Can One State Ban Goods From Another State In Federal Structure? Supreme Court Asks In Lottery Ban Case

While hearing a suit filed by the State of Meghalaya, seeking to sell their lottery outside their own state, the Supreme Court orally asked whether a state banning goods from another state was permissible in a federal structure. 

The context of the suit is that as per Section 5 of the Lotteries (Regulation) Act 1998, the Central Government authorised State Governments to prohibit the sale of tickets of a lottery organised, conducted or promoted by another State. The State of Meghalaya, submitting that the regulation of lotteries organised by other states was not a State subject, but fell within the domain of the Central government, thus sought to be granted permission to sell lotteries in other States.

The Chief Justice of India, N.V. Ramana, while inquiring about the stand of the Central Government on the issue, asked how a state could be permitted to invoke provisions of the central law and ban the lottery business.  

While hearing the matter, the CJI orally remarked that lottery selling is happening online now. To this, Senior Advocate Mukul Rohatgi, appearing for the State of Meghalaya, informed the court that if lottery is banned in a state, it cannot be sold online in that particular state either.

The State of Meghalaya submitted that the Supreme Court, way back, had already discussed this issue in the case of State of Haryana v. Suman Enterprises (1994). For context, in this case the Court, in deciding whether the State of Haryana could issue a Notification imposing a ban on the lotteries of other states, held that regulation of lotteries organised by other states was not a State subject but within the exclusive regulatory power of the Parliament under Entry 40 of List I.

It was submitted that Suman Enterprises (supra), drew a distinction between "State organised lotteries" and "State authorised lotteries" and stated that no private organisers were permitted to sell lottery, however, state organised lotteries were permissible. The petitioner stated that in the same judgement, "there was path carved out which North East States follow". 

Senior Advocate A.M. Singhvi, mentioning that he was appearing for the State of Sikkim, stated that banning states from selling their lotteries outside of their states could not be allowed to happen in a federal state. He stated that after the COVID-19 pandemic, there had been a reduction of revenue for the state. However, lottery had been the State's "life line" and the money generated from selling lotteries was being used for state development. He stated that when Sikkim had not banned other states, it should also not be banned from selling lotteries in such other states. 

The plaintiff Meghalaya had sought an interim order. However, ASG Sanjay Jain stated that such an interim order would nullify the law laid down in the case of B.R. Enterprises v. State Of U.P. (1999). In this case, the Supreme Court had held that lotteries, being a form of gambling, could be prohibited by State legislatures as it was a question of policy. ASG Jain also submitted that all North Eastern States had used the case of State of Haryana v. Suman Enterprises only as "an eyewash". 

The CJI, while stating that in the present case, the government, and not private organisers were running lottery, inquired about the stand of the Central Government and asked–

"How can the state invoke provisions of the central law and ban the lottery business?...If in federal structure one state bans the lottery of another state and tomorrow one state bans goods from another...can this be permitted or allowed?"

The ASG requested for time to respond to the same. 

The CJI further remarked that–

"I can understand you are banning private lottery but allowing government ones. But state agencies have some credibility."

The matter is now listed for August 13, 2022.

Meghalaya has filed the original suit arraying the Union Government and all other states as the defendants.

CASE TITLE: THE STATE OF MEGHALAYA v. UNION OF INDIA AND ORS | Original Suit No. 1/2021