Dr.
K.R. Lakshmanan Vs. State of Tamil Nadu & Anr [1996] INSC 61 (12 January 1996)
Kuldip
Singh (J) Kuldip Singh (J) Hansaria B.L. (J) Majmudar S.B. (J) Kuldip Singh, J.
CITATION:
1996 AIR 1153 1996 SCC (2) 226 JT 1996 (1) 173 1996 SCALE (1)208
ACT:
HEAD NOTE:
WITH
[W.P(C) Nos.726, 1361 of 1986, 1053/87, 1028/86, 666/86, 1067/86, 1491/86,
923/86, I.A.3/92 in W.P(C) No.857/86, C.A.1715/75, CMP No.21945/86, 14162/86,
20859 & 24540 of 1986]
The
Madras Race Club (the club) is an Association registered as a company with
limited liability under the Companies Act, 1956. The club was formed in the
year 1896 by taking over the assets and liabilities of the erstwhile
unincorporated club known as Madras Race Club. According to its Memorandum and
Articles of Association, the principal object of the club is to carry on the
business of a race club in the running of horse races. The club is one of the
five "Turf Authorities of India", the other four being the Royal
Calcutta Turf Club, the Royal Western India Turf Club Limited, the Bangalore
Turf Club LImited and the Hyderabad Race Club. Race meetings are held in the
club's own race course at Madras and at Uthagamandalam
(Ooty) for which bets are made inside the race course premises. While horse
races are continuing in the rest of the country, the Tamil Nadu Legislature, as
back as 1949, enacted law by which horse racing was brought within the definiting
of "gaming". The said law, however, was not enforced till 1975, when
it was challenged by the club by way of a writ petition before the Madras High
Court. The write petition was dismissed by the High Court. These proceedings
before us are sequel to the chequered history of litigation, between the
parties, over a period of two decades.
From
the pleadings of the parties and the arguments addressed before us by the
learned counsel the following questions arise for our consideration:-
1.
What is `gambling'?
2.
What is the meaning of expression "mere skill" in terms of Section
49-A of the Madras City Police Act, 1888 (The Police Act) and Section 11 of the
Madras Gaming Act, 1930 (the Gamiang Act)?
3.
Whether the running of horse-races by the club is a game of "chance"
or a game of "mere skill"?
4.
Whether `wagering' or `betting' on horce-races is `gaming' as defined by the
Police Act and the Gaming Act?
5.
Whether the horse-racing - even if it is a game of `mere skill' - is still
prohibited under Section 49-A of the Police Act and Section 4 of the Gaming
Act?
6.
Whether the Madras Race Club (Acquisition and Transfer of Undertaking) Act,
1986 (the 1986 Act) gives effect to the policy under Article 39(b) and (c) of
the Constitution of India (the Constitution) and as such is protected under
Article 31(c) of the Constitution. If not, whether the 1986 Act is liable to be
struck down as violative of Articles 14 and 19(1)(g) of the Constitution.
The
new Encyclopaedia Britannica defines gambling as "The betting or staking
of something of value, with consciousness of risk and hope of gain on the
outcome of a game, a contest, or an uncertain event the result of which may be
determined by chance or accident or have an unexpected result by reason of the better's
miscalculations". According to Black's Law Dictionary (Sixth Edition)
"gambling involves, not only chance, but a hope of gaining something
beyond the amount played. Gambling consists of consideration, an element of
chance and a reward"...... Gambling in a nut-shell is payment of a price
for a chance to win a prize. Games may be of chance, or of skill or of skill
and chance combined. A game of chance is determined entirely or in part by lot
or mere luck. The throw of the dice, the turning of the wheel, the shuffling of
the cards, are all modes of chance. In these games the result is wholly
uncertain and doubtful. No human mind knows or can know what it will be until
the dice is thrown, the wheel stops its revolution or the dealer has dealt with
the cards. A game of skill, on the other hand - although the element of chance
necessarily cannot be entirely eliminated - is one in which success depends
principally upon the superior knowledge, training, attention, experience and
adroitness of the player. Golf, chess and even Rummy are considered to be games
of skill. The courts have reasoned that there are few games, if any, which
consist purely of chance or skill, and as such a game of chance is one in which
the element of chance predominates over the element of skill, and a game of
skill is one in which the element of skill predominates over the element of
chance. It is the dominant element - "skill" or "chance" -
which determines the character of the game.
The
Public Gambling Act, 1867 provided punishment for public gambling and for
keeping of "common gaming house".
The
Act did not bring within its scope the betting on horse races. The Bengal Public
Gaming Act, 1867 provided punishment for public gambling and the keeping of
common gaming house. Gaming was defined in the Bengal Act to include wagering
or betting except wagering or betting on horse races. The next legislation was
the Bombay Prevention of Gambling Act, 1887 which defines "gaming" in
similar terms as the Bengal Act.
Before
we deal with the Madras legislations on the subject, it would be useful to
refer to the judgments of this Court wherein the question whether trade or
business which is of `gambling' nature can be a fundamental right within the
meaning of Article 19 (1) (g), of the Constitution.
A.I.R.,
1957 S.C. 699 speaking through S.R. Das, C.J.
observed
as under :
"(38)
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 Rigveda proclaims the demerit of gambling, Verses
7, 10 and 13 :
"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 fairest good.
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 sufficient. 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." "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 not averse to the State earning some revenue there from. Vrihaspati
dealing with gambling in chap. 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.
The
learned Chief Justice then referred to various statutes in India prohibiting public gambling and
also referred to case-law on the subject in other countries. He quoted the
following observations of McTiernan, J. of the Australian High Court in King
vs. Connara (1939) 61 C.L.R 596 (M) :- "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 o grabbing. 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 share 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." On the question whether
gambling is protected either by Article 19(1)(g) or Article 301 of the
Constitution, this Court held as under:- "(42) It will be abundantly clear
from the fore going 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 or
our Constitution.
On the
crucial question whether the games which depend to a substantial degree upon
the exercise of skill come within the stigma of "gambling", S.R. Das,
Chief Justice in Chamarbaugwala's case held as under:- "Thus a prize
competition for which a solution was prepared beforehand was clearly a gabbling
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 Hewer. C.J. Observed in Coles v. Odhams Press Ltd., 1936-1 K.B.416 (a)
"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. 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
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 scintillas 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 gabbling nature." On the
same day when this Court decided Chamarbaugwala's case, the same four-Judge
Bench presided over by S.R. Das, Chief Justice, delivered judgment in another
case between the same parties titled R.M.D. Chamarbaugwala & Anr. vs. Union of India & Anr. AIR 1957 SC 628. The validity of
some of the provisions of the Prize Competitions Act (42 of 1955) was
challenged before this Court by way of petitions under Article 32 of the
Constitution. Venkatarama Ayyar J. speaking for the Court noticed the
contentions of the learned counsel for the parties in the following words:-
"Now, the contention of Mr. Palkhiwala, who addressed the main argument in
support of the petitions, is that prize competition as defined in S. 2(d) would
include not only competitions in which success depends on chance but also those
in which it would depend to a substantial degree on skill; .... that even if
the provisions could be regarded as reasonable restrictions as regards
competitions which are in the nature of gambling, they could not be supported
as regards competitions wherein success depended to a substantial extent on
skill, and that as the impugned law constituted a single inseverable enactment,
it must fail in its entirety in respect of both classes of competitions. Mr Seervai
who appeared for the respondent, disputes the correctness of these contentions.
