This post summaries the Madras HC judgement on real money games and discusses its key implications.
Last week, the Madras High Court passed a landmark judgment in Junglee Games India Pvt. Ltd. v. State of Tamil Nadu(2021) SCC OnLine Mad 2762, where it struck down the February 2021 amendment to the Tamil Nadu Gaming Act that prohibited betting and wagering on all forms of online gaming.
Facts:
In February 2021, the Tamil Nadu government amended the Tamil Nadu Gaming Act, 1930 (‘the Gaming Act’) by passing the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 (‘the Amending Act’). Section 3(b) of the Amending Act redefined ‘gaming’ to include any game involving wagering or betting in person or in cyber space, except a lottery.[i] It prohibited all forms of games conducted in cyberspace, regardless of whether it was a game of mere skill or a game of chance, removing the exemption for ‘games of mere skill’ in the Gaming Act.
Additionally, the Amending Act introduced section 3-A to prohibit wagering or betting in cyberspace by playing rummy, poker, or any other game, punishable with imprisonment extending to two years for anyone playing or facilitating such activities.[ii] Section 11 of the Amending Act also included games of ‘mere skill’ into the fold of offences if such games were played for wager, bet, money or other stake.[iii] This in fact, went beyond the Tamil Nadu Gaming and Police Laws (Amendment) Ordinance 2020, which did not remove the exemption to ‘games of mere skill’ in Section 11 of the original 1930 Act and would not have covered wagers and prizes on games such as (online and offline) chess.
The Amending Act was challenged by three groups of petitioners: one, those involved in providing the game of rummy in cyberspace (Junglee Games India Private Ltd); two, those providing poker; and three, a private body regulating diverse forms of online gaming (the All India Gaming Federation).
Arguments:
The first set of Petitioners argued that:
- Firstly, games of skill have been judicially differentiated from games of chance, and that states do not exercise any legislative competence over games of skill. They relied on the Constitution Bench decision in State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 628 wherein competitions whose success depended on a substantial extent of skill were considered separate from those which resembled a gambling character;
- Secondly, that the Amending Act resulted in manifest arbitrariness owing to its blanket prohibition under section 3-A;
- Thirdly, that the Amending Act fell foul of the doctrine of proportionality as the restrictions in question were not reasonable, and were rather, excessive government measures.
The second set of Petitioners pressed the distinction between betting and gambling. They argued that gambling is an activity of pure chance, requiring none or minimal skill. Further, the Petitioners stated that cases where the use of skill is involved are entitled to protection under Article 19(1)(g).
The third category of Petitioners emphasized that betting on non-gambling activities would not amount to gaming, thereby rendering the Amending Act violative of Article 14 of the Constitution. They also challenged Section 11 of the Amending Act on the ground that it sought to bypass judicial precedent, was disproportionate, violative of Article 19(1)(g), and contrary to the original purpose of the 1930 Gaming Act.
The State of Tamil Nadu, on the other hand, relied on the “deleterious effects” of gambling, and argued that the “policy decision” was a result of multiple instances of suicide reported owing to the addictive tendency of these games. Furthermore, the State contended that no right under Article 19(1)(g) could be asserted since the games amounted to “gambling/betting activity despite being a game of skill since it is being played for a financial or other stake.” [paras 69-71]
Issue and Ruling:
The issue before the Madras High Court was whether Part II of the Amending Act, including Section 3A and 11, were ultra vires the Constitution and liable to be struck down?
The division bench of the High Court, comprising of Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy, struck down Part II of the Amending Act in its entirety on four grounds: firstly, that the impugned Part and its blanket ban on gaming for money was excessive, disproportionate, unreasonable, and manifestly arbitrary; secondly, that the enactment was violative of Article 19(1)(g) of the Constitution; thirdly, that the enactment was not within the scope of legislative competence under Entry 34 of List II of Schedule VII to the Constitution; and fourthly, that the enactment was inconsistent and irreconcilable with established precedent. Each of these four reasons will be discussed in detail in the next section.
