Introduction
The gaming sector has seen a bourgeoning growth during the pandemic, and India does not have a comprehensive legal framework in place to promote the industry. Technology has far outpaced regulation. Gaming laws in India remain dated, and as a result, their application to online structures remains complex. The dichotomy between the centre and states coupled with divergent views of various courts in India make it difficult for companies to have clarity on permitted activities in the sector.
The market value of India's gaming industry was around INR 90 billion in financial year 2020. This was estimated to go up to over INR 143 billion by 2022. The industry has been evolving at a rapid pace in the country, and analysts predict over 40,000 new job opportunities by 20221. Online gaming will touch 500 million users by 2025 in India2
The primary central legislations dealing with gaming laws in India are the Public Gambling Act, 1867 ("Gambling Act") from as far back as the British rule in India and the Prize Competitions Act, 1955 ("Prize Act"). Current Indian jurisprudence builds on the anti-gambling rhetoric prevalent at the time of enactment of the Gambling Act. The Gambling Act is applicable in 16 states and union territories, and excludes games of skills from its purview. List II of the Seventh Schedule of the Constitution of India empowers state governments to regulate laws in relation to betting and gambling. Various states have mirrored the archaic provisions of the Gambling Act and a majority of states prohibit betting on games of chance, which is construed as gambling, while permitting engagement in games of skill. Where state legislations exist, they override the provisions of the PGA. Courts have also mirrored this view, discouraging society from taking part in games of skill and historically treated gambling as a sinful and pernicious vice. Coupled with this, courts have held that gambling is excluded from the ambit of Article 19 (1) (g) of the Constitution of India which provides that the freedom to conduct business is a fundamental right. The lack of certainty in permitted activities makes it extremely difficult for gaming companies to operate in India.
To further complicate matters, states also have divergent views for online and physical versions of the real money games, e.g., in Kerala betting with stakes for rummy is permitted in physical parlours but not online. The State Law Commission of Uttar Pradesh3 has introduced a draft bill including online gaming. Press articles indicate that the State Government of Karnataka also made a submission to the Karnataka High Court of its plan to enact a legislation on online betting and gambling soon.
Multiplicity of legislations in the country is currently proving to be a challenge for gamers and the gaming companies alike. Since all online gaming requires is a phone, tablet, PC or laptop and internet, the location and legality of different state laws is an inconvenience and deterring to many. This is not at all encouraging and makes it difficult to promote growth in a sector that can create incomes, both as employment income and professional gaming income – a very lucrative new age career. There are subjective tests for poker, rummy, bingo, horse-racing, fantasy sports, etc.
The gaming industry is witnessing a paradigm shift with the evolution of television, digital and online gaming models. Post demonetisation, digital online payment systems have provided a boost to the online gaming industry. The Madras High Court had urged that it is essential to have a regulatory framework to deal with online gaming4.
A step in the right direction – the Advertising Standards Council of India ("ASCI") introduced guidelines to make real-money gaming advertising safer and more responsible including highlighting the financial risks associated with real-money gaming. Additionally, an advisory from the Ministry of Information and Broadcasting requires gaming advertisements to carry adequate disclaimers, not advertise to minors, and not pose gaming as an income opportunity. Niti Aayog has published a draft of the guiding principles for the uniform national-level regulation of online fantasy sports platforms in India and recommended that there should be uniformity and certainty in the legal framework in this sector.
Gaming or Gambling – Legal or Illegal? That is the Question
Games in any form are enjoyed by all age groups as a form of recreation including gambling. Certain games such as hockey, football and cricket to name a few are also played professionally for large amounts of prize money, for many years. The Indian epic, the Mahabharata, has a wager at its crux. The Pandava's loss in a game of dice elucidates how playing a game of chance for stakes is addictive and can be a lifechanging experience. Despite the loss of the Pandavas, playing cards for stakes, e.g., Teen Patti on Dhanteras still remains a time revered tradition in parts of the country.
