Changes In Gaming Laws: What’s At Stake For Online Companies?

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The Karnataka government recently banned all types of online games with monetary stakes. This state law comes at a time when the Madras High Court has established that games of skill that can be played for stakes online cannot be classified as betting or gambling. Furthermore, the Madras High Court overturned the overall prohibition on skill games imposed by recent modifications to Tamil Nadu gaming legislation, ruling that such a restriction was extra vires the Constitution and a 'excessive and disproportionate' use of authority.

Why has the recently notified Karnataka Police (Amendment) Act, 2021 (Gaming Act) caused such a commotion in the online gaming business and been opposed by important industry organisations like the All India Gaming Federation and the Federation of Indian Fantasy Sports?

The concerns

The Gambling Act now outlaws all forms of gaming that involve wagering or betting, including skill games.

In relation to the operation and hosting of such online gaming sites from Karnataka, the Act is ambiguous.

Until the current legislation, Karnataka allowed online skill games for stakes ...
... but barred all types of wagering or betting in connection with any games of chance. However, the Act has since expanded the term gaming to encompass all types of wagering and betting, including internet games. The phrases wagering and betting have also been expanded to describe any act of putting money or other resources at risk on an unknown outcome, such as a game of skill. This would include any game (even skill-based) in which a user pays money to play in a game (money paid as registration fees or entrance fees to compete); and has the opportunity to win money.

Games of skill vs games of chance

Courts have attempted to draw a clear line between games of skill and games of chance over the years. Given that the courts have carried out this exercise after properly defining the phrases games of chance and games of skill, the Karnataka government undermines the state's economy by prohibiting any game that incorporates the act of risking money and making the Act plainly arbitrary.

Another change that has alarmed the gaming business is the expansion of the definition of gaming instruments, which now includes computers, computer systems, mobile apps, the internet or cyberspace, virtual platforms, software, and accessories used as a topic or method of gaming. Given the definition's broad scope, it is unclear whether computer resources used to host or operate online gaming platforms – that is, utilised as a topic or method of gaming – would be termed 'instruments of gaming,' even if such platforms are not sold or available to users in Karnataka.

Furthermore, if the platform is viewed as a gaming instrument, the location where these computer resources are located or stored would be deemed a common gaming house. This would have a direct impact on online gaming enterprises with offices and servers in Karnataka, as such locations would be regarded a typical gambling house. The operation of a common gambling house is made a penal and cognizable infraction under the Act, giving the police the authority to commence action without a warrant or prior permission from a magistrate.

An urgent need for clarification

The government must clarify that gaming companies can continue to operate within the state as long as they do not provide internet gambling to Karnataka residents. If no clarification is offered, gaming enterprises will attempt to relocate their operations out of state, which would not only have an impact on the economy but may also be considered as a violation of their fundamental freedom to engage in any commerce. Because the police are not trained in statutory interpretation of the law, the ambiguity in the definition of gaming instruments heightens the fear of gaming companies operating in Karnataka; and there is a risk that the police may consider operating the gaming platform to be in violation of the Act and may use their powers to restrict these companies' operations in Karnataka.

In light of the Gaming Act's strong regulations and unclear phrasing, it will be interesting to see how gaming businesses restructure their operations in Karnataka and cater to customers. However, given recent trends in which courts have emphasised that skill games, even if played for stakes, should not be deemed a form of wagering or betting, the Act is likely to be challenged before the Karnataka High Court. In reality, the All Indian Gaming Federation, Mobile Premier League, and three other gaming sector petitioners recently filed a writ petition with the court challenging the state's Gaming Act.

What will be the outcome of this petition? This would be a circumstance where you would have to wait and see. However, it may be beneficial for the state government to change its position after receiving feedback from gaming industry participants in order to guarantee that the Act is balanced. This could be done with the goal of reducing gaming addiction, but keep in mind that the law must not interfere with people's livelihoods, i.e., those who are professional gamers who play games of skill for stakes within a well-established set of rules and regulations laid out by the gaming industry, or violate an individual's fundamental right to trade.

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