• LexGaze Admin

To Gamble or not to Gamble?

Updated: Dec 20, 2020



[This article is authored by Dhanishta Mittal, National Academy for Legal Studies And Research (NALSAR) University of Law, Hyderabad.]


‘Gambling’ as per most Gambling Legislations, though not specifically defined, is “the act of wagering or betting” for money or money’s worth.[1] Gambling in the Indian context, has references from the early days; the most significant being its dominance in the story of the Mahabharata. Gambling laws, however, typically exclude (i) wagering or betting upon a horse-race/dog-race, when such wagering or betting takes place in certain circumstances, (ii) games of “mere skill”, and (iii) lotteries.[2] These exceptions are generally dealt with by their own legislation or rules.


With advancement in science and technology, particularly the internet boom, a significant shift has now been noted in gaming platforms to online fora. Social and casual games are now played both offline and online. Thus, the ‘gaming’ industry is comprised of 2 formats: gambling in the traditional and online formats in addition to the skill-based social or casual gaming formats.


A study by KPMG India in 2019 suggested that the Indian online gaming industry has the potential of becoming an INR 250.3-billion industry by 2024.[3]Likewise, a report issued by the International Centre for Sports Security (“ICSS”), records that the betting market in India is valued at US$130 billion.


However, gambling laws in India have a localised approach, as opposed to there being a central legislation to regulate the practice of gambling. After the promulgation of the Constitution of India and its coming into effect on 26 January 1950, the issues related to gaming were demarcated. Betting and gambling were listed under Entry 34 of List II of the Seventh Schedule,[4] thus, state legislatures have the exclusive power to make laws relevant to betting and gambling. The Entry 62 of the State List allows laws pertaining to taxation on betting and gambling to be made by the respective states.[5] Lotteries, on the other hand, are mentioned in Entry 40, List 1, implying that the Parliament of India is the appropriate body to make laws pertaining to the subject matter.[6]


The Public Gambling Act, 1867, has been adopted by several states/UTs including Uttar Pradesh, Madhya Pradesh, and Delhi. State legislations have also adopted the mechanism to legalise some form of gambling and have issued specific licenses to the gaming enterprises. The West Bengal Gambling & Prize Competition Act, 1957, specifically excludes ‘games of cards, like Bridge, Poker, Rummy or Nap’ from the definition of “gaming and gambling”. The Act further exempts games of skill from its ambit, however, provides that where such games are played in public markets, fairs, carnivals, streets, or public places, a permit is required from the Commissioner of Police or official authorities.[7]


Sikkim and Nagaland happen to be the only states to have adopted specific legislation that permits and regulates online gambling, namely the Sikkim Online Gaming (Regulation) Act, 2008, that deals with the dual objects of controlling and regulating online gaming through electronic or non-electronic formats and imposes tax on such games.[8] The Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015, and the Nagaland Prohibition of Gaming and Promotion and Regulation of Online Games of Skill Rules, 2016, are instrumental in regulating games of skill, such as chess, sudoku, quizzes, binary options, et al.[9] The Gambling Legislations also regulate casinos in India. The Gambling Legislations of Goa, Daman & Diu[10] and Sikkim[11] allow gambling (under a license) in 5-star hotels. In Goa, the law also permits casinos on board an offshore vessel.[12]


Certain states, however, proscribe gambling practices in their territories as was held by The Kerala High Court in the case of Ramachandran K v. The Circle Inspector of Police. The Court ruled that playing rummy for stakes would amount to an offence of gambling under the Kerala Gaming Act, 1960.[13]


The Lotteries (Regulation) Act, 1998, under which the Lottery (Regulation) Rules, 2010, and the state-specific rules have been framed, regulates lotteries in the country. The Central Lottery Laws allow the states to organize, conduct, or promote a lottery, subject to the conditions enunciated in the Law. The states may appoint individuals or corporates as “distributors or selling agents” through an agreement, to market and sell lotteries on behalf of the organizing state, thereby, regulating its practice. While some states such as Punjab have provided for and approved of online lottery systems to be governed entirely by state Lottery Laws, lottery is alternatively banned in certain states in India, particularly, Madhya Pradesh. Section 294 A of the Indian Penal Code, 1860, specifically criminalises private lotteries. Some states have repealed Section 294A of the IPC and validated their own legislation banning lotteries apart from non-profit lotteries. Other States, on the flip side, have introduced legislation expressly banning lotteries in their states, illustratively the Bihar Lotteries Prohibition Act.


