Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022: Tug of War continues

Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022: Tug of War continues

It is relevant to note that the Chhattisgarh Gambling (Prohibition) Act, 2022, was enacted with similar object and reasons to that of this Act, such as preventing the social evil of gambling and consequential financial trouble in families but it was done so in consonance with the orders of various courts in India

Background and Introduction

In 2021, the Government of Tamil Nadu had notified the Tamil Nadu Gaming and Police Laws (Amendment) Act 2021, which prohibited all forms of online games (including games based on mere skills) within the state. This amendment was challenged in the case of Junglee Games India Private Limited v. State of Tamil Nadu¹ (“Junglee Games Case”) wherein, the Madras High Court held that the blanket prohibition on all forms of online games, including games of mere skill, was ultra vires of the Indian constitution. Pursuant to the judgment of the Madras High Court, the Government of Tamil Nadu constituted a five-member committee under the chairmanship of Justice (Retd.) K. Chandru (“Justice Chandru Committee”) to advise on enacting a fresh legislation on the subject matter. Basis the report of the Justice Chandru Committee, the Government of Tamil Nadu promulgated the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Ordinance, 2022, which received the assent of the Governor of Tamil Nadu in October 2022. Subsequently, the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (“Act”) has been recently notified.

Key Highlights of the Act

a. Objects and Reasons: The Act is said to be enacted considering, inter alia, the effects of online gambling and online gaming addiction on the youth and families leading to suicide deaths and by extension, affecting public health, disturbing social order, and prejudicing maintenance of public order.

b. Prohibition of ‘online gambling’ and ‘online games of chance’: The Act prohibits ‘online gambling’, and ‘online games of chance’ with money or other stakes, as specified in the Schedule to the Act, which includes (i) Rummy, and (ii) Poker. These prohibitions also extend to any advertisement in relation to online gambling or games of chance. Further, banks, financial institutions and payment gateway providers are prohibited to engage in any transaction or authorization of funds towards payment for online gambling or any online game of chance.

c. Establishment of Tamil Nadu Online Gaming Authority and its functions: The Act provides for establishment of a five-membered Tamil Nadu Online Gaming Authority (“TNOGA”), under the chairpersonship of a retired officer not below the rank of Chief Secretary to the Government. The TNOGA is established to perform functions such as regulation of online games, registration of local online games’ providers and overseeing their functioning, identification of games of chance and recommendation thereto for inclusion in the Schedule to the Act, resolutions of grievances/ complaints against online games’ providers, etc. Further, the TNOGA has been empowered to make regulations to carry out the provisions of the Act and it has been vested the powers of civil court under the Code of Civil Procedure, 1908, which, inter alia, includes summoning and enforcing attendance, receiving evidence on affidavits, requiring discovery and production of any document, etc.

d. Regulations for local online games providers and non-local online games providers: The Act mandates compulsory registration requirements for local online games providers, and provides for revocation of registration certificate on grounds of misrepresentation or fraud, failure to comply with conditions therein, or contravention of provisions of the Act. The Act provides for establishment of an appellate authority consisting of the chairperson and two members of the TNOGA, to hear appeals arising out of the decisions of TNOGA in respect of suspension/ revocation of certificate of registration. In addition to similar restrictions posed on the local online games’ providers, non-local online games’ providers are required to exercise due diligence, as substantiated in the Act, and provide geo-blocking in the state, to prohibit playing of any online game contrary to the provisions of the Act.

e. Offences and Penalties: The Act provides for the following offences and penalties:

(i) For indulging in online gambling or online game of chance involving money or other stakes - imprisonment up to 3 (three) months and/ or fine up to INR 5,000 (Indian Rupees Five Thousand only);

(ii) For making/ causing advertisements in any media - imprisonment up to 1 (one) year and/ or fine up to INR 5,00,000 (Indian Rupees Five Lakh only);

(iii) For providing online gambling service or any online game of chance involving money or other stakes - imprisonment up to 3 (three) years and / or fine up to INR 10,00,000 (Indian Rupees Ten Lakhs only). However, any non-local games’ provider is only punishable by the Central Government in the exercise of powers under Section 69-A of the Information Technology Act, 2000;

(iv) The Act further provides punishments for repeat offences, and provisions for compounding, offences by companies.