India's current gaming laws are dated and based on morality stemming from principles prevalent in the 1800s, which are not applicable in current times. Today, addiction is the heart of the problem with gaming. If individuals could exercise restraint and play games in moderation, regulation would not be required. However, human nature is not such. Therefore, the government steps in to regulate and restrict activities which require control. Most jurisdictions, do however, focus on the distinction between games of chance and games of skill to regulate this area. But do we need a big brother to protect the few who cannot control themselves? To what extent should our laws impinge on our freedom of choice? These are all very relevant questions to be considered in today's tech world and online gaming takes the center stage. It provides both recreation to the public at large and income to employees and professional gamers. The first step, therefore, is to understand the difference between a game of chance and a game of skill.
Black's Law Dictionary defines gaming as "[t]he practice or act of gambling"and further states that "the presence of price or consideration, chance and prize or reward" are the elements of gaming5. Gambling has been defined by the Black's Law Dictionary6 as "making a bet" and the elements of gambling are "a payment of a price for a chance7 to win a price."
It is therefore clear that the key ingredient of gambling is the element of chance. What then is chance? Chance would be something based on luck which does not require skill or effort being expended. One could, however, argue that waking up each morning is a chance, crossing the road without being hit by a truck is chance – though the odds of this happening may be low. Similarly, trading on the stock market is based on luck, though coupled with a large element of skill there is still a smaller element of chance. Getting a bumper crop in agriculture may also be based on a higher element of chance due to a good monsoon. However, these activities are neither banned nor controlled.
Games of skill are largely permitted globally. But the test is subjective. In India, where gaming is regulated by the states which all have differing positions on gaming. Gaming companies face large uncertainties. It is essential therefore, to have a unified framework for certainty on permitted activities, on an objective basis for the gaming sector to grow.
The landmark judgment in interpretation of gaming laws in India is of R.M.D. Chamarbaugwalla v. Union of India8 where the Supreme Court held that the competitions in which skill is the main deciding factor of the outcome of the competition are not prohibited under the provisions of the Prize Competition Act. This test has been honed further in the case of Dr. K.R. Lakshman v State of Tamil Nadu9 where the court held that the: (a) test of predominance of skill is applied as set out in to validate the nature of the game; (b) where skill was the predominant factor the activity would be protected by Article 19(1)(g) of the Constitution as a permitted business activity. Subsequently, games in which the element of skill predominates would be permitted as business activities. For example, all card games have an element of chance – luck of the cards being dealt to you but then skill is applied to use those cards to win. Where the outcome of the game is dependent more on skill than chance, the game passes muster. Applying these tests set out by the judiciary, rummy, bridge, chess, horse-racing, etc. where the element of skill is greater than the element of chance are permitted – even for stakes. Conversely games like bingo and slot machines, etc. have a higher element of chance than skill are permitted – but only if not played for stakes. The test is subjective – evaluated on a case by case basis and dependent on the views of a judge evaluating the challenge. Till the legality of a game is tested in court, there will always be a slight level of uncertainty. There are no objective standards that a court must apply either and each game must be evaluated on a case by case basis bearing in mind differing court opinions.
Self-Regulatory Bodies – Their Role
The All India Gaming Federation ("AIGF"), the apex gaming body focuses on policy, advocacy, research and self-regulation for its member gaming companies. Their self-regulation framework is based on the principles of transparency, integrity and responsible gaming, implements their Skill Games Charter ("Charter") to ensure compliance by stakeholders and members of the AIGF. The AIGF concentrates on games of skill played in a pay-to-play format and aims to meet the evolving needs of the gaming industry through its policies and advocacy with the government on framing more relevant legal framework.
