Abstract: The Online Gaming (Regulation) Bill 2022, was introduced as a private member bill in the Lok Sabha in March 2022, rekindling the discussion about the controversial state laws and much require federal laws to regulate online gaming in India. The blog aims to shed a light on the features of the bill, its drawbacks and challenges faced by the legislature both at state and central level when it comes to regulating the online gaming playgrounds by analysing the existing jurisprudence and prevailing controversies in the light of attempts made by several state government to regulate/prohibit online gaming.
Keywords: Online Gaming, Skills, Chance, Fundamental Rights, Betting and Gambling.
India’s place as one of the world’s fastest growing online gaming markets was solidified in 2021. The revenue in the Online Games segment is projected to reach US$0.83bn in 2022. The COVID-19 epidemic has compelled everyone to acclimate to the new normal, resulting in an unavoidable increase in the use of digital devices in all aspects of life, from work to sociability. We’ve also discovered new methods to occupy ourselves online, such as OTT platforms and online gaming. While internet gaming is enjoyable, it has a number of legal, social, psychological, and financial ramifications. Given the rapid expansion of India’s online gaming business, adequate standards for its safe usage are required.
Despite its phenomenal expansion, the business continues to suffer regulatory uncertainties at the state level. Certain states altered their laws to make all forms of for-profit gambling illegal. High Courts have intervened and declared several of these reforms unlawful, giving the skill games operators a reprieve.
Legislating Online gaming:
States have the right to regulate ‘betting and gambling’ under the Constitution. As a result, the legislation differs from state to state. In the majority of Indian states, “skill gaming” is exempt from gambling prohibitions. Some states, such as Goa, allow legal brick-and-mortar gambling, while others have enacted legislation to govern internet gaming.
In the case of RMD Chamarbaugwala and Anr V. UOI and Anr, the Supreme Court acknowledged that playing games of skill is a legal activity within Article 19(1)(g) of the Constitution, which guarantees right to explore any profession, trade, or business. Despite this ruling, several states, including Telangana, Andhra Pradesh, Kerala, and Karnataka, have recently attempted to restrict skill games.
In October 2021, the Karnataka proposed the Karnataka Police (Amendment) Bill, 2021 to alter the Karnataka (Police) Act, 1963 provisions. Both offering and engaging in online digital games, including skill games, is illegal within the amendment. Karnataka being one of India’s most populous states and a hub for technology sector, making it a vital market for operators, the Amendment’s introduction was a major setback for the sector.
Upon its implementation, numerous skill gaming companies contested the amendment’s validity in the Karnataka High Court. The proprietors claimed that the amendment was illegal because it intended to outlaw skill games, among other things. Providing games of skill is allowed by the Constitution’s freedom of commerce and enterprise rights, according to judgement of Supreme court in RMD Chamarbaugwala.
The Hight court, struck down the amendment observing that “games of skill (involving risking of money or otherwise) do not amount to wagering or betting, and therefore are protected under Article 19 of the Constitution” ergo the amendment was ultra vires.
The decision of Madras High Court in Junglee Games India Private Limited V. State of Tamil Nadu which struck down struck down the amendment to the Tamil Nadu Gaming Act, 1930, banning online gaming for being unconstitutional, could be the most helpful jurisprudence on this aspect, as the court very meticulously analysed the legislative competence of the state to regulate online gaming. The court while declaring the amendment unconstitutional noted that:
- The State’s legislative authority to pass legislation on ‘betting’ and ‘gambling’ have to be interpreted together to include only wagering on gambling activities, without including skill gaming.
- The State lacks the legislative authority to regulate games of skill underneath the headings of ‘public order’ and ‘police,’ because games of skill have already been ruled by the courts to be economic activities protected under Article 19(1)(g) of the Constitution.
- While the Directive Principles of State Policy of the Constitution forbid the sale of alcoholic beverages and dangerous substances, as well as the killing of cows, there is still no stated or implicit bar on gambling. As a result, the court appears to imply that the framers of the Constitution certainly didn’t intend to outlaw gambling.
