GAMING OR GAMBLING – The core issues in entertainment business

 15 June 2020   |    Common Post Research

Parameters to be considered for designing gaming platforms – Overview of traditional judicial discourse on wagering and gambling hemming the innovative gaming industry. 

 

The burrowed culture of using electronic and smart devices in the last 10 years have increased the outreach of online gaming platforms. India's mobile games market is expected to reach 628 million users and be worth $1.1 billion by 2020, up from $290 million in 2016. Among all the emerging markets, India is the largest in terms of downloads with over 2.8 billion game downloads in the first half of 2018. Out of the overall assortment of intelligent games there may be games which are played relying on good luck and skill or a combination of both. Games like rummy or poker and several contemporary versions of the same are available online. Principles laid down in such cases which reached the High Courts and then Supreme Court of India have real time lessons for games adopting other formats and real-time strategy games.  

STATE GOVERNMENT'S POWER TO IMPOSE RESTRICTIONS AND CHECK ON OPERATING A GAMING BUSINESS
 

Gambling is a state government subject matter as List II Entry 34 of the Constitution of India stetching for an inclusive meaning - includes any activity or undertaking whose determination is controlled or influenced by chance or accident and any activity or undertaking which is entered into or undertaken with consciousness of the risk of winning or losing (eg, prize competitions, a wagering contract) … where there is no actual transfer of goods but only payment or receipt of the difference according to the market price, which varies from the contract price.”

The aforesaid ambit of Entry in the list although outlines the powers of the state government to enact laws, it does not strengthen our clarity as to what constitutes ‘Gambling’. Blacks Law Dictionary ascribed gambling to be an ‘act of practicing or following game of chance and skill with the expectation and purpose of thereby winning money or other property.’

Prior to independence, we had statutes like the Bengal Public Gambling Act, 1867, Bombay Prevention of Gambling Act, 1887 however, thereafter post independence, exercising the powers specified in List II certain state governments have enacted laws to regulate gambling. However, states like Karnataka, Kerela or Madhya Pradesh have not yet enacted specific statutues regulating the area. Following are a list of statutes enacted by states on the subject matter. [[][[]]The Madras Gambling Act etc. have been created. The Andhra Pradesh Gaming Rules, 1976; The Delhi Public Gambling Act, 1955;  J. & K. Public Gambling Act, 1977; The Meghalaya Prevention of Gambling Act, 1970; The Pondicherry Gaming Act, 1965; The Rajasthan Public Gambling Ordinance, 1949; The West Bengal Gambling and Prize Competitions Act, 1957; The West Bengal Gambling Rules, 1958;.Uttar Pradesh Public Gambling Act,1961] In all the statutes outlined above controls sets out how the government can control and restrict and playing of certain games.

STATE ACTS / Statutes EXCLUDE PLAYING POKER FROM THE AMBIT OF GAMBLING

The most interesting aspect is how the West Bengal Gambling and Prize Competitions Act, 1957 excludes playing poker from the ambits of Gambling. Section 2 (b) of the West Bengal Act now defines ‘betting or gambling, to include wagering or betting but exempts lotteries or game of cards like poker,rummy,bridge and nap from the ambit of gambling. This exemption of card games of skill was done during 1979 when the West Bengal Government added the definition of gambling to the West Bengal Act through the West Bengal Gambling and Prize Competition Amendment Act 1979.

In Kizhakke Naduvath Suresh v. State of West Bengal W. P. No. 13728 (W) OF 2015 (Calcutta HC)and Others, the court directed the state government, police, municipal and other authorities not to interfere in the poker games conducted by the petitioner, KN Suresh and his club. Suresh and his legal team comprising of Kishore Dutta  (Senior Advocate), Debamitra Bharadwaj, Lokenath Chatterjee and Sumitra Das contended that poker was a game of skill and that the West Bengal statute clearly excludes poker from the ambit of gambling. Advocate TM Siddique appearing on behalf of the state government stated that the police had not conducted any raids and did not wish to harass or unduly interfere in the activities of the petitioner. Hon’ble Justice Dipankar Datta on hearing the submissions of the parties referred to the provisions in the West Bengal Prize Competition and Gambling Act and recorded the assurance of Siddique while holding that the state government and other authorities should refrain from unduly harassing the petitioner. Thus, the wording of the prized statute West Bengal Gambling and Prize Competitions Act, 1957 was affirmed by Hon’ble High Court of Kolkata. While the development is a significant step for poker and skill games in India, the order of the Calcutta High Court will be applicable only to the state of West Bengal and will  have limited applicability even within the state, as the issue of online and offline poker being played in a commercial setup for profit was not considered by the court.

