It is interesting to see that the game developers and gaming companies are taking the industry to different world and levels to show skills, but as lawyers unfortunately it has to be seen that whatever is being created is in compliance with law. It is extremely important for the gaming community to understand the laws regarding the gaming laws. The scaling worldwide computerized economy has given a boom to web-based gaming software globally. Extension of computerized impression because of rising cell phone infiltration, better web network and sensibly evaluated information bundles have made a favorable situation for quick development of internet gaming in India. The statutory provisions and the legislations comprising of regulations governing the online gaming in India as well as the monetary transactions across the country also include the participants company as well as the service provider of the software directly or indirectly connected to the online gaming portal.
The Scope and extent of online gaming:
In India, law classifies games into two broad categories viz. game of skill and game of chance. The rapid growth and spread of the internet were not foreseen and accessed in the Central Legislation and the state enacted statutes, hence, they mainly govern gambling in physical places and do not specifically consider online gambling. However, certain states have taken measures in an attempt to regulate and cover the vacuum. The State of Sikkim is the only state in India which has enacted a law for online gaming and sports betting. Under the Constitution of India, the State Legislatures have been entrusted with the power to frame state specific laws on 'betting and gambling'. The Public Gambling Act, 1867, is a central enactment on the subject, which has been adopted by certain states of India. It prohibits running or being in charge of a public gambling house. The penalty for breaking this law is a fine of ₹200 or imprisonment of up to 3 months. Additionally, this Act prohibits visiting gambling houses. A fine of ₹100 or imprisonment of up to one month is the penalty.
The other states in India have enacted their own legislation for regulating gaming activities within its territory ("Gaming Legislations"). While certain states such as Bihar, Chandigarh, Chhattisgarh, Haryana, Himachal Pradesh, Jharkhand, Madhya Pradesh, Manipur, Punjab, Uttarakhand etc. merely adopted the Central Legislation, many states enacted new statutes to govern betting and gambling in their states like Andhra Pradesh Gaming Act, 1974, Assam Game and Betting Act, 1970, Goa, Daman and Diu Public Gambling Act, 1976, Gujarat Prevention of Gambling Act, 1887, Kerala Gaming act, 1960, Bombay Prevention of Gambling Act, 1887 and Rajasthan Public Gaming Ordinance, 1949. However, it is important to note that most of these Gaming Legislations were enacted prior to advent of virtual gaming and therefore primarily regulate physical gaming and gambling in physical premises defined as "gaming or common gaming houses".
The Sikkim Regulation of Gambling (Amendment) Act, 2005, followed by the Sikkim On-line Gaming (Regulation) Act, 2008 permits the state to issue a license to an individual/ organization that is interested in operating a gambling house. The State has, through the Sikkim Online Gaming (Regulation) Rules, 2009 prescribed that games such as roulette, black jack, pontoon, punto banco, bingo, casino brag, poker, poker dice, baccarat, chemin-de-for, backgammon, keno, and super pan 9 may be played online, after a license has been issued in this regard. The Sikkim Rules even go a step further to specify that these games have to be safe, secure and fair. Further, under the Sikkim Gaming Laws, an interested person can obtain a "license" for the purpose of conducting online games such as such as Roulette, Black-jack, Pontoon, Puntobanco, Bingo, Casino Brag, Poker, Poker dice, Baccarat, Chemin-de-for, Backgammon, Keno and Super Pan 9 and sports betting, including its organization, management or promotion or negotiation or receipt of bets. Further, a licensee can take the prior approval of the State government to offer any other / addition online games under the license.
Likewise, Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 permits the state to issue a license for games of skill. The primary objective of the Nagaland Gambling Act is to prohibit gambling and to regulate and promote 'online games of skill' within Nagaland. Subject to a license being obtained from the State Government, specified online games can be played in a legally regulated environment.
Similarly, we find that the Governor of the State of Telangana has recently promulgated the Telangana State Gaming (Amendment) Ordinance, 2017 (Gaming Ordinance). The Gaming Ordinance seeks to make significant amendments to the Telangana State Gaming Act, 1974 (Gaming Act) so as to extend its application to the realm of online gaming.
It is very important to note that States such as Nagaland are offering licenses to persons conducting online games such as rummy and poker. On the other hand, the Telangana State Government has made a regressive move with the Gaming Ordinance, especially when the State is making overtures for foreign investment.
