Navigating the Legal Maze: A Comprehensive Policy Analysis of Online Betting and Gambling Laws in India

This article delves into the complex world of gambling and online betting laws in India, examining their historical context and the existing regulatory framework. It highlights the need for a clear and comprehensive policy for online betting and gambling in the country. The analysis covers the challenges and opportunities associated with legalizing online sports betting, with a focus on addressing issues like match-fixing, revenue generation, and black money circulation. The article explores the legal landscape in various Indian states, emphasizing the importance of defining games of skill and regulating online platforms. It also discusses the recommendations of the Lodha Committee and the Law Commission of India, shedding light on the path towards a unified and well-structured legal framework for online betting and gambling in India.

Introduction

Gambling can be defined as a game comprising three key elements: consideration, an element of chance, and a reward. It typically involves the possibility of winning or losing substantial amounts of money based on a fortuitous event. [1]In India, these types of games have been a part of the culture since ancient times, as evidenced by references in the Mahabharata and Ramayana, where stakes included anything from kingdoms to small bets on animal fights. During the Victorian British Rule, horse betting was also introduced in India. Today, the prevalence of such activities can be seen in online rummy advertisements on social media and the 2013 IPL match-fixing scandal. However, India currently lacks a clear regulatory framework for gambling and online gambling, leading to much of this activity occurring in the underground economy, causing substantial revenue losses of approximately USD 60 million, which is more than 2% of the country’s GDP. [2]Additionally, there are concerns that this unregulated money might be used to fund terrorist or criminal activities. To address these issues and the lack of a regulatory framework, a policy analysis of gambling and betting laws in India is warranted.

Chronology

Historically, in the late 1800s, the colonial power introduced the Public Gambling Act in India, reflecting growing British Parliament concerns about betting and gambling[3]. While India, except for some states like Nagaland and Goa, has largely maintained an orthodox stance against legalizing gambling, the United Kingdom has updated its laws to regulate the modern gambling industry and online gambling. The UK provides a detailed regulatory framework covering both traditional and online gambling, in stark contrast to the dynamism of India’s legislation in this area.

Following the event of India’s independence, the Seventh Schedule granted state governments the power to regulate gambling and betting through Entry 34, List II. However, not all states have exercised this power to either regulate or explicitly ban gambling. Furthermore, only a few states with specific legislation provide a clear definition of gambling, leaving online gambling to operate in a legal gray area. This analysis of India’s online gambling laws is especially relevant in light of the Ministry of Youth Affairs and Sports considering the legalization of online betting for cricket, as recommended by former Chief Justice of India R.M. Lodhaa[4]. This recommendation aims to address the lack of funding in sports and prevent corruption, particularly match-fixing. Nevertheless, the call for regulating online gambling is ambitious without adequate laws governing gambling itself.

Framework

The article aims to evaluate the feasibility of introducing online betting across India by assessing the receptiveness of Indian laws to gambling and online gambling, outlining the steps necessary for the central government to legalize online betting, and determining the model policy for such legalization.

India’s Gaming Legislation

In India, some states, like Goa[5], Sikkim[6], West Bengal[7], and Nagaland[8], have taken legislative efforts to provide clarity by either listing prohibited games or excluding games of skill from the definition of gambling. Games of skill involve elements such as experience, attention, personal attributes, and adroitness of the player, and they have constitutional protection under Article 19(1)(g) of the Indian Constitution[9]. The dominant factor test is used to determine games of skill, which has been applied to games like horse racing, rummy, bridge, and video games[10]. It’s important to note that lotteries and games involving arrangements of letters are regulated separately under the Lotteries (Regulation) Act, 1988, and Prize Competitions Act, 1955, respectively, as they are considered distinct from gambling and betting.

