Impact of Tamil Nadu's online gambling law on Indian gaming industry – MediaNama.com
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The 2022 Ordinance came despite a similar previous law being struck down in courts, but have underlying issues been solved?
With inputs from Sarvesh Mathi
The Tamil Nadu government promulgated an Ordinance on October 3rd banning “online gambling and online games of chance”, amid rising pressure to take action on at least 17 gambling-related suicides in the state. On October 19th, the state assembly passed the “Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022”.
While the regulation will come into force on a date notified by the state government, for now, the Ordinance seeks to ban only rummy and poker, which are legal games in India. Other games can be added to this list using regulatory discretion. Contravening the ban can result in up to three months imprisonment, a fine of up to five thousand rupees, or both.
Why it matters: The issue is, a similar law outlawing these games was struck down by the Madras High Court the previous year for being “unconstitutional”, and harming the business interests of companies offering legal games in India. The 2022 Ordinance’s ambiguities may once again impact the business interests of online gaming companies offering their services in the state, opening the door for another set of legal challenges should it be passed into law unchanged.
“We believe that the current ordinance is unconstitutional and disregards six decades of settled jurisprudence,” said Roland Landers, CEO of the All India Gaming Federation in conversation with MediaNama. “The ordinance also shows a complete disregard of the Madras High Court judgment from last year, which struck down the previous law which banned online gaming in the state. (..) We will wait to evaluate the law, and if it is on the lines of the ordinance and prohibits constitutionally protected games of skill, we will challenge it since it violates the constitution. We have full faith that the Indian judiciary will uphold the fundamental rights of our members and Indian citizens.”
Brought by this government’s predecessor, the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021, also banned “online gambling” in the state. By August 2021, the Madras High Court stepped in to strike down the law.
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As MediaNama previously reported, “while banning online gambling, it banned legal online skill-based games (like rummy) too—which the Court believed States don’t have the powers to do.” After all, games of skill are Central subjects—while gambling, or games of chance, are within the ambit of the state government. The Court upheld the rights of gaming companies offering skill-based games to carry out their business, enshrined under Article 19(1)(g).
“The Madras High Court held that states cannot regulate games of skill,” observes Samyak Gangwal, an independent advocate speaking to MediaNama on the rationale for the ban’s reintroduction. “What the state government is now trying to do is legislate these same games under a different entry—that is, public health and order, which comes under the state list. The Tamil Nadu government seems to have realised that it does not have the legislative competence to regulate these games, which may explain the shift in approach.”
The public health focus may have come off the back of the recommendations of the expert committee led by retired Madras High Court Justice K. Chandru. Although its report is not in the public domain, the Committee appears to have outlined the many public harms arising out of online gambling and gaming addiction. It also found that the “online version of any game cannot be compared with its offline version,” due to the technology undergirding it. This divergent approach explicitly informs the 2022 Ordinance, even as it treads very similar ground as its predecessor.
“What the state has done differently this time around is to attempt to show that its actions are not arbitrary,” says Ramaswamy Meyyappan, an advocate practising at the Madras High Court speaking to MediaNama. “It constituted the Chandru Committee for this purpose, and on the basis of its report, claims to have [developed] formal legislation. It has overcome the charge that its actions lack reasoning.”
But, a tiger cannot always change its stripes—as experts told MediaNama, the Tamil Nadu government’s new Ordinance appears to once again arbitrarily regulate and ban gaming and gambling in the state.
“The law is pretty much the same, because they use the same terms [to define and regulate gaming and gambling] as last time. Unfortunately, when you use terms which have been interpreted by the Supreme Court, it becomes very difficult to give them a different colour,” notes Gangwal.
While progress on a Central law regulating online gambling in India appears to be picking up pace, until it eventually comes into effect, the public and gaming companies alike may have to continue complying with the larger piecemeal approach to online gambling regulation at the state-level.
What are the issues with the definitions used for online gambling and online games of chance?
According to Section 2(i) of the Ordinance, online gambling, or online wagering or betting, “includes playing of any online game of chance for money or other stakes, in any manner”.
As per Section 2(l), online games of chance include those that:
- (i) involve an element of chance and skill, but where the element of chance dominates over skill;
- (ii) those that involve an element of chance eliminated only by “superlative” skill;
- (iii) those games presented to involve elements of chance;
- (iv) those games that involve dice, cards, wheels, or similar devices, and work using a “random or event generator”.
The test for determining a game of chance in Section 2(l)(i) is unproblematic, notes Gangwal. “This is a very well-known distinction which the Supreme Court has also drawn on.”
The trouble lies in the remaining definitions—whose ambiguity gives rise to confusion over what actually constitutes a game of chance.
“Section 2(l)(i) suggests that a game of chance is a game where an element of chance dominates over the element of skill,” says Meyyappan. “However, we don’t know how dominance is going to be qualified. Is it when dominance [of chance] exceeds a [specific benchmark] like 50%, for example? How do we determine when a game is exceeding such a benchmark? These distinctions remain an issue.”
