Gaming Law Wrap: Madras High Court encourages regulation of online gaming

• The Madras High Court (“Madras HC”) has underscored the need for a comprehensive regulatory framework to govern online games and virtual games, including online sports, in the recent case of D.Siluvai Venance v State rep by The Inspector of Police¹.
• Madras HC has reiterated that playing games in private premises does not amount to a ‘common gaming house’.

INTRODUCTION

There is no regulatory framework to govern online skill games in most Indian States. This has resulted in business uncertainties for the industry, and impeded its growth. In this case, the Madras High Court has recognized the pivotal need to regulate the online skill gaming industry in a progressive and forward-thinking judgment. Over the years, NDA has consistently encouraged the introduction of a federal legislation to regulate online games of skill (see here). Considering that regulating the online medium would be challenging at a State level, a federal law to regulate online skill games would be advisable. We have further explored the benefits of such a regime below.

BACKGROUND

Betting and gambling is a state subject under the Constitution of India.² Thus, each State in India may enact laws to govern betting and gambling activities within its territory. The Public Gambling Act, 1867 (“Public Gambling Act”) has been adopted by several states in India, while other States have enacted their own legislations to regulate gaming / gambling activities within their territories (“State Enactments”) (collectively, “Gaming Enactments”).

Most Gaming Enactments were enacted prior to the advent of the internet, and impose prohibitions on gambling activities in ‘common gaming houses’/’gaming houses’ within the relevant State.³ However, some States such as Nagaland, Telangana and Sikkim have extended their Gaming Enactments to the online medium.

Most Gaming Enactments read with the relevant case laws exempt offering games of skill from their prohibitions. Whether a game is a matter of chance or skill is a question of fact, which needs to be decided on the facts and circumstances of each case.⁴

FACTS

A case under Section 12⁵ (penalty for gaming in public streets, etc.) of the Tamil Nadu Gaming Act, 1930 (“TN Act”) was registered against the petitioner. It was alleged by the police that the petitioner and four others were found playing card games near some bushes. It is unclear what game the petitioner was playing, and whether it was a game of skill or a game of chance.

The petitioner filed a petition before the Madras HC requesting to quash proceedings initiated against him on several grounds, such as (1) the petitioner did not participate in the game, and was simply a spectator, and (2) the area in which the petitioner was found was not a public street/public place as contemplated under Section 12 of the TN Act, but was near a bush, in the farmland of the petitioner’s friend.

During the proceedings, the court suo moto questioned the police on how online Rummy was permitted in Tamil Nadu when they were so vigilant in enforcing the provisions of the TN Act against people playing cards physically in obscure locations such as thorny bushes. The court also pointed out that various online gaming websites were mushrooming across the country, along with advertisements for such games, which targeted unemployed youth and induced them to earn money from the comfort of their homes. It is unclear from the judgment whether the court was questioning the police with respect to online games of chance (i.e., gambling), games of skill, or both.

The police filed a status response with the court pointing out that there was a growing addiction to online gaming/gambling, particularly amongst youngsters, causing financial crisis amongst families. The report also remarked that various online gaming companies were not complying with the various Central and State laws applicable to them. Again, it is unclear from the judgment whether the police were referring to online skill gaming operators or operators offering games of chance (gambling activities)n and which laws were being referred to.

However, the judgment records some contradictory statements with respect to the content of the status report. While it records that the police have stated that online Rummy could not be considered a game of skill, as it involved betting/gambling, it goes on to mention that, the police have admitted that (in Tamil Nadu), there is no rule to regulate and license online skill games such as Rummy, bridge, nap, Poker and fantasy sports. Accordingly, it is unclear from the judgment whether the police considered Rummy to be a game of skill or a gambling activity. It is apt to note, however, that it is not the police but the local magistrates (i.e., regional judicial officers) who are empowered to determine whether a game is a game of chance or skill.

It was acknowledged by the police in the status report that there was no rule to regulate such online games of skill in Tamil Nadu, such as the license regime for online skill games in Nagaland. The Government of Telangana had also amended the Telangana Gaming Act, 1974 to extend its provisions online.

