The Contours Of Online Gaming Regulation: An Examination Of The Tamil Nadu Ordinance And Madras High Court's Verdict

Background of the Litigation

The litigation originated in a challenge to the vires of the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act 2022 (“Act”) by the All India Gaming Federation. The Act had been enacted by the State Legislature after receiving a report from a High Level Committee chaired by a retired High Court Judge. This report had opined that games such as rummy and poker involved substantial elements of chance and recommended prohibiting such games when played online for stakes. Acting on this recommendation, the Act included both rummy and poker in its Schedule as “games of chance”.

Several gaming companies offering online rummy and poker approached the High Court arguing that the Act violated their fundamental right to trade and business under Article 19(1)(g) of the Constitution by arbitrarily prohibiting games of skill. They highlighted that the Act made no endeavor to demonstrate how the same games involved chance when played online as opposed to offline. Hence, this differential treatment was wholly arbitrary and based on unsubstantiated apprehensions regarding use of bots and software manipulation online.

Determination by the High Court

The High Court delved into precedent to frame the core issues falling for determination. It relied extensively on the Supreme Court’s rulings in State of Andhra Pradesh v. K. Satyanarayana (1968) and State of Bombay v. R.M.D Chamarbaugwala (1957). These judgments had laid down the authoritative principles that distinguish games of mere chance from those involving skill. While the former could be prohibited, the latter enjoyed constitutional protection under Article 19(1)(g) and could merely be regulated within reasonable bounds.

Applying this jurisprudence, the Court found that rummy and poker had been judicially recognized as preponderantly skill-based games. In K.R Lakshmanan v. State of Tamil Nadu (1996), the Supreme Court had struck down a state ban on rummy played in physical spaces. It held rummy is not gambling since success depends largely on skill, memory and application of intelligence. Based on this binding precedent, the High Court invalidated the Schedule to the Act prohibiting online rummy. It ruled unequivocally that the State had provided no substantive material to demonstrate how the same game involved chance when played online. Mere apprehension of gambling due to technological advancements was inadequate ground to impose a blanket prohibition.

Excerpt from the judgment:

“Heavy reliance is placed by the State on the judgment of the Apex Court in the case of M. J. Sivani (supra). In the said case, the Apex Court was considering the legislation enacted for running of video game parlours and not playing of video games. In the said case, the Apex Court held that certain video games are falling within the class of games of chance and not in the games of skill. The said conclusion was arrived at after considering the report of the Committee of Senior Police Officials, demonstrating about tampering of the video game machines and thereby, were brought within the purview of games of chance. However, in the said case, law existed regulating gaming activity and the same was violated. In the present case, as observed supra, the respondent State could not even remotely demonstrate tampering of software or any such device that would take away the games of rummy or poker from the contour of games of skill. Moreover, the three Judges Bench of the Apex Court in the case of Dr. K. R. Lakshmanan (supra) held rummy to be a game of skill.”

The Court relied on analogous international rulings which recognized poker as a skill-based game. It also cited studies evidencing poker as a game of skill to prevent it from being classified as gambling under the Act. Concluding poker also fell outside the purview of a chance-based online gambling prohibition, the Court read down the definition of “online gambling” under Section 2(i) of the Act. The definition was limited to only exclude games preponderantly of chance and not skill-based games like online rummy and poker.

Balancing State Regulatory Powers and Individual Rights

However, the Court adopted a balanced stance by clarifying that the State could still exercise regulatory powers over skill-based online games. It held that the State could enact subordinate legislation under the Act to impose reasonable restrictions pertaining to age, time limits for play, caps on stakes etc. This middle path accorded due regard to the State’s duty to protect vulnerable sections like children from the risks of online gaming addiction. The ruling also upheld the State’s power to prohibit online gambling and games of mere chance, aligning with public interest concerns surrounding these activities. However, a blanket ban on constitutionally protected skill-based online games was beyond the State’s powers.

The Court took care to confine the legal prohibition only to the narrow sphere of chance-based online gambling. All other provisions of the Act were read down to exclude skill-based games from their ambit. Hence, the core power to enact prohibitions and regulations for online gambling was preserved. But the freedoms guaranteed by Article 19(1)(g) for online skill games were simultaneously upheld. This nuanced interpretation lent constitutional validity to the statute while harmonizing individual and State rights.

Excerpt from the judgment:

“Any activity protected under Article 19(1)(g) of the Constitution of India is for the purpose of gaining profits and permitted activity and earning profit out of it and paying applicable taxes in compliance with law. If the State's argument is to be accepted, then all business activities, making profits, ought to be prohibited. This necessarily implies that if the petitioners were running at a loss, then the State would have no objection to the business activities of the petitioners. The petitioners do not profit from the winnings of the players, but charge a predetermined service charge from the players playing the game.”

Impact on Online Gaming Regulations

The Madras High Court's extensive analysis of the games of skill versus chance dichotomy will have far-reaching impact on the regulatory landscape for online gaming in India. Firstly, it diminishes legislative leeway for indiscriminate online prohibitions, enforcing a fact-based examination of whether a game constitutes skill or chance. States must adduce cogent evidence to establish the predominance of chance in any online game before prohibiting it.

Secondly, the ruling is a timely reminder of binding precedent in Lakshmanan that had exempted physical rummy from gambling prohibitions. By extending this protection to the online version of rummy, the Court has cemented continuity and technological neutrality in gaming regulations. Online adaptations of recognized skill-based physical games cannot be arbitrarily prohibited merely on hypothetical apprehensions of addiction, fraud or gambling.

Concluding Remarks

The Madras High Court ruling displays meticulous application of constitutional principles to balance State regulatory powers against individual rights in the context of a complex emerging technology. While accepting the State's duty to address risks associated with chance-based online gambling, the Court adopted a circumspect approach that protected legitimate online skill gaming enterprises. Its nuanced jurisprudence reinforces India's regulatory approach of prohibiting gambling while fostering skill-based gaming under reasonable regulation. This preserves constitutional safeguards while enabling growth of a thriving industry with increasing technological integration.

Author is a Barrister, called to the Bar by the Society of Gray's Inn. Currently, he is practicing at the Bombay High Court and the Supreme Court of India.

[The opinions expressed in this article are those of the Author. Verdictum does not assume any responsibility or liability for the contents of the article.]