Let us first understand the various laws which deal with this subject:
(a) Under the Constitution of India, the Union Government is empowered to make laws regulating the conduct of lotteries.
(b) Under the Constitution, the
State Governments have been given the responsibility of authorising / conducting lotteries and making
laws on betting and
gambling.
(c) Hence, we must look at the Acts of each of the 28 States and seven Union Territories regarding gambling / gaming.
(d) The following are the various laws which regulate / restrict / prohibit gambling in India:
• Public Gambling Act, 1867: This Central Legislation provides for the punishment of public gambling in certain parts of India. It is not applicable in Maharashtra and other States which have repealed its application.
• Maharashtra Prevention of Gambling Act, 1887: It applies in Maharashtra and regulates gaming in the State.
• Other State legislations: Acts of other States, such as the Delhi Public Gambling Act, 1955, the Madras Gambling Act, etc., are more or less similar to the Public Gaming Act, 1867 as the object of these Acts is to ban / restrict gambling. The State Acts repeal the applicability of the Public Gambling Act in their respective States.
* Section 294-A of the Indian Penal Code, 1860: This section provides for punishment for keeping a lottery office without the authorisation of the State Government. Section 30 of the Indian Contract Act, 1872: This Section prevents any person from bringing a suit for recovery of any winnings won by way of a ‘wager.’
* The Lotteries (Regulation) Act, 1998: This Central Legislation lays down guidelines and restrictions on conducting lotteries.
* The Prevention of Money Laundering Act, 2002: It requires maintenance of certain records by entities engaged in gambling.
Some States which expressly permit gambling are
* Sikkim: The Sikkim Casino Games (Control and Tax Rules), 2002 permits setting up of casinos in Sikkim.
* The Sikkim Online Gaming (Regulation) Act, 2008, along with the Sikkim Online Gaming (Regulation) Rules, 2009 provides for licences to set up online gaming websites (for gambling and also betting on games like cricket, football, tennis, etc.) with the servers based in Sikkim. Other than this law, India does not have any specific laws targeting online gambling or gaming.
* Goa: An amendment to the Goa, Daman and Diu Public Gambling Act, 1976 provides for casinos to be set up only at five star hotels or offshore vessels with permission. This is the reason Goa has floating casinos or casinos in five star hotels.
* West Bengal: The West Bengal Prize Competition and Gambling Act, 1957 excludes ‘skill-based’ card games like poker, bridge, rummy and nap from its operation. Thus, in West Bengal a game of poker is expressly excluded from the definition of gambling.
* Nagaland: The Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015 regulates online games of skill in the State of Nagaland.
PUBLIC GAMBLING ACT
Since this is a Central Act on which several State Acts have been based, we may examine this Act. Section 1 of this Act has laid down three conditions all of which must be fulfilled in order that a place is treated as a common gaming house:
(a) It must be a house, walled enclosure, room or place;
(b) cards, dice, tables or other instruments of gaming are kept in such place; and
(c) these instruments are used for profit or gain of the occupier whether by way of charging for the instruments or for the place.
It is a moot point whether these definitions can even be extended to online gaming ventures.
Section 3 of the Act levies a penalty for owning or keeping or having charge of a common gaming house. The penalty is a fine not exceeding Rs. 200 or imprisonment for any term up to three months. It may be noted that the public gaming house concept can even be extended to a private residence of a person if gambling activities are carried on in such a place. Thus, casual gambling at a house party may be treated, if all the conditions are fulfilled, as gambling and the owner of the house may be prosecuted.
Exception u/s 12: Even if all the above-mentioned three conditions are fulfilled, if it is a game of mere skill, the penal provisions do not apply. What is a game of skill is a question of fact and has been the subject matter of great debate. In Chamarbaugwalla vs. UOI, AIR 1957 SC 628, it was held that competitions which involve substantial skill are not gambling activities.
