G. P. Singh, C. J.
1. The petitioner is a partnership firm. The petitioner promoted a scheme styled as 'Ramona Scooterette Sale Promotion Scheme.' The petitioner applied for and obtained licence No. 1-P.L. CWA, dated 1-12-1981, from the Collector, Chhindwara, under Sections 6 and 7 of the Madhya Pradesh Lottery (Niyantran Tatha Kar) Adhiniyam, 1973. The Collector, Chhindwara, by order dated 24th August, 1982 (Annexure-D) cancelled the licence with immediate effect on the ground that as directed by the Director of State Lotteries, the scheme run by the petitioner was not a lottery and, that it was a prize chit coming within the ban of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. Another order was issued by the Collector in October 1982 (Annexure-E) directing the petitioner to refund the amounts collected by it from the members of the scheme. The petitioner challenges these orders (Annexures-D and E) by this petition under Article 226 of the Constitution.
2. The scheme which the petitioner promotes has the following features. A person to become member of the scheme has: to pay Rs, 5/- as membership fee. A group in the scheme consists of 100 members. Each member in the group has to contribute Rs. 180/- per month. After a group is formed a lucky number is drawn in the presence of the mem-bers every month. The member whose number becomes the lucky number gets a Ramona scooterette. Such a member has not to make any monthly payment nor is he entitled to participate in the monthly draw of the lucky number thereafter. The scheme runs for a period of thirty months. Members who do not win in any draw and continue to make monthly payments during this period get a Ramona scooterette thereafter. It will be seen that the promoter of the scheme i.e. the petitioner, at the startof the scheme, is able to collect Rupees 18,500/- from members in a group and thereafter he it able to recover Rupees 180/- per month from each member for thirty months excepting these members who in the monthly draws become lucky winners. The member whose number becomes the lucky number in. the first draw gets the scooterette for about Rupees 185/-. The member who gets the scooterette in the second draw gets it for RS. 365/- and so on. The retail price of a scooterette is about Rupees 4,918/-.
3. Section 2 (1) (a) of the State Act, The Lottery (Niyantran Tatha Kar) Adhiniyam, 1973, defines 'lotterry' to mean 'a scheme for distribution of prizes by lot or chance to those persons participating in the chances of a prize by purchasing tickets.' 'Ticket' is defined by Section 2 (1) (f) to include 'in relation to any lottery or proposed lottery any document evidencing the claim of a person to participate in the chances of the lottery'. Section 3 of the Act declares all lotteries excepting those organised by the Central Government and the State Government of Madhya Pradesh to be unlawful. Provision is made in Section 6 for licensing private lotteries. Section 6 (1) provides that a private lottery shall be deemed to be an unlawful lottery unless the promotor thereof has obtained a licence in respect of such lottery. The Collector is the licensing authority under Section 7. Provision is made in Section 9 for suspension or cancellation of licence. The Madhya Pradesh Legislature had also enacted the M. P. Dhan Panchalan Skeem (Pratishedh) Adhiniyam. 1975 (Act No. 19 of 1975) which was repealed by the Central Act, the Prize Chits any Money Circulation Schemes (Banning) Act, 1078, Section 3 of this Act provides that no person shall promote or conduct any prize chit or money circulation scheme, or enroll as a member to any such chit or scheme, or participate in it otherwise, or receive or remit any money in pursuance of such chit or scheme. The definitions of 'money circulation scheme' and, 'prize chit' are contained in Sections 2 (c) and 2 (e), respectively. We are here not concerned with a money circulation scheme and, therefore, it js not necessary to quote the definition in Section 2 (c). The definition relevant for this case is of 'price chit' as contained in Section 2 (e) which reads as follows:
'2 (e). 'prize chit' includes any transactions or arrangement by whatever name called under which a person collects whether as a promoter, foreman, agent or in any other capacity, monies in one lump sum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift, or any scheme or arrangement by whatever name called, and utilises the monies so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes, namely: -
(i) giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot draw or in any other manner, prizes or gifts in cash or in kind, whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement;
(ii) refunding to the subscribers or such of them as have not won any prize or gift, the whole or part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage by whatever name called, on the termination of the scheme or arrangement, or on or after the expiry of the period stipulated therein, but does not include a conventional chit;'
Conventional chits are outside the defini-tion of prize chits. Conventional chit is defined in Section 2 (a) as under:-
'(2). conventional chit means a transaction whether called chit, chit fund, kuri or by any other name by or under which a person responsible for the conduct of the chit enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or certain quantity of grain instead) by way ot periodical instalments for a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the chit agreement, be entitled to a prize amount.