Similar issues crop up with the second definition for online games of chance—where chance can only be eliminated by superlative skill.
“The problem [with Section 2(l)(ii) of the Ordinance] is that superlative skill is not defined,” explains Meyyappan. “We don’t qualitatively know how to assess something like superlative skill.”
“This leaves defining ‘superlative skill’ to judicial discretion,” says Gangwal. “The Ordinance has also raised concerns about the use of artificial intelligence and algorithms by gaming platforms. Whether these also fall within [or possess] superlative skill will have to be decided by the Courts too.”
The third definition fleshed out in Section 2(l)(iii) also raises questions. “The Ordinance says that games of chance include those presented as involving an element of chance. This does not actually mean anything,” argues Gangwal. “Who is supposed to present the game, or perceive it to include an element of chance, for it to fall within this definition? This clause can open Pandora’s box. If the Courts interpret ‘presented’ in the colloquial sense that everybody perceives a game to include an element of chance, and that’s why it should fall under the definition, then it makes the definition overbroad.”
The fourth definition listed under Section 2(l)(iv) only partially passes muster, according to Gangwal, because it fails to consider the intrinsic ‘randomness’ underlying many games held to be legal in India.
“The first half of the section [invoking cards, dice, and wheel-based games] is fine,” notes Gangwal. “It’s the second part concerning random or event generators that’s problematic—in most card games, you’re supposed to start off the game with random cards [which is why such generators are used]. The skill [of the user] that is involved post-distribution of cards is where the game really begins. But, with this definition, each and every online game under the sun can be considered a game of chance [by using random distribution and event generators].”
Tamil Nadu’s approach, in this case, may be unique. “Similar arguments have been made in the past that no one knows who is playing the game on the other side, that it could be a bot,” recalls Jay Sayta, a technology and gaming lawyer. “But those arguments were made without much substantiation. Now, the government has claimed to work on these issues [through its report].”
However, online gaming platforms in India appear to be open to the idea of self-regulating against these issues.
“We do believe that online games should not have bots or biased algorithms, and the industry already has implemented measures against these, which were also presented to the government,” argues Landers of AIGF. “We also wanted these to be adopted by the wider industry, outside of the 100 or so AIGF members, however, the government in its wisdom chose to ignore all the industry suggestions.”
How do ambiguous definitions open the door for further bans and challenges?
Games that currently fall under this definition according to the Tamil Nadu government are rummy and poker—and they’ve been listed under a Schedule appended to the Ordinance.
According to Section 23, games included in the Schedule are “presumed” to be games of chance. The government also has the power to omit or add any online game to it based on the recommendation of a newly instituted Tamil Nadu Online Gaming Authority.
“The schedule makes it easier for the Executive to ban online games without giving reasons as to why they’re doing so,” observes Meyyappan. “Even if something could be a game of skill, it doesn’t matter, because as long as it’s in the schedule, it’s presumed to be an online game of chance. [For example] There is no reasoning provided as to why rummy and poker fall under this category, when say, online blackjack does not.”
As a result of this concentration of Executive power, all card-playing games could potentially be included in the Schedule rendering them illegal], concludes Meyyappan.
However, a senior executive at a major Indian gaming company informed MediaNama that the industry believes fantasy games will be untouched. “There is a perception that fantasy sports are not covered under this act across the industry, and will be allowed to continue operations,” said the source.
Gangwal adds that the wording of Section 23 almost instantly opens the door for mounting a legal challenge. The Ordinance presumes games listed in the Schedule to be games of chance.
“Not much thought has gone into the drafting of this Ordinance, because there is a clear legal difference between a presumption and a deeming provision,” argues Gangwal. “A presumption is a claim which can be rebutted in a court of law. A deeming provision, on the other hand, is a legal fiction. It says that something is true, even when it is not supposed to be.”
“The phrase that should have been used is ‘shall be deemed to be online games of chance’, because they wanted to create a legal fiction that anything in the schedule is indeed a game of chance,” explains Gangwal. “This is a big loophole in the law—they wanted to ban something, but at the moment, they’ve only drawn presumptions against the games, instead. If the law that is passed based on this Ordinance uses the same terminology, then it opens up the doors to a legal challenge.”
Can regulation be effectively and independently undertaken by a government-appointed regulator?
Section 3 of the Ordinance introduces and establishes the government-appointed Tamil Nadu Online Gaming Authority (TNOGA). To be chaired by a retired bureaucrat (not below the rank of Chief Secretary), and composed of a retired police officer, IT and gaming experts, and psychologists, the body will oversee and regulate how online games providers operate in the State.
The Authority can also approach the government to resolve complaints against online games providers by taking action under the Information and Technology Act, 2000 (IT Act).
The TNOGA’s decisions can be appealed at Appellate Authority, introduced and established in Section 12. The Appellate Authority will be chaired by a retired High Court Judge (or someone with the qualifications to be one) and can have no more than two additional members.
Noting India’s track record with oversight authorities, Gangwal surmises that the TNOGA and Appellate Authority may suffer from capacity issues.