- Because internet skill gaming is a constitutional right, only reasonable limits on the freedom to provide and engage in it may be applied on only few grounds.
- The State’s limits on entirely outlawing games of skill were severe and tantamount to authoritarianism, and the Government had not shown that it had investigated less stringent options, such as the viability of controlling games of skill. The court further noted that the state had not established an Expert Panel to undertake a scientific inquiry and empirical research on the alleged negative impacts of online gaming in the context of the state’s socioeconomic and cultural environment.
New and improved legislation:
Learning from its mistake, recently Tamil Nadu promulgated an ordinance prohibiting online gambling and regulate online games. The govt’s decision is believed to be in line with the suggestions of the Madras high court, enumerated in the decision of Junglee Games. The ordinance is based on the report of the committee headed by the retired Justice K. Chandru, for suggesting new online gaming legislation to the government.
The recent ordinance reiterates the current prohibition on internet gambling, which includes playing any games of chance for stakes. The ordinance defines ‘game of chance’ as games where the influence of chance overrides skill or where the influence of chance can only be eradicated by extraordinarily high skill, and in an attempt to make the definition more precise, it goes on to say that there is no exception made for games of chance that involve cards, dice, wheels, or any other device that functions on random or event generator. Though the bill still doesn’t address few major questions, such as whether, online fantasy games would be included under the definition and leaves plenty of room for uncertainty.
The ordinance adds an extra level of protection by providing for complete prohibition on advertisement (direct or indirect) which encourage or incite anybody to participate in online gambling or to play specific games of chance for stakes.
And most importantly, a significant aspect of the ordinance is the establishment of the “Tamil Nadu Online Gaming Authority” as a regulator to supervise the operation of online gaming service providers and designate games of chance.
Furthermore, recently Meghalaya passed the Meghalaya Regulation of Gaming Act, 2021 (“Meghalaya Act”), establishing a licencing scheme for both game of Skill and Game of chances. While the Meghalaya Act outlined the basic features of the licencing scheme, it allowed the details to also be drawn out by the Meghalaya Act’s rules.
The Meghalaya Regulation of Gaming Rules, 2021 (“Meghalaya Rules”) was later enacted by the state authorities. The state Rules establish (1) eligibility criteria for licence applicants, (2) the procedure for applying for a licence, (3) the operation for granting a licence, (4) basis for licence suspension/cancellation, (5) licence predisposing factors, (6) licence fees, (7) the formation and structure of the Meghalaya Gaming Commission, (8) requirements for marketing games, (9) borrowing limits for players, and (10) a dispute redressal process among licensees and players, among other items.
A licence will only be awarded to an Indian citizen or a legal business formed in India, according to the Meghalaya Act. If an application for a licence is a firm or company, the majority share must stay in India, and all executive decisions have to be made in India, according to the Rules. In addition, licensees must open an office in Meghalaya within 30 days of receiving their license.
Regulating and Not Prohibiting Skill Gaming:
Telangana, Andhra Pradesh, Tamil Nadu, and Karnataka sought to prohibit all real-money gaming activity (including skill gaming), while the state of Kerala sought to prohibit Rummy when started playing for stakes, referencing concerns such as gambling problems among players, economic damage, and suicides. All of these laws have been challenged and quashed by the high courts on the grounds that they are unconstitutional.
Hight courts while striking down such law have placed their reliance upon the decision of the supreme court in the case of KR Lakshmanan V State of Tamil Nadu and Anr, in which the it had determined that games of skill were separate from games of chance and then were safeguarded under Article 19(1)(g) as economic activities. The Supreme court observed that for a game to considered as a game of skill when the success of the game predominantly depends upon (1) superior knowledge, (2) training, (3) attention, (4) experience and (5) adroitness of the player. The test has been since used to determine whether the game is of a skill or of chance.