He argues that `prize competition' as defined in S.2 (d) of the Act, properly
construed, means and includes only competitions in which success does not
depend to any substantial degree on skill and are essentially gambling in their
character; that gambling activities are not trade or business within the
meaning of that expression in Art. 19(1) (g), and that accordingly the
petitioners are not entitled to invoke the protection of Art. 19(6); and that
even if the definition of `prize competition' in S.2(d) is wide enough to
include competitions in which success depends to a substantial degree on skill
and Ss. 4 and 5 of the Act and Br. 11 and 12 are to be struck down in respect
of such competitions as unreasonable restrictions not protected by Art. 19 (6),
that would not affect the validity of the enactment as regards the competitions
which are in the nature of gambling, the Act being severable in its application
to such competitions." The learned Judge thereafter observed as under:-
"We must hold that as regards gambling competitions, the petitioners
before us cannot seek the protection of Art. 19(1) (g)... (5) As regards
competitions which involve substantial skill however, different considerations
arise. They are business activities, the protection of which is guaranteed by
Art. 19(1) (g)..." Finally, Venkatarama Ayyr, J. speaking for the Court
held as under:- "(23) Applying these principles to the present Act, it
will not be questioned that competitions in which success depends to a
substantial extent on skill and competitions in which it does not so depend,
form two distinct and separate categories. The difference between the two
classes of competitions is as clear- cut as that between commercial and
wagering contracts. On the facts there might be difficulty in deciding whether
a given competition falls within one category or not; but when its true
character is determined, it must fall either under the one or the other. The
distinction between the two classes of competitions has long been recognised in
the legislative practice of both the United Kingdom and this country, and the Courts have, time and again,
pointed out the characteristic features which differentiate them. And if we are
now to ask ourselves the question would Parliament have enacted the law in
question if it had known that it would fail as regards competitions involving
skill, there can be no doubt, having regard to the history of the legislation,
as to what our answer would be. The conclusion is therefore inescapable that
the impugned provisions, assuming that they apply by virtue of the definition
in S.2(d) to all kinds of competitions, are severable in their application to
competitions in which success does not depend to any substantial extent on
skill." This Court, therefore, in the two Chamarbaugwala-cases, has held
that gambling is not trade and as such is not protected by Article 19(1) (g) of
the Constitution. It has further been authoritatively held that the competitions
which involve substantial skill are not gambling activities.
Such
competitions are business activities, the protection of which is guaranteed by
Article 19(1) (g) of the Constitution. It is in this background that we have to
examine the question whether horse-racing is a game of chance or a game
involving substantial skill.
The
Police Act extends to the whole of the city of Madras, as defined in Section 3 of the said Act. Section 3 of the
Police Act defines "common gaming house", "gaming" and
"instruments of gaming" in the following words:- "Common
gaming-house" means any house, room, tent, enclosure, vehicle, vessel or
any place whatsoever in which cards, dice, tables or other instruments of
gaming are kept or used for the profit or gain of the person owning, occupying,
using, or keeping such house, room, tent, enclosure, vehicle, vessel or place,
whether by way of charge for the use of instruments of gaming or of the house,
room, tent, enclosure, vehicle, vessel or place, or otherwise howsoever;
and includes
any house, room, tent, enclosure, vehicle, vessel or place opened, kept or used
or permitted to be opened, kept or used for the purpose of gaming;
"Gaming"
`Gaming' does not include a lottery but includes wagering or betting, except
wagering or betting on a horse-race when such wagering or betting takes place-
(i) on the date on which such race is to be run; and (ii) in a place or places
within the race enclosure which the authority controlling such race has with
the sanction of the State Government set apart for the purpose.
For
the purposes of this definiting, wagering or betting shall be deemed to
comprise the collection or soliciting of bets, the receipt of distribution of
winnings or prizes, in money or otherwise, in respect of any wager or bet, or
any act which is intended to aid or facilitate wagering or betting or such
collection, soliciting, receipt or distribution.
Instruments
of gaming- "Instruments of gaming" include any article used or
intended to be used as a subject or means of gaming, any document used or
intended to be used as a register or records or evidence of any gaming, the
proceeds of any gaming, and any winnings or prizes in money or otherwise
distributed or intended to be distributed in respect of any gaming."
Section 42 of the Police Act gives power to the Commissioner to grant warrant
to enter any place which is used as a common gaming house and the arrest of
persons found therein and to seize all instruments of gaming etc. Section 43
provides that any cards, dyes, gaming table or cloth, board or other
instruments of gaming found in any place entered or searched under Section 42
shall be evidence that such place is used as a common gaming house. Section 44
states that in order to convict any person of keeping common gaming house, the
proof of playing for stakes shall not be necessary.
Section
45 provides for penalty for opening, keeping or use of a gaming house. Section
46 lays down penalty for being found in a common gaming house for the purpose
of gaming.
Section
47 permits destruction of the instruments of gaming on conviction and Section
48 relates to indemnification of witnesses. Sections 49 and 49-A (to the extent
relevant) of the Police Act are reproduced hereunder:- "49.Nothing in
sections 42 to 48 of this Act shall be held to apply to games of mere skill
wherever played. 49-A, (1) Whoever- (a) being the owner or occupier or having
the use of any house, room, tent, enclosure, vehicle, vessel or place, opens,
keeps or uses the same for the purpose of gaming- (i) on a horse-race, or
(ii)........
(iii).......
(iv)........
(v).........
(vi)........
(b)..........
(c)..........
(d)..........
shall
be punishable with imprisonment for a term which may extend to two years and
with fine which may extend to five thousand rupees, but in the absence of
special and adequate reasons to the contrary to be mentioned in the judgment of
this Court- i) such imprisonment shall not be less than three months and such
fine shall not be less than five hundred rupees for the first offence;
ii)
such imprisonment shall not be less than six months and such fine shall not be
less than seven hundred and fifty rupees for the second offence; and iii) such
imprisonment shall not be less than one year and such fine shall not be less
than one thousand rupees for the third or any subsequent offence." Section
49-A of the Police Act was substituted for the original Section by Section
2(iii) of the Madras City Police and Gaming (Amendment) Act, 1955 (the 1955
Act).
The
Gaming Act extends to the whole of the State of Tamil Nadu, with the exception of the city of Madras Section 3 of the Gaming Act defines, common
gaming house, "gaming" and instruments of gaming which is identical
to the definitions given under the Police Act. Section 5 to 10 of the Gaming
Act are identical to Sections 42 to 47 of the Police Act. Section 11 of the
Gaming Act is as under:- "11. Nothing in sections 5 to 10 of this Act
shall be held to apply to games of mere skill wherever played." Section 4
of the Gaming Act to extent relevant reads:- "4. (1) Whoever- (a) being
the owner or occupier or having the use of any house, room, tent, enclosure,
vehicle, vessel or place, opens, keeps or uses the same for the purpose of
gaming- (i) on a horse-race, or (ii)...........
(iii)..........
(iv)...........
(v)............
(vi)...........
(b)..............
(c)..............
(d)..............
