On April 6, 2023, the Ministry of Electronics and Information Technology ("Ministry") notified the amendments ("Amendment") to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 ("Intermediary Guidelines") to regulate online gaming. This article seeks to analyse the Amendment on the following two issues:

  1. Overlap with the powers of the state legislature to regulate betting/gambling
  2. Distinction between a game of skill and a game of chan

Overlap with the powers of the state legislature to regulate betting/gambling

The Indian Constitution envisages a federal system wherein legislative powers have been divided between the Centre and the States. Such division of powers has been laid down in Article 246 read with the Seventh Schedule of the Indian Constitution. The Seventh Schedule contains three lists: (i) the Union (Central) List comprising subjects on which the Centre alone is empowered to legislate, (ii) the State List, comprising subjects on which the States alone may legislate (barring a few exceptions) and (iii) the Concurrent List, which contains subjects on which both the Centre as well as the State governments may legislate.

Entry 34 in the State List provides for betting and gambling. Accordingly, most States have promulgated their own statutes for regulation of betting and gambling. A majority of these State laws have banned 'gaming', which is defined as any type of wagering or betting other than wagering or betting on a horse race and excluding lotteries. For example, in terms of Section 2(7) of the of the Karnataka Police Act, 1963 ("KPA"), which regulates gaming in Karnataka, a lottery is expressly excluded from the definition of "gaming" but all forms of wagering or betting in connection with any game of chance (except such wagering or betting on a horse-race run on any race-course within or outside the State, which satisfies certain specified conditions) are included within the definition of "gaming". Under the KPA, any person who keeps or uses a place for the purpose of a common gaming house or any person who is found in any common-gaming house gaming shall, on conviction, be punished with imprisonment.

Further, under most state laws, games of skill have specifically been excluded from the definition of 'gaming'. However, in some States, like Sikkim, gambling is legal.

Furthermore, since most of the state laws on gaming are pre-internet, they do not envisage online gaming. Sikkim is again an exception here, since Sikkim has laws to regulate online gaming: The Sikkim Online Gaming (Regulation) Act, 2008 ("SOGA") read with the Sikkim On-Line Gaming (Regulation) Rules, 2009 ("SOGR"). In terms of Section 2(d) of SOGA, "online games" means all or any games of chance or a combination of skill and chance, including but not limited to poker, roulette, blackjack or any game, played with cards, dice or by means of any machine or instrument for money or money's worth, as may be prescribed from time to time. Section 3(2) of SOGA states that no online games shall be played, organized or exhibited to any person at any public place, except through online gaming website in respect of which license is granted in accordance with the provisions of SOGA and such license is in force.

The notification of the Amendment has raised an important constitutional question – whether the central government by notifying a framework for online gaming, has encroached upon the powers of the state governments?

An argument may be made that the Amendment has been notified by relying upon the Centre's residuary powers of legislation, which has been provided in Article 248 read with Entry 97 in Union List of the Seventh Schedule of the Indian Constitution. Article 248 (1) states as follows: "Subject to article 246A, Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List." Entry 97 in the Union List specifies "any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists."

Therefore, the central government may legislate on any matters which have not been specifically included in any of the lists in the Seventh Schedule. While this may, prima facie, provide a reasonable explanation for the central government's approach, there is an inherent flaw in this argument. As per this logic, the central government would be empowered to legislate on all the matters which came up after adoption of our Constitution or matters that could not even have been envisioned at the time of drafting the Constitution. This would include information technology, e-commerce, cyber laws, data protection, robotics, artificial intelligence, cryptocurrency, social media, sustainability, climate change etc. One look at this list and one can ascertain that a lot of the most pressing issues in today's age would fall under the centre's "residuary powers", if we adopt a literal interpretation of Article 248 and Entry 97 in Union List of the Seventh Schedule of the Indian Constitution. This could not have been the legislative intent of the founding fathers of the Indian Constitution.