Types of Gambling and social/skill gaming activities
Casino Gaming: It includes slots and casino table games such as roulette and blackjack. Casino Gaming is regulated State Wise Anti-Gambling Laws in India. Under the most Gaming Enactments casino games are treated as gambling activities in India and are prohibited. This applies for both digital and land-based casino gaming. So far as online casino gaming license is concerned State of Sikkim issues the License under its regulation for certain casino online gaming. For Land based casino gaming State of Goa and Daman and Diu as well as State of Sikkim issues requisite license for land-based casino gaming and its regulations.
Poker: The Gaming enactments/ courts in certain States of India have recognized poker as a game of skill. In certain states poker being considered as game of skill is not prohibited whereas in many States poker is considered as game of chance and is specifically prohibited. The main reason behind such ambiguity is absence of specific enactment and regulation for the skill version of poker.
Bingo: This game form depends on its format whether it would fall within the meaning of Lottery or whether it would fall withing the general definition of gambling under various Gaming Enactments. If it becomes game of chance then it is prohibited in various States.
The recent classic case of fantasy sports is Dream 11 case wherein Punjab and Haryana High Court observed that the format of Dream 11 it is a game of skill in Varun Gumber vs UT of Chandigarh and ors CWP No. 7559 of 2017. Thereafter, the High Court of Bombay also recognized that the same format of fantasy sport was a game of skill in Gurdeep Singh Sachar v. Union of India Criminal Public Interest Litigation Stamp No.22 of 2019.
The Case of online gaming related to Poker and the financial transaction and the management of the business including the service provider:
The most common form of gaming in India for time immemorial are the many versions of the card games like teen Patti (akin to flush), poker, rummy and bridge and sports betting. With the dawn of technology, these games have effectively extended their reach and popularity via the digital medium. Most popular online gaming sites of India are card games sites hosting Rummy and Poker tournaments. The Gaming Legislations were enacted when digital media and internet were uncommon and its reach was not as intense as it is today. The Gaming Legislations deal with gaming in a physical medium, termed as common gaming houses. Therefore, when these Gaming Legislations are read in the context of online and digital gaming, it may be argued that most of the restrictions are not applicable to such gaming. Since most of the Gaming Legislations do not expressly cover online and digital gaming, this lacuna in law has given rise to many ambiguities and uncertainties on the one hand and opportunities on the other hand to create online gaming businesses in India, through creative lawyering and smart business tactics.
Another card-based game which draws parallels to rummy and has been growing in popularity, is poker. Although there has not been any specific verdict on the legality of poker in India, inference can be drawn from the above excerpt of the Satyanarayana Case which classifies rummy as a game of skill, separate from gambling. In the case of State of Andhra Pradesh v. K. Satyanarayana & Ors. AIR 1968 SC 825 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' game (i.e. 'flush', 'brag' etc.) which were games of pure chance. It was held that Rummy was a game involving a preponderance of skill rather than chance
Furthermore, the West Bengal Gambling and Prize Competitions Act, 1957 specifically excludes games of cards like bridge, poker, rummy or nap from its definition of gaming and gambling, providing further backing to the legality of poker. For instance, 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" and allows the organizing of such games on procuring a permit from the Commissioner of Police in Calcutta or the District Magistrate or the Sub-divisional magistrate when such game is played in any place where the public may have access.
Online Poker on the virtual platform on commercial or monetary basis:
The question of whether games of skill can be offered for money on the virtual platforms recently came up for consideration before the Delhi District Court in 2012 was the M/s. Gaussian Network Pvt. Ltd. v. Ms. Monica Lakhanpal ("Gaussian Case") wherein Gaussian Network Private Limited had filed a petition under Order 36 of the Code and Civil Procedure Code ("CPC") for seeking the opinion of the Hon'ble court on inter alia the question of whether there was any restriction on taking stakes from games of skill on websites making profit or online gaming portals. The Court opined that when skill-based games are played for money in virtual space, the same would be illegal and observed that the degree of skill in games played in a physical form cannot be equated with those played online. The court seems to have assumed that degree of chance increases in online gaming; and there is a possibility of manipulation including randomness, cheating, collusion in the online space. However, the factors relied on by the court can be addressed by building in adequate fraud control checks in the systems.
The District Court also took into account the order passed by the Madras High Court in the Mahalakshmi Case wherein the game of rummy was held as illegal. The District Court inter alia also stated that:
"There can be no equation in the degree of skills in games to be played in the physical form and those to be played online. In the Real games, all the aforesaid games require the presence of mind in the presence of competitors. There is a marked difference in the games being played online. The brick and mortar rooms have been replaced by online gaming sites where people can bet from the comfort and confines of the four walls of their own domain.
