Authored by: Tarun Dua, Partner and Pragun Dua, Senior Associate
In the realm of Indian law, a pivotal distinction exists between “Games of Skill” and “Games of Chance.” Games of Skill can be identified by their reliance on the player’s knowledge, experience, expertise, abilities and skill. In stark contrast, “Games of Chance” pivot on randomness and luck, sidelining the player’s skill, knowledge, or experience. These games find their outcomes tied to fortuitous events, rendering players with limited influence over results.
A milestone within Indian jurisprudence, the landmark judgment by the Hon’ble Supreme Court in K. R. Lakshmanan v/s State of Tamil Nadu clearly distinguishes a game of chance as against a game of skill on the touchstone of predominance of chance over skill.
Through this lens, the Indian legal landscape underscores the importance of skill and chance as defining pillars in determining the legality and classification of various games, cementing protections that echo far beyond mere entertainment into the realms of commerce and constitutional rights.
History of Legislation on betting and gambling:
The Public Gambling Act of 1867 (“PGA”) was enacted during British colonial rule to provide punishment for public gambling and keeping of common gaming houses and was applicable only to the United Provinces, East Punjab, Delhi and the Central Provinces. Also, the provisions of PGA did not apply to any game of skill.
After independence, the Constitution of India (“Constitution”) intricately allocated the legislative power between the Central government and the individual States. In terms of such division of power under the Seventh Schedule of the Constitution, Entry 34 of List II (State List) bestowed upon the States the authority to regulate the realms of “betting and gambling”. In such a scenario, post-independence States have enacted their own legislations on betting and gambling, adopting principles of PGA with required amendments.
The PGA did not encompass provisions for online gambling and betting. Consequently, with the advent of digital platforms for carrying out these activities, the State laws lacked the regulations for online gambling and betting, thereby creating a void in law.
Several Indian States, including Telangana, Andhra Pradesh, Tamil Nadu, Orissa, and Assam, adopt a strict stance, barring all involvement in real-money games of skill and chance. In contrast, States like Goa, Sikkim, Nagaland and Meghalaya present a nuanced approach.
Goa, Daman and Diu and Sikkim legislations permit the setting up of casinos / gambling subject to obtaining prior permission/ licences and compliance with specific terms. The Meghalaya and Nagaland legislations define “game of skill” as games where there is preponderance of skill over chance and list specific games as “games of skill,” promoting and regulating them through electronic means.
However, Tamil Nadu took a different route with the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (“TN Act, 2022”) which explicitly outlaws and bansonline gambling and games of chance played for stakes. The challenge to the TN Act, 2022 by the Online Gaming companies in a Writ Petition filed before the Madras High Court is presently pending.
In a recent decision, the High Court of Karnataka followed the decision of the Hon’ble Supreme Court in K. R. Lakshmanan (supra), inter alia identifying distinct difference between games of skill and games of chance. The Court applied the test of predominance and held that (i) a game of chance whether played with stakes is gambling; (ii) a game of skill whether played with stakes or without stakes is not gambling; (iii) a game of mixed chance and skill is gambling, if it is substantially and preponderantly a game of chance and not of skill; and (iv) a game of mixed chance and skill is not gambling, if it is substantially and preponderantly a game of skill and not of chance.
Recent changes impacting Online Games
Mandatory KYC requirement:
Recent Fin-Tech rules in India have upended online gaming, unsettling firms. Mandatory Know Your Customer (“KYC”) checks on Google Play Store have dampened engagement. To respond, gaming companies want simpler KYC from the Ministry of Electronics and Information Technology. Complex procedures drive drop-offs due to slow checks, glitches, hurting user experience. Fraud risks prompt pre-emptive actions like AI alerts, user segmentation by withdrawal activity, and name-based deduplication. The Reserve Bank of India is considering Fin-Tech regulations, monitoring the industry and discussing frameworks with stakeholders. Implementation timing depends on industry consultations.
Information Technology Act, 2000:
India’s gaming sector combats cybercrime under the IT Act, 2000. Exploiting online games for quick gains, cybercriminals target both platforms and players due to the sector’s substantial revenue. Recent amendments in the April 06, 2023 notification introduced rules to govern India’s online gaming, emphasizing Self-Regulatory Body (“SRB”) verification for Real Money Games, safeguarding against fraud, addiction, and financial risks. The SRB also upholds national interests and international relations, prioritizing user safety and responsible gaming.
Recent tax changes in India have hit the gaming sector hard. A 30% tax on withdrawal winnings has discouraged casual gamers and reduced player numbers. Additionally, the GST Council’s decisions in its 50th and 51st meetings in July-August 2023 have brought a uniform 28% tax on online gaming and expanded its tax roadmap, proposing changes to acts and rules to cover domains like casinos, horse racing and online gaming, thus, raising concerns about the sector’s future. Effective from October 01, 2023, these changes encompass player sums, creating financial strain. Thus, a 50% taxation on winnings, could reshape the industry and impact player participation.
The gaming laws in India are undergoing a transformative phase revolving around the realms of “games of skill” and “games of chance”. Various States have established their unique regulations pertaining to “betting and gambling”. Conversely, some States have taken a more stringent approach, enforcing an outright ban on online games involving real-money transactions. Amidst this evolving legal landscape, it becomes paramount for both the Gaming Industry and players engaged in online gaming to be well-versed in the laws applicable within their specific State jurisdictions. This proactive stance not only safeguards the interests of the gaming industry and players but also contributes to the broader goal of a well-regulated and transparent gaming environment in India.