Under the FDI Policy, FDI remains prohibited in certain sectors including lottery business, gambling, and betting. Besides FDI, any form of foreign technology collaboration, such as licensing for franchise, trademark, brand name, management contract, etc., for lottery business, gambling, and betting activities has also been prohibited under the prevailing FDI Policy. The rationale behind prohibiting FDI and technological collaboration in the aforesaid sectors is to discourage foreign investments in lottery, gambling and betting businesses that have been judicially held to be mere 'games of chance' as opposed to 'games of skill'. Thus, while FDI for games of chance and lotteries is prohibited, there is a lack of clarity on whether the same prohibition applies for games of skill, sports betting, horse racing. and money-based competitions.


Contrarily, horse racing has been given a special status under the Gambling Legislations. Most legislations exclude betting on horse races from their purview, subject to certain conditions stipulated in the legislation. In K R Lakshmanan v. State of Tamil Nadu, the Supreme Court held that betting on horse racing was a game of skill since factors like fitness and skill of the horse and the jockey need to be objectively assessed by a person placing a bet. There is a comprehensive study done by the individual in calculating the estimated performance of the jockey and his horse.[14]


The Supreme Court of India has interpreted the words “mere skill” to include games which are predominately based on skills and has established that those competitions, wherein, the success of the participants depends, to a considerable degree, on their skills, will not be termed ‘gambling’ and ruled that despite there being an element of chance, if a game is majorly a game of skill, it would nevertheless be a game of “skill”.[15] Whether a game is of chance or skill is a question of fact to be decided on the facts and circumstances of each case. Thus, games which satisfy the test of “skill as opposed to chance” are not regulated by the Gambling Legislation and are legally permitted both through physical as well as virtual mediums throughout India.


Under the Sikkim Gaming Laws, an interested person can obtain a “license” for the purpose of conducting online games such as Blackjack, Casino Brag, Poker, Keno, Super Pan 9, etc., and sports betting, including its organization, management or promotion or negotiation or receipt of bets. Prior approval of the state government allows offering additional online games.[16]


The Nagaland Gambling Law, too, permits only skill-based games. Licenses allow operators to organize betting or wagering on online games of skills or to make a profit through the operation of online platforms for playing games of skill. Games of skill are all the games where there is a preponderance of skill over chance and include card-based games (such as poker, rummy, and solitaire), quiz/strategy-based games (such as chess or sudoku), and action, sports, and adventure games (such as fantasy leagues and virtual sports).[17]


In 2017, the High Court of Punjab and Haryana became the first Indian court to adjudicate fantasy sport to be a skill-based enterprise.[18] The plaintiff had moved the Court alleging that fantasy sports was not based on skill and the platform was carrying on a form of business covered under ‘Gambling’ under the Punjab Gambling Laws. The Court relied on the Supreme Court’s decision which had held that betting on horse races was a game of skill. The Court, thus, construed that competitions in which success depended upon a substantial degree of skill were not gambling, and despite there being some element of chance, if a game was predominantly of skill, it would be a game of ‘mere skill’. The Court reasoned that playing fantasy sports required a certain level of considerable skill, judgment, and discretion. Hence, the element of skill predominated the outcome of the fantasy game, and fantasy games were of “mere skill” and, thus, not a gambling act. Dream 11 was conducting a business activity protected under Article 19(1)(g) of the Constitution.[19]


In 2018, the Sports (Online Gaming and Prevention of Fraud) Bill, 2018, was introduced as a private member’s bill in the Lok Sabha.[20] It was introduced after being derived from the Law Commission’s report on legalizing betting and gambling in India. However, the Bill has now lapsed and will need re-introduction in the Parliament. It was introduced with the dual aims of preserving integrity in sports through prevention of sports fraud and introducing a regulatory regime for online sports betting.


