Status Of Gambling In India: The Need For Uniformity

Rahul Rajpal comments on the need for uniformity on gambling throughout India.

I. INTRODUCTION

Gambling, despite its recognition as a pleasurable pastime, has always been associated with individuals of depraved character. This view was carried forward through the British era where a carpet ban was imposed on all gaming houses hosting any form of gambling.

At the time of framing the Constitution, the members of the Constituent Assembly, with the aim to enable states to handle gambling as they saw fit, allotted ‘gambling and betting’ to List II of Schedule VII also known as the ‘state list’. This entry granted autonomy to frame their individual legislations on the same. Most states adopted the Public Gambling Act with minor variations. Although, there are a few states whose ideology on the subject differs which has led to variations in the extent of clamp of gambling and ancillary activities, which range from a complete ban on gambling to making an exception for ‘games of skill’. This exception for games of skill existed even under the Public Gambling Act but the meaning of skill in such games took much longer to be established.

The interpretation of the gambling has always been under scrutinyand its presence under the state list has further contributed to the absence of any semblance of uniformity amongst state gambling laws. This has hindered progress towards uniformity of rules and regulations. The Judiciary, on multiple occasions, has been tasked with interpreting the wide and evolving ambit of ‘gambling’. Despite considerable uniformity, there exist few judgments which have digressed from the general flow of thought. The presence of individual state legislations has been an influencing factor since courts are limited by the powers of interpretation and are not to interfere with the functions of the legislature in policy matters. This has resulted in a lacuna with regard to a uniform stance on gambling and betting.

The introduction of online gambling has increased the already-present need for a comprehensive legislation which is capable of providing a uniform stance on the legality of gambling. Technology facilitates transactions beyond state boundaries with such ease that a statute with wide-reaching capabilities is necessary to govern all users. Unfortunately, there does not seem to be any step towards that direction and the status quo can be altered only with a Constitutional Amendment, bringing gambling under the union list.

This article aims to highlight the need for a constitutional amendment in order to bring ‘gambling and betting’ under List I of Schedule VII of the Constitution so as to facilitate the framing of a central legislation on the same. This article does not comment on the legality of gambling in India and instead, only advocates for a consensus on the same. The benefits of a uniform view have been analysed and will be a tremendous advantage to this country.

II. History of Gambling in India

Over time,gambling has been looked down upon and it is believed to be one of the evils of the society – one which is capable of devouring man entirely. This has also been highlighted by the Supreme Court of India where, while drawing reference to the Vedas,it was noted that although the general view has been that gambling destroys truth, honesty and wealth, many philosophers such as Kautilya and Yajnavalkya advocated for state control and the possibility of earning revenue therefrom. ¹

A. Pre-Independence

Even through the British era, there was a stronghold on gambling and strict penalties were imposed on defaulters. Derived from the British Gaming Act, 1845 and Betting Act, 1845, the Public Gambling Act, 1867 had banned all forms of public gambling and the establishment of common gaming houses. However, this was not applicable to lotteries, horse racing and games involving the use of skill. ²

B. Post-Independence

After the passing of Adaptation of Laws Order, 1950, the jurisdiction of the Public Gambling Act was limited to Uttar Pradesh, Punjab, Delhi and Madhya Pradesh.Although this Act still provides an option for the aforementioned States to frame their own guidelines. ³ However, once betting and gambling was added to the state list, the Public Gambling Act has been rendered otiose since each state hasthe autonomy to frame their own law on betting and gambling.Furthermore, the Law Commission had termed this law as obsolete and recommended that it be repealed but the Government is yet to act on this recommendation. ⁴

III. INTERPRETATION OF ‘GAMBLING’

Although legal lexicons have defined gambling as the act of risking something of value, especially money, for a chance to win a prize ⁵, there does not exist a uniformly accepted legal definition.

The Public Gambling Act, which was also India’s first attempt at a central legislation under the British era,banned all gaming houses and imposed a penalty for violation. ⁶ However, it provided an exception to ‘games of skill’ wherein it laid down that this legislation will not apply to games involving considerable use of skill. ⁷

Many states including Karnataka,West Bengal and Tamil Nadu have made an exception for games of skill under legislations which have otherwise prohibited all forms of gambling. ⁸ On the other hand, Sikkim and Goa have adopted a liberal approach. Goa has permitted the operation of casinos in certain five-star hotels and offshore vessels. ⁹ Sikkim, on the other hand, has decided to legalise and regulate gambling and has prescribed areas in which gambling activities can be conducted. ¹⁰ Additionally, casinos are also allowed to function in Sikkim. ¹¹

Though most States have recognised that games involving the use of considerable skill do not fall under the ambit of gambling, some states have chosen to ban all forms of betting, irrespective of the exercise of considerable skill.

