proper construction
the definition covers both gambling and innocent competitions. In our view, the
section, on a true construction, covers only -gambling prize competitions and
the Act is a law with respect to betting and gambling under Entry 34. As, for
the foregoing reasons, we have already arrived at the conclusion just stated,
it is unnecessary for us to refer to the language used in the third category
and to invoke the rule of construction which goes by the name of noscitur a
sociis relied on by learned counsel for the appellant.
The next point urged is that, although the
Act may come under Entry 34, the taxing provisions of s. 12A cannot be said to
impose a tax on betting and gambling under Entry 62 but imposes a tax on trade
under Entry 60. Once it is held that the impugned Act is on the topic of
betting and gambling under Entry 34, the tax imposed 'by such a statute, one
would think, would be a tax on betting and gambling under Entry 62. The Appeal
Court has expressed the view that s. 12A does not fall within Entry 62, for it
does not impose a tax on the gambler but imposes a tax on the petitioners who
do not themselves gamble but who only promote the prize competitions. So far as
the promoters are concerned, the tax -levied from them can only be regarded as
tax on the trade of prize competitions carried on by them.
This.' with respect, is taking a very narrow
view of the matter. Entry 62 talks of taxes on betting and gambling and not of
taxes on the men who bet or gamble. It is necessary,, therefore, to bear in
mind the real nature of the tax. The tax imposed by s. 12A is, in terms, a
percentage of the sums specified in the declaration made under a. 15 by the
promoter or a lump sum having regard to the circulation and distribution of the
newspaper, or (1) (1941) F.C.R. 12. 899 publication in the State. Under s. 15
the promoter of a prize competition carried on in a newspaper or publication
printed and published outside the State is to make a declaration in such form and
at such period as may be prescribed. Form 'J' prescribed by r. 11 (c) requires
the promoter to declare, among other things, the total number of
tickets/coupons received for the competition from the State of Bombay and the
total receipts out of the sale of the tickets/coupons from the State of Bombay.
The percentage under a. 12A is to be calculated on the total sums specified in
the declaration. It is clear, therefore, that the tax sought to be imposed by
the impugned Act is a percentage of the aggregate of the entry fees received
from the State of Bombay. On ultimate analysis it is a tax on each entry fee
received from each individual competitor who remits it from the State of
Bombay. In gigantic prize competitions which the prize competitions run by the petitioners
undoubtedly are, it is extremely difficult and indeed well nigh impossible for
the State to get at each individual competitor and the provision for collecting
the tax from the promoters after the entry fees come into their hands is
nothing but a convenient method of collecting the tax. In other words, the
taxing authority finds it convenient in the course of administration to collect
the duty in respect of the gambling activities represented by each of the
entries when the same reaches the hands of the promoters. The tax on gambling
is a well recognised group of indirect taxes as stated by Findlay Shirras in
his Science of Public Finance, vol. II p. 680. It is a kind of tax which, in
the language of J. S. Mill quoted by Lord Hobhouse in Bank of Toronto v. Lambe
(1), is demanded from the promoter in the expectation and intention that he
shall indemnify himself at the expense of the gamblers who sent entrance fees
to him. That, we think, is the general tendency of the tax according to the
common understanding of men. It is not difficult for the promoters to pass on
the tax to the gamblers, for they may charge the proportionate percentage on
the amount of (1) L.R. (1887) 12 A.C. 575.
900 each entry as the seller of goods charges
the sales tax or he may increase the entrance fee from 4 annas to 5 annas 6
pies to cover the tax. If in particular circumstances it is economically
undesirable or practically impossible to pass on the tax to the gamblers, that
circumstance is not a decisive or even a relevant consideration for
ascertaining the true nature of the tax, for it does not affect the general
tendency of the tax which remains. If taxation on betting and gambling is to be
regarded as a means of controlling betting and gambling activities, then the easiest
and surest way of doing so is to get at the promoters who encourage and promote
the unsocial activities and who hold the gamblers' money in their hands. To
collect the tax from the promoters is not to tax the promoters but is a
convenient way of imposing the tax on betting and gambling and indirectly
taxing the gamblers themselves. It is to be noted that the tax here is not on
the profits made by the petitioners but it is a percentage of the total sum
received by them from the State of Bombay as entrance fees without the
deduction of any expense. This circumstance also indicates that it is not a tax
on a trade.
According to the general understanding of
men, as stated by Lord Warrington of Clyffe in Rex v. Caledonian Collieries
Ltd. (1), there are marked distinctions between a tax on gross collection and a
tax on income which for taxation purposes means gains and profits. Similar
considerations may apply to tax on trade. There is yet another cogent reason
for holding that the tax imposed by s. 12A is a tax on betting and gambling. In
enacting the statute the Legislature was undoubtedly making a law with respect
to betting and gambling under Entry 34 as here in before mentioned. By the
amending Act XXX of 1952 the Legislature by deleting the concluding words of
the definition of 'prize competition', namely, " but does not include
etc., etc., " extended the operation of the Act to prize competitions
carried on in newspapers printed and published outside the State of Bombay.
They knew that under Art. 276 which reproduced s. 142A of the Government of
India Act, (1) L.R. (1928) A.C. 358.
901 1935, they could not impose a tax
exceeding the sum of Rs. 250 on any trade or calling under Entry 60. If the tax
can be referable either to Entry 60 or to Entry 62, -then in view of the fact
that s. 12A will become at least partially, if not wholly, invalid as a tax on
trade or calling under Entry 60 by reason of Art. 276(2), the court must, in
order to uphold the section, follow the well established principle of construction
laid down by the Federal Court of India and hold that the Legislature must have
been contemplating to make a law with respect to betting and gambling under
Entry 62, for there is no constitutional limit to the quantum of tax which can
be imposed by a law made under that Entry.
For reasons stated above, we are satisfied
that s. 12A is supportable as a valid piece of legislation under Entry 62.
The next point urged by the petitioners is
that under Arts.
245 and 246 the Legislature of a State can
only make a law for the State or any part thereof and, consequently, the
Legislature overstepped the limits of its legislative field when by the
impugned Act it purported to affect men residing and carrying on business
outside the State. It is submitted that there is no sufficient territorial
nexus between the State and the activities of the petitioners who are not in
the State. The doctrine of territorial nexus is well established and there is
no dispute as to the principles.
As enunciated by learned counsel for the
petitioners, if there is a territorial nexus between the person sought to be
charged and the State seeking to tax him the taxing statute may be upheld.
Sufficiency of the territorial connection involves a consideration of two
elements, namely (a) the connection must be real and not illusory and (b) the
liability sought to be imposed must be pertinent to that connection. It is
conceded that it is of no importance on the question of validity that the
liability imposed is or may be altogether disproportionate to the territorial
connection. In other words, if the connection is sufficient in the sense
mentioned above, the extent of such connection affects merely the policy and
not the validity of the legislation. Keeping these principles in mind we have to
ascertain if in the case before us there 116 902 was sufficient territorial
nexus to entitle the Bombay.
