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Karnataka Bans Online 'Games of Chance' – But Will Move Stand Legal Scrutiny?

Experts say the Karnataka Police Bill, 2021, which seeks to ban online gambling and betting, may face legal hurdles.

Published
Tech and Auto
6 min read
<div class="paragraphs"><p>This development has come after the Karnataka High Court urged the state government to come up with a stand on online gambling.</p></div>
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The Karnataka government on Tuesday, 21 September, passed a controversial bill that outlaws online gambling and 'games of chance'. The Legislative Assembly took a decision on Saturday to amend the Karnataka Police Act, to bring the ban into effect.

This development comes after the Karnataka High Court urged the state government to come up with a law on online gambling.

However, experts say the Karnataka Police (Amendment) Bill, 2021 may face legal hurdles, as it lacks clarity, particularly over how authorities identify an activity, website or app as 'problematic.'

Interestingly, this Bill also comes at a time when fantasy gaming players and startups are looking to cash in on the upcoming ICC T20 World Cup and the ongoing Indian Premier League (IPL).
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What Does the Bill State?

Here's what the new Bill changes:

  • The Bill states that “gaming means and includes online games, involving all forms of wagering, including electronic means and virtual currency, electronic transfer of funds in connection with any game of chance, but does not include a lottery or wagering or betting on horse race run on any race course within or outside the State, when such wagering or betting takes place."

  • The law's ambit will now include "any act or risking money, or otherwise on the unknown result of an event including on a game of skill and any action specified above carried out directly or indirectly by the players playing any game or by any third parties."

  • Devices of gaming now includes, "computers, mobile app or internet or cyberspace, virtual platform, computer network, computer resource, any communication device, electronic applications, software and accessory or means of online gaming, any document in electronic or digital form. Interestingly, cyber ​​cafés are also included in the amendment."

  • The maximum jail term of one year has been increased to three years, and a Rs 1,000 fine has been increased to Rs 1,00,000. Minimums for these penalties have also been changed from one month to six months and Rs 500 to Rs 10,000.

Impact on Skill-Based Gaming Startups

Experts believe that the amended Act in its current form is likely to have an adverse impact on online gaming startups, and growth and investment within the industry.

Gautam Kathuria, a senior research associate at The Dialogue, a privacy policy think-tank, told The Quint that Karnataka is home to a significant number of gaming companies, developers, and engineering talent.

Over 4,000 individuals are employed in this sector, and the decision threatens their prospects as well.

"The Bill needs to clearly distinguish between games of chance (gambling) and games of skill, so as to provide clarity and avoid disrupting the exponential growth of the overarching digital skill gaming industry," Kathuria added.

Praveen Khandelwal, secretary general of the Confederation of All India Traders (CAIT), believes that the new amendment will hurt the Indian startup sector, the Indian gaming and animation industry and millions of Indian gamers and esports players across the country.

Echoing similar sentiments, Apurv Abhay Modi, Managing Director & Co-founder of ATechnos Group, which runs the gaming and gamification platform Gogames.run, told The Quint that India gives home to around 600 gaming startups each year, and the business in India is worth around Rs 10,000 crore.

"This Act will have a significant impact on gaming sector as India is the fifth-largest online gaming market globally and skill-based gaming, a sunrise sector, is giving birth to an increasing number of unicorns within the country, especially Karnataka," asserted Modi.

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Meanwhile, Internet and Mobile Association of India (IAMAI) backed the Indian gaming startups and said that the amended Act only affects the Indian companies, which mostly charge a small registration fee to play their games, and will not affect other foreign games, where children spend thousands of rupees on in-app purchases.

"The ban will also prohibit Indian games like Chess, Carrom, Archery, Hockey and digital versions of traditional sports," IAMAI added.

What About Fantasy Sports?

The Supreme Court had recently dismissed the SLP challenging the Online Fantasy Sports (OFS) format offered by Dream11 which claimed it amounted to gambling, wagering, and betting and is not a ‘Game of Skill.