The Assam Game and Betting Act, 1970 ¹² and Orissa Prevention of Gambling Act, 1955 ¹³ have not created such an exception. Additionally, Telangana promulgated two ordinances in 2017, amending the Telangana Gaming Act, 1974 to expand the definition of ‘wagering or betting’, which now includes, any act of risking money on any game, including games of skill. ¹⁴ This was also applied to online gaming. These ordinances were challenged and as a temporary relief, these companies were permitted to continue operations in states other than Telangana. This position created by the ordinance was cemented by the passing of the Telangana Prevention of Dangerous Activities of Bootleggers, Dacoits, Drug-Offenders, Goondas, Immoral Traffic Offenders and Land-Grabbers (Amendment) Act, 2018. ¹⁵ Despite the conflicting views of the Supreme Court, the Courts dismissed all petitions against the aforementioned ordinances as the State was well within his powers under Entry 34 of List II. ¹⁶ It has been clearly stated by the Apex Court that the Judiciary’s functions are limited to interpretation of the law and providing guidelines where ambiguity exists and they can only indulge in law making in case of perversity by the Legislature. ¹⁷

A. Judicial Pronouncements

The Supreme Court, for the first time in State of Bombay v. R.M.D. Chamarbaugwala ¹⁸, differentiated between ‘games of skill’ and ‘games of chance’ where it held that competitions in which success depends substantially on the extent of skill exercised do not come under the ambit of gambling. Furthermore, competitions involving skill are to be regarded as business activities and will be afforded protection under Article 19(1)(g) ¹⁹ of the Constitution.

The Apex Court in State of Andhra Pradesh v. K. Satyanarayana ²⁰ laid down that games requiring a certain amount of skill cannot be categorised as games of chance, and would not come under the ambit of gambling. The Supreme Court of India in Dr K.R. Lakshmanan v. State of Tamil Nadu ²¹, laid down that the expression ‘game of mere skill’ has been interpreted to mean “mainly and predominantly a game of skill”.

In summary, the following judgments have laid down that:

• i) The competitions where success depends on a substantial degree of skill are not gambling; and
• ii) Despite there being an element of chance if a game is predominantly a game of skill, it would nevertheless be a game of ‘mere skill’.

Despite what seems to be concerted view of the Judiciary, there has been disparity in this thought process. The Gujarat High Court in Dominance Games Pvt. Ltd. v. State of Gujarat ²² took a contrary approach and declared that ‘Texas Hold’em Poker’ would not qualify as a game of skill and will come under the ambit of gambling. It declared that the State of Gujarat was well within its powers entrusted on it under List II while passing an order under Bombay Prevention of Gambling Act, 1887, bringing poker under the category of gambling.

With the evolution in the gaming industry, legislations find it hard it keep up andcourts are faced with the task of understanding the intricacies of these online games in order to verify if it qualifies as a game of skill. A fitting example would be Dream11, which has witnessed a rising popularity and a frenzy amongst users. This fantasy sports game came under pressure when critics attempted to classify it as gambling but this was settled by the Punjab and Haryana High Court ²³ laid down that like sports, fantasy games also require reasonable skill, judgment and discretion while managing virtual teams. The exercise of skill primarily determines the outcome and hence, it would not constitute gambling. Similarly, the Bombay High Court also dismissed a petition against Dream11, reiterating the view of the Punjab and Haryana High Court. ²⁴

B. Law Commission Report No. 276

In 2017, the Supreme Court agreed to hear a PIL praying to direct the government to frame a law to legalise gambling in India. The Court listed this matter along with the matter concerning Cricket Association of Bihar, which was to be argued in July 2017. ²⁵Basing its arguments on the Lodha Committee’s report in favour of gambling, the aforementioned PIL sought the enactment of a central legislation to regulate gambling and betting. However, the Supreme Court referred the matter to the Law Commission.