In the case of State of Andhra Pradesh v. K. Satyanarayana & Ors., the Supreme Court specifically tested the game of rummy on the principle of skill versus chance and held that rummy was not a game entirely based on chance like the ‘three-card’ games, which were games of pure chance.[21] In a recent judgment, alternatively, the Gujarat High Court held that poker is a game of chance; and accordingly, conducting poker games falls within the ambit of the Gujarat Gambling Legislation. Importantly, the Court held that any game, even if it involves skill but is played with stakes, would fall within the ambit of gambling.[22]


The Law Commission of India (“ Commission”) was entrusted with the task of simplifying and streamlining the Gaming Legislation in 2014 which culminated in the 20th Law Commission report “Obsolete Laws: Warranting Immediate Repeal” – An Interim Report” (“2014 Report”).[23] In the Report, the Commission observed that the Public Gambling Act, 1867, was an obsolete law in need of repeal. Most of the State regulations are based on the provisions of the Act. Thus, the Commission acknowledged the need to replace the outdated Gaming Legislation in the country.


Thereafter, following the developments of match fixing matters in the Indian Premier League and other cricketing scandals, the Supreme Court appointed a three–member committee (“Lodha Committee”) to make recommendations to prevent sports frauds and conflicts of interests in sports. The Lodha Committee recommended legalization of betting in cricket in their report.[24]


Lately, the Commission, headed by Justice B. S. Chauhan (a former judge of the Supreme Court), was mandated by the Indian Government to provide an insight into the viability of legalization of sports betting in India, and to revisit Gaming Legislation with a view to provide a Central licensing regime. In 2018, the Commission released a report on legalizing betting and gambling in India.[25] The primary recommendation was to ban betting and gambling in India by citing factors that make India an unsuitable playground for legalizing betting and gambling activities, such as a substantial section of the population being below poverty line and gambling activities considered immoral by the society. However, it also recommended certain actions that the Central and State Governments can consider if they decide on regulating the practice, taking measures to combat player fraud, enhancement, and curbing systemic gambling. The Report has also cautioned against extreme financial losses and loan-sharking that could result from legalizing these activities. Nonetheless, the Report also highlights the benefits of legalizing gambling; the possibility of generating revenue and employment as well as boosting supporting industries such as tourism and IT. A regulated industry would undoubtedly curb issues of money laundering and fraud.


‘Casual games’ are rudimentary games like puzzles, adventure themed games, sports and action games, arcade games, card or board games, among others. This is a fundamentally different sphere from those games which otherwise fall within the scope of the Gambling Legislation, and the objective of casual games is not to engage in monetary deals in such games.


Casual games have a popular means of entertainment for the masses, particularly, as family-gathering games. Traditional board games; for instance, have been popular globally for decades now. Electronic games gained popularity with arcade gaming machines in advanced countries for starters. These arcade games then paved the way for video games and ‘home entertainment’ systems, such as Nintendo’s Gameboy and Wii, Sony’s PlayStation series, and Microsoft’s Xbox series, which have now become a commonplace, with their movement from western countries to developing economies like India. These video games have provided the audience with a whole new world of gaming incomparable to the traditional board games. Online games have also gained popularity with the advent of the internet, multiple player interfaces, and the ease of interactions with players online that has facilitated a platform for social engagements. A stark surge in the video gaming industry has been noted especially amidst the COVID-19 pandemic, forcing people to play indoor sports.


