How the gaming industry is playing on tilt

Updated: Dec 23, 2020 8:10 AM

At a time when the Indian online gaming industry is witnessing significant growth and global investor interest, adverse regulatory developments like these could cast a cloud of uncertainty over its growth trajectory

Today, the regulatory landscape seems to be undergoing a transformation with some state governments having prohibiting online real money gaming.Today, the regulatory landscape seems to be undergoing a transformation with some state governments having prohibiting online real money gaming.

By Aayush Kapoor and Puja Sondhi

The Tamil Nadu chief minister recently made a statement that the state government is considering a ban on online ‘gambling’ such as rummy following a spate of suicides, which fuelled the moralistic debate on the addictive nature of such games. Similar sentiments had been expressed in the backdrop of two writ petitions currently pending before the Chennai High Court, each seeking a complete ban on online real money games (such as rummy). The Tamil Nadu government followed through with an ordinance last week to amend the state’s gambling regulation to prohibit and penalize wagering and betting in the cyberspace, including playing “rummy, poker or any other game” online for stakes. In recent times, the state governments of Telangana and Andhra Pradesh have also imposed a prohibition on online real money gaming within their territories, and excluded the “games of skill” exception from their respective anti-gambling laws. These states join Assam and Odisha, which had enacted statutes several decades ago that did not prescribe this “game of skill” exception.

To provide some context, the Constitution of India lays down the division of legislative powers between the union government and state governments, pursuant to which each state legislature is entitled to make its own laws regarding “betting and gambling”. Most states have adopted the Public Gambling Act, 1867 (PGA) (the pre-independence central legislation) or enacted legislations on similar lines, in relation to “betting and gambling”. 

The main objective of most of these state legislations is to prohibit and penalize the act of “gambling” and the running of a “common gaming house”, i.e. any establishment in which, instruments of gaming are kept or used for profit or gain by any person. A common, and perhaps fundamental aspect that features in most of these state legislations (other than the states noted above that have specifically excluded it), is the exception for ‘games of mere skill’, which are excluded from the prohibition mandated under these legislations.

The most well-known rulings where the Supreme Court examined the ‘games of mere skill’ exception have been State of Andhra Pradesh vs. K. Satyanarayan (1968) and subsequently K R Lakshmanan vs. State of Tamil Nadu and Ors. (1996), wherein the court held that games which depend predominantly on the superior knowledge, training, attention, experience and adroitness of the player, rather than chance, to be “games of skill”.

While the K. Satyanarayan ruling and other similar decisions were passed in an era preceding the advent of the internet, the purposive interpretation of these decisions forms the fundamental basis for the thriving online real money gaming industry in most states of India, other than those that have specific (albeit onerous) licensing and regulatory regimes (Nagaland and Sikkim) or those that have explicitly banned and/or excluded the “game of skill” exception.

It is relevant to note that the Supreme Court, while recognising the “game of skill” exception in K. Satyanarayan, also made reference to the fact that that if the owner of the house or the club is making a profit from hosting the game played for stakes, an “offence may be brought home.” Certain High Courts, like those of Kerala, Tamil Nadu and Gujarat have read into this and made adverse observations in relation to real money games, such as rummy, being akin to ‘gambling’ if there are stakes involved. In addition, there are various public interest litigations that are filed, from time to time, in High Courts across the country seeking a prohibition on online real money gaming.

Today, the regulatory landscape seems to be undergoing a transformation with some state governments (like Telangana, Andhra Pradesh and Tamil Nadu) having prohibited online real money gaming or excluding the “game of skill” exception from their state legislations and others (like Gujarat and Karnataka) reportedly considering regulating (or perhaps even prohibiting) online gaming. Juxtaposed against these developments, has been the recent launch of India’s first gaming-focused venture capital fund. As per industry reports, the Indian gaming industry is poised to grow at a CAGR of 41%, estimated to be valued at $3.75 billion by 2024, with real money games, mobile-centric/casual games and E-sports comprising the three key segments.

At a time when the Indian online gaming industry is witnessing significant growth and global investor interest, adverse regulatory developments like these could cast a cloud of uncertainty over its growth trajectory. Perhaps the state governments could work with the relevant industry bodies to evolve a suitable regulatory regime which aims to protect consumer interest, instead of outright banning online real money gaming.

The authors are partner at Shardul Amarchand Mangaldas & Co. The views in this article are personal views of the author.

Read Also: How online gaming industry attracted money and eyeballs in 2020; raked in $173 million in investments

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