Legislature to make the impugned law. The
question whether in a given case there is sufficient territorial nexus is
essentially one of fact. The trial court took the' view that the territorial
nexus was not sufficient to uphold the validity of the law under debate. The
Court of Appeal took a different view of the facts and upheld the law. We find
ourselves in agreement with the Court of Appeal. The newspaper "Sporting
Star" printed and published in Bangalore is widely circulated in the State
of Bombay. The petitioners have set up collection depots within the State to
receive entry forms and the fees. They have appointed local collectors. Besides
the circulation of the copies of the " Sporting Star ", the
petitioners print over 40,000 extra coupons for distribution which no doubt are
available from their local collectors. The most important circumstance in these
competitions is the alluring invitation to participate in the competition where
very large prizes amounting to thousands of rupees and sometimes running into a
lakh of rupees may be won at and for a paltry entrance fee of say 4 annas per
entry. These advertisements reach a large number of people resident within the
The gamblers, euphemistically called, the
competitors, fill up the entry forms and either leave it along with the entry
fees at the collection depots set up in the State of Bombay or send the same by
poet from Bombay. All the activities that the gambler is ordinarily expected to
undertake take place, mostly if not entirely, in the State of Bombay and after
sending the entry forms and the fees the gamblers hold their soul in patience
in great expectations that fortune may smile on them. In our judgment the
standing invitations, the filling up of the forms and the payment of money take
place within the State which is seeking to tax only the amount received by the
petitioners from the State of Bombay.
The tax is on gambling although it is
collected from the promoters. All these, we think, constitute sufficient
territorial nexus which entitles the State of Bombay to impose a tax on the
gambling that takes place within its boundaries and the law cannot be struck
down on the ground of extra territoriality.
903 Assuming that the impugned Act is well
within the legislative competence of the Bombay Legislature and that it is not
invalid on the ground of extra territorial operation, we have next to examine
and see if there is anything else in the Constitution which renders it invalid.
The petitioners contend that even if the prize competitions constitute gambling
transactions, they are nevertheless trade or business activities and that that
being so the impugned Act infringes the petitioners' fundamental right under
19(1)(g) 'of the Constitution to carry on
their trade or business and that the restrictions imposed by the Act cannot
possibly be supported as reasonable restrictions in the interests of the
general public permissible under Art.
19(6). The petitioners also point out that
the trade or business carried on by them is not confined within the limits of
the State of Mysore but extends across the State boundaries into other States
within the territories of India and even into lands beyond the Union of India
and they urge that in view of the inter-State nature of their trade or business
the restrictions imposed by the impugned Act offend against Art. 301 which
declares that, subject to the other provisions of Part XIII of the Constitution,
trade, commerce and intercourse throughout the territory of India shall be free
and cannot be supported under Art. 304(b), for the restrictions cannot be said
to be reasonable or required in the public interest and because the procedural
requirements of the proviso thereto had not been complied with. The State of
Bombay repudiates these contentions and submits that as prize competitions are
opposed to public policy there can be no "trade" or
"business"" in promoting a prize competition and the question of
infraction of the petitioner's fundamental right to carry on trade or business
guaranteed by Art. 19(1)(g) or of the violation of the freedom of trade,
commerce or intercourse declared by Art.
301 does not arise at all and that in any
event if Art.
19(1)(g) or Art. 301 applies at all, the
restrictions imposed by the impugned Act are reasonable restrictions necessary
in the interest of the general public and saved by Art. 19(6) and by Art.
304(b),of the Constitution. It is 904 conceded that the bill which became Act
XXX of 1952 and amended the 1948 Act in the manner here in before stated was
introduced in the Legislature of the State without the previous sanction of the
President and, consequently, the condition precedent to the validity of the resulting
Act as laid down in the proviso had not been complied with but it is submitted,
we think correctly, that the defect was cured, under Art. 255, by the assent
given subsequently by the President to the impugned Act. It is, however,
admitted by learned counsel appearing for the appellant State that under Art.
255 the subsequent assent of the President will save the Act if the other
condition embodied in Art. 304(b) as to the restrictions imposed by it being
reasonable in the public interest is held to be satisfied but it will not save
the rules framed under a. 31 of the impugned Act which had never been placed
before the President or assented to or approved by him. We now proceed to
examine and deal with these rival, contentions.
The first branch of the argument on this part
of the appeal raises a question of a very far reaching nature. The question
posed before us is: Can the promotion of prize competitions, which are opposed
to public policy, be characterised as a " trade or business " within
the meaning of Art. 19(1)(g) or "trade, commerce and intercourse"
within Art. 301 ? The learned trial Judge has expressed the view that if he
were able to hold that the prize competitions conducted by the petitioners were
of a gambling nature, he would have had no difficulty in concluding that they
were outside the protection of the Constitution. The Court of Appeal, however,
took a different view. What weighed with the Court of Appeal was the fact that
the legislature had not prohibited gambling outright but only made provisions
for regulating the same and further that the State was making a profit out of
these prize competitions by levying taxes thereon. It is necessary to consider
the arguments that have been adduced before us by learned counsel for the
parties in support of their respective contentions.
905 It will be noted that Art. 19(1) (g) in
very general -terms guarantees to all citizens the right to carry on any
occupation, trade or business and el. (6) of Art. 19 protects legislation which
may, in the interest of the general public, impose reasonable restrictions on
the exercise of the right conferred by Art. 19(1) (g). Likewise Art. 301
declares that trade, commerce and intercourse throughout the territory of India
shall be free but makes such declaration subject to the other provisions of
Part XIII of the Constitution. Arts. 302305, which are in that Part, lay down
certain restrictions subject to which the declaration contained in Art. 301 is
to operate. Article 302 empowers Parliament by law to impose restrictions on
the freedom of trade, -commerce or intercourse not only between one State and
another but also within the State, provided in either case such restrictions
are required in the public interest. Article 304 (b) authorises the State
Legislatures to impose reasonable restrictions on the freedom of trade,
commerce or intercourse with or within the States as may be required in the
public interest, provided the formalities of procedure are complied with Arts.
19(1) (g) and 301, it is pointed out are two facets -of the same thing-the
freedom of trade Art. 19(1)(g) looks at the matter from the point of view of
the individual citizens and protects their individual right to carry on their
trade or business, Art.
301 looks at the matter from the point of
view of the country's trade and commerce as a whole, as distinct from the
individual interests of the citizens and it relates to trade, commerce or
intercourse both with and within the States. The question which calls for our
decision is as to the true meaning, import and scope of the freedom so
guaranteed and declared by our Constitution. We have been referred to a large
number of -decisions bearing on the Australian and American Constitutions in
aid of the construction of the relevant articles of our Constitution.
In the Commonwealth of Australia Constitution
Act (63 and 64 Vic. c. 12) there is s. 92 from which our Art. 301 appears to
have been taken. The material part of a. 92 -runs thus:
906 On the imposition of uniform duties of
customs, trade, commerce and intercourse among the States, whether by means of
internal carriage or ocean navigation, shall be absolutely free.