Online fantasy sports have (over the past decade) become youth’s favourite, globally. This format requires participants to partake as owners, managers, or coaches of various sports teams. Different business models in the form of paid-leagues, free-entry leagues, knock-out tournaments, often based on statistics or points scored by individual players or teams of an actual professional sport. Participants have to undertake activities like trading, buying, selling, rotating, and substituting players on their teams before each round of matches, simulating a real sporting game.


Illustratively, in a typical online football fantasy game, a participant may choose eleven players as the main set of players, with a handful of substitutes. The outcome of the real football matches involving these players in their respective original teams will determine the points that the participant attains. Each player is awarded points based on their actual performance, and consequently, the participant’s team (as a whole) is given points which is the aggregate of each of the players’ points and any bonuses.


Social media-based casual games, such as Farmville, Miniclip games, SIMS, etc., have tremendously impacted the way consumers use social networking platforms with Facebook regarded as one of the world’s largest online gaming platforms. However, “casual” does not do away with the fact that there are laws to regulate casual games. Multiple casual games can involve building up, arranging, combining or calculating letters, words, or figures. The provisions of the Prize Competition Act and related prize competition laws may, thus, get attracted to such games.


At present, in a world where everyone is connected through the internet, a person located in India can bet through a foreign-owned website. There is no law to directly regulate/prohibit such offshore gambling in India. In the absence of any specific law directly regulating the online gaming/gambling through a server located outside of India, these can be regulated through the internet intermediary compliances; cyber law due diligence requirements prescribed under the Information Technology Act, 2000; restrictions on foreign exchange earnings and outgoes; and strict enforcement of anti-money laundering laws.



References:

[1] Section 9, The United Kingdom Gambling Act 2005. [2] Section 12, The Public Gambling Act 1867. [3] KPMG INDIA, Online Gaming in India: Reaching a new pinnacle, KMPG INDIA, May 2011. [4] Entry 34, List II, Seventh Schedule, India Consti. [5] Entry 62, List II, Seventh Schedule, India Consti. [6] Entry 40, List I, Seventh Schedule, India Consti. [7] Section , The West Bengal Gambling and Prize Competition Act, 1957. [8] Sikkim Online Gaming (Regulation) Act 2008. [9] Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act 2015; Nagaland Prohibition of Gaming and Promotion and Regulation of Online Games of Skill Rules 2016. [10] The Goa, Daman & Diu Public Gaming Act, 1976. [11] Sikkim Casinos (Control & Tax) Act, 2002 read with Sikkim Casino Games Commencement (Control & Tax) Rules 2007 and Sikkim Casino Games (Control & Tax) Amendment Rules 2011. [12] Supra, note 10. [13] Ramachandran K v The Circle Inspector of Police, 2019 (2) KLJ 26. [14] K R Lakshmanan vs State of Tamil Nadu, 1996 AIR 1153. [15] Ibid. [16] Supra, note 8. [17] Supra, note 9. [18] Shri Varun Gumber v. UT of Chandigarh & Ors.,CWP No. 7559 of 2017. [19] Article 19(1)(g), India Consti. [20] Bill No. 259 of 2018, The Sports (Online Gaming and Prevention of Fraud) Bill, 2018, Lok Sabha Archives, http://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/2415as.pdf. [21] Andhra Pradesh v. K. Satyanarayana & Ors., 1968 AIR 825. [22] Poker is gambling: HC, The Times of India, 2017, https://timesofindia.indiatimes.com/city/ahmedabad/poker-is-gambling-hc/articleshow/61955976.cms. [23] Law Commission of India, Report No. 250 on Obsolete Laws: Warranting Immediate Repeal– An Interim Report, Government of India, 2014. [24] Manas & Anisha, Lodha Committee Recommendations: Can it formulate Indian cricket? Jamia Law Journal, Vol. 3, 2018, 193-204. [25] PRS Legislative Research, Law Commission Report Summary, Legal Framework: Gambling and Sports Betting including cricket in India, PRS, https://www.prsindia.org/report-summaries/legal-framework-gambling-and-sports-betting-including-cricket-india.

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