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Lucky, but not so legal?

Submitted by-Vidushpat Singhania

The Government of India on November 8 took the bold initiative of declaring two high value notes—Rs 500 and Rs 1000—as no longer legal. This demonetisation initiative led to a rapid increase in online payments, use of credit and debit cards, RuPay payments and use of other mobile wallets. In a move to encourage transition to digital payments, NITI Aayog, the government’s think tank, decided to introduce a scheme with daily, weekly and mega awards for consumers and merchants based on a lucky draw. The awards are to be offered through two schemes: Lucky Grahak Yojana for consumers and Digi-Dhan Vyapar Yojana for merchants. This scheme seeks to give away prizes worth Rs 340 crore through awards of Rs 1,000 for 15,000 winners and weekly prizes worth Rs 1,00,000, Rs 10,000 and Rs 5,000. For the merchants’ scheme, the weekly prizes are likely to be worth Rs 50,000, Rs 5,000 and Rs 2,500. Totally, there could be 7,000 weekly awards for customers and merchants. It is laudable that this scheme is proposed by the NITI Aayog after demonetisation. However, these schemes are likely to fall within the ambit of ‘lottery’ under the Lotteries Act 1998.

According to the Act, lottery encompasses any scheme in whatever form, for distribution of prizes by lot or chance, to those persons participating in the chance of a prize by purchasing a ticket. In this scheme, the consumers and merchants who have used electronic payment modes are the only ones eligible to participate. So, the participants of the ‘lucky draw’ would have contributed towards the scheme through the charges applicable on such digital transactions, which could be considered equivalent to a ticket purchase.

Moreover, since the prizes would be awarded on the basis of drawing lots, the programme would meet all the requisites for being classified as a lottery. However, as per the Lotteries Act and decisions of the Supreme Court in B.R Enterprises case and All Kerala Online Lottery Dealers Association case, lottery schemes cannot be offered in states which have declared themselves to be lottery-free states or states where a particular kind of lottery is prohibited. This brings us to an important question.

Is the proposed plan by NITI Aayog limited to states where online lotteries are legal? Further this scheme is also likely to fall within the ambit of a prize scheme under the Tamil Nadu Prize Scheme (Prohibition) Act, 1979. Will the programme be offered in Tamil Nadu? The legal status of the scheme will be uncovered only after the appropriate authority determines whether use of digital payments, contributions from which go towards the scheme, fall within the ambit of purchase. Similar projects have been offered to promote sale of consumer goods or services and the authorities have held that they fall within the ambit of lotteries or prize schemes.

Even under the Consumer Protection Act, 1986, offering such plans to promote digital payment services could be termed as an unfair trade practice. Unfair or deceptive practices under this Act includes a trade practice for the purpose of promoting the provision of services (directly or indirectly), including conduct of any lottery, game of skill or chance. During the announcement, NITI Aayog CEO Amitabh Kant said those who would use credit cards and e-wallets of private companies will not be eligible to participate in the scheme. Since the project excludes certain modes of digital payments, this move could be termed as an unfair trade practice. Without doubt, this scheme is a commendable step taken by the think tank. But specific provisions of the programme which could face certain restrictions could be reconsidered. The restrictions are: The number of draws that can be conducted, the mode of drawing lots, deducting 30 per cent tax from the winnings of such a scheme before the prizes are distributed, the draw taxes payable to the state governments amongst others.

The judiciary will no doubt play an important role in the classification of the scheme based on the provisions of the laws. There has been a cry from the gaming sector of the country that this industry should be liberalised. Especially since some of the laws governing the gaming industry are archaic. The Public Gambling Act of 1867 or the Prize Competition Act of 1955, do not consider the advent of technology. The authorities could consider viewing this industry as a form of entertainment rather than one that needs to be curbed. In fact, lotteries were introduced in India by the British to finance various social schemes like setting up an infrastructure project or for building memorials.

The NITI Aayog scheme is also targeting one such social objective: Driving Indians towards digital payments. If the authorities plan to offer such schemes across India, then, even some state lotteries which face territorial restrictions within the country, would likely be allowed. The government should consider amending the Lotteries Act to allow certain Central government schemes akin to lotteries across the country. Until the current restrictions on lotteries apply, it could also consider issuing a notification on why such a scheme would be outside the ambit of the restrictions and permitted pan- India. It could also consider amending the Lotteries Act and Rules, to make them more liberal.The Centre could also take this as an opportunity to liberalise and curb the black money in the gaming industry— an industry estimated to be worth $60 billion (Rs 300,000 crores)—by driving the sector towards digital transactions. (with Nitin Mittal)

Vidushpat Singhania
works for Krida Legal and was a member of the committee that drafted the sports code