It has been held in James v. Commonwealth of
Australia (1) that the word"' absolutely " adds nothing but emphasis
to the width of the section. In the same case it has also been stated and
decided that the section imposes a fetter on the legislative power not only of
the Commonwealth Parliament but also of the Parliament of the States. It has
been equally authoritatively held that the words " whether by means of
internal carriage or ocean navigation " occurring in the section do not
restrict its operation to such things and persons as are carried by land or sea
but that the section extends to all activities carried on by means of interstate
transactions (Commonwealth of Australia v. Bank of New South Wales (2) ). The
Privy Council in the last mentioned case has also said at p. 299 that it is no
longer arguable that freedom from customs or other monetary charges alone is
secured by the section. The idea underlying the section was that the Federation
in Australia should abolish the frontiers between the different States and
create one Australia and that conception involved freedom from customs duties,
import&, border prohibitions and restrictions of every kind, so that the
people of Australia would be free to trade with each other and to pass to and
fro from one State to another without any let or hindrance, or without any
burden or restriction based merely on the fact that they were not members of
the same State (James v. Commonwealth of Australia(1)).
One cannot but be struck by the sweeping
generality of language used in the section. Such a wide enunciation of the
freedom of inter-State trade, commerce and intercourse was bound to lead to
difficulties. The full import and true meaning of the general words had to be
considered, as years went past, in relation to the vicissitudes of altering
facts and circumstances which from time to time emerged. The changing
circumstances and the necessities compelled the court (1) L.R. (1936) A.C. 578,
(2) L.R. (1950) A.C. 235, 302$-303.
907 to reach the conclusion that the
conception of freedom of trade, commerce and intercourse in a community
regulated by law presupposed some degree of restriction on the individual.
Cases arose out of statutes enacted for restricting competition of privately
owned motor vehicles with publicly owned railways, or to compel users of motor
to contribute to the upkeep of the roads e.g. Willard v. Rawson (1); R. v.
Vizzard(2) and O. Gilpin Ltd. v. Commissioner of Road Transport and
Tramways(1). In each of these three cases the State law was upheld as not
offending against s.
92. Cases arose under statutes which were
sought to be supported on the ground of health. In Ex parte Nelson (No. 1) (4)
a New South Wales statute prohibited entry of cattle from tick infected area
until dipped. Applying the principle of pith and substance, it was held that
the restrictions looked at in their true light, were aids to and not
restrictions upon the freedom of inter-State trade, commerce and intercourse.
In Tasmania v. Victoria (5). the absolute prohibition of imports of potatoes
from Tasmania to Victoria could not on facts be supported as a health measure
and consequently was struck down as a violation of s. 92.
In James v. Commonwealth of Australia(6) came
up for consideration the Dried Fruits Act 1928-35 which prohibited the carrying
of any dried fruit from one State to another except under a licence and which
provided for penalty for its contravention. The regulations authorised the
Minister to direct the licensee to export a certain percentage of dried fruits
from Australia. The Minister by an order determined that it would be a
condition of the licence. that the licensee should export a percentage of the
dried fruits as therein mentioned. The appellant having refused to apply for a
licence, his consignments of dried fruits shipped from Aide for delivery at
Sydney in performance of contracts for sale were seized. The appellant brought
an action for damages for what he alleged to be a wrongful seizure. After
holding that the section bound the Parliament of (1) (1933) 48 C.L.R.316. (4)
(1928) 42.C.L.R. 209.
(2) (1933) 50 C.L.R. 30. (5)(1935) 52 C.L.R.
(3) (1935) 52 C.L.R. 189. (6) L.R. (1936)
A.C. 578, 627.
908 Commonwealth equally with those of the
States the Judicial Committee proceeded to say that the freedom declared in s. 92
must be somehow limited and the only limitation which emerged from the context
and which could logically and realistically apply was freedom at what was the
crucial point in inter-State trade, namely at the State barrier (p. 631). In
the later case of Commonwealth of Australia v. Bank of New South Wales (1) it
has been said that those words were to be read secundum subjectam materiam and
could not be interpreted as a decision either that it was only the passage of
goods which is protected by s. 92 or that it is only at the frontier that the
stipulated freedom might be impaired (p. 308).
Learned counsel for the State has strongly
relied on two decisions of the Australian High Court in both of which the
validity of a New South Wales Statute called the Lotteries and Art Unions Act
1901-1929 was called in question.
Section 21 of that Act provided:
"Whoever sells or offers for sale or accepts any money in respect of the
purchase of any ticket or share in a foreign lottery shall be liable to a
penalty." In the first of those two cases-The King v.
Connare(2)-the appellant offered for sale in
Sydney a ticket in a lottery lawfully conducted in Tasmania and was convicted
of an offence under s. 21. He challenged the validity of the law on the ground
that it interfered with the freedom of trade, commerce and intercourse among
the States and consequently violated the provisions of s. 92.
It was held by Starke, Dixon, Evatt and
(Latham C.J. and Rich J. dissenting) that the
provisions of s. 21 did not contravene s. 92 and the appellant was properly
convicted. Starke J. discussed the question as to whether the sale in -question
was an 'inter-State or intrastate transaction but did not think it necessary to
decide that question. After referring to the observations of Lord Wright in
James v. The Commonwealth (3) that the freedom declared by s. 92 meant freedom
at the frontier, the learned Judge observed that the question (1) L.R. (1950)
A.C. 235, 302-303: (2) (1939) 51 C.L.R.596.
(3) L.R. (1936) A.C. 578,627.
909 whether that freedom had been restricted
or burdened depended upon the true character and effect of the Act. He took the
view (at p. 616) that the main purpose of the Act was to prevent or suppress
lotteries and particularly, in ss. 19, 20 and 21, foreign lotteries and that it
was aimed at preventing what he graphically described as "illegitimate
methods of trading", if sales of lottery tickets were regarded as trading.
The learned Judge took note of the fact that New South Wales law allowed State
lotteries and concluded that the true character of the impugned Act was to
suppress gambling in foreign lottery tickets and examined from the historical
point of view, from, the character of the Act, its function and its effect upon
the flow of commerce, the Act did not, in his view, restrict or hinder the
freedom of any trade across the frontier of the States.
