The menace of illegal lotteries in Kerala

Published : Sep 24, 2010 00:00 IST

The Kerala government’s action against illegal other State lotteries’ operating in the State results in its own lottery being curbed.

in Thiruvananthapuram

THE unbridled growth of illegal lotteries and their hold on thousands of poor, addicted fortune-seekers in Kerala, Opposition allegations of government connivance with the promoters of such lotteries, and a series of court orders have, ironically, forced the Kerala government to curb the booming sale of the State-run lottery and restrict it to a single draw a week from September.

But that is the law. The Kerala High Court pointed out on August 30 that no lottery shall have more than one draw in a week and the State, too, had been violating it, though, obviously, to a considerably lesser extent than the promoters of other State lotteries sold in Kerala. The State government has also a duty to see that the purpose of the Central Act (the Lotteries Regulation Act, 1998) is promoted and achieved, ensuring that the lotteries/draws run by the State are also in conformity with the Section (4)(h) and (4)(j) of the Central Act; thus displaying the image as a model State’, saving the millions of poor people and their families from being plunged into doldrums, the High Court said.

So far, so good, well-meaning opponents of the prospering trade in lotteries would say, worried as they are about the mesmeric gambling instinct inherent in it as the then State government had described it before the High Court in 2006, while successfully arguing in support of its ban on a similar, pernicious growth of online lotteries in Kerala.

Profits from Kerala Lottery, one of the State government’s most attractive non-tax revenue sources, are now set to fall drastically from over Rs.100 crore a month to about Rs.20 crore, according to one estimate. So would the income of more than 35,000 government-authorised lottery agents and over 100,000 retail sellers whose families depend on the commission from such sales for their livelihood.

It may seem strange that a battle against illegal other State lotteries operating in Kerala is forcing the State government to curb its own lottery and returns from it. Finance Minister Thomas Isaac said the government would even be willing to stop Kerala Lottery altogether in order to curb the menace of the illegal lottery operators, provided there was a political consensus on this in the State.

The previous United Democratic Front government led by the Congress had imposed a ban on all lotteries in Kerala, including its own, in 2006, but diluted it within a few months into a ban on online lotteries alone, in view of the widespread concern about the impact such a total ban was having in the State, especially on the livelihoods of government lottery agents and the sellers and their families, many of whom were physically challenged or extremely poor.

Over the years, the Kerala government had provided a regular income and high rewards for authorised lottery agents and retail dealers, offering them ever higher commissions. It had also constituted a welfare board for agents and retail sellers, which offered regular bonus, pension and medical care and other facilities to its members. The total ban was found to be a big blow and many were pushed into penury and desperation. Some even committed suicide.

However, in its August 30 order disposing of some writ petitions by distributors of the Bhutan and Sikkim lotteries challenging the government’s refusal to collect advance tax from them, the High Court explained the objective of and reasons for the 1998 Central law to regulate lotteries.

The very concept of running a lottery, for augmentation of the revenue of the State’, was probably mooted for the first time by the State of Kerala, nearly four decades back in 1967 and it was also being successfully made use of, as a measure to provide self-employment’ to lakhs of unemployed persons including the aged, sick and physically disabled. The concept was later adopted by several other States and also by other sectors, which in the years to follow, paved the way for exploitation of the poor and illiterate class, who were otherwise rich in dreams and who wanted themselves to be enriched in terms of wealth, in no time. This adversely affected the very existence of lakhs of families of the poor, particularly the daily wagers, which sent an alarm signal, on their economic ruin and the duty of the nation to provide a welfare state’.

It was in such a context that the Central government promulgated two ordinances first, which were later replaced by the Central Act of 1998, the court said.

The High Court also explained that the Central Act of 1998 is never a statute for the augmentation of the revenue of any State and that its stipulation that no State government shall organise, conduct or promote a lottery except as specified by it (under Section 4 (a) to (k)) was especially meant as a measure of welfare enactment’ to protect the poor and illiterate people, who belong to the lower strata of society and get more attracted to the lure and glitter of becoming rich on a new dawn, gambling with the lives and existence of their families.... If every day, lottery or lotteries are held, the poor wage earners are likely to spend the whole or a portion of their wages to purchase the tickets every day. If there is a gap of one week between the conduct of the lottery, there will be a reasonable cooling period’ between one purchase of ticket and another.