“Even though these bodies are created on paper, their functioning is very limited, and in most cases, nonexistent,” Gangwal opines. “Vacancies are also often not filled. Then there’s the government’s responsibility of ensuring the authority is well-funded and staffed, and has proper offices which people can approach to file their grievances. Instead of creating a new body, the Tamil Nadu government could have given itself the power to regulate itself.”
While government-led regulation raises concerns of Executive interference, Gangwal notes that the TNOGA itself is also subject to government influence. “It will be chaired by ex-government officers of high ranking, while the salaries of its members will be provided by the government [as per Section 3(3) of the Ordinance].”
Meyyappan agrees, pointing to a trend of partisanship in appointments the world over. “The appointments that happen when a political party comes to office are not solely made based on an individual’s capability. There is a partisan approach,” observes Meyyappan. “This can lead to experts being appointed members because they’ve played a favourable role for my political party, but that doesn’t necessarily solve the issue [of needing expert insight to tackle gambling-related mental health issues and suicide or regulating the gaming sector]”.
What are the grounds on which the law can be challenged?
“The industry assessment is that this law will be struck down by whichever Court it is challenged before,” said the senior gaming executive. The nature of these potential challenges is diverse.
“Whether a legislation can overrule a Court’s ruling like this is a key question,” says Sayta. “Overall, it is likely that the grounds in such cases will be similar to those raised the last time [a ban on online gambling was imposed in Tamil Nadu].”
“Like last time, I think manifest arbitrariness will still be an issue,” adds Meyyappan. “The delegation of power to the executive over the legislature in deciding what game can be included in the schedule will [likely] be another issue.”
For Gangwal, classical constitutional tests are likely to appear in these challenges, such as the doctrine of pith and substance. Courts lean on it when examining whether a law concerns a specific subject matter, or when determining whether a legislature’s law has transgressed the ambit of another legislature.
“If the [state-level] law incidentally encroaches on another list [such as the Central list], the Courts examine the pith and substance of the law,” explains Gangwal. “In some cases, they may rule that this encroachment is not unconstitutional. I don’t see this happening in the case of the Ordinance, because in pith and substance, all it seeks to do is regulate poker and rummy. It does not regulate public order or public health.”
Other potential grounds include a challenge on the basis of Article 14, under which the fundamental right to equality is held. “The preamble says there is a difference between online games and games played physically,” notes Gangwal. “I’m unsure as to what these differences are and whether they exist. It cannot be simply stated that a game played in person is less harmful than one online. Article 14 challenges could also be mounted to the Ordinance’s definition of online games of chance, as well as the Schedule of online games of chance under Section 23.”
The Chandru Committee’s report may offer the Tamil Nadu government evidentiary support that was missing in last year’s standoff with online gaming companies. “But, this will support the Tamil Nadu government to a limited extent,” notes Meyyappan. Ultimately, the questions before the Court will be on whether the law has reasonably and proportionately infringed upon online gaming companies’ rights to practice business, held under Article 19(1)(g). “People should be permitted to conduct their business in a manner that they deem fit, and the state can regulate it,” argues Meyyappan.
Whither regulation on offshore betting?
In the meantime, little action has been taken at the state-level to counter the issue of offshore betting websites offering their services in India—even in territories where gambling is illegal.
“We are not aware of any steps that the Tamil Nadu government has taken against the offshore betting websites in the state. These websites and apps are readily available to all the people in the state, are flagrantly advertising in the state, including sponsoring tournaments, leagues and teams,” says Landers. “This ban on legitimate Indian companies will only further this problem and push more people towards illegal gambling apps.”
Reports suggest that the Ministry of Electronics and Information Technology will step in to regulate ads placed by some of these companies on social media companies—the Ministry of Information and Broadcasting has already issued two advisories this year to television channels, streaming platforms, and newspapers not to publish their ads.
“Ultimately, the industry largely believes that a ban is not useful to curb harms,” says the senior gaming executive. “People who want to play will find a way to continue playing these games [by using VPNs, for example]. The larger recommendation we’ve made to the government is that self-regulatory consumer welfare measures should be made mandatory for all gaming platforms.”
“The regulation has gone to the extent of imposing a ban on these platforms because the assumption is they impact society,” concludes Meyyappan. “There is a causal effect, but I don’t think it is sufficient [to enact a ban]—multiple other factors can explain why people play these games, have psychological issues, or die by suicide. TASMACs [state-owned alcohol shops] disproportionately damage the health and lives of the poor in Tamil Nadu—the state government turns a blind eye because TASMAC is one of its highest revenue streams. They go after online gaming, instead, because it’s an easier target.”
This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.
- Summary: Tamil Nadu’s New Online Gaming And Gambling Law And Why It Sees Rummy, Poker As Games Of Chance
- India’s Unclear Gaming And Gambling Regulations Are ‘Playing’ With Lives
- Government Panel Calls For New Regulatory Body And Framework For Online Gaming In India: Report
- Supreme Court Issues Notice In Tamil Nadu Government’s Challenge To Quashing Of ‘Online Gaming’ Ban
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