The Previous Blog of the series discussed about the Gaming Laws and the Legislative Frameworks thereunder. This blog shall discuss the judicial precedents and the need to regulate the Online Gaming Sector.
JUDICIAL PRONOUNCEMENTS
In R.M.D. Chamarbaugwala & Anr. v Union of India & Anr., [(1957) 1 SCR 930], the Supreme Court of India while deciding the applicability of the Prize Competitions Act, 1955; ruled that the provisions of the said legislation would be attracted only where the prize competitions are in nature of betting/gambling and the protection under Article 19(1)(g) of the Constitution of India would be available to those entities essentially engaged in the business of skill-based games.
In State of Andhra Pradesh v. K. Satyanarayana and Others, [AIR 1968 SC 825], the issue before the Supreme Court was about the nature of the game of rummy.
The Supreme Court while concluding that rummy is apparently a game of skill and not a game of chance observed that “it requires a certain amount of skill because the fall of the cards has to be memorized and the building up of rummy requires considerable skill in holding and discarding cards”.
The substantial degree of skill employed in winning the game of rummy had been considered by the Supreme Court while deciding its nature.
Further, in M. J. Sivani v. State of Karnataka [AIR 1995 SC 1770], it had been asserted by the Supreme Court of India that “in games like pacman, double up and blackjack, there is not even meager scope of employing skills to arrive at desired result since the electronic machines on which these games were played could be tampered with resulting in the higher chances of winning“.
In line with this ratio, the Supreme Court placed these games when played electronically under the scope of the ‘game of chance’.
In the case of Dr. K R Lakshmanan v. State of Tamil Nadu and Anr., [AIR 1996 SC 1153], the Supreme Court of India in another significant ruling settled that “betting on horse racing is a game of skill, exempt from the prohibitions under most gaming enactments”.
The Supreme Court further went on to lay down a guiding principle that states, “games where chance dominates over skill are prohibited while games, where skill dominates over chance, are permitted“. Those games where the outcome is not simply based on one’s fate however depends on the application of mind and one’s competence is not forbidden.
In a recent 2021 judgement of the Supreme Court of India on the legality of fantasy sports in Avinash Mehrotra v. State of Rajasthan [Special Leave Petition (Civil) Diary No(s). 18478/2020], it had been affirmed that “the issue of the legality of fantasy sports was no longer res Integra and petitions challenging the legality are supposed to be dismissed”.
In a pertinent observation, the Supreme Court had upheld the rationale postulated by High Courts of Rajasthan, Bombay, Punjab, and Haryana in various cases establishing that “the fantasy sports format offered by leading operator Dream11 is a game of skill and consequently exempted from the prohibitions under the Gaming Laws. It is also protected under the Constitution as a legitimate business activity“.
NEED FOR REGULATION AND NOT PROHIBITION
India even though being home to over 420 million online gamers as per the recent Forbes report; there is no uniform regulatory mechanism in place for online gaming. Robust growth is observed in this sector. However, certain regulatory obstacles are faced by various stakeholders on account of multiple state-specific laws and conflicting interpretations adopted by various High Courts.
Therefore, the pressing priority is to have a central law for Online Gaming in force with oversight from a committee set up to study international best practices and provide recommendations in this regard.
The Central Government has apparently formed an Inter-Ministerial Group to recommend central legislation for internet gaming and to appoint a central ministry to monitor it.
The Group’s objectives of reference include ease of doing business for skill gaming enterprises in addition to other auxiliary concerns such as compliance, want of a level playing field, and safeguards against user hazards for instance, addiction, etc.
The Group of Ministers (hereinafter referred to as “GoM”) formed as an outcome of extensive deliberations on critical classification and valuation issues under GST regime for the online gaming industry in the 37th and 38th GST Council meeting has recommended imposition of higher tax at the rate of 28% on contest fee/entry fee and not on the platform fee/GGR irrespective whether it is a game of skills or game of chance.
Such blanket tax treatment would be detrimental to the flourishing gaming sector causing an exodus of app developers/innovators and might also result into userbase erosion, dwindling revenues, etc. The GST Council in its 48th meeting couldn’t take up these GoM recommendations for consideration due to paucity of time.
CONCLUSION
Lack of consistency in legal treatment throughout the states would probably be a difficult barrier to overcome. To begin with, archaic state laws need to be modified to cater to the needs of the industry concerned. The argument that a game ought to be banned outright because its creators earn gains from it or because users bet money in it might no longer holds water.
The Central Government should implement promising measures to encourage states to collaborate with one another and reach a consensus on regulations. In light of the fact that umpteen state laws are in line with the outdated provisions of PGA, the states may decide to endorse a model amendment to curb the menace of online gambling/betting and to regulate online gaming in a reasonable manner.
The guiding principles propounded by Niti Aayog in its report titled “Guiding Principles for the Uniform National-level Regulation of Online Fantasy Sports Platforms in India” can be considered a stepping stone and demonstrate the progressive policy implementation plans on part of the administration.
It is anticipated that this will pave the way for a more transparent legal framework specifically modelled to serve the purpose. A lucid, well-defined system will harness the lucrative nature of this sunrise sector to bring more foreign direct investment.
It will not only foster this industry but also enhance accountability and operator adherence towards domestic legislations. Additionally, it will further promote responsible gaming in a transparent and secure space under regulatory control.
The Part III of the series shall be an introduction to the Land-based Indian Gaming Market and the Gaming Laws in India.
– Team AMLEGALS assisted by Mr. Saurin Thakkar (Intern)
For any queries or feedback, please feel free to get in touch with chaitali.sadayat@amlegals.com or aditi.tiwari@amlegals.com.
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