The centre-state conundrum: Who should regulate online gaming in India and decide on its legalities

This article is a part of a larger series on Online Gaming in India. The previous article deals with the potential and the dangers of online gaming and the need to regulate it urgently. Click the link to read the article.

Recently, the Prime Minister’s office objected to a differentiation between games of ‘skill’ and games of ‘chance’, calling for expanded central oversight over all types of games. This has come at a time when India’s online gaming market scaled to INR 3 billion in 2021 and is expected to double by the financial year 2025, a KPMG report stated. The growth is predicted to reach 290 billion with the number of gamers rising to 657 million.

But before we dive into the changes to come, what are the existing measures in place when it comes to online gaming today?

The power under the ConstitutionThe Constitution of India empowers State governments to legislate on matters relating to betting and gambling vide Entry 34 and Sports vide Entry 33 of the State List of the Seventh Schedule. However, the State cannot legislate on games of skill as it is only concerned with betting, gambling and sports, which fall under the ambit of games of chance. The difference between the two is of huge importance in India as it has been established by our courts on multiple occasions that betting on games of skill is legal, while betting on games of chance is not.

Games of chance or luck are based on pure luck where the odds of winning cannot be boosted by a player’s skill, experience and/or knowledge. Since they are based on unpredictable outcomes, the uncertainty increases as there is no skill involved. Examples include Baccarat, slot games, lotteries, and table games such as blackjack, teen patti and roulette.

Games of skill, on the other hand, take a more principled approach. To win or increase the odds of winning the individual needs to have the prerequisite experience and extensive knowledge of the game. There is an identifiable learning curve in developing the necessary skill and honing them to adapt to different scenarios.

A game of skill can be won based primarily on the expertise of the player, while a game of chance employs a higher component of luck rather than the efficacy of the player. Skill games are poker, blackjack, and numerous sports betting variations.

Individual states wield the power to impose outright bans on gambling, or games of chance. Accordingly, different states have taken different measures to deal with the regulation of gambling and sports.

Public Gambling Act, 1867: Since there is no central-level law that deals with online gaming, several State governments have framed their laws drawing from the spirit of the Public Gambling Act, 1867, a 155-year-old archaic law that predates even the Internet, which can be considered the closest law relating to gambling. The only drawback and most peculiar thing here is that it does not define (online) gambling.

Much like The Public Gambling Act, the Information Technology Act also applies to all Indian states apart from those who decided to enact their legislation regarding cyber-crimes. While it does not actually refer to gambling on betting whatsoever it may still be used to penalise online gambling since it legislates a wide variety of online activities in India.

On the other hand, a circular issued in 2015 by the Central Board of Direct Taxes is one that particularly deals with the activities that fall under the purview of gambling and states that for any e-wallets or virtual card accounts maintained with offshore online gaming/ poker websites, the valuation and declaration of such accounts must be made as in the case of a bank account.

But the lacuna that exists regarding clear laws leaves room for ambiguous interpretations and, therefore, presents both opportunities as well as legal risks for online gaming companies.

What do the courts say?Our Courts have time and again iterated that states cannot exercise extra territorial jurisdiction on any subject, highlighting the erroneous exercise of jurisdiction in the field of sports and entertainment. Various courts have delivered a plethora of judgments that have held that:

online games and sports of skill with or without stakes are not construed as betting or gambling;
states only have the power to make laws and regulate gambling, and betting on the activity of gambling;
playing online games and sports of skills forms part of article 19 (1) (g) and Article 21 of the constitution;
a complete ban on online gaming is unconstitutional as it was not a reasonable restriction imposed on the fundamental right given under Article 19(1)(g) of the Constitution;
Fantasy Sports games are not only a legitimate business activity but also a game of skill and there is no reason to interfere with the settled legal principle that playing skill games for stakes does not amount to gambling

The Supreme Court of India has also established that where there is a substantial element of skill, and the outcome is in control of the player; the gameplay must be considered a skill and not the result of chance.

Making the case for central regulationA lack of common legal consensus on Online Gaming is the corollary of an absence of regulatory structure where some states have used the Police or Gambling Act, thereby deeming Gamers as (illegal) “Gamblers”.

This makes a poker player in Chennai a pay-to-play chess player where they to pay-to-play online. Such an individual would be a criminal in Telangana, Karnataka, Andhra Pradesh, and Tamil Nadu, yet a thorough professional in Goa, Nagaland, and Sikkim.

Online gaming so far has been a state subject, but governments have said they find it extremely difficult to enforce certain rules like geo-blocking particular apps or websites within their territory.

Creating a regulatory framework and providing much-needed legislative clarity would not only help curb underground activity but also create new sources of revenue for the Government. Since the online gaming industry operates across India and has no physical presence, regulating the same through a state’s power of legislation is tricky as it has to be done within the confines of its territorial boundaries.

Central laws and regulations with a certain level of State autonomy will enable uniform protection of data and intellectual property rights, privacy rights, a singular uniform policy regulating online gaming (whether skill-based or chance based) and help the Government to keep track of the industry players. It can also enable a mechanism to track unlawful applications and websites along with online games required to follow uniform rules and regulations like the registration processes, KYC verification, Grievance Redressal Systems and more!

Siddharth Chandrashekhar is an advocate & counsel at the Bombay High Court, working in litigation as well as non-litigation, skilled in negotiation, arbitration, and corporate documentation.

Anita Shekhar Castellino is a senior lawyer at the Bombay High Court and is the Convenor and Founder of the Interactive Session of Women Advocates which takes up issues faced by young female advocates and interns.

Views expressed are personal.

This article is a part of a larger series on Online Gaming in India. Click here to read the other articles that are a part of this series.