The
above quoted Section 4 of the Gaming Act was substituted by Section 3(1) of the
1955 Act. This Section is identical to Section 49-A of the Police Act.
The
expression "gaming" as originally defined under the Police Act and
the Gaming Act (the two Acts) did not include wagering or betting on a
horse-race when such wagering or betting took place - (i) on the date on which
such race was to run; and (ii) in a place or places within the raceenclosure
which the authority controlling such race had with sanction of the State
Government set apart for the purpose. The definition of gaming in the two Acts
was sought to be amended by Sections 2 and 4 of the Madras City Police and Gaming
(Amendment) Act, 1949 (the 1949 Act). The said Sections are reproduced
hereunder:- "2. In the Madras City Police Act, 1888, in section 3, for the
definition of `Gaming' the following definition shall be substituted, namely :-
"Gaming does not include a lottery but includes wagering or betting.
Explanation.-For the purpose of this
definition, wagering or betting shall be deemed to comprise the collection or
soliciting or bets, the receipt or distribution of winnings of prizes, in money
or otherwise, in respect of any wager or bet, or any act which is intended to
aid or facilitate or wagering or betting or such collections, soliciting,
receipt or distribution".
4. In
the Madras Gaming Act, 1930, in section 3, for the definition of `gaming' the
following definition shall be substituted namely :- "Gaming" does not
include a lottery but includes wagering or betting.
Explanation.-For the purposes of his definition
wagering or betting shall be deemed to comprise the collection or selecting or
bets, the receipt or distribution of winnings or prizes, in money or otherwise,
in respect of any wager or bet, or any act which is intended to aid or
facilitate wagering or betting or such collection soliciting receipt or
distribution".
It is
obvious from the 198-Act that the words "except wagering or betting on a
horse-race when such wagering or betting takes place –
(i) on
the date on which such race is to be run; and
(ii) in
a place or places within the race enclosure which the authority controlling
such race has with the sanction of the State Government set apart for the
purpose" have been omitted from the definition of "gaming" in
the two Acts. The State Government, however, did not enforce Sections 2 and 4
of the 1949-Act till 1975. Although no notification enforcing Sections 2 and 4
of the 1949 Act was ever issued by the State Government, but the said
provisions have been brought into existence and enforced by an Act of
Legislature called the Tamil Nadu Horse Races (Abolition and Wagering or
Betting) Act, 1974 (the 1974 Act). Section 2 of the said Act is in the
following terms:- "2. Amendment of Tamil Nadu Act VII of 1949.- In the
Madras City Police and Gaming (Amendment) Act, 1949.- In the Madras City Police
and Gaming (Amendment) Act, 1949 (Tamil Nadu Act VII of 1949), (1) in
sub-section (2), the portion commencing with the expression "and sections
2 and 4" and ending with the expression "appoint", shall be
omitted;
(2)
after sub-section (2), the following sub-section shall be inserted, namely:-
(3) Sections 2 and 4 shall come into force on the 31st March 1975,
notwithstanding anything contained in any law for the time being in force or in
any notification or order issued by the Government".
The
1974 Act was challenged before the High Court by way of writ petition under
Article 226 of the Constitution.
The
challenge was primarily on two grounds. It was contended before the High Court
that the betting on the horse races not being gambling the State Legislature,
under entry 34 of list II of the Seventh Schedule to the Constitution, had no
legislative competence to legislate the 1974 Act. In other words the contention
was that entry 34 being "Betting and gambling" unless both betting
and gambling are involved the State Legislature has no legislative competence to
make the law. It was also contended that the horse racing being a game of
substantial skill, the provisions of the two Acts were not applicable to horse
races. The High Court rejected both the contentions. The High Court held the
horse racing to be a game of chance, and as such gambling, on the following
reasons:- "The question is whether, having regard to his approach, betting
on horse races is of gambling nature. We are told that it is not, because
betters bring to bear on betting considerable knowledge of each horse as to its
ancestry or pedigree, history of its performance in the previous races, various
other factors and related circumstances and skill based on such knowledge and
experience in horse racing. We, of course, know the plethora of publications,
information by means of booklets, pamphlets and even books and the knowledge
about horses and horse races all over the world for centuries and the
tremendous enthusiasm exhibited by those race-goers who in deciding to stake on
a particular horse, know everything about it which enables them to judge that
it may in all probability come out successful in a race. Even so, if any skill
is involved in the process, it is not the skill of the horse but of the one who
bets on it and, based on such skill, the better cannot say with any certainty
that a horse without fail will in any case come out successful. It may be that
the knowledge and experience one would have or skill of one who bets on a horse
may with their use eliminate as far as possible, the odd chance of failure and
ensure to a degree so to speak, a probability of success; but the most astute
better by using his substantial skill may still fail to be successful in his
stake. The element of chance is not out weighed by any skill of the better or
the horse. The figures we were shown would only show that successful betting on
horses sometimes, not necessarily every time goes with substantial skill of the
one who stakes.
But we
are not persuaded that betting on horses is a game of substantial skill.
Horse
racing is a competition on speed which will depend on a variety of changing and
uncertain factors which, with the best of knowledge and skill of the better,
cannot reduced to a certainty, though of course by such knowledge and skill the
probability of success of a particular horse may be approximated. In our
opinion, therefore, betting on horses does involve an element of gambling and
we are unable to agree that staking on horses with expert knowledge and skill
of the better is not betting involving an element of gambling." This
appeal by way of leave granted by the High Court has been filed by the club.
Under the interim orders of this Court, issued from time to time, the club is
functioning and the horse races are being conducted. During the pendency of the
appeal the Tamil Nadu Legislature has enacted the Madras Race Club (Acquisition
and transfer of undertakings) Act, 1986 (The 1986 Act). The said Act came into
force on April 19, 1986. Writ petitions under Article 32 of the Constitution
challenging the validity of the 1986 Act have been filed by the committee
members of the club, horse owners and other interested persons.
We may
at this stage notice the manner in which the club operates and conducts the
horse races. Race meetings are held in the club-race courses at Madras and OOty
for which the bets are made inside the race course premises.
Admission
to the race course is by tickets (entrance fee) prescribed by the club.
Separate entrance fee is prescribed for the first enclosure and the second
enclosure. About 1- 1/2 of the entrance fee represents the entertainment tax
payable to the Commercial Tax Department of the State Government. The balance
goes to the club's account. Betting on the horses, participating in the races,
may be made either at the club's totalizators (the totes) by purchasing tickets
of Rs.5/- denomination or with the Book Makers (Bookies) who are licensed by
the club and operate within the first enclosure. The totalizator is an
electronically operated device which pools all the bets and after deducting
betting tax and the club charges, works out a dividend to be paid out as
winnings to those who have backed the successful horses in the race. Book
Makers, on the other hand, operate on their own account by directly entering
into contracts with the individual punters who come to them and place bets on
horses on the odds specified by the Book Makers. The book Makers issue to the
punters printed betting cards on which are entered the Book Maker's name, the
name of the horse backed, the amount of bet and the amount of prize money
payable if the horse wins. The winning punters collect their money directly
from the Book Maker concerned. The net result is that 75% of the
Tote-collections of each race are distributed as prize money for winning
tickets, 20% is paid as betting tax to the State Government and the remaining
5% is retained by the club as commission. Similarly, the Book Makers collect
from their punters, besides the bet amount specified in the betting card, 20%
bet-tax payable to the State and 5% payable to the club as its commission. It
is thus obvious that the club is entitled to only 5% as commission from the
tote-collections and also from the total receipts of the Book Makers. According
to the appellant the punters who bet at the totalizator or with the Book Makers
have no direct contract with the club.
