This article is written by Syed Owais Khadri. The article provides a comprehensive study of the ruling rendered by the Hon’ble Supreme Court in the State of Bombay vs. R.M.D.C. (1957). It delves into the background, facts, arguments, judgement and reasoning in detail. It also sheds light on the point of law involved in the case. The article also briefly looks into the relevant international provisions and decisions that were noted in the decision. Additionally, the article also attempts to provide a detailed analysis of the judgement.

Introduction

There has been a surge in online betting applications and platforms in recent times. These applications and platforms conduct betting competitions on various sports events, attracting a large number of audiences. The platforms attract and lure the participants with a minimal entry fee and high rewards which resembles a form of gambling. Although a large number of people participate in betting competitions organised by these platforms, most of them are unaware of the legal aspects concerning betting and gambling. The case of State of Bombay v. R.M.D.C and Anr (1957) deals with and examines a law concerning the aspects of betting and gambling.

The said case involves an appeal filed against a decision of the High Court of Bombay wherein the High Court had upheld challenging a law enacted by the State of Bombay concerning prize competitions and lotteries. The State of Bombay had enacted an amendment making pertinent changes to a law which regulated and controlled prize competitions and lotteries in the State of Bombay. The said amendment extended the operation of the original Act beyond the territorial limits of the State of Bombay. Hence the petitioner who ran a prize competition challenged the amendment on the grounds of extraterritoriality of the law and other important grounds which was upheld by the High Court declaring the amendment invalid and unconstitutional which was appealed against by the State of Bombay.

The Hon’ble Supreme Court upheld the appeal filed by the State of Bombay and set aside the decision of the High Court of Bombay. The court upheld the amendment made by the State of Bombay as constitutionally valid. This article discusses the said decision of the Hon’ble Apex Court in detail as follows.

Details of the case

The following are some of the important details of the case discussed in this article-

1. Case Name: State of Bombay vs. R.M.D.Chamarbaugwala and Anr (1957) (hereinafter referred to as the “Instant case” in this article)
2. Case No: Civil Appeal 134 of 1956
3. Parties to the case:
   1. Petitioner(s)/Appellant(s): State of Bombay
   2. Respondent(s): R.M.D. Chamarbaugwala and R.M.D.C (Mysore) Ltd.
4. Equivalent Citations:  AIR 1957 SC 699, 1993 SCC OnLine SC 12
5. Court: Supreme Court of India
6. Bench: Chief Justice S.R. Das and Justices. T.L. Venkatarama Ayyar, B.P. Sinha, S.K. Das and P.B. Gajendragadkar
7. Judgement Date: 09.04.1957
8. Laws involved: Constitution of India, 1950, Bombay Lotteries and Prize Competition Control and Tax Act, 1948, Government of India Act, 1935 

Rank of parties

It is extremely necessary to have a clear understanding of the rank of the parties at various stages of proceedings since the case, and as a result, this article involves inputs or information about proceedings that took place at three stages, i.e., before the Hon’ble Supreme Court as well as twice before the Hon’ble High Court of Bombay. The rank of the parties at various stages of the proceedings of the case is as mentioned below.

	Court	Parties
		R.M.D.C and Anr.	State of Bombay
Rank of Parties	Single Judge Bench, High Court of Bombay (Trial Court)	Petitioners	Respondents
	High Court of Bombay (Court of Appeal)	Respondents	Appellants
	Supreme Court	Respondents	Appellants

Therefore, in this article, R.M.D.C and Anr. are hereinafter referred to as “the respondents/the petitioners”. Similarly, the State of Bombay is referred to as “the appellants.”

Facts of State of Bombay vs. R.M.D.C (1957)

The Hon’ble Supreme Court, in this case, was dealing with an appeal filed by the State of Bombay against a decision given by the division bench of the Bombay High Court, upholding the judgement rendered by a single judge bench of the same court in respect of a writ petition filed under Article 226 of the Constitution.

The first respondent was the managing director of the company named R.M.D.C. (Mysore) Ltd., which was the second respondent in the case. The company was stated to be incorporated in the state of Mysore, with its registered head office situated in Bangalore. The respondents in the instant case were the petitioners in the writ petition filed before the Hon’ble High Court of Bombay.

The detailed facts of the case are as follows:

• The first respondent was conducting a business known as Littlewood’s Football Pool Competitions in India after obtaining a licence from the Collector of Bombay in July 1946. The said licence was obtained as per the provisions of the Bombay Prize Competition Tax Act, 1939 (hereinafter referred to as the “1939 Act”) and was valid till March 1947. It was further renewed for a period of one year from 1st April 1947 to 31st March 1948 and a sum of Rs. one lakh was paid to the Bombay Provincial Government as competition tax.
• However, the renewal of the licence was denied for a further period by the Bombay Provincial Government, following which the first respondent filed a petition for specific performance in the High Court of Bombay. The petition was later dismissed in March 1949.
• In the meantime, the first respondent, due to the complications and delay in obtaining the renewal of the licence in Bombay, shifted the business from Bombay to the State of Mysore in August 1948. The first respondent then became a promoter, incorporated the company named R.M.D.C. (Mysore) Ltd., and later became the managing director of the company.
• The first petitioner also owned a newspaper called the ‘Sporting Star’ running under his press in Bangalore. He used to conduct and run a prize competition called “R.M.D.C. Crosswords” through this newspaper.
• Meanwhile, the Mysore Lotteries and Prize Competition Control and Tax Act, 1951, was enacted by the State of Mysore and came into force in February 1952. Accordingly, the first respondent obtained a licence under the said Act by paying the requisite licence fee. The first respondent had also paid and was paying the tax to the State of Mysore at the rate of 15% (later reduced to 12.5%) of the gross receipts of the prize competition “R.M.D.C Crosswords.”
• The first respondent continued the prize competition and he was receiving and was continuing to receive entries from all parts of the nation, including the State of Bombay. The gross profit of the company after the deduction of tax, distribution of prizes, and other expenses is said to be only 5%.
• However, in the State of Bombay, the Bombay Prize Competitions Tax Act, 1939 was replaced by the Bombay Lotteries and Prize Competition Control and Tax Act, 1948 (hereinafter referred to as “the Act/1948 Act”). Neither of the two legislations affected the prize competition “R.M.D.C. Crosswords” as they were not applicable to the prize competitions printed and published outside the State of Bombay. 
• However, the Act was later amended in 1952 by the Bombay Lotteries and Prize Competition Control and Tax (Amendment) Act, 1952 (hereinafter referred to as the “impugned Act”). Additionally, the Bombay Lotteries and Prize Competition Control and Tax Rules, 1952 (hereinafter referred to as the “1952 Rules”) were also framed by the State of Bombay and came into force in December 1952. These rules required the first respondent to obtain a licence under one of the forms prescribed under the rules, which imposed certain hard conditions. Moreover, the impugned Act imposed a tax on the prize competition even if it was merely circulated in the state and not printed or published in the state.
• The imposition of tax by the impugned Act was likely to have an effect on the profit of the petitioners since the total profit was already only 5% of the income, and the said tax would have further reduced the profit.
• Therefore, the respondents filed a writ petition before the Hon’ble High Court of Bombay, challenging the impugned Act and 1952 Rules. They were challenged on the grounds that they were ultra-vires and void, to the extent concerning their application to prize competitions printed and published outside the State of Bombay but being circulated in the said state.
• A single judge bench of the Hon’ble High Court of Bombay upheld the contention of the respondents and ruled that the impugned Act and the 1952 Rules were ultra-vires and void, stating that they were unreasonable and violative of Article 19(1)(g) of the Constitution.
• The decision of the single-judge bench was appealed in June 1954 before the Court of Appeal, which dismissed the appeal and affirmed the ultimate decision of the single-judge bench but on the basis of a different rationale disagreeing with certain observations of the previous decision.
• Therefore, the appellant had then filed an appeal before the Hon’ble Supreme Court by obtaining a certificate for fitness for appeal to the Apex Court under Articles 132 and 133 of the Constitution which is the instant case.

Proceedings before the High Court

As mentioned above, the petitioners’ writ petition was first decided by a single-judge bench of the Hon’ble High Court of Bombay, which upheld the petitioners’ challenge against the impugned Act. The decision of the trial court was then appealed before a division bench of the same court by the state, which was subsequently dismissed, confirming the said decision. A brief summary of the proceedings before the High Court of Bombay is as follows.

Contentions

The contentions of the parties were mainly related to the questions of legislative competence of the State of Bombay and, hence, the validity of the impugned Act. A brief summary of the contentions advanced by the petitioners and the respondents is discussed below.

Petitioners

The contentions put forth by the petitioners before the Hon’ble High Court of Bombay are summarised as follows.

• The State of Bombay was not competent in enacting the impugned Act. The impugned Act could not be regarded as a law on gambling as prize competition was not a lottery but a competition involving the exercise of skill and knowledge. 
• The impugned Act fell within the scope of the subject matter mentioned under Entries 26 and 60 and not under Entries 34 and 62 under the Seventh Schedule of the Constitution.
• There were separate provisions for innocent prize competitions and lotteries. Hence, they both cannot be treated on equal footing as gambling for taxation.
• The impugned Act was in contravention of Article 276(2) of the Constitution.
• The State of Bombay was not competent in enacting the impugned Act as it was invalid due to its extraterritorial nature.
• The impugned Act was in breach of the provisions under Article 301 of the Constitution and was also not protected under Article 304(b).
• The impugned Act was in violation of the fundamental right to trade under Article 19(1)(g) of the Constitution and the restrictions imposed by the Act did not qualify as reasonable restrictions under Article 19(6).
• The impugned Act was in violation of Article 14 of the Constitution as it discriminated between prize competition printed and published within and outside the State of Bombay.