AIGF in its Charter, extends memberships to gaming companies which operate online fantasy games, online rummy and poker, casual games and esports. The Charter aims to self-regulate its members by rules, one of the most significant being stipulating objective standards for various games such as rummy, poker, etc. If the games comply with all the criteria set out in the Charter, they are automatically approved creating uniformity and certainty for gaming companies. The Charter inter alia mandates that gaming companies are transparent in their approach regarding rules, regulations, payments and winnings. Gaming companies must be responsible, i.e., they must: (a) restrict games for persons under the age of 18; (b) contain a time-out feature where the game cuts out after a specified time limit; (c) provide counselling for gaming addicts; (d) not target persons who have opted out through the self-exclusion mechanism for gaming, etc. Members of the AIGF must also comply with the ASCI guidelines for 'Online Gaming for Real Money Winnings" which inter alia mandate that advertisements for online gaming should contain disclaimers, warnings for risk of loss and should not suggest that a gamer will prosper, etc.
While AIGF is the apex industry body for self-regulation, The Online Rummy Federation ("TORF") and Federation of Indian Fantasy Sports ("FIFS") are newly constituted self-regulating bodies, both of who along with the AIGF place emphasis on KYC checks for every player, an important process for authenticating and making the experience of gaming more transparent and secure.
Recent developments in India
The issue on fantasy games being a game of skill has come up a few times in the recent past. A decision of the Supreme Court10 was pending on an appeal from the Bombay High Court in the case of Gurdeep Singh Sachar Vs. Union of India and others11. This had again created some uncertainty on the legality of fantasy sports in India. In its order dated 30 July 2021 (an appeal from a judgement of Rajasthan High Court12), the Supreme Court 13 held that Dream11 is a game of skill which further endorses prior decisions on the permissibility of fantasy games in India.
In an order dated 03 August 2021 the High Court of Madras14 held that the blanket ban online gaming, both skill and non-skill based under the Tamil Nadu Gaming and Police Laws (Amendment) Act 2021 ("Amendment Act") was ultra vires the Constitution. The Madras High Court struck down the Amendment Act entirely on the ground that though the state government could regulate the area, the restrictions imposed by the state government were disproportionate, without proper justification provided by the state and therefore violative of the freedom provided to individuals under the Constitution of India. There is hope that this judgement sets the tone for revisiting the gaming laws in the country as all the issues have been extensively analyzed and dealt with in a thorough manner.
According to recent press articles15, the union minister for Electronics and Information Technology, in a response to a letter by Andhra Pradesh Chief Minister, stated that the Union Government is working on a uniform approach to regulate online gambling and real money gaming. The consideration for a centralised method of regulation for the country from the central government is significant.
Discussion & Analysis on Way Forward – An Environment of Trust to Foster Growth?
Justice D P Madon had very rightly stated that "[a] s the society changes, the law cannot remain immutable" and that "the law exists to serve the needs of the society which is governed by it."16 The Madras High Court has, in the same vein stated that ".. the understanding of constitutional morality may depend on the mores of the time since the Constitution is regarded as a living document and not pegged to the time of its adoption."
The Madras High Court has observed that "[m] ore often than not, laws are enacted in this country without adequate research or empirical studies being conducted to assess the impact thereof or the ability of the law to tackle the mischief intended to be eradicated and far too often the good is clubbed with the bad as there is no informed alternative to choose from." The key question, therefore, is, to what extent do we require regulation in the gaming sector?
To evaluate this, one needs to ascertain what the purposes of enacting a law is. Laws should be enacted to enable all people to live peacefully without detriment. It is well established that due to human nature, human beings need some form of regulation. Therefore, if gaming is going to harm someone, then there must be some guidelines to regulate responsible behavior in the area. The Madras High Court has analyzed this issue in depth and stated that "when the State takes a paternalistic attitude, it seeks to legally regulate private life. This brings about a conflict between both the authority and the desirability on the part of the State to legislate in areas where it perceives that the individual in general or certain classes of individuals require protection and the private rights of the individual and every citizen's freedom of choice. State paternalism, by and large, is understood to mean the phenomenon in which the State acts as the guardian and protector of its citizens or a class or classes of citizens who are perceived to be vulnerable in certain situations or are thought to be generally weak and incapable of protecting themselves." The Madras High Court further went on to evaluate the freedom of choice of an individual and reasoned that "...a cost-benefit analysis is called for, not in mathematical terms, but only to assess whether by and large the benefit in the form of public good outweighs the cost of the individual being deprived of his choice... Pronounced and excessive paternalism on the part of the State is another definition for authoritarianism and may even amount to repression, particularly when a statute prohibits or restricts some activity that the individual may otherwise have complete and unrestricted freedom to indulge in." Thus, it is clear that a very fine balance needs to be struck by the government whilst regulating this area. The Law Commission also acknowledged that enforcing a complete ban on illegal gambling is not possible17. It recommended regulation of sports betting with adequate safeguards to promote responsible gaming. Such an approach would help detection of fraud and money laundering and also garner tax revenues for the governments.