However in states like Karnataka which have not done the same, playing poker may come within the ambit of Section 79 and 80 of the Karnataka Police Act, 1963 (offences of owning and operating common gaming houses). Certain association, groups of person playing poker have been stopped by the police and criminal complaints lodged against them.

The question then arose before our learned Karnataka High Court to decide if such criminal complaints could be pursued and if the alleged players of poker cards were to be held liable for of violating the provisions of the Police Act.

In a historic observation passed in Indian Poker Association case, Karnataka High Court, the Court held that playing skill games like poker in recreational clubs is permitted and no license is required for the same. Hon’ble Justice AS Bopanna, in a matter concerning arrests and raids in various Bangalore clubs for organising poker games observed, “Having taken note of the fact that in respect of the game of poker if played as a game of skill, license is not contemplated and further keeping in view the fact that permission in this case had been obtained in that regard, the petitioner would be entitled to conduct such games provided, the same is in accordance with law.” The order further directed the police not to interfere with lawful activities of the club. The overall decision along with easing the cluttering interference by police will also have a positive value to the pending Delhi High Court decision on whether poker is a game of skill and whether it could be played for stakes. However, neither the judgment nor the police permission has gone in the substantial merits of whether poker is a game of skill (as the matter was disposed of at a preliminary stage) and hence the passing observations have limited applicability. Further, both the Court decision and permission only permit poker for “recreational purposes” and hence whether the game can be played commercially for profit or stakes could be called into question in future.

In respect to playing Rummy, the Karnataka High Court in Kirana S. and others v. State of Karnataka (Criminal Petition No; 7648/2013) quashed criminal cases under Section 79 and 80 of the Karnataka Police Act, 1963 (offences of owning and operating common gaming houses) against 19 petitioners accused of playing rummy for stakes in a particular case. The question for consideration before the Court was whether an offence of gambling in a common gaming house would be made out for playing rummy with stakes. Answering the question in the negative and relying on precedent from the Hon’ble Karnataka High Court in Anantaswamy Iyer v. State of Karnataka (1982) the Court observed “the game of Rummy with cards is not game of chance but a game of skill. The collection of commission from the members of the club playing Rummy does not make it a gambling house. Thus, it does not amount to any offence.”

GAME OF SKILL V. GAME OF CHANCE

Various courts in India have examined the difference between the game of skill and game of chance and in order to determine what constitutes gaming as defined in various state enactments, it is imperative to understand the difference between a "game of skill" and a "game of chance".

In State of Bombay v. R. M. D. Chamarbaugwala (AIR 1957 SC 699), the Supreme Court of India held that competitions or games where success depends on a substantial degree of skill will not fall into category of 'gambling' (i.e. gaming as defined under state enactments); and despite there being an element of chance, if a game is predominantly a game of skill, it would nevertheless be a game of "mere skill".
In State of Andhra Pradesh v. K. Satyanarayana & Ors (1968 SC 825), the Apex Court while holding that the card game – "Rummy" is not a gambling activity stated that "Rummy requires certain amount of skill because the fall of the cards has to be memorised and the building up of Rummy requires considerable skill in holding and discarding cards. We cannot, therefore, say that the game of Rummy is a game of entire chance. It is mainly and preponderantly a game of skill."
In M.J. Sivani & Ors. v. State of Karnataka (1995 6 SCC 289), the Apex Court observed, "Even a skilled player in a game of mere skill may be lucky or unlucky, so that even in a game of mere skill chance must play its part. But it is not necessary to decide in terms of mathematical precision the relative proportion of chance or skill when deciding whether a game is a game of mere skill. When in a game the element of chance strongly preponderates, it cannot be game of mere skill. Therefore, it is not practicable to decide whether particular video game is a game of skill or of mixed skill and chance. It depends upon the facts, in each case."

