Lottery Business and Competition Law

State of Mizoram v. Competition Commission of India (W.P(C) No. 24 of 2013 with C.M. AppL No. 101 of 2013); M/s NV International v. Competition Commission of India (W.P(C) No. 76 of 2013 with C.M. Appln No.107 of 2014); M/s Summit Online Trade Solutions Pvt. Ltd. v. Competition Commission of India (W.P.(C) No. 90 of 2013)

The Gauhati High Court, Aizwal Bench, vide its order dated 15.08.2014 passed by a Single Judge held that lottery business being res extra commercium is not trade and hence outside the purview of the Competition Act, 2002 (“Act”). The writ petitions were disposed by a common judgment and order as they involved the same question of facts and sought with similar reliefs.

Facts: The business of lottery is governed strictly in terms of the Lottery (Regulation) Act, 1998 and the Regulations and Rules framed thereunder. The Government of Mizoram invited Expression of Interest (“EOI”) on 20.12.2011 for appointment of Lottery Distributors and Selling Agents for the lotteries organized by the Government of Mizoram. Pursuant to the EOI, four firms/companies were selected as distributors to operate lotteries as per the provisions of the Lotteries (Regulation) Act, 1998 and the Mizoram Lotteries (Regulation) Rules, 2011.

M/s Tamarai Technologies Private Ltd, (Respondent No. 3 in all the 3 writ petitions) filed an information/complaint before the Commission under Section 19(1)(a) of the Act alleging that (a) Government of Mizoram had violated the provisions of Section 4 of the Act and (b) M/s Teesta Distributors, M/s NV International (petitioner in W.P.(C) 76/2013) and M/s Summit Online Trades Solutions Private Ltd. (petitioners in W.P.(C) 90/2013) were directly or indirectly associated with each other and have been involved in collusive bidding by quoting identical rates for Online and Paper Lotteries against EOI dated 20.12.2011 and thereby forming a cartel with regard to selection of distributors in lottery business of the State of Mizoram.

On receipt of the information, the Commission passed an order dated 7.6 2012 (“Prima Facie Order”) under Section 26(1) of the Act, 2002 forming an opinion that prima facie, it appeared that there existed a cartel among the bidders (contravening Section 3(1) read with Section 3(3) of the Act). In the Prima Facie Order, the Commission opined that no case was made out for violation of the provision of Section 4 of the Act.

The Director General submitted its report before the Commission on 17.1.2013 concluding that the 4 firms/companies had indulged in bid rigging by forming a cartel and that there was a violation of Section 3(1) read with Section 3(3) of the Act. The Commission issued an order dated 12.2.2013 in Case No. 24/2012 of the Commission directing the parties to file their reply/objection within 2 weeks of receipt of the record and appear for hearing on 20.3.2013. Being aggrieved, the aforesaid 3 writ petitions were filed.

Observations of the court: The Court referred to judgments of the Supreme Court such as B.R. Enterprises v. State of U.P. (1999) 9 SCC 700, Sunrise Associates v. Govt. of NCT AIR 2006 SC 1908 and Union of India v. Martin Lottery Agencies Ltd (2009) 12 SCC 209. In the abovementioned cases, the Apex Court has held that lotteries organized by the State is also gambling in nature and cannot be construed to be a trade and commerce within the meaning of Article 301 to 303 of the Constitution of India (B.R.Enterprises); on purchasing a lottery ticket, the purchaser would have a right to claim to a conditional interest in the prize money which is not in the purchasers possession and such right would fall squarely within the definition of an actionable claim and would therefore be excluded from the definition of ‘goods’ under the Sale of Goods Act and the sales tax statutes (Sunrise Associates) and that lottery being gambling, comes within the purview of the doctrine of res extra commercium and organizing lottery by the State was tolerated being an economic activity on its part so as to enable it to raise revenue and that raising of revenue by the State, by itself cannot amount to rendition of any service (Martin Lottery Agencies).

Based on the above observation, the Gauhati High Court held as follows:
“Considering the Act of 2002, this Court is of the considered opinion that the same would be applicable to legitimate trade and goods to ensure competition in the market, to protect the interest of the consumers and freedom of trade in markets which are res commercium. The lottery business being gambling and falling within the purview of the doctrine of res extra commercium and not qualifying in the normal parlance of trade and commerce would therefore not come within the purview of the Act of 2002.” (Paragraph 24).

Accordingly, the High Court held that the Commission has no jurisdiction to entertain the information and struck down the Prima Facie Order to be illegal.” (Paragraph 24).

Analysis: The Gauhati High Court has stated that the Act applies to ‘legitimate trade and goods’. Since lottery business is gambling and is res extra commercium, it does not fall within the purview of trade in the normal parlance.

Lottery: The judgment has referred to judgments of the Supreme Court which state the lottery is gambling, and that gambling inherently contains a chance with no skill, while trade contains skill with no chance. However, the complaint of the informant in case 24/2012 was against the formation of cartel by the lottery distributors in the EOI invited by the State. Conduct of lottery business is different from actual participation in a lottery, the latter essentially being a game of chance. The High Court seems to have failed to appreciate this distinction in its judgment.

Jurisdiction: An enterprise has been defined under Section 2(h) to mean a person or department of the Government which is engaged in any activity relating to production, storage, etc. of goods or provision of services of any kind. The term has been given a wide meaning to include all forms of activity relating to goods and services, unless it is covered under any exemption. The exemptions under Section 2(h) are sovereign functions of the Government and all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space. Further, vide Section 54 of the Act, the Central Government has been given the power to exempt any class of enterprises from application of the Act subject to the fulfilment of the conditions specified therein. Conduct of lottery business has not been exempted from the Act, either under Section 2(h) or Section 54. Therefore, the conclusion of the Gauhati High Court appears to be erroneous.

Author: Ann Minu Jose
Photo by Mary Watkin/ CC BY-NC-SA 2.0</p