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However, this framework primarily applies to states that have not banned gambling. In states like Goa and Sikkim, gambling is allowed to varying degrees, with licenses granted for activities like slot machines and casinos. In contrast, states like Assam, Orissa, and Telangana have completely banned games of chance as well as mixed games of skill and chance, such as poker and rummy. Such bans may be contentious, as games of skill are permissible occupations protected by fundamental rights. Nevertheless, it’s noteworthy that the recommendation to legalize online sports betting in a country where most states have either banned games of chance or mixed games of skill and chance faces significant challenges, given the longstanding perception of gambling as a vice by the legislature.

Electronic Gambling Legislations

There are arguments in favor of legalizing online gambling. First, it can help address the issue of match-fixing, which has been a problem for the Board of Control for Cricket in India (BCCI) and the Indian Premier League (IPL).[11] The Lodha Committee’s second phase suggested that regulating betting could help reduce unethical participation by sportspeople in betting. Second, the presence of sports betting websites can lead to a consolidation of betting activities and draw users to online platforms, making monitoring and rule enforcement more manageable. This can ensure transparent and fair games. Third, legalization can bring a significant amount of black money into circulation. The Federation of Indian Chambers of Commerce & Industry (FICCI) has been urging the government to legalize betting, estimating potential revenues of 12,000-19,000 crore rupees from the 3,00,000 crore rupees illegal sports betting market. Fourth, people are already accessing betting sites through Virtual Private Networks (VPNs). Even though foreign investment in gambling is prohibited by the 2015 Foreign Direct Investment (FDI) policy and External Commercial Borrowing (ECB) Rules, some gambling companies, like Bet 365, operating under UK laws, continue to function in India. Since their servers are not located within India, the Cyber Police’s hands are tied. Legalizing betting can help normalize such websites. Fifth, sports betting conceptually resembles horse betting, both involving betting on games of skill. According to legal precedents, sports betting should be permitted in India.

However, there are disadvantages to legalizing online gambling. First, gambling is a state subject, and most states have banned it. Even in states like Goa and Sikkim, where gambling is allowed, there have been considerations to bar locals from participating, as the legislative intention is to restrict gambling for locals and promote it as a tourist attraction. Second, the taxation and licensing costs for gambling are often high, potentially driving people toward illegal websites. Third, some argue that legalizing gambling won’t entirely eliminate match-fixing. Nevertheless, it’s easy to conclude that the advantages outweigh the disadvantages. Before discussing the legislative procedure required for such legalization, let’s explore the current governance of online gambling. Unfortunately, most laws regulating gambling focus on physical establishments. Central regulations governing online gambling include the Information Technology (Intermediary Rules), 2011, which places the responsibility on intermediaries to inform users that they are not allowed to display gambling-related promotions or advertisements on their websites. However, this rule does not apply to the state of Sikkim or any state wishing to legalize online gambling. There are also FDI policies and ECB Rules that prohibit foreign gambling websites from operating in India.

At the state level, only Sikkim, Nagaland, and Telangana have taken steps to regulate online gambling. Sikkim has permitted online gambling within the state’s boundaries. Nagaland explicitly bans online gambling but allows online games of skill to be licensed. Telangana has banned online card games, including games of skill like rummy and poker. The legal principle of ‘functional equivalence’ applies to states that have not enacted specific laws on online gambling. It means applying the offline legal framework to its online counterpart.

Sikkim stands as the only state with an online gambling statute, the Sikkim Online Gaming (Regulation) Act, 2008, and the Sikkim Online Gaming Rules, 2009. The Sikkim Act allows for an intranet connection within the state, with servers located locally and access limited to within the state. [12]This is because most other states have banned gambling, and Sikkim’s legalization of online gambling would contradict their laws. The Sikkim Rules provide a list of thirteen permitted games to be played online. Advertisements for these games are allowed as long as they are not indecent or immoral. Licensing involves obtaining a provisional license, making technological investments within the state, and, upon meeting the rules’ requirements, paying the full license fee to operate. Only individuals, companies, and limited liability corporations (LLCs) incorporated in India and substantially controlled within India can be granted licenses. In May 2016, the first online betting center in Gangtok was inaugurated by Kapil Dev, owned by Golden Gaming International Pvt Ltd.

