India’s Approach to Online Gaming and Gambling: A Legal Perspective

India’s Approach to Online Gaming and Gambling: A Legal Perspective

By Rishu Gautam, Associate Lawyer, Seth Associates

Keywords- Online gaming, betting , gambling, cyberlaw

Introduction

In the past few years, gaming and betting apps ,gambling apps have become quite popular. This  is because more people have internet access, cheap smartphones are easy to get, and there is a significant youth populace to engage in such activity for entertainment. Online gaming  in India has all sorts of options, from simple game apps to big-money online poker and fantasy sports. It’s a lively and ever-changing world. But as this entertainment has grown so fast, it’s also brought crucial legal issues and the imperative need to regulate this industry.

The Indian legal framework for online gaming and gambling is a complex tapestry woven from various laws, both at the Central and state levels. The Public Gambling Act of 1867, a relic from the colonial era, still serves as the cornerstone of gambling legislation in India, criminalizing most forms of gambling except lotteries and games of skill. However, the distinction between games of skill and games of chance remains a contentious issue, with courts frequently stepping in to interpret these terms in the context of modern gaming.

Adding to the complexity, several states have enacted their own laws to regulate or prohibit online gambling, creating a patchwork of regulations across the country. For instance, states like Sikkim and Nagaland have introduced licensing regimes for online gaming, while others like Telangana and Andhra Pradesh have imposed outright bans. Meanwhile, the Information Technology Act of 2000, primarily designed to combat cybercrime, also impacts online gaming by addressing issues related to data protection and cybersecurity.

Legal Analysis

Following the Indian Constitution’s ratification and implementation on January 26, 1950, there were divergent views on the subject of gambling. Gambling and betting were covered under State List Entry 34 (i.e., List II of the Seventh Schedule). This indicates that the only body with the authority to enact legislation governing betting and gaming is the state legislature. Given that lotteries are included in Entry 40, List 1 of the Union List, the Indian Parliament is the proper entity to enact laws governing lotteries. Furthermore, Entry 62 of the State List grants the state legislature the authority to enact legislation governing the taxation of gaming and betting.

What is Gambling?

To put it simply, gambling is defined as “an act where money or some other assets are kept at stake for a desired but uncertain outcome.” The main goal is to win as much as you can, but this is entirely dependent on chance.” Aside from that, there is a  ongoing debate about whether internet gaming and gambling are games of chance or skill in both the legal system and the gaming industry.

In Varun Gumber v. Union Territory of Chandigarh[1], the Punjab and Haryana High Court ruled that “Dream 11 and other digital fantasy sports games are not gambling since they require a significant amount of aptitude and skill.”

The Bombay High Court ruled in Gurdeep Singh Sachar v. Union of India and Ors[2], that a “player’s ability to employ his skill through better knowledge, judgement, and attention determines whether  he wins in the Dream 11 game. Fantasy sports like Dream 11 are therefore a game of skill.”

Laws Involved in Online Gaming In India

In India, there are regulations governing gaming. It consists of the IT Act of 2000, the Payment and Settlement Act of 2008, and the Public Gambling Act of 1857. Following independence, the majority of States passed state legislation controlling betting and gambling. West Bengal Gambling and Prize Competition Act, 1957; Bombay Prevention of Gambling Act, 1887; Punjab Public Gambling Act, 1961; Kerala Gambling Act, 1960; Goa, Daman and Diu Public Gambling Act, 1976; Sikkim Regulation of Gambling (Amendment) Act, 2005, etc. are a few of the state laws that have been passed in relation to gambling and betting activities. All states have passed laws outlawing gambling and betting, with a few notable exceptions such as certain card games and horse racing[3].

“Prize competition” is defined as “any competition, missing word prize competition, picture prize competition, or by any other name in which prizes are offered for solving a puzzle based on building up arrangement, combination, or permutation of letters, words, or figures” in Section 2(d) of the Prize Competition Act, 1955. Prize competitions with monthly prizes over one thousand are prohibited by Section 4 of the Act. According to section 6 of the Act, a license from the state government is required if the monthly sum exceeds one thousand. Therefore, using any of the aforementioned formats for a prize competition, alone or in combination, will subject it to the restrictions of the 1955 Prize Competition Act.

Penalties for operating establishments known as “Common-Gaming Houses” with the intention of conducting gambling activities or games with a chance component are outlined in Section 3 of the Public Gambling Act, 1867. In simple words, the Act outlaws gambling in its entirety, including internet gaming. Nonetheless, the Act clearly distinguishes between games requiring skill and gambling or games with only a chance component. The Public Gambling Act of 1867 states unequivocally in section 12 that no game of mere skill, wherever played, will be deemed to be covered by this Act.

Casino products, including table games, live dealers, and slots, fall under the category of “games preponderantly of chance” and are subject to prohibitions under most State Gaming Laws. However, the Goa Act allows the offering of electronic amusement/slot machines in five-star hotels in Goa, Daman and Diu, and Sikkim. The Sikkim Casino Act covers certain casino games such as roulette, casino brag, and blackjack.

Poker is recognized as a game of skill in some states, but others have designated it as a “game of chance.” The West Bengal Gambling and Prize Competitions Act, 1957 excludes poker from the definition of “gaming or gambling,” while the state of Nagaland categorizes poker as a game of skill. The High Court of Gujarat has opined that poker is a game of chance, but this matter is currently under appeal.

Bingo formats may fall either as lotteries or games of chance, which would be barred under most State Gaming Laws. Betting on horse racing is considered a game of skill and entitled to the skill games exemption under the State Gaming Laws. However, the Supreme Court’s judgment in Dr. K. R. Lakshmanan v. State of Tamil(996 AIR 1153) Nadu suggests that “betting on horse races exists independently as a skill game without relying on specific exemptions within the State Gaming Laws.”