Talented players have the right to utilize their abilities and earn a living from them, and only justifiable limitations should be placed on that right. In the case of online games played for skill, the prohibition enacted in the state cannot fully barred any possibility to develop such talents, and if it does, the restriction would irrational to the point of being clearly arbitrary, especially in light of the Supreme Court’s rulings, and thus in violation the Constitution. Gambling had been judicially defined to entail betting or wagering on games of chance, meaning that the legislative competence of the state, is restricted to that extent.
Taxing Online Gaming:
On May 24, 2021, the GST Council established a committee comprising of ministers on casinos, racetracks, and online gambling specifying the terms of reference:
- Analyse the question of the taxation of some casino operations and the assessment of services offered by casinos, racetracks, and online gambling portals.
- Examine if a legal change is necessary for a more accurate value of these services.
- Study the influence on certain similar services, such as the lottery.
According to sources, the government may adopt a single tax rate for online gambling towards the end of this year, eradicating the distinction between games of skill and games of chance from the GST standpoint.
The Online Gaming (Regulation) Bill 2022.
The Online Gaming (Regulation) Bill, 2022 was introduced this year in Lok Sabha in March 2022. Though there are very high possibility that the bill might not be able to see the light of the day but it does draw the attention and opens the door for consultation and consideration for a centre sponsored law to regulate online gaming in India. The bill’s Statement of Objects and Reasons made clear that it was submitted for the dual goals of maintaining online gaming credibility and establishing a regulatory framework for the industry.
Any game played on an electrical gadget, such as a personal computer, a mobile phone, a tablet, or another device, falls under the Bill’s classification of “online gaming.” It is clear that the Bill seeks to oversee all games played on this digital equipment because the term does not distinguish among “game of skill” and “game of chance.”
The establishment of an online gaming commission by the federal government is envisaged in Section 3 of the bill. This commission would have the power to regulate the operations of the online gaming sector, provide studies on relevant topics, recommend actions to stop unlawful online gaming, award, suspend, and revoke licences for online gaming websites, and set fees for licence applications and renewals. This provision is comparable to The Sports (Online Gaming and Prevention of Fraud) Bill, 2018, which was not approved by the parliament due to its unclear language.
Section 3 of the 2022 bill has attracted some controversies because it would be challenging for the centre and the state to establish a central body to control online gaming without being clear about what kind of game it would be regulating as clearly gambling and betting are state matters under Entry 34. However, the central government is authorised as per Article 249 of the constitution to enact laws that serve the interests of the whole country with regard to issues on the state’s list. However, even if the central government used this authority to control gaming and betting, it would just create further uncertainty given the vagueness and inconsistencies in the bill.
The Road Ahead.
Learning from the Tamil Nadu’s approach other states may follow the pursuit of regulating online game, incorporating the caveats and advice numerated in various judicial decisions. But it’s going to be a very treacherous path as the states have to be very careful as to where they draw the line between game of skill and chance and must take in consideration the opinion of all the stake holders as well as industry experts.
Moreover, there are ways in which the federal government too could make laws without violating the legislative territory of the state government. Under Entry 31 of List, I which give the centre exclusive power to legislate on the matters of posts and telegraphs; telephones, wireless, broadcasting and other. The Parliament has the legislative authority to enact a law addressing online betting and gambling since they are offered and played over media covered under this entry, according to the Law Commission of India’s report on “Legal Framework: Gambling and Sports Betting Including in Cricket in India.“
The state and the federal government must work to implement a codified framework to streamline the operation of online gaming platforms rather than outright prohibiting them because doing so would be clearly against the constitution. This is because they are aware of the regulatory dilemma in this industry.
More foreign direct investment will be attracted to a transparent and well-regulated environment. It would not only strengthen this industry, but it will also bring openness and operator responsibility to Indian laws. It will also assist customers in engaging in gaming in a responsible, transparent, and safe environment that is governed by regulations.
( This post has been authored by Priyansh Priyadarshi, a fourth-year law student from Chanakya National Law University, Patna.)
Cite as: Priyansh Priyadarshi, ‘Regulating the Playgrounds’ (The Contemporary Law Forum, 9 December 2022) <https://tclf.in/2022/12/09/regulating-the-playgrounds/> date of access.