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Online Gambling in India: Need For A Regulatory Framework

The online gambling industry is a popular money-yielding industry of today. It has the potential to allure the youth who happen to be the most active consumers of the consumer market. Gambling through online means gives the joy and relaxation that any person wishes for in a fast-paced world while offering prospects of earning swift money. However, these games are addictive in nature, and the people that are lured into these games become subject to irreversible damage to physical and mental health while losing money.

Hence, governments all over the world, as also in India, are befuddled with whether or not the online gambling industry must continue to operate with all its consequences. In light of the same, this article will analyze the current legal position of online gambling in India and also traverses through judicial precedents in relation to online gambling. It shall also discuss online gambling laws in different countries and give suitable suggestions on revamping the existing legal framework.

Current legal position in India
Currently, India has no central level legislation that regulates the online gambling industry. Post-independence, when the Constitution of India was promulgated, gambling and betting came specifically under Entry 34 of the State List[1], thereby giving exclusive powers to the state legislatures to make laws on the subject matter of gambling and betting. Therefore, different states have enacted their own legislations on gambling. However, most of the states have not updated their gambling laws to include online gambling games

The Public Gambling Act, 1867[2] is one of the first laws in India that regulated gambling games. It prohibited all kinds of gaming rooms with respect to games of chance and made all people managing, owning, or being in charge of them liable. The said Act not only exempted games of skills but also did not include online gambling within its purview.

Also, NITI Aayog's discussion paper floated in December 2020 provided draft guiding principles for enabling online fantasy sports platforms to function[3]. These guiding principles encourage only skill-based fantasy sports games, disallow minor players, disallow advertisements on games of chance, and also make the rules and regulations of the games the same and transparent for all participating members.

It also proposes a self-regulatory form of governance for fantasy sports gaming platforms instead of a top-down regulation by the government. However, a self-regulatory body known as the Federation of Indian Fantasy Sports is already in existence since 2017 for regulating fantasy sports[4]. These guiding principles are not sufficient to provide guidelines to all online gaming platforms as these are specific to fantasy sports.

Advertising Standards Council of India (ASCI) Guidelines[5] also exclusively deal with one aspect which is the advertising of online gambling platforms. While it lays down guidelines on how to cautiously advertise these platforms to prevent falling into traps, it is not a direct regulator of gambling as such.

Generally, only a game of chance is considered to be gambling. As also seen in the Public Gambling Act, 1867, a game of skill is exempted. However, the question on what constitutes a game of skill or a game of chance had always invited debates until the Indian judiciary came up with a conclusion.

Game of skill vs game of chance
A game of skill is played using a substantial quantum of skills. Individual expertise and capabilities determine the success of a game of skill. In a game of skill, players know the rules and execute several strategies while playing to win. Chess, carrom and rummy are some examples of games of skill. On the other hand, a game of chance does not involve any skill and the victory is based on luck or any random factor. There is no way of telling how and who will win. The Indian judiciary has differentiated between a game of skill and a game of chance in its pronouncements.

The Supreme Court in the case of State of Bombay v. R. M. D. Chamarbaugwalal[6] held that games in which the victory is dependent on the usage of a substantial amount of skill cannot be categorized as gambling. Irrespective of the presence of an element of luck, if the game is predominantly based on a skill, it will be a game of skill.

Further, in the case of Dr. K.R. Lakshmanan v. State of Tamil Nadu,[7] it was held that a game of chance is determined by sheer luck, and that although there may be an element of skill, a game of skill should depend primarily on superior knowledge, coaching, attention and experience of the player. The dominant element present here (whether it is skill or chance) is what determines the true character of the game.

In the cases of Manoranjithan Manamyil Mandram v. State of Tamil Nadu[8] (2005) and M.J. Sivani & Ors. v. State of Karnataka,[9] the courts held that whether a game is a game of skill or game of chance will depend on the facts and the circumstances of each case.

With these important judgements, the judiciary made it clear as to what constitutes a game of skill and a game of chance. However, confusion regarding whether fantasy sports is a game of skill or a game of chance still prevails.