In State of AP vs. K. Satyanarayana, 1968 AIR 825 (SC), the Court analysed whether a game of rummy was a game of skill and held as follows:
• Rummy is not a game of mere chance like three cards;
• It requires considerable skill as fall of cards (is) to be memorised;
• The skill lies in holding and discarding cards;
• It is mainly and preponderantly a game of skill;
• Chance is a factor but not the major factor.
The Court held that rummy is not a game of chance but a game of skill.
In Dr. K.R. Lakshmanan vs. State of TN, 1996 2 SCC 226, the Court analysed whether betting on horses is a game of chance or mere skill:
• Gambling is payment of a price for a chance to win. Gaming may be of skill alone or both skill and chance;
• In a game of skill chance cannot be entirely eliminated but it depends upon the superior knowledge, training, attention, experience and adroitness of the players;
• A game of chance is one in which chance predominates over the element of skill, and a game of skill is one in which the element of skill dominates over the chance element;
• It is the dominant element which determines the game’s character;
• In horse-racing, the person betting is supposed to have full knowledge of the horse, jockey, trainer, owner, turf, race system, etc.;
• Horses are given specialised training;
• Books are printed giving details of the above, which are studied.
Hence, betting on horse-racing is a game of skill since skill dominates over chance.
In Bimalendu De vs. UOI, AIR 2001 Cal 30, it was held that Kaun Banega Carodpati, which was aired on TV channels, was not a game of chance but a game of skill. Elements of gambling, i.e., wagering and betting, were missing from this game. Only a player’s skill was tested. He did not have to pay or put any stake in the hope of a prize.
In M.J. Sivani vs. State of Karnataka, AIR 1995 SC 1770, video games parlours were held to be common gaming houses. Video games are associated with stakes of money or money’s worth on the result of a game, be it a game of pure chance or of mixed skill or chance. For a commoner it is difficult to play a video game with skill. Hence, they are not a game of mere skill.
In this respect, the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015 defines games of skill to include all such games where there is preponderance of skill over chance, including where the skill relates to strategising the manner of placing wagers or placing bets or where the skill lies in team selection or selection of virtual stocks based on analyses or where the skill relates to the manner in which the moves are made, whether through deployment of physical or mental skill and acumen. It further states that games of skill may be (a) card-based, (b) action / virtual sports / adventure / mystery, and (c) calculation / strategy / quiz-based. This is one of the first examples of a statutory definition of what constitutes a game of skill. ‘Gambling’, on the other hand, has been defined by this Act to mean and include wagering or betting on games of chance (meaning all such games where there is a preponderance of chance over skill) but does not include betting or wagering on games of skill.
Thus, the facts and circumstances of each game would have to be examined as to whether it falls within the domain of mere skill and hence is a game, or is it more a game of chance and hence gambling.
MAHARASHTRA PREVENTION OF GAMBLING ACT, 1887
This Act is similar in operation to the Public Gambling Act but has some differences. It defines the term ‘gaming’ to include wagering or betting except betting or wagering on horse races and dog races in certain cases.
‘Instruments of gaming’ are defined to include any article used as a subject matter of gaming or any document used as a register or record for evidence of gaming / proceeds of gaming / winnings or prizes of gaming.
The definition of common gaming house includes places where the following activities take place:
• Betting on rainfall;
• Betting on prices of cotton, opium or other commodities;
• Betting on stock market prices;
• Betting on cards.
The imprisonment under this Act extends up to two years and the fine is also higher. Police officers have been given substantial powers to search and seize and arrest under this Act.
INDIAN PENAL CODE
Section 294A of the Indian Penal Code provides that whoever keeps any office or place for drawing any lottery not authorised by the Government is punishable with a fine of up to Rs. 1,000. What is a lottery has not been defined. Courts have held that it includes competitions in which prizes are decided by mere chance. However, if the game requires skill then it is not a lottery. A newspaper contained an advertisement of a coupon competition which included coupons to be filled by the newspaper buyers with names of horses selected by them as likely to finish 1st, 2nd or 3rd in a race. The Court held that the game was one of skill since filling up the names of the horses required specialised knowledge about the horses and some element of skill – Stoddart vs. Sagar (1895) 2 QB 474.