The
club pays from its own funds the prize money (stake-money) to the winning
horses. The horses who win the first, second, third and upto 5th or 6th place
are given prizes by the club. The club income consists of entrance fee, 5%
commission paid by the Book Makers and the totalizators, horse entry fee paid
by the owners of the horses participating in the race and the licence fee
charged by the club from the Book Makers.
We may
now take-up the second question for consideration. Section 49 of the Police Act
and Section 11 of the Gaming Act specifically provide that the penal provisions
of the two Acts shall not apply to the games of "mere skill wherever
played". The expression "game of mere skill" has been
interpreted by this Court to mean "mainly and preponderantly a game of
skill". In State of Andhra
Pradesh vs. K. Satyanarayana
& Ors. (1968) 2 SCR 387, the question before this Court was whether the
game of Rummy was a game of mere skill or a game of chance. The said question
was to be answered on the interpretation of Section 14 of the Hyderabad
Gambling Act (2 of 1305 F) which was pari materia to Section 49 of the Police
Act and Section 11 of the Gaming Act. This Court referred to the proceedings
before the courts below in the following words:
"The
learned Magistrate who tried the case was of the opinion that the offence was
proved, because of the presumption since it was not successfully repelled on
behalf of the present respondents. In the order making the reference the
learned Sessions Judge made two points:
He
first referred to s.14 of the Act which provides that nothing done under the
Act shall apply to any game of mere skill wherever played and he was of opinion
on the authority of two cases decided by the Madras High Court and one of the
Andhra High Court that the game of Rummy was a game of skill and therefore the
Act did not apply to the case." This Court held the game of Rummy to be a
game of mere skill on the following reasoning:
"We
are also not satisfied that the protection of s.14 is not available in this
case. The game of Rummy is not a game entirely of chance like the `three- card'
game mentioned in the Madras case to which we were referred. The
`three card' game which goes under different names such as `flush', `brag' etc.
is a game of pure chance. Rummy, on the other hand requires certain amount of
skill because the fall of the cards has to be memorised and the building up of
Rummy requires considerable skill in holding and discarding cards. We cannot,
therefore, say that the game of Rummy is a game of entire chance. It is mainly
and preponderantly a game of skill. The chance in Rummy is of the same
character as the chance in a deal at a game of bridge. In fact in all games in
which cards are shuffled and dealt out, there is an element of chance, because
the distribution of the cards is not according to any set pattern but is
dependent upon how the cards find their place in the shuffled pack. From this
alone it cannot be said that Rummy is a game of chance and there is no skill
involved in it." The judgments of this Court in the two Chamarbaugwala
cases and in the Satyanarayana case clearly lay-down that (i) the competitions
where success depends on substantial degree of skill are not `gambling' and
(ii) despite there being an element of chance if a game is preponderantly a
game of skill it would nevertheless be a game of "mere skill". We,
therefore, hold that the expression "mere skill" would mean
substantial degree or preponderance of skill.
The
crucial question to be determined is whether a horse-race run on the turf of
the club is a game of `chance' or a game of "mere skill". The
relevant pleadings before the High Court in the writ petition were as under:
"Racing
is really a test of equine speed and stamina. The horses are trained to run and
their form is constantly watched by experts... As stated earlier, racing is not
a game of chance. Experts on racing throughout the world would bear testimony
to the fact, and indeed it has been so recognised, by decisions, that the
result of a horse race on which bets are placed is not based on pure chance.
A
considerable degree of skill does into the operation. It starts from the
breeding and training of the race horse on which much talent, time and money
are expended by trained persons, jockeys have also to be specially trained and
equipped. The horses themselves are not necessarily consistent in fitness,
which is the reason why horses are exercised openly and watched carefully by
representatives of the Press and their observations widely published. Thus, the
inherent capacity of the animal, the capability of the jockey, the form and
fitness of the horse, the weights carried and the distance of the race at the
time of the race are all objective facts capable of assessment by race goers.
Thus the prediction of the result of the race is not like drawing 3 aces in a
game of poker. Rather, it is the result of much knowledge, study and
observation..... Horse racing has been universally recognised as a sport.
Horsemanship
involves considerable skill, technique and knowledge and jockeys have to be
specially trained over a period of years. Whether a particular horse wins at
the race or not, is not dependent on mere chance or accident but is determined
by numerous factors, such as the pedigree of the animal, the training given to
it as well as the rider, its current form, the nature of the race, etc. Horse
racing has been held judicially to be a game of skill unlike pure games of
chance like Roulette or a Lottery." The above quoted averments have not
been specifically denied in the counter affidavit filed before the High Court.
The
new Encyclopaedia Britannica 15th Edition, Volume 5 at page 105, while defining
the expression "gambling" refers to horse racing as under:
"Betting
on horse racing or athletic contests involves the assessment of a contestant's
physical capacity and the use of other evaluative skills.".
Volume
6 of the Encyclopaedia at page 68 onwards deals with the subject of
horse-racing. Thoroughbred horses with pedigree are selected and trained for
races. Horse-racing is a systematic sport where a participant is supposed to
have full knowledge about the horse, jockey, trainer, owner, turf and the
composition of the race. It would be useful to quote an extract from the Encyclopaedia:
Horse
racing, sport of running horses at speed, mainly, Thoroughbreds with a rider
astride or Standardbreds with the horse pulling a conveyance with a driver.
These two kinds of racing are called racing on the flat and harness racing.
Some races on the flat involve jumping......" "Knowledge of the first
horse race is probably lost in prehistory. Both four- hitch chariot and mounted
(bareback) races were held in the Olympic Games of 700-40 BC. Other history of
organized racing is not very firmly established.
Presumably,
organized racing began in such countries as China, Persia, Arabia, and other
countries of the Middle East and of North Africa, where horsemanship early
became highly developed. Thence came too the Arabian, Barb, and Turk horses
that contributed to the earliest European racing. Such horses became familiar
to Europeans during the Crusades (11th to 13th centuries) from which they
brought those horses back....." "Eligibility rules were developed
based on the age, sex, birthplace, and previous performance of horses and the
qualifications of riders. Races were created in which owners were the riders
(gentlemen riders); in which the field was restricted geographically to a
township or country; and in which only horses that had not won more than a
certain amount were entered......" "All horse racing on the flat
except quarter- horse racing involves Thoroughbred (q.v) horses. Thoroughbreds
evolved from a mixture of Arab, Turk and Barb horses with native English stock
Private studbooks existed from the early 17th century, but they were not
invariably reliable. In 1791 Whether by published An Introduction to a General
Stud Book, the pedigrees being based on earlier Racing Calendars and Sales
papers. After a few years of revision, it was updated annually. All
Thoroughbreds are said to descend from three "Oriental" stallions
(the Darley Arabian, the Godolphin Barb, and the Byerly Turk, all brought to
Great Britain, 1690-1730) and from 43 "royal" mares (those imported
by Charles II). The predominance of English racing and hence of the General
Stud Book from 1791 provided a standard........" "A race horse
achieves peak ability at age five, but the classic age of three years and the
escalating size of purses, breeding fees, and sale prices made for fewer races
with horses beyond the age of four......." "Over the centuries the
guiding principle for breeding thoroughbreds has been, as expressed by an old cliche
breed the best to the best and hope for the best. Performance of progeny is the
most reliable guide to what is best for breeding purposes, of course but in the
case of horses untried at stud, their own racing ability, pedigree, and
physical conformation are the only available yardsticks. Emphasis is on racing
ability, especially in evaluating potential stallions." Horse racing is an
organized institution. Apart from a sport, it has become a huge public
entertainment business.
