Gaming ban petitions: Karnataka High Court’s opportunity to show leadership on nuanced oversight

Online games played with real money remain a contentious topic for Indian lawmakers. Several state governments have promised to deal with the vice of online gambling. Such promises are typically followed by sweeping bans on online gaming — ones that ignore the well-settled difference between gaming and gambling, extend even to esports and games of skill — and hurt an emerging and perfectly legitimate industry. In October last year, Karnataka, arguably one of India’s most technology-friendly states, introduced a similar ban, which was then challenged in the Karnataka High Court.

Changes to Karnataka’s gambling laws

Karnataka amended its Police Act to ban online gaming involving all forms of wagering. The state defined ‘gaming’ widely to include “any act or risking money, or otherwise on the unknown result of an event including on a game of skill”. It also included wagering and betting through ‘tokens valued in terms of money paid before or after issue of it, or electronic means and virtual currency.’  This understanding hits even pay-to-play games, that do not require a gamer to pay money for each move they make in the game (e.g., casual games like candy crush).

Karnataka also introduced a new definition for ‘online gaming’, and made wagering on games of skill penally sanctionable. It made online gambling a non-bailable offence, for which the police can arrest without a warrant, punishable with jail time and a fine.

These changes to Karnataka’s laws deviate from the long-recognised distinction in Indian law between games of skill and chance. In India, the generally accepted principle of law is that if a game requires more elements of skill than elements of chance, it is considered a game of skill. This position has been affirmed by numerous Supreme Court and high courts’ decisions. Therefore, where a game’s outcome (win/loss/draw) is dependent solely on a dice roll it would be a game of chance, but if it depends largely on the way a player plays, it would be a game of skill (e.g., chess).

A reading of all the changes made to Karnataka’s Police Act lead to an absurdity where a player can be prosecuted for winning a prize in an online game of skill, such as chess or sudoku.

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Challenge before the Karnataka High Court

Unsurprisingly, the online gaming industry, led by the All-India Gaming Federation, challenged the amendments to the Karnataka Police Act in Karnataka High Court. Among other things, the petitioners challenged the state legislature’s competence to frame such a law, arguing that Entry 34 of the State List only empowers the state to make laws on betting and gambling (i.e., games of chance), and not on games of skill. This distinction has long been recognised by the Supreme Court, including in the cases of KR Lakshmanan v State of Tamil Nadu and RMD Chamarbaugwala v Union of India.

On the other hand, the government of Karnataka argued that the amendments were a social legislation to protect the financial interests of Karnataka residents. And on competence, the state argued that ‘gambling’ meant staking money on any uncertain event, and therefore, any game where stakes are involved would be within its ambit, including games of skill. To establish competence, Karnataka also relied on Entry 26 of the State List, which deals with trade and commerce within the state.

Where do we go from here?

The Karnataka High Court has reserved its verdict on the matter. The petitions before the court, challenging the actions of the Karnataka government, cut across several categories of online games. This gives the court a prime opportunity to acknowledge that there are different types of online games, and that regulating online gaming to weed out unlawful activities (e.g., gambling) may need to be tailored for different game types. The court may even choose to opine on the principles to guide such a differentiated analysis.

Thus far, decisions from various high courts and the Supreme Court have been game specific, and several have been about offline forms of different games. The different kinds of online games have not necessarily been analysed for their differences in terms of gameplay (e.g., modes of play, fee structure, rules, etc). This analysis is key to understanding what risks gamers may face, and accordingly, what regulation should solve. This is exactly the situation that has arisen in Karnataka, with a broad-brush amendment hitting all kinds of online games, without acknowledging the differences in gameplay.

In 2021, we also witnessed other instances of similar heavy-handed regulation, with courts being called to step in. In August last year, the Madras High Court issued a strongly-worded order, striking down the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021. Among others, the order was unequivocal in its criticism of the excessive state paternalism in regulating even the private lives of the citizens. But Tamil Nadu remains a wait and watch state, as the government has challenged this decision in the Supreme Court, and the chief minister has vowed to end online gaming in the state.

On the heels of the Madras high court’s decision, the Kerala High Court issued its order setting aside an amendment to the Kerala Gaming Act, 1960, which had banned all forms of online gaming for stakes. Pertinently, on the issue of application of Entry 34 of the State List – also an issue before the Karnataka High Court - the Kerala High Court agreed with its Madras counterpart that it does not empower state governments to regulate games of skill. In its order, the Kerala High Court noted that “playing for stakes or playing not for stakes can never be a criterion to find out whether a game is a game of skill.” It also noted that merely because a game like rummy is played in the online form it does not automatically become a game of chance. The Madras and Kerala high courts also agreed that games of skill benefit from protection under both Articles 14 (equality) and 19(1)(g) (freedom of trade) of the Constitution.

The Telangana government is also rethinking its approach to regulating online games. The Telangana principal secretary of information technology, Jayesh Ranjan, has publicly acknowledged that a blanket ban is not a solution. Prior to this, Jayesh Ranjan, has also pointed to the government working on rules to encourage self-regulation for online and fantasy games.

Given these developments, it is a tad surprising that the Karnataka government proceeded with a sweeping ban on online gaming activity in the state, instead of a nuanced approach differentiating between games of skill and chance.

If the intent of the government is to curb online gambling, then the amendments to the Karnataka Police Act needed more specificity.

Retaining the distinction between games of skill and chance, the government of Karnataka could have encouraged self-regulation, and the adoption of best practices including payment limits, time limits and player training, among others. As they stand, the amendments to the Karnataka Police Act will only stifle innovation and hurt the growth of allied industries and sports.

Chaudhari is a partner, and Ravishankar is an associate at Ikigai Law.

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