Is fantasy sport a game of skill or a game of chance?
Indians have an extreme passion for the game of cricket which has been instrumental in the growth of fantasy sports in the country. However, it is the technological advancement coupled with the pandemic that has led the growth in fantasy sports to skyrocket. According to KPMG, the Indian fantasy sports industry is predicted to be worth US $3.7 billion by 2024.[10] Despite this massive growth potential, the industry barely has any support from the government. The Indian judiciary has taken a stance on whether fantasy sports is a game of skill or a game of chance.

In the case of Shri Varun Gumber v. Union Territory of Chandigarh and Ors.,[11] the Punjab and Haryana High Court held that fantasy sports is a game of skill as it is predominantly based on skill.

In the case of Gurdeep Singh Sachar vs Union of India and Ors. (2019),[12] the Bombay High Court held that the victory in Dream11 game depends on the user's capacity to exercise his skill based on superior knowledge, judgement, and attention. Therefore, fantasy sports such as Dream11 is a game of skill.

In the case of Chandresh Sankhla vs State of Rajasthan[13] (2020), the Court held that Dream11 cannot be considered to be gambling as it is a game of skill. Therefore, it is clear from the above judgments that fantasy sports is a game of skill and it is unreasonable to ban it.

In spite of the judiciary holding that a game of skill is not gambling, many states have imposed a blanket ban on it. Nonetheless, some states have legislation regulating only the games of skill, the others have legislation regulating both the games of skill and chance in place. This shows the absence of uniformity in relation to online gambling legislation across different states.

State legislations
There are legislations of different states which differentiate a game of skill and a game of chance. There are states which ban both a game of chance and a game of skill if played for money. One such example is the recent Tamil Nadu state legislation in relation to online gambling that not only received criticism from the gaming community but was also struck down by the High Court of Madras.

The Tamil Nadu Gaming and Police Laws (Amendment) Act, 2020 (Amendment)[14] was passed to amend the Tamil Nadu Gaming Act, 1930. The Amendment was specifically made to prohibit games of skill when played for wager, bet, money, or other stakes. This Amendment was challenged in the High Court of Madras. The court struck down the Amendment on certain grounds[15].

Firstly, the court held that games of skill are business activities protected under Article 19(1)(g) of the Constitution of India[16]. Therefore, held that games of skill cannot be prohibited.

Secondly, the court held that the prohibitions laid down in the Amendment are not proportionate to the object of the Amendment. The court held that the State's intention was only to prohibit gambling in games of chance and not in games of skill. Therefore, the Amendment is unreasonable and disproportionate.

Thirdly, the court held that the Constitution only grants powers to the states to enact laws on betting and gambling confined to games of chance and not games of skills. Therefore, the Amendment was held to be unconstitutional.

Despite this, Karnataka passed a similar law recently. The Karnataka Police (Amendment) Act, 2021[17] was passed to amend the Karnataka Police Act, 1963. The said Act makes all kinds of gambling including gambling through online gaming a cognizable and non-bailable offence. Essentially, all games including games of skill would be prohibited, if played for a prize or money.

This was not well received amongst the gaming community. Apart from Karnataka and Tamil Nadu, the states of Andhra Pradesh and Telangana have banned online games including games of skill, if played for money as well[18].

While the above-mentioned states have banned even games of skills if played for money, there are a few states which have legalized them and have a proper regulation of online gambling in place. Sikkim is the first state in the country to legalize online gambling by introducing Sikkim Online Gaming (Regulation) Act, 2008 and the Sikkim Online Gaming (Regulation) Rules, 2009[19]. The definition of online games under the said Act includes all kinds of games including games of chance which are prohibited in most other states.

The Sikkim government issues licenses for a period of five years to the applicants for running online games and sports games. However, such games cannot be accessed by people from other states through websites. Such licensed online games and sports games are restricted to the gaming parlour's physical premises which are within the boundaries of Sikkim.

