CAG pulls up private lottery companies associated with Subhash Chandra-led Essel Group for gross irregularities in payment of proceeds of lottery sale to Mizoram state

CAG pulls up private lottery companies associated with Subhash Chandra-led Essel Group for gross irregularities in payment of proceeds of lottery sale to Mizoram state

Mumbai,June24: The Comptroller and Auditor General of India (CAG) has slammed four private companies – one of which is closely associated with the Subhash Chandra-led Essel Group and whose majority shareholders include Chandra’s son and brother – and Mizoram government officials for gross irregularities in the way the state’s lotteries were held from 2012-2015.

The more serious of alleged violations? The non-deposit of of money that was due to the state exchequer – to the tune of Rs 11,808 crore – and the decision to go with a flawed revenue-sharing model. Both of these decisions “resulted in substantial loss of revenue to the state government and large financial benefits to the distributors”, according to the auditor’s report.

The CAG has also charged the lottery ticket distribution firms and state government officials with  favouritism in the process of awarding tenders for organising the lotteries, tax evasions and other flagrant violations of the Lotteries (Regulation) Act 1998 and Lotteries Regulation (Rules), 2010.

The national auditor, which examined the Mizoram state lotteries from the period 2010-11 to 2014- 15, has further stated that the violation of rules by the four companies could have resulted in a loss of thousands of crores in revenue to the Mizoram government – to put this in context, the state’s budget this year is Rs 8,000 crore.

The Wire sent a detailed questionnaire to Essel Group officials and will update the story if and when a response is received.

Key points

The CAG report on Mizoram state lotteries has been unsparing in its criticism of opaque manner in which tenders have been awarded. According to the report, tenders were awarded for conducting paper and online lotteries to four entities – M/s. Teesta Distributors, E-Cool Gaming Solutions Pvt. Ltd., M/s. NV International and Summit Online Trade Solutions Pvt. Ltd – without following the Central Vigilance Commission’s guidelines.

The CAG alleges that these tenders were awarded on an arbitrary basis and not to the entities which assured the highest share of revenue from sale of lottery tickets to the government.

The report, almost comically, outlines how one of these distributors (NV International) did not actually have any infrastructure of its own to market online lotteries – but instead appointed a sub-agent which “further sub-let the draw rights to E-Cool and Summit Online”, which is in violation of their own agreement with the Mizoram state government.

What do we know about E-Cool Gaming? Media reports from as far back as 15 years ago describe it as wanting to corner the online lottery business and identify it as an Essel Group company. Notably, as per the CAG, the majority shareholders in E-Cool Gaming Solutions are Chandra’s son Amit Goenka and his brother Ashok Goel – both of whom occupy senior positions within the Essel Group.

Further, the report shows a close connection between E-Cool and Pan India Network Ltd., a lottery company which Chandra prominently claims to be part of his conglomerate and which his son Goenka heads.

As per the CAG report, E-Cool, after having received the tender has sub-contracted the right to conduct lottery draws in Maharashtra, Punjab and Sikkim to Pan India. Further, from the observations of the CAG, it appears that Pan India was paying charges for lottery sales to the Maharashtra and Sikkim governments.

As per the Essel Group website, it operates lotteries under the brand-name of Playwin through Pan India. ‘Playwin is the lottery & gaming brand of Pan India Network Ltd., part of the Essel Group. Pan India Network Ltd. is in the business of providing infrastructure, data communication, marketing support and service to facilitate a secure online lottery network’ the website reads.

Chandra in his autobiography The Z Factor:My Journey as the Wrong Man at the Right Time has also mentioned Pan India as one of his key group companies, which has an annual turnover of more than $400 million.

The CAG also notes that the companies who have been awarded the tenders have not deposited the proceeds from the sale of lottery tickets to the consolidated fund of the state, as required under the Lotteries (Regulation) Rules, 2010. The CAG report also states that out of the sale of lottery tickets of Rs 11,834.22 crores, only Rs 25.45 crores was deposited in the state exchequer. This non-deposit of the balance Rs 11,808 crores, the report says, is in gross violation of rules and caused severe loss of revenue to the state exchequer.