Chaired by Former Supreme Court Justice B.S. Chauhan, this commission noted that despite the Lodha Committee’s recommendations, it failed consider the socio-economic status of many states and thus, the Law Commission’s initial recommendation was to ban all forms of gambling in India. However, despite their initial commendation, they opined that it is not feasible to completely ban online gambling since illegal gambling sites will continue to exist. Instead, the Commission suggested that the legislature should legalise and regulate gambling rather than ban it entirely.

The Commission laid down guidelines in order to regulate gambling such as the presence of licensed operators, linking transaction with PAN or Aadhar Card’s. Additionally, the Commission also noted that regulating gambling would also lead to a significant reduction in circulation of black money since all transactions would be cashless and monitored. Furthering this, people below the poverty line will be restricted from using money granted under any government schemes meant to aid their livelihood. ²⁶ The Commission also advocated for all legislations regulating gambling and betting to recognise the exception granted to games of skill under the ambit of gambling. ²⁷

IV. FDI IN GAMBLING AND BETTING

The growth in the gaming industry has caught the attention of foreign investors which has led to a significant increase in FDI.The current FDI regulations prohibit investment in ‘gambling and betting’. However, recent judicial developments have categorised multiple online games as games of skill, thus exempting it from the ambit of gambling. This has led to an increase in investment in these companies. Given that it has been classified as a legitimate business transaction, it is now entitled to Constitutional protection under Article 19(1)(g) ²⁸ of the Constitution. Notably, the Government has approved 100% FDI under the automatic route in e-commerce activities. This has paved way for substantial foreign investment in the online gaming industry, giving the economy a much-needed boost.

The most recent investment was in the fantasy sports league, Dream11. Tencent Holdings Ltd., a Schengen investment firm, led funding as part of its Series D funding in 2018, which was slightly higher than $100 million. ²⁹ They had faced a roadblock when Dream11 faced a petition filed to declare fantasy sports as gambling. However,the Punjab and Haryana High Court cleared the air by declaring that it does not come under the ambit of gambling as fantasy sports leagues warrant the exercise of skill and judgment. Additionally, in early 2019, Dream11 witness the completion of a secondary investment by UK based investment firm, Steadview Capital. This round of investment was worth $60 million, bringing the valuation of Dream11 to approximately $1 billion. ³⁰

However, in April 2017, Canadian investment firm, Clairvest Group Inc., along with limited partnerships owned by it, acquired 85% stake in Head Infotech India Pvt. Ltd., which owns Ace2three, an online rummy portal. The deal was worth $73.7 million where Clairvest paid $40 million. ³¹ However, Clairvest was hit by the passing of the ordinance by the Telangana Government banning online rummy, as mentioned above. Clairvest faced a loss of $11 million in that quarter as Ace2three was not operating for 9 days in June 2017. Ace2three has now suspended operations in Telangana and the application is operational outside Telangana and its operations outside Telangana constitute only 60% of its revenue. ³²

Along with this, in 2012, U.S. Hedge Fund, Tiger Global invested in Play Games 24x7 which was rebranded as Rummy Circle.³³

V. NEED FOR AN UMBRELLA LEGISLATION

The existence of power of States to frame laws on gambling has led to a multitude of legislations with regard to the understanding of games of skill.

A. Effect on FDI

As discussed above, Dream11 has already secured investment from Tencent Holdings and Steadview, bringing its valuation to 1 billion dollars. Furthering this, online sports gaming has witnesses tremendous growth in the past few years, amassing Rs 43.8 billion in 2018 and is expected to grow to Rs 118.8 billion by 2023. ³⁴ Similarly, companies like MyTeam11, Halaplay, 11Wickets, Fantain and Starpick also possess the potential to attract further investment.

Foreign investors would be attracted to a country with a stable legal system, unlike the current situation where each state has the power to make its own gambling laws. Legal and political stability are critical in attracting investment. Unpredictability and sudden changes in laws has a negative impact on the company and can even lead to withdrawal of existing investment. Moreover, investors seek predictability and efficiency in the implementation of laws and regulations. ³⁵ As stated earlier, Clairvest suffered a loss of $11 million in one quarter because it was not operational for nine days. This was the result of Telangana’s abrupt decision to pass an ordinance placing a blanket ban on betting activities of any kind. Post this loss, Clairvest reduced the carrying value of the equity investment by 50 percent or $12.39 million. ³⁶ These losses act as deterrents for other investors looking to invest in India.

