This article has been authored by Bhavika Mittal, pursuing BA LLB at Shri Navalmal Firodia Law College, Pune affiliated with Savitribai Phule Pune University. The article discusses the legality of online lottery in India by elucidating the development of laws for online lottery, the differences between the two classes of lottery and the concept of lottery under the purview of multiple legislations. 

It has been published by Rachit Garg.

Introduction 

The contemporary world is work-driven, which consequently develops stress and other extreme forms of mental illnesses. During such times, engaging in an amusing activity is advisable. Involvement in games post-work hours can help an individual maintain mental balance. The vast availability of online games and the monetary prizes entailing them attract users and, at times, unknowingly support them mentally and income-wise.

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The lottery is one such type of recreation; the Indian lottery market is one of the largest markets in the world as mentioned in. It is said that in 2023, the market will expand to 4.2 billion ticket purchases as mentioned in.With such huge numbers, regulations are mandatory to ensure effective and efficient functioning. Thus, the Lotteries (Regulation) Act, 1998, but in the twenty-first century, “online everything” is a trend, and lotteries are not behind; online lotteries are widely available on numerous websites.

However, the lottery is frowned upon by society and jurists due to its high chances of being addictive, and with online lotteries, the probability of scams and fraud is high. Irrespective of this, the central government permits the state governments to freely organise (or not) online lotteries, for instance, Playwin was sanctioned by the Sikkim government in 2001, because the proceeds from the sale of lottery tickets are used for the public interests. Nonetheless, numerous states in India have banned online lotteries.

So, is the online lottery legal or not? It might sound a little complicated, but the article attempts to decode the same. 

What is lottery 

Lottery, also known as “lotto,” is a game of chance where the winners are randomly selected. The method of the game is used to make fair decisions.

This game of random draws is considered to be a form of gambling. Here, the players invest a small amount of money by purchasing a lottery ticket. When the numbers on the ticket match those randomly chosen by the machine, that individual is the winner. The winner is presented with large amounts of monetary prizes, but the chances of winning are very slim. 

Legally speaking, the lottery is defined under Section 2(b) of the Lotteries (Regulation) Act, 1998. The section states that a lottery is a game of chance where the prizes are distributed among persons participating. The section refers to the “lottery” as a scheme which could be in any form and under any name.

For instance, the Shillong Teer game is an archery-based lottery game. Here, the archers hit on a bundle of straws, and bets are placed on the number of arrows that land in the bale. 

Differences between online and paper lottery 

The distinction between the paper lottery and the online lottery is self-explanatory. Nonetheless, the paper lottery is when you physically go to a designated place to purchase a ticket. At the same time, in an online lottery, the tickets are bought with a click of a button. There are numerous websites which offer this provision. Some of them, for instance, are Jackpot.com, Win Trillions, TheLotter and many more. Also, The game of online lottery can be played from anywhere in the world, but paper lottery has geographical restrictions; players can only play lotteries available to them in their vicinity. 

Additionally, the procedure of claiming a prize on a ticket is easier and quicker in an online lottery as compared to a paper lottery. This is because in an online lottery all records, from sales to tickets to other related transactions, are secured, while in an offline lottery the chances of misplacing or damaging the winning lottery tickets are high. Another point of difference between an online lottery and a paper lottery is that the time of draws is predetermined in online lotteries, and the sale of tickets at the terminals is stopped at a specified time. Thus, the probabilities of unfair practices are low as compared to offline or paper lottery. 

While it has become easier for the players, parallelly, the probability of scams is also skyrocketing. Despite this, lotteries are said to contribute towards public good because the purchase and winning of lotteries are subject to income tax. Thus, the government earns huge amounts of profit.

With equivalent strong points on both sides, the answer to the legality of lotteries in India is yes and no. Upon further reading, the reason behind a mixed answer will be clarified. But first, what is the online lottery?

Definition

“Online lottery” has been defined under Rule 2(1)(e) of the Lotteries (Regulation) Rules, 2010.

According to this provision, players can purchase lottery tickets generated by a computer or online machine at lottery terminals.

A lottery terminal is a place where the information about

  • Sale of tickets, and
  • The player’s choice of any particular number or combination of numbers

are simultaneously registered with the central computer server. 

Laws governing online lottery in India 

The concept of an online lottery is relatively new. It was only a decade ago that legislation related to the subject matter of online lottery was enacted. The legislation is complementary as well as supplementary to the previous law on the lottery as the recent legislation Lotteries (Regulation) Rule, 2010 is an extension to the previous legislation Lotteries (Regulation) Act, 1998 and includes under its purview those significant concepts which were lacking in the earlier legislation. Depending upon the case, the provisions of both legislations are simultaneously referred and cited.  