Dixon J., as he then was, gave two reasons
for his opinion, namely that the transaction was not in itself a transaction of
inter-State trade' commerce or intercourse but was a sale in New South Wales of
a ticket then in New South Wales and that, apart from the State lottery and
permitted charitable raffles, the Act suppressed uniformly the sale of all
lottery tickets in New South Wales. Adverting to the argument which, in
substance, asked the Court to declare that s. 92 had created an overriding
constitutional right to traffic or invest in lotteries so long as the
trafficker or investor could succeed in placing some boundary or other between
himself and the conductor of the lottery Evatt J. said at pp. 619-20:
it in my opinion such a proposition cannot be
supported in principle or by reference to authority. For it is obvious that the
appellant's argument also involves the assertion of the constitutional right of
a citizen, so long as he can rely upon, or if necessary artificially create,
some interState connection in his business, to sell indecent and obscene
publications, diseased cattle, impure foods, unbranded poisons, unstamped
silver, ungraded fruit and so forth." The obvious inconvenience and
undesirability of the effects to be produced if such extravagant arguments 117
910 were to prevail led the learned Judge to think (at p. 620) that in the
interpretation of s. 92 it was permissible to accept some postulates or axioms
demanded alike by the dictates of common sense and by some knowledge of what was
being attempted by the founders of the Australian Commonwealth. Making these
assumptions and concessions Evatt J. opined (at p. 621) that the guarantee
contained in s. 92 had nothing whatever,/ to say on the topic of interState
lotteries and could not be invoked to prevent either the suppression or the
restriction in the public interest of the practice of gambling or investing in
The learned Judge did not think that lottery
tickets could be regarded as goods or commodities which were entitled to the
protection of s. 92 and concluded thus at p. 628:
" If they are goods or commodities they
belong to a very special category, so special that in the interests of its
citizens the State may legitimately exile them from the realm of trade, commerce
or business. The indiscriminate sale of such tickets may be regarded as causing
business disturbance and loss which, on general grounds of policy, the State is
entitled to prevent or at least minimize." McTiernan J. was even more
forthright in placing gambling outside the pale of trade, commerce and
intercourse. At p. 631 he said:
" Some trades are more adventurous or
speculative than others, but trade or commerce as a branch of human activity
belongs to an order entirely different from gaming or gambling. Whether a
particular activity falls within the one or the other order is a matter of
social opinion rather than jurisprudence...... ..................... It is
gambling, to buy a ticket or shard in a lottery. Such a transaction does not
belong to the commercial business of the country. The purchaser stakes money in
a scheme for distributing prizes by chance. He is a gamester." A little
further down the learned Judge observed:
"It is not a commercial arrangement to
sell a lottery ticket; for it is merely the acceptance of money 911 or the
promise of money for a chance. In this case the purchase of a lottery ticket
merely founds a hope that something will happen in Tasmania to benefit the
purchaser." Naturally enough learned counsel for the appellant State seeks
to fasten upon the observations quoted or referred to above in support of his
thesis that gambling is not trade, commerce or intercourse within the meaning
alike of s. 92 of the Australian Constitution and our Art. 19(1)(g) and Art.
In the second case-The King v. Martin (1)-the
same question came up for reconsideration. The only difference in fact was that
there was no actual sale by delivery of a lottery ticket in New South Wales but
money was received by the agent of the Tasmania promoter in New South Wales and
transmitted to Tasmania from where the lottery ticket was to be sent. The State
law was again upheld. Latham C.J., Rich, Starke, Evatt and Mctiernan JJ.
adhered to their respective opinions expressed in the earlier case of The King v.
Connare (2 ). Dixon J., as he then was, gave a new reason for his opinion that
notwithstanding the inter-State character of the transaction s. 21 of the
impugned Act was valid. Said the learned Judge at pp. 461-462:
" The reason for my opinion is that the
application of the law does not depend upon any characteristics of lotteries or
lottery transactions in virtue of which they are trade or commerce or
intercourse nor upon any inter-State element in their nature. The only
criterion of its operation is the aleatory description of the acts which it
forbids. There is no prohibition or restraint placed upon any act in connection
with a lottery because either the act or the lottery is or involves commerce or
trade or intercourse or movement into or out of New South Wales or
communication between that State and another
State................................. To say that interState trade, commerce
and intercourse shall be free, means,, I think, that no restraint or burden
shall be placed upon an act falling under that description because it is trade
or commerce or (1) (1939) 62 C.L.R. 457. (2) (1939) 61 C.L.R. 596.
912 intercourse or involves inter-State
movement or communication." In this view of the matter Dixon J. now upheld
s. 21 of the impugned Act on the ground that the criterion of its application
was the specific gambling nature of the transactions which it penalised and not
anything which brought the transactions under the description of trade,
commerce or intercourse or made them interState in their nature.
Then came the case of Commonwealth of
Australia v. Bank of New South Wales(1) commonly called the Bank case where it
was held that s. 46 of the Banking Act, 1947, was invalid as offending against
s. 92 of the Australian Constitution.
Sub-section (1) of s. 46 provided that a
private bank should not, after the commencement of the Act, carry on banking
business in Australia except as required by the section.
Subsection (2) laid down that each private
bank should carry on banking business in Australia and should not, except on
appropriate grounds, cease to provide any facility or service provided by it in
the course of its banking business on the fifteenth day of August one thousand
nine hundred and forty seven. Sub-section (4) authorised that the Treasurer
might, by notice published in the gazette and given in writing to a private
bank, require that private bank to cease, upon a date specified in the notice,
carrying on business in Australia. Sub-section (8) provided that upon and after
the date specified in a notice under sub-s. (4) the private bank to which that
notice was given should not carry on banking business in Australia. It also
provided a penalty of pound 10,000 for each day on which the contravention
occurred. The question was: Whether this section interfered with the freedom of
trade, commerce or intercourse among the States declared by s. 92 of the
Australian Constitution ? It was held that the business of banking which
consisted of the creation and transfer of credit, the making of loans, the
purchase and disposal of investments and other kindred transactions was
included among those activities described as trade, commerce and intercourse in
s. 92 (1) L.R. (1950) A.C. 235.
913 and, accordingly, the impugned s. 46
which while leaving untouched the Commonwealth and State Banks,, prohibited the
carrying on in Australia of the business of banking by private banks, was
invalid as contravening s. 92. Lord Porter delivering the judgment of the
Judicial Committee pointed out that it was no longer arguable that freedom from
customs or other monetary charges alone was secured by the section. Then after
reviewing and explaining at some length the two cases of James V. Cowan (1) and
James v. The Commonwealth(2), his Lordships proceeded to make certain
observations on the distinction between restrictions which are regulatory and
do not offend against s. 92 and those which are something more than regulatory
and do so offend.
His Lordship deduced two general propositions
from the decided cases, namely (1) that regulation of trade, commerce and
intercourse among the States was compatible with absolute freedom and (2) that
s. 92 was violated only when a legislative or executive act operated to
restrict trade, commerce and intercourse directly and immediately as distinct
from creating some indirect or consequential impediment which might fairly be
regarded as remote. The problem whether an enactment was regulatory or
something more or whether a restriction was direct or only remote or only
incidental involved, his Lordship pointed out, not so much legal as political,
social or economic considerations.
Referring to the case of Australian National
Airways Proprietary Ltd. v. The Commonwealth (3) his Lordship expressed his
agreement with the view that simple prohibition was not regulation. A little
further down, however, his Lordship made a reservation that he did not intend
to lay down that in no circumstances could the exclusion of competition so as
to create a monopoly, either in a State or Commonwealth agency, or in some
body, be justified and that every case must be judged on its own facts and in
its own setting of time and circumstances, and that it might be that in regard
to some economic activities and at some stage of social development it might be
(1) L.R. (1932) A.C. 542. (3) (1945) 71 C.L.R. 29. (2)L.R. (1936) A.C. 578,
914 maintained that prohibition with a view
to State monopoly was the only practical and reasonable manner of regulation,
and that inter-State trade, commerce and intercourse thus prohibited and thus
monopolised remained absolutely free.