Lastly, there is the issue of having a choice to be a professional gamer and the fundamental right to practice a profession of choice under the constitution. At a time where traditional professions involve more work and less money, this is a very pertinent issue – today influencers on social media often make more money than Business School graduates without even obtaining a college degree. The Madras High Court rightly observed that "[a] person may be gifted in card games or another's talent may lie in word games. Rationally, such persons should be free to exploit their skills; and only reasonable restrictions that do not completely blunt their chance to show off or make a living out of their skills may be permissible."
There are other sectors where addiction is also a key concern for regulators. An analogy may be drawn to the alcohol and tobacco industries – both are addictive, have health hazards, etc. However, alcohol is a controlled substance and not prohibited in its entirety. One of the main reasons for this is the large contribution of tax revenues from sale of alcohol and tobacco towards the coffers of the exchequer.
Bearing in mind all the factors, the Madras High Court, with respect to regulation of the gaming sector, held that "at the end of the day, a balance has to be struck between the extent to which the State can impose restrictions to protect a class or certain classes of persons and the reasonableness of such restrictions qua the ordinary individual who may resist the same, whether or not the statutory measure is intended to protect such individual."
The industry wishes that the judgement and analysis of the Madras High Court coupled with the letter from the Ministry of Electronics and Information Technology to the Andhra Pradesh government on establishing a unified framework for the gaming sector in India will set the way forward for setting up a more conducive environment for growth.
Today's leading companies are realising that lasting success comes from having a purpose broader than making a profit. A business should benefit customers, employees, suppliers, neighbors and the wider world, as well as shareholders. Enduring value comes from making business work for everybody. For example, big-pharma has the reputation of being solely profit driven. Interestingly a few years ago, Novo Nordisk changed this perception by launching a global fight against urban diabetes. Though their contribution is medicine they decided to launch a campaign on lifestyle issues to get to the root cause of the problem of diabetes and create awareness on diets, sedentary lifestyle etc. amongst the urban population. Novo Nordisk CEO Lars Rebien Sørensen topped the Harvard Business Review's list of best-performing CEO's due to this campaign. Similarly, gaming industry players globally can erase the stigma associated with this sector.
India could take a cue from the self-regulatory market in Europe wherein the European Gaming and Betting Association ("EGA"), comprising of gaming and betting operators, represents the gaming industry and frames code of conduct for its members to promote responsible gaming, ensure protection of the players and contribute positively to the society. The EGA closely works with the Governments towards a well-regulated online gaming market to foster strong culture of safer gambling and contribute positively to the society.
Gaming companies can strive to establish a sense of responsibility and work cohesively on standards established by self-regulatory bodies, e.g., the Charter issued by the AIGF is both comprehensive and objective – focusing on responsible growth for gaming companies. Perhaps the government could consider moving forward on a model of trust with the industry, somewhat similar to the way the advertising industry functions in India and ASCI's role in regulating its members. Validation of payouts in the sector would bring about best practices. The industry could, through compliance with certain self-established norms take the lead of being compliant with interests of society while making a profit and growing. The government would not need to be excessively paternalistic in its approach if gaming companies achieved this goal. People could have the freedom of choice to play for recreation or professionally, gaming companies could make a profit and the government would also benefit with taxable income.