A question does come to mind, that if betting on a game of Skill played in the Real form is legal, why would it be illegal Online? An argument may be advanced that what is legal off line should be legal online as well. To answer this, a crucial factor, and perhaps the most determining one which has to be considered, is the role of the service provider offering various games (even those acknowledged as games of Skill) on payment of money. There are various sites which offer games of Skill online, free of charges. There is no illegality involved. But when the service provider partakes a slice of the winning component, it is no better than a gaming house which is illegal. However, in the present scenario the arguments of Game of Chance and Game of Skill seems to have completely lost sight of and now perhaps is not a matter of concern. The matter of concern now is in what manner and mode the software gaming sites are being run and operated and whether or not the mode and manner in which the "game" as referred by them is played online do not fall within the category of betting apparently. The basic format of playing the games and participating through these gaming portals has to be tested in a very regulatory manner.
Statutory Laws: Certain categories of gaming/ gambling are regulated by specific legislations, including but not limited to Lotteries (Regulation) Act, 1998 and Prize Competitions Act, 1955. Also, the provisions of Indian Penal Code as well as Information Technology Act 2000 and its rules applies for any contravention.
Other Laws Affecting the Gaming Industry:
Foreign Direct Investment & Foreign Technology provides for the collaborations in Gaming Industry Under the Foreign Direct Investment Policy (FDI Policy) of India issued by the Ministry of Commerce & Industry, Government of India, Foreign Direct Investment (FDI) is prohibited in entities involved in lottery, including government, private lottery, online lotteries, etc; and gambling and betting including casinos etc. There are also various restrictions Under Exchange Control Regulations as per Foreign Exchange Management Act, 1999. Foreign Exchange Management (Investment in firm or proprietary concern in India) Regulations, 2000 also provide the Management of the Investment made in the firm and proprietary concern in India at Rule 3. Further Foreign Exchange Management (Permissible capital account transactions) Regulations, 2000 Rule 4 provides certain Prohibitions regarding the investment made by any person in India. Under the Foreign Exchange Management (Current Account Transaction) Rules, 2000, remittance of income from winnings from lottery, racing /riding or any other hobby is prohibited. Though in letter remittance for the purpose of betting is not prohibited, keeping in view the spirit of this provision, remittance for the purpose of betting may be construed as prohibited under these rules.
Duty of Internet Service Providers (ISP)- Under the New Rules Notified Under the Information and Technology Act, 2000 (IT Act) In April 2011, new guidelines for intermediaries have been notified under the IT Act, which require the intermediaries like ISPs to inter alia observe necessary due diligence and publish rules and regulations and user agreement for access or usage of the bandwidth provided by the ISP. Such rules and regulations and user agreement need to include terms which inter alia inform the users of the bandwidth not to host, display, upload, modify, publish, transmit, update or share any information, that is relating or encouraging gambling, etc. or otherwise unlawful in any manner whatever. It appears that the rule has been included to discourage any activity of gaming / gambling that may be unlawful under the Gaming Legislations in the country.
Records of the Identity of the Clients Which are Required to be Maintained As per the Rules, the Gaming Entities should also maintain records of the identity of their clients from the date of cessation of the transactions between the client and them for KYC purposes. Thus, the Gaming Entities have to verify and maintain a record with the details like identity of the client, current address of the client including the permanent address at the time of opening of an account or execution of any transaction with its client, nature of business of the client and financial status of the client. Further the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 also prescribes the nature and value of transactions for which records are required to be maintained by a financial institution. Similarly, Section 70 of Prevention of Money Laundering Act, 2002 provides for the offences by companies and the contravention by companies and liabilities of the Directors. Further Section 42 of the Foreign Exchange Management Act, 1999 provides for the contravention by the companies. So far as the liabilities of the Directors and employees of any company are concerned it is governed by the aforesaid provisions of the law.
It is basically the service provider who would be accountable in case of any contravention of the online gaming law of India coupled with the fact that when the service provider is having the requisite license for the online gaming portal issued by a specific state which has issued the license, he also would not be liable until and unless he violates the terms and conditions of the license. Further the monetary transactions covered under the Foreign Exchange Management Act 1999 and the Prevention of Money Laundering Act, 2002 and its prevalent rules are to be followed with. Further in case of any legislation changes or any amendment in the statutory provisions and its rules are to be complied with by the company and in such eventuality, there would not be any liability and contravention by the company and its directors. Further the working and management comprising of the financial transactions and maintenance of the records with complete details are utmost necessary. The day-to-day compliances in accordance with the aforesaid statutory provisions and rules are necessary for the company.