Online Gaming in The Wake of Evolving Stakes

Most States have modeled their own legislations on the key premise of the Act of 1867 of permitting games of skill but either prohibiting or regulating games of chance

Gambling has historically been seen not just as a mode of entertainment but also as a social stigma depleting the financial and qualitative standard of living of individuals. It has witnessed the regulatory roller-coaster since the pre-Independence era with the Public Gambling Act, 1867 which expressly prohibited the owning, running or being in-charge of a gaming house or even the act of participating in any form of gaming, whether for stakes or otherwise. However, games purely based on an exercise of skill were specifically excluded from the ambit of this legislation. Subsequently, the Indian Constitution segregated the subject whereby Lotteries were placed in the Union List, bringing it within the legislative prerogative of the Central Government while Betting and Gambling were placed in the State List. As a result, there is a multiplicity and consequent lack of uniformity in the laws pertaining to betting and gambling in India and each State is promulgating its own legislative regimen in this regard.

The modern-day penetration of gambling and betting into the virtual space and the proliferation of the digital economy, warrants a dive into the volatile legislative framework impacting not just the users and administrators of online gaming houses but also endorsers and brand affiliations thereof.

The Supreme Court in the matter of State of Bombay vs. RMD Chamarbaugwala (1957 AIR SC 699), for the first time, elucidated the difference between games of chances and skill in holding that games and competitions in which success and consequent earnings were not substantially dependent on the exercise of skill were essentially acts of gambling and such games could by no means be treated as practice of any trade, profession, occupation, or business embodied as a fundamental right under Article 19 (1) (g) of the Constitution.

Most States have modeled their own legislations on the key premise of the Act of 1867 of permitting games of skill but either prohibiting or regulating games of chance. The position in law on what constitutes a game of chance or skill, is evolving with judicial precedents and often overriding legislative provisions. For instance, the erstwhile gaming laws in Andhra Pradesh permitted games of mere skill, but the recent legislative amendments have completely banned both games of chance and skill played against a monetary stake. Surprisingly, this comes after the landmark judgment in the matter of State of Andhra Pradesh vs. K. Satyanarayana and Ors. (AIR 1968 SC 825) in which the Supreme Court formulated the test of preponderance to state that though all card games would involve some degree of chance, rummy predominantly involves the skill of holding and distributing cards and should be legitimized as a game of skill.

Similarly, the Tamil Nadu Gaming Act, 1930 prohibited all games against a monetary stake which was further extended to online gaming by the Amendment of 2020. However, the Madras High Court struck down the said amendment in the matter of Junglee Games India Pvt. Ltd. vs. State of Tamil Nadu (AIR 2021 Mad 252), on the grounds that rummy, poker and chess are games of skill with little difference between their physical and virtual versions and banning them would be ultra vires Art. 19(1)(g) of the Constitution. The Court explicitly restricted the State's power to legislate on betting and gambling to games of chance alone. Previously, the Supreme Court in the matter of Dr. KR Lakshmanan vs. State of Tamil Nadu (AIR 1996 SC 1153) emphasized the intent of gambling being to gain a reward over the amount played based upon a chance event and that it is the dominant element of skill or chance in the success of the players which determines the character of the game. Pursuant to the Madras High Court decision in Junglee Games and on the same principles, the Kerala High Court, in the matter of Head Digital Works Pvt. Ltd. vs. State of Kerela (2021 4 KLJ 738), has overridden the notification to the Kerala Gaming Act banning rummy played online against monetary stakes as ultra vires the Constitution. However, certain States like Assam, Odisha and Telangana continue to prohibit all kinds of gaming against stakes whether based on skill or chance.

At the same time, many of the North-Eastern States like Sikkim and Nagaland have taken a pragmatic view and brought in place a licensing regime to regulate participation in games of skill. While Nagaland has exhaustive licensing regulations for online games of skill only, Sikkim extends the same to games of chance such as online casinos through intranet gaming terminals, excluding access of local residents. Meghalaya is taking cue from both these States and is in the process of formulating its regulations. Further, Goa has always followed a liberal approach of permitting casinos and other games of chances through a valid license.

With the changing regulatory environment, superstars like Shah Rukh Khan are endorsing online gaming sites which remains a grey area from a regulatory standpoint. The 2017 Guidelines issued by the Advertising Standard Council of India (ASCI) imposes an obligation on celebrities to conduct due diligence to ensure that the claims endorsing prize competitions and lotteries are not false/misleading and the products endorsed are not contrary to the law. In 2020, ASCI issued further guidelines mandating specific disclaimers to be incorporated in advertisements of real money gaming. Further, the Consumer Protection Act, 2019 imposes penalties on endorsers for making misleading advertisements, unless exercise of due diligence by such to verify the claims, is proven.

The Online Gaming (Regulation) Bill of 2022 has sought to lay to rest, the legislative inconsistency with respect to online gaming. The Bill which has just been introduced before the Parliament attempts to create a centralized quasi-judicial body empowered to grant, suspend and revoke licenses to gaming operators on the basis of which they are permitted to carry on gaming activities against monetary stakes and makes a violation of the licensing regulations punishable with imprisonment. The Bill acknowledges the potential of foreign investment in this sector subject to conditions to be notified and exempts providers of backend hosting services for international gaming sites. The Bill however highlights the dichotomy of a central legislation attempting to bring uniformity in a largely contentious State subject. One has to wait and see if the Bill is able to see the light of day.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.