Lotteries Regulation Rules, 2010, is a central legislation which explicitly lays down the meaning of online lottery and further explains its functioning. These Rules of 2010 are an amendment to the Lotteries (Regulation) Act, 1998.

The Lotteries (Regulation) Act of 1998 is a central government Act consisting of thirteen sections. It provides guidelines on how to regulate and conduct lotteries in a lawful manner. The Act allows the central government to control the conduct of lotteries in states. To further understand the legality of online lottery in India, let’s read deeper into each of these legislations. 

Lotteries (Regulations) Act, 1998

The Act was enacted as a consequence of the course-changing decision of the Kerala government. The government of Kerala developed its lottery department and banned all private individuals from conducting lotteries. Gradually, the other state governments followed in the footsteps of Kerala. Thus, on 2nd October 1997, the Lotteries (Regulation) Act was enforced with its applicability throughout India.

Section 4 of the Act empowers the state governments of India to host lotteries. The Section further lays down rules for the governments to follow, some of them being:

  • The lottery tickets shall contain the state government’s logo, ensuring authenticity.
  • The tickets for the lottery shall be sold by the government itself or via distributors.
  • The earnings from the sale of lottery tickets shall be diverted towards the state’s public account.
  • The state government shall conduct the draw of the lottery.

There are multiple other guidelines which describe the way a lottery shall be conducted. Evidently, the Act prohibits private individuals from conducting lotteries and solely empowers state governments to organise and run them. Additionally, the Act ensures that the public is benefitted.

  • Section 5 permits a particular state to ban the sale of tickets within its borders from other states.
  • Section 7, titled Penalty, states that punishment of rigorous imprisonment extending up to two years or a fine or both shall be imposed on the Head of the Department of the concerned state government if the lottery was not organised as per the provisions of the act. The officers or agents involved shall also be held liable and punished.
  • The offence committed under the Act is cognisable and non-bailable.

Finally, Section 13 obligates the state governments to obey the directions of the central government given under the Act or any rules to be enacted in the future and execute operations accordingly. 

Lotteries (Regulation) Rules, 2010

Under the Lotteries (Regulation) Rules, 2010, the online lottery was defined under Rule 2(1)(e) for the first time, and the operation and procedure for the same were provided. The rules were enforced on 1st April, 2010.

The Rules permitted the states to freely organise online lotteries in the state but by adhering to the set of conditions provided by the Lotteries (Regulation) Act, 2010. The rules define various terms like a central computer server, security deposits, etc., for the functioning of online lotteries.

The Rules of 2010 contain five rules along with sub-rules. The following are some of its salient features.

Rules 1 and 2 are the introduction and defining clause of the (Regulation) Rules, 2010

Rule 3 states specifics on how and when a lottery shall be organised.

  1. The state governments can organise a lottery of any class at their discretion.
  2. The announcement of the lottery or lotteries shall be done via issuing a notification in the Official Gazette of the particular state.
  3. The notification shall contain the name, cost of lottery tickets, purpose, scope, prizes, place of conduction, method of drawing lots and limitations.
  4. The ticket cost shall not be less than two hundred rupees, and the prize money in any lottery shall not be less than ten thousand rupees.
  5. The proceeds from the sale of lottery tickets are deposited in the Public Ledger Account or Consolidated Fund of the organising state.
  6. An officer not below the rank of Secretary to the government shall be the responsible authority for organising the lottery.
  7. The online lottery tickets shall be issued by the organising state at the government press or any other high-security press.
  8. The prizes on an online lottery shall not be given on the basis of single, double or triple-digit in any form or combination.
  9. The organising committee shall ensure that income tax on prizes be deducted at source.
  10. The organising state is required to keep a record of printed tickets, sold and prize-winning tickets.

Rule 4 provides guidelines for the appointment of a distributor or selling agent.

  1. The qualifications, terms and conditions for a distributor or selling agent be specified by the state government.
  2. The distributors or selling agents are required to oblige by the specifics mentioned by the organising state.
  3. The organising state shall pay a commission to the distributor or selling agent.

Rule 5 provides for the procedure to be followed by the central government to prohibit the sale of lottery tickets.

  1. The central government shall be notified if the organising state violates the provisions of the rules and the act.
  2. The allegations of such violations are imposed by state governments, and the organising state is required to respond to the issues within thirty days. 
  3. The organising state must be given a fair opportunity to be heard and then the central government is required to take a final decision on the same. 
  4. Under Section 6 of the Lotteries (Regulation) Act, 1998, the Central Government can prohibit a lottery scheme. Further, the State Government is required to publicise the decision of the Central Government. 

