Regulatory Enigma Surrounding Online Gambling Sector in India: Challenges and Way Forward

Introduction: History of Betting and Gambling in India and the Emerging Scenario

India has had a dated relationship with gambling activities, with some claiming the mention of gambling in Rig Veda to be the most primordial allusion to gambling in the whole world.

“These nuts that one tossed on tall trees in the wind But now smartly roll over the board, how I love them! As alluring as a draught of Soma on the mountain, The lively dice have captured my heart.”

(Source: The Dyuta Sukta, Rig Veda)

Even the medieval era did not see the waning away of gambling as a popular pastime. During the British colonial regime, gambling was not initially proscribed, and was in fact was encouraged on account of its positive bearing on the government coffers. The colonial rulers, however, took cognizance of the social evils that emanated from gambling like bankruptcies, delinquency, etc. and decided to bring it under regulatory oversight with the enactment of The Public Gambling Act of India in 1867.

The Act outlawed most versions of gambling and laid down distinction between games of ‘pure chance’ and games ‘of skill’ and ‘not just mere chance’. In that light, while gambles entailing ‘pure chance’ like betting on cotton prices or the magnitude of rainfall were banned, gambles that required some skill, and were not dependent solely on chance were allowed, e.g., horse racing. The Act remains in force to this day, however, ‘betting and gambling’ as a subject comes under Part II, i.e., the State List under the Seventh Schedule of the Indian Constitution. Gambling, that way, falls exclusively under the jurisdiction of the states. It is for this reason that the landscape of gambling regulations in the country is marked by undulating topography- 13 out of 29 states and 5 out of 7 union territories run state sponsored legal lotteries, horse racing can be gambled upon in 6 states, while casinos enjoy legal status in 2 states. Recently, Karnataka passed an amendment to ban all forms of gambling in the state, including online gambling to “curb the menace of gaming through the Internet and mobile applications”. Horse racing and lotteries, however, continue to remain legal in the state.

Advent of Online Gambling/Betting Industry in India and the Size of the Market

Many versions of gambling have been in vogue in the country since historical times. Most popular forms include card games like teen patti (similar to flush), poker, rummy, bridge as well as sports betting, especially in cricket. With the Internet having percolated to every corner of the country, the outreach of these games has effectively broadened. The burgeoning popularity in India of internet-based platforms like websites hosting Rummy and Poker tournaments, mobile applications like Dream 11, Purewin, Paripesa, Betway, 10Cric, Casumo, etc. is a testament to the country’s flourishing online betting market.

The online betting industry in India has registered a phenomenal spike in the recent years. Standing at $930 million as per estimates, it is an enormous, predominantly untapped market for the Indian government as well as the economy so far, as only two states and a union territory in the country have been allowed to run physical casinos. Interestingly, on a similar note, Indian law does not expressly prohibit foreign companies from welcoming Indian citizens to play in their internet- based casinos. Due to this, significant wealth from the country gets funneled out overseas each year. FICCI claims that close to Rs. 3 lakh crores witness circulation in betting each year through bookies, websites, online-based platforms, and encrypted chatting spaces. A KPMG Report in 2010 stated that the Indian betting and gambling market was worth US $ 60 billion, legalization of which could help disrupting the circulation of black money while also generating taxes in the process.

As per estimates by FICCI, the country loses Rs. 19,000 crores as tax revenue each year by keeping sports betting illegal, apart from also causing a rise in match-fixing scandals which dilute credibility in professional sporting. In this context, it becomes pertinent to understand the Indian law as it stands vis-à-vis online betting.

Existing Legal Status of Online Gambling in India

The gambling/betting landscape is dotted by regulations stemming from The Public Gambling Act of 1867, The Prize Competition Act of 1955, and The Information Technology Act of 2000. It is of striking pertinence that when these laws were enacted, online gambling industry had not even originated. Due to this, when the extant regulations as previously mentioned are interpreted in the context of gambling activities in digital space, their applicability gets dubious and convoluted. 

The existing law on this subject matter holds that games where even if a modicum of skill is required, they shall not be characterized as ‘gambling activities’ and hence, would be permitted to continue their services. Gambling laws in India are fraught with a substantial degree of ambivalence. Occasionally, it is contended that there is a blanket proscription on gambling unless states expressly permit it. Conversely, it is also believed by many that gambling is legal, unless a state legislation outlaws it.

Gambling activities being under the State List implies that states are free to legislate upon this subject matter, and the federal law cannot subvert the regulations brought in by them. For this reason, each state in India has its own law on gambling, with most states having exemptions for games that require skill. Few instances of this are as follows.