Nagaland has extensive regulations in place through the Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015, and Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Rules, 2016. In addition to accepted games of skill based on Supreme Court decisions, virtual cricket, football, chess, and sudoku can be played.[13] Licenses are only granted after empaneled firms, including lawyers, financial experts, and information technology companies, ensure the prerequisites are met. These prerequisites include the requirement that the licensee is incorporated in India, and the technology is hosted within India. Since the Nagaland Gaming Laws prohibit gambling, the websites can operate in other parts of India as well, where mixed games are permitted[14].

Telangana’s State Gaming Amendment Ordinance, 2017, amends the Telangana Gaming Act, 1974, and penalizes those promoting online card games and online gambling, even for games of skill like rummy and poker. [15]Although the Supreme Court declared rummy legal in the 1968 Satyanarayana Case, it also held that any operator or business owner earning more than administrative profits would be running a ‘public gaming house,’ illegal under the Public Gambling Act. [16]Online rummy is often played on websites that take a percentage of the award won from these games, making them public gaming houses under the Satyanarayana judgment. However, the Andhra Pradesh High Court in Krishna Kumar v. State of A.P did not interpret this judgment to penalize operators of games of skill earning profits from skill-based games. The Court held that games of skill are distinct from gambling, and how much an operator earns from them doesn’t matter. [17]Interestingly, the issue of online rummy’s legality came before the Supreme Court in the Mahalakshmi Cultural Association case, but the Court declined to hear the petition.

Conclusion

In situations where sports betting was not considered a game of skill but gambling in India, there is hope for Indian bettors, despite the reluctance of the law minister to enact comprehensive legislation for online betting. Even if the Supreme Court decides that a Union law cannot be enacted on a state subject, a constitutional amendment could bring gambling and betting under List I. However, there is concern that state legislative assemblies may not ratify such a measure, as many politicians view gambling as immoral. Therefore, if gambling is not legalized, we should focus on legalizing online betting as a game of skill.

States need to adopt a comprehensive definition of gambling in line with Supreme Court decisions, allowing games that involve a predominant amount of skill. The M.J Sivani case only permits states to ban games of skill to protect public order or curb the spread of immoral practices; otherwise, games of skill are protected under Article 19(1)(g) of the Constitution. These measures should apply to all states in India, including Assam, Odisha, and Telangana, whose laws provide otherwise. It has been speculated that a five-judge bench will eventually decide on the validity of the Telangana Ordinance. If these measures are followed, online sports betting sites can operate even in the absence of legalized gambling.

Author: Saakshi Annajigar, in case of any queries please contact/write back to us at [email protected] or IP & Legal Filing.

References

1. C. Black, Black’s Law Dictionary (6th ed. 1994).
2. Sandeep Unnithan, Playboys of the Eastern World, INDIA TODAY,(Oct.22,2011),http://indiatoday.intoday.in/story/indian-gamblers-diwali-2011-macau-asia-china-asia-hottest- casinos/1/157060.html.
3. United Kingdom Gambling Act,
4. Amitav Ranjan & Mihir Vasavda, Sports Ministry lays ground for making onling betting legal, THE INDIAN EXPRESS, (July 16, 2017), http://indianexpress.com/article/sports/sports-ministry-lays-ground-for-making-online-betting- legal-4752604/.
5. The Goa, Daman and Diu Public Gambling Act, 1976, 13A.
6. Sikkim Regulation of Gambling (Amendment) Act,
7. The West Bengal Gambling and Prize Competitions Act,
8. Nagaland Prohibition of Gambling and Promotion and Regularisation of Online Games of Skill Act,
9. AIR 1957 SC
10. The Sports Law & Policy Centre, Games of Skill in India: A Proposal for Reform, THE SPORTS LAW AND POLICY CENTRE, (Mar., 2017), https://drive.google.com/file/d/0B6LE5s8UEIKGZXNKN GRnQk94ZEE/view.
11. Desh Gaurav Sekhri, Lodha Committee’s recommendation of legalising cricket betting in cricket is welcome, THE ECONOMIC TIMES, (Jan. 5, 2016), http://blogs.economictimes.indiatimes.com/et-commentary/lodha- committees-recommendation-of-legalising-betting-in-cricket-is-welcome/.
12. Pramod Giri, Kapil Dev inaugrates India’s first online betting centre in Sikkim, HINDUSTAN TIMES, (May 13, 2016), http://www.hindustantimes.com/india/kapil-dev-inaugurates-india-s-first-online-betting-centre-in-gangtok/st ory-wI html.
13. ANI, Nagaland Governor approves Online Skill Games Bill, BUSINESS STANDARD, (May 10, 2016) http://www.business-standard.com/article/news-ani/nagaland-governor-approves-online-skill-games-bill- html.
14. Ganesh Prasad & Sharad Moudgal, India: Gambling 2017, INTERNATIONAL COMPARATIVE LEGAL GUIDES, (Dec. 2, 2016), https://iclg.com/practice-areas/gambling/gambling-2017/india.
15. TELANGANA ORDINANCE, supra note
16. SATYANARAYANA CASE, supra note
17. Krishna KumarState of A.P, 2003 Cri LJ 143.