Despite such regulations, it is a state matter, and the states of Andhra Pradesh, Telangana, Chandigarh, and Tamil Nadu ban any form of online lottery. 

Relationship between Lotteries (Regulation) Act, 1998 and (Regulation) Rules, 2010

The Lotteries (Regulation) Rules, 2010 opens by mentioning the Central Government’s power under Section 11(1) of the Lotteries (Regulation) Act, 1998. This indicates that these rules are an extension to the Act. Also, the definition clause under the Rules of 2010 defines “Act”, which signifies the Lotteries (Regulation) Act of 1998.

Thus, both the regulations shall be complied with for conducting and organising online lotteries, and laws governing paper lotteries are also applicable to online lotteries. Some of those legislations are as follows. 

Legality under the Indian Contract Act, 1872

The game of lottery is viewed as an agreement where two parties, the lottery operator and the lottery ticket purchaser, are involved. Here, the lottery ticket purchaser purchases a ticket from the lottery operator by paying as a form of consideration. In contrast, the purchasing party’s consideration is the result of the lottery in his favour and making him the winner of the designated prize money. Here, the operator gives to the participant something only if the numbers of the lottery ticket match.

Thus, the agreement between the parties is risky and based on an unpredictable event. Such agreements where people try to guess the outcome of something based on an unpredictable event by risking valuable items or money are called agreements of the wager.

Section 30 of the Indian Contract Act, 1872, states that agreements of wager are void. It further states that no suit claiming damages can be brought against the other party if the complainant has won by way of any wager.

Therefore, as lotteries are a game of chance, the lottery operators are not bound to pay the winners, and the winners cannot initiate a suit against the operators in the court.

There is an exception here; in the matter of international online lottery, a lawsuit can be filed if the winnings are not given. 

Income Tax Act, 1961 

In India, tax is levied on winnings from a lottery. Section 115BB of the Income Tax Act, 1961 empowers the government to levy tax on winnings of a lottery, both online and offline. Further, the section states that income from lotteries is subject to a flat tax-deducted source of 31.20%; this includes a cess of 4%. This applies to those earning below Rs. 10,000.

Section 194B of the Income Tax Act, 1961, states that if the prize money exceeds Rs.10,000, the winner will receive the money only upon deduction of tax deducted at source at 30% for residents and 31.20% for non-residents. Tax under Section 194B shall only be deductible only at the time of actual time.

Generally, winnings from lotteries are calculated separately from an individual’s income, categorising it into income from other sources. 

Legality of international online lottery in India

The trend of playing the international lottery has increased due to the presence of online modes. While this concept is hardly new, its demand has increased recently. These online international lotteries are conducted by foreign operators residing outside India. Additionally, the actual lottery is drawn beyond the borders of India. 

Since the essence of the game is not conducted in the land of India, and most importantly, the central lottery laws don’t cover the matter of international online lotteries under their purview. Therefore, it is not subject to any restrictions. Every Indian state, even those states where a lottery is banned, can also play an international online lottery. 

Apart from this, the game of international lotteries is played nationwide. There are numerous websites that make purchasing an international lottery ticket convenient, for instance, Mega Millions, Euro Millions, UK Lotto and many more. 

The rules of the international online lottery are governed by the laws applicable in that particular country which has organised the lottery, but there also are certain rules laid down under Indian regulations which govern the practise of international online lottery. 

The Foreign Exchange Management Act (FEMA) poses numerous restrictions on players willing to play the lottery. These being: 

  • A player cannot convert Indian currency into foreign currency for the purpose of purchasing lottery tickets.
  • If a player wins an international lottery, the prize money that entres the player’s bank account is restricted from being converted to Indian Rupees.
  • The use of international credit or debit cards issued by overseas foreign bank pr any reputed financial institute  for purchasing a lottery ticket is illegal. 

Eligibility to participate in online lotteries 

The Indian lottery market of paper lottery is one of the largest markets in the world, but with time the online lottery market in India is also expanding rapidly. Such rising numbers could be risky as the chances of scams escalate, especially when it comes to online lotteries. First, the lottery operators shall be sanctioned by the state governments to curb such mishaps and have the required licences and permits.

To participate in an online lottery, there is an age criterion. The individual must be 18 years of age to be held eligible. This rule is uniform and applicable nationwide. 

Also, according to the central lottery regulations, individuals can participate in online lotteries in states which organise and conduct them irrespective of being a citizen or not of the organising state.