According
to The New Encyclopaedia Britannica the occasion of certain races are recorded
as public holidays. Derby day at Epsom where the public is admitted on two
parts of the grounds at no fee has drawn as many as 5,00,000 spectators.
Attendance
at horse races in many countries is the highest or among the highest of all
sports. The horses which participate in the races are a class by themselves.
They have a history of their own. The breed of the horse is an important
factor. The experts select the horses who are to be inducted into the racing
profession. The selected horses are given extensive training by professional
trainers.
Breed,
upbringing, training and the past record of the race - horses are prominently
published and circulated for the benefit of prospective bettors. Jockeys are
experts in horse riding and are extensively trained in various aspects of horse-racing.
They are supposed to know the horse they are riding and the turf on which the
horse is to run.
Judicial
pronouncements on the subject are primarily of American Courts. In People of
Monroe 85 ALR 605, it was held that the pari-mutuel betting on the result of
horse races, did not violate a provision of the State Constitution prohibiting
lotteries. The Court observed as under:
"The
winning horse is not determined by chance alone, but the condition, speed, and
endurance of the horse, aided by the skill and management of the rider or
driver, enter into the result... In our opinion the parimutuel system does not
come within the constitutional inhibition as to lotteries.... `In horse racing
the horses are subject to human guidance, management, and urging to put forth
their best efforts to win'." The question before the Michigan Supreme
Court in Edwarad J. Rohan et al. vs. Detroit Racing Association et al., 166 ALR
1 246 , was whether Act No.199 Pub. Acts 1933, authorising pari-mutuel betting
on horse races violated the constitutional prohibition against lotteries. The
Court answered the question in the negative on the following reasoning:
"In
the case of Commonwealth v. Kentucky Jockey Club, 238 Ky 739, 38 SW2d 987, a
statute perimitting pari- mutuel betting on horse races was held to be
constitutional and not in violation of a provision of the State Constitution
prohibiting lotteries. See, also Utah State Fair Ass'n v. Green 68 Utah 251,
249 P 1016; Panas v. Texas Breeders & Racing Ass'n, Inc., Tex Civ App, 80
SW2d 1020; State v. Thompson, 160 Mo 333, 60 SE 1077, 54 LRA 950, 83 Am St Rep
468; Engle v. State of Arizona, 53 Ariz 458, 90 P2d 988; Stoddart v. Sagar, 64 Lj
(MC) 234, 2 QB 474; Caminada v. Hulton, 60 LJ (MC) 116, 64 LT 572.
Under
the above authorities it is clear that pari-mutuel betting on a horse race is
not a lottery. In a lottery the winner is determined by lot or chance, and a
participant has no opportunity to exercise his reason, judgment, sagacity or
discretion. In a horse race the winner is not determined by chance alone, as
the condition, speed and endurance of the horse and the skill and management of
the rider are factors affecting the result of the race. The better has the
opportunity to exercise his judgment and discretion in determining the horse on
which to bet.
The
pari-mutuel method or system of betting on a horse race does not affect or
determine the result of the race. The pari-mutuel machine is merely a
convenient mechanical device for recording and tabulating information regarding
the number and amount of bets (Utah State Fair Ass'n v. Green, (supra)), and
from this information the betting odds on the horses entered can be calculated
and determined from time to time during the process of betting.
The
recording and tabulating of bets could be done manually by individuals, but the
pari-mutuel machine is a more convenient and faster method. The fact that a
better cannot determine the exact amount he may win at the time he places his
bet, because the odds may change during the course of betting on a race, does
not make the betting a mare game of chance, since the better can exercise his
reason, judgment, and discretion in selecting the horse he thinks will win.
Horse
racing, like foot racing, boat racing, football, and baseball, is a game of
skill and judgment and not a game of chance. Utah State Fair Ass'n v. Green,
supra.
Therefore,
we conclude that Act No.199, Pub. Actys 1933, authorizing pari-mutuel betting
on horse races, does not violate the constitutional prohibition against lotteries."
In Harless v. United States (1943) Morris (lowa) 169, the Court while holding
that horse racing was not a game of chance observed as under:
"The
word game does not embrace all uncertain events, nor does the expression `games
of chance' embrace all games. As generally understood, games are of two kinds,
games of chance and games of skill. Besides, there are trials of strength,
trials of speed, and various other uncertainties which are perhaps no games at all,
certainly they are not games of chance. Among this class may be ranked a horse
race. It is as much a game for two persons to strive which can raise the
heaviest weight, or live the longest under water, as it is to test the speed of
two horses. It is said that a horse race is not only uncertain in its result,
but is often dependent upon accident. So is almost every transaction of human
life, but this does not render them games of chance. There is a wide difference
between chance and accident. The one is the intervention of some unlooked-for
circumstance to prevent an expected result, the other is uncalculated effect of
mere luck. The shot discharged at random strikes its object by chance ;
that
which is turned aside from its well-directed aim by some unforeseen
circumstance misses its mark by accident. In this case, therefore, we
reasonably feel disappointed, but not in the other, for blind uncertainty is
the chief element of chance. In fact, pure chance consists in the entire
absence of all the means of calculating results;
accident
in the unusual prevention of an effect naturally resulting from the means
employed. That the fleetest horse sometimes stumbles in the race course and
leaves the victory to its more fortunate antagonist is the result of accident,
but the gambler, whose success depends upon the turn of the cards or the
throwing of the dice, trusts his fortune to chance. It is said that there are
strictly few or no games of chance, but that skill enters as a very material
element in most or all of them. This, however, does not prevent them from being
games of chance within the meaning of the law. There are many games the result
of which depends entirely upon skill. Chance is in nowise resorted to therein.
Such games are not prohibited by the statute. But there are other games [in]
which, although they call for the exercise of much skill, there is an
intermingling of chance. The result depends in a very considerable degree upon
sheer hazard. These are the games against which the statute is directed, and
horse racing is not included in that class." In Engle vs. State (1989) 55 Ariz 458, horse racing was held to be a game of skill and
not of chance on the following reasoning:
"There
is some conflict perhaps in the cases as to whether horse racing be in itself a
game of chance, but we think the decided weight of authority and reason is that
it is not. In any game there is a possibility that some oversight or unexpected
incident may affect the result, and if these incidents are sufficient to make a
game in which it may occur one of chance, there is no such thing as a game of
skill.
In Utah State Fair Asso.
v. Green (1926) 68 Utah 251, a horse race was held not to be a game of chance
within the prohibition of a state Constitution, which provided that the
legislature should not authorize any game of chance, lottery, or gift
enterprise, since in respect thereto the elements of judgment, learning,
experience, and skill predominate over the element of chance." Russell
L.J. in Earl of Ellesmere v. Wallace 1929 (2) CH1, while dealing with the
question whether there was a contract by way of wagering between the Jocky club
and the horse owners observed as under :
"To
the unsophisticated racing man (if such there be) I should think that nothing
less like a bet can well be imagined. It is payment of entrance money to entitle
an owner to compete with other owners for a prize built up in part by entrance
fees, the winning of the prize to be determined not by chance but by the skill
and merit of horse and jockey combined....." "Let us clear out minds
of the betting atmosphere which surrounds all horse racing, and affirm a few
relevant propositions. There is nothing illegal in horse racing : it is a
lawful sport.