Further, it must verify and maintain the records of the identity of all its clients / customers.
RECENT MADRAS HIGH COURT DECISION ON ONLINE RUMMY / POKER
In the recent case of Junglee Games India vs. State of Tamil Nadu, WP No. 18022/2020, the Madras High Court had occasion to consider whether an amendment to the Tamil Nadu Gaming Act, 1930 which ended up banning online rummy / poker was unconstitutional. The amended statute prohibited all forms of games being conducted in cyberspace, irrespective of whether the game involved being a game of mere skill, whether such game was played for a wager, bet, money or other stakes. The High Court held that gambling is often equated with gaming and the activity involved chance to such a predominant extent that the element of skill that may also have been involved could not control the outcome. A game of skill, on the other hand, might not necessarily be such an activity where skill must always prevail; however, it would suffice for an activity to be regarded as a game of skill if, ordinarily, the exercise of skill could control the chance element involved in the activity such that the better skilled would prevail more often than not. It held that the wording of the amending Act was so crass and overbearing that it smacked of unreasonableness in its every clause and could be seen to be manifestly arbitrary.
Whatever may have been the pious intention of the Legislature, the reading of the impugned statute and how it might operate amounted to the baby being thrown out with the bath. It even held that broadly speaking, games and sporting activities in the physical form could not be equated with games conducted in virtual mode or in cyberspace. However, when it came to card games or board games such as chess or scrabble, there was no distinction between the skill involved in the physical form of the activity or in the virtual form. The Court held that such distinction was completely lost in the amending Act as all games were outlawed if played for a stake or for any prize.
It came out with a very interesting take on the difference – ‘Seen from the betting perspective, if the odds favouring an outcome are guided more by skill than by chance, it would be a game of skill. The chance element can never be completely eliminated for it is the chance component that makes gambling exciting and it is the possibility of the perchance result that fuels gambling.’
The Bench categorically held that there appeared to be a little doubt that both rummy and poker were games of skill as they involved considerable memory, working out of percentages, the ability to follow the cards on the table and constantly adjust to the changing possibilities of the unseen cards. The Madras High Court laid down the principle that the betting that a State can legislate on has to be the betting pertaining to gambling; ergo, betting only on games of chance. At any rate, even otherwise, the judgments in the cases of Chamarbaugwalla (Supra) and K.R. Lakshmanan (Supra) also instruct that the concept of betting in the Constitution cannot cover games of skill. It concluded that the amendment to the Tamil Nadu Gaming Act, 1930 was capricious, irrational and without an adequate determining principle such that it was excessive and disproportionate.
RECENT DECISION ON FANTASY SPORTS LEAGUES
One of the biggest revolutions in the gaming industry has been that of Online Fantasy Sports Leagues, be it in cricket, football, hockey, etc. Time and again there have been writs filed before the High Courts to decree these as games of chance.
The Punjab & Haryana High Court in the case of Varun Gumber vs. Union Territory of Chandigarh, 2017 Cri LJ 3827 and the Order dated 15th September, 2017 passed by the Supreme Court dismissing the Special Leave Petition against the aforesaid judgment, have held that the fantasy games of Dream 11 were games of mere skill and their business has protection under Article 19(1)(g) of the Constitution of India, i.e., freedom to carry out trade / vocation / business of one’s choice.