However, according to the 1998 Act, as interpreted later by the Supreme Court, a State which conducts its own lottery cannot prohibit another State from conducting its lottery within that State’ hence the difficulty of a State like Kerala to ban all illegal players in the arena. Significantly, what was, however, considered by the apex court (in B.R. Enterprises vs the State of Uttar Pradesh in 1999) was the character of the State lotteries’ and the question whether lotteries would lose the nature of a gamble, if they wore the cloak of State lotteries’.

Subsequently, a Division Bench of the Kerala High Court explained in 2006 that the objective of the Central Act was not to control the policy decision of each State to start or close down its lotteries, or to collect or not to collect revenues through State lotteries (which it said, ought to be done purely in the public interest weighing the public benefit against the public evil caused by such a decision) but to see that it did not pick and choose one State from another.

The Kerala Lottery had been running six weekly draws, two biweekly draws and six yearly bumper draws until August, in what accounted for but only a small share of the roaring lottery business in the State. In terms of number of draws, volume of sales, and profits, the promoters of the other State lotteries’ in Kerala (namely the Sikkim State lottery and the Royal Government of Bhutan lotteries), who often operated in flagrant violation of the laws as had been pointed out by the State government itself, accounted for a much larger share.

There are various estimates about the size of this murky business, in which a handful of agencies floated by a few individuals and with network throughout India sold lotteries launched by the Sikkim government and (under an international treaty) by the Royal Government of Bhutan in Kerala. According to the Leader of the Opposition, Oommen Chandy of the Congress, such other State lotteries represented a dark world, an underworld that sucks up Rs.14,000 crore every year from Kerala.

Even as early as October 2006, a vigilance inquiry ordered by the Left Democratic Front (LDF) government, immediately after coming to power, had found that the Sikkim and Bhutan lotteries were being run in Kerala in violation of the provisions of the laws regulating lotteries in the country. It found, among other things, that the promoters of these lotteries were conducting several draws in the name of a single lottery, that crores of rupees worth of lottery tickets were being printed in unauthorised centres for distribution in the State and that the distributors were actually looting the State through unauthorised sale, draws and extensive tax evasion.

Under the Central Act, a State government can organise, conduct or promote a lottery only if it follows the conditions stipulated under Section 4 under it, namely: (a) prizes shall not be offered on any pre-announced or on the basis of a single digit; (b) the State government shall print the lottery tickets bearing the imprint and logo of the State in such a manner that the authenticity of the lottery ticket is ensured; (c) the State government shall sell the tickets either itself or through distributors or selling agents; (d) the proceeds of the sale of lottery tickets shall be credited into the public account of the State; (e) the State government itself shall conduct the draws of all the lotteries; (f) the prize money unclaimed within such time as may be prescribed by the State government or not otherwise distributed, shall become the property of that government; (g) the place of draw shall be located within the State concerned; (h) no lottery shall have more than one draw in a week; (i) the draws of all kinds of lotteries shall be conducted between such period of the day as may be prescribed by the State government; (j) the number of bumper draws of the lottery shall not be more than six in a calendar year; (k) such other conditions as may be prescribed by the Central government.

No one is in doubt that the promoters of other State lotteries operating in Kerala stand in violation of almost all the major provisions of Section 4 of the Central Act and that it gives ample ground for their prohibition in the State. But the question being raised with a relish by the Opposition is why, even after four and a half years of being in power, the Communist Party of India (Marxist)-led LDF government had failed to take action against them.


In a recent article published in a prominent Malayalam newspaper, Oommen Chandy said: The CPI(M) leadership is mysteriously silent on the lottery issue. Their coalition partners too are unmoved.... A series of irregularities have come to light. The Finance Minister is not providing answers to several questions that are being raised: Where are the other State lotteries being printed? How many tickets are being printed? How many are being sold? How many are not sold? Where are the draws taking place? Who is supervising these draws? Who are getting the prizes? Through which treasury is the income from such lotteries reaching the respective governments? The pro-CPI(M) Kairali television channel telecasts live the draw of lots of the Sikkim and Bhutan lotteries at 3.20 p.m. every day. Don’t they have the moral obligation to disclose where it takes place and which representative of the government is supervising them?