Reasoning & Analysis:
While interpreting the scope of “gambling” and “gaming”, the Court observed that in judicial parlance, the terms connote activities whose outcomes depends predominantly on an element of chance [para 97]. On the other hand, an activity is regarded as a game of “skill” if the consequences are guided more by skill than chance. The High Court held various online games such as poker and rummy are games of skill as they required knowledge, skill, and memory [para 114].
However, the expanded definition of “gaming” under Section 3(b) and the sweeping ambit of Section 3-A of the Amending Act encompassed all sporting/gaming activities (whether virtual or physical) if played for a prize / money / stake. The Court held that the Amending Act created a legal fiction, whereby even games of skill, which were otherwise permissible, would amount to an offence if any betting was involved, which turned “the existing statute on its head”[paras 102-103]. Therefore, the High Court found that the wording of the Amending Act was overbearing and excessive, since:
“102. A person may be gifted in card games or another’s talent may lie in word games. Rationally, such persons should be free to exploit their skills; and only reasonable restrictions that do not completely blunt their chance to show off or make a living out of their skills may be permissible. The sweeping wording of Section 3-A of the amended Act of 1930, coupled with the expansive definition of “gaming” injected therein, eliminates any chance of display of skill in any game on the virtual mode if any stakes, however little, are involved….
103. Section 11 of the amended Act, indeed, turns the existing statute on its head, as the petitioners complain. What was once the exemption or escape provision has now been given the most claustrophobic stranglehold and has the possibility of bringing about the most ridiculous and unwanted results if applied in letter and spirit….” (emphasis supplied)
The High Court also relied on the contradiction apparent in the operation of the Amending Act. The prohibition of wagering or betting under Section 3A was limited to games in cyberspace. However, the newly amended Section 11 removed the skill-based exception even for games of skill played in physical forms or in common gaming houses, if they had a prize attached to them [paras 103-105] Thus, games of football or volleyball played for a cash prize (even if Rs. 100) or an inter-school competition with a trophy would be outlawed in Tamil Nadu [paras 105-106]. As the Court noticed, the contradiction inherent in the Amending Act meant that even the IPL and test matches could not be played in Tamil Nadu since they involved cash rewards for the players [para 106].
Second, the Court also observed that by covering within its ambit, all forms of games if played for money/stake, the Amending Act failed to establish any nexus between the reason for bringing the amendment and its effect, and was therefore disproportionate. Relying on the decision in K.R. Lakshmanan (1996) – where ‘games of skill’ were held to be protected by Article 19(1)(g) of the Constitution – the Court further held that the Amending Act violated Article 19(1)(g) by imposing unreasonable restriction in the form of a blanket ban and failing to meet the “least intrusive” standard of proportionality [paras 101-105, 118].
Third, the Court also agreed with the Petitioners’ contention that the legislation, in effect, expanded the scope beyond what Entry 34 of List II of Schedule VII on “betting and gambling” permits. Interpreting the scope of the Entry, the Court observed that betting could not be divorced from gambling. Since “gambling” has been judicially defined as a game of chance, betting also pertained to the same. The scope of the Entry, and the ambit of a state government’s regulation, therefore, was held to be limited to games of chance. Consequently, it was held that the Amending Act expanded the legislative field beyond the scope permissible in the Constitution [paras 108, 118, 119].
Finally, the High Court observed that the law laid down by the Amending Act was inconsistent and irreconcilable with judicial precedent, including K. R. Lakshmanan (1996) and Chamarbaugwala (1957), clearly laying down that ‘games of skill’ did not amount to wagering or betting. The doctrine of severability was held to be inapplicable as no part of the Amending Act could be “salvaged or permitted to be retained” because it was not possible to ascertain which parts of the statute, the legislature would have intended to retain if they were aware that some parts were invalid [paras 116, 120, 122]. Therefore, the High Court struck down Part II of the Amending Act as unconstitutional in its entirety.