Respondents

The contentions put forth by respondents, i.e., the State of Bombay before the Hon’ble High Court of Bombay are summarised as follows.

• The prize competitions promoted by the petitioners qualified for lottery and were hence of a gambling nature.
• The prize competitions could not be regarded as trade, business or commerce since they were against public policy.
• The impugned Act was not of an extraterritorial nature in its operation.
• There was no contravention of constitutional rights and freedoms under Article 19(1)(g) and 301, as the prize competitions were not trade, business or commerce.
• The second petitioner could not be entitled to claim the right under Article 19(1)(g) as it was a corporation and not a citizen.
• Even if the prize competitions were assumed to be trade, business or commerce, the impugned Act was protected under Article 19(6) and Article 304(b) of the Constitution as the restrictions imposed by the Act were reasonable in the public interest.

Decision of the Trial Court

The Trial Court, i.e., the single-judge bench of the Hon’ble High Court of Bombay, upheld the contentions of the petitioners and held that the law was invalid. The decision of the trial court is summarised as follows.

• The tax imposed by the impugned Act was a tax on trade since the provision imposing tax fell within the purview of Entry 60 and not under 62 of List II under the Seventh Schedule of the Constitution.
• The prize competitions could not be regarded as a lottery or gambling since they involve the exercise of skill and knowledge.
• The tax imposed by the impugned Act was invalid as per Article 276(2) of the Constitution.
• The impugned Act and the rules framed under it were in contravention of Article 301 and were not protected under Article 304(b) of the Constitution.
• The second petitioner was entitled to claim the right under Article 19(1)(g), despite it being a corporation and not a citizen.
• The restrictions imposed by the impugned Act were not protected under Article 19(6) as they were neither reasonable nor were they in the interest of the public at large.
• The court ordered the State of Bombay to abstain from implementing the impugned Act and to allow the petitioners to carry on the business of prize competitions.

Decision of the Court of Appeal

Although the Court of Appeal held that the impugned Act was not beyond the legislative competence of the State of Bombay, it dismissed the appeal filed by the state and upheld the final decision of the Trial Court declaring the impugned Act invalid. It however rendered the decision on the basis of a rationale that was different from that of the Trial Court. The rulings made by the Court of Appeal are discussed as follows.

• The prize competitions conducted by the petitioner were of the nature of the lottery.
• The impugned Act was enacted under the subject matter of gambling under Entry 34 of list II under the Seventh Schedule of the Constitution and the State of Bombay was competent in enacting the impugned Act.
• However, Section 12A was held as a provision under Entry 60 of List II of the Seventh Schedule of the Constitution and the tax imposed under it was held as a tax that fell under the said entry and not on gambling.
• Although the State of Bombay had legislative competence to impose the tax, the taxation provision was invalid due to its non-conformity with the limitation prescribed under Article 276(2) by the state.
• The restrictions imposed by the impugned Act were not protected under Article 304, as they did not qualify as a reasonable restriction in the public interest as prescribed under clause (b) of the said provision.
• The petitioners’ challenge to the impugned Act was upheld as the restrictions by the Act were unjustified due to the non-compliance of requirements prescribed under Article 304 of the Constitution.
• The prize competitions were the business of the petitioners and hence were entitled to be protected under the fundamental right guaranteed under Article 19(1)(g) of the Constitution.
• The prize competitions were not against public policy/interest, despite them being a lottery.
• The provisions relating to freedom of trade under Part XIII of the Constitution, which includes Article 301, were held applicable to the prize competitions by virtue of the prize competitions qualifying as a business. 

Issues raised

The principal issue was concerning the validity of the impugned Act.

• Whether the impugned Act and 1952 rules were ultra-vires and void or were they in contravention of the constitutional provisions?
• Whether the promotion of prize competitions that are opposed to public policy falls within the meaning of trade or business under Article 19(1)(g) or trade or commerce under Article 301 of the Constitution?

Legal provisions involved in State of Bombay vs. R.M.D.C (1957)

It is vital to understand the relevant legal provisions concerning the issues in any case for the appropriate analysis of such issues. Some of the relevant legal provisions that were discussed or examined in the instant case are discussed below.

Constitution of India

The instant case involved significant issues relating to various constitutional provisions. The case involves questions pertaining to the legislative power of states, freedom of trade, extra-territorial nature of laws and their validity, etc. Some relevant constitutional provisions discussed in the instant case are as follows.

Article 14 of the Constitution

Article 14 of the Constitution guarantees the right to equality for every individual in India. It prohibits the denial of equality before the law and guarantees equal protection of the law by the state.

The provision encompasses two important aspects of equality, the first being equality before the law, which means that every individual is equal in the eyes of the law and there shall not be any privilege given to any citizen. The second aspect of equality reflects the positive content of the provision according to which the state shall ensure that there is no discrimination of any kind and every citizen is entitled to equal protection of the laws.

The Hon’ble Supreme Court, in the 1973 ruling of E.P. Royappa vs. State of Tamil Nadu (1973), held that any act that is arbitrary in nature is violative of the right to equality under Article 14 of the Constitution.

Article 19 of the Constitution

Article 19 of Part III provides for one of the most significant fundamental rights guaranteed by the Indian Constitution. It guarantees various freedoms to the citizens, including freedom of speech, trade, etc., as a fundamental right. However, the provision in its later clauses clarifies that such freedom or fundamental right guaranteed by itself is not unlimited or unrestricted. It also enables the imposition of reasonable restrictions on certain grounds on the guaranteed freedoms.

The six freedoms guaranteed under clause 1 of the provision include the freedom of speech and expression, freedom to assemble peacefully and without arms, freedom to form associations, cooperative societies and unions, freedom of free movement across the territory of the nation, freedom to settle and reside in any part of the territory of India, and freedom to carry on any trade, business or occupation, or to practice any profession.

Article 19(1)(g) of the Constitution guarantees the fundamental right to carry on trade or business or to engage in any profession.

Clause (2) of the provision lays down grounds on which reasonable restrictions can be imposed to restrict or limit the extent of the freedoms guaranteed under Article 19(1). The grounds outlined in this clause for the said purpose include the following.

• Sovereignty and integrity of India
• Security of the state
• Friendly relations with foreign states
• Public order
• Decency and Morality
• Contempt of court
• Defamation
• Incitement to an offence

Clause (6) of the provision permits the states to enact laws imposing reasonable restrictions on the freedom of trade, business, occupation or any profession in the interests of the general public at large.

The Hon’ble Supreme Court of India in Chintamanrao vs. State of Madhya Pradesh (1950) defined the phrase ‘reasonable restriction’ stating that the phrase suggested the restrictions imposed on an individual in enjoyment of the right must not be arbitrary or excessive in nature, beyond what is necessary for the interests of the public. It emphasised that the term ‘reasonable’ suggested intelligent care and deliberation. The court observed that any legislation that violates or infringes on rights arbitrarily cannot be held reasonable. It further observed that any law imposing restrictions is unreasonable and arbitrary if it fails to strike a balance between the freedom guaranteed under Article 19(1)(g) and the public interest prescribed in Article 19(6).

Similarly, the Hon’ble Supreme Court in another case, Om Prakash and Ors vs. State of U.P and Ors (2004), observed that the reasonability of a restriction on any trade to the extent of its complete prohibition must be examined and decided on the basis of the nature of trade involved and the public interest that is expected to be served by such restriction.

Articles 132 and 133 of the Constitution

Article 132 of the Constitution prescribes a remedy of an appeal to the Supreme Court against any final order, judgement or decree of any High Court in India when such order, judgement or decree involves substantial questions of law relating to the interpretation of the Constitution.

Similarly, Article 133 of the Constitution prescribes a remedy of an appeal to the Supreme Court against any final order, judgement or decree of any High Court in India when such order, judgement or decree involves any substantial questions of general importance concerning civil matters or if the High Court opines that the said questions are needed to be decided by the Apex Court. 

Clause (2) of the provision is similar to the previous constitutional provision i.e., Article 132. It provides a remedy of appeal to the Apex Court in cases involving substantial questions of law relating to the interpretation of the Constitution but only one of the grounds for appeal in addition to the other grounds provided under the previous clause.

Moreover, one more difference between Article 132 and Article 133 is that the former provision provides for an appeal against a civil, criminal or any other proceeding while the latter provides for an appeal only in civil proceedings.

However, one of the prerequisites or a requirement to file an appeal before the Hon’ble Supreme Court under either of the two provisions discussed above is a certification for such purpose from the High Court under Article 134A of the Constitution.

Article 134A of the Constitution

Article 134A of the Constitution empowers the High Courts to give a certificate of the nature mentioned in Articles 132, 133 and 134 to appeal to the Supreme Court after rendering a judgement, decree or final order in any case if it deems the provision of such certificate fit or if any oral application is made for such provision in respect of such case.

Article 226 of the Constitution

Article 226 empowers the High Courts with powers, similar to those provided to the Hon’ble Supreme Court under Article 32 of the Constitution. It provides a remedy for individuals to approach the High Court by way of a writ petition for enforcement of his/her rights. Any person aggrieved by the violation of the fundamental rights enshrined under Part III of the Constitution can approach the Hon’ble High Courts for the enforcement of their rights under this provision.