His Lordship further added that, regulation
of trade might clearly take the form of denying certain activities to persons
by age or circumstances unfit to perform them or of excluding from passage
across the frontier of a State creatures or things calculated to injure its
Referring to the doctrine of "pith and
substance" his Lordship observed that it, no doubt, raised in convenient
form an appropriate question in cases where the real issue was one of subject
matter as when the point was whether a particular piece of legislation was a
law in respect of some subject within the permitted field, but it might also
serve a useful purpose in the process of deciding whether an enactment which worked
some interference with trade, commerce and intercourse among the States was,
nevertheless, untouched by s. 92 as being essentially regulatory in character.
The last Australian case on the point cited
before us is Mansell v. Beck(1). In this case also the provisions of the
Lotteries and Art Unions Act of New South Wales came up for consideration and
the decisions in the King v. Connare (11) and the King v. Martin(1). were
considered and approved.
Dixon C.J. and Webb J. observed that the true
content of the State law must be ascertained to see whether the law that
resulted from the whole impaired the freedom which s. 92 protected. Their
Lordships pointed out that lotteries not conducted under the authority of
Government were suppressed as pernicious. The impugned legislation was, in
their Lordships' view, of a traditional kind directed against lotteries as such
independently altogether of trade, commerce and intercourse between States.
reiterated the views he had expressed in the
case of the King v. Connare (2) in the following words:
(1) (Australian Law journal, Vol. 3o. No. 7
(2) (1939) 61 C.L.R. 596.
(3) (1939) 62 C.L.R. 457.
915 It is important to observe the
distinction that gambling is not trade, commerce and intercourse within the
meaning of s. 92 otherwise the control of gambling in Australia would be
attended with constitutional difficulties." Williams J. did not consider
it necessary to express any final opinion on the question whether there could
be interState commerce in respect of lottery tickets. He took the view that ss.
20 and 21 of the New South Wales Act were on their face concerned and concerned
only with intra-State transactions and that their provisions did not directly
hinder, burden or delay any inter-State trade, commerce or intercourse. His
Lordship observed that there was nothing in the reasoning in the judgment in
the Bank case or in subsequent decisions to indicate that the King v.
Connare(1) and' King v. Martin(2) were not rightly decided. He quoted, with
approval, the observations of Dixon J. in Martin's case. Fullagar J. also took
the view that the previous decisions of the High Court in Connare's case (1)
and Martin's case(2) were rightly decided for the reasons given by Dixon J.
Kitto J. dissented from the majority view.
Taylor J. who was also in favour of the
validity of the impugned law, observed:
" No simple legislative expedient
purporting to transmute trade and commerce into something else will remove it
from the ambit of s. 92. But whilst asserting the width of the field in which
s. 92 may operate it is necessary to observe that not every transaction which
employs the forms of trade and commerce will, as trade and commerce, invoke its
protection. The sale of stolen goods, when the transaction is juristically
analysed, is no different from the sale of any other goods but can it be
doubted that the Parliament of any State may prohibit the sale of stolen goods
without infringing s. 92 of the Constitution ? The only feature which
distinguishes such a transaction from trade and commerce as generally
understood is to be found in the subject of the transaction; there is no
difference in the means adopted for carrying it out. Yet it may be said that in
essence such a transaction (1) (193) 61 C.L.R. 596. (2) (1939) 62 C.L.R. 457. 916
constitutes no part of trade and commerce as that expression is generally
understood. Numerous examples of other transactions may be given, such as the
sale of a forged passport, or, the sale of counterfeit money, which provoke the
same comment and, although legislation prohibiting such transactions may,
possibly, be thought to be legally justifiable pursuant to what has, on
occasions, been referred to as a "Police power", I prefer to think
that the subjects of such transactions are not, on any view, the subjects of
trade and commerce as that expression is used in s. 92 and that the protection
afforded by that section has nothing to do with such transactions even though
they may require, for their consummation, the employment of instruments,
whereby inter-State trade and commerce is commonly carried on." After
referring to the history of lotteries in England the learned Judge concluded:
" The foregoing observations give some
indication of the attitude of the law for over two and a half centuries towards
the carrying on of lotteries. But they show also that, in this country,
lotteries were, from the moment of its first settlement, common and public
nuisances and that, in general, it was impossible to conduct them except in violation
of the law. Indeed it was impracticable for any person to conduct a lottery
without achieving the status of a rogue and a vagabond." In the
Constitution of the United States of America there is no counterpart to Art.
301 of our Constitution or s. 92 of the Australian Constitution. The problem of
gambling came up before the courts in America in quite different setting.
Article 1, s. 8, sub-s. (3) of the Constitution of the United States
compendiously called the commerce clause gives power to the Congress to
regulate commerce with foreign nations and among the several States and with
the Indian tribes. Congress having made law regulating gambling activities
which extended across the State borders, the question arose whether the making
of the law was within the legislative competence of the Congress, that is to
say whether it could be brought within the commerce 917 clause. The question
depended for its answer on the further question whether the gambling activities
could be said to be commerce amongst the States. If it could, then it was open
to Congress to make the law in exercise of its legislative powers under the
commerce clause. More often than not gambling activities extend from State to
State and, in view of the commerce clause, no State Legislature can make a law
for regulating inter-State activities in the nature of trade. If betting and
gambling does not fall within the ambit of the commerce clause, then neither
the Congress nor the State Legislature can in any way control the same. In such
circumstances, the Supreme Court of America thought it right to give a wide
meaning to the word "commerce" so as to include gambling within the
commerce clause and thereby enable the Congress to regulate and control the
same. Thus in Champion v. Ames(1) the carriage of lottery tickets from 'one
State to another by an express company was held to be inter-State commerce and
the court upheld the law made by Congress which made such carriage an offence.
In Hipolite Egg Co. v. United States(2) the Pure Food Act which prohibited the
importation of adulterated food was upheld as an exercise of the power of the
Congress to regulate commerce. The prohibition of transportation of women for
immoral purposes from one State to another or to a foreign, land has also been
held to be within the commerce clause (see Hoke v. United States (3) ). SO has
the prohibition of obscene literature and articles for immoral use. Reference
has also been made to the cases of United States v.
Kahriger(4) and Lewis V. United States(5) to
support the contention of the appellant State that the Supreme Court of the
United States looked with great disfavour on gambling activities. In the last
mentioned case it was roundly stated at p. 480 that "there is no
constitutional right to gamble ".
(1)  188 U.S. 321 ; 47 L. Ed. 492.
(2)  220 U.S. 45 ; 55 L. Ed. 364.
(3)  227 U.S. 308 ; 57 L. Ed. 523.
(4)  345 U.S. 22 ; 97 L. Ed. 754.