The Apex Court again delved into the aspect pertaining to what constitutes a game of skill in
Dr. K.R. Lakshmanan v. State of Tamil Nadu (AIR 1996 SC 1153) where it stated "Games may be of chance, or of skill or of skill and chance combined. A game of chance is determined entirely or in part by lot or mere luck. The throw of the dice, the turning of the wheel, the shuffling of the cards, are all modes of chance. In these games the result is wholly uncertain and doubtful. No human mind knows or can know what it will be until the dice is thrown, the wheel stops its revolution or the dealer has dealt with the cards. A game of skill, on the other hand - although the element of chance necessarily cannot be entirely eliminated - is one in which success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player. Golf, chess and even Rummy are considered to be games of skill. The courts have reasoned that there are few games, if any, which consist purely of chance or skill, and as such a game of chance is one in which the element of chance predominates over the element of skill, and a game of skill is one in which the element of skill predominates over the element of chance. It is the dominant element - "skill" or "chance" - which determines the character of the game."

In the recent judgment of Madras high court, Anandham Manamagil Mandram v. The Superitendent of Police, (2009) 4 CTC 264, its was followed that playing chess or carom is protected under Section 12 of act of 1867 as these are game of skills.

A recent decision of the division bench of Madras High Court has suprisingly ruled that playing rummy for stakes would be a criminal offence as per the Madras Police Act 1888 which is pari materia with most of the other state gaming Acts.

The Court while giving this decision acknowledged the landmark 1967 State of Andhra Pradesh v. K. Satyanarayana decision which recognised rummy as a game of skill. The Court in this case,  Director General of Police and Others v. Mahalakshmi Cultural Association (2012) held that even games of skill played for stakes would amount to gambling and would be a punishable offence. Mahalakshmi Cultural Association and online rummy websites who have filed appeals in the Supreme Court of India after a surprisingly adverse verdict of the Madras High Court (division bench) holding rummy for stakes to be illegal.  

The court in this instance tried to play the moral police and cited religious scriptures and other treatises in justifying the ban on rummy for stakes.  The court also justified its stance to protect players from getting ‘bankrupt’ and losing large sums of money.

However the court completely ignored the wordings of Section 49 of the Madras Police Act which says that penal provisions of gambling shall not apply to games of mere skill. Again the Court also overturned the decision of earlier decision of the single judge of the High Court which correctly interpreted the Madras Police Act to permit rummy for stakes.

We can conclude that what is allowed in India is only a game of skill and for a game to be considered as a game of skill, the mechanics (nature of the game, mode of playing, rules etc.) of the game should clearly reflect that the requirement of skill preponderates the element of chance and wherein success depends principally upon superior knowledge, training, attention, experience and adroitness of the player. In addition to which, it can be concluded that "games of skill" do not come within the purview of a majority of state gambling enactments, thereby meaning, that playing games of skill for stakes in the physical form, would not be treated as an act of gaming (as defined in such enactments).

 

It was contended that in K. R. Lakshmanan v. State of Tamil Nadu AIR 1996 SC 1153, the SC had held that horse racing was a game of skill and playing for stakes in a game of skill was not illegal. It was urged that the rationale followed in the Lakshmanan Case be applied in case of Rummy given that the Satyanarayana Case had held that Rummy was a game of skill. It was further contended that Rummy being a game of skill, even when played for money would not amount to gambling as the sole motivation was not money but the display of skill. The skill required to engage in the activity would not be eliminated by the addition of the monetary factor. There was a clear distinction in common law between games of skill and games of chance. Further, the jurisprudence reflected that there was a legal, judicial and executive policy to put games of skill in a different genus and specie from games of chance.

Some online operators who had made representations before the SC were asked to submit detailed affidavits explaining the structure of the games offered, the fees charged for playing such games, and the flow of profits in relation to the same. It was expected that the SC would lay down guidelines on what business models would constitute gambling as restricted / prohibited under the gambling legislations of various States (even when skilled games were played for a fee / stake).

When a new bench of the SC heard the matter in August, 2015, it considered the petitions of the Gaming Websites in a simplistic manner. It observed that the Impugned Order did not deal with online Rummy. Further, the judges noted that the government had not taken any decision on whether online Rummy fell afoul of the law or not. Therefore, the SC was of the opinion that it was not necessary to entertain petitions of the Gaming Websites. The SC also observed that the Impugned Order had not dealt with online Rummy, therefore any observations made in the same may not necessarily relate to online Rummy. The SC at this juncture had not delivered its verdict on the issue of taking stakes and making profit in the context of Rummy in the offline context. The findings on these issues in the subsequent hearing and order would have had an impact on the manner in which the commercial arrangement between the players and online operators is structured.