Explanation - In this clause prize amount shall mean the amount, by whatever name called, arrived at by deducting from out of the total amount paid or payable at etch instalment by all the subscribers.
(i) the commission charged as service charges as a promoter or a foreman or an agent; and
(ii) any sum which a subscriber agrees to forego from out of the total subscriptions of each instalment, in consideration of the balance being paid to him;'
4. The learned counsel for the petitioner first contends that the scheme promoted by the petitioner is not a prize chit as defined in the Central Act. We are unable to agree. We have quoted the salient features of the scheme. We have also quoted the definition of 'prize chit' contained in Section 2 (e) of the Central Act. Leaving aside those parts of the! definition which are not directly applicable, prize chit as defined in Section 2 (e) includes an arrangement under which a person collects as a promoter monies in instalments by way of contributions or subscriptions or as membership fees in respect of a scheme and utilises the monies so collected for giving periodically to a specified number of subscribers as determined by lot, draw or in any other manner prizes in, cash or in kind. The scheme promoted by the petitioner falls within this definition. The petitioner as promoter collects from every member in a group consisting of hundred members membership fee of Rs. 5/- and contribution of Rs. 180/- per month and the monies so collected are utilised for awarding each month for thirty months to a member in the group determined by lot or draw a scooterette as prize. The scheme is not a conventional chit which is excepted from the definition of prize chit. The definition of conventional chit as contained in Section 2 (a) has been quoted above. A conventional chit as defined is somewhat of the nature dealt with by the Full Bench of the Madras High Court in Narayana Aiyangar v. Vellachami Ambalam. AIR 1927 Mad 583. The petitioner's scheme was not a conventional chit. In case of a conventional chit the prize is in money and not as here, in kind. Further the prize has to be the total amount paid or payable at each instalment by all the subscribers minus the deductions (i) and (ii) allowed in the Explanation to Section 2 (a) which defines 'prize amount'. The award of scooterette under the petitioner's scheme did not fall within the definition of prize amount as contained in the Explanation and, therefore, the scheme could not amount to conventional chit. The petitioner's scheme being a prize chit as defined in Section 2 (e) of the Act, its promotion was in contravention of Section 3 and clearly illegal.
5. The learned counsel lor the petitioner next contends that as the scheme was licensed as a lottery by the Collector under the State Act, it could not be said to be illegal even if it contravened the Central Act as the subject of lottery was specifically covered by the State Act It is true that the petitioner got a licence before promoting the scheme in 1981 from the Collector under the State Act but from that it does not necessarily follow that the scheme is a lottery as defined in the Act Indeed the Collector was directed by the Director of State Lotteries to cancel the licence on the ground that the scheme was a prize chit under the Central Act and not a lottery. The opinion of these authorities is, however, not decisive and we have to look ourselves as to whether the petitioner's scheme is a lottery and if so what is its effect. We have already stated that the petitioner's scheme is a prize chit as defined in the Central Act. We have also quoted the definitions of 'lottery' and 'ticket' as contained in the State Act. The emphasis in the definition of 'lottery' is that it is a scheme where persons participate in the chances of a prize by purchasing tickets. 'Ticket' is defined to include any document evidencing the claim of a person to participate in the chances of a lottery. Now, in the petitioner's scheme, there is no purchase of ticket by the members. A person is entitled to become member by paying membership fee of Rs. 5/- but the membership alone does not entitle him to participate in the chances of a prize even if we assume that the membership form is a document coming within the definition of 'ticket'. A member, as already seen, for being entitled to participate in the chances of a prize has to go in making monthly contributions of Rs. 180/-. This feature of the scheme, in our opinion, takes it out of the definition of lottery in the State Act. But even assuming that the scheme can come within the definition of lottery, yet the petitioner cannot be allowed to run it for being a prize chit as defined in the Central Act he cannot promote it in violation of the provisions of that Act. Prize chit is really a form of lottery. It is so stated in the Statement of Objects and Reasons of the Central Act. To quote its words 'Prize Chits would cover any kind of arrangement under which moneys are collected by way of subscriptions, contributions, etc. and prizes, gifts, are awarded, The prize chit is really a form of lottery'. The Central Act was enacted under Entry 7 if List III and its validity was upheld by the Supreme Court in Srinivasa Enterprises v. Union of India, AIR 1981 SC 504, even though it had incidental impact on lotteries which is a subject falling under Entry 34 of List II. In that case the Supreme Court accepted the submission of the Union of India that by enacting the Act 'Parliament wanted to restrict and prohibit certain types of contracts because of the noxious element of gambling and lottery implicit therein and the incidental impact on lotteries did not affect the vires of the Act (pp. 509-510)'. Parliament's power to make laws with respect to any of the matters in List III which is conferred by Clause (2) of Articles 246 of the