LEGALITY OF INDIA’S ONLINE GAMING APPS IN LIGHT OF ITS GAMBLING LAWS

This article has been authored by Aryan Bhat, a second year law student at National Law University, Delhi.

Introduction

India’s online gaming industry is emerging as a huge money-spinner. This is likely due to the rate of internet penetration in the country that has increased by manifold, with the younger population(below 35 years) forming the bulk of the users. The arrival of smartphones also made online gaming even more popular as internet became easier to access by the masses. A report by KPMG estimated the Indian online gaming industry to be valued at a whopping INR 118 Billion in terms of revenue. Amidst the rapid progress and bright growth opportunities, the industry is facing a set of legal hurdles as well. Key among these are obscenity, intellectual property concerns, depiction of violence and gambling and betting. The scope of this article is however, restricted only to dealing with gambling and betting as legal issues surrounding online gaming in India.

Gambling and betting are considered undesirable activities and a social evil by the Indian society. Ancient Indian texts too, like the Mahabharata have condemned the practice through the character of Yudhistra, the eldest of the Pandava brothers who is forced to give up his kingdom and wife after having lost his gamble in a game of die. In Reeja v State of Kerala too, the High Court of Kerala considered gambling to have tendency to encourage “reckless propensity” among individuals and disrupts social peace and happiness and cannot be accorded the status of trade, commerce or profession.

Gambling and betting are listed in the ‘State List’[1] which means that states are free to pass their own legislations on the subject though, around fourteen states have adopted the colonial-era Public Gambling Act(the Act). Other states like Jammu & Kashmir, West Bengal, Odisha, Haryana etc. have passed their own legislations on this subject, modelled on the lines of the Act. The Act proscribes any act of public gambling hosted in “common gaming houses” i.e houses, walled enclosures, rooms or any other physical place used for keeping of such instruments to be used for gaming (not gambling, interestingly, the Act makes no distinction between them). This makes the legal position with respect to online gaming apps more complex and obscure as the Act is clearly outdated in today’s digital era as substantial part of gambling and gaming has moved to the virtual space instead of physical houses or rooms as earlier. This article explores the legal position of online gaming apps with respect to gambling and also weighs the economic and moral arguments surrounding the legalization of betting.

Online Gaming: Game of Skill or Game of Chance

One of the most fundamental aspects of India’s gambling laws is that games which involve considerable skills, knowledge, technical expertise or critical thinking are not within the purview of gambling while games whose outcome is prominently dependently upon sheer luck or chance are considered gambling. This principle was settled by the Supreme Court in K.R Lakshmanan v State of Tamil Nadu. The Court recognized that every game necessarily involves a certain element of chance or sheer luck and distinguished between games of chance and games of skill. The former was defined to mean a game whose outcome is determined entirely or by a lot of luck as the result is uncertain and beyond one’s control. A game of skill, however is one where success is primarily based upon the knowledge, skills, training, experience and adroitness of the player. The Court held that sports which, by nature essentially require skill and knowledge of the player to succeed cannot qualify as gambling. Horse racing, in this case was therefore held as a game of skill since the success relies upon factors like fitness of horse, capability of jockey, distance of race, turf conditions etc. which are facts capable of being objectively assessed by the racegoers.

There is however, a limitation the judgement suffers from: the petitioners in the case only questioned the provisions of the Madras Gaming Act which clearly stated that games involving “mere skill” shall be exempted from the ambit of gambling. However, states like Odisha, Assam and Telangana don’t recognize the exception of skill-based games in their legislation. Thus, this principle doesn’t have nationwide applicability as the court judgement cannot prevail over the respective state legislations as per the well-known principle of legislative supremacy.

With respect to card games as well, such as poker, rummy etc., the legal position still remains ambiguous. In State of Andhra Pradesh v K Satyanarayan and ors, the Supreme Court while interpreting provisions of the Hyderabad Gambling Act, held that rummy as a card game is primarily a game of skill, not chance since the game requires one to memorize the fall of cards and that the holding and discarding of cards, too is a matter of one’s ability. However, a material fact to consider is that the Court at the same time ruled that the prosecution could not sufficiently establish that the club fell within the definition of a common gambling house as the club did not make any profit out of the game of rummy that was played in its premises. If such an evidence that the game was being played with stakes or to earn profit was produced, then the offence could be brought home.

In Director General of Police v S.Dillibabu, the Madras High Court held, on the basis of the observation in the Satyanarayan case, that the playing of rummy for stakes, despite it being a game of skill shall amount to gambling. The Kerala HC too, in Ramachandran v Circle Inspector of Police, Perinthalmanna, acknowledged that rummy is a game comprising mainly of one’s skill but if one makes any profit or gain from the game of rummy, the same shall qualify as gambling. This is inherently problematic for the online gaming industry as to conduct online rummy merely as a means of free innocent pastime instead of profit motive is detrimental to business prospects. While these judgements were in context of gaming in offline mode, it is a natural corollary that the law would treat online gaming on the same footing. Also, this means that online gaming apps hosting rummy cannot be protected under article 19(1)(g) as per the ruling of Supreme Court in State of Bombay v R.M.D Chambaraugwala where it found that the intention of the Constituent Assembly was not to include gambling activities under the scope of trade, occupation or business. It was thus, held to be res extra commercium.

