Sikkim HC raps government for non-compliance of rules, sets aside lottery distribution process

The Sikkim High Court in its recent order dated 22nd June ruled that the entire lottery process including the process of appointment of distributors stood vitiated due to non-compliance of the Central Lotteries Regulation (Rules) 2010. Chief Justice Sunil Kumar Sinha in his order in J Geetha v. State of Sikkim & Others (Civil Writ Petition No. 45 of 2014) held that the Sikkim government had not followed the procedure laid down in Rules 3(2) & 3(3) of the Lotteries Regulation (Rules). The court however held that Rule 4 (3)(a)(i) & (iii) of the Sikkim State Lotteries Rules, 2003 as amended in 2014 were constitutional and did not suffer from any infirmity. The court declined to go into allegations of bid rigging raised by the petitioner. The court also noted that the draws already conducted and completed would not be affected by its order.

Grounds

The petitioner, a proprietor of a lottery distribution agency, who had purchased the tender document for lottery distribution approached the Sikkim High Court stating that proper procedure had not been followed by the state government in awarding tenders for lottery distribution. The contentions of the petitioner were based on three major grounds: first that Rule 4 of the Sikkim Lotteries Rules was arbitrary and unconstitutional, second that the procedure laid down in the Central Rules was not followed and third that there was bid rigging for the tender as four of the five entities that applied for the tender were related to lottery king Santiago Martin.

Arguments and ruling

Insofar as the first contention was concerned, Chief Justice Sinha speaking for the court reproduced the rules amended by the Sikkim government in 2014.  Rule 4 laid down conditions for appointing distributors by the government. Rule 4(3)(a) laid down the technical conditions required for fulfilling the bid.The petitioner mainly challenged was to Rule 4(3)(a)(iii) which required the tenderer to be running paper lotteries continuously for at least two of the previous five years and hold distributorship of at least one state currently.

The court noted that it had in an earlier order quashed the extension of distributorship agreement without floating of tender of M/s Future Gaming and Hotel Services Private Limited and directed the state government to conduct an open tender process. In response, the government had invited tenders under the aforementioned rules. The court rejected the petitioners contentions that the pre-requisite qualifications for lottery distributors were restrictive, arbitrary or tailor made for one entity.

Citing a plethora of administrative and constitutional cases such as Rashbihari Panda v. State of Orissa, BR Enterprises v. State of UP , Dalmia Cement v. Union of India etc. Justice Sinha noted that the conditions imposed by the Sikkim government were only for the purpose of ensuring proper and fair conduct of lotteries so that public trust is retained and were neither arbitrary nor illegal. The court in fact noted that the Central Act and Rules itself mandated that lottery distributors should fulfill certain basic conditions and hence the Sikkim government’s conditions were in consonance with the letter and spirit of the Central Act and Rules.The court also relied on the fact that multiple lottery distribution companies operated in various states at present and hence the condition requiring previous experience to participate in the tender process was not tailor made to suit one entity.

However insofar as non compliance with the Central Lotteries Rules was concerned, the court noted that Rule 3(2) made it mandatory for the state government to issue a notification in the official gazette outlining the purpose and scope of the scheme every time it wished to conduct a new lottery scheme. Further Rule 3(3) required the state government to publish a separate notification in advance detailing the name, price, prize structure of the lottery scheme, name of distributors etc.

The court rejected the state government’s contention that a common notification was issued for both the rules stating that since the two sub-rules operate in different fields, separate notifications are required. The court also noted that the state government’s notification under Rue 3(3) was issued after three draws were already conducted and hence was not good in law.

On the allegations of bid rigging by four of the five tenderers related to Martin group, the court noted the concerns of the petitioners but declined to answer the contentions on merit since three of the four entities against whom collusion was alleged were not made parties to the petition.

Conclusion and implications for the gaming industry

The judgment of the Sikkim High Court has made it very clear that the entire tender process will have to be redone by the government. If notification under Rule 3(2) was not issued as regards to other distributors, even their distribution agreements will have to be cancelled. However given that Rule 4 of the Sikkim State Lotteries Rules is held to be valid, it is unlikely that other companies will be able to make a foray in the lottery business, since the three major lottery conglomerates: Sugal & Damani Group, Essel Group and Martin Group have lottery distributorships in most states.

The decision however raises question marks on the process of conducting lotteries by the Sikkim government and also doubts the credibility of Future Gaming and Martin Group (Martin Group promoter Santiago Martin is already facing charges of lottery fraud in Karnataka, Kerala and other states). It is possible that the Sikkim High Court’s verdict, unless stayed or overruled by the Supreme Court could open a pandora’s box with writ petitions in other states challenging the manner and procedure of conducting lotteries, tender process and lottery operators’ monopoly.