Constitution is 'notwithstanding anything contained in Clause (3)' which confers exclusive power on the State Legislature to make laws with respect to any of the matters in List II. Further the power of the State Legislature to make laws on any of the matters enumerated in List II as conferred by clause (2) of Article 246 is subject to clauses (1) and (2) of the same Article under which Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I and concurrent power to make laws with respect to any of the matters in List III. The effect of subjection of the State Legislature's power under cl. (3) of Article 246 to Clauses (1) and (2) of the same Article is that if there is a conflict between a law made by Parliament with respect to any of the matters enumerated in List I or List III and a law made by the State Legislature with respect to any of the matters in List II, both being valid, the law made by Parliament shall prevail. Such a conflict is possible because of the doctrine of pith and substance which permits incidental encroachment in the domain of the rival Legislature M. P. Section R. T. Corporation v. Heeralal, 1980 MPLJ 8 at pp. 17, 18 : (AIR 1980 NOC 74) (FB). The Central Act has been held to be valid by the Supreme Court in spile of the fact that it makes an incidental encroachment on the subject of lottery, a matter covered by List II. We have already said that the petitioner's scheme is a prize chit under the Central Act and not a lottery under the State Act. On this finding, no question of conflict arises. However, assuming that the petitioner's scheme is also a lottery as defined in the State Act, the ban contained in the Central Act must prevail and the licence granted under the State Act cannot take away that ban, for on the principle mentioned above in case oi conflict the Central Act will prevail over the State Act.
6. The learned counsel for the petitioner placed reliance on the Supreme Court decision in State of W. B. v. Swapan Kumar, AIR 1982 SC 949. That was a case which did not relate to a prize chit and the definition of prize chit was not considered in that case. The question in that case was whether the respondents had promoted a money circulation scheme as denned in Section 2 (c) of the Central Act in violation of the provisions of that Act. In the instant case, we are not dealing with any money circulation scheme but with prize chits. The decision in Swapan Kumar's case is, 'therefore, not helpful to the petitioner. The learned counsel also relied upon the cases of State of Bombay v. R. M. D. Chamarbaugwala, AIR 1956 Bom 1, and L. B. Paradise Lottery Centre v. State of Andhra Pradesh, AIR 1975 Andh Pra 50, for the proposition that the subject of all lotteries excepting lotteries organised by the Government of India or the Government of a State falls within the competence of the State Legislature under Entry 34 of List II. This proposition, however, does not help the petitioner for, as earlier explained by us, the petitioner's scheme is not a lottery and even if it were a lottery, being a prize chit it fell within the ban of the Central Act which will prevail over the State Act. The view that we have taken that in case of conflict the Central Act will prevail over the State Act is supported by the observations of Chinnappa Reddy, J., as he then was, in the Andhra Pradesh case that 'the exclusive power of the Legislature of a State to make laws even in respect of matters enumerated in List II is made subject to the power of Parliament to make laws with respect to the matters enumerated in Lists I and, III.'
7. The learned counsel for the petitioner then submitted that in cancelling the licence earlier granted under the State Act the Collector did not follow the rules of natural justice and the cancellation did not fall within any of the clauses of Section 9 of the State Act,Now, as regards natural justice, there is no doubt that before cancelling the licence already granted by him the Collector should have heard the petitioner but there is no point now in granting further opportunity to the petitioner after we have given full hearing on the question whether the petitioner's scheme comes within the scope of the ban enacted by the Central Act. As regards the argument that Section 9 of the State Act was not attracted, it is obvious that it is so, for the licence has been cancelled on the ground that it should not have been granted at all because the Collector had no jurisdiction to grant a licence in respect of a lottery which being a prize chit fell within the mischief of the Central Act for the ban under the Central Act could not be lifted by the Collector's licence. The initial order of granting the licence in favour of the petitioner was itself beyond jurisdiction and the Collector acting on the advice of the Director has merely revoked the licence which ought not to have been granted. In such a situation, the validity of cancellation is self-evident and cannot be assailed.
8. It was lastly contended that the Collector should not have directed the petitioner to refund the amounts collected by it from the members. The learned counsel submitted that there was no such power in the Collector. We are constrained to accept this argument. The petitioner's scheme was outside the State Act. By accepting contributions from members and running the scheme the petitioner contravened the Central Act. We have not been shown any power in the Collector under the Central Act to direct the refund of collections made by a promoter of a scheme which contravenes the Act.
9. The petition is partly allowed. We quash the order of the Collector issued in October 1982 (Annexure-E) by which he directed the petitioner to refund the contributions collected by it. In other respects the petition fails and is dismissed but without any order as to costs. Security amount be refunded to the petitioner