Meghalaya's government introduced the Meghalaya Regulation of Gaming Act, 2021[20] in 2021 to regulate the online gaming industry in its state. It regulates both a game of skill and a game of chance. The Meghalaya government issues licenses to its applicants for a duration of five years. The Licensees are bound to pay "gaming royalty" which is a percentage of sum of money earned after deducting the prize money deductions and other expenses and charges.

Unlike Sikkim and Meghalaya, Nagaland only legalized online gambling games based on skills and every game of chance is outlawed. It introduced the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015[21] to regulate online games of skill under which licenses are issued to entities that offer games of skill on their platforms.

Having such clear cut legislations for regulating online gambling prevents the existence of black market for online gambling websites. The central government must take inspiration from these state legislations in order to regulate online gambling uniformly across all states and to avoid ambiguity in interpretation and enforcement of the same.

Time and again, discussions about regulating online gambling keep happening in the Parliament like the recent one in the Rajya Sabha[22]. Taking an initiative to resolve the issue of regulating online gambling, the Indian politician, Shashi Tharoor, who currently serves as a Member of Parliament in the Lok Sabha introduced a private bill in relation to online gambling in 2018. Nevertheless, such discussions and attempts have been futile.

The Sports (Online Gaming and Prevention of Fraud) Bill, 2018
The Sports (Online Gaming and Prevention of Fraud) Bill, 2018 (Bill)[23] in Lok Sabha in 2018 was introduced by Shashi Tharoor. However, the Bill was never passed. The intent behind introducing the Bill was to regulate the largely unorganized online gaming sector that includes online gambling at the central level. Certain provisions from this Bill can be taken into consideration and be incorporated by the legislators into the regulations for online gambling which may be formulated in the future.

Section 3 of the Bill provides for all the different kinds of actions that would amount to a sports fraud. This includes a wide range of acts such as manipulation of sports result, irregular alteration of field of play, misapplying the rules of the sport deliberately, etc. as specified. The appropriate authority as designated by the Central government, investigates on such matters.
Section 6(2) imposes a fine of 5 times the reward earned through malpractice, along with imprisonment. Section 8(1) states that if such condemnable activity is performed by a company, then the company shall be held guilty. Section 14(1) states that a license is required to operate an online gaming website and no online sports happens except through such a website. However, the fine for operating a site without a license as given in this provision, could have been defined concretely by some numerical values.

The Bill also constitutes an Online Sports Gaming Commission (Commission) to regulate the online gaming sector. The Commission grants licenses after making an inquiry to applicants willing to run an online gaming server or an online gaming website. This is a welcome move to prevent unauthorized people from running online gaming websites.

Further, the Bill mandates the maintenance of accounts relating to online sports gaming by the licensee which is a welcome move as the auditors can go through the accounts to evaluate the safety of deposits. If for any reason, the online gambling platform were to shut down, the customers will be able to recover their funds.

Thus, maintaining of accounts and auditing shall ensure fairness. Furthermore, the Bill also permits Foreign Direct Investment (FDI) in the online gaming industry. The online gaming industry is flourishing in India and FDI would definitely boost growth.

As provided for in the Bill, the authors suggest that a central-level legislation is required to regulate online gambling activities as it will ensure uniform, fair, and just laws that apply to all citizens of India equally without distinguishing between them merely on the basis of borders. Further, such a legislation must also aim at the welfare of the people by providing for a mandatory disclaimer at the home page of every gambling app/website which clearly indicates the risks regarding the game to be played and the conditions to fulfill to become a player so that every player is fully aware of what they are engaging in. Also, the legislation must clearly specify the age limit for the players to ensure that children are not addicted to online gambling.

Keeping in mind the growth of online gambling, several countries have legislations regulating online gambling in place. India could draw inspiration from the foreign online gambling legislations to enact a central level online gambling legislation.

International law
In Canada, till date, as per the Criminal Code,[24] hosting a gambling website anywhere within Canada is deemed as illegal. However, each province of the country has the permission to legalize particular types of gambling that may be operated on or through a computer within their borders. Therefore, the matter of legalizing online gambling operations within its own confines is left to the provinces.