However, it is significant to note that the scope of Article 226 is wider than that of Article 32 of the Constitution. Article 226, unlike Article 32, doesn’t limit its scope to the enforcement of fundamental rights but extends beyond it. Article 226(1) ends with the phrase “….for the enforcement of any of the rights conferred by Part III and for any other purpose”. The words ‘and for any other purpose’ that are incorporated in this provision are absent under Article 32, which makes the scope of this provision wider. Therefore, any person can approach the High Courts for enforcement of rights other than fundamental rights under Article 226, which is not possible under Article 32. Moreover, Article 226 doesn’t restrict itself against the ‘state’. It is clarified in clause 1 that the High Court, under this provision, possesses the power to issue writs against any person or authority, which also makes the scope of the provision wider.

Articles 245 and 246 of the Constitution

Article 245 of the Constitution empowers the parliament to enact/make laws for the entire territory of India or any part of it. Similarly, it also empowers the legislature of the states to enact/make laws for the entire territory of the state or any part of it.

It further prohibits the presumption of invalidation of the laws made by Parliament on the grounds of their extraterritorial nature.

Article 246 of the Constitution prescribes the extent of legislative power of the Parliament and the state legislatures in respect of various subject matters.

Clause (1) of the provision confers exclusive powers on the Parliament to enact laws on subject matters mentioned under List I of the Seventh Schedule of the Constitution (hereinafter referred to as the “Union List”).

Clause (2) of the provision confers powers on the state legislatures, along with the Parliament, to enact laws on subject matters mentioned under List III of the Seventh Schedule of the Constitution (hereinafter referred to as the “Concurrent List”).

Clause (3) of the provision confers exclusive powers on the state legislatures to enact laws on subject matters mentioned under List II of the Seventh Schedule of the Constitution (hereinafter referred to as the “State List”).

Article 255 of the Constitution

Article 255 of the Constitution is a provision that repairs the lacunae created due to the non-fulfilment of a requisite of obtaining a recommendation or a sanction from certain authorities prior to the enactment of any law where such a requirement is expressly provided.

Clause (a) of the provision repairs a law that is assented to by the governor or the president and where the recommendation or previous sanction of the governor was required but such a requirement wasn’t complied with.

Similarly, Clause (c) of the provision repairs a law that is assented to by the president and where the recommendation or previous sanction of the president was required but such a requirement wasn’t complied with.

Article 276 of the Constitution

Article 276 of the Constitution prohibits the invalidation of any law imposing a tax on trade, businesses, profession or employment made by the legislature of a state on the grounds that it relates to a tax on income.

Article 276(2), however, sets an upper limit of two thousand five hundred rupees (Rs. 2500) as the maximum tax that may be imposed by any law made by a state legislature.

This upper limit was earlier two fifty rupees (Rs. 250) during the proceedings of the instant case. The ceiling on the tax was increased to Rs 2500 in 1988 by the Sixtieth Constitution Amendment Act, 1988.

Articles 301 and 304 of the Constitution

Article 301 of the Constitution declares trade, commerce and transactions in the said regard free across the territory of India. This freedomis, however, subject to other parts of Part XIII of the Constitution.

Part XIII of the Constitution contains provisions relating to trade and commerce across the territory of India. It contains 8 provisions, starting from Article 301 to Article 307

Article 304 empowers the state legislatures to make laws imposing certain restrictions, including taxes on trade, commerce and any transactions in such regard.

Article 304(b) empowers the state legislatures to enact laws to impose restrictions on the freedom of trade, commerce or intercourse provided under Article 301 of the Constitution with or within the state in the public interest.

However, clause (b) in the proviso further prescribes that any law imposing any reasonable restrictions mentioned under the clause cannot be enacted without the previous sanction of the president.

Seventh Schedule

The Seventh Schedule of the Constitution comprises three distinct lists containing various subject matters on which laws may be enacted by the Parliament, the state legislatures and both. The power to legislate on the subject matters in these three lists is prescribed under Article 246 of the Constitution. 

List I contains the subject matters that can be legislated exclusively by the parliament. It contains around 97 entries.

List II contains the subject matters which can be legislated exclusively by the state legislatures. It contains around 66 entries.

List III contains the subject matters on which both, the Parliament, and the state legislature can legislate. It contains around 47 entries.

Relevant entries from List II of the schedule (state list) are as follows

• Entry 26 – Trade and commerce within the state, subject to the provisions of entry 33 of list III
• Entry 34 – Betting and gambling
• Entry 60 – Taxes on professions, trades, employments and callings
• Entry 62 – Taxes on luxuries, including entertainment, amusements, betting and gambling.

Bombay Prize Competition Tax Act, 1939

The Bombay Prize Competition Tax Act, 1939 (the 1939 Act) was enacted by the legislature of the province of Bombay to regulate and tax prize competitions that were carried out across the Bombay province.

This Act contained provisions relating to the taxation, regulation and granting of licences for conducting prize competitions in the State of Bombay. 

The petitioner in the instant case was initially granted the licence to conduct the Littlewood prize competitions in the State of Bombay as per the provisions of this Act.

The 1939 Act was later replaced by the Bombay Lotteries and Prize Competition Control and Tax Act in 1948.

Bombay Lotteries and Prize Competition Control and Tax Act, 1948

The Bombay Lotteries and Prize Competition Control and Tax Act, 1948 (1948 Act) was enacted after independence by the State of Bombay. It replaced the existing state legislation for taxation of prize competitions that were conducted within the state (the 1939 Act). Moreover, this Act also included the regulation and taxation of lotteries, which was not available in the previous legislation. It came into force on 1st December 1948.

Some of the important and relevant provisions of the Act include the following.

• Section 2 of the Act provides a definition for certain important terms, including prize competitions. 

According to the definition under Section 2(1)(d), a prize competition included

• “(a) Crossword prize competitions, number prize competitions, missing word prize competitions, picture prize competitions or any other competition for which the solution is prepared beforehand by the promoters of the competition or for which the solution is determined by a lot;
• (b) Any competition in which prizes are offered for forecasts of results of a future event or of a past event, the result of which is not yet ascertained or not yet generally known; and
• (c) Any other competition, the success in which does not depend to a substantial degree upon the exercise of a skill.

but does not include a prize competition contained in a newspaper printed and published outside the Province of Bombay.”

• Section 3 of the Act declared all lotteries and prize competitions illegal, subject to the provisions of the Act.
• Section 4 of the Act prescribed and penalised certain offences relating to prize competitions and lotteries.
• Section 7 of the Act declared a prize competition unlawful or illegal if the promoter of such prize competition had not obtained a licence for the said purpose.
• Section 8 of the Act imposed a penalty for contravening the previous provisions.
• Section 9 of the Act regulated the granting of licences subject to the fees and conditions prescribed by the rules.
• Section 10 of the Act empowered the state government to prohibit the granting of licences with respect to lotteries and prize competitions across the state or any part of it, by the issuance of a general or special order.
• Section 11 of the Act empowered the collector of the state to suspend or cancel a licence granted under the provisions of this Act in case of any of the specified circumstances.
• Section 12 of the Act empowered the state to increase the tax up to 50% of the total income received in regard to any prize competition by issuing a notification in the official gazette. The prize competition in relation to which the tax is increased had to be specified in the notification.
• Section 15 of the Act obligated every promoter of any kind of prize competition or lottery to maintain records and accounts concerning such lottery or prize competition. It also obligated the submission of the statement of such accounts to the collector in a prescribed format and at prescribed periods.
• Section 31 of the Act empowers the state government to formulate rules to give effect to the provisions of this Act.

Bombay Lotteries and Prize Competition Control and Tax (Amendment) Act, 1952

The Bombay Lotteries and Prize Competition Control and Tax (Amendment) Act, 1952 (impugned Act) was enacted on 20th November 1952 making pertinent changes to the 1948 Act. The enactment of this amendment Act was the fundamental cause of action in the instant case, as the changes made by the Act were challenged as arbitrary, unconstitutional and invalid.

Some of the relevant and pertinent changes made by the impugned Act include the following.

• Section 2(1)(d) – The amendment Act deleted the words “but does not include a prize competition contained in a newspaper printed and published outside the Province of Bombay” from the definition of Prize Competition under Section 2(1)(d) of the 1948 Act. The said deletion had the effect of extending the applicability and scope of the 1948 Act beyond the territories of the state on the prize competitions printed and published outside the State of Bombay.
• Section 2(1)(dd) – An additional clause, clause (dd) was inserted after Section 2(1)(d). The said clause defined the term “promoter”.
• Section 12A – A new provision, Section 12A was inserted after Section 12. This new section provided for the levy of taxes on every prize competition circulated or distributed in the State of Bombay by obtaining a licence for the same under the 1948 Act, even though the prize competition had been printed and published outside the State of Bombay. This extended the taxation power of the State of Bombay to prize competitions which were merely circulated or distributed in the state, irrespective of the place where they were printed and published.

Bombay Lotteries and Prize Competition Control and Tax Rules, 1952

The Bombay Lotteries and Prize Competition Control and Tax Rules, 1952 (1952 Rules) were formulated along with the enactment of the impugned Act. These rules came into force on 8th December 1952. They required the promoter of a business of prize competitions to obtain a licence under one of the forms, i.e., ‘Form H’ prescribed under the rules. This form or rule imposed certain stringent conditions on the promoters.

