India - Regulating Online Gaming: A Moral Dilemma.
Legal Analysis & News - Asia Pacific - India - Regulatory & Compliance
15 November 2021
The Indian online gaming industry is growing at a fast pace. The Indian gaming industry stood at US$ 930 million in 2020 and is expected to reach US$ 3.8 billion by 2024. The online gaming market in India is projected to reach Rs. 155 billion (US$ 2.12 billion) by 2023, from Rs. 76 billion (US$ 1.08 billion) in 2020, due to rapid increase in consumption. In India, each state has the power to make its own betting and gambling laws. List- II of Seventh Schedule of the Indian Constitution empowers the state governments with the power to legislate on matters concerning gambling and betting.
The Public Gambling Act, 1867(“the Act”) is the central enactment which has been adopted by some states in India. Other states have enacted their own legislation to regulate and govern gaming/gambling activities within their territory. Section 12 of the Act provides the act does not apply to any “game of skill” wherever played. However, there has been issues arising on the determination of the “game of skill”. The judiciary has interpreted games into two categories to differentiate them i.e. Game of Chance and a Game of Skill.
The Supreme Court in the case of Dr. R. K. Lakshmanan v. State of Tamil Nadu1 defined ‘game of skill’ as “one in which success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player“. The Court pointed out that a game of chance is one in which the element of chance predominates over the element of skill and similarly a game of skill is one in which the element of skill predominates over the element of chance. It is the dominant element – “skill” or “chance” that determines the true character of the game. The Supreme Court recognized, in the aforesaid judgement, that horse racing, football, chess, rummy, golf and baseball are games of skill. The Supreme Court further held that betting on horse racing was a game of skill as it involved judging the form of the horse and jockey, and the nature of the race, among other variables.
Presently, with the increasing penetration of the internet and the subsequent boom in on-line gaming the question that arises is whether on-line gaming is a “game of chance” or a “game of skill”. In India there are only two state legislation which regulate online gaming i.e. the Sikkim Online Gaming (Regulation) Act, 2008 and the Nagaland Prohibition of Gaming and Promotion and Regulation of Online Games of Skill Act, 2016. There used to be no statute which directly regulates or prohibits such activities in other states. Thus, legality of online games was determined by the skill versus chance test developed by the Supreme Court. The test is subjective and different courts have applied it differently.
Recently however, the Government of Karnataka notified the Karnataka Police (Amendment) Act 2021 (“KPA Act“). Section 2(7) of the KPA Act defines “gaming” to include online games involving wagering, betting and gambling of all nature and forms in the state which has been prohibited making an exception of wagering or betting in connection with horse race run in a race-course. As per the KPA Act operation, abetting or sheltering of online games involving exchange of money, betting and wagering is a cognizable and non-bailable offence with imprisonment of the term of up to three years and fine of up to Rs 1 lakh, for the offenders2.
Bengaluru is home to about 91 start-ups engaged in the online gaming sector employing about 4000 people. Consequently, there has been an uproar against the ban on the on-line games as several online game operators had to temporarily stop extending services to Karnataka. The main contention against the KPA Act is that it prohibits all forms of online games and does not provide for the distinction between “online game of skill” and “online game of chance”. This is against the current set of legal principles laid down by the Supreme Court with respect to online gaming.
The contention of the government, in all instances, have been that teenagers and adults were losing their entire earnings in online gaming. They further reiterate that rummy might be a game of skill but when stakes are involved it becomes gambling i.e. a game of chance.
In a similar case, the Kerala High Court struck down the ban on online rummy3stating that online rummy was a game of skill. The Madras High Court also struck down a similar ban on online gaming like rummy, poker with stakes stating that it was violative of Article 19(1)(g) of the Constitution of India which allows people to practice any profession or to carry on any occupation, trade or business.4
The online gaming industry acts as a technology enabler and facilitates gameplays through internet platforms. In Karnataka the gaming industry is a huge as it generates considerable amounts of revenue and employment. However, the online game industry is also considered to be a danger to society by the government. In addition, there is chance of money laundering as there is no clarity on the source of the prize competition money. It is a moral dilemma for the government on whether to regulate or ban online gaming as the gaming industry is generating enormous revenue on one hand and on the other hand the gaming industry is considered to be a menace to society especially children who get addicted particularly during the times of the pandemic. In our view, a prudent way forward would be to consider regulating online gaming instead of a total ban. Such regulation would also set right the discrepancies in the law governing different states.
This article discusses the legislation regulating the gaming industry and the judicial approach in deciding the “Game of Chance” and the “Game of Skill”. Authored by Mini Raman & Angelina Talukdar, the article further discusses the Karnataka Police (Amendment) Act 2021, which prohibits online gaming and the approach taken by the judiciary in other states while deciding the legality of online gaming.
For further information, please contact:
Mini Raman, LexOrbis
1. AIR 1996 SC 1153
2. Amendment to Section 80 (i), Karnataka Police (Amendment) Act 202.
3. Play Games 24 X 7 Private Limited vs State Of Kerala, W.P.(C)Nos.7785, 7851,7853 & 8440 of 2021.
4. Junglee Games India Private Limited and Ors v. State of Tamil Nadu, 2021 SCC Online Mad 2762.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.