Participation in online international lotteries is permitted by the centre. Individuals nationwide are eligible to participate in online international lotteries. The state of West Bengal still remains an exception.

Every eligible individual willing to participate in online lotteries must be cautious of illegitimate websites.

Protection against cybercrimes in online lotteries

It is the internet which has widely opened the spectrum of online lotteries worldwide. The convenience of online lottery is available to the organisers as well as the players, but the risks of cybercrime are equivalently high. So, looking into the techno-legal aspect is crucial. 

Firstly, the Information Technology Act, 2000 is the legislation which manages all the technology-related activities conducted in India. The purview of the act includes online betting exercises and the discipline which needs to be complied with. It also denies the production or transmission of any data which is offensive. There are state-based legislations as well that categorise online betting as illegal. For instance, the Bombay Prevention of Gambling Act, 1887 makes web-based betting illegal in the territory of Maharashtra. 

Further, the Federal Information Technology Rules ensure that unlawful activities such as web-based betting are obstructed by internet suppliers in India.  

Thus, to protect the players of the country against any deceiving acts, the abovementioned legislations have been enacted. 

When can online lottery be banned in India 

There is no concrete legislation that bans online lottery. As mentioned, the Lotteries (Regulation) Act, 1998 empowers the state governments to ban any form of lottery at their discretion. When a state bans a specific type of lottery, it is expected to be entirely prohibited. Neither can the same state sell tickets to another state nor can other states sell tickets in a banned state.

Moreover, suppose the state governments deviate from the provisions and the set conditions of the Lotteries (Regulation) Rules, 2010. In that case, the Central Government is empowered to ban online lotteries in the organising state by issuing an order under Section 6 of the Lotteries (Regulation) Act, 1998. This has been stated under Rule 5(5) of the Lotteries (Regulation) Rules, 2010.

Judicial pronouncements 

All Kerala Online Lottery Dealers v. State of Kerala and Ors, (2015)

In the case of All Kerala Online Lottery Dealers v. State of Kerala and Ors, 2015, the facts, the issues and the decision of the Supreme Court were as follows.

Facts

The State of Kerala prohibited online lottery in Kerala by exercising power under Section 5 of the Lotteries (Regulation) Act, 1998 and declared the state a free zone from online and internet lottery.

In a subsequent notification on the prohibition of online lotteries, the State of Kerala permitted the sale of paper lottery tickets only. The petitioner in the instant case and others, aggrieved by the discriminatory permit on paper lottery, filed a writ petition in the High Court of Kerala. The High Court dismissed the petition. Further, the petitioner and others appealed to the Division Bench of the High Court, Kerala, and the bench also dismissed the appeals.

The aggrieved parties moved to the Supreme Court through a special leave petition.

Issues raised

Whether the State Government is empowered to discriminate between online and paper lottery in pursuance to the provisions of Section 5 of the Lotteries (Regulation) Act, 1998? 

Decision

The state governments have the power to prohibit any form of lottery and carry on with other forms of the lottery; the action of the State of Kerala is valid and is not contravening any provisions of the Lotteries (Regulation) Act, 1938.

The Supreme Court also upheld the decision of the State Government of Kerala and held that the “evil of lottery is haunting families” and has a “scope of manipulation”.

Further, the court held that it is constitutionally valid to discriminate between paper and online lotteries. This is because both fall under different classes of the lottery. 

Use of judicial precedent under the case 

In the instant case, the Apex Court relied on the case B.R. Enterprises v. State of UP and Ors, (1999). Wherein the Supreme Court laid down the principles of the paper lottery while deciding on the prohibition of paper lotteries.

Further, the court pronounced that the guidelines laid down by the court for paper lotteries would also be applicable to online or internet lotteries. The only distinction is that it would be categorised as a separate class.

The court, in the 1999 case, stated that if a state government is prohibiting paper lottery, then it has to be prohibited as a whole. This means the State can prohibit a form of lottery if it is not running that particular lottery. In this situation, the state can run other forms of lottery. Similarly, in the case of online lottery, it also has to be prohibited as a whole.

So, the State of Kerala was right in prohibiting online lottery in its state because it was not practising the same.

Therefore, there is no national ban on online lotteries, but individual state governments can ban online lotteries at their discretion. 

State of Karnataka and Anr. etc. v. State of Meghalaya and Anr.etc (2022)

In the case of the State of Karnataka and Anr. etc. v. State of Meghalaya and Anr.etc. (2022), the facts, issues and decisions are as follows. 