(5)  348 U.S. 419; 99 L. Ed. 475.
918 In construing the provisions of our
Constitution the decisions of the American Supreme Court on the commerce clause
and the decisions of the Australian High Court and of the Privy Council on s.
92 of the Australian Constitution should, for reasons pointed out by this Court
in State of Travancore-Cochin 1. The Bombay Co. Ltd. (1), be used with caution
and circumspection. Our Constitution differs from both American and Australian
Constitutions. There is nothing in the American Constitution corresponding to
our Art. 19(1) (g) or Art. 301. In the United States the problem was that if
gambling did not come within the commerce clause, then neither the Congress nor
any State Legislature could interfere with or regulate inter-State gambling.
Our Constitution, however, has provided adequate safeguards in cl. (6) of Art.
19 and in Arts. 302-305. The scheme of the Australian Constitution also is
different from that of ours, for in the Australian Constitution there is no
such provision as we have in Art. 19(6) or Arts. 302-304 of our Constitution.
The provision of s. 92 of the Australian Constitution being in terms unlimited
and unqualified the judicial authorities interpreting the same had to import
certain restrictions and limitations dictated by common sense and the
exigencies of modern society. This they did, in some cases, by holding that
certain activities did not amount to trade, commerce or intercourse and, in
other cases, by applying the doctrine of pith and substance and holding that
the impugned law was not a law with respect to trade, commerce or intercourse. The
difficulty which faced the judicial authorities interpreting s. 92 of the
Australian Constitution cannot arise under our Constitution, for our
Constitution did not stop at declaring by Art. 19(1) (g) a fundamental right to
carry on trade or business or at declaring by Art. 301 the freedom of trade,
commerce and inter. course but proceeded to make provision by Art. 19(6) and
Arts. 302-305 for imposing in the interest of the general public reasonable
restrictions on the exercise of the rights guaranteed and declared by Art. 19
(1) (g) and Art. 301. As one of us said in P. P. Kutti Keya (1) (1952) S.C.R.
1112 at p. 1121 919 v. The State of Madras(1) the framers of our Constitution,
being aware of the problems with which the Australian Government had been confronted
by reason of s. 92, sought to solve them by enacting limitations in Part XIII
itself on the freedom guaranteed in Art. 301. Our task, therefore, will be to
interpret our Constitution and ascertain whether the prize competitions falling
within the definition of the impugned Act, all of which are of a gambling
nature, can be said to be a "trade or business" within the meaning of
19(1) (g) or "trade, commerce and
intercourse " within the meaning of Art. 301 of our Constitution.
The scheme of our Constitution, as already
indicated, is to protect the freedom of each individual citizen to carry on his
trade or business. This it does by Art. 19(1)(g). This guaranteed right is,
however, subject to Art. 19(6) which protects a law which imposes, in the interest
of the general public, reasonable restrictions on the exercise of the
fundamental right guaranteed by Art. 19(1) (g). Our Constitution also proclaims
by Art. 301 the freedom of trade, commerce and intercourse throughout the
territory of India' subject to the provisions of Arts. 302-305 which permit the
imposition of reasonable restriction by Parliament and the State Legislatures.
The 'underlying idea in making trade, commerce and intercourse with, as well as
within, the States free undoubtedly was to emphasise the unity of India and to
ensure that no barriers might be set up to break up the national unity. One
important point to note is that the language used in Art. 19(1) (g) and Art.
301 is quite general and that the provisions
for restricting the exercise of the fundamental right and the declared freedom
of the country's trade, commerce and intercourse are made separately, e.g., by
Art. 19(6) and Arts. 302-305.
This circumstance is fastened upon by learned
counsel for the petitioners for contending that the right guaranteed by Art.
19(1)(g) and the freedom declared by Art. 301 should, in the first instance and
to start with, be widely and liberally construed and then reasonable
restrictions may be superimposed on that right under Art. 19(6) or Arts.
302-305 in the interest of the general public. According (1) A.I.R. (1954) mad.
920 to him the words "trade" or
"business" or "commerce" should be read in their widest
amplitude as meaning any activity which is undertaken or carried on with a view
to earning profit. There is nothing in those two Arts. 19(1)(g) and 301, which,
he says, may qualify or cut down the meaning of the critical words. He contends
that there is no justification for excluding from the meaning of those words
activities which may be looked upon with disfavour by the State or the Court as
injurious to public morality or public interest. The argument is that if the
trade or business is of the last mentioned character, then the appropriate
Legislature may impose restrictions which will be justiciable by the courts and
this restriction may, in appropriate cases, even extend to total prohibition.
Our attention has been drawn to Art. 25 where the limiting words " subject
to public order, morality and health " are used and it is pointed out that
no such limiting words are to be found in Art. 19(1)(g) or Art. 301. In short
the argument is that Art. 19(1) (g) and Art. 301 guarantee and declare the
freedom of all activities undertaken and carried on with a view to earning
profit and the safeguard is provided in Art. 19(6) and Arts. 302-305. The
proper approach to the task of construction of these provisions of our
Constitution*, it is urged, is to start with absolute freedom and then to
permit the State to cut it down, if necessary, by restrictions which may even
extend to total prohibition. On this argument it will follow that criminal
activities undertaken and carried on with a view to earning profit will be
protected as fundamental rights until they are restricted by law. Thus there
will be a guaranteed right to carry on a business of hiring out goondas to
commit assault or even murder, of housebreaking, of selling obscene pictures,
of trafficking in women and so on until the law curbs or stops such activities.
This appears to us to be completely unrealistic and incongruous. We have no
doubt that there are certainactivities which can under no circumstance be
regarded as trade or business or commerce although the usual forms and
instruments are employed therein. To exclude those activities from the meaning
of those words is not to cut down their meaning at all 921 but to say only that
they are not within the true meaning of those words. Learned counsel has to
concede that there can be no "trade" or "business" in crime
but submits that this principle should not be extended and that in any event
there is no reason to hold that gambling does not fall within the words
"trade" or "business" or "commerce" as used in
the Articles under consideration. The question arises whether our Constitution
makers ever intended that gambling should be a fundamental right within the
meaning of Art. 19(1)(g) or within the protected freedom declared by Art. 301.
The avowed purpose of our Constitution is to
create a welfare State. The directive principles of State policy set forth in
Part IV of our Constitution enjoin upon the State the duty to strive to promote
the welfare of the people by securing and protecting, as effectively as it may,
a social order in which justice, social, economic and political, shall inform all
the institutions of the national life. It is the duty of the State to secure to
every citizen, men and women, the right to an adequate means of livelihood and
to see that the health and strength of workers, men and women, and the tender
age of children are not abused, to protect children and youths against
exploitation and against moral and material abandonment. It is to be the
endeavour of the State to secure a living wage, conditions of work ensuring a
decent standard of life and full enjoyment of leisure and social and cultural
opportunities, to protect the weaker sections of the people from social
injustice and all forms of exploitation, to raise the standard of living of its
people and the improvement of public health. The question canvassed before us
is whether the Constitution makers who set up such an ideal of a welfare State
could possibly have intended to elevate betting and gambling on the level of
country's trade or business or commerce and to guarantee to its citizens, the
right to carry on the same. There can be only one answer to the question.
