The Madras High Court1 (the "High Court") has partly struck down the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (the "Act") insofar as it bans online rummy and online poker. The High Court has reiterated that rummy and poker, whether played online or offline, are games of skill. However, the High Court has recognised the State Government's power to regulate online games of skill by prescribing time limits, age restrictions and other aspects.
The High Court had refused interim relief to the petitioners who largely comprised of numerous gaming entities,2 in April and in July this year. As a result, gaming platforms had suspended their services in Tamil Nadu. With this judgment, gaming platforms offering online rummy and poker can resume offering their services in the State.
The Petitioners submitted to the High Court that:
- The Act is contrary to the Supreme Court's decisions that rummy and poker are games of skill and the High Court's previous decision in Junglee Games India Pvt. Ltd. v. State of Tamil Nadu3 ("Junglee Games").
- The Act is solely based on the report by the Justice Chandru Committee ("Committee").4 The Report, which failed to explain how poker or rummy was chance-based and prejucided through out, clearly predetermined the intention of the Act to ban online gaming and the classification of online rummy and poker to be games of chance was arbitrary.
- The State Government does not have the competence to enact the Act because the Allocation of Business Rules, 1961 designated the Ministry of Electronics and Information Technology, Government of India as the nodal ministry for regulation of online games.5
- Under Entry 34, List II, Seventh Schedule of the Constitution of India (the "State List"), the State Government can make law only on "betting and gambling", i.e., betting pertaining to gambling. This means the State Government can only make law on games of chance.
State Government's Arguments
The State Government submitted to the High Court that:
- Online rummy and poker are games of chance. Players lack data about an opponent and the dealer (software) has knowledge of all the unopened cards. The Supreme Court judgments holding that rummy and poker are games of skill do not apply to online versions of the game. Artificial Intelligence ("AI") and AI-assisted bots are used in online gaming, necessitating enactment of the Act.
- The Committee's reference was broad and the findings are in support of the State's decision to enact this legislation.
- The Act is traceable to Entry 1 (public order), Entry 6 (public health) and Entry 34 (betting and gambling) in the State List and to "Criminal law" under Entry 1 of the List III, Seventh Schedule of the Constitution of India (the "Concurrent List").
- The "and" between betting and gambling should be read as "or" and the State can make laws on betting or gambling or both.
- A faint argument was made on the maintainability of the petition, as the Act does not target the rights of the shareholders or directors, but the activities of the Company. Petitioners cannot agitate rights of players of the game. No company can claim a fundamental right to organize a game of chance because it is "res extra commercium", and even if there is an fundamental right, the Act is a reasonable restriction, satisfying the test of proportionality.
The Court confirms that online rummy and online poker are games of skill. It held that the Supreme Court and the High Courts have consistently held that rummy and poker are games of skill. The State Government has not banned rummy or poker as a whole, but only their online versions. Therefore, the burden is on the State Government to show that online rummy and poker are games of chance. The State Government did not discharge their burden to either show that the dealer (software) knows all the cards, or that bots are being used. The Court held that the "same brain activity would be involved as required for offline games of rummy and poker". The Court also relied on the decisions of the High Courts of Punjab & Haryana,6 Rajasthan,7 and Mumbai which held that Dream 11 and Fantasy Games are skill games.8
The Court refused to accept the State Government's argument that betting and gambling should be read disjunctively, by relying on K. R. Lakshmanan v/s State of Tamil Nadu ("KR Lakshmanan"). In Junglee Games, the Court had already held that both betting and gambling must be involved for the State Legislature to make law. Accepting the same principle, the High Court held that the State Government had no competence to ban online rummy or poker under Entry 34, of the State List.
However, the High Court upheld Section 5 of the Act on the basis that the State Government can regulate "trade and commerce" under Entry 26, of the State List. Therefore, the High Court has recognised the State Government's power to regulate online games.
The High Court also refused to accept that the Act could be legislated under "public health" or "public order" in Entries 6 and 1 of the State List. On public health, the Court held that the Committee only interviewed school teachers, supervising students below the age of 18. As students below 18 years of age are anyway prohibited from playing online games, and petitioners have measures in place to verify age, the State Government cannot trace its power to ban online rummy and poker to this Entry. On public order, the Court held that there was no evidence that public order is disturbed and therefore the State could not have legislated under this entry also.
The judgment is a substantial victory for gaming companies offering online rummy and poker. That said, the High Court's finding in this case turns on the sole fact that the State Government could not adduce evidence that bots may be used or that there is information asymmetry in online versions of the game. In a litigation where a party was able to adduce such evidence, it is possible that a different finding may result. It may therefore be advisable for companies offering online games of rummy or poker to have their game code independently certified to (i) not benefit from information asymmetry; or (ii) permit bots with information asymmetry.
Additionally, the High Court permits the State Government to regulate online games of skill. Whether or not this judgment is appealed before the Supreme Court, stakeholders should expect that there will be rules/ regulations enacted as the Tamil Nadu State Government has been very active in legislating on this subject. If rules were to be enacted, the compliance burden would increase as companies would have to comply with both the Information Technology Rules, 2021 as well as state rules.
Gaming companies must continue to age-gate their services, as the High Court's judgment is also premised on the fact that persons below the age of 18 cannot access these games, and that sufficient measures to verify age are in place.
For now, gaming companies can breathe easy as they can continue to offer their services in Tamil Nadu, subject to compliance with the Act where applicable.
Please note that the capitalised terms used but not defined shall have meaning ascribed to them in the Act.
1. https://www.verdictum.in/pdf_upload/all-india-gaming-federation-1559550.pdf last accessed on November 21,2023.
2. The petitioners were Gameskraft, Games24x7, Junglee Rummy, Head Digital Works and A23. They were in addition to the All India Gaming Federation, a self-regulated industry body for online skill gaming.
3. https://www.livelaw.in/pdf_upload/junglee-games-india-private-limited-v-state-of-tamil-nadu-397904.pdf last accessed on November 21,2023.
4. The government of Tamil Nadu established a committee, headed by former Justice K Chandru and consisting of four other members, to evaluate the negative impacts of online gaming involving stakes. The committee was to provide recommendations on the feasibility of implementing a new law to regulate online gambling.
5. The Rules distribute subjects among Government departments as specified.
6. Varun Gumber vs. Union Territory of Chandigarh & Ors (2017 Cri LJ 3827)
7. Chandresh Sankhla v. State Of Rajasthan, 2020 SCC OnLine Raj 264.
8. Gurdeep SIngh Sachar v Union of India, 2019 (30) G.S.T.L. 441
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