There
is nothing illegal in betting per se. There is all the difference in the world
between a club sweepstakes on the result of the Derby and a sweepstakes horse race as defined in the Rules of
Racing. In each no doubt the winner is ascertained, by the result of an
uncertain event, but in the case of the former the winner is ascertained by
chance, i.e. the luck of the draw not the result of the race (for the result is
the same whether the draw is made before or after the race); in the case of the
latter the winner is ascertained not by chance, but by merit of performance.
The former is a lottery ; the latter is not".
We
have no hesitation in reaching the conclusion that the horse-racing is a sport
which primarily depends on the special ability acquired by training. It is the
speed and stamina of the horse, acquired by training, which matters.
Jockeys
are experts in the art of riding. Between two equally fast horses, a better
trained jockey can touch the winning-post.
In
view of the discussion and the authorities referred to by us, we hold that the
horse-racing is a game where the winning depends substantially and preponderantly
on skill.
Mr. Ashok
Desai, learned counsel for the State of Tamil Nadu, has contended that the "handicap horse races" introduce an
element of chance and as such horse racing is not a game of skill. We do not
agree. It is no doubt correct that in a handicap race the competitors are given
advantages or disadvantages or weight, distance, time etc. in an attempt to
equalize their chances of winning, but that is not the classic concept of
horse-racing, according to which the best horse should win. The very concept of
handicap race goes to show that there is no element of chance in the regular
horse-racing. It is a game of skill. Even in a handicap race - despite the
assignment of imposts - the skill dominates. In any case an occasional handicap
race in a race-club cannot change the natural horse-racing from a game of skill
to that of chance.
The
expression `gaming' in the two Acts has to be interpreted in the light of the
law laid-down by this Court in the two Chamarbaugwala cases, wherein it has
been authoritatively held that a competition which substantially depends on
skill is not gambling. Gaming is the act or practice of gambling on a game of
chance. It is staking on chance where chance is the controlling factor.
`Gaming' in the two Acts would, therefore, mean wagering or betting on games of
chance. It would not include games of skill like horse-racing. In any case,
Section 49 of the Police Act and Section 11 of the Gaming Act specifically save
the games of mere skill from the penal provisions of the two Acts. We,
therefore, hold that wagering or betting on horse-racing - a game of skill -
does not come within the definition of `gaming' under the two Acts.
Mr. Parasaran
has relied on the judgment of the House of Lords in Attorney General vs.
Luncheon and Sports Club, Limited 1929 AC 400, and the judgment of the Court of
Appeal in Tote Investors, Ltd. vs Smoker 1967 ( 3) A.E.R. 242, in support of
the contention that de hors Section 49 of the Police Act and Section 11 of the
Gaming Act, there is no `wagering' or `betting' by a punter with the club.
According to him, a punter bets or wagers with the totalizator or the Book
Maker and not with the club. It is not necessary for us to go into this
question. Even if there is wagering or betting with the club it is on a game of
mere skill and as such it would not be `gaming' under the two Acts.
Next comes
question five for consideration. Section 49A of the Police Act and Section 4 of
the Gaming Act were brought into these two Acts by the 1955 Act by substituting
the original Sections. The provisions of these two Sections have been operating
since 1955. `Gaming' as defined in the two Acts, prior to March 31, 1975. did not include wagering or
betting on a horse-race when such wagering or betting took place (i) on the
date on which such race was to be run;
and
(ii) in a place or places within the race enclosure which the authority
controlling such race had with the sanction of the State Government set apart
for the purpose.
The
position which emerges is that during the period from 1955 till March 31, 1975 horse-racing was not prohibited
under the two Acts, despite the fact that Section 49A of the Police Act and
Section 4 of the Gaming Act were also operating. If we accept the contention of
the learned counsel for the respondents that Section 49A of the Police Act and
Section 4 of the Gaming Act prohibit the holding of the horse-races then two
contradictory provisions had been operating in the two Acts from 1955 till
1975. One set of provisions would have prohibited the horse-races by making it
an offence and the other set of provisions would have permitted the
horse-races. The Legislature could have never intended such a situation. The
only reasonable interpretation which can be given to the two sets of provisions
in the two Acts is that they apply to two different situations. Section 49A of
the Police Act and Section 4 of the Gaming Act do not apply to wagering or
betting in the club premises and on the horse-races conducted within the
enclosure of the club. These Sections are applicable to the bucket-shops run in
the city streets or bazaars purely for gambling purposes. It would be useful to
have a look at the Statement of Objects and Reasons of the 1955 Act, which is
as under :-
`STATEMENT
OF OBJECTS AND REASONS.
The Madras
City Police Act, 1888, and the Madras gaming
Act, 1980, provide for punishment for opening or keeping or conducting, etc.,
any common gaming house and for being found gaming in a common gaming house. A
situation has arisen particularly in the City of Madras where gambling in
public streets on the figures in the prices of New York Cotton, bullion, etc.,
and in the registration number of motor vehicles has become very widespread. In
order to put down this evil it is considered necessary that the offence of
betting on cotton price figures and bullion price figures, etc., in the open
streets should also be made punishable and that the punishment, which is at
present very inadequate, should be made more deterrent.
It is
also considered desirable to bring the language of the provisions relating to
gaming in the City Police Act in line with that in the Gaming Act and also to
combine the sections relating to gaming on horse race and on other forms of
gaming which are separate in the respective Acts at present. Opportunity has also been taken to omit certain
provisions which prohibit publications relating to horse races as they have
been held ultra vires the State Legislatures by the Madras High Court.
It is
proposed to amend these two Acts so as to give effect to the above
objects." It is obvious that the 1955 Act was brought to control gambling
in public streets and motor vehicles. It is further clear from the Objects and
Reasons that the Act did not intend to stop horse-racing, because even the
prohibition on publications relating to horse-racing was sought to be omitted
under the Act.
We may
examine the question from another angle. We have held horse-racing to be a game
of skill and as such protected under Section 49 of the Police Act and Section
11 of the Gaming Act. Horse-racing is not a game of chance and as such is not
gambling. That being the situation, horse- racing which is conducted at the
race course of the club is not "gaming" under the two Acts and as
such cannot be made penal. We have, therefore, no hesitation in holding that
Section 49A of the Police Act and Section 4 of the Gaming Act are not
applicable to wagering or betting on a horse- race when such wagering or
betting takes place within the club premises and on the date on which such race
is actually run on the turf of the club. These Sections are applicable to the
bucket-shops or any c, house room, tent, enclosure, vehicle, etc. which are run
in the streets, bazaars or any other place away from the club.
We may
finally deal with the constitutional validity of the 1986 Act. The object and
reasons and the preamble of the 1986 Act are as under:- "An Act to provide
for the acquisition, for a public purpose, and transfer of the undertaking of
the Madras Race Club and for matters connected therewith or incidental thereto.