JUDGMENT

(1) Private premises cannot be termed as a ‘common gaming house’

The court cited certain previous judgments of the Madras HC which held that (1) access to a public street could not be termed as a public place⁶ under the TN Act, and (2) playing games in private premises which was not for the profit/gain of the owner did not amount to a ‘common gaming house’ for the purposes of Section 8 (penalty for opening a common gaming house)⁷ and section 9 (penalty for being found gaming in a common gaming house)⁸, of the TN Act. The court also referred to a judgment of the High Court of Punjab and Haryana⁹ holding that private properties in which cards were being played which was not for the profit/gain of the occupier/owner of the property could not be termed as either a ‘public place’ or a ‘common gaming house’ under the Public Gambling Act, 1867, (as applicable to Punjab and Haryana).

Relying upon these judgments, the Madras HC held that the place in which gaming was taking place, i.e., in the petitioner’s friend’s farm land, could not be termed a common gaming house, and accordingly quashed the proceedings against the petitioner.

The prosecution was initiated under Section 12 (Penalty for gaming in public streets), hence, as such this discussion though not applicable to the present facts, is of overall relevance for interpretation of common gaming house.

(2) Need for regulatory framework for online/virtual gaming

In light of the concerns raised in the police’s status report, i.e., that there was no regulatory framework for online games of skill, the court discussed the need for regulate such games. Given that the issue highlighted by the police was a lack of regulatory framework with respect to online skill games, it appears the court’s observations and recommendations are also in relation to the online skill gaming industry.

The court remarked that the Public Gaming Act, 1867 and most State Enactments were enacted prior to the advent of virtual/online gaming. The court traced the history of precedents in which various Indian courts had held certain games to be of games of skill. The court noted that except for certain cases in which High Courts were analysing the legality of online fantasy sports¹⁰, most cases pertained to gaming/gambling in India concerned brick – and – mortar premises such as recreational clubs. The court also alluded to the case of Mahalakshmi Cultural Association v The Director, Inspector General of Police & Ors.¹¹ in which the Supreme Court had noted that the government had not taken any decision on whether online Rummy fell afoul of the law or not.

The Madras HC held that there was a pressing need for a comprehensive regulatory framework to regulate online/virtual games. The court emphasized that the regulation of online games would encourage investment in the sector which could lead to technological advancements, as well as the generation of revenue and employment. In addition, the court also highlighted the need to regulate such games to protect frustrated and unemployed youngsters who were being enticed to play the games through alluring social media advertisements.

The Madras HC further pointed out that certain States such as Sikkim, Nagaland and Telangana, had extended their Gaming Enactments to the online medium in view of the need to regulate online gaming activities.

In light of this lacuna in the law, the Madras HC urged the State Government to take note of the situation and enact suitable legislation to regulate and control online gaming through a license, in accordance with law and precedents. The court underscored that it was not against virtual/online gaming, however emphasized the strong need to regulate legal gaming activities (i.e., skill gaming activities), including online gaming activities, taking into account the views of all stakeholders.

CONCLUSION

The recommendation to regulate online skill games by the High Court of Madras is a practical and forward-thinking one. Bringing online skill gaming within a regulatory, as opposed to a ‘exemption based’ regime would better address the needs of both the Government and the individual players. As pointed out by the court, the regulation of online games of skill has the potential to generate revenue and employment in the sector. It would provide a boost to tourism revenue, and taxes and licensing fees collected by the Government could be used for the welfare of the public.

One of the key concerns raised by the court was the need to protect vulnerable sections of society such as minors and unemployed youth. Regulating online games of skill has the potential to address such concerns. Such regulations could introduce measures to protect vulnerable sections by introducing age-gating measures, responsible gaming measures, among others.

The present framework applicable to skill gaming operators in India has stunted the growth of this industry. There are multiple, often contradictory Gaming Enactments of different Indian states, different interpretations of Supreme Court precedents by High Courts, and haphazard State-wise bans of certain games. This has resulted in uncertainties for online skill gaming operators.

In July 2018, the Law Commission of India had provided an outline of how the gaming industry in India could be regulated by way a federal licensing regime¹². The Commission acknowledged the benefits of legalising and regulating the industry in terms of employment generation, consumer protection, boost to ancillary industries such as tourism and information technology, etc. It is our hope that the judgment of the Madras HC provides further impetus to a federal online skill gaming law.

