Karnataka High Court on Online Gaming

• 16 Feb 2022

For Prelims: Online Gaming, Gambling, Karnataka Police (Amendment) Act, 2021, Game of Skill, Game of Chance, Lottery, Betting

For Mains: Judgements & Cases, Online Gaming and its Impact, Laws related to Gambling, Betting and Lottery

Why in News?

Recently, the Karnataka High Court delivered a judgement striking down major portions of the Karnataka Police (Amendment) Act, 2021 which banned online gambling and skill-based gaming platforms.

• Currently, online gaming falls in a regulatory grey area and there is no comprehensive legislation with respect to its legality.

What was the High Court's Ruling?

• The Karnataka High Court struck down the amendments to the Karnataka Police Act on three major grounds:
  • Violation of fundamental rights of trade and commerce ( Article 19), liberty and privacy (Article 21), speech and expression (Article 19).
  • Being manifestly arbitrary and irrational insofar as it did not distinguish between two different categories of games, i.e. games of skill and chance.
    • A “game of skill” is based mainly on the mental or physical level of expertise of a player, rather than a chance.
    • A “game of chance” however is determined mainly by a random factor of any type. In games of chance, the usage of skill is present but a higher level of chance determines success.
    • Games based on skills are allowed in most parts of the country, while games of chance are categorised under gambling and are prohibited in most parts of the country. As betting and gambling is a state subject, different states have their own legislation.
  • Lack of legislative competence of State legislatures to enact laws on online skill-based games.
• The court also held that the State government provided no evidence or data on whether a sweeping ban was justified and neither constituted a committee of experts to study the issue.
• The court also held that playing online games could help in building the character of an individual and enjoying online gaming could also fall within the contours of freedom of expression and right to liberty and privacy guaranteed under the constitution.
• The court also opined that regulation of online games may be a better and proportionate solution rather than an outright ban, and left it open for the State government to come up with a new legislation dealing with betting and gambling in accordance with the provisions of the constitution.

What was the Karnataka Police (Amendment) Act, 2021?

• The law was introduced by the Karnataka government to ban online gambling and skill-based gaming platforms.
• The games banned were games that involved any wagering or risking of money on an uncertain event for example online rummy, poker and fantasy sports.

Which are the Other States Where Such Laws Were Struck Down?

• Apart from Karnataka, a similar law introduced by the Tamil Nadu government was struck down by the Madras High Court in August 2021.
• In September 2021, the Kerala High Court had also quashed a notification issued by the State government specifically banning the game of online rummy when played for stakes.

Why are States Trying to Ban Online Gaming?

• Many social activists, government officials and those in law enforcement believe that online games like rummy and poker are addictive in nature, and when played with monetary stakes leads to depression, mounting debts and suicides.
  • `Reportedly, there have been a few instances where youngsters, faced with mounting debts due to losses in online games have committed other crimes like theft and murder.
  • Earlier, the World Health Organisation (WHO) had announced a plan to include “gaming disorder” as a mental health condition.
• Online games are susceptible to manipulation by the websites operating such games and that there is a possibility that users are not playing such games against other players, but against automatic machines or ‘bots’, wherein there is no fair opportunity for an ordinary user to win the game.

What are the Negative Consequences of Banning Online Gaming?

• An outright ban may not entirely curtail the playing of such online games, with or without stakes.
  • Telangana, which was the first State to ban online games for stakes in 2017 has seen a spurt of illegal or underground online gambling apps.
    • Most of which originate from China or other foreign countries, and accept payments from players through dummy companies or hawala channels.
  • Both the Enforcement Directorate (ED) and local cyber crime authorities have tried to crack down on such apps but with limited success.
• Shifting of users to grey or illegal offshore online gaming apps not only results in loss of tax revenue for the State and job opportunities for locals, but results in users being unable to avail remedies for any unfair behaviour or refusal to pay out winnings.

What are the Central Laws Related to Lottery, Gambling and Betting?

• The Lotteries Regulation Act, 1998:
  • Lottery is considered legal in India. Lottery should be organised by the state government and the place of Draw should be in that particular state.
• Indian Penal Code, 1860:
  • The code has provisions for punishing anyone who to the annoyance of others does any obscene act in a public place or sings, recites or utters any obscene song, ballad or words, in or near any public place.
  • These provisions of the IPC may be attracted if any obscene matter is used for the purpose of advertising betting and gambling activities.
• Prize Competitions Act, 1955:
  • It defines Prize in Competitions.
• Foreign Exchange Management Act, 1999:
  • Remittance of the income generated from lottery winning, racing/riding is prohibited under this Act.
• Information Technology Rules, 2011:
  • Under these rules, any internet service provider, network service provider or any search engine will not host any such content which directly or indirectly supports Gambling.
• Income Tax Act, 1961:
  • Current taxation policy in India covers all types of Gambling industry directly and indirectly. Thus, it can be said that all regulated and legalised Gambling is supported in the Gross Domestic Product (GDP) of India.

Way Forward

• Instead of a complete ban, one could look at licensing and regulating the industry with various checks and balances such as:
  • Diligent KYC and anti-money laundering processes.
  • Barring minors from accessing real money games.
  • Placing weekly or monthly limits on the money that can be staked or time that can be spent.
  • Counselling for addictive players and allowing self-exclusion of such players etc.
• A Gaming Authority at the central level should be created. It could be made responsible for the online gaming industry, monitoring its operations, preventing societal issues, suitably classifying games of skill or chance, overseeing consumer protection, and combatting illegality and crime.
• More and more youngsters are getting hooked to online games. In light of this, the Online gaming industry needs to be regulated in India. Moreover, regulation of online gaming will not only open up economic opportunities but also address its social costs.

Source: TH