WHEREAS
the Madras Race Club, which is a company, within the meaning of the Companies
Act, 1956 (Central Act 1 of 1956), is engaged in the business of running of
horse races at Madras and at Uthagamandalam including the
business of inter-venue betting;
AND
WHEREAS it has been brought to the notice of the Government that the Committee
of management of the Madras Race Club is ridden with factions and that the
affairs of the said Clib are not conducted properly and in particular in the
interests of the race going public;
AND
WHEREAS it has been brought to the notice of the Government that the book-
makers keep huge amounts of bet from records causing substantial loss of
revenue to the Government; AND WHEREAS the Government are satisfied that the
Madras Race Club is being mismanaged and that the interests of the race-going
public have been affected considerably;
AND
WHEREAS the irregularities and malpractices in the conduct of the races and in
the conduct of the affairs of the Madras race Club have resulted in the
concentration of wealth and means of production in a few hands, and to the
common detriment;
AND
WHEREAS with reference to clauses (b) and (c) of Article 39 of the
Constitution, it is expedient to provide that the ownership and control of the
material resources of the Madras race Club is so distributed as best to subserve
the common good and that the operation of the economic system of the Madras
Race Club does not result in the concentration of wealth and means of
production to the common detriment; AND WHEREAS it is necessary that the
interests of the race-going public should be better served;
AND
WHEREAS a policy decision has been taken to acquire for a public purpose the
undertaking of the Madras race Club to enable the State Government or a
Corporation or a Company wholly owned by the State, to properly conduct the
horse races and to carry out the other objects of the club, so as to subserve
the interests of the general public and in particular, the race-going
public;" Sections 2, 4 and 5 (1) of the Act are reproduced hereunder:-
"2. Declaration.- It is hereby declared that this Act is for giving effect
to the policy of the State towards securing the principles laid down in clauses
(b) and (c) of Article 39 of the Constitution.
4. Transfer
to, and vesting in, the Government of the Undertaking of the Club.- On the
appointed day, the undertaking of the club and right, title and interest of the
club in relation to its undertaking shall, by virtue of this Act stand
transferred to, and vest in, the Government.
5.
General effect of vesting.-(1) The undertaking of the club shall be deemed to
include the business in the running of horse races at Madras and at Uthagamandalam
(including inter-venue betting on horse races) and the business in relation to
the other objects of the club and shall be deemed also to include all assets,
rights, leaseholds, powers, authorities and privileges and all property,
movable and immovable, including lands, buildings, works, stores, automobiles
and other vehicles, bank balances, cash balances, reserve funds, investments
and book debts and all other rights and interests in, or arising out of, such
property as were immediately before the appointed day in the ownership
possession, power or control of the club in relation to the undertaking whether
within or outside India, and all books of account, registers and all other
documents of whatever nature relating thereto and shall also be deemed to
include, the liabilities specified in sub-section (1) of section 25".
Section
6 of the Act empowers the State Government to direct the vesting of the
undertaking in a Government company.
According
to Section 7, the Government or Government company shall not be liable for the
liabilities of the club prior to the date of the coming into force of the Act.
Section 8 provides that for the transfer to, and vesting in, the Government
under Section 4 and the right, title and interest of the club, at shall be paid
by the Government in cash and in the manner specified in Chapter VI. Sub-section
s (2) and (3) of Section 8 provide that the amount for acquisition to be paid
would be calculated on the basis of the book value after deducting the
depreciation calculated in accordance with the First Schedule. Chapter IV,
consisting of Section
9. 10
& 11, provides for management etc. of the undertaking of the club. Chapter
V, consisting of Sections 12 & 13, deals with employees of the undertaking.
Sections 14 to 23 deal with the appointment of Commissioner of Payment and the
powers of the Commissioner to make payments. The amount quantified with
reference to the value of the assets taken over by the Government is not
payable to the club but is payable to the Commissioner appointed under Section
14. The 1986 Act makes elaborate provisions for distribution of the amount
payable amongst creditors or the club. The Act prescribes its own scheme of
priorities as amongst the creditors and it is only what remains with the
commissioner after making all payments that is handed over to the club.
Mr. Prasaran
has vehemently contended that the protection of Article 31-C of the
Constitution cannot be made available to the 1986 Act as the provisions of the
said Act have no nexus with the objects of Article 39 (b) and (c) of the
Constitution.
It is
settled proposition of law that notwithstanding the declaration by the
Legislature that the Act has been made to implement the Directive Principles
specified in Article 39, it would be open to the Court to ignore such a
declaration in a given case and examine the constitutional validity of the Act.
The declaration cannot act as a cloak to protect the law bearing no
relationship with the objectives contained in Article 39 of the Constitution.
This Court in Assam Sillimanite Limited and another vs. Union of India and
others 1992 Supp (1) SCC 692, stated the legal position in the following terms:-
"28. The extent and scope of judicial review of legislation where there is
a declaration under Article 31-C of the Constitution which enjoins that no law
containing a declaration that it is for giving effect to such a policy shall be
called in question in any Court on the plea that it does not give effect to
such a policy has been considered in Kesavananda Bharati. On an analysis of the
majority judgment therein, Sabyasachi Mukharji, J. (as he then was) observed in
Tinsukhia Electric Supply Company case that the declaration in Article 31_C
does not exclude the jurisdiction of the Court to determine whether the law is
for giving effect to the policy of the State towards securing the principles
specified in Articles 39 (b) and (c). Mathew J. had observed in Kesavananda Bharati
that in order to decide whether a law gives effect to the police of the state
towards securing the directive principles specified in Article 39 (b) or (c), a
Court will have to examine the pith and substance, the true nature and
character of the law as also its design and the subject matter dealt with by it
together with its object and scope. If a law passed ostensibly to give effect
to the policy of the State is, in truth and substance, one for accomplishing an
unauthorised object, the Court would be entitled to tear the veil created by
the declaration and decide according to the real nature of the law."
Article 39 (b) 7 (c) of the Constitution are as under:- "39(a).......
(b) that
the ownership and control of the material resources of the community are so
distributed as best to subserve the common good;
(c) that
the operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment;
(d)...............
(e)...............
(f).............."
The
main object for which the club was established is to carry on the business of
race club, in particular the running of horse-races, steeple chases or races of
any other kind and for any kind of athletic sports and for playing their own
games of cricket, bowls, golf, long tennis, pollo or any other kind of games or
amusement, recreation, sport or entertainment etc. In the earlier part of this
judgment, we have noticed the working of the club which shows that part from 5%
commission from the totalisator and the book makers no part of the
betting-money comes to the club. The club does not own or control any material
resources of the community which are to be distributed in terms of Article
39(b) of the Constitution of India. There are two aspects of the functioning of
the club. One is the betting by the punters at the totalisator and with the
bookies. The club does not earn any income from the betting-money except 5%
commission. There is no question whatsoever of the club owning or controlling
the material resources of the community or in any manner contributing towards
the operation of the economic system resulting in the concentration of wealth
and means of production to the common detriment. The second aspect is the
conduct of horse- races by the club. Horse-racing is a game of skill, the horse
which wins the race is given prize by the club. It is a simple game of horse
racing where the winning horses are given prizes. Neither the "material
resources of the community" nor "to subserve the common good"
has any relevance to the twin functioning of the club. Similarly, the operation
of the club has no relation or effect on the "operation of the economic
system." there is no question whatsoever of attracting the Directive
Principles contained in Article 39 (b) and (c) of the Constitution. The
declaration in Section 2 of the Act and the recital containing aims and
objectives totally betray the scope and purpose of Article 39 (b) and (c) of
the Constitution. While Article 39 (b) refers to "material resources of
the community", the aims and objects of the Act refer to "the
material resources of the Madras Race Club". It is difficult to understand
what exactly are the material resources of the race-club which are sought to be
distributed so as to sub- serve the common good within the meaning of the
Directive Principles. Equally, the reference to Article 39(c) is wholly
misplaced. While Article 39(c) relates to "the operation of the economic
system.... to the common detriment", the aims and objectives of the Act
refer to "the economic system of the Madras Race Club". What is meant
by the economic system of the Madras Race Club is not known.