Potential Impact:
The judgment of the Madras High court is significant for its application of the proportionality doctrine and for upholding the fundamental right of the companies under Article 19(1)(g) of the Constitution. More important, however, is the Court express recognition that poker is a game of skill, stating:
“There appears to be a little doubt that both rummy and poker are games of skill as they involve considerable memory, working out of percentages, the ability to follow the cards on the table and constantly adjust to the changing possibilities of the unseen cards. Poker may not have been recognised in any previous judgment in this country to be a game of skill, but the evidence in such regard as apparent from the American case even convinced the Law Commission to accept the poker as a game of skill in its 276th Report.” [para 114]
The judgment of the Madras High Court will likely serve as persuasive value before the Kerala, Telangana and other High Courts where similar issues are pending consideration.
It is clear though, that the issue is far from resolved. While the All India Gaming Federation CEO, Roland Landers welcomed and lauded the judgment, on the very next day after the judgment was passed, the Tamil Nadu State government announced that it would table a new law banning online gaming. The Law Minister, Mr. S. Ragupathy, issued a statement that “following the demand of DMK president and Chief Minister M K Stalin, the then ruling AIADMK government urgently enacted an amendment to the Act on November 21, 2020 to ban the online rummy games.” Keeping in mind public welfare, the government said it would frame the requisite rules, guidelines, and after providing adequate reasons, “a new law banning games like online rummy would be passed soon.”
The Court’s judgment does not completely rule out such a possibility. In fact, the Madras High Court accepted that gambling and betting have “a deleterious impact on certain individuals and can even be ruinous”, but as it correctly acknowledged, the solution was not to pass a law that completely stultified and negated skill altogether. Taking note of the absence of any empirical study or legislative discussion that preceded the enactment of the law, it observed that:
“If, prima facie, the impugned legislation is seen to impose restrictions or altogether curb the exercise of skill in a particular domain, the onus is on the State to justify not only the need therefor but also the extent thereof. No attempt has been made in such regard apart from the anecdotal reference to some suicides and the subjective perception of the evil of addiction.” [para 110]
Betting and gambling fall under the exclusive domain of the state legislatures under Entry 34 of List II, Schedule VII of the Constitution and legitimate concerns of the State surrounding the addictive tendency of online gaming and related consequences need to be addressed.
However, sweeping legislations such as the Amending Act offer disproportionately blunt solutions that are unconstitutional. It is important to clearly distinguish between online games that are ‘games of chance’ and ‘games of skill’ and amend the archaic Public Gambling Act, 1867. With the digitization of sports, fantasy games such as Dream 11, My11Circle, Gamezy have started to gain immense popularity and traction. With judgments such as Varun Gumber v. U.T. Chandigarh (2017) SCC OnLine P&H 5372 and Junglee Games India Pvt. Ltd. v. State of Tamil Nadu, such sports have been recognized as involving exercise of considerable skill, judgment and discretion.
Given the widespread popularity of online games and the significant associated economic benefits, it is important that there is clarity around the regulatory framework of such games. IAMAI in its recent report (authored by Ikigai Law) has suggested potential areas of policy making for digital games and sports. The NITI Aayog also recently issued a discussion paper calling for a light-touch regulatory framework for the online fantasy sports industry. The judgment of the Madras High Court once again brings to light the importance of discussions around regulating the online gaming industry, whether through self-regulation, light-touch regulation, or the issuance of licenses.
This post has been authored by Ikigai Law.
For more on the topic, please get in touch at contact@ikigailaw.com
Image Credits: Freepik
[i] Section 3(b) states (b) “gaming” does not include a lottery, but includes any game involving wagering or betting in person or in cyber space.
Explanation.— For the purposes of clause (b) and section 3-A, wagering or betting shall be deemed to comprise the collection or soliciting of bets, the receipt or distribution of winnings or prizes, in money or otherwise, including through electronic transfer of funds, in respect of any wager or bet, or any act which is intended to aid, induce, solicit or facilitate wagering or betting or such collection, soliciting, receipt, or distribution”
[ii] Section 3A(1) states, “(1) No person shall wager or bet in cyberspace using computers, computer system, computer network, computer resource, any communication device or any other instrument of gaming by playing Rummy, Poker or any other game or facilitate or organize any such wager or bet in cyberspace.”
[iii] Section 11 states “Games of mere skill.— Notwithstanding anything contained in this Act, sections 3A and sections 5 to 10 shall apply to games of mere skill, if played for wager, bet, money or other stake”