Kathuria notes that this decision echoes the October 2020 Rajasthan HC judgment and underlines the Court’s belief that games of skill are not gambling and are legitimate business activities protected under the Indian constitution.

"Entry 34 of List II of the 7th Schedule of the Constitution empowers states to legislate matters relating to betting and gambling but does not explicitly include games of skill under this jurisdiction", he told The Quint.

Federation of Indian Fantasy Sports (FIFS), a self-regulatory industry body for fantasy sports, said the law appears to be misguided since it penalises legitimate businesses by treating them at par with illegal online gambling, betting and wagering platforms.

Such confusing signals could result in impeding the development of sports in the state, it said.

"We request the Karnataka government to remove any ambiguity or uncertainty in the law to ensure continuity and growth of the fantasy sports sector in the State. FIFS and its members strongly believe that certainty is integral to the rule of law and hence the law needs to provide certainty and clarity to businesses, the investor community as well as consumers for the orderly growth and development of the industry," it said in a statement.

The 35-member body counts Dream11 as its founding member with other members like MPL and My11 Circle.
"We really hope the state reviews the position of online skill-gaming in Karnataka."
Roland landers, CEO of All India gaming federation
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Will Other States Follow Suit?

Karnataka is not the first state to take such a decision. This is following the Tamil Nadu government's decision to promulgate an ordinance banning online gambling in November 2020 and earlier this year, Kerala imposing a ban on online rummy games.

However, experts believe that it is unlikely that these moves will gather momentum, especially in the aftermath of the aforementioned SC decision

Last month, the Madras HC struck down the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 which imposed a ban on playing of games such as rummy and poker on cyberspace with stakes.

Part II of the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 had amended the Tamil Nadu Gaming Act, 1930. The Court held that the complete prohibitions on for money online games of skill under the Amendment Act were unreasonable, excessive, and manifestly arbitrary, thereby falling afoul of Article 19(1)(g) of the Constitution.

"Assuming status quo, it is likely that the Karnataka High Court might get involved and similarly be called in to uphold the rights of games of skill in the state"
Gautam Kathuria, Senior Research Associate, The Dialogue

'Game of Chance' or 'Game of Skill': What Does the Supreme Court Say?

According to Indian laws, betting on games of chance is illegal whereas betting on games of skill is legal. It’s tricky to determine whether a game falls under a chance or skill categories.

The ruling by Supreme Court holds that rummy cannot be classified as a game of chance like three-card games such as flush and brag. This is because rummy needs players to have a certain level of skill, particularly when it comes to memorisation. Therefore, any game that requires a gamer to have a particular skill set is legal.

However, gambling apps remain at the mercy of payment platforms and state governments which can block a certain app stating ‘legislative ambiguity’.

Prasanth Sugathan, Principal Associate, MCA law sheds light on how the Supreme court decides whether a game falls under skill based gaming or chance based gaming.

Sugathan notes that In 2017, the High Court of Punjab and Haryana became the first Indian court to rule a fantasy sports game to be a game predominantly based on skill.

The High Court in Varun Gumber vs UT, Chandigarh relied on the Supreme Court’s decision in Dr KR Lakshmanan vs State of Tamil Nadu.

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The HC observed that playing fantasy sports games required the same level of skill, judgment, and discretion as in the case of horse racing.

Whether a game is of chance or skill is a question of fact to be decided on the basis of facts and circumstances of each case.

"While deciding the question of 'skill versus chance', Indian courts have adopted the test followed by the US courts known as the 'dominant factor test', or 'predominance test'. This test requires a court to decide whether chance or skill is the dominating factor in determining the result of the game," Sugathan added.

The Supreme Court has applied this test in relation to card games such as rummy and horse racing. The bans on online games is mostly for games of chance and not of skill.

According to various judgments by courts in India, it is only games of chance that are of the nature of gambling that may be banned.

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

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