Oommen Chandy also alleged that the lottery king, Santiago Martin, who has been entrusted with the promotion of the Sikkim and Bhutan lotteries and whose sub-agents conducted the distribution of such lotteries in Kerala, has such a close relationship with the CPI(M) that he was willing to donate Rs.2 crore to Desabhimani (the CPI(M)‘s newspaper). (The money was, however, returned to the donor later by the CPI(M) when the issue became a major political controversy early during the tenure of the LDF government.) It is this relationship that allows him to drain away Rs.14,000 crore from Kerala, Oommen Chandy alleged.

It was obvious that the issue of the live telecast of the daily draws of the controversial lotteries and the huge donation offered to Desabhimani by the lottery agent was an embarrassing truth for the ruling CPI(M) to reckon with and that the Opposition was trying to anchor its election-eve campaign especially on those two well-known facts.

According to Thomas Isaac, the State government had tried to do all that was possible within its powers to curb the menace, but the law allows only the Centre to take action against erring lottery operators. The LDF government had conducted a vigilance inquiry and informed the Centre about the findings as early as November 2006. It had been urging the Centre repeatedly to take action, but to no avail. The Centre had failed to respond to 17 complaints sent by the State in this regard, he said.

The State has also been fighting such lottery operators in the courts, including the apex court. In an interim order passed in March, for example, the Supreme Court asked the Centre to look into the grievances raised by the State as, it said, the Centre alone had the authority to take appropriate action against the draw of lotteries in violation of Section 4 of the Central Act. No action was taken on the court’s directive and the Kerala government has again approached the Supreme Court, urging it to take further action on it.

Fortunately for the LDF government, even as the Opposition campaign was at its height, the Single Bench of the High Court, in its order on August 30, reiterated the main theme of its defence against the Opposition campaign: that the Central Act gave only limited powers to State governments to take action against erring other State lotteries’. The court said that the violation of any of the conditions stipulated under Section 4 of the Central Act is the look out of the Central government and the power, jurisdiction, competence to deal with such situation and to prohibit the lottery, vests exclusively with the Central government. It also said that the State government could not indirectly usurp the powers vested by the Act to the Centre, while exercising the power and jurisdiction under the State laws.

While directing the State, therefore, to collect advance tax from Sikkim and Bhutan lottery agents, the High Court also pointed out that the constitutional validity of the Central Act was considered by the Apex court in B.R. Enterprises vs State of U.P. (1999) and it was upheld confirming the action pursued by the Uttar Pradesh government in banning other State lotteries. It has been made clear by the apex court that the very concept of lottery involves an instance of gambling’, and as such the rights and liberties to conduct the lottery or denial in this regard do not involve any infringement of Article 19(1)(g) or the mandate under Article 301 of the Constitution of India. Referring to the scope of Section 5 of the Central Act, it has been held that the State government is very much entitled to prohibit every other State lottery provided the State government is a lottery-free zone. The Uttar Pradesh government, in the said case, was a lottery-free zone, unlike the Government of Kerala, which is running lotteries of its own. This being the position, the power to prohibit the lottery stands exclusively vested with the Central government under the other head, that is, under Section 6 and the conspicuous absence of power of the State of Kerala under Section 5, cannot be sought to be compensated or complemented by causing the lotteries organised, conducted or promoted by other States through their promoters stalled in an indirect manner.

Serious observation

The Single Bench also made the serious observation that the rules, especially Rule 6 providing for any number of draws, framed by the Central government in April under the powers conferred on it by the 1998 Act, 12 years after the Act itself came into being, actually defeats the purpose of the enactment. A rule had necessarily to subserve the Act and should never override the provisions of the Act, it said, adding that such a provision, as now exists, would not, therefore, support the cause of the petitioners (who seeks to conduct more than one draw a week).

No sooner had the government announced its decision to confine the draw of its lottery to one a week than the lottery trade in Kerala went into limbo, with fears being raised about the welfare of the authorised agents and retail vendors and also of an attempt by other State lottery promoters to flood the Kerala market with lotteries from other States, too, so that they could ensure a draw every day of the week and thus defeat the very purpose of the government initiatives.

The first case of suicide by a lottery agent and his wife was reported on September 1 from Alappuzha. More court cases are sure to follow. And the battle is far from over.

But by now the people of Kerala have come to realise that what seems like a noose tightening around illegal lottery operators eventually almost always turns out to be a loophole that helps them escape and then thrive, ever so vigorously.

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