In the US, at a federal level, gambling (inclusive of online) is legal, but each state has a different position on the legality of online gambling. Different laws regulate online gambling. An important law in this regard is the Unlawful Internet Gambling Act[25]. This law doesn't prohibit players from playing games however, the intention of the law was to stop money laundering, fraud, and other financial crimes. This law prohibits online gambling companies from accepting payments from an entity that violates federal or state laws. It regulates how payments are made for online gambling transactions.

This law makes it illegal for a company to accept payment from banks or credit card companies. The Illegal Gambling Business Act[26] was aimed at ending the involvement of organized crime in the gambling industry. This law states that any gambling operation that is in violation of state or local law that has five or more people conducting its operation, and remains in continuous operation for 30 days or makes more than $2,000 in revenue in a days' time can be prosecuted.

This law doesn't include the bettor as a person that can be found guilty under this law, however anyone who works for the gambling business itself can be. This means that anyone from the owner of the business down to the runners can fall under this law.

In the United Kingdom (UK), the basic legislation that applies to gambling of all forms is the Gambling Act 2005[27]. It is legal for residents and visitors and is regulated by the United Kingdom Gambling Commission (UKGC), which oversees all forms of gambling in the country. Every legal online gambling platform must have a license from the UKGC. Six types of gambling are clearly defined by the Act, all of which are the only allowed types.

In South Africa, the Gambling Regulators Africa Forum (GRAF) is a body representative of gambling regulators within the African Continent, who aspire to be effective and credible in their regions and continentally. In Africa, gambling is legal, however, the online form of it is not. The GRAF oversees illegal gambling and combats it through cooperation between states and sub-divisions of GRAF.

The idea of having an overseeing regulatory board as seen in the case of the above-mentioned countries is good and has a significance. Having such a board will ensure that there is lesser burden of duty on the state governments, and will transfer the duty on a board of experts who can adeptly handle the same, throughout the country and not limiting it to a state-wise regulation.

The way forward and concluding remarks
The countries like the US and UK have legislations in place to regulate all kinds of online gambling. It is draconian for India to ban online gambling especially when the online gambling industry is booming in the country and could be instrumental in boosting the economy of the nation.

Further, although there are different states with laws banning online gambling, foreign online gambling websites are easily accessible to everyone in India. Furthermore, such websites are not regulated by Indian laws. These websites are regulated by international regulatory bodies such as the UKGC, the Malta Gaming Authority, Gaming Curacao, etc[28].

Since there is a ban imposed on online gambling games by several state governments, people tend to use more and more foreign websites for the purpose of playing online gambling games. The intention of banning online gambling games is to protect individuals who are susceptible to the vulnerabilities such as addiction and financial losses in such games. Banning indigenous online gambling websites does not achieve the goal of curbing access to such websites as there is open access to foreign online gambling websites.

Such foreign online gambling websites are using the ban as an opportunity and generating huge amounts of profits from the lucrative Indian online gambling market. Therefore, the authors contend that imposing a blanket ban on online gambling games on Indian websites is counter-productive as foreign online gambling websites are always open. It not only defeats the purpose of the ban but also prevents India from making money from the flourishing online gambling industry.

A recent petition[29] in the Delhi High Court sought the government regulation of online gaming including gambling activities. The Centre's response to the petition stated that it was the state governments' responsibility to regulate the same and that the Ministry of Electronics and Information Technology (MeitY) is in no way responsible to regulate it. The authors contend that considering the colossal growth in the online gambling industry, the Constitution must be amended to make regulation of online gambling a subject in the Union List so that a central level legislation on online gambling can be enacted.

Furthermore, the authors contend that it is unfair to ban games of skill even if it is played for money as they can be considered as business activities under Article 19(1)(g) of the Constitution of India[30].

Also, the income from online gambling is taxed under Section 115BB[31] of the Income Tax Act, 1961 wherein winnings from all sorts of gaming or gambling of any form are taxed at a flat rate of 30% of the winnings. This generates income for the government. The fantasy sports platform Dream11 recently became India's first unicorn in the online gambling sector[32]. More players are entering the said sector due to the growth prospect and it generates employment to several people[33].

