The Indian legal framework concerning information technology and online activities is still largely shaped by laws and regulations that were designed in the pre-internet era. While India has made significant strides in the digital domain with initiatives such as the Digital India programme and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”), Indian laws have struggled to keep pace with the rapid evolution of the internet and online spaces. This is particularly evident in the context of online gaming, a domain that has seen substantial growth and is projected to reach a market of USD 20 billion by 2025 in India.[1] Existing laws governing online real money games, gambling and betting including the Public Gambling Act, 1867, contain numerous state-specific amendments resulting in lack of uniformity and creating further confusion when they fail to address the legal challenges that have emerged over time.

In this context, the proposed Digital India Bill (“Proposed Bill”) has the potential to be a transformative piece of legislation. The Proposed Bill aims to consolidate and modernize India’s digital infrastructure, recognizing the need to regulate online activities and platforms since one of its provisions addresses online gaming, categorizing it as an intermediary and highlighting the necessity for a distinct set of rules. Further, the IT Rules represent a significant effort to regulate online games and self-regulatory bodies (“SRBs”), as SRBs must verify an online real-money game in order to make it permissible under the rules.[2] However, there is no definitive timeline as to when the Proposed Bill would be passed by the Indian Parliament. Additionally, the IT Rules have faced considerable criticism due to gaps in the definitions of key terms and a lack of forward-thinking approaches[3]. As a result, expected legislations and existing laws, especially those concerning gaming and gambling, are unclear and fail to adequately address the rapidly expanding online gaming sector.

The evolving online gaming industry has sparked legal debates on whether certain games can be classified as ‘skill-based’ or ‘chance-based’. Traditionally, Indian courts, including the Supreme Court and High Courts, have applied tests such as predominance of skill[4], persistence of skill[5] and skill gradient[6] to ascertain this distinction. However, despite explicit guidelines articulated in judicial pronouncements, the application of qualitative criteria in determining permissible online real-money games remains largely subjective.

To address this issue, renowned statistician and former chairperson of the National Statistical Commission, Dr. Bimal Roy, in collaboration with the Indian public policy think tank, The Dialogue, has released a report titled ‘An Objective Framework to Determine Permissible Online Real Money Games,’ (“Framework”) which aims to standardize the distinction between skill-based and chance-based games. The Framework combines legal principles with statistical methods and scientific methodology to ensure objectivity, clarity and consistency in classifying online games, incorporating both jurisprudential analysis and quantitative criteria to develop a dynamic tool for determining the legality of online real-money games in India.

This artcle undertakes a comprehensive analysis of the Framework and the potential scope of its application within the current legal landscape. Our analysis explores the implications of incorporating this Framework into the legal system and how it can provide comparative regulatory clarity in what today is muddy waters with respect to the real-money online gaming industry in India.

  1. Indian Courts Grapple with Distinction Between Skill and Chance in Online Games

Over the years, Indian courts have held that games of skill, such as rummy and poker, are not considered gambling, whereas games of chance, such as lottery and betting, are subject to gambling regulations. Indian courts have used three tests to identify the distinction: (i) predominance of skill, where skill outweighs chance; (ii) persistence of skill, where performance improves with practice; and (iii) skill gradient, where factors like knowledge and experience of the players affect outcomes. However, this distinction has been based largely on offline games, and various high courts in the country are divided on the fact that whether the same game in the online and offline formats would have the same criteria to determine a game is game of skill or game of chance.

The issue highlighted above can be better understood through a recent order by the Supreme Court of India, which instructed the High Court of Andhra Pradesh to reconsider the eligibility of online rummy.[7] The Andhra Pradesh High Court had earlier ruled that physical rummy was a ‘game of skill,’ but it lacked sufficient evidence to decide whether online rummy should be classified as a ‘game of skill’ or a ‘game of chance’[8]. In contrast, around the same time, the Karnataka High Court[9] determined that the same criteria should apply to both online and offline games to assess whether they are games of skill or games of chance. These rulings emphasize the need for a more nuanced approach to how traditional legal principles should or should not be applied, or adapted, in the digital era.

  1. Introducing ‘An Objective Framework for Classification of Online Real-Money Games’

To address the growing need for clarity and uniformity in the regulation of online real-money games, the adoption of the Framework is a crucial step forward.

