It has been a long-standing appeal of various stakeholders in the industry to have a comprehensive and unambiguous regulatory regime to govern online gaming of skill. The case of D Siluvai Venance v. State (Crl.MP.(MD) No. 3340 of 2020) also observed that most of the State legislations in the area of gaming are prior to the advent of online gaming and thus there is a regulatory void in online and virtual gaming. The judgment further observed that a comprehensive regulatory framework is the need of the hour to regulate online gaming and curb illegal activities surrounding the same. A number of states had enacted legislation to ban online gaming for cases and had failed to distinguish between games of skill and games of chance.
Online Games Of Skill: In Urgent Need of Central Legislation
The Government of Karnataka, in the year 2021, had passed the Karnataka Police (Amendment) Act 2021(“Amendment Act“), which had taken the online gaming industry by storm. The Amendment Act aimed at strengthening the Karnataka Police to make gambling a cognizable and non-bailable offence. This law was introduced to include the use of cyberspace including computer resources or any other communication device as defined in the Information Technology Act 2000 in the process of gaming to curb the menace of gaming through the internet and mobile app. This act aimed to bring the online games of skill played for cash under prohibition by classifying them as wagering and betting. The penalties for the owners and providers of online gaming platforms and players were increased. This had created a stir in the online gaming industry and many feared that such a move by the government could hamper the spurring unicorns.
Having failed to recognize the difference between games of skill and games of chance, the Amendment Act was challenged by multiple petitions. It was contended that the Amendment Act violates fundamental rights under Article 19(1) of the Constitution of India. It was argued by the state that playing games with real money would amount to betting and thus attracted an imposition of a blanket ban. It is pertinent to mention that gambling legislations often distinguish between games of skill and games of chance where the former is not prohibited while the latter is equated to gambling.
To give relief to such concerns, the Karnataka High Court, vide its order dated 14 February 2021, in the case of All India Gaming Federation v. Karnataka1 (“Judgment“), had taken a very clear stand by declaring certain provisions of the Amendment Act as unconstitutional.
Breather for the online gaming industry
The judgment has struck down most of the provisions of the Amendment Act other than the ones which merely extend the quantum of punishments. The provisions pertaining to the extension of the applicability of the Karnataka Police Act, 1963 to apply to the online medium have also been struck down. The position of the Karnataka Police Act after this judgment will remain the same as was before the Amendment Act except for the increase in the quantum of punishments.
The Court, vide this judgment, has restrained the state from interfering in the online gaming business. The Court emphasized that a game of skill will not become a game of chance only because they are being played online, keeping other things equal. Further, the court added that a game of skill will not change its nature even when played with stakes.
The Judgement is in line with the Madras High Court decision in the case of Junglee games India Pvt Ltd v. State of Tamil Nadu2 wherein the Tamil Nadu Gaming and Police Laws (Amendment) Act 2021 which had prohibited all forms of online games irrespective of the game being a game of mere skill, if such a game is played for a wager, bet, money etc. was challenged. The court held that the concerned act which criminalized wagering or betting in the online medium was ultra vires the constitution.
The Court further held that the games of skill will be protected by the Fundamental Rights under Article 19(1)(a) and Article 21 of the constitution. The online gaming activities played with a stake or not do fall within the ambit of Entry 34 of the State List i.e. ‘Betting and Gambling’ if they are predominantly based upon skill, judgment, or knowledge. It was held that the Amendment Act puts games of skill and games of chance at par while they are poles apart. The games of skill will be entitled to protection under Article 19(1)(g) by the virtue of recognition as a business.
The court also emphasized on the fact that the State brought this amendment without constituting any expert committee to undertake scientific and empirical research with respect to the ill effects of online gaming. Since internet gaming in the form of business continues to grow exponentially, therefore, it was imperative for the state to study and research this arena to understand its impact.
Regulatory expectations for the gaming industry in India
It is expected that the verdict will be welcomed by the Online Gaming industry including the e-fantasy gaming industry. This judgment follows the Tamil Nadu Judgment mentioned above. The impact of the judgment in the short term will be positive and will allow the online gaming industry to flourish in the State of Karnataka as prior to this judgment, the service providers were facing legal uncertainty. Further, it is expected that this judgment will have a persuasive value for similar issues in other states and may deter other states from enacting such activities. This verdict is a welcome step towards judicial affirmation of online games of skill which involve money and will be seen as a green light for the booming online gaming industry. The Amendment Act was a temporary setback towards online gaming. It must be noted that the Karnataka High Court has not struck down the entire Amendment Act and has stated that the judgment will not stand in the way of the government bringing in new legislation which is in consonance with the Constitution for regulation of the gaming industry.
Further, it is imperative to mention that the judgment is passed by the Karnataka High Court against a state-specific legislation and will not be having a binding effect on other states. But at the same time, it cannot be denied that it may have persuasive value for other states. This judgment provides clarity on the distinction between a game of skill and a game of chance which is played for stakes.
This judgment comes as a breather for growing gaming companies, especially in the State of Karnataka where most of the industry is based. It has been a key challenge for the gaming sector to have multiple varying views from different states regarding these restrictions. This only highlights the need to have central uniform legislation concerning the said issue.
Footnotes
1. Writ Petition Nos. 18703 of 2022
2. W.P. No. 18022 of 2020
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