From ancient times seers and law givers of
India looked upon gambling as a sinful and pernicious vice and deprecated its
practice. Hymn XXXIV of the 922 Rigveda proclaims the demerit of gambling.
Verses 7, 10 and 13 say:
" 7 Dice verily are armed with goads and
driving hooks, deceiving and tormenting, causing grievous woe. They give frail
gifts and then destroy the man who wins, thickly anointed with the player's
10 The gambler's wife is left forlorn and
wretched: the mother mourns the son who wanders homeless.
In constant fear, in debt, and seeking
riches, he goes by night unto the home of others.
11 Play not with dice: no, cultivate thy cornland.
Enjoy the gain, and deem that wealth
There are thy cattle, there thy wife, O
gambler. So this good Savitar himself hath told me." The Mahabharata
deprecates gambling by depicting the woeful conditions of the Pandavas who had
gambled away their kingdom. Manu forbade gambling altogether. Verse 221 advises
the king to exclude from his realm gambling and betting, for those two vices
cause the destruction of the kingdom of princes. Verse 224 enjoins upon the
king the duty to corporally punish all those persons who either gamble or bet
or provide an opportunity for it. Verse 225 calls upon the king to instantly
banish all gamblers from his town. In verse 226 the gamblers are described as
secret thieves who constantly harass the good subjects by their forbidden
practices. Verse 227 calls gambling a vice causing great enmity and advises
wise men not to practise it even for amusement. The concluding verse 228
provides that on every man who addicts himself to that vice either secretly or
openly the king may inflict punishment according to his discretion. While Manu
condemned gambling outright, Yajnavalkya sought to bring it under State control
but he too in verse 202(2) provided that persons gambling with false dice or
other instruments should be branded and punished by the king. Kautilya also
advocated State control of gambling and, as a practical person that he was, was
923 not-averse to the State earning some revenue therefrom.
Vrihaspati dealing with gambling in chapter
XXVI, verse 199, recognises that gambling had been totally prohibited by Manu
because it destroyed truth, honesty and -wealth, while other law givers
permitted it when conducted under the control of the State so as to allow the
king a share of every stake.
Such was the notion of Hindu law givers
regarding the vice of gambling. Hamilton in his Hedaya, vol. IV, book XLIV,
includes gambling as a kiraheeat or abomination. He says:
"It is an abomination to play at chess,
dice or any other game; for if anything is staked it is gambling, which is
expressly prohibited in the Koran; or if, on the other band, nothing be
hazarded it is useless and vain." The wagering con. tracts of the type
which formed the subject-matter of the case of Ramloll v. Soojumnull (1) and
was upheld by the Privy Council as not repugnant to the English Common Law were
subsequently prohibited by Act XXI of 1948 which was enacted on the suggestion
of Lord Campbell made in that case and introduced in India provisions similar
to those of the English Gaming Act (8 & 9 Vict. c. 109). Bengal Gambling
Act (Ben. II of 1867) provided for the punishment of public gambling and the
keeping of common gaming house in the territories subject to the Lieutenant
Governor of Bengal.
Lottery has been, since 1870, made an
offence, under s. 294A of the Indian Penal Code. Gambling agreements have been
declared to be void under the Indian Contract Act, 1872 (s.
30). This in short is how gambling is viewed
Before the Legislature intervened, gambling
and wagering were not prohibited by the English Common Law although the English
courts looked upon it with disfavour and discouraged it on grounds of public
policy by denying procedural facilities which were granted to other litigants.
The Scottish courts, however, have always refused to recognise the validity of
wagering contracts and have held that sponsiones ludicroe, as they style such
contracts, are void by the Common Law of Scotland. Gambling and Betting Act,
(1) (1848) 4 M.I.A. 339.
924 1664 (16 Car. 11, c. 7) was directed
against fraudulent and excessive gambling and betting at games or sports. This
was followed by the Gaming Act of 1710 (9 Anne.c. 19). The Marine Insurance Act
1745 (19 Geo. 11 C. 37) for the first time prohibited wagering policies on
risks connected with British shipping. This was supplemented by the Marine
-Insurance Act 1788 (28 Geo. III c. 56). The Life Insurance Act, 1774 (14 Geo.
III c. 48) though not intended to prohibit wagering in general, prohibited
wagering under the cloakof a mercantile document which purported to be a
contract of insurance. Then came the Gaming Act of 1845 (8 and 9 Vict. c. 109)
which for the first time declared all contracts made by way of gaming or
wagering void irrespective of their form or subject-matter. The provisions of
this Act were adopted by our Act XXI of 1948 as here in before mentioned. The
Gaming Act of 1892 (55 and 56 Viet. c. 9) further tightened up the law.
As far back as 1850 the Supreme Court of
America in Phalen v. Virginia(1) observed:
" Experience has shown that the common
forms of gambling are comparatively innocuous when placed in contrast with
widespread pestilence of lotteries. The former are confined to a few persons
and places, but the latter infests the whole community; it enters every
dwelling; it reaches every class; it preys upon the hard earnings of the poor;
it plunders the ignorant and the simple.
The observations were quoted, with approval,
in Douglas v. Kentucky (2 ). After quoting the passage from Phalen v. Virginia
(1) the judgment proceeded:
"Is the state forbidden by the supreme
law 'of the land from protecting its people at all times from practices which
it conceives to be attended by such ruinous results? Can the Legislature of a
State contract away its power to establish such regulations as are reasonably
necessary from time to time to protect the public morals against the, evils of
lotteries ?" (1)  49 U.S. 163; 12 L. Ed. 1030,1033.
(2)  168 U.S. 488 ; 42 L. Ed. 553, 555.
925 It will be abundantly clear from the
foregoing observations that the activities which have been condemned in this
country from ancient times appear to have been equally discouraged and looked
upon with disfavour in England, Scotland, the United States of America and in
Australia in the cases referred to above. We find it difficult to accept the contention
that those activities which encourage a spirit of reckless propensity for
making easy gain by lot or chance, which lead to the loss of the hard earned
money of the undiscerning and improvident common man and thereby lower his
standard of living and drive him into a chronic state of indebtedness and
eventually disrupt the peace and happiness of his humble home could possibly
have been intended by our Constitution makers to be raised to the status of
trade, commerce or intercourse and to be made the subject-matter of' a
fundamental right guaranteed by Art.
19(1) (g). We find it difficult to persuade
ourselves that gambling was ever intended to form any part of this ancient
country's trade, commerce or intercourse to be declared as free under Art. 301.
It is not our purpose nor is it necessary for us in deciding this case to
attempt an exhaustive definition of the word "trade",
"business", or "intercourse". We are, however, clearly of
opinion that whatever else may or may not be regarded as falling within the
meaning of these words, gambling cannot certainly be taken as one of them. We
are convinced and satisfied that the real purpose of Arts. 19(1) (g) and 301
could not possibly have been to guarantee or declare the freedom of gambling.