Mysore Lotteries and Prize Competition Control and Tax Act, 1951

The Mysore Lotteries and Prize Competition Control and Tax Act, 1951 was enacted by the legislature of the State of Mysore on 21st June 1951. It provided for the regulation and taxation of lotteries and prize competitions that were conducted within and across the state. This act was similar to the Bombay Lotteries and Prize Competition Control and Tax Act, 1948. This Act came into force on 1st February 1952.

Specific Relief Act, 1877

The Specific Relief Act, 1877 laid down the law relating to specific relief that can be obtained in any civil proceedings.

The relevant provision of the Specific Relief Act, 1877, in the instant case is Section 45 of that Act.

Section 45 of the Specific Relief Act, 1877 empowered the High Courts to order a person in public office to do certain acts. Any aggrieved person may file an application under this provision before the High Court of their respective jurisdiction, praying for an order directing the public authority or a person holding public office to do a specific act.

This provision was similar to the nature of a writ of mandamus.

The Specific Relief Act, 1877 was later replaced by the Specific Relief Act, 1963 which is currently in force.

Government of India Act, 1935

The Government of India Act, 1935 (hereinafter referred to as the “G.O.I. Act, 1935”) was enacted by the British Parliament in 1935 and the Act came into force in 1937. This Act laid down a foundation for framing the Constitution of the government of India before independence. Several provisions of the Constitution of India are similar to those of the Government of India Act, 1935.

Sections 99 and 100 of the Government of India Act, 1935, prescribe the legislative power of the Parliament and the state legislatures and the subject matters on which they can legislate. These provisions are similar to Articles 245 and 246 of the Constitution of India, 1950. 

Section 142A provides for the imposition of taxes on trades, professions, businesses and employment. This provision corresponds to Article 276 of the Constitution of India. Like Article 276(2) of the Constitution, Section 142A of the G.O.I. Act, 1935, prescribes an upper limit or ceiling of tax.

Similarly, List II of the Seventh Schedule of the G.O.I. Act, 1935, corresponds to the state list of the Constitution.

Doctrine of territorial nexus

Every legislature has certain authorities and limitations concerning its legislative power. While the parliament is empowered to enact extraterritorial legislation if and when necessary, such a power is not conferred on the state legislatures. Nevertheless, there are certain exceptions.

The doctrine of territorial nexus provides an exception to the rule of territorial limitation on the statutes enacted by state legislatures.

Generally, the legislature of any state is authorised to make laws for the territory of that state, and not beyond that. Any law breaching such territorial limit is invalid. However, in certain instances, this general rule of territorial limitation is relaxed. Certain laws, even though they are operating beyond the territorial limits of the state in which such laws are enacted, are held valid.

The validity of any law of the aforementioned nature is examined by the application of the doctrine of territorial nexus. The doctrine provides that any law which is operating beyond its territorial limit can be held valid if there is sufficient connection between the state and the individual to whom such law is impacting.

For example, in cases of taxing legislation, there must be a sufficient connection between the state imposing the tax and the individual being taxed.

The Hon’ble Supreme Court in the instant case pointed out two essential features of the doctrine of territorial nexus which are as follows.

• The connection between the taxing state and the individual being taxed must be actual and not imaginary.
• The liability imposed on an individual must be significant to the aforementioned connection.

It examined the aforementioned two features and ruled that there was sufficient nexus between the petitioner and the State of Bombay since there were a large number of participants from the state in the prize competitions conducted by the petitioner generating a share of revenue of the prize competition. It also noted other important factors highlighting the connection between the petitioner and the state. Hence, by applying the doctrine of territorial nexus the Hon’ble Apex Court ruled that the impugned Act enacted by the State of Bombay was constitutionally valid even though it was extraterritorial in its operation.

Doctrine of Pith and Substance

The Constitution of India, under Articles 245 and 246, and three distinct lists under the Seventh Schedule clearly demarcate the legislative competence of the parliament and state legislatures with regard to the various subject matters. Any law made by a legislature on a subject matter beyond its legislature competence is invalid.

However, the doctrine of pith and substance provides an exception to the general rule mentioned above. The doctrine of pith and substance is applied to examine the validity any law if it is made on a particular subject matter that is beyond its legislative competence.

The term ‘pith’ refers to the true nature or character of a law and the term ‘substance’ refers to the essential part of a law. 

According to this doctrine, a law is not necessarily invalid even though it is enacted on a subject matter beyond the legislature’s competence if the true nature, character or object of such a law and the essential part or substance of such a law fall within the competence of the said legislature.

The Hon’ble Apex Court in the instant case applied the doctrine of pith and substance to the impugned Act and held it constitutionally valid. 

Arguments/contentions of the parties

Both, the appellant and the respondents advanced rival arguments regarding the nature and purpose of the impugned Act, the legislative competence of the state legislature, the alleged extraterritorial nature of the impugned Act and various other constitutional limitations. The contrasting arguments advanced by both parties are briefly discussed as follows.

Appellant

The appellant contended that it was a law on gambling, was well within the scope of legislative competence and was absolutely constitutionally valid. The contentions put forth by the State of Bombay are as follows. 

Legislative Competence

• The appellants contended that the impugned Act including Section 12A is enacted with respect to the subject matters covered under entries 34 and 62 of the Constitution which respectively deal with betting and gambling and taxation on luxuries including gambling. 
• The appellant challenged the observation of the Court of Appeal that the impugned Act includes a few innocent prize competitions along with other gambling prize competitions. The counsel contended that the impugned Act does not contain any innocent prize competitions and relied upon the legal rule of interpretation of “noscitur a sociis” which suggests that any unclear term must be understood by its associate terms.

Other constitutional limitations 

• The appellant contended that the prize competitions are opposed to public policy and hence the promotion of prize competitions cannot be treated as trade or business. Accordingly, the question of the fundamental right to freedom of trade, profession or business under Article 19(1)(g) or the question of free trade under Article 301 does not arise at all.
• Furthermore, they contended that even if it is assumed to be contrary to the previous argument, the restrictions imposed by the impugned Act are reasonable restrictions in the interest of the general public and they are hence protected under 19(6) and Article 304(2) of the Constitution.
• The appellants admitted that the requirement of prior presidential sanction prescribed under Article 304 was not fulfilled before the introduction of the bill for the impugned Act in the legislature, resulting in non-compliance with the proviso under the said provision. They, however, contended that this lacunae was subsequently repaired by the presidential assent to the impugned Act under Article 255.
• The appellants contended that the subsequent presidential assent under Article 255 to the impugned Act would still protect the validity of the Act even if the requirement under Article 304 was not complied with/fulfilled as the restrictions imposed by the impugned Act were reasonable in the interest of the general public.

Judicial decisions relied upon/referred to by the respondents

The State of Bombay relied upon two decisions rendered by the Australian courts involving issues relating to the local legislation concerning lotteries. The counsel for the appellant relied upon the said decisions since in these cases, questions relating to Section 92 of the Australian Constitution arose, which was said to be the inspiration for Article 301 of the Indian Constitution. The following are the two decisions relied upon by the appellant.

King vs. Connare (1939)

This case of King vs. Connare (1939) was an appeal filed by an individual who was convicted for an offence under Section 21 of the Lotteries and Art Unions Act, 1901, a legislation of New South Wales for selling a ticket of a lottery conducted legally in Tasmania, in Sydney. The individual appealed, challenging the validity of the Act mentioned above on the grounds that it violated Section 92 of the Australian Constitution. He contended that the said Act restricted the freedom of trade, commerce and intercourse across the state, which was guaranteed under Section 92 of the Australian Constitution.

The Australian High Court held that Section 21 of the Lotteries and Art Unions Act, 1901, did not violate the provision under Section 92 of the Australian Constitution. It held that the conviction of the appellant was legal. The court took the nature and purpose of the Act into consideration, which was to prohibit or prevent illegal methods of trading or gambling, especially in cases of foreign lotteries. The court held that the Act did not affect or restrict the freedom of trade across the state.

Relying upon the observations made by the Australian court in this decision, the counsel for the appellant contended that gambling cannot be treated on an equal footing with trade, commerce, business or intercourse within the meaning of Section 92 of the Australian Constitution and consequentially under Articles 19(1)(g) and 301 of the Indian Constitution.

King vs. Martin (1939)

This case of King vs. Martin (1939) was similar to the previous case and involved the same questions of law and legal provisions that were to be decided by the Australian High Court. However, the difference in this case was that this case, unlike the previous one, did not involve the sale of tickets for a foreign lottery but a monetary transaction with the promoter of the foreign lottery, i.e., Tasmania promoter in New South Wales, who was supposed to send the lottery tickets.

The court in this case upheld Section 21 of the Lotteries and Art Unions Act, 1901. It observed that the criterion for application of the said provision was only in specific cases involving transactions with the nature of gambling and the provision penalised only such transactions. It was further observed that the provision did not apply to or penalise transactions that were of the description or nature of trade, commerce, intercourse or any kind of interstate transaction. 

Commonwealth of Australia vs. Bank of New South Wales (1950)

This case of Commonwealth of Australia vs. Bank of New South Wales (1950) is popularly known as the Bank Nationalisation case. The Australian High Court in this case held Section 46 of the Banking Act, 1947, as invalid due to the fact that it was in contravention of Section 92 of the Australian Constitution. 

