Gaming or Gambling?

Apparently a lot, if you are considering whether a particular venture is a ‘gaming venture’ or a ‘gambling venture’. While the two terms sound similar, there is a world of a difference between the two. With India’s online gaming market growing by leaps and bounds, there is a keen interest in setting up gaming ventures and investing in/acquiring Indian gaming companies. Several venture funds/large corporations have invested in gaming ventures in India. For instance, recently Walt Disney Company has acquired 100% stake in Indiagames Ltd. by buying out 42% stake held by the promoters and others for around $ 80 million. Games2Win, one of India’s oldest gaming portals has raised over $ 11 million from various venture funds. Thus, to say that the interest in this sector is large would be an understatement.

In India, gaming is a permissible activity, but gambling is either prohibited or heavily regulated. There are several laws which are relevant when one considers the nature of a venture. This Article gives an overview of this interesting subject.

Legal ecosystem

(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 7 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 for public gambling in certain parts of India. It is not applicable in Maharashtra and other States which have repealed its application.

• Bombay Prevention of Gambling Act, 1887 applies in Maharashtra and regulates gaming in the State.

• Other State legislations: Acts of other States, such as the Delhi Public Gambling Act, 1955, Madras Gambling Act, etc. These Acts are more or less similar to the Public Gaming Act 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 a 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 in conducting lotteries.

• The Prevention of Money Laundering Act, 2002 which requires maintenance of certain records by entities engaged in gambling. ?

• States which expressly permit gambling:

Sikkim: The Sikkim Casino Games (Control and Tax) Rules, 2002 permit setting up of casinos in Sikkim.

The Sikkim Online Gaming (Regulation) Act, 2008 + Sikkim Online Gaming (Regulation) Rules, 2009 provide 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 allows casinos to be set up only at fivestar hotels or offshore vessels with the permission. That is the reason Goa has floating casinos or casinos at fivestar 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 the State of West Bengal, a game of poker is expressly excluded from the definition of gambling.

Public Gambling Act

(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 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 an imprisonment for a term up to 3 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 3 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 v. UOI, AIR 1957 SC 628, it was held that competitions which involve substantial skill are not gambling activities.

In State of AP v. K. Satyanarayana, 1968 AIR 825 (SC), the Court analysed whether a game of rummy was a game of skill. It held as follows:

• Rummy was 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; and

• Chance is a factor, but not the major factor.

• Held, that rummy is not a game of chance, but a game of skill.

• Gambling is payment of a price for a chance to win. Gaming may be of skill alone or skill and chance.

• In a game of skill chance cannot be entirely eliminated, but it depends upon superior knowledge, training, attention, experience and adroitness of 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 character of the game.

• In horse-racing the person betting is supposed to have full knowledge of horse, jockey, trainer, owner, turf, race system, etc.

• Horses are given specialised training.

• Books are printed giving details of the above which persons betting study.

Hence, betting on horse-racing is a game of skill since skill dominates over chance. In Bimalendu De v. UOI, AIR 2001 Cal. 30, Kaun Banega Crorepati aired on Star TV was held not to be a game of chance, but was held to be a game of skill. Elements of gambling, i.e., wagering and betting are missing from this game. Only a player’s skill is tested. He does not have to pay or put any stake in the hope of a prize.

In M. J. Sivani v. State of Kar, 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 a mixed game of skill or chance. For a commoner it is difficult to play a video game with skill. Hence, they are not games of mere 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.

Bombay Prevention of Gambling Act, 1887
This Act is similar to the Public Gambling Act in its operation, 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 punishment under this Act is imprisonment up to two years. Police officers have been given sub-stantial 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 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 come 1st, 2nd, 3rd in a race. The Court held that the game was one of skill, since filing up the names of the horses required specialised knowledge about the horses and some element of skill — Stoddart v. Sagar, (1895) 2 QB 474.

Prevention of Money Laundering Act, 2002

The PMLA covers any designated business or profession carrying on activities of playing games of chance for cash or kind. Such a business must maintain for 10 years a record of all transactions between it and the clients.

Further, it must verify and maintain the records of the identity of all its clients/customers.

FEMA/Foreign Direct Investment Policy

Remittance abroad out of lottery winnings, out of income from racing/ridding or for purchase of lottery tickets, sweepstakes is prohibited under the Foreign Exchange Management Act.

The FEMA Regulations (FEMA 20/2000-RB) and the Consolidated FDI Policy of 2011 issued vide Circular 2/2011, state that Foreign Direct Investment of any sort is prohibited in gambling and betting including casinos. Thus, FDI is not allowed in any gambling ventures, whether online or offline. Further, foreign technology collaboration in any form, including licensing for franchise, trademark, brand name, management contract is prohibited for lottery businesses and betting/gambling activities.

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. 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.

Role of a CA
Looking at the raging controversy over gaming versus gambling, a CA should alert his clients about the potential dangers of setting up a gambling venture or a venture where there is no clarity over whether it falls under gambling or gaming. Similarly, if he is associated with a fund/investor investing in such a doubtful venture, he should red flag the transaction for his client’s notice. He should recommend that a well-reasoned legal opinion on this aspect should be obtained and only then the transaction should be proceeded with. The risks involved with getting into a gambling venture are very high and could even lead to the arrest/prosecution of the persons involved with it. The old adage of ‘better safe than sorry’ should be the mantra in such a case.

Finally, I have to say that the most surprising aspect has been the speed at which the folks in India adapt to Western practices. They learn fast, really, really fast.

— Sanjay Kumar