Lottery: State versus Centre

How did India’s states start regulating their own lotteries and what is the legal framework in which they operate?

The framers of the Indian constitution decided to separate lotteries organised by the state or central government from other forms of gambling and betting. Thus, while gambling and betting is a state subject, the power to regulate lotteries conducted by state governments and inter-state sale of state lotteries rests with the Centre.

The rationale behind separating lotteries from other forms of gambling and betting was to allow states to augment funds and resources for their social schemes using lottery schemes.

Kerala was the first state post-independence to start their lottery schemes in the year 1968. Various other states like Maharashtra, Karnataka, West Bengal and Tamil Nadu have at various points of time operated their own lottery schemes.

Until 1998, there was no regulation of lotteries conducted by state governments. Consequently, lotteries authorised by one state government could be sold anywhere across India. State governments therefore used to award tenders to private lottery companies to conduct lottery schemes on their behalf, and market them across India.

Parliament passed the Lotteries (Regulation) Act in 1998 which imposed limits on the number of lottery draws a state government can conduct, allowed state governments to restrict lotteries conducted by other states, required lotteries to imprint state government’s logo, banned single digit lotteries and provided many other constraints.

Videocon, Essel and Essar

The Supreme Court in 1999 read down the provision of the Lotteries (Regulation) Act allowing state governments to ban lotteries promoted by other states. The apex court held that a state government can only ban lotteries conducted by other states if they chose not to conduct their own lotteries, i.e. either a state can ban all lotteries or conduct its own lottery schemes but also allow other states or their authorised distributors to sell lotteries within their territorial boundaries.

In the late 90s and early 2000s, the lottery trade surged with a number of state governments freely awarding tenders for conducting lotteries. Among the big industrialists who forayed in the lottery business were companies linked to Videocon’s Venugopal Dhoot, Ispat’s Pramod Mittal (brother of Lakshmi Mittal), Essar’s Ruia brothers and former IPL Commissioner Lalit Modi.

One of the early movers in the lottery business was Subhash Chandra – the chairman of the Essel Group who in 2016 became an independent Rajya Sabha MP with the support of the BJP.

Chandra secured tenders to sell lotteries from the Sikkim government and pioneered the concept of ‘online lotteries’ under the brand name ‘Playwin’. Playwin lottery draws with the popular tagline ‘Khelo India Khelo’ were widely televised in the late 90s and early 2000s on his Zee television network.

The lottery trade, however, began to dwindle after the early 2000s as allegations of fraud, rigging of tenders and tax evasion began to galore. While most big corporate houses exited the lottery business amidst this uncertainty and the decision of most major states to ban all forms of lotteries (Maharashtra, Punjab and West Bengal being the notable exceptions that still give tenders to private distributors), Essel Group was the only major business conglomerate to continue their lottery business despite allegations of industry fraud and other irregularities.

Delays in investigation

The CAG report also describes the the failure of the Mizoram government to clearly monitor and regulate the lottery. It, crucially notes, that the state neither had any control to nor access to the central or mirror servers used for generating online lottery tickets, the online lottery system used by the four companies were susceptible to cheating and manipulation. Further, there appears to have been a distinct possibility that numerous lottery tickets bearing the same number were issued in a particular draw, raising doubts about the integrity and fairness of process of awarding prizes to the winners.

These startling facts presented by the premier audit body point to a need for a deeper investigation into the operations of the private lottery distributors. Surprisingly however, despite the staggering losses projected by the CAG, law enforcement agencies and the government do not seem to have taken note, despite the report having being table in the legislative assembly over six months ago – in December 2016.

Over the last few months there has been some agitation over this issue, with political parties and civil society groups in Mizoram demanding a CBI investigation.

When this author lodged a RTI request with the ministry of home affairs, it stated that it would consider tightening the Lotteries (Regulation) Rules on the basis of the CAG report findings. However, to date, no further steps have been taken by the Mizoram government or the Centre to recover the undeposited money or to bar rogue lottery distributors.

Top