Analysis: Classification of Rummy and Poker as ‘Game/s of Chance’

The Supreme Court, in the case of State of Andhra Pradesh v. K. Satyanarayana² (“Satyanarayana Case”), laid down a two-step test to determine whether an activity amounts to gambling – first, whether the game is mainly and preponderantly a game of skill, and second, whether the organisation conducting the impugned game is making any profit or gain from the activity in excess of nominal service charge. Nevertheless, whether a game is a game of preponderant skill/ mere skill is a question of fact, which is required to be decided based on the facts and circumstances of each case.

While Poker is accepted as legal through legislative/ executive actions in the states of West Bengal, Meghalaya and Nagaland, in the case of Dominance Games Private Limited v. State of Gujarat,³ the Gujarat High Court held Poker to be a game of chance, since it is a variant and has its roots from the likes of Flush, Brag and Teen Patti which are, by nature, games of predominant chance and thereby, considered it to be ‘betting and gambling’ and prohibited the same in the state of Gujarat.

The position in respect of Poker cannot be said to have attained finality and the same is still surrounded with ambiguities in respect of whether the same is a game of mere skill or not. Considering the foregoing, the fact that Poker is classified as a prohibited online game of chance under the Act, the same must pass necessary judicial scrutiny until it attains finality. Having said that, Rummy has been held as a game of mere skill at various instances by Indian courts, including the Supreme Court in the Satyanarayana Case, and thereafter, has attained finality and the same cannot be overruled by way of an amendment under a law framed by a State Government.

While state governments have exclusive legislative competence to regulate ‘betting and gambling’ under Entry 34 of List II (State List), Seventh Schedule to the Indian constitution, they are confined to regulating ‘games of mere chance’, and the said entry in the State List does not extend to ‘games of mere skill’. According to the Madras High Court in the Junglee Rummy Case, the state may legislate ‘games of skill’ under the subjects, inter alia, ‘Public Order’⁴, and ‘Sports, Entertainments and Amusements’⁵. Further, since the business of ‘games of skill’ has been recognized as a fundamental right to practise any profession, or to carry on any occupation, trade, or business, as guaranteed under Article 19(1)(g) of the Indian constitution, the states may even regulate the same under ‘Trade and Commerce’⁶. As have been held by the Indian courts,⁷ mere legislative competence does not empower the states to enforce a blanket ban on games of skill (in this case, Rummy) under the garb of ‘reasonable restrictions’, rather such actions of the states must be tested against reasonableness, arbitrariness, as well as being in proportion to their object.

In light of the foregoing, classification of Rummy as a prohibited online game under the Act, can be said to be overreaching and an attempt to bypass the judgments/ orders of the Supreme Court.

Conclusion

Recently on March 23, 2023, the Chhattisgarh Gambling (Prohibition) Act, 2022, was notified by the Government of Chhattisgarh, which prohibits offline and online gambling as well as advertisements in electronic or print media in respect of gambling, wherein chance prevails over the skills. Nevertheless, the Act specifically excludes the application of its provisions to any ‘game played for mere skill’ and only applies to ‘games of chance and luck’. It is relevant to note that the Chhattisgarh Gambling (Prohibition) Act, 2022, was enacted with similar object and reasons to that of the Act, such as to prevent the social evil of gambling and consequential financial trouble in the families, it was done so in consonance with the judgements/ orders of the Supreme Courts and other High Courts of India. At this juncture, it is rather necessary for the courts to not only decide on the legislative competency of the subject matter vis-à-vis Centre and state, but also decide the limits of such powers, to settle this tug of war, once and for all.

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