Gambling activities from their very nature and in essence are extra-commercium
although the external forms, formalities and instruments of trade may be
employed and they are not protected either by Art. 19 (1) (g) or Art. 301 of
The Court of Appeal; we have already said,
took the view that it was not open to the State, which had not thought fit to
prohibit these prize competitions but had sought to make a profit out of them
by levying a tax, to contend at the same time that it was illegal or was not a
"trade" at all.
But as pointed out in United 119 926 States
v. Kahrigar (1), the fact of issuing a licence or imposing a tax means nothing
except that the licensee shall be subject to no penalties under the law if he
Lewis v. United States of America (2) also
recognises that the Federal Government may tax what it also forbids and that
nobody has a constitutional right to gamble but that if he elects to do, so,
though it be unlawful, he must pay the tax. In this connection reference may be
made to the observation of Rowlatt J. in Mann v. Nash (3) :
" The revenue authorities, representing
the State, are merely looking at an accomplished fact. It is not condoning it
or taking part in it.
Further down he said:
" It is merely taxing the individual
with reference to certain facts. It is not a partner or a sharer in the
illegality." That crime is not a business is also recognised in F. A. Lindsay,
A. E. Woodward and W. Hiscox v. The Commissioners of Inland Revenue (4)(per
Lord President Clyde and per Lord Sands) and in Southern (H. M. Inspector of
Taxes) v. A. B. The fact that regulatory provisions have been enacted to
control gambling by issuing licences and by imposing taxes does not in any way
alter the nature of gambling which is inherently vicious and pernicious.
We also arrive at the same result by applying
the doctrine of 'pith and substance'. As Lord Porter pointed out: " The
phrase raised in a convenient form an appropriate question in cases where the
real issue is one of subject matter and it may also serve a useful purpose in
the process of deciding whether a particular enactment is a law with respect to
trade, commerce or intercourse as such or whether it is a law with respect to
some other subject which incidentally trenches upon trade, commerce and
intercourse." Reference has already been made to the observations (1) 345
U.S. 22; 97 L. Ed. 754.
(2) 348 U.S. 49 ; 99 L. Ed475.
(3) L. R.(1932) 1 K.B.D. 752 at P. 757.
(4) 18 T.C. 43.
(5) L.R. (1933) 1 K.B. 713; 18 T.C. 59.
927 of Dixon J., as he then was, in King v.
Martin (1). Adapting his language, we may say that when Art. 19(1)(g)
guarantees or Art. 301 declares the freedom of trade they describe human
activities in a specific aspect. They single out attributes which the act or transaction
may wear and make the freedom, which they confer, depend upon those attributes.
The freedom secured by the two Articles, we think, implies that no unreasonable
restraint or burden shall be placed upon an act falling under that description
because it is trade or commerce or intercourse. We have analysed the provisions
of the impugned Act and it is quite clear that the Act does not purport
directly to interfere with trade, commerce or intercourse as such, for the
criterion of its application is the specific gambling nature of the transaction
which it restricts. The purpose of the Act is not to restrict anything which
brings the transactions under the description of trade, commerce or
intercourse. In other words, the Act is in pith and substance an Act with
respect to betting and gambling. To control and restrict betting and gambling
is not to interfere with trade, commerce or intercourse as such but to keep the
flow of trade, commerce and intercourse free and unpolluted and to save it from
anti-social activities. In our opinion, therefore, the impugned Act deals with
gambling which is not trade, commerce or business and, therefore, the validity
of the Act has not to be decided by the yardstick of reasonableness and public
interest laid down in Arts.
19(6) and 304. The appeal against the
stringency and harshness, if any, of the law does not lie to a court of law.
In the view we have taken, it is not
necessary for us to consider or express any opinion on this occasion as to the
vexed question whether restriction, as contemplated in Arts. 19(6) and 304(b),
may extend to total prohibition and this is so because we cannot persuade
ourselves to hold that Art. 19(1)(g) or Art. 301 comprises all activities
undertaken with a view to profit as "trade" within the meaning of
those Articles. Nor is it necessary for us on this occasion to consider (1)
(1939) 62 C.L.R. 457.
928 whether a company is a citizen within the
meaning of Art' 19 and indeed the point has not been argued before us.
The last point urged by the petitioners is
that assuming that the impugned Act deals only with gambling and that gambling
is not "trade" or "business" or "commerce" and
is, therefore, not entitled to the protection of our Constitution, the prize competitions
run by them are in fact not of a gambling nature. The trial court accepted this
contention while the Court of Appeal rejected it. We have examined the scheme
and the rules and the official solutions and the explanations in support
thereof and we have come to the conclusion that the competition at present run
by the petitioners under the name of R.M.D.C. Crosswords are of a gambling
nature. Our view so closely accords with that of the Court of Appeal that we
find it unnecessary to go into the details of the scheme. To start with, we
find that the Board of Adjudicators pick up nine of the clues and -select only
those competitors whose answers correspond with 'the official solution of those
nine clues. Those nine clues may be from the top, may be from the bottom or may
be selected at random. It is said that they-are like nine compulsory questions
in a school examination but then in a school examination, the students are told
which are the nine compulsory questions and they can take particular care with
regard to those; but in this scheme there is no knowing which nine will be
selected and those competitors whose answers do not accord with the official
solution are debarred from being considered for the first prize. A competitor
may have given correct answers to eight of the nine selected clues and may have
given correct answers to the remaining eight so that he has sent in sixteen
correct answers but he will, nevertheless, not be considered for the first
prize because his answers to the nine selected questions did not agree with the
official solutions of those nine clues. This is a chance element to start with.
We have then seen that the competing words out of which one is to be selected
are in some cases equally apt. We are not satisfied that the word selected by
the Board is the 929 more apt word in many. cases. The reasons given by them
appear to us to be laboured and artificial and even arbitrary in some cases. On
the whole, we have come to the conclusion that the Court of Appeal was right in
its conclusion that in point of fact the prize competitions run by the
petitioners partake of a gambling nature and, therefore, fall within the
definition and are to be governed by the regulatory and taxing provisions of
For the reasons stated above, we have come to
the conclusion that the impugned law is a law with respect to betting and
gambling under Entry 34 and the impugned taxing section is a law with respect
to tax on betting and gambling under Entry 62 and that it was within the
legislative competence of the State Legislature to have enacted it.
There is sufficient territorial nexus to
entitle the State Legislature to collect the tax from the petitioners who carry
on the prize competitions through the medium of a newspaper printed and
published outside the State of Bombay.
The prize competitions being of a gambling
nature, they cannot be regarded as trade or commerce and as such the
petitioners cannot claim any fundamental right under Art.
19(1)(g) in respect of such competitions, nor
are they entitled to the protection of Art. 301. The result, therefore, is that
this appeal must be allowed and the order of the lower court set aside and the
petition dismissed and we do so with costs throughout.