[1] H.C. Black, Black’s Law Dictionary (6th ed. 1994).

[2] Sandeep Unnithan, Playboys of the Eastern World, INDIA TODAY,(Oct.22,2011),http://indiatoday.intoday.in/story/indian-gamblers-diwali-2011-macau-asia-china-asia-hottest- casinos/1/157060.html.

[3] United Kingdom Gambling Act, 2005.

[4] Amitav Ranjan & Mihir Vasavda, Sports Ministry lays ground for making onling betting legal, THE INDIAN EXPRESS, (July 16, 2017), http://indianexpress.com/article/sports/sports-ministry-lays-ground-for-making-online-betting- legal-4752604/.

[5] The Goa, Daman and Diu Public Gambling Act, 1976, §13A.

[6] Sikkim Regulation of Gambling (Amendment) Act, 2005.

[7] The West Bengal Gambling and Prize Competitions Act, 1957.

[8] Nagaland Prohibition of Gambling and Promotion and Regularisation of Online Games of Skill Act, 2016.

[9] AIR 1957 SC 699.

[10] The Sports Law & Policy Centre, Games of Skill in India: A Proposal for Reform, THE SPORTS LAW AND POLICY CENTRE, (Mar., 2017), https://drive.google.com/file/d/0B6LE5s8UEIKGZXNKN GRnQk94ZEE/view.

[11] Desh Gaurav Sekhri, Lodha Committee’s recommendation of legalising cricket betting in cricket is welcome, THE ECONOMIC TIMES, (Jan. 5, 2016), http://blogs.economictimes.indiatimes.com/et-commentary/lodha- committees-recommendation-of-legalising-betting-in-cricket-is-welcome/.

[12] Pramod Giri, Kapil Dev inaugrates India’s first online betting centre in Sikkim, HINDUSTAN TIMES, (May 13, 2016), http://www.hindustantimes.com/india/kapil-dev-inaugurates-india-s-first-online-betting-centre-in-gangtok/st ory-wI HiIKpDeBSeIxrXMCMScL.html.

[13] ANI, Nagaland Governor approves Online Skill Games Bill, BUSINESS STANDARD, (May 10, 2016) http://www.business-standard.com/article/news-ani/nagaland-governor-approves-online-skill-games-bill- 116051001054_1.html.

[14] Ganesh Prasad & Sharad Moudgal, India: Gambling 2017, INTERNATIONAL COMPARATIVE LEGAL GUIDES, (Dec. 2, 2016), https://iclg.com/practice-areas/gambling/gambling-2017/india.

[15] TELANGANA ORDINANCE, supra note 31.

[16] SATYANARAYANA CASE, supra note 22.

[17] Krishna Kumar v. State of A.P, 2003 Cri LJ 143.