Gambling is prohibited in India. The Public Gambling Act, 1867 and several local acts passed by the states make it a legally proscribed activity with punishments ranging from financial fines to years of imprisonment. Despite these laws, the Federation of Indian Chambers of Commerce and Industry (FICCI) estimates India’s illegal betting market at more than Rs 3,00,000 crore, which is about the size of India’s defence budget as of 2019. This amount exceeds the total amount India spends on agriculture, education and health by $10 billion or Rs 7.5 thousand crore.
The CBI’s report on ‘cricket match fixing and related malpractices’ talks of the emergence of betting syndicates and cartels, run on ground by bookies and punters, and hints at the involvement of the underworld. That was almost 20 years back, and betting on any One-Day International match anywhere in the world ran into hundreds of crores, according to the report.
Today, betting has gone online, with neat interfaces, embedded payment systems, dashboards to calculate odds, alert notifications and mobile applications.
There is a certain ambiguity about the application of gambling statutes to the online space as the laws are more suited to act upon a physical gaming house and related instrumentalities. Complicating this situation is the designation of certain games as ‘games of skill’ where “success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player” and players can transact, bet and exchange monies playing the same. It is essential to disambiguate the policy conundrum around gambling especially in the online space as this can be utilised as an opportunity for harm prevention as well as possible gains in revenue.
Legal framework
Rule 3(2)(b) of Information Technology (Intermediaries Guidelines) Rules, 2011 framed under Section 87(2) (zg) read with Section 79(2) the Information Technology Act, 2000 requires ‘intermediaries’ like internet service providers, network service providers, search engines, telecom operators etc. not to host or transmit any content which inter alia relates to or encourages gambling.
As per the Indian Constitution, betting/gambling is a state subject and each state has exclusive legislative competence to enact laws within the state. Most of the state legislations and the Public Gambling Act, 1867 were enacted prior to the advent of online gambling/gaming.
The Gambling Enactments are prescriptive in so much as most of the states prohibit gaming/gambling, but carve out an exception for games of skill. Therefore, the prohibitions under the Gaming Enactments would not apply if a game qualifies as a game of skill. In RMD Chamarbaugawala v. Union of India, the Apex court relied on the ‘skill test’ to decide whether an activity is gambling or not. The court held that competitions which substantially involve skills are not gambling activities but are commercial activities, protected under Art. 19(1)(g).
In order to understand the current legal status of online gambling/gaming, we have to look at the following categories: Fantasy Sports, Betting, Casino, Lottery and Poker.
A. Fantasy Sports: Skill based games are exempted under the Gaming Enactments. The Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 expressly recognises virtual team selection games and virtual sport fantasy league games as games of skill such as chess, sudoku, quizzes, binary options, bridge, poker, rummy, nap, spades, auction, solitaire, virtual golf and virtual racing games. A licence is a must if such games are sought to be offered online in the State of Nagaland.
Recently Dream 11’s format of fantasy sport has been held as a game of skill by the High Court of Punjab and Haryana. Even the High Court of Bombay in case of Gurdeep Singh Sachar v Union of India recognised this format of fantasy sport as a game of skill.
B. Betting: The Supreme Court in case of Dr K.R. Lakshmanan v State of Tamil Nadu held that betting on horse racing was a game of skill and accordingly is exempt from the prohibitions under most G a m i n g Enactments . These exemptions in gaming enactments are subject to certain conditions and in case of online horse racing it would be difficult to meet these conditions. But the argument of whether horse racing is a game of skill can always stand irrespective of these exemptions.
C. Casino: Casino falls under the category of gambling and betting and is prohibited under most of the enactments. Certain sub-categories of casino games under the Sikkim Online Gaming (Regulation) Act, 2008 and the Sikkim Online Gaming (Regulation) Rules, 2009 may be offered through the state-wide intranet within the State of Sikkim only.