A counter argument may be made that merely because an item does not feature in any of the three lists, it does not mean that such item automatically falls within the residuary powers of the Centre. Rather, one must look at the core/essence of the matter to determine in which list such matter truly belongs. Support may be taken from the doctrine of "pith and substance", which has been adopted and evolved by the Indian courts to resolve Centre-State conflicts regarding their respective legislative competence. Under this doctrine, when a legislature's legislative competence to enact a particular law is challenged with reference to entries in different legislative lists, the courts endeavour to determine the essence and true nature of the legislation, irrespective of its nomenclature. If the essence of the challenged law falls within the competence of the legislature which has enacted that law, then the validity of such law is upheld even if it slightly encroaches upon or touches a subject matter which is not within the legislative competence of such legislature. It is interesting to note that not only "betting and gambling" (entry 34) but also "sports, entertainments and amusements" (entry 33) feature in the State List. If we analyse the Amendment, it is apparent that one of its primary objectives is to ban any online real money game that involves wagering. Another objective is to regulate online games (which are nothing but games offered on the internet) and entities offering such online games. While the first objective falls squarely within the State List, even games which are a form of entertainment/amusement, should logically fall within the State List.

A related question worth exploring is whether the operator of an online game that complies with the Intermediary Guidelines can operate across India, irrespective of state laws? Can a "permissible online real money game" verified by an OGSRB operate in Karnataka even if such permissible online real money game violates the KPA?

Article 254 of the Constitution purports to deals with such a situation. Article 254(1) states as follows: "If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void."

Does it mean that all provisions of the existing state laws that are contrary to the Amendment shall be void, to the extent of contradiction/repugnancy. However, such a result follows only when a state law contradicts a law made by the Parliament "which Parliament is competent to enact". Which brings us back to the question on whether the Parliament has acted within its legislative competence.A middle approach may be to take a view that while States are still free to regulate offline gaming and gambling as per their legislative wisdom, online gaming should be regulated by central laws, since these games are offered over the internet and it may not be administratively feasible to enforce different state laws for such games. However, this may result in an absurdity: while offline gambling may be legal in a State, online gambling will not be legal in such a State. This differentiation based only upon the mode of offering the games, may not stand scrutiny in a court of law.

More clarity is need on the afore-mentioned issues.

Distinction between a game of skill and a game of chance

Rule 4A(3) of the Intermediary Guidelines (as inserted by the Amendment) provides that an OGSRB may declare an online real money game as permissible online real money game, if after making necessary inquiries, it is satisfied that (i) the online real money game does not involve wagering on any outcome; and (ii) the online gaming intermediary and such online game is in compliance with the provisions of Rules 3 and 4 of the Intermediary Guidelines, the provisions of any law relating to the age at which an individual is competent to enter into a contract, and the framework made by the SRB under Rule 4A(8) (which relates to framework for verifying an online real money game).

Thus, the Amendment has banned any online real money game that involves wagering on any outcome, without giving a precise definition of 'wagering'. Further, it appears that if an online real money game involves any wagering, it shall not be eligible to be verified as a permissible game, even if the game if predominantly a game of skill.

This approach would be in stark contrast to the verdict given by the Madras High Court in Junglee Games v. State of Tamil Nadu and the Kerala High Court in Head Digital Works Private Limited v. State of Kerala, wherein the courts have distinguished between games of skill and games of chance and have held any prohibition on the former to be ultra vires the Constitution. A similar judgment was delivered by the Karnataka High Court in All India Gaming Federation v. State of Karnataka (Writ Petition Nos. 18703, 18729, 18732, 18733, 18738, 18803, 18942, 19241, 19271 19322, 19450 and 22371/2021 (GM-POLICE)), wherein the Karnataka HC, referring to the difference between a game of chance and a game of skill, held as follows: "The distinction lies in the amount of skill involved in the games. There may not be a game of chance which does not involve a scintilla of skill and similarly, there is nogame of skill which does not involve some elements of chance. Whether a game is, a 'game of chance' or a 'game of skill', is to be adjudged by applying the Predominance Test: a game involving substantial degree of skill, is not a game of chance, but is only a game of skill and that it does not cease to be one even when played with stakes."

There has been much litigation on this aspect in the last few years and it was hoped that any regulation on online gaming would settle this issue; however, this Amendment appears to have missed that opportunity. We have covered these judgments in detail in our earlier updates, which may be found here and here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.