That said, the laws enacted by the states on this issue are quite dated, and do not clearly identify which games come under the ‘skill’ category. Resort to judicial pronouncements is, hence, commonplace. The interpretation given by the judges has routinely helped governments decide whether to allow or prohibit a gaming activity whilst also contributing to the ambivalence in the existing jurisprudence on this subject matter. For example, in State of Andhra Pradesh v. K. Satyanarayana & Ors.1, Supreme Court held Rummy to be a game that involves a preponderance of skill rather than chance and thus, uphold its legitimacy within the existing law. Conversely, Madras High Court in the case of DGP, Chennai v. Mahalakshmi Cultural Association2, interpreted the Satyanarayana judgment differently and held that Rummy, if partaken in with stakes of monetary kind or otherwise involved, would be considered tantamount to gambling.

A watershed moment for virtual betting platform industry came when Delhi District Court, in the case of M/s Gaussian Networks Pvt Ltd. v. Monica Lakhanpal and State of NCT3, where the court had to decide the legitimacy of virtual platforms allowing games of skills to be played with its players intending to make profits out of the same. The court held that hosting skill-based games for stakes in virtual space would be illegal, citing that degree of skill required in playing such games in the offline format would not be equivalent to the skill required in them being played online. The court may have given this decision also to curb the rising incidence of online gambling addiction. The High Court of Delhi, however, in its review judgment of the District Court order, overturned it. It is noteworthy that both, Mahalakshmi Case as well as Gaussian Network Case offered chances to the judiciary to lay down detailed guidelines in this subject matter and also to decide whether the existing regulations encompass online gaming/betting activities under their mandate, too.

Gambling activities are regulated by other ancillary instruments, too. For example:

  • The existing Foreign Direct Investment (FDI) Policy as released by Ministry of Commerce & Industry prohibits FDI in lottery, both private and government sponsored, gambling and betting, including casinos.
  • Foreign Exchange Management Act (FEMA), 1999, when read with Current Account Rules, 2000 prohibit the remittance of victories registered from lottery, racing or any other such activities.
  • Prevention of Money Laundering Act (PMLA), 2002 lays down that enterprises conducting activities for playing games for cash or kind (e.g., casinos) are required to do efficient book-keeping and comply with the provisions of the Act.
  • Web-based platforms and applications that function as aggregators for third party games shall be deemed ‘intermediaries’ for the purposes of the IT Rules, 2011 and shall, accordingly, be mandated to observe due diligence and notify rules, regulations, and user agreements to the government.

Need and Obstacles in Regulating Online Gambling

Understanding the emerging scenario from an economic perspective, regulatory intervention in online gambling activities is justified for the externalities they seem to cause, i.e., problem, and pathological gambling, money laundering, bankruptcy, loss of human capital, loss in revenue, etc. The extant regulations in the sector also warrant streamlining because of the lack of nationwide consensus on the issue, predominantly stemming from the subject of gambling being put in the State List. This scheme was probably provided in the Constitution to accommodate the differentiated understanding of the morality around, and risks associated with gambling across the states. Over and above this, given how online gambling platforms cut across jurisdictions, tax harmonization and lacuna of international consensus on this subject matter offers other set of challenges for regulating the industry.

However, the quandary becomes more befuddling when we recognize the evergreen affinity towards gambling among the Indian population. The Law Commission of India, in its 276th Report, taking stock of the rampant betting in cricket and online fora, agrees that downright outlawry of gambling is not feasible, and so, effective regulation is the viable way forward. 

Way Forward

The ‘game of skill’ industry is largely self-regulated in India through bodies such as All India Gaming Federation, Federation of Indian Fantasy Sports (FIFS), The Rummy Federation, etc. Self- regulating codes have been introduced by them for the way they advertise, pay taxes, the manner in which the game must be played, etc.

Few policy recommendations for creating a better regulatory architecture for online betting/gambling activities are mentioned hereunder.

