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India’s online gaming industry has seen exponential growth due to technological progress and increased internet access. As the online gaming industry expands, the complexity of its legal landscape has deepened, which is primarily governed by numerous legislation that predominantly cover a variety of legal areas viz. intellectual property rights, taxation, advertising, and information technology. Moreover, states in India have their own state-specific gaming laws due to the subject falling in the State List under the Indian Constitution, which indicates a lack of centralized legislation. Consequently, Indian Courts have tried to regulate the online gaming industry through judicial precedents that regulate key aspects of the gaming sector.
I. Overview of Regulatory Framework
The regulation of online gaming in India remains fragmented across states and intersects with several other legislations in the country. The primary legislation under which online gaming is largely legislated is the Public Gambling Act, 1867, which regulates and prohibits offline games of chance (but not offline games of skill). In this regard, Section 12 of the Act makes it clear that this legislation does not apply to games of skill.
However, it is to be noted that post the enactment of the Constitution of India, 1950, the various state legislatures in India have received the authority to regulate and govern betting, gambling and allied activities within the territory of their respective state territories. Consequently, this has led to numerous legislations being enacted in various states across the country to regulate online games in the state.
Recently, the Madras High Court in the case of All India Gaming Federation v. State and Ors., WP 13203 of 2023, nullified the Tamil Nadu Government’s ban on online rummy and poker, and held that that the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 cannot be entirely declared unconstitutional and hence, the Act will be applicable only to games of chance. Therefore, the Hon’ble Court specified that the ban can be imposed on games of chance, but it should not extend to Rummy and Poker, which are considered games of skill.
- Game of Skill vs. Game of Chance
The terms “game of chance” and “game of skill” have not been decisively defined in any Indian legislation (including gaming and gambling legislation existing at both the central and state level in India) in a comprehensive manner. However, the Indian judiciary has adjudicated upon and interpreted the terms at length in various judicial decisions. Thereby, whether a game qualifies as a “game of skill” or a “game of chance” in India is required to be determined keeping in mind the relevant criterion laid down by the Indian judiciary.
The above aspect has also been affirmed in the case of Manoranjithan Manamyil Mandram v State of Tamil Nadu[1] wherein, the Madras High Court held that to determine what constitutes a game of chance or skill is a “question of fact” and is to accordingly be decided on the basis of facts and circumstances on a case-to-case basis. Further, as regards a “game of mere skill”, the Madras High Court held that a game of mere skill (which includes games based on skill, and a competition wherein success depends on a “substantial degree of skill”) will not constitute gambling. In contrast, a game of chance is where the aspect of luck or chance dominates skill or affects the outcome of the game.
II. Regulation of Online Gaming: Recent Developments and Outlook for 2024
(a) Information Technology (Intermediary Guidelines and Digital Media and Ethics Code) Rules, 2021: Amendments
One of the most notable developments is the amendment of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, in April 2023. This amendment expanded the scope of the IT rules and included online gaming in the same sphere by defining the terms ‘online game’ and ‘online real money game’. Under the amended rules, all online gaming platforms/intermediaries which offer an online real money game qualify as an ‘online gaming intermediary’ under the IT Rules and are required to undertake some compliances and exercise due diligence in a manner similar to the due diligence required by intermediaries in social media and e-commerce spheres under Rule 3 and 4 of the IT Rules.
The guidelines require online gaming intermediaries to publish privacy policies and terms of use, verify users before allowing access to real-money games, and implement a grievance redressal mechanism for user complaints.
(b) Tax Regulation on Online Games
In August 2023, amendments to the Integrated Goods and Services Tax Act, 2017, and the Central Goods and Services Tax Act, 2017, required foreign-based gaming intermediaries offering services in India to register with Indian tax authorities and comply with local tax laws. Further, the GST Council also finalized its decision and levied a tax of 28% on monies deposited by users and/or the full face value of the bets placed on online gaming, casinos and horse-trading. Prior to this decision, the earlier regime allowed for an 18% tax on the gross gaming revenue (GGR). The GGR was calculated as the difference between the money wagered by the players and the amount paid as winnings.
(c) Ethical Gaming Practices and Government Advisories on Advertisements.
With the addition of the internet to gaming, advertisements have become a part of the online gaming experience and the industry. However, the prevalence of advertisements in online gaming introduces risks of unfair practices or surrogate advertising, which are regulated under the existing laws such as the Consumer Protection Act 2019, Press Council Act, 1978, and Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 which prohibit the advertisements/promotion of betting and gambling .
- MIB’s advisories agianst surrogate advertising for online gaming
On August 25, 2023, the Ministry of Information & Broadcasting (“MIB”) issued an advisory to registered newspapers, private television channels, publishers of news and current affairs content on digital media, online advertisement intermediaries, and social media platforms asking them to refrain from publishing, broadcasting advertisements of online betting platforms and/or any such product/service depicting these platforms in a surrogate manner.
- CCPA’s Advisory on Prohibition of Advertising, Promotion, and Endorsement of Unlawful Activities
On March 6, 2024, CCPA also issued an advisory stating that celebrities and influencers should refrain from endorsing and promoting illegal betting and gambling activities as when a celebrity/influencer endorses or promotes something, consumers often perceive it as an acceptable activity. In view thereof, the Advisory specifically provides that celebrities and influencers can also be held equally liable for participating in an illegal activity.
III. Recent Judicial Pronouncements:
- Galactus Funware Technology v. State of Karnataka (2022)
In this case, the High Court of Karnataka on February 14, 2022 quashed various provisions of the Karnataka Police (Amendment) Act, 2021 thereby lifting the blanket ban on all games (including online skill games) played for stakes. The Court further held that the Amendment Act is violative of Article 14 of the Constitution as it does not recognize the difference between a ‘game of skill’ and a ‘game of chance’, thus treating distinct activities equally.
- All India Gaming Federation v. State and Ors., (WP 13203 of 2023)
In this case, the Madras High Court nullified the Tamil Nadu Government’s ban on online rummy and poker and specified that the ban can be imposed only on games of chance and not on games of skill such as Rummy and Poker. The Court while partly allowing a batch of writ petitions further held that the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 cannot be entirely declared unconstitutional and hence, the Act will be applicable only to games of chance. The Court further held that the definition of ‘online gambling’ under Section 2(i) of the Act, shall be read as restricted to ‘games of chance’ and not games involving skill viz. rummy and poker.
IV. Conclusion
India’s online gaming industry holds significant revenue potential but faces challenges due to fragmented regulations across states, outdated laws, and recent amendments. As the online gaming industry continues to grow, there is an urgent need for comprehensive legal reform to create a more consistent and unified regulatory framework. Instead of regulating the industry by amending the IT Rules, 2021, the government should consider updating existing laws and creating separate central legislation including the framework of self-regulatory bodies, to protect consumer interests and encourage responsible gaming practices.
Authors: Ashneet Hanspal and Parag Singhal
Footnotes
[1] AIR 2005 Mad 261