Section 46 of the Banking Act, 1947, imposed restrictions on private banks carrying out banking business. The court had to decide if the said provision violated the freedom of trade, commerce, and intercourse guaranteed by Section 92 of the Australian Constitution. It observed that the banking business which includes various acts such as credits, loans etc., qualifies as trade and commerce and hence Section 46 imposing the restrictions on such trade or commerce was invalid since it was in contravention of Section 92 of the Constitution. The court held that the provisions under Section 46 were not merely regulatory but were more than that and violated Section 92 of the Australian Constitution. 

Additionally, the decision of Mansell vs. Beck (1956) was also placed before the High Court of Australia. This case involved questions relating to the Lotteries and Art Unions Act, 1901. The Australian court in this decision affirmed the rulings delivered in the cases of King vs. Connare (1939) and King vs. Martin (1939).

Moreover, the appellant also referred to a few American cases, particularly, United States vs. Kahriger (1953) and Lewis vs. United States (1955), in which the Supreme Court of America had observed that there was no constitutional right to gamble.

Respondents

The respondents contended that the law contained provisions relating to innocent prize competitions, was extra-territorial and was unconstitutional and invalid. The contentions put forth by the R.M.D.C are as follows. 

Legislative competence

• The respondents contended that the purpose of the impugned Act was to regulate and tax lotteries and prize competitions but not to prohibit either of them. They suggested that the impugned Act deals with two types of prize competitions similarly. Firstly, prize competitions that resemble the nature of gambling and secondly, prize competitions that require knowledge and skill to win or succeed. 
• They argued that a few kinds of prize competitions prescribed in the definition include innocent prize competitions requiring skill and knowledge for the success of the competition. They further claimed that the forecasting of results of certain uncertain events might not solely depend on chance. They stated that the result may be accurately predicted by the application of skill and knowledge and based on the statistics of similar past events. Thus, they contended that the impugned Act is a law concerning trade and commerce under Entry 26 of the state list and not a law concerning gambling and betting under Entry 34.
• Accordingly, they also contended that the taxes under Sections 12 and 12A of the impugned Act are the taxes on trade and commerce under Entry 60 of the State List and not on luxuries including betting and gambling under Entry 62.
• They further contended that Section 12A of the impugned Act is unconstitutional as the tax prescribed on trade under the said provision exceeds Rs. 250, which is in contravention of Article 276(2) of the Constitution.
• The respondents contended that the amendment made to the definition of ‘prize competition’ by the impugned Act suggests that the legislature’s intention to place the innocent prize competitions within the definition was to ensure the regulation and taxation of all prize competitions, legitimate or illegitimate, as per the provisions of the 1948 Act.

Territorial nexus

• The respondents contended that state legislatures were permitted to enact laws only for their respective states or any part of them under Articles 245 and 246 of the Constitution. However, the State of Bombay in the instant case was contended to have overreached the limits of its law-making power by enacting a law that has an effect beyond the boundaries of the state on people residing and carrying out business in other states.
• The respondents contended that there was no sufficient territorial nexus between the State of Bombay and their activities as they were not residents of the state.

Other constitutional limitations

• The respondents contended that the freedoms under Articles 19(1)(g) and 301 of the Constitution must be broadly interpreted. They argued that the freedom guaranteed in the said provisions was with a view to enable earning of profit. 
• Accordingly, they contended that absolute freedom must be guaranteed under these provisions as the first priority and such freedom must be allowed to be restricted by the specified restrictions only if necessary. Pointing out the provision under Article 25 of the Constitution, they argued that the absence of words like ‘subject to public order, morality and health’ in the two provisions mentioned above indicated a lack of intention to directly restrict the freedom of trade, business, commerce, etc.
• The respondents contended that the prize competitions run by them were not of the nature of gambling. However, they also contended that even if the prize competitions were assumed to qualify as gambling, they were still part of trade or business. They contended the impugned Act violates the fundamental rights of the petitioners under Article 19(1)(g) of the Constitution which guarantees the right to freedom of profession, trade or business.
• They further contended that the restrictions imposed by the impugned Act on the freedom of trade of the petitioners did not fall within the reasonable restrictions under Article 19(6) of the Constitution. 
• The respondents also stated that their business extends beyond the State of Mysore across various states of the country and also to the jurisdictional limits of the Union of India. They contended that, considering the inter-state nature of their trade/business, the restrictions imposed by the impugned Act are in contravention of Article 301 of the Constitution.
• The respondents further contended that the restrictions imposed by the impugned Act cannot be protected under Article 304(2) of the Constitution as the restrictions did not qualify as reasonable in the public interest under the said provision. They contended that the restrictions imposed by the impugned Act were also not entitled to be protected under Article 304 since the requirement of prior presidential sanction prescribed under the proviso of the said provision was not complied with while enacting the legislation. 

Judgement in State of Bombay vs. R.M.D.C (1957)

The Hon’ble Supreme Court ruled that the definition of ‘prize competition’ as per the definition prescribed in the impugned Act, when construed collectively in light of other provisions, particularly Section 3 of the Act, comprises only competitions which are of the nature of lottery or, in other words, gambling.

The court ruled that it was unable to concur with the opinion of the Court of Appeal that the impugned Act covered both innocent as well as gambling prize competitions. It held that the impugned Act covered only gambling prize competitions and hence was a law under Entry 34 of the state list. Consequentially, it ruled that the provision prescribing taxation, i.e., Section 12A of the impugned Act, would be a law made under Entry 62.

The Hon’ble Supreme Court ultimately reversed the decision rendered by the Hon’ble High Court of Bombay. It held that the legislature of the State of Bombay was competent to enact the impugned Act. 

The court further held that there was enough territorial nexus between the state and the subject matter to authorise the state to collect taxes from promoters who carry out prize competitions in the state through newspapers or publications printed and published outside the State of Bombay. 

Furthermore, the court held that the prize competitions discussed in the impugned Act were of a gambling nature and could not be regarded as trade and commerce. Accordingly, it ruled they cannot claim protection under the fundamental right guaranteed by Article 19(1)(g) of the Constitution nor they can claim protection under Article 301 of the Constitution.  It held that controlling and restricting gambling activities did not result in interference with the freedom of trade, commerce or intercourse but it was to keep trade free and safe from anti-social activities.

The court upheld the decision of the Court of Appeal wherein it had held that the prize competitions were of a gambling nature and hence were subject to be governed by the regulatory and taxation provisions of the impugned Act.

Accordingly, the Hon’ble Apex Court allowed the appeal and set aside the decision and orders of the lower court, i.e., the Hon’ble High Court of Bombay.

Ratio decidendi

Although it is mostly the concluding, the fundamental aspect or generally the summary of the decisions that is often looked into, it is equally important to understand the rationale or reasoning laid down by the court for arriving at such a conclusion. The Hon’ble Supreme Court in the instant case extensively examines the legal provisions involved to decide the issues of law in question. The pertinent reasons provided by the Hon’ble Court after the examination of issues and the relevant legal provisions are discussed as follows.

Tests to determine the validity of a law

The Hon’ble Supreme Court pointed out three tests that must be examined to determine the validity of any law. These three tests can be framed as the sub-issues in this case. The three sub-issues are as follows

• Whether the legislature enacting any law on a certain subject matter, had the powers to do so on that particular subject matter? (hereafter referred to as the “first test”)
• In case of any particular law extending its operation beyond the territorial limits of the state, whether the legislature was conferred with powers to enact a law not only for the territories of that state or any part of its territory but also which extended its operation beyond the territory under its provisions? Whether such provisions would have any extra-territorial operation in the absence of territorial nexus? (hereafter referred to as the “second test”)
• Were there any other constitutional limitations on the powers of the legislature? (hereafter referred to as the “third test”)

The Hon’ble Supreme Court pointed out that a law has to pass all the three tests mentioned above to be valid.

As mentioned earlier, the Hon’ble Apex Court pointed out three tests that must be passed by any law to declare such law constitutionally valid or non-arbitrary. The said three tests are the tests concerning legislative competence, territorial nexus and other constitutional limitations on the law. The court has examined the three tests in the instant case in the following manner.

First test – Legislative competence

The Hon’ble Supreme Court while examining the first test noted that the 1948 Act was enacted by the Legislature of the Province of Bombay in accordance with the provisions of the provisions of Government of India Act, 1935. Sections 99 and 100 empowered the Bombay Provincial Legislature to enact laws on the subject matters enumerated under list II of the Seventh Schedule of the G.O.I Act 1935. It was also noted that the amendment to the 1948 Act was made in 1952, after the Constitution of India came into force. Hence, the amendment was made as per the provisions under Articles 245 and 246 of the Constitution, which empowered the states to make laws on subject matters enumerated under the State list.

Thus, the law enumerated under the relevant provisions mentioned above infers that the legislature of Bombay Province was empowered to enact the impugned Act. All the concerned subject matters fall under List II of the Seventh Schedule of both the Government of India Act, 1935 as well as the Constitution of India, 1950, which confers powers on the legislature of the Province/State of Bombay to legislate on them. Therefore, the impugned Act passes the first test pointed out by the Hon’ble Supreme Court.

The Hon’ble Supreme Court observed that it was necessary to consider the real nature of the tax. It elucidated that the tax imposed under Section 12A was calculated as a certain percentage of the sum specified under the declaration made by a promoter under Section 15 concerning the income gathered in the form of entry fees from the circulation of the prize competition in the State of Bombay. Therefore, the court observed that the tax imposed was a percentage of the average income gained by the sale of tickets or coupons for the prize competitions in the State of Bombay. It implied that the tax was collected at each instance of gambling (competing in a prize competition) by a competitor. Hence, it was observed that the tax imposed under Section 12A was on gambling itself and not on the petitioners. 

