Question on ban on online gaming platform

the story So Far: Earlier this week, a division bench of the Karnataka High Court comprising Chief Justice Ritu Raj Awasthi and Justice Krishna S Dixit delivered a judgment striking down key parts of the Karnataka Police (Amendment) Act, 2021, a new law designed to was introduced by The state government will ban online gambling and skill-based gaming platforms such as rummy, poker and fantasy sports, which involve betting or risking money on an uncertain event.

Apart from Karnataka, a similar law introduced by the Tamil Nadu government was struck down by the Madras High Court in August 2021. In September 2021, the Kerala High Court also struck down a notification by the state government specifically banning the game of online rummy. When played for bets.

Why are states resorting to banning online gaming?

Many social workers, government officials and law enforcers believe that online games such as rummy and poker are addictive in nature; And when played with monetary bets there are depression, mounting debts and suicides. Reportedly, there are some instances where youths facing mounting debt due to losses in online games have committed other crimes such as theft and murder.

Some experts also believe that online games are susceptible to manipulation by the websites that operate such games and there is a possibility that users are not playing such games against other players, but against automated machines or ‘bots’. Against a normal user who has no reasonable opportunity to win the game.

On what grounds did the Karnataka High Court set aside the Online Gaming Act?

The Karnataka High Court struck down the amendment to the Karnataka Police Act on three major grounds: violation of fundamental rights to trade and commerce, liberty and privacy, speech and expression; The law is explicitly arbitrary and irrational as it does not distinguish between two different categories of games, i.e. games of skill and games of chance; And finally, the lack of legislative capacity for state legislatures to legislate on online skill-based games.

The court observed that the games which require substantial effort, knowledge and skill are different from mere games of luck or chance. Relying on previous Supreme Court rulings that betting on rummy, fantasy sports and horse racing was a game of skill, the High Court ruled that online games involve skill, regardless of whether or not money is invested in them. The right to trade and commerce, unlike gambling or betting.

The court also observed that the state government did not provide any evidence or data on whether the broad ban was justified nor constituted a committee of experts to study the issue. The court also held that playing online games can help in building the character of a person and enjoying online gaming may also come within the purview of freedom of expression and the right to privacy and freedom guaranteed under the Constitution.

The judgment also said that the state governments have been empowered under the Constitution to make laws for ‘gambling and betting’, but for this purpose the word ‘betting’ means betting on the game of gambling, i.e. chance. Betting on sports and not sports skills.

Further, the judges also observed that regulation of online games could be a better and proportionate solution rather than an outright ban, and left it open to bringing in a new law to deal with betting and gambling in accordance with the provisions of the state government. Gave. Constitution.

Is regulation of online gaming a better solution?

The outright ban may not completely curtail the playing of such online games, with or without bets. Telangana, which was the first state to ban online games for bets in 2017, has seen a surge of illegal or underground online gambling apps, most of which originate from China or other foreign countries, and from players from fake companies or Except for payment through hawala channels. Both the Enforcement Directorate (ED) and local cyber crime authorities have tried to crack down on such apps but with limited success.

Migrating users to gray or illegal offshore online gaming apps not only results in loss of tax revenue for the state and job opportunities for locals, but also results in users facing any unfair treatment or refusal to pay winnings. are unable to avail the treatment.

Experts believe that instead of a complete ban, one can consider licensing and regulating the industry with various checks and balances such as diligent KYC and anti-money laundering procedures, allowing minors to trade with real money. Can block access to games, set weekly or monthly limits on money. which can be betted or spent, counseling for intoxicated players and allowing self-exclusion of such players, etc.

What’s next for online gaming companies?

The Tamil Nadu government has filed an appeal in the Supreme Court against the Madras High Court’s August 2021 order quashing its online gaming law. At present, it is not clear whether the Karnataka government also plans to file an appeal in the Supreme Court. However, at least the Tamil Nadu government’s appeal is expected to be listed in the top court in the coming weeks. It is expected that the Supreme Court will give its conclusive verdict on the issue of whether online real money games can be completely banned and whether the state or central government has the power to legislate on the subject. For now, online gaming companies will continue to offer different formats and variations of online real money games, with the distinction between skill-based and chance-based games sometimes blurring and debatable.

The author is a technology and gaming lawyer based in Mumbai. Views expressed are personal.