One of the following days however saw a twist in the tale. The counsel for the Association stated that a trial court had passed an order on October 11, 2014 which had acquitted the Association. The Association was being prosecuted before a trial court since its members were indulging in a game colloquially and locally called Mangatha "ulle, velliye" and were playing the game with stakes. The proceedings were not initiated for playing Rummy. In light of the acquittal, the counsel for the Association sought permission to withdraw the original writ petition filed before the Madras High Court and such permission was granted by the SC. The SC observed that since the original writ petition was dismissed as withdrawn, the observations made by the Madras High Court in the Impugned Order or the matter before the SC would not survive.

The anxieties of the industry was finally put to rest. But the law still remains grey in terms of whether the State gambling enactments cover online gaming sites as well. Interestingly, the government made a statement before the SC that it is yet to decide on whether online Rummy fell foul of the law or not. Thus, the SC did not take upon itself to fill the lacuna in the policy and the law.

This also means that the position of law on taking stakes from games of skill reverts to the original position fortified by many court judgments: games of skill fall outside the purview of the State gambling laws and therefore stakes may be taken or profit may be made from such games.

Hear the full Article

However, online poker sites would still need to wait and watch the developments in the matter pending before the Delhi High Court in M/s Gaussian Networks Pvt ltd v. Monica Lakhanpal and State of NCT, Suit No. 32/2012 Delhi District Court, where the question of whether games of skill could be offered for money on virtual platforms was considered. The petitioners in this matter had filed a petition under Order 36 of the Code and Civil Procedure Code before the Delhi District Cour for seeking the opinion of the Hon'ble court on inter alia whether there was any restriction on taking stakes from games of skill on websites making profit. The Court opined that when skill based games are played for money in virtual space, the same would be illegal and observed that the degree of skill involved in games played in a physical form cannot be equated with those played online. The Court seems to have assumed that the degree of chance increased in online gambling; and there was a possibility of manipulation including randomness, cheating, and collusion in the online space. It was important to note that this judgment is binding only on the parties to the matter and that it has already been challenged before the Delhi High Court. The next hearing is scheduled to be in January 2016. However this case was withdrawn. 

Wagering Contract and Poker

Gambling is a word having wide ambits and having several sub sets. Areas such as Lottery is strictly regulated under The Lotteries (Regulation) Act, 1998 setting out restrictions in conducting lotteries. [[][[]]Section 294-A of the Indian Penal Code, 1860 states that for keeping a lottery office without the authorisation of the State government will be suject to punishment]. The other hand section 30 of Indian Contract Act,1872 Section 30 of the Act prevents a person from recovering any winnings on an agreement based on a future event wherein the loss of one party is the gain of another party as agreements by way of wager are void. It may be legal to buy a lottery ticket in India but the winner of such lottery will’ve no remedy against the lottery agency if it refuses to pay the winnings. [[][[]]Subhash Kumar Manwani v.State of M.P-dismissed appeal under S.96 OF CPC]

A 3-judge bench of the Supreme Court comprising of Chief Justice of India HL Dattu, Justice RK Agrawal and Justice Arun Mishra in a recent judgment of All Kerala Online Lottery Dealers Association v. State of Kerala (Civil Appeal No. 3518 OF 2008) ruled that the state governments are at liberty to ban online lotteries, despite the fact that such states conduct paper lottery schemes. In doing so, the apex court interpreted Section 5 of the Lotteries (Regulation) Act, 1998  to note that online and paper lotteries are two separate classes or categories of lotteries and separate treatment can be meted out to both these classes.

Justice Agrawal speaking for the court, noted that the concept of online lotteries did not exist at the time of passage of the Act and hence constructive interpretation of the lotteries legislation to prevent mischief was required. The apex court noted that classification of lotteries into paper and online lotteries was not discriminatory and thus was constitutionally permissible. Further, it was noted by the Hon’ble Court that the scheme of the Act indicates that it was designed to prevent the ill-effects of gambling and therefore courts should interpret the Act in a manner as to prevent the mischief that was designed to be curtailed by the Act. The court also observed that there was no unbridled or unfettered delegation of powers under the Act to state governments as the BR Enterprises judgment had inserted guidelines to be followed by states while banning lotteries under Section 5 of the Act (the guideline being that state governments can only ban sale of lotteries of other states if they decide not to themselves conduct lottery schemes).