Furthermore, the court clarified that the collection of taxes from the promoters was a convenient mode of collection for the state since it would be difficult for it to reach each and every individual who gambles. Therefore, it was a form of indirect tax collected from the gambler. It clarified that the collection of tax from the promoters did not imply the tax as imposed on promoters but as a convenient way of collecting taxes imposed on gambling and indirectly from gamblers. It also clarified that the tax was not on the profits made by the promoters but on the total income generated from the entry fees/sale of prize competitions in the State of Bombay. The court also noted it as an indication that the tax was not on trade.

Second test – Territorial nexus

The Hon’ble Supreme Court noted the essentials of the test of territorial nexus and acknowledged that the taxing legislation may be upheld if there was sufficient nexus between the individual being taxed and the state enacting such legislation. The court further admitted that the value of tax that was or might have been imposed was irrelevant to the validity of the legislation if it had sufficient territorial nexus by satisfying the two essentials of territorial nexus.

The court noted that the Trial Court had held that the territorial nexus between the state and the petitioners was not sufficient to declare the impugned law valid. It also noted that the Court of Appeal upheld the law ruling that there was sufficient territorial nexus. The Hon’ble Apex Court concurred with the opinion of the Court of Appeal. It noted that it was in full agreement with the ruling of the Court of Appeal for the following reasons.

• The newspaper “Sporting Star”, in which the prize competitions were printed and published in Bangalore, was widely circulated in the State of Bombay.
• Collection depots were set up across the state of Bombay by the promoters. i.e., the petitioners for reception/receipt of the entry forms and fees for the prize competition.
• In addition to the circulation of the newspaper, the extra 40,000 coupons for distribution were printed by the petitioners which were available from the local collectors assigned by them.
• The invitations in the form of advertisements attracting individuals to compete in the prize competitions and win thousands or lakhs of money by paying a nominal fee are spread across the state and reach a large number of residents of the state.
• The entry forms are filled by the competitors and left at the collection depots in the state along with the entry fee or they are sent via post from Bombay.

Therefore, the court noted that the participants were from the State of Bombay, and the filling of entry forms and the paying of entry fees also took place within the state. All these events had a connection with the state that had enacted the legislation levying tax on the sum of money collected from the State of Bombay by the petitioners. Hence, the court observed that all the factors mentioned or elaborated above establish a sufficient territorial nexus between the State of Bombay and the petitioners. Accordingly, the court held that the state was entitled to levy tax on the prize competitions circulated in the state, although they were printed and published outside the state as the gambling took place within the state. The court therefore held that the impugned Act cannot be declared invalid on grounds of its extraterritorial operation. 

Third test – Constitutional limitations

The court lastly examined the third test to determine if there were any other constitutional restrictions or impediments that would invalidate the impugned Act.  There were two constitutional limitations that were contended to be applicable in the instant case, invalidating the impugned Act. The two limitations under different provisions of the Constitution were as follows.

• Fundamental right to freedom of trade, profession or business under Article 19(1)(g) of the Constitution.
  • This right was subject to reasonable restrictions under Article 19(6).
• Free interstate trade or commerce across the country under Article 301.
  • This freedom was subject to reasonable restrictions under Article 304(b).

The court noted various decisions associated with the American Constitution and Australian Constitution, which were placed before the bench in assistance of interpretation of the relevant provisions of the Indian Constitution. However, the court pointed out that the Indian Constitution differed from both, the American and Australian Constitutions. It emphasised that, unlike the two Constitutions mentioned above, there were sufficient safeguards incorporated in our Constitution. The court therefore proceeded to examine if the prize competitions defined within the impugned Act, all of which were of the nature of gambling, qualified as trade, business, commerce and intercourse within the meaning and scope of Articles 19(1)(g) and 301 of the Constitution.

The Court rejected the argument of the petitioners stating absolute freedom under Articles 19(1)(g) and 301 of the Constitution for earning profit. It observed that such unrestricted freedom would mean protection of criminal activities committed with the aim of earning profit as fundamental rights and also result in their implied legitimisation unless expressly provided. The Court pointed out that such freedom would include the trafficking of women, the hiring of criminals to criminally assault individuals, or selling of obscene pictures etc., which, can in no circumstances, be considered as trade, business or commerce.

The Court answered the question mentioned above in the negative by considering the history, cultural and moral values of the society and most importantly the objectives of the Indian Constitution which includes the creation of a welfare state. It observed that gambling definitely does not fall within the meaning and scope of trade, business, commerce and intercourse under Articles 19(1)(g) and 301. It also observed that freedom of gambling could not have possibly been one of the actual purposes of the said constitutional provisions. It held that gambling activities are not protected under Articles 19(1)(g) and 301 of the Constitution even though a mechanism of trade may be applied to such activities.

The court observed that the impugned Act did not directly interfere with trade, commerce or intercourse but only applied to and restricted transactions of a particular gambling nature. It observed that the impugned Act does not aim to prohibit any transactions which qualify as trade, commerce or intercourse. It further observed that it was not needed to get into the issue of reasonableness under Articles 19(6) or 304 since the impugned Act dealt with gambling which was not trade, commerce or intercourse.

Obiter dicta

In addition to the significant rulings concerning the three tests discussed above, the Hon’ble Apex Court had made various other observations that are of great value. Although these observations cannot be considered the reasoning of the decision directly, they lead to the idea to arrive at or form such reasoning. These observations highlight the important concepts that were discussed by the court concerning the nature and scope of the Act, the effect of the amendment, other constitutional provisions and also a few international legal provisions and decisions. The observations and notings of the Hon’ble Court are discussed as follows.

Scope and Purpose of the 1948 Act

The Hon’ble court noted the rival contentions concerning the entries under the state list as well as the Government of India Act, 1935 under which the impugned Act including Section 12-A was enacted. It observed that the scope and purpose of the impugned Act were needed to be examined to determine the right entries under which the impugned Act was enacted. 

The court examined the various provisions of the 1948 Act to determine its purpose and scope. The court noted that the 1939 Act provided for a tax on only prize competitions and not lotteries, but it was repealed by the 1948 Act which prescribed the levy of taxes on prize competitions as well as lotteries. It observed that the addition of lotteries in the 1948 Act alongside prize competitions implies that both were connected to each other in the view of the legislature. The court noted Section 3 of the 1948 Act which declared all prize competitions and lotteries unlawful subject to the provisions of the Act and inferred that the legislature intentionally placed them together as they regarded both as of the same nature.

The court also noted other relevant provisions, such as Sections 4 to 12, Section 12A, Section 15 and Section 31 of the Act.

Nature of the prize competitions as per the definition

The Hon’ble Supreme Court keenly examined the definition of ‘prize competition’ for the determination of the scope, purpose and nature of the impugned Act. It noted the definition of the term under the 1948 Act and also the changes made to the definition by the impugned Act. It also examined the difference of effect that resulted from the changes made in the definition

Nature of the definition before the amendment

The court rejected the contention of the respondents concerning the nature and object of the impugned Act, stating that the said contention appeared to be incorrect. It noted the definition of “prize competition” provided under the 1948 Act, which prescribed three categories of competitions that may be considered prize competition. 

The court noted the qualifying clause in the first category of prize competition provided in the definition. The qualifying clause shows two scenarios of solutions for the first category, i.e., a solution decided in advance or a solution determined by a lot. It observed that both the given instances clearly reflect the nature of gambling. It observed that any prize competition with a prior decided solution was clearly a gambling prize competition as the role of the competitors was only to guess the solution that had already been decided by the promoters. It also noted the observation made by Chief Justice Lord. Hewart in Coles v. Odhams Press Ltd. (1936) in this regard, wherein he had observed that “the competitors are invited to have an opportunity to take blind shots at a hidden target.” The court further observed that a prize competition for which the solution is determined a lot is certainly a gambling event. Therefore, the court observed that each of the five kinds of prize competitions mentioned in the first category of prize competitions was undoubtedly of a gambling nature due to the application of the qualifying clause.

The court disagreed with the contention of the respondents concerning the interpretation of the second category of prize competition. The court observed that although the experts may at times calculate and suggest the result of an uncertain event based on the analysis of existing statistical data, it has to be considered from the participant’s point of view for whom it might not be a game of skill. It noted that the general public is unlikely to have access to such statistical data and the skills to analyse and achieve success in the competition. It observed that the forecast mentioned in the second category is nothing but a mere blind take of the result for such participants, which again makes it a competition of a gambling nature.

The court further noted the last category of prize competition prescribed in the definition of the term. It concurred with the opinion of the Court of Appeal in this regard, wherein it held that a competition must depend upon a substantial degree of skill exercised to avoid its consideration gambling. Accordingly, the Apex Court observed that a competition, the success of which does not depend upon a substantial degree of exercise of a skill is a competition of a gambling nature. Thus, it observed that the first to third category of prize competitions were all of a gambling nature. It observed that the rule of “noscitur a sociis” did not need to be invoked as the court decided that the impugned Act did not contain any innocent prize competitions for the above reasons.