  • Limitations must be imposed on how much a person can bet in a predetermined time interval. This shall protect players from losing extortionate amounts while making bets online.
  • Government should incentivize best practices in the online betting industry by maintaining an online register of credible websites that exhibit efficacious compliance to the existing regulations. Conversely, those websites that do not comply must be blacklisted and clamped down upon.
  • Betting websites should, with utmost transparency and visibility, disclose user-risks and disclaimers that patently describe the risks associated with betting and gambling.
  • Such websites must display avowal to responsible gambling features (RGFs), which include instating of harm minimization protocols, disclosure of health-related downsides to gambling, warning alerts for prolonged duration of play or while betting high amounts, information regarding winning probabilities, etc.
  • The websites should be mandated to have a conspicuous and constant display on the playing portal of the current and past expenditures made by the concerned player as well as the outcomes the previous bets had entailed.
  • Customer grievance redressal mechanism must be swift and effective. The incidence of such disputes can be mitigated by increasing public awareness of the risks associated with gambling.
  • Offshore websites must be mandated to setup their offshore offices in India, or else face prohibition in their functioning within the country’s jurisdiction. This could facilitate the process of their routine auditing, as must be done regularly in the case of betting websites based out of India, too. This could also help in effective taxation of such platforms and may also create fresh avenues of livelihood.

Regulation of the industry by the government shall help India tap its revenue potential, generate employment, curb the black money supply, and monitor the industry better in general.

References

Abraham, R. 2021. Fun, Games and Money: Legalising online sports betting can make India richer by Rs 19,000 cr. The Economic Times. Available at: https://economictimes.indiatimes.com/magazines/panache/fun-games-and-money-legalising- online-sports-betting-can-make-india-rich-by-rs-19000-cr/articleshow/70475644.cms (last accessed 10 October 2021).

Devaney, M. 2009. Online Gambling and International Regulation: An Outside Bet. Information & Communications Technology Law. 18(3): 273-283. Available at: https://www.tandfonline.com/doi/pdf/10.1080/13600830903424718 (last accessed 10 October 2021).

Fiedler, I. 2018. ‘Regulation of Online Gambling, Economics and Business Letters’. Economics and Business Letters. 7(4): 162-168. Available at: http://www.zbw.eu/econis- archiv/bitstream/11159/3738/1/1684427711.pdf (last accessed 10 October 2021).

Gainsbury, S. M., Parke, J., & Suhonen, N. 2013. Consumer Attitudes towards Internet Gambling: Perceptions of Responsible Gambling Policies, Consumer Protection, and Regulation of Online Gambling Sites. Computers in Human Behavior. 29(1): 235–245.

George, S., Velleman, R., Weobong, B. 2021. ‘Should gambling be legalized in India?’ Indian J Psychol Med. 43(2):163–167. Available at: https://journals.sagepub.com/doi/pdf/10.1177/0253717620928761 (last accessed 10 October 2021).

Law Commission of India. 2018. 276th Report on Legal framework: Gambling and sports betting including in cricket in India.

Mangalorean. 2020. ‘$930milion USD Annually: India’s Online Casino Market Is A Golden Opportunity Being Squandered’. Available at: https://www.mangalorean.com/930milion-usd- annually-indias-online-casino-market-is-a-golden-opportunity-being-squandered/ (last accessed 21 September 2021).

Nishith Desai Associates. 2019. The Curious Case of the Indian Gaming Laws: Legal Issues Demystified. New Delhi. Available at: http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/The_Curious_Cas e_of_the_Indian_Gaming_Laws.pdf (last accessed 10 October 2021).

Singh, NS. 1990. HH Wilson’s translation of the Rig Veda Samhita (Enlarged). 2nd Edition. Nag Publishers.

Sriram, J. The Hindu. 2020. ‘Should online gambling in India be regulated?’ Available at: https://www.thehindu.com/opinion/op-ed/should-online-gambling-in-india-be- regulated/article32746687.ece (last accessed 21 September 2021).

TA, Johnson. 2021. Explained: How has the Karnataka Police Act been modified to clamp down on gambling? The Indian Express. Available at: https://indianexpress.com/article/explained/karnataka-online-gambling-police-act-7537988/ (last accessed 10 October 2021).

The Citizen. 2021. ‘The Curious Regulation of Gambling in India’. Available at: https://www.thecitizen.in/index.php/en/NewsDetail/index/12/20104/The-Curious-Regulation-of- Gambling-in-India (last accessed 21 September 2021).

The News Minute. 2021. ‘Online Gambling Growth in India Shows Need for Progressive Law’.

Available at: https://www.thenewsminute.com/article/online-gambling-growth-india-shows- need-progressive-law-154752 (last accessed 21 September 2021).

About Aishwarya Tiwari

Aishwarya is a lawyer by profession and is currently pursuing his master's in public policy from NLSIU, whilst working as a Public Policy Associate at UpGrad Campus. His past engagements include various law offices, ORF, PHFI, etc. Presently, he is working on his thesis that shall be entailing a deepdive into regulations in the creative freelance sector. He bides his leisure with music, gymming and socializing.

Disclaimer

The views expressed in this article are the author's own.

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