Facts 

In the instant case, the states of India are in conflict in regard to the validity of taxes imposed by the petitioner states. The petitioners are Karnataka, Kerala and others, while the respondents include the State of Nagaland, Arunachal Pradesh, Meghalaya, Sikkim and others. 

The State of Karnataka passed the Karnataka Tax on Lotteries Act, 2004, also known as the Karnataka Act. Similarly, the State of Kerala passed a Kerala Tax on Paper Lotteries Act, 2005 also known as Kerala Act. The respective High Courts of the states held that the acts in the respective states were unconstitutional as the states did not have legislative competence to enact the said Acts. 

Consequently, the states of Karnataka and Kerala were directed to reimburse the respondent states with the tax amount collected. Aggrieved by this, the states of Karnataka and Kerala along with others states, filed the instant petition.  

Issues raised 

Does the power of the Parliament mentioned under Entry 40 of List I overpower the scope and ambit of Entry 62 of List II read with Entry 32 of List II of the Seventh Schedule of the Constitution of India?

Well, for clarity purposes, Entry 40 of List I, under its purview, empowers the parliament to regulate lotteries organised by the government of India or any state government. Next, Entry 62 of List II gives power to the state to levy tax on luxury, gambling and betting and Entry 34 of List II levies tax on gambling and betting. Thus, the interpretation of the words gambling and betting are under question as to whether these words include lotteries or not.

Further, another issue raised in front of the Supreme Court is whether the acts passed by respective states hold constitutional validity or not. 

Decision  

The Apex Court, before pronouncing the decision, made the following observations. 

  • The Court discussed the legislative competence under Article 246 read with the Seventh Schedule of the Constitution. 
  • The Court concluded on the abovementioned point by observing that Article 246 of the Constitution must be read with duly considering the entries in the three lists under the seventh schedule. Where there is a conflict between the entries, the court shall find solutions for reconciliation. 
  • The pith (the essence of something) and substance (an essential part of something) doctrine states that an enactment that expressly falls under the powers conferred by the Constitution cannot be held invalid only because it encroaches with another legislation. The doctrine is primarily used when such conflicts between the power of the centre and the state arise. 
  • The Supreme Court held that if the enactment falls under the subject matter of the doctrine, which is under list II, then the legislative competence of the state cannot be challenged because the subject is also covered by the union or concurrent list, which is the situation in the instant case. 
  • Further, the Court held that lottery and “gambling and betting” are subject matters of two distinct fields. The proceeds obtained from lotteries are credited into public accounts for the larger good, while gambling and betting were regarded as a problem of law and order. Therefore, a lottery is a distinct matter, and the state governments have the legislative competence to pass decisions on it. 

Concludingly, the Supreme Court set aside the orders of the High Court and upheld the constitutionality of the acts passed by Karnataka and Kerala of imposing tax on lotteries conducted by other states in their respective states. 

Conclusion 

Lotteries, whether online or offline, are matters of the state, and private individuals and institutions are forbidden from operating lotteries. There are central legislations which govern and regulate the subject matter of lotteries; within these laws, the state governments have the power to take decisions on the matter of lottery for their state but in accordance with the central legislations. Therefore, it is at the state’s discretion whether the online lottery is legal or illegal. Just like the country is diverse, states’ stance on the lottery is also diverse. While some classify it as legal, others as illegal.

Nonetheless, the online international lottery is open to Indian players and not subject to the restrictions of the laws of the land. There are multiple legislations which include the subject matter of lottery under their purview, for instance, the Indian Contract Act of 1872 and the Indian Penal Code of 1860.

The provisions of the laws mentioned above restrict lottery from some angle or the other; these laws don’t explicitly state anything in regards to online lotteries in India. Still, it is generally said that the provisions for both classes of lotteries are alike. The Lotteries Regulation Rules, 2010, in compliance with an amendment to the Lotteries Regulation Act, 1998, ease the incorporation of online lotteries. Therefore, no blanket statement can be made about the legality of online lotteries in India and the same needs to be legally seen in a subjective manner. 

Frequently Asked Questions (FAQs) 

What is meant by a central computer server?

The central computer servers are under the direct control of the organising state. It is a system of multiple computers at a central location. The central computer server helps the organising state to accept, process, store and validate online lottery transactions. Additionally, it manages, controls and monitors the entire online lottery system. 

What is the difference between organising state and state government with respect to lotteries? 

The Lotteries (Regulation) Rules, 2010, defines an organising state as the state government which conducts a lottery in its state or sells tickets in other states. Here, under the purview of the state government, the states where the lottery tickets are sold are also included. 

References 

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