The legal stance on poker remains a grey area as well. The Gujarat HC, in Dominance Games Pvt Ltd v State of Gujarat, distinguished the popular game of Texas Hold’em Poker from that of rummy. The former was held to have originated from drag and the ancient Indian game of ‘teenpatti’ which are primarily chance-based. The Court stated that the game involves distribution of cards among players which is a matter of pure luck and hence, cannot be classified as a game of skill. However, the Karnataka HC, took a different stance in , Indian Poker Association v State of Karnataka, declaring poker to be a game of skill. The judgement however, offers limited help as the Court limited legality to poker played only for “recreational activities” and doesn’t address if playing it for commercial purposes could still amount to gambling. Moreover, the judgement offers no reasoning for considering poker as a game of skill. Last year, the Delhi HC disposed off two PILs challenging the legality of online poker apps, seeking clarity from the Government of Delhi, which is still awaited. It has also been argued by many academicians that poker shall be classified as a game of skill. They are of the view that element of chance in poker can be substantially reduced by use of probability and game theory. A skilled player would be able to calculate the probabilities of the cards dealt to him and community cards available to him and also analyze the betting pattern of rival players to maximise her/his winning chances[2].

Fantasy Games

One segment of the market where the legal position seems quite settled is that of fantasy games. In Varun Gumber v Union Territory of Chandigarh and ors, the petitioner sought legal action against the respondent company, which owns the famous Dream11 App for engaging in gambling as their product was largely a game of chance. The Punjab and Haryana High Court, however, observed that online fantasy games involve one to choose players to form a virtual team to compete with others. Such a format involves one to assess the relative worth of each player, evaluation of strength and weaknesses of the players also need to be made in light of the rules of the game and also make budgetary decisions while drafting the virtual teams. Therefore, online fantasy sports were held to be games of skill as one’s judgement, skills and experience predominantly influence the outcome of the game and thus, were beyond the ambit of gambling. The Court further stated that since fantasy sports were not gambling, they are a normal business activity and thus, need to be provided protection under article 19(1)(g). A petition challenging this order was not entertained by the Supreme Court.

This view was adopted by the Bombay HC as well, in Gurdeep Singh Sachar v State of Maharashtra, the Court relied upon the Varun Gumber case to hold that online fantasy sports are essentially games of skill as it requires one to possess knowledge, experience and ability to excel. Rajasthan HC in Chandresh Sankhla v State of Rajasthan, dismissed a petition filed against Dream11, which alleged that the company was promoting betting and gambling among users, on the grounds that online fantasy sports were preponderantly a game of skill.

The State of Maharashtra, in an appeal against the decision of the Bombay HC in Gurdeep Sachar case through a Special Leave Petition which was heard by the Supreme Court. The Court upheld the findings of the High Court and settled the position that online fantasy games are preponderantly skill-based than chance-based[3]. This is sufficient to establish that the law on the legality of online fantasy games is no longer res integra.

Economics and Morality of Gambling

The topic of gambling has been a matter of intense debate and deliberation for quite a long time. Gambling is declared illegal by State on grounds of public morality, as discussed. The criminalization of gambling has, however not eroded its popularity. Rather, the activity thrives a part of the underground economy. Those who support the legalization of gambling give primacy to individual autonomy and minimum state intervention and believe in separating morality from gambling. Those who oppose such a proposal, argue that morality is a justifiable ground for the State to intervene in one’s private affairs, in order to maintain social order.[4] The Law Commission of India, in its report found that the social impact of gambling highly varies and recommended that offending the public morality cannot be the basis of any State intervention which should rather, be guided by the notion of constitutional morality[5].

The jurisprudential side of the debate even enquires whether State shall even regulate betting/gambling through criminal law[6]. Criminal law is invoked in cases of a public wrong where one’s conduct harms another person gravely. In gambling however, the activity is fully consensual between two adults which may neither be harmful nor violate one’s right. Even if the State can be said to possess such moral authority, the question that arises is that why only shall it be declared illegal. Gambling could also be regulated by the State through higher taxation or other aspects of civil law.

The Law Commission report also lays down many undesirable consequences that result from a blanket ban on gambling. These include spot fixing, increase in crime as unregulated gambling tends to lead to more crimes by the gambler and also the massive losses caused to the economy in terms of taxation and creation of more and more black money. It therefore suggested a regulatory framework to deal with the subject. FICCI, too in its report supported the regulation of gambling and betting as that could bring to the economy an additional revenue of Rs.20,000 crores and generate employment opportunities as well. The report also argued that such regulation of gaming could help monitor illicit movement of money in economy. These arguments have buttressed the case for legalization of gambling in India. Earlier this year, Madras HC too issued a similar direction to the Government of Tamil Nadu. While morality might be invoked as a ground to oppose this proposal, mentioning that ancient Indian literature like Mahabharat, Vedas and Manusmriti have condemned gambling as a social vice, as was observed by the Apex Court in the Chambaraugwala case, it is pertinent to highlight that morality is a dynamic concept and not something frozen in time. Moral considerations of the ancient society shall not justify a law which serves no practical purpose but instead, poses many challenges for the State like the issue of black money and crime syndicates.

[1] Under Entry 34 List II, Seventh Schedule. [2] Jay Sayta, Legality of Poker and other Games of Skill: A Critical Analysis of India’s Gaming Laws, 5 NUJS L. Rev. 93 (2012) [3] Gurdeep Singh Sachar v Union of India, Criminal Public Interest Litigation Stamp No.22 of 2019. [4] Law Commission of India, Legal Framework: Gambling and Sports Betting Including in Cricket in India(July 2018, Report No.276) [5] Pg 33,Ibid. [6] Radhika Gupta, Legalising Betting in Sports: Some Reflections on Lawmaking, Economic and Political Weekly, Vol. No.48,No. 48(November 2013).