In Gurdeep Singh Sachar vs. Union of India, Cr. PIL Stamp No. 22/2019, the Bombay High Court held that success in Dream 11’s fantasy sports depended upon a user’s exercise of skill based on superior knowledge, judgement and attention, and the result thereof was not dependent on the winning or losing of a particular team in the real world game on any particular day. It was undoubtedly a game of skill and not a game of chance. The attempt to reopen the issues decided by the Punjab & Haryana High Court in respect of the same online gaming activities, which are backed by a judgment of the three-judge Bench of the Apex Court in K.R. Lakshmanan (Supra), that, too, after dismissal of the SLP by the Apex Court, was wholly misconceived. The Supreme Court dismissed the SLP [SLP (Crl.) Diary No. 43346 of 2019] against this decision inasmuch as it related to whether or not it involved gambling. Again, on 31st January, 2020, the Supreme Court reiterated on an application seeking clarification of its earlier Order, that it does not want to revisit the issue as to whether gambling is or is not involved.
In the cases of Ravindra Singh Chaudhary vs. Union of India, D.B. Civil Writ Petition No. 20779/2019 and Chandresh Sankhla vs. State of Rajasthan, reported in 2020 SCC Online Raj 264, the Rajasthan High Court dismissed a petition against Dream11. The Madurai Bench of the Madras High Court in D. Siluvai Venance vs. State, Criminal O.P. (MD) No.6568/2020 has passed a similar order. Recently, the Supreme Court in Avinash Mehrotra vs. State of Rajasthan, SLP (Civil) Diary No(s). 18478/2020, dismissed an SLP against the Rajasthan High Court Order in the Ravindra Singh case (Supra). It held that the matter was no longer res integra as SLPs have come up from the Punjab & Haryana and the Bombay High Courts and have been dismissed by the Supreme Court.
All of the above judgments analysed what was a fantasy league. They held that any fantasy sports game was a game which occurred over a pre-determined number of rounds (which may extend from a single match / sporting event to an entire league or series) in which participating users selected, built and acted as managers / selectors of their virtual team. The drafting of a virtual team involved the exercise of considerable skill as the user had to first assess the relative worth of each athlete / sportsperson as against all athletes / sportspersons available for selection. The user had to study the rules and make evaluations of the athlete’s strengths and weaknesses based on these rules. Users engaged in participating in fantasy sports read and understood the rules of the game and made their assessment of athletes and the selection of athletes in their virtual team on the basis of the anticipated statistics of their selection.
It was held that the element of skill and the predominant influence on the outcome of the fantasy league was more than any other incidents and, therefore, they were games of ‘mere skill’ and not falling within the activity of gambling. It did not involve risking money or playing stakes on the result of a game or an event, hence, the same did not amount to gambling / betting. It was even held that the fantasy sports formats were globally recognised as a great tool for fan engagement as they provided a platform to sports lovers to engage in their favourite sport along with their friends and family. This legitimate business activity having protection under Article 19(1)(g) of the Constitution contributed to Government Revenue not only vide GST and income tax payments, but also by contributing to increased viewership and higher sports fan engagement, thereby simultaneously promoting even the real world games.
FEMA
The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and the Consolidated FDI Policy state that Foreign Direct Investment (FDI) of any sort is prohibited in gambling and betting, including casinos. Thus, no FDI is allowed in any gambling ventures, whether online or offline. However, if the ventures are gaming ventures, then there are no sectoral caps or conditions for the FDI and there are no restrictions for foreign technology collaboration agreements. And, 100% FDI is allowable in gaming ventures, online and offline. Thus, one comes back to the million-dollar question – is the venture one of gambling or gaming? The tests explained above would be applicable even to determine whether FDI is permissible in the venture.
Similar tests may also be used under the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 for overseas direct investments in a foreign company. If it is an online gaming company, then it would constitute a bona fide business activity and foreign investment should be permissible.
CONCLUSION
Recent judicial thinking seems to be changing along with the times. When one looks at the Court decisions delivered on new topics such as cryptocurrencies, fantasy sports, online poker, etc., it is clear that the trend is to allow businesses in these sunrise areas. If the Legislature also moves at the same speed and in the same direction, we would have a wonderful environment which could spawn exciting businesses!