Other Issues – Foreign Direct Investment, Payment Gateways, GST, Artificial Intelligence & Data Privacy
Gaming companies which engage in real money gaming have to also bear in mind issues arising from (a) foreign exchange regulations; (b) setting up and operating a payment gateway; (c) data privacy norms for collecting data on their platforms; (d) goods and service tax issues; and (e) the use of artificial intelligence in gaming. The unified gaming regulations should factor all these issues in one framework.
It pertinent to bear in mind that the issues surrounding gaming are not limited to games
Conclusion
Self- regulation by organisations in this sector is imperative because legislations can almost never keep up with the technological advances. Varying laws in the country often leads to confusion which is where rules by the gaming companies makes a big difference. As has already been established by the extremely comprehensive and well thought out Charter, a self-regulating body can set out uniform standards in the absence of the centre having control to legislate this area. Therefore, the government should support the industry – industry should do the rest through compliances set out by its self-regulating bodies and ethical norms.
In light of the favourable Madras High Court judgement and the news of a unified gaming framework in the pipeline the industry players should strike while the iron is hot. Gaming companies should work with self-regulatory bodies to present their case to the government on working together to come up with a sustainable legal and self -regulatory framework which would foster responsible growth.
played for stakes, artificial intelligence ("AI") plays an increasingly important role as technology advances. For instance, the use of artificial intelligence software for assistance in winning online games. A recent chess tournament had an instance of the winner cheating18. Therefore, the authenticity of online gaming championships is sometimes in question. Another issue is that the BOTs become smarter with experience in gaming and lack human error. Therefore, a human contestant may be at a disadvantage in online gaming.
On a more positive note, AI in gaming also helps online platforms to prevent cheating and AI in immersive gaming is proving to be creating better storylines and characters. Interestingly, AI can be used to suppress the problem of gambling addiction as well. As bizarre as it sounds, it works in a manner where the AI can recognize issues of addiction when a person is gambling online and then, depending on the software, either restricts the person from playing the game altogether or reflects warning to keep the player cognizant of his/her actions. This is a definite progressive method to look at online gambling addictions and takes the pressure from government regulations to keep addictions in check.
Footnotes
1 India - value of the gaming industry 2007-2022 | Statista
2 EY – FICCI Report - Playing By New Rules – India's Media & Entertainment Sector Reboots in 2020
3 State Law Commission's 18th Report along with draft bill
4 D Siluvai Venance vs Inspector of Police Crl.OP.(MD)No.6568 of 2020 and Crl.MP.(MD)No.3340 of 2020
5 Sixth Edition.
6 Sixth Edition.
7 Emphasis added
8 R.M.D. Chamarbaugwalla vs. Union of India, WP No. 78-80, 93 & 152 of 1956
9 Dr. K.R. Lakhshmanan v State of Tamil Nadu & Anr. 1996 AIR 1153, 1996 SCC (2) 226
10 Special Leave Petition (Criminal) Diary No(s). 42282/2019
11 Gurdeep Singh Sachar vs. Union of India and Ors. Criminal PIL Stamp no. 22 of 2019 in the High Court of Bombay
12 Ravindra Singh Chaudhary vs. Union of India & Ors., D.B. W.P. (C) No. 20779 of 2019
13 Avinash Mehrotra v State of Rajasthan & Ors., SLP (C) No. 18478 of 2020
14 Junglee Games India Private Limited v State of Tamil Nadu & Ors, W.P. No. 18022 of 2020
15 Medianama article dated 19 August 2021
16 Central Water Inland Transport Corporation Limited & Ors. vs. Brojo Nath Ganguly & Ors., Civil Appeal No. 4412 & 4413 of 1985
17 Law Commission of India Report No. 276 LEGAL FRAMEWORK: GAMBLING AND SPORTS BETTING INCLUDING IN CRICKET IN INDIA July 2018
18 Zerodha's Nikhil Kamath Accused Of Cheating Against Viswanathan Anand In Chess Game, Banned From Platform (moneycontrol.com)
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