Furthermore, India recently progressed up the Ease of Doing Business Ranking by 14 places, now holding the position of rank 63. ³⁷ During the previous year, India had jumped to rank 77, which was the result of improved infrastructure reforms and the introduction of GST, among others. ³⁸ This is evidence of smooth and unhindered business transactions leading to increased business investment and making India a suitable destination for foreign investors, something which also seems to be the narrative of the Narendra Modi led NDA Government. Similar uniform laws and regulations in the gaming industry, provided by a central legislation, would contribute to a further increase in India’s ranking.

B. Need for Uniformity

With the evolution in technology, online betting does not conform to boundaries.Transacting with an individual at the other end of the country is the same as transacting with someone in person. It cannot be placed on the same platform as other prohibitions since it transgresses boundaries, both national and international. However, the difference in laws among states provides an unnecessary hindrance to these transactions and restricts companies from realising their true potential in the market.

C. Legal Uncertainty

Most states seem to have passed laws in favour of games of skill but there continue to exist legislations which are turning the wheel back, causing a great deal of confusion. The Public Gambling Act does not provide a solution as states continue to enjoy autonomy. The Public Gambling Act does not serve its purpose and is now otiose since gambling and betting comes under List II thus taking away the power of this British-era legislation. As long as this item is listed under the State list, this uncertainty will continue to exist.

D. Fulfilling the purpose of the Law

The Constituent Assembly, while debating on the amendments to the state list, brought up the inclusion of ‘gambling and betting’ under Entry 45 of the List II ³⁹. Shri LakshminarayanSahu argued that the purpose of this entry was to regulate gambling, i.e., to permit it or prohibit it. Whichever, it would be, the State Government would have the power to take this decision. He also pointed out that in case Entry 45 ⁴⁰ was omitted, gambling would be deemed to come under Entry 91 of List I ⁴¹, which is currently Entry 97 ⁴². Hence, the result would be the same. Keeping this in mind, the motion was adopted and gambling and betting was added to the State List. The makers of the Constitution noted that the result of giving the Central Government the power to make laws on gambling and betting would lead to the same result, the power to either permit or ban gambling. Therefore, an amendment whereby gambling and betting is added to the Union List instead of the State List would not stray from the motive of the Constitution makers and would ultimately serve the same purpose.

Further, a similar subject i.e., lottery, is already under the Union List and bringing gambling and betting also under the Union List does not seem to stray too far. A central law will address the same concern, but at a national level, after considering characteristics affecting all States.

VI. CONCLUSION

With the exponential growth being witnessed in the gamblingindustry, the need for a Central legislation on gambling has never been more present.A unified regulatory scheme will immensely benefit investors, both domestic and foreign. However, as long as this item exists under the State List, there will continue to be uncertainty as the economic and social factors differ in each state, leading to varying approaches by State Governments. It is inevitable that political parties will pass laws in furtherance of their individual propaganda. The presence of casinos in Goa and Sikkim and a ban on gambling in Telangana and Orissa is evidence of this. The unification of laws can only take place via a Constitutional Amendment, bringing ‘Gambling and Betting’ under the Union List. Given that ‘Lotteries’ are already listed under the Union List, bringing gambling under the legislative powers of the centre will not be a very bold move.

Irrespective of the views of a central legislation, it will lead to a simplified and reliable regulatory system, providing much needed certainty. The current regime is very unreliable and the plethora of judgments on this subject, though mostly streamlined, show that this issue is far from being decided. A central legislation, much like the one in United Kingdom, will provide uniformity in our legal system. Though U.K. has decided to legalise and regulate gambling, India need not do the same but the benefit of having a national legislation, as opposed to multiple state legislations, still stands.

The Public Interest Litigation filed in 2017 made a step in this direction but it did not lead to anything, although the Law Commission Report which followed set a sound procedure for regulating gambling. However, ability of the courts to direct the Government seems to be in doubt given the courts limitations under the principle of separation of powers. Nevertheless, it reflects the mindset of the people regarding the need for a statute imparting certainty.Apart from the Law Commission report, there does not seem to be any headway yet but hopefully, this necessity will be realised before we find ourselves to be in the midst of a legal system, so turbulent that it drives away all investment in this promising sector.