Effect of the amendment

The court examined the changes made to the definition by the impugned Act. It primarily noted the deletion of the words “but does not include a prize competition contained in a newspaper printed and published outside the Province of Bombay” from the definition of prize competition through the impugned Act. The court noted that the deletion had a profound effect on the scope of the Act. It observed that deletion repealed the exemption of prize competitions in newspapers printed and published outside the State of Bombay from the scope of the Act. It stated that the legislature extended the operation of the Act to the prize competitions circulated in the State of Bombay even though the newspapers in which they were circulated were printed and published outside the state.

The court noted that the definition of the term ‘prize competition’ still comprised 3 categories which the second and the third categories were the same as they were in the 1948 Act, while slight changes were made in the first category. However, the court pointed out that the changes were not with respect to the five kinds of prize competition prescribed under the definition but were in the arrangement or the framing of the sub-clause. The five different kinds of prize competitions, which were earlier provided in a continuous sentence, were now arranged one after another with separate numbering. The court nevertheless observed that the mere difference or change in the arrangement of five kinds of prize competitions one after another with separate numbering in the first category does not alter the meaning or effect of the definition. The court noted the comma after the fifth kind and observed that the qualifying clause still applies to all the five kinds of prize competitions mentioned in the first category.

The court also noted that changes made to the qualifying clause increased the number of scenarios to three, which were earlier two. The first scenario was as it was in the original Act, i.e., the solution was decided well in advance by the promoters. A new addition is the second scenario where the solution of the prize competition is not decided by the promoters in advance. Furthermore, the amendment also changed the third scenario to the determination of a solution by a lot or a chance, which was earlier only by a lot. The court observed that while the first and third scenarios have the same effect i.e., the nature of gambling, the addition of the second scenario represented nothing but a weak form of unskilled drafting of provision. It observed that it was unable to comprehend any compelling reasons as to why the legislature would include innocent prize competitions, while the legislation earlier treated lotteries and prize competitions as one and the same.

Accordingly, the court observed that stating that the first category of the prize competition includes innocent competitions would imply contradicting the direction or substance of the Act. It also observed that the declaration of all prize competitions as unconstitutional under Section 3 would be irrational if it included innocent prize competitions. The court observed that the legislature would have made separate provisions if it intended to contain any innocent prize competition in the Act. It was observed that there would have been separate provisions with fewer regulations and different rates of taxation since legitimate prize competition which qualifies as trade, cannot be treated along the same lines as illegitimate gambling and since both would fall under different entries of the state list. Hence, the court observed that the absence of distinction in the Act clarifies the intent of the legislature regarding the nature, purpose, and effect of the Act, considering that it could be undoubtedly stated that the first category of prize competitions does not contain any innocent prize competitions as contended.

To summarise, the court observed that the definition of prize competition contains competitions, which are all part of the nature of gambling, considering the following three factors.

• The placing of prize competitions along with lotteries in the same legislation.
• The clubbing of different kinds/categories of prize competitions with each other reflects the nature of gambling.
• The other regulatory and taxation provisions of the Act, specifically Section 3.

Therefore, for the reasons above elaborated, the court observed that the impugned legislation was enacted under Entry 34 covering the subject matter of gambling and not under Entry 26 of the state list covering trade since all the categories of prize competitions were of a gambling nature and not of trade. It further observed that the tax prescribed under the provisions of the impugned Act would also be imposed on betting and gambling, as the impugned Act deals with betting and gambling. Thus, Section 12A of the impugned Act was enacted under Entry 62 of the State list. Therefore, the court ruled that the impugned Act was a law concerning the regulation and taxation of betting and gambling under Entries 34 and 62 of the Act.

Furthermore, the court noted Section 26 of the English Betting Lotteries Act, 1934, which was relied upon by the respondents to support the claim regarding the second category of prize competition. The said provision had two clauses resembling the second and third categories of the prize competition prescribed in the definition. However, the court noted that the said provision is penal and not a definition clause, unlike the one in the instant one, in which the second category is pressed between two other categories that qualify as gambling.

The court observed that the case of Elderton vs. Totalisator Co. Ltd. (1945) which was relied upon by the respondents involved the issue of whether a football pool competition published by the appellant company fell within the scope of clause (a) of the provision mentioned above. It involved the question of whether the pool published by the appellant’s company qualified as gambling or if it required any skill to achieve success. Accordingly, the court observed that the said provision and the case were irrelevant to the interpretation of the definition of ‘prize competition’ in the instant case.

The court noted that the legislature of the State of Bombay was well aware of the fact that they were restricted under Article 276, from imposing a tax on trade under Entry 60 of the state list of any value exceeding Rs. 250. 

The court observed that if in any case, a certain kind of tax under any provision appears to be imposed on any subject matter under two distinct entries, then it must be upon the courts to determine the right subject matter and list on which the tax is was intended to be imposed by the legislature. Such a determination must be by the application of well-established rules and principles of interpretation.

The court observed that the tax under Section 12A appears to be imposed on either Entry 60 or 62 of List II of the Seventh Schedule in the instant case. It pointed out that tax under Section 12A would be invalid if imposed on trade in Entry 60 due to the breach of limit under Article 276(2) of the Constitution. Hence, the court observed that the legislature, by enacting Section 12A, intended to impose a tax on gambling under Entry 62, which had no Constitutional ceiling on the quantum of tax that can be imposed by a law made on the subject matter covered by that entry. Therefore, the court held that Section 12A of the impugned Act was a valid provision of law under Entry 62.

The Hon’ble Apex Court noted that the Court of Appeal accepted the contention of the petitioners that the definition included innocent prize competitions. It noted that the Court of Appeal had accordingly held the impugned Act as unconstitutional on the basis of a different legal principle. The Court of Appeal ruled that the impugned Act is invalid when construed by the application of the rule of literal interpretation because it overreached the limits of trade and commerce under Entry 26. Moreover, it noted the Court of Appeal had observed that, for the impugned Act to be considered as a law on gambling under Entry 34, the definition under the Act must have clearly prescribed that it deals only with gambling prize competitions.

Additionally, the court also noted that the Court of Appeal’s reasoning for holding that the enactment of Section 12A of the impugned Act was under Entry 60 and not under Entry 62 of the State list. It noted that the Court of Appeal had opined that the impugned Act did not levy tax on the gambler but on the petitioners who do not gamble by themselves but only promote the prize competitions. The Court of Appeal had accordingly observed that as the tax was levied on promoters, it could have only been considered as the tax levied on the trade of prize competitions that was being carried out by the petitioners. The Hon’ble Apex Court disagreed with this reasoning of the Court of Appeal. It observed that the reasoning implied a narrow view of the subject matter as Entry 62 does not provide for taxes on men who gamble but on gambling and betting itself.

Constitutional provisions relating to freedom of trade

The court noted the substance of provisions contended as constitutional limitations to the impugned Act. It noted the fundamental right to trade or business under Article 19 and the reasonable restrictions on such right under clause (6) of the same provision. Similarly, it noted the freedom of interstate trade and commerce under Article 301 and the reasonable restrictions to such freedom under the subsequent Constitutional provisions. While Article 302 empowered the Parliament to enact any law imposing reasonable restrictions on freedom mentioned under Article 301, Article 304(b) empowered the states to enact similar legislation in the  public interest and in compliance with the prescribed procedure.

The court pointed out that both the provisions mentioned above are facets of the same subject, i.e., freedom of trade. However, the provision under Article 19(1)(g) relates to an individual’s right to freedom of trade, and the one under Article 301 relates to free trade and commerce from the country’s and states’ perspective, trade and commerce both between and within the states, which is different from individual rights.

The court pointed out that as the substance of the relevant provisions mentioned above was clear and well-established, the only thing that was supposed to be determined was the meaning and scope of such freedom guaranteed in the said provisions.

The court pondered if the makers of our Constitution intended to include and protect gambling or betting as a fundamental right within the meaning and scope of Articles 19(1)(g) and 301 of the Constitution. The Hon’ble Court, in this regard, noted and highlighted the fact that the Constitution of India provides for a welfare state. The objective of the welfare state is visible in various aspects of the Constitution, particularly the Directive Principles of the State Policy under Part IV. The court highlighted the obligations imposed upon the state to promote the welfare of the people by various means including securing social, economic and political justice in society by providing sufficient means of livelihood, protection against exploitation and social injustice, etc., and many other obligations. It reviewed if gambling could have been intended to be included under freedom of trade in a welfare state aimed to be established by the Constitution.

The court also noted ancient literature and history to decide upon the aforementioned question. It noted that gambling was always considered sinful and against the cultural and moral values of Indian society. It also noted that gambling was prohibited under English law. The court hence observed that the contention of the petitioners concerning the inclusion of gambling under freedom of trade could not be accepted because the legitimisation of gambling which has the tendency to cause losses of people would be allowed would not have been intended to be added under freedom of trade in a Constitution which has the establishment of a welfare state as one of its objectives.

International laws and judicial decisions

Certain international legal positions and precedents concerning the freedom of trade and commerce, etc. were also placed before the Hon’ble Supreme Court in this regard. The court primarily referred to the Australian Constitution and the decisions of Australian courts.  It also looked into the legal position of freedom of trade under the American Constitution. The important notings of the Apex Court are discussed as follows.

Australia

The court noted Section 92 of the Australian Constitution, which appeared to be the inspiration for Article 301 of the Indian Constitution. It also referred to various judicial decisions that involved the issues of the interpretation and application of Section 92.

Section 92 of the Australian Constitution reads as follows.

“On the imposition of uniform duties of customs, trade, commerce and intercourse among the states, whether by means of internal carriage or ocean navigation, shall be absolutely free.”