Therefore, a strong central-level legislative framework of online gambling that regulates online gambling platforms, and at the same time can guarantee the safety of an individual's money is a necessity. Such legislation must also ban foreign online gambling websites in India in order to promote indigenous online gambling platforms.

End-Notes:
  1. India Const. Schedule VII
  2. The Public Gambling Act, 1867, No. 3, Acts of Parliament,1867(India).
  3. https://www.niti.gov.in/sites/default/files/2020-12/FantasySports_DraftForComments.pdf.
  4. https://fifs.in/.
  5. https://asci.social/guidelines.
  6. AIR 1957 SC 699
  7. 1996 AIR 1153.
  8. AIR 2005 Mad 261.
  9. [1995] 3 SCR 329.
  10. India Has A Huge Potential For Fantasy Sports (Jan. 05, 2021), https://www.ibef.org/blogs/india-has-a-huge-potential-for-fantasy-sports.
  11. CWP No. 7559 of 2017.
  12. SLP (Crl.) Diary No. 42282 of 2019.
  13. 2020 SCC OnLine Raj 264.
  14. Tamil Nadu Gaming and Police Laws (Amendment) Act, 2020, No. 1, Acts of Tamil Nadu State Legislature, 2020(India).
  15. Junglee Games India Pvt. Ltd. & Anr. v. State of Tamil Nadu
  16. India Const. art. 19(1)(g).
  17. The Karnataka Police (Amendment) Act, 2021, No. 37, Acts of Karnataka State Legislature, 2021(India).
  18. Tamil Nadu bans online games, gambling; joins AP, Telangana (Nov 23. 2020), https://indianexpress.com/article/business/business-others/tamil-nadu-bans-online-games-gambling-joins-ap-telangana-7060679
  19. Sikkim Online Gaming (Regulation) Act, 2008, No. 23, Acts of Sikkim State Legislature ,2008 (India).
  20. The Meghalaya Regulation of Gaming Act, 2021, No. 9, Acts of Meghalaya State Legislature ,2021(India).
  21. Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015, No. 3, Acts of Nagaland State Legislature, 2015 (India).
  22. Mathew, L. and Vishwanath, A., 2021. On online betting law, lawyer Singhvi takes help from MP Singhvi (Dec.3, 2021) https://indianexpress.com/article/india/on-online-betting-law-abhishek-manu-singhvi-7669631.
  23. Sports (Online Gaming and Prevention Of Fraud) Bill, 2018.
  24. (R.S.C., 1985, c. C-46).
  25. Unlawful Internet Gambling Enforcement Act of 2006 31 USC 5361-5366.
  26. Illegal Gambling Business Act, 18 U.S.C. 1955.
  27. Gambling Act 2005 c. 19.
  28. Legal Betting Sites in India, https://mybettingsites.com/in/legal-betting-sites.
  29. Banka, R., Online gambling threat, can't make profit at the cost of young lives: Delhi HC. (Aug. 25, 2021). https://www.hindustantimes.com/india-news/online-gambling-a-threat-portals-can-t-make-profit-at-the-cost-of-young-lives-delhi-hc-101629919576142.html
  30. India Const. art. 19(1)(g).
  31. The Income-Tax Act, 1961 Act No. 43, Acts of Parliament,1961(India).
  32. Dream 11 becomes India's first gaming unicorn with investment from Steadview Capital, https://www.businesstoday.in/latest/corporate/story/dream-11-gaming-unicorn-steadview-capital-dream-11-becomes-indias-first-gaming-unicorn-with-investment-from-steadview-capital-183198-2019-04-09.
  33. Kushwaha, A, Gaming Is Powering Job Generation, (Jul. 10, 2021), http://www.businessworld.in/article/Gaming-Is-Powering-Job-Generation/10-07-2021-396171.
Written By:
  1. Julia Anna Joseph and
  2. Rupa Veena S.

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