REGULATORY REGIME FOR RUNNING A PRIZE COMPETITION IN INDIA
Conduct of prize draws and competitions by sellers (herein referred to as the ‘Sponsor’) to attract customers and sale of their products is a common practice in India. Promotional schemes offering gifts, prizes, or other items free of charge on its closure is intended to entice customers to buy multiple packs of products sold by the Sponsor. The organizers’ of such prize draws and competitions should however assess if they are subject to certain central and separate state legislations concerning prize competitions.
This update is limited to the regulatory regime concerning prize competitions and doesn’t cover gambling, gaming or lotteries legislations or regulations applicable in India.
Central Legislation:
The Central Government has enacted the Prize Competition Act, 1955 (“PC Act”) to inter alia control and regulate the prize competitions. The term ‘prize competitions’ has been defined under section 2(d) of the PC Act as:
“any competition (whether called a crossword prize competition, a missing-word prize competition, a picture prize competition or by any other name) in which prizes are offered for the solution of any puzzle, based upon the building up, arrangement, combination or permutation, of letters, words or figures.”
The PC Act is not applicable to entire India but to certain identified states such as Andhra Pradesh, Orissa, Uttar Pradesh, Maharashtra etc.
Certain key provisions of the PC Act are as below:
a. PC Act prohibits any person from promoting or conducting any prize competition or competition wherein the total value of the prize or prizes (whether in cash or otherwise), to be offered in any month exceeds INR 1,000/- and in every prize competition, the number of entries shall not exceed 2,000; and
b. In case any person intends to promote or conduct any prize competition or competition wherein the total value of the prize or prizes (whether in cash or otherwise), to be offered in any month exceeds INR 1,000/-, such person needs to obtain license for promoting or conducting such prize competition, from the jurisdictional licensing authority.
In case any person promotes or conducts a prize competition in contravention of the provisions of the PC Act, then such person is liable to be punished with imprisonment for a term which may extend to 3 (three) months and/or with fine extending to INR 1,000/-.
State Legislations:
A few Indian states have also enacted legislations prohibiting or regulating the promotion or conduct of prize schemes or prize competitions within the respective jurisdiction of the state as discussed hereunder.
The state of Tamil Nadu has enacted The Tamil Nadu Prize Schemes (Prohibition) Act, 1979 (“TN PS Act”) which legislation prohibits the promotion or conduct of prize schemes within the state of Tamil Nadu. The prohibition under TN PS Act is wide and is also applicable to schemes such as prize draws wherein the prize or gift is determined by lot, draw or in any other manner from among those persons who purchase or have purchased goods or other articles from place specified by the sponsor of the scheme, and unlike the PC Act which regulates promoting or conducting of any prize competition with license, the TN PS Act prohibits all kinds of prize draws which are determined by lot, draw or otherwise pursuant to a purchase of goods.
The state of Maharashtra has enacted the Maharashtra Lotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958 and the Maharashtra Lotteries (Control and Tax) and Prize Competitions (Tax) Rules, 1958, which legislation aims to control and impose a tax on the promoters of the lotteries and prize competitions within the State of Maharashtra. For the purposes of the said legislation, the term “prize competition” has been defined as any prize competition under the PC Act.
The state of Gujarat has also enacted The Gujarat Lotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958, to control and impose tax on the promoters of the lotteries and prize competitions within the State of Gujarat. For the purposes of the said legislation, the term “prize competition” has also been defined as any prize competition under the PC Act.
The Mysore Lotteries and Prize Competitions Control and Tax Act, 1951 regulates and imposes tax on lotteries and prize competitions promoted or conducted within the State of Karnataka except Bellary District. For the purposes of the Mysore PC Act, the term “prize competition” has been defined as: “any competition (whether called a crossword prize competition, a missing word prize competition, a picture prize competition or by any other name) in which prizes are offered for the solution of any puzzle based upon the building up, arrangement, combination or permutation, of letters, words or figures.”
The West Bengal Gambling and Prize Competitions Act, 1957 (“WB PC Act”) regulates prize competitions1 within the state of West Bengal. The WB PC Act also requires the person promoting or conducting any prize competition or competition wherein the total value of the prize or prizes (whether in cash or otherwise), to be offered in any month exceeds INR 1,000/- to obtain a license from jurisdictional licensing authority.
Regard should also be made to the Consumer Protection Act, 2019 (“Consumer Act”) which defines an unfair trade practice as a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including a practice which inter alia involves:
· the offering of gifts, prizes, or other items with the intention of not providing them as offered or creating impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged, in the transaction as a whole.
· the conduct of any contest, lottery, game of chance or skill, for the purpose of promoting, directly or indirectly, the sale, use or supply of any product or any business interest, except such contest, lottery, game of chance or skill as may be prescribed.
· withholding the information about the results of the scheme from the participants of any scheme offering gifts, prizes, or other items free of charge on its closure.
Conclusion:
In view of the applicable regulatory regime of India governing prize competitions, conduct of ‘prize competitions’ within India is regulated. However, an essential element for being covered within the ambit of a ‘prize competition’ is that the prize is offered in lieu of or against the solution of any puzzle, based upon the building up, arrangement, combination or permutation, of letters, words or figures.
If the prize draw does not comprise of any crossword competition, a missing word prize competition, a picture prize competition or solving of puzzles, based upon the building up, arrangement, combination or permutation, of letters, words or figures, the said prize draw will not be covered within the ambit of the ‘prize competition’ and thus will not be regulated by the PC Act and/or the corresponding state legislations. However, in terms of the TN PS Act, the definition of ‘prize schemes’ has a wider ambit and in case the eligibility for participation in the prize draw proposed will be contingent upon an individual availing certain services provided by the Sponsor (or its partners, agents etc.) or the draw is from among those persons who purchase or have purchased goods or services from the Sponsor, then the residents of the state of Tamil Nadu will be excluded from participation in the proposed prize draw. It is common practice in India for organizers of any prize draw to state in the terms and conditions that residents of Tamil Nadu shall not be entitled to participate in the prize draw.
We may however add that the Sponsor will need to ensure that the proposed prize draw or competition does not promote sale, supply or use of its services or business interest, which may cause the conduct of such prize draw to be an ‘unfair trade practice’ in terms of the provisions of the Consumer Act read with the Consumer Rules.
Endnotes: -
[1]The term “prize competition” has been defined under section 19(d) of the WB PC Act as: “any competition (whether called a cross-word prize competition, a missing-word prize competition, a picture prize competition or by any other name whatsoever, whether of a similar nature or not) in which prizes are offered for the solution of any puzzle based upon the building up, arrangement, combination or permutation, of letters, words or figures.”
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