Recent developments in the laws relating to online gaming and online betting in India

Aditya Malhotra

Shardul Amarchand Mangaldas & Co, Mumbai

Aditya.malhotra@amsshardul.com

Meera Menon

Shardul Amarchand Mangaldas & Co, Mumbai

Meera.menon@amsshardul.com

Introduction

As in many other parts of the world, the age-old activity of gambling also finds various references in Indian history and mythology. While ancient texts such as the Rig Veda, Atharva Veda, Ramayana and Mahabharata caution against its harms, others such as the Katyayana Smriti, Manu Smriti and Narad Smriti support its regulated existence, citing its potential as a source of revenue for the Kingdom.[1]

Legislation

The modern Indian law on gambling, governed centrally by the Public Gaming Act 1867 (PGA), prohibits betting and gambling involving games based predominantly on chance but does not prohibit games based predominantly on skill. While neither of the terms are defined under the PGA, Indian courts have generally clarified the distinction between the two based on the predictability of the outcome of the game. The Supreme Court of India, while holding that betting on horse racing is a game of skill and not gambling, and thus is not covered under the PGA, also established that games involving a substantial degree of skill fall within the definition of trade, business or profession under Article 19(1)(g) of the Constitution of India and are, therefore, protected by the Constitution.[2]

Despite the decision of the Supreme Court, however, specific state legislatures have enacted their own gambling laws, often modifying the PGA to align with their respective policies and adapt to the changing landscape of online gaming. This legislative authority stems from the Seventh Schedule of the Indian Constitution, an important aspect of Indian federalism, which delineates powers between the union legislature and the state legislatures, categorising ‘betting and gambling’ under the purview of the states.[3] For example, the states of Goa and Sikkim, as small states which are heavily reliant on tourism revenue, have legalised licensed casinos, and states such as Kerala, Maharashtra and West Bengal permit lotteries and horse-race betting. On the other hand, states such as Andhra Pradesh,[4] Assam, Odisha and Telangana[5] have enacted strict prohibitions on all forms of gambling, including games of skill including online real money gaming.

Furthermore, over the past few years, the Indian judiciary has also laid down law on issues surrounding online gaming in various judicial decisions as the prevalence of online gaming has begun to increase in the country. The High Court of Gujarat ruled that poker is a game of skill and not chance and hence does not constitute gambling.[6] The Madras High Court upheld the legality of real-money gaming, including rummy and poker, emphasising that these games predominantly involve skill rather than chance. Recently, the Madras High Court’s decision held that citizens of India have a right to engage in such activities and overturned the state’s ban on real-money gaming, providing a significant boost to the gaming industry in Tamil Nadu.[7] The Punjab and Haryana High Court held that playing fantasy sports, such as fantasy cricket, involves a substantial degree of skill and judgment, and therefore, cannot be considered gambling. The Punjab and Haryana High Court distinguished between games of skill and games of chance, emphasising that fantasy sports require users to apply their knowledge of the sport and make strategic decisions.[8]

Growth in the gaming industry

Over the last two decades, India has seen exponential growth in the online gaming industry. India’s online gaming market has grown at a compounded annual growth rate (CAGR) of 28 per cent between the fiscal years (FY) 2020 and 2023 and has attracted massive amounts of Foreign Direct Investment (FDI), slipping only over the last fiscal year due to the sudden and sharp rise in the goods and services tax (GST) charged in relation to online games including online real money games. At the end of FY 2023, real money games formed 83 per cent of the online gaming market.[9] The most popular real money games include fantasy sports, rummy, carrom, poker, chess and quiz games, etc. To the extent that these games are based predominantly on skill, they are legal. The expression ‘real money game’ is defined under rule 2(qd) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 (the ‘IT Rules’), as an online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit.

There are 425 million online gamers in India as at the end of FY 2023, with an average of 10–12 hours per week spent on gaming.[10] The exponential growth of the online gaming industry has presented a unique challenge to regulatory bodies, as its rapid expansion has outpaced the legislature’s ability to enact specific regulations governing its operation. There appears to be widespread ignorance surrounding the legality of online gaming and betting platforms among the Indian public. However, the anonymity afforded by proxy and Virtual Private Network (VPN) provides easy and almost unrestricted access to these online gaming and betting platforms from within India.

Unlike traditional forms of gaming, online gaming does not fall neatly within the purview of existing legislation such as the PGA which primarily focuses on land-based gambling activities and does not adequately address the complexities of the digital realm. However, the Information Technology Act 2000 (the ‘IT Act’), originally enacted to address cyber-crimes and regulate electronic commerce, has become the primary statutory framework used to govern various aspects of online activities, including gaming. Rules and regulations have been formulated under the IT Act to address issues related to online gaming, such as data privacy, cybersecurity and consumer protection. Foreign registered gaming platforms operating in India have also become subject for concern for the Indian government due to several issues including suspected involvement of some of these entities in tax evasion and money laundering practices.[11]

Amendments to the IT Rules

On 6 April 2023, the Ministry of Electronics and Information Technology (the ‘MeitY’), which is the central government ministry responsible for policy matters relating to technology, electronics and the internet, introduced some essential amendments to the IT Rules to better regulate online gaming, which included, inter alia, the classification of ‘online gaming intermediaries’, the verification of real money games and the establishment of grievance redressal mechanisms.