¹ Crl.OP(MD) No. 6568 of 2020 and Crl.MP.(MD) No. 3340 of 2020

² Constitution of India, Seventh Schedule, List II, Entry No. 34 Betting and Gambling.

³ To illustrate, the following activities are typically are prohibited

i. Owning, keeping, occupying or having care and management of a Gaming House

ii. Advancing or furnishing money for the purposes of gambling to persons frequenting any such Gaming House;

iii. Gambling in Common Gaming House or present for the purpose of gambling/gaming in Common Gaming House;

iv. Gambling or suspected gambling in any public street, place or thoroughfare;

v. Printing, publishing, selling, distributing or in any manner circulating anything with the intention of aiding or facilitating gambling/gaming;

⁴ Manoranjithan Manamyil Mandram v. St. of Tamil Nadu AIR 2005 Mad 261.

⁵ 12. Penalty for gaming in public street, etc, -

Whoever is found gaming with cards, dice, counters, money or other instruments of gaming in any public street, place or thoroughfare or publicly fighting cocks, shall be liable on conviction to fine not exceeding Section 7 of the Tamil Nadu Gaming (Amendment) Act, 1975 (Tamil Nadu Act 18 of 1975) [One hundred rupees] or to imprisonment not exceeding [three months]; and such instruments of gaming and moneys shall be forfeited.

⁶ J.Raghunadhu v Emperor 1933 Mad WN 1422

⁷ 8. Penalty for opening, etc., a common gamming-house ” Whoever opens, keeps or uses, or permits to be used any common gaming-house, or conducts or assists in conducting the business of any common gaming-house or advances or furnishes money for gaming therein, shall be liable on conviction to fine not exceeding five hundred rupees, or to imprisonment not exceeding three months, or to both.

⁸ 9. Penalty for being found gaming in a common gaming house

- Whoever is found gaming or present for the purpose of gaming in a common gaming-house shall, on conviction, be liable to fine not exceeding two hundred rupees or to imprisonment not exceeding one month; and any person found in any common gaming-house during any gaming or playing therein shall be presumed until the contrary be proved, to have been there for the purpose of gaming.

⁹ Kanwardeep Singh v Union Territory of Chandigarh Crl.M.P.No.54959 of 2006

¹⁰ Varun Gumber v Union Territory of Chandigarh (2017 Crl. LJ 3836), Gurdeep Singh Sachar v Union of India (PIL Stamp No. 22 of 2019) and Chandresh Sankhla v State of Rajasthan (DB Civil WP No. 6653 of 2019)

¹¹ Special Leave to Appeal (C) No(s).15371/2012 (Arising out of impugned final judgment and order dated 22/03/2012 in WA No. 2287/2011 passed by the High Court of Madras)

¹² Law Commission of India, Report No. 276, Legal Framework: Gambling and Sports Betting (July, 2018)

Benchmark Litigation Asia-Pacific: Tier 1 for Government & Regulatory and Tax
2020, 2019, 2018

Legal500 Asia-Pacific: Tier 1 for Tax, Investment Funds, Labour & Employment and TMT
2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012

Chambers and Partners Asia-Pacific: Band 1 for Employment, Lifesciences, Tax and TMT
2020, 2019, 2018, 2017, 2016, 2015

IFLR1000: Tier 1 for Private Equity and Project Development: Telecommunications Networks.
2020, 2019, 2018, 2017, 2014

AsiaLaw Asia-Pacific Guide 2020: Ranked ‘Outstanding’ for TMT, Labour & Employment, Private Equity, Regulatory and Tax

FT Innovative Lawyers Asia Pacific 2019 Awards: NDA ranked 2nd in the Most Innovative Law Firm category (Asia-Pacific Headquartered)

RSG-Financial Times: India’s Most Innovative Law Firm
2019, 2017, 2016, 2015, 2014

Who’s Who Legal 2019:
Nishith Desai, Corporate Tax and Private Funds – Thought Leader
Vikram Shroff, HR and Employment Law- Global Thought Leader
Vaibhav Parikh, Data Practices – Thought Leader (India)
Dr. Milind Antani, Pharma & Healthcare – only Indian Lawyer to be recognized for ‘Life sciences – Regulatory,’ for 5 years consecutively

Merger Market 2018:Fastest growing M&A Law Firm in India