Why the Centre must step in to regulate online gaming in India

Last month, the Madras High Court partially upheld the Tamil Nadu state assembly’s Online Gaming Act that sought to ban all online games in the state. The court ruled that while the ban is valid for games of chance, it will not apply to online games that require skill – such as poker and rummy.

States have, over the years, attempted to regulate online gaming. Some states have only regulated or prohibited online gambling and betting, which involve games of chance. Others have opted for a complete ban on all online games played for stakes, including games of skill.

The Madras High Court order is a latest in a series of judgments around state legislations relating to online gaming. However, experts argue that states do not have the legal competence to regulate online games of skill. Moreover, centrally regulating all online games would help the growth of the industry, they say.

Regulation in other states

Sikkim was the first state to regulate and license all forms of online gaming and betting through legislation in 2008. Nagaland has a specific law to license online games of skill. Chhattisgarh passed a law last year to revamp its gambling legislation, which banned online gambling and betting but excluded games of skill.

Telangana was the first state to ban all forms of online games played for stakes by amending its Gaming Act in 2017. Among the other states that have passed laws on the lines of Telangana banning all online games played for stakes are Tamil Nadu, Andhra Pradesh and Karnataka.

Such blanket legislations have faced the scrutiny on the court. In 2021, the Madras High Court struck down another attempt by the Tamil Nadu government to ban online games of skill played for stakes. The Karnataka High Court also struck down a similar passed by the state government banning all online games played for stakes, while the Kerala High Court struck down a notification banning online rummy played for stakes.

The challenges to the legislations passed by the Telangana and Andhra Pradesh are pending in their High Courts while Karnataka and Tamil Nadu have approached the Supreme Court against the High Court orders striking down their bans.

Game of chance versus game of skill

The Madras High Court noted in its decision that the state assembly is competent only to outlaw games of chance, but not games of skill.

In a game of chance, the outcome is mainly based on luck – for example, a lottery or a coin toss. On the other hand, in games of skill, a person uses their memory, knowledge, judgment or expertise to decide their moves within the game, and the outcome of the game largely depends on the skills of the player.

Several experts Scroll spoke with clarified that games of skill are constitutionally protected as per a 1996 Supreme Court judgment. On the other hand, games of chance, traditionally associated with betting and gambling, and are not protected.

“The distinction between games of skill and games of chance has evolved over time,” said Mumbai-based sports lawyer Gaurav Saxena. “Games of chance have historically been prohibited by the legislature and the judiciary”. He said that the game of skill exception has evolved over time, with a Supreme Court judgment last year even holding fantasy sport to be a game of skill.

This legal test that differentiates games of luck and skill has been tested in the case of card games such as rummy and poker. Delhi-based advocate-on-record Nikhil Parikshith said: “It is accepted that both rummy and poker are games of skill.” The real controversy, according to him, is whether these games, played in the online space, remain games of skill.

“The argument of some states against poker and rummy is that they do not involve much skill, especially when played online,” clarified Mumbai-based technology and gaming lawyer Jay Sayta. “It is not known if you are playing against real human players in online versions of poker and rummy. Secondly, it is argued that the software can be susceptible to manipulation, rigging, fraud and the use of algorithms to induce players to play more.”

However, he pointed out that this argument has not found favour with various High Courts since there was no evidence presented of such cheating on online platforms.

Roland Landers, chief executive officer of the All India Gaming Federation, the industry body for online gaming in India, referred to a recent study by the Indian Institute of Technology-Delhi which concluded that there is no difference between online and offline versions of rummy and poker and that both require skill from a player for a successful outcome.

Legislative competence to regulate: Centre or states?

Experts said the regulation of games of skill online lies within the legal ambit of the Centre, not states.

The legal position in this regard, said Abhinav Shrivastava, Partner at LawNK, a Bangaluru-based law firm with specialisation in sports law, has been clarified by recent decisions of the Madras and Karnataka High Courts. “Games of skill can only be regulated by the Centre,” he said. “All high courts are clear on this”.

However, in its recent decision, the Madras High Court, despite ruling against an outright ban on online games, held that the state government does have a limited right to regulate games of skill as the “public health of its citizens” is of utmost importance.

The only leeway provided by the recent Madras High Court decision, Shrivastava explained, is that the state assembly can regulate games of skill on the limited considerations of the public health of their residents and intra-state trade and commerce. However, this cannot be in the form of wholesale restrictions on such games.

Parikshith agreed on the Union government’s competence to regulate online games of skill. He referred to Entry 31 of the Union list of the Seventh Schedule of the Constitution as per which the subject matter of the online space falls within the jurisdiction of the Parliament.

Landers also pointed to that under the constitutional framework, states could only regulate betting and gambling activities – that is, games of chance – under Item 34 of the State list of the Seventh Schedule. Therefore, states do not have the power to ban online skill-based games, he said.

What kind of regulation needed

Aside from the legal reasoning, the Centre making regulation also made sense from an industry point-of-view. All the experts Scroll spoke with agreed that it is in the interest of all stakeholders that there is a uniform set of regulations for all online gaming, involving both skill and chance. The Centre, thus, is best placed to make such regulations.

Parikshith said, “For the industry and users, it would be ideal if one set of rules or regulations holds the field”.

Saxena agreed. “It would make more sense for the Parliament to put in place a federal legislation,” he said. “The nature of online gaming/gambling makes it difficult for a single state to effectively control it as it has to operate within its territorial boundaries, which is an obvious limitation.”

Having a federal law would bring uniformity and transparency, he added. This would open up a whole new revenue stream, given the way in which the industry is booming, Saxena pointed out.

According to Shrivastava, having a uniform set of national regulation governing online games of skill would also make user experience consistent and also make the regulatory landscape clearer for the industry.

Sayta, however, emphasised that any attempt by the Parliament to legislate should be with the consent of states, since legally both the Centre and states share powers to regulate online gaming. “It is desirable for the Parliament to step in, but a solution should be found within the four corners of the constitution since states too have the legislative competence to regulate online gaming,” he said.

He suggested that the inter-state council and the Parliament may seek the opinion of legal and constitutional experts in order to arrive at the ideal solution.