Online Gaming and Online Poker

The Information Technology Act of 2000 makes provisions for various offences relating to online activities although again there is no specific mention of online gambling being illegal. However, it does give the Indian government the power to block foreign websites. The government has used this power to instruct Internet Service Providers to prevent Indian residents from accessing certain foreign betting and gaming sites, but we don’t know for sure how effective this has been or which sites have been blocked. At state level, there are two states which have introduced legislation relating specifically to online gambling. In Maharashtra, it’s completely prohibited, while in Sikkim the government now has the authority to issue licenses to operators wishing to provide online gambling services within the state. This is a notable step forward for regulated gambling in India. Sikkim is so far the only Indian state which has enacted a statute pertaining to online gaming i.e. Sikkim Online Gaming (Regulation) Act, 2008 ("Sikkim Gaming Act"). In terms of the Sikkim Gaming Act, an interested person can obtain an "license" for the purpose of conducting online games such as Roulette, Black-jack, Pontoon, Puntobanco, Bingo, Casino Brag, Poker, Poker dice, Baccarat, Chemin-de-for, Backgammon, Keno and Super Pan 9. In addition, all operators are required to post a bank guarantee in an amount of five crore in favour of the government. This is valid for one year, the following year a new guarantee must be posted in the same amount. All gambling sites licensed by the Government of Sikkim must display the following information: its full name and address of its registered office; the number of license under which the Online game is conducted; the date on which the license was originally granted; a statement that the online game is regulated in Sikkim State; hyperlink to the websites of the Government and players Anonymous; one or more hyperlinks to a page or pages setting out.- 1) a summary of the arrangements for registration. 2) a statement that persons under the age of eighteen years are not permitted to register or to participate in the game; and 3) a statement that On-line game debts are enforceable in law in Sikkim.

The Sikkim On-line Gaming (Regulation) Rules, 2009 has strict laws regarding regulating advertising standards, false and misleading information, banned games, and not making any statement about the legality of gaming in any jurisdictio, random number generation, security systems, auditing, publishing of house advantage and much more.

As the Internet is still evolving, the laws will take some time catching up. The Indian legislature prohibits gambling in general and the same has been construed with regard to gambling on the Internet. However, unlike the American Internet Gambling Prohibition Act (Kyl's Bill), the Indian Government has as of date not implemented any specific law to deal with the issue of Internet Gambling. Although there are no laws that bar internet gambling specifically, the official government stance is that the existing laws governing gambling offline is sufficient enough to curb Internet gambling as well.

Besides, attempts at banning online gambling present technological and legal problems that the Indian government is not well equipped to counter. This is mainly for the reason that, tracking and locating Internet gambling activities has been a difficult task, exercising jurisdiction over these operations has been equally strenuous. Most gambling sites are situated offshore; outside the jurisdiction of Indian courts, making enforcement of punishment awarded by Indian authorities is difficult but not impossible.

Although there are no laws that bar internet gambling specifically, the official government stance is that the existing laws governing gambling offline is sufficient enough to curb Internet gambling as well.
 

Online Gambling and Internet Service Providers (ISPs) 

On 14 April 2011, the Gazette of India published the Information Technology (Intermediaries guidelines) Rules, 2011 which instructs Internet Service Providers and Website Hosts, to block access to certain types of websites and content. While the majority of this is for areas of National Security, things that would shine India in an improper light, things that are blasphemous, illegal, pornographic etc., Section 2 item B includes anything “relating or encouraging money laundering or gambling”. The addition of gambling to the IT Act of 2000 creates perplexing issues to resolve both in playing poker/rummy within physical jurisdictions or online and offline spaces.

TEST LAID DOWN ABOVE INTERPRETED IN OTHER SEGMENTS OF ONLINE GAMING SECTOR

 

The core tests laid down above are being interpreted, read between the lines and applied to validate product architecture and consumer pattern analysis in online gaming industry.  


 


Common Law Chambers Research undertaken while representing in a  series of matter pertaining to playing cards in clubs and poker online. It is a working research and will be updated by August, 2020 with International Conventions governing this area.

Copyright © All rights reserved

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions