Skill vs. Chance in Online Gaming: Legal Implications for Indian Operators

author Sheena Khan

calender October 4, 2024

Skill vs. Chance in Online Gaming: Legal Implications for Indian Operators

Games that are stake-based comes under some complicated sets of legislations, both at the State and Centre level, with an important distinction between games of skill and games of chance. This distinction does not only go on to determine the legality of various gaming platforms but also goes on to influence their regulatory obligations being faced by operators, most particularly when real money is involved. In view of the same, the legal implications of offering skill-based games become quite important for gaming companies looking to operate in India's fragmented regulated environment.

Distinction between games of skill and games of chance

The distinction between a "Game of Skill" and a "Game of Chance" plays a fundamental role in determining the legality and regulation of online gaming, particularly when played for stakes involving real money. Games of chance, when played for stakes, may fall within the scope of gambling laws, while games of skill benefit from a more favorable regulatory treatment. The Public Gambling Act, 1867 ("PGA") continues to form the backbone of gambling legislation in India. The PGA explicitly prohibits games of chance, but excludes games of skill under Section 12, which states: "Nothing in the foregoing provisions of this Act contained shall be held to apply to any game of mere skill wherever played." This exclusion means that only games where chance outweighs skill, fall within the ambit of the PGA's prohibitions.

However, the regulatory landscape changed significantly after the enactment of the Constitution of India in 1950. State legislatures were given the authority to regulate betting, gambling, and related activities within their territories. As a result, each state has formulated its own gambling laws, leading to a fragmented legal framework across the country. While many states based their legislation on the PGA, they continued the prohibition of games of chance but left games of skill largely unregulated. Notably, the terms "Game of Skill" and "Game of Chance" are not explicitly defined in Indian legislation, leaving the judiciary to interpret these terms on a case-by-case basis.

Key judicial rulings on the viability of games for stakes

Indian courts have provided critical guidance on distinguishing between games of skill and chance, with the predominance test emerging as the primary method for determining whether a game qualifies as skill-based. The predominance test examines whether skill or chance plays the dominant role in determining the outcome of the game. This determination is highly fact-specific, as affirmed in Manoranjithan Manamyil Mandram v. State of Tamil Nadu, (2005), where the Madras High Court ruled that determining whether a game is a game of skill or chance is a "question of fact" that must be decided based on the specific circumstances of each case. The Court further held that even if a game contains elements of chance, if skill is the predominant factor influencing the outcome, the game will not be classified as gambling.

The Supreme Court of India also, in R.M.D. Chamarbaugwala v. Union of India(1957), reinforced this principle, ruling that games that are predominantly skill-based are classified as games of "mere skill" and are protected under the Constitution of India as legitimate trade and business activities. The Court further noted that games where chance outweighs skill are classified as gambling and subject to regulatory prohibitions. This ruling remains a basis in the legal framework governing skill-based games in India, and its principles have been applied to both offline and online gaming.

One of the most important applications of the predominance test came in the case of State of Andhra Pradesh v. K. Satyanarayana(1968), where the Supreme Court addressed the legality of the card game ‘Rummy’. The Court held that although Rummy involves an element of chance in the initial distribution of cards, the outcome is determined predominantly by the player's skill in memorizing and strategizing. Therefore, Rummy was deemed a game of skill and thus not subject to gambling prohibitions. This decision has been foundational in differentiating skill-based games from chance-based games in Indian law.

The question of whether a game qualifies as skill-based is particularly significant in the context of online gaming platforms. A landmark ruling in this regard is the Dream11 Case (Varun Gumber v. Union Territory of Chandigarh & Ors. In 2017), where the Punjab and Haryana High Court examined the legality of online fantasy sports. The Court ruled that Dream11, a fantasy sports platform, operates games of skill, as participants must use considerable judgment, discretion, and knowledge to form their virtual teams. The Court emphasized that the outcome of fantasy sports games is determined predominantly by the participants' skill and not chance. This ruling was later upheld by the Supreme Court, which affirmed that online fantasy sports games like Dream11 constitute games of skill and are thus protected under Article 19(1)(g) of the Constitution, which guarantees the right to practice any trade, profession, or business.

Although skill-based games enjoy legal protection in India, operators must cross a complex regulatory setting, particularly in states that have enacted laws to restrict or prohibit real-money online gaming. Several states, such as Tamil Nadu and Karnataka, have sought to ban online games involving stakes, regardless of whether they are skill-based.

In addition to state laws, online gaming operators must also comply with central regulations, particularly under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 ("IT Rules"). These Rules, enacted under the Information Technology Act, 2000, impose significant obligations on online intermediaries, including gaming platforms. Under the IT Rules, gaming platforms that qualify as intermediaries must ensure compliance with due diligence requirements, including content monitoring, data privacy, and user rights protection. They must also appoint grievance officers to address user complaints and ensure transparency in their terms and conditions, particularly regarding the collection and processing of user data. Non-compliance with these rules could result in penalties, including the suspension of intermediary status and legal liability for the content hosted on the platform.

For online gaming operators in India, the legal implications of these evolving regulatory frameworks are significant. While games of skill are largely exempt from prohibitions under state gambling laws and are considered legitimate business activities, operators must ensure compliance with state-specific laws and central regulations such as the IT Rules. Moreover, the fragmented nature of India's gaming regulations, combined with the rapid evolution of the online gaming industry, underscores the need for a uniform central framework that governs both games of skill and chance.

Conclusion

It is pertinent to note that the distinction between games of skill and games of chance remains one of the primary aspects of the regulation of online gaming in India. While judicial pronouncements have clarified the legal status of skill-based games, it remains particularly important for Indian operators to assess carefully the viability of their platforms, so as to determine whether the games they offer qualify as games of skill, when stakes are involved. The challenge then is the complicated gaming regulations in India, combining them with the IT Rules. Consequently, the operators must seek out again relevant legal experts to support them in trying to get their heads around the viability of operating in India, and that will only grow as the industry evolves. Until such a framework is enacted, online gaming operators need to ensure that they comply with both state and central laws that could make the difference between keeping their operations viable in India.

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