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Online Gaming In India: A Legal Puzzle

Akshay Sachthey
28 Dec 2020 9:38 AM GMT
Online Gaming In India: A Legal Puzzle
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India's online gaming industry has been buzzing with activity of late. The industry has already seen phenomenal growth and offers vast potential ahead, given India's young population and the expansive reach of mobiles and internet. Industry revenue is expected to grow from around USD 600 million in FY18 to USD 1.6 billion by FY23, at a CAGR of 22.1%[1]. Fantasy sports games, in...

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India's online gaming industry has been buzzing with activity of late. The industry has already seen phenomenal growth and offers vast potential ahead, given India's young population and the expansive reach of mobiles and internet. Industry revenue is expected to grow from around USD 600 million in FY18 to USD 1.6 billion by FY23, at a CAGR of 22.1%[1]. Fantasy sports games, in particular, have received much interest from Indian and foreign investors. Dream 11 reportedly became India's first gaming unicorn recently.

Amidst the buzz, a natural question is whether online games are legal in India or not. The answer is unfortunately not a clear one, given India's archaic and complicated legal framework on gaming. Added to the mix is a set of unfortunate recent incidents where players committed suicide after losing money in online games and one where a gaming platform was investigated for money laundering, resulting in some Indian states banning online games.

Legal framework

India does not have a unified law that deals with gaming or gambling (both terms are largely interchangeable for the purposes of Indian laws). The Constitution of India empowers each state to make its own gambling laws. This means there are numerous state-specific deviations. For example, Telangana, Tamil Nadu and Andhra Pradesh have banned online games. In West Bengal, games of bridge, poker and rummy are excluded from the definition of gambling. In Kerala, there is a government notification which exempts rummy from gambling if no side-betting is involved. Sikkim and Nagaland require a license for online games.

In many states, gambling laws continue to be modelled on a pre-independence law, the Public Gambling Act, 1867 (Old Act), which is not geared to deal with modern forms of gaming. For instance, this law contemplates games being played in a 'common gaming house' which is a physical space or enclosure.

Even states that recognize online games have differing treatment. Tamil Nadu continues to permit skill-based (but not other) online games while Telangana and Andhra Pradesh have altogether banned online games played for money or stakes.

Absent uniformity or clarity in law, different courts in India have taken differing views on how to treat online games. These views often do not reflect the practicalities of modern gaming. The Supreme Court of India has developed a guiding principle – games where chance dominates over skill are prohibited while games where skill dominates over chance are permitted[2]. But without an objective test to characterize games of skill and chance, courts have applied this principle differently to different facts. The result is a complex legal regime that makes it difficult to determine whether a particular game is permitted or not.

Three examples of online games that are becoming increasingly popular are discussed below.

Rummy

The Supreme Court has held that under normal circumstances, rummy is a game of skill and is permitted under gambling law[3]. However, this decision comes with a disclaimer. There should not be any evidence of gambling involved in any other way – game owners should not make profits or gains from rummy and games should not be played for stakes. The disclaimer means that several online rummy games cannot benefit from the Supreme Court's decision since they potentially involve profits for participants, who play for real money, and for game owners, who often charge participation fees.

The Kerala High Court[4] also recently held that RummyCircle (online rummy) did not amount to gambling. Bear in mind here that Kerala laws do not treat rummy as gambling if no side-betting is involved, which means that courts in other states may not take the same view.

Poker

Different High Courts have given conflicting decisions on whether poker constitutes a game of skill or chance. While the High Courts of Gujarat[5] and Bombay[6] have held poker to be a game of chance and therefore prohibited, the Calcutta High Court's view is that poker is not covered under the state's gambling laws (meaning that it is not restricted)[7]. Again, the background here is that West Bengal gambling laws exclude poker from the definition of gambling.

The Supreme Court[8] has also observed that there is no scope for using skill in games like poker double up, blackjack and pacman (meaning they are prohibited). However, this seems to have been a passing observation based on the factual findings of the lower court which had classified these games as games of chance. Again, this means there is no decisive ruling on poker.

Fantasy Sports

Unlike other online games, fantasy sports games have generally been given consistent treatment by Indian courts and have been allowed on the basis that they require skill. Both the Punjab & Haryana and Bombay High Courts have ruled that the games offered by Dream 11 (fantasy cricket, kabbadi, football, etc.) require skill, knowledge, judgement and attention and are outside the scope of gambling[9]. The Rajasthan High Court has also followed suit[10].

The above rulings do inspire confidence in the legality of fantasy sports games. However, it cannot be said that the position is settled yet, since other courts could react differently. For instance, applying the Supreme Court's decision on rummy, if a fantasy sports game owner makes profits from the game or if a participant plays for real money, does this indicate that the game has a gambling character? Unfortunately, we may need to wait for a court to answer this.

Summing up

Recent events do highlight the need to safeguard players but there could be solutions other than complete bans on online games. Instead, appropriate checks and balances could be considered. For instance, the Niti Aayog recently issued draft guiding principles for fantasy sports games which include setting up a self-regulating organization, maintaining predominance of skill in games, seeking approval from an independent committee for pay-to-play games, a minimum age of 18 years for participation, fairness and transparency in game terms and conditions, policies on misuse, advertising norms, etc. The Advertising and Standards Council of India also recently published guidelines for advertisements of real money games on a self-regulation basis.

But for starters, outdated state laws need to be overhauled to recognize online games in the manner they are played today. It may no longer be relevant to prohibit a game solely because it involves profits for game owners or is played for stakes.

Uniformity in legal treatment across states is likely to be a difficult challenge to overcome. Perhaps the Central Government could take measures to encourage deliberations between states to bring in some uniformity in law. Since many state laws rely on the Old Act's provisions, they could consider a model amendment to the Old Act to recognize (or ban) online games. The Niti Aayog's guiding principles are a very positive start and show good intent from the government. Hopefully this will pave the way for a clearer legal framework that caters to modern day gaming.

Akshay Sachthey is a Principal Associate at Phoenix Legal. Akshay specialises in advising clients on intricate legal and regulatory issues in areas ranging from general corporate to strategic, contentious and pre-dispute matters.He was assisted by Ushashi Nan, Trainee at Phoenix Legal. Views are personal.



[2] Dr. K.R. Lakshmanan v. State of Tamil Nadu and Anr. (AIR 1996 SC 1153)

[3] State of Andhra Pradesh v. K. Satyanarayana (AIR 1968 SC 825)

[4] Play Games 24X7 Private Limited and Ors. v. Ramachandran K. and Ors. (2019 4 KLT 542)

[5] Dominance Games Pvt. Ltd., v. State of Gujarat (2018 1 GLR 801)

[6] Nasir Salim Patel v. State of Maharashtra & Ors., WP (Criminal) 427 of 2017

[7] Indian Poker Association v. State of West Bengal, W.P.A. No. 394 of 2019

[8] M. J. Sivani v. State of Karnataka (AIR 1995 SC 1770)

[9] Gurdeep Singh Sachar v. Union of India and Ors. (2019 75 GST 258 Bombay) and Varun Gumber v. UT Chandigarh (2017 CriLJ 3827)

[10] Chandresh Sankhla v. The State of Rajasthan and Ors. (2020 2 RLW 1601 Raj)


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