The Hon’ble Apex Court noted a few significant decisions rendered by the Australian courts concerning the freedom of trade and commerce which were relevant to the circumstances of the instant case. Some of the important judicial decisions referred to while examining the issues before the court are discussed or mentioned below

The Hon’ble Apex Court noted the decision of James vs. Commonwealth of Australia (1941) wherein the Australian court had emphasised the presence of the word ‘absolutely’ in Section 92 of the Australian Constitution, stating that the word makes the Section broader. It also observed that the said provisions imposed a restraint on the legislative power of both, the commonwealth parliament as well as the legislature of the states. Similarly, it noted another case of Tasmania vs. Victoria (1935) in which the ban on the import of potatoes from Tasmania was set aside by the court stating that it violated Section 92 of the Australian Constitution.

Additionally, the court also noted the decisions delivered in the cases of Willard vs. Rawson (1933), R vs. Vizzard (1933) and O. Gilpin vs. Commissioner of Road Transport and Tramways (1935) in which the Australian courts had upheld the local state legislations as non-violative of Section 92 of the Australian Constitution. It also noted another case of 1928 where a restriction imposed on the transport of cattle from an infected area was challenged, which was later upheld by the court. The court had observed that this restriction was facilitating easy trade and commerce but not restricting it.

The court noted the observations made in the cases of United States vs. Kahriger (1953) and Lewis vs. United States (1955), wherein it was ruled that the government may tax something illegal. The court applied the doctrine of pith and substance and observed that mere taxation of gambling did not imply that the nature of gambling was modified.

United States of America

The Hon’ble Apex Court noted that there was no express provision in the American Constitution like there was one in the Australian Constitution. However, the court pointed out that the issue of gambling came up before the American courts in a different manner. It pointed out that betting and gambling were included within the meaning of commerce by the American Supreme Court to allow Congress and the state legislature to regulate and make laws on the said subject matter. It was because, as per the American Constitution, Congress was empowered to make laws on commerce and the lack of such inclusion would have meant disabling Congress and the state legislatures from making laws to regulate and control gambling.

The court also pointed out a few decisions rendered by the American courts upholding the laws made by Congress and state legislatures imposing certain restrictions and prohibitions on trade and commerce. It noted the decision of Champion vs. Ames (1903) in which the court upheld the law made by Congress prescribing the carriage of lottery tickets as an offence. 

The court also noted the decision of Hipolite Egg Co. vs. United States (1911) wherein the American court had upheld the Pure Food and Drug Act, 1906 which prohibited the import of adulterated food. It had held that the prohibition imposed by the said legislation was an exercise of the authority of Congress to regulate commerce.

The court after analysing the legal positions in both the above-discussed nations, pointed out that our Constitution is more balanced than the American and Australian Constitution. It pointed out that the drafters of our Constitution incorporated certain restrictions on the freedom of trade since they were aware of the issues that arose in Australia due to the lack of such limitations or restrictions in their Constitution.

Critical analysis of the case

The Hon’ble Supreme Court in the instant case rendered a well-reasoned and elaborated decision with a close examination of each relevant provision, including the examination of the grammar or the language used in those provisions. It looked into the words, punctuation marks and other minor details of the impugned Act and the original legislation to determine the nature, object, scope and purpose of the Act.

Although, the court, after an extensive examination of the provisions ruled that it deals with prize competitions which are of the nature of gambling, it failed to recognise one of the categories which might have been qualified as innocent prize competitions. The first category had the tendency to qualify as innocent prize competitions since it involved legitimate skills and usage of knowledge. Additionally, not every question with a pre-determined answer needs to qualify as gambling. Such a notion or declaration of guessing the answer to a pre-determined question to be gambling is inappropriate. The prediction or guessing of the answer to a pre-determined question is in a kind similar to the common method of testing one’s ability in academics. Although it is undisputed that there might be a difference in the amount of skill employed in both instances. Hence, the court might have exempted this one category as an innocent prize competition.

However, the court’s decision regarding the other categories and kinds of prize competition appears unflawed due to the strong reasons that are available to believe or declare such prize competitions as gambling. Moreover, my opinion of the exemption of the aforementioned category as innocent prize competition does not imply any disagreement with the ruling as a whole. Although I am of the opinion that one particular category had the tendency to qualify as an innocent prize competition, it cannot be said that the impugned Act had to be upheld due to only one exemption. It has to be acknowledged that it is unrealistic to expect a different decision only on the basis of one exemption, while a major part of the legislation deals with prize competitions qualifying as gambling. Hence, the court’s decision was an equitable one, considering the broader approach or application of the impugned Act.

The court elucidated the reasons for establishing the nexus between the state and the petition in a simple and clear manner. The state was absolutely entitled to impose tax on the prize competitions run and circulated in the state even though they weren’t printed and published within the boundaries of the state. This was due to the generation of revenue that took place by the circulation of prize competitions within the state. The lack of such imposition or the exemption from tax for the prize competitions printed and published outside the state would have led to the creation of a loophole in the system which could have been exploited by the promoters of prize competitions. The promoters would have had an opportunity to evade the payment of tax by merely printing and publishing the prize competitions outside the state and then circulating them in the state to gain profits. However, the percentage or amount of tax imposed could have been reduced to a certain extent in my opinion.

Lastly, the court’s observations and ruling concerning the non-qualification of gambling as trade are of precedential value. As the Hon’ble Court pointed out, the legitimisation of gambling as trade would have provided a path for the legitimisation of other unlawful activities too as trade. Hence, it was necessary to establish a fine line between trade and gambling which was aptly reasoned by the court in the instant case.

The court’s observations and notings, including the obiter dicta, particularly concerning the constitutional legal questions such as doctrines of territorial nexus, pith and substance and the various limitations on the freedom of trade and commerce, are of immense value in the interpretation and application of those provisions and doctrines. The decision in the instant case serves as a precedent for other cases involving legal issues concerning freedom of trade, legislative competence of legislatures, extraterritorial nature of laws, etc. The decision is also of great relevance in the current times due to the increase in online betting apps which absolutely qualify as gambling when applied the reasoning given by the court in the instant case. It is necessary to ensure the financial security of individuals by proper regulation and control of such betting and gambling platforms for which the notings of the Hon’ble court in the instant case might be helpful.

Therefore, the landmark decision rendered in the instant case is predominantly a balanced and unflawed ruling holding precedential value. Although a few changes might be inevitable considering the changes in society, the decision appears to be broadly relevant even in the current times.

Conclusion

The decision rendered by the Hon’ble Apex Court in the instant case, as a whole, is a landmark decision that has significant value in two different aspects. The decision serves as a precedent for cases involving laws of extraterritorial nature or legal questions concerning the competence of state legislatures. It is also a significant ruling with regard to the freedom of trade and reasonable restrictions. Overall, the ruling and the reasoning laid down in the instant case are of great significance.

The decision in this case is of great importance given the surge in betting applications and platforms in recent times. Regulation and control of the betting platforms which conduct competitions resembling the nature of gambling is extremely important considering the financial risks associated with it. It is extremely necessary to keep a check on such platforms by enacting appropriate laws and regulations to ensure the exploitation of participants and the observations made in the instant case are very much relevant in this regard.

To conclude, the Hon’ble Supreme Court, in the instant case has pointed out a fine line between the freedom of trade or business and betting and gambling, which cannot be treated on the same level as trade, business or commerce. Although there has been an expansion in the scope of freedoms and interpretation of constitutional provisions, the ruling in the instant case holds relevance in the present times too. 

Frequently Asked Questions (FAQs)

Which constitutional provision guarantees the fundamental right to trade, business or practice any profession?

Article 19(1)(g) of the Constitution guarantees the fundamental right to freedom of trade, business, or to practice any profession or occupation.

Which constitutional provision declares freedom of trade and commerce across the country?

Article 301 of the Constitution declares trade and commerce free across the country.

Whether the freedoms guaranteed or declared under Articles 19(1)(g) and 301 are absolute?

No, the right to freedom of trade under Article 19(1)(g) is subject to reasonable restrictions under clause (2) and clause (6) of the same provision.

Similarly, free trade and commerce under Article 301 under Part XIII of the Constitution is subject to other provisions under the same Part.

What is the difference between freedom of trade under Article 19(1)(g) and Article 301?

Freedom of trade under Article 19(1)(g) is the right of an individual to carry on business or trade and it is a matter of an individual’s fundamental rights. On the other hand, the freedom of trade and commerce under Article 301 relates to trade across the state from an economic or commercial perspective.

What is the doctrine of territorial nexus?

The Doctrine of territorial nexus is an exception to the general rule of territorial limitation of laws. According to this doctrine, certain laws that are extra-territorial in nature can be held valid if there is sufficient nexus between the stakeholders of legislation or the individuals to whom they concern and the state enacting them.

What is the doctrine of pith and substance?

The doctrine of pith and substance provides that legislation does not become invalid merely due to the fact that the issue is beyond the authority of the legislature enacting it if the substance, i.e., the actual nature/object of such enacted legislation, falls within the authority of the said legislature.

References

• https://ccs.in/sites/default/files/2022-12/does_gambling_qualify_as_a_trade.pdf 
• https://manupatracademy.com/LegalPost/MANU_SC_0019_1957 
• https://blog.ipleaders.in/doctrine-of-territorial-nexus/ 
• https://blog.ipleaders.in/doctrine-of-pith-and-substance/