D. Poker: In some Indian states poker is recognised as a game of skill either by: (1) enactment/ regulation such as the State of West Bengal has specifically excluded poker from the definition of “gambling” under the West Bengal Gambling and Prize Competitions Act, 1957; the Nagaland Act has specifically categorised poker as a game of skill; and
(2) Courts such as the Karnataka High Court have also held that a licence is not required under the Karnataka Police Act, 1963 (“Karnataka Act”) when Poker is played as a game of skill.
On the contrary in the case of Dominance Games Pvt. Ltd v State of Gujarat, the Hon’ble High Court of Gujarat recently held that poker is a game of chance and a gambling activity under the Gujarat Prevention of Gambling Act, 1887 and therefore is currently prohibited in Gujarat (appeal challenging the same is pending).
The question of whether sports betting is a game of skill is pending before the Supreme Court in the case of Geeta Rani v Union of India & Ors. If the judgment concludes that sports betting is a game of skill, it will be exempt from most Gaming Enactments and can be offered in most Indian states that recognise an exemption for games of skill.
Despite above stated enactments declaring gambling as illegal activity, there has been existence of offshore betting websites which are illegally offering websites to Indian citizens and accepting bets from India, in contravention of the Information Technology Act, 2000 and the Foreign Exchange Management Act, 1999.
Ban or licence debate
Governments all over the world have been vary of regulating gambling as a licenced and controlled activity due to social, ethical, moral and religious considerations. However, lotteries and horse racing as well as certain ‘games of skill’ have been allowed to continue in a restricted manner. On the other end, countries have monopolised gambling and used it to generate non-tax revenue and tourism windfalls.
The Internet however disrupted this model by destroying jurisdictional barriers, and now players and organisers of this activity can take advantage of jurisdictional arbitrage to freely place bets, convert currencies into local or international, move money digitally across borders and even allow for digital to physical money conversion, all in real time.
A legitimate regulatory and policy predicament presents itself in the form of conflicting objectives and suboptimal solutions which range from inevitable harm to relinquishing of jurisdiction. While on one side, Anti Money Laundering (AML) and player authentication (Know Your Customer) norms need to be enforced strictly, any legalization may also result in human and economic downsides around increased social costs. Problem gamblers and new addicts may pose harm to society in the form of crime and bankruptcy costs, while issues related to degradation of quality of life and social fabric may present serious challenges to any legalisation of gambling activity for economic purposes by the state. The 276th law commission report examines these issues in great detail.
Prohibition of Internet gambling/gaming has resulted in Indian Internet gambling sites being established in other countries with little or no prohibition. Despite restrictions of Internet gambling in India, Indians are gambling online. Implementation of a blanket ban in the virtual world is impossible and thus, internet gambling will continue to grow in popularity among Indians, despite restrictions. Therefore, creating an effectively regulated internet gambling climate is important. Introducing regulatory policies and standards surrounding internet gambling will also pave the way for the country to protect its citizens by preventing underage gambling, controlling black money generation and circulation, enforce responsible gaming environment/rules, and ensure transparency in the market. Additionally, the revenue so generated by regulating and taxing betting and gambling may become a good source of revenue, which in turn, could be used for public welfare.
Conclusion
A study by KPMG India in September 2019 pegs the Indian online gaming industry to be a Rs 250.3 billion industry by 2024. India is missing out on about $1.5 billion annually in lost revenue as there is no regimen for regulation or taxation of online gambling. It is time to calibrate and counterweigh conflicting objectives to maximise public good. Since it is not possible to prevent Internet gambling completely, effectively regulating them remains the only viable option. India can learn from the experience of several countries and jurisdictions which have regulated online gambling in its myriad and ever evolving forms with considerable success. Especially in the post-Covid reconstruction phase, where other drivers of economic activity are scarce to find, setting up a discerning and ingenious set of safeguards by way of regulation around gambling can be a constructive measure.
Brijesh Singh is an author and senior IPS officer. Khushbu Jain is a practising advocate before the Supreme Court and founding partner, Ark legal.