In year 2021 Hon’ble Supreme Court in the case of Avinash Mehrotra v. The State of Rajasthan & Ors,(SLP (C) No. 18478/2020) has upheld the status of fantasy sports, including Dream11, as a game of skill, exempt from prohibitions under State Gaming Laws and protected as a legitimate business activity under the Constitution.

The Nagaland Act has enacted a licensing regime for offering skill games, including fantasy sports, and the Rajasthan Bill proposes to regulate online fantasy sports in the state.

Lottery Laws permit certain types of licensed private lotteries and authorize state governments to run them subject to conditions and regulations prescribed in the Lottery Laws. Currently, around 13 state governments in India offer lotteries.

Social/casual gaming is unlikely to be triggered in the absence of monetary or equivalent stakes, but platforms offering free-to-play games must abide by due diligence obligations prescribed by the Online Gaming Rules. Most State Gaming Laws have express exemptions for games of skill, but they must be duly verified under the Online Gaming Rules. The states of Telangana and Andhra Pradesh have banned skill games by making amendments to their respective State Gaming Laws.

By amending the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules 2021”), the Union Ministry of Electronics and Information Technology (“MeitY”), using the central government’s rule-making authority granted by the Information Technology Act, 2000 (“IT Act 2000”), established a new central legal framework for online gaming in April 2023. With reference to the baseline criteria prescribed by the Online Gaming Rules, these amendments (referred to as the “Online Gaming Rules”) propose a light-touch, co-regulatory regime in which independent self-regulatory bodies (“SRB”), recognized by MeitY, will verify whether or not a “online real-money game” is to be made available to the general public.

By classifying online gaming platforms as “online gaming intermediaries” (“OGI”) and imposing intermediary due diligence requirements on them under the IT Rules 2021, the Online Gaming Rules seek to regulate these platforms. “Any intermediary that enables the users of its computer resource to access one or more online games” is the definition of an OGI given in the Online Gaming Rules. Online games may be considered “permissible online games” under the Online Gaming Rules if they meet one of two conditions: (i) they are not real-money online games; or (ii) they are real-money online games but have been “verified” by an SRB in compliance with the basic standards set forth in the Online Gaming Rules as well as any additional standards set by the SRB itself.

Game of Chance vs. Skill

The issue of whether sports betting is a game of skill is pending before the Supreme Court in the   case. While there are arguments in favor of sports betting being a game of skill, the current perception is that sports betting is a prohibited gambling activity.

Hon’ble Supreme Court in the case of Dr. K.R. Lakshmanan vs. State of Tamil Nadu (AIR 1966 SC 1153) mentioned horse racing as a game of skill rather than game of chance. The Hon’ble Court observed as follows:

“Betting on horse racing or athletic contests involves the assessment of a contestant’s physical capacity and the use of other evaluative skills.¦ Horse racing is an organized institution. There is nothing illegal in horse racing: it is a lawful sport. We have no hesitation in reaching the conclusion that the horse-racing is a sport which primarily depends on the special ability acquired by training. It is the speed and stamina of the horse, acquired by training, which matters. Jockeys are experts in the art of riding. Between two equally fast horses, a better trained jockey can touch the winning-post. In view of the discussion and the authorities referred to by us, we hold that the horse-racing is a game where the winning depends substantially and preponderantly on skill.”

In the case of State of Andhra Pradesh vs. K. Satyanarayana (AIR 1968 SC 825), the Hon’ble Supreme Court held that – “The “three card” game which goes under different names such as “flush”, “brag” etc., is a game of pure chance. Rummy, on the other hand requires a certain amount of skill because the fall of the cards has to be memorised and the building up of Rummy requires considerable skill in holding and discarding cards. We, cannot, therefore, say that the game of Rummy is a game of entire chance. It is mainly and preponderantly a game of skill.”

In the case of State of Bombay v. RMD Chamarbaugwala(1957 AIR 699), it  has laid down that a game of chance is where the element of chance predominates over the element of skill, whereas a game of skill is where the element of skill predominates over the element of chance. The card games of rummy and bridge, along with other sports like golf and chess, have been classified as games of skill.

In R Shankar Creation Association v. State of Karnataka,(1996 AIR 1153) the Karnataka High Court classified poker, darts, carom and chess, among others, as games of skill.

The Punjab and Haryana High Court, the Bombay High Court and the Rajasthan High Court have classified daily fantasy sports, in the format offered by India’s leading operator, Dream11, as a game of skill. However, the applicability of the Bombay High Court judgment was stayed by the Supreme Court of India on 6 March 2020.

List of few online games and gambling and their legal status:

Conclusion

Indian consumers of online gaming and gambling need to beware as many states declare it as illegal.. Primarily, the Public Gambling Act of 1867 states gambling is illegal. Games that are purely chance based or betting are declared as illegal.

Online gaming and gambling in India face challenges due to outdated laws in todays tech world and differing state-specific regulations. While Sikkim and Nagaland have legalized online gaming, a national plan is needed to standardize laws across states and address new issues like data protection and player protection. A single set of rules could boost revenue, attract investment, and promote good values while maintaining societal health. India is navigating the balance between rules and freedom in the rapidly evolving gaming industry.

Bibliography

1. Online Gambling- The Legal Framework, AK Legal, September 11, 2023
2. Gambling Laws and Regulations India 2024, ICLG.com, 28/11/2023
3. Online Gaming or Online Gambling, Seth Associates
4. Skill vs. Chance: A Tale of Fantasy Sports in India, SS Rana & Co, May 15, 2023

[1] AIR 2017 P&H 237

[2] 2019(12) TR 2583

[3] Gaming and Betting Laws In India, Hariani & Co. Advocates and Solicitors