Even
if it is assumed that betting by the punters at the totalisator and with the
book makers is part of the economic system of the Madras Race Club, it has no
relevance to the objectives specified in Article 39(b) and (C). We are,
therefore, of the view that reference to Article 39(b) and (c) in the aims and
objects and in Section 2 of the Act is nothing but a mechanical reproduction of
constitutional provisions in a totally in-appropriate context. There is no
nexus so far as the provisions of the 1986 Act are concerned with the
objectives contained in Article 39(b) and (c) of the Constitution. We,
therefore, hold that the protection under Article 31(C) of the Constitution
cannot be extended to the 1986 Act.
Article
31-C having gone out, Articles 14 and 19 of the Constitution come in. Mr. Prasaran
has vehemently contended that it may be permissible for the legislature to
classify a single company where it possesses real and substantial features
different from other companies similarly situated, but where no reasonable
basis for the classification appears on the face of the legislation nor is
deducible from the surrounding circumstances, the legislation would be hit by
Article 14 of the Constitution. According to Mr. Prasaran the race-club is a
company registered under Section 25 of the Indian Companies Act, 1956 (the
Companies Act). If there is mismanagement of the affairs of the club by the
Directors/members of the club, necessary action can be taken against the club
under the Companies Act, which provides elaborate procedure for such a
situation. It is further contended that keeping in view the history of the
legislation and the circumstances of this case, the taking over of the
undertaking of the race-club by the impugned Act is arbitrary. Mr. Prasaran
contended that the "public purpose" for which the undertaking of the
club has been acquired is non-existent on the face of the provisions of the
impugned Act. Mr. prasaran has also contended that the horse-racing, being a
game of skill, it is not gambling, and as such the business of horse-racing is
a fundamental right guaranteed under the Constitution. Taking away the business
of the petitioners is hit by Article 19(1) (g) of the Constitution.
We may
examine the contention based on Article 14 of the Constitution. The object,
reasons and the preamble of the 1986 Act indicate that :-
(i)
The race club is a company under the Companies Act and is engaged in the
business of running of horse-races;
(ii)
The management of the Company is ridden with factions and the affairs of the
company are not conducted properly;
(iii)
Instances of irregularities and mal-practices in the conduct of the horse-races
have been brought to the notice of the Government;
(iv)
The book-makers keep huge amounts of bet from records causing substantial loss
of revenue to the Government; and
(v)
The Government are satisfied that the company is being mismanaged and the
interests of the race-going public have been affected considerably.
It was
for the above reasons that the impugned Act acquiring, for a public purpose,
the undertaking of the club was enacted.
There
is no material on the record to show that any inquiry or investigation was held
by the State Government in the affairs of the club. In the facts and
circumstances of this case, it was of considerable importance that there should
be a proper inquiry held by the Government before such an action is taken. The
inquiry should show that the management have so misbehaved and mismanaged that
they are no longer fit and proper persons to be permitted to manage the affairs
of the club. Even if the mismanagement on the part of the club is assumed, it
is not open to single-out a club of the type for discriminatory treatment. May
be that a race-club of national importance or of considerable importance in the
State can be taken over in the interest of the State can be taken over in the
interest of the State, but the club is an ordinary race-club which has no
impact whatsoever on the material resources of the community or the economic
system of the State. There are no special circumstances or reasons to single-out
the club as a class for the purposes of the impugned Act. Even if we were to
accept the recitation in the objects and reasons that the company was being
mismanaged, we are of the view that the Companies Act provide for ample
machinery to deal with the mismanagement in the companies registered under the
Companies Act. It is true that the presumption is in favour of the
constitutionality of a legislative enactment and it is to be presumed that a
legislature understands and appreciates the needs of its own people, but when
on the face of the Statute there is no classification and no attempt has been
made to select an individual with reference to any differentiating attributes
peculiar to that individual and not possessed by others, the presumption is of
no assistance to the State. In the present case the petitioner club is a
company like any other company registered under the Companies Act. Elaborate
machinery and well established procedural safeguards have been provided under
the Companies Act for dealing with the mismanagement in the companies
registered under the Companies Act. We see no reasonable basis for classifying
the race-club for the purposes of acquiring and transfer of its undertaking on
the ground of mismanagement.
We see
considerable force in the contention of Mr. Parasaran that the acquisition and
transfer of the undertaking of the club is arbitrary. The two Acts were amended
by the 1949 Act and the definition of "gaming" was amended. The
object of the amendment was to include horse racing in the definition of
"gaming". The provisions of the 1949 Act were, however, not enforced
till the 1974 Act was enacted and enforced with effect from March 31, 1975. The 1974 Act was enacted and
enforced with effect from March 31, 1975.
The 1974 Act was enacted with a view to provide for the abolition of wagering
or betting on horse races in the State of Tamil Nadu. It is thus obvious that the consistent policy of the State Government,
as projected through various legislations from 1949 onwards, has been to
declare horse racing as gambling and as such prohibited under the two Acts. The
operation of the 1974 Act was stayed by this Court and as a consequence the
horse races are continuing under the orders of this Court. The policy of the
State Government as projected in all the enactments on the subject prior to
1985 shows that the State Government considered horse racing as gambling and as
such prohibited under the law. The 1985 Act on the other hand declares horse
racing as a public purpose and in the interest of the general public. There is
apparent contradiction in the two stands. We do not agree with the contention
of Mr. Parasaran that the 1985 Act is a colourable piece of legislation, but at
the same time we are of the view that no public purpose is being served by
acquisition and transfer of the undertaking of the club by the Government. We
fail to understand how the State Government can acquire and take over the
functioning of the race club when it has already enacted the 1974 Act with the
avowed object of declaring horse racing as gambling? Having enacted a law to
abolish betting on horse racing and stoutly defending the same before this
Court in the name of public good and public morality, it is not open to the
State Government to acquire the undertaking of horse racing again in the name
of public good and public purpose. It is ex- facie irrational to invoke
"public good and public purpose" for declaring horse racing as
gambling and as such prohibited under law, and at the same time speak of
"public purpose and public good" for acquiring the race club and
conducting the horse racing by the Government itself.
Arbitrariness
is writ large on the face of the provisions of the 1985 Act.
We,
therefore, hold that the provisions of 1985 Act are discriminatory and
arbitrary and as such violate and infarct the right to equality enshrined under
Article 14 of the Constitution.
Since
we have a truck down the 1985 Act on the ground that it violates Article 14 of
the Constitution, it is not necessary for us to go into the question of its
validity on the ground of Article 19 of the Constitution.
We
allow the writ petitions and the civil appeal. The impugned judgment of the
High Court is set aside. We hold and declare that horse racing is a game of
mere skill within the meaning of Section 49 of the Police Act and Section 11 of
the Gaming Act. Horse racing is neither "gaming" nor
"gambling" as defined and envisaged under the two Acts read with the
1974 Act and the penal provisions of these Acts are not applicable to the horse
racing which is a game of skill.
The
1985 Act is ultra vires Article 14 of the Constitution and as such is stuck
down.
We
direct the Committee of Management under the Chairmanship of Justice S. Natarajan,
appointed by this Court, to hand over the management, functioning and operation
of the club to a duly constituted Management Committee, under the Memorandum
and Articles of Association of the Club, before March 31, 1996. We leave the parties to bear their own costs.
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