The term ‘online gaming intermediary’ is defined under rule 2(qb) of the IT Rules as ‘any intermediary that enables the user of its computer resource to access one or more online games’. Online gaming intermediaries play a crucial role in facilitating gaming activities on digital platforms. Under the amended Rules, these intermediaries are tasked with conducting due diligence to ensure compliance with permissible online games and ethical standards. They are required to establish mechanisms for user authentication and age verification to prevent minors from accessing inappropriate content or engaging in gambling activities including appointing a chief compliance officer, a nodal contact person for law enforcement coordination and a resident grievance officer. They are also required to publish monthly compliance reports and provide a physical contact address in India on their platforms. Additionally, intermediaries are required to implement complaint mechanisms and display a verification mark from self-regulatory bodies for permissible real money games. Users are required to be informed on rules, privacy policies and deposit protection measures. Intermediaries are also prohibited from financing gaming through credit or enabling third-party financing.

Under rule 4A of the IT Rules, the MeitY can designate online gaming self-regulatory bodies to verify online real money games as permissible. Entities meeting specified criteria can apply for designation, including being a registered company, having representative membership from the gaming industry and possessing sufficient capacity. These bodies can verify games, considering criteria such as absence of wagering and compliance with rules and laws. They must publish and update lists of verified games and members, and can suspend or revoke verification if non-compliance is found. Verified games must display a mark of verification, and bodies must provide a framework for game verification and grievance redressal. The MeiTY oversees these bodies and can issue directions or suspend/revoke designations if necessary. Prominent publication of information is mandated for transparency.

Goods and Services Tax Council

Recently, pursuant to the 50th and 51st meetings of the Goods and Services Tax Council, which considered various issues regarding taxability of casinos, horse racing and online gaming, certain recommendations were passed through the Central Goods and Services Tax (Amendment Act) 2023. The amendment has introduced significant changes including removing with the Top of Form

Recendifferentiation between online games based on skill versus chance and instead have categorised all real money games under a unified tax bracket wherein an escalated rate of 28 per cent is charged on the full-face-value of deposits. Moreover, the amendment also provides for the mandatory registration of persons supplying online money gaming, from a place outside India to a person in India.

The idea behind such a heavy GST, other than administrative convenience, appears to be the popular belief among the GST Council that the government must not encourage the activity of gambling.[12] Notably, it may be argued that such conflation of games of chance and games of skill contradicts the protection guaranteed to games of skill under Article 19(1)(g) of the Constitution of India. However, the Revenue Secretary, in the 50th GST Council Meeting emphasised that the GST Council is a tax body and not a regulatory authority and, therefore, it should not be concerned with the prohibition or regulation of games of chance and games of skill.[13]

Some might argue that there is a hesitancy on the part of the government to allow self-regulatory bodies, primarily comprising private companies, the autonomy needed to govern the industry. This impasse raises significant challenges for both the government and industry. On the one hand, co-regulatory frameworks leverage industry expertise, fostering flexibility and stakeholder collaboration to drive innovation. Yet, they carry the risk of conflicts of interest, varying standards across jurisdictions and may suffer from limited enforcement capabilities and complex governance structures. On the other hand, government regulation provides centralised control and public accountability, ensuring consistent enforcement and enhanced authority. However, it may carry bureaucratic delays, relatively lower understanding of sector dynamics and may struggle to adapt to rapid market changes, risking overreach.

Conclusion

Ultimately, the choice between these models hinges on striking a balance between regulatory oversight and industry autonomy, considering factors such as market dynamics, technological advancements and societal values. There are examples of both governmental and private federations which are working to ensure responsible gaming practices while fostering a thriving and competitive industry ecosystem, such as:

• the Digital Fraud Prevention Agency, which tackles identity theft and cybercrimes, safeguarding online transactions;
• Guidelines on Prevention of Misleading Advertisements from the Information and Broadcasting Ministry, which prevent deceptive marketing, promoting transparency in advertising and curbing irresponsible gambling behaviours;
• the E-Gaming Federation, which advocates for fair practices, standards and collaboration between stakeholders and government bodies to address regulatory challenges; and
• the All-India Gaming Federation, which represents gaming companies, engaging with policymakers to shape balanced regulatory frameworks conducive to sector growth while upholding legal and ethical standards.

India’s journey through online gaming laws has been marked by evolving central and state regulations, notable case laws and the recent surge in GST implications. The 2023 amendments to the IT Rules brought significant changes, yet challenges persist for regulatory bodies. Insights from industry-expert reports underscore the magnitude of online gaming’s impact, urging a balanced approach to regulation which protects users and the exchequer while ensuring that the gaming industry is not stifled.