The authors of the Framework have developed scientific evaluation methods combining case law and empirical techniques to objectively assess the role of skill versus chance in online games. Key criteria include determining that in skill-based games, (i) past performance correlates with future outcomes, unlike games of pure chance where randomness prevails; (ii) the skill gradient, where a player’s success depends on their ability compared to others, emphasizing skill over chance; consistency of skill, where experienced players show consistent success over time; (iii) refinement of skill, where practice enhances strategies and decision-making; and (iv) superior skill, where highly skilled players consistently outperform others, unlike in chance-based games where no player can achieve exceptional results consistently. These criteria offer a clear, objective framework for distinguishing skill-based games from chance-driven ones.

Additionally, the Framework cites three tests that would standardize and quantify the evaluation of skill in games like online rummy, poker, and fantasy sports to accurately determine their classification. Each of these tests use statistical methods, starting with the Chi-Square test, which assess associations between attributes, followed by the Pearson Correlation test, which identifies positive correlations which are an indication of skill. Both these methods are applied to each of the three tests: (i) Persistence of Skill Test, which evaluates if a player’s skill remains consistent over time, confirming that in skill-based games, success is linked to skill rather than randomness; (ii) Experience Gap Test, which assesses whether more experienced players perform better, showing a positive correlation between experience and success, thus indicating a skill-based games; and (iii) Exemplary Skill Test, which evaluates how rare it is for players to consistently achieve outstanding results, with exceptional performance suggesting skill, as achieving such outcomes purely by chance is statistically improbable. Together, these tests provide an objective, data-driven method for classifying games based on their skill components.

  1. Standardizing Online Gaming Regulations: The Role of the Proposed Framework

Adopting this Framework into Indian legislation would provide several benefits. First, it would create a standardized approach to classifying online games, ensuring that games with a predominant skill component are treated fairly while games of chance are properly regulated. Second, it would offer greater clarity to online gaming operators and consumers, helping them navigate the complex and fragmented legal landscape. Third, by relying on scientific methodologies, it would ensure that the classification process remains objective, transparent, and adaptable to future developments in online gaming.

The Framework would also help to address one of the key challenges facing the Indian gaming industry today — ensuring that online gaming is not only legal but also safe, fair, and responsible. It could be the first step in creating a comprehensive regulatory regime for online gaming that goes beyond simply classifying games as skill-based or chance-based, and also includes safeguards to protect consumers and ensure the integrity of the industry.

Conclusion

In our view, there is no need for an entirely separate legislation to incorporate the Framework into Indian law. While there has been discourse around the gaps in the IT Rules vis-a-vis online gaming, they already lay the foundational groundwork for integrating the Framework’s tests into existing legislation. To move forward, it is recommended that established organizations, such as All India Gaming Federation or Federation of Indian Fantasy Sports, which are not officially recognized by the government, comply with the SRBs criteria set out in Rule 4A(2) of the IT Rules. This would allow these organizations to officially operate as SRBs under the IT Rules, empowering them with the authority to verify online games that are permissible under current regulations.

In conclusion, the adoption of Framework is a positive step towards regulating online gaming in India, providing a much-needed structure for differentiating between games of skill and games of chance. However, further development is required to make the tests more adaptable to the rapidly evolving nature of online gaming and to ensure their alignment with India’s legal and regulatory environment. While the Framework represents a good starting point, much work remains to ensure its smooth adoption into legislation, and collaboration with all stakeholders will be key to achieving this goal.

Footnotes

[1] ‘An Objective Framework to Determine Permissible Online Real Money Games’ by The Dialogue and Dr. Bimal Roy

[2] Rule 4A of the IT Rules

[3] Anay Mehrotra and Puneet Srivastava, Online Gaming Platforms and Self-Regulation: Exploring the Feasibility of the Mechanism, 6 Nov 2024, Vidhi – Centre for Legal Policy

[4] RMD Chamarbaugwala v. Union of India [(1957). S.C.R. 874]

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

[6] Varun Gumber v. UT of Chandigarh [CWP No.7559 of 2017]

[7] State Of Andhra Pradesh v. Play Games 24 And 7 Private Limited [Special Leave Petition (Civil) Diary No(s). 30851/2023]

[8] State of Andhra Pradesh v. Play Games 24 and 7 Private Limited & Anr. (WP No. 19659/2020, WP No. 19571/2020  and WP No. 19732/2020 passed by the High Court of Andhra Pradesh at Amravati)

[9] Gameskraft Technologies Private Limited v. Directorate General of GST & Ors. [(2023) 116 GSTR 53]

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