A. Background
In October 2022, the Tamil Nadu state government published an ordinance to regulate online gaming and subsequently passed a bill on the same in October 2022. The Governor, after a three-month delay, refused assent to the bill stating that the State Assembly lacked legislative competence. In March 2023, the same bill was introduced in the Tamil Nadu Assembly. On 7 April 2023, the Governor gave his assent to the Bill and on 10th April 2023, the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (TN Act)[1] came into force. The Act prohibits online gambling and online games of chance played for money or other stakes. Online rummy and poker have been banned as games of chance under the Act, and other online games could be prohibited as well in the future by the state government.
The assent of the Governor to the Bill came a day after the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (IT Rules)[2] were notified by the central government on 6 April 2023. The IT Rules prohibit any online real money game that involves wagering on outcomes. They also mandate online gaming intermediaries to comply with due diligence requirements and provide for a self-regulation framework for online gaming intermediaries offering online real money games.
The blog provides an overview of the TN Act and highlights the interplay between the TN Act and the IT Rules.
B. Key highlights from the TN Act
- Applicability: The TN Act applies to any entity offering online games which are accessible within the geographical boundaries of the state of Tamil Nadu. The TN Act only regulates online games, and the Tamil Nadu Gaming Act, 1930[3] will continue to govern offline or physical games in the state.
- Prohibitions under the TN Act:
i) Banning online gambling: The TN Act prohibits online gambling, that is defined to include, any online wagering or betting.[4] Wagering and betting have been defined as collecting or soliciting bets, receipt and distribution of winnings or prizes in money or through other means[5]. Online gambling also includes any game of chance played for money or other stakes.[6] Online games providers (i.e., any person who provides a service for the conduct of any online game) are also prohibited from providing any online gambling service i.e., any service related to wagering/betting/online game of chance.[7]
ii) Banning online games of chance: The TN Act bans games of chance that involve money or other stakes, as specified in its Schedule. The Act defines ‘online game of chances’ broadly. It includes any online game with elements of chance and skill where chance dominates skill or; involves an element of chance that can be eliminated only by superlative skill or; a game that is presented as involving an element of chance or; games involving cards, dice, wheel or any such device that works on random or on event generator.[8] Rummy and poker – which are games that courts have deemed as games of skill because their outcome is determined predominantly by skill – have been banned as games of chance under the Act.[9] Other online games could also be prohibited in the future, if the Tamil Nadu Online Gaming Authority recommends the government to do so.[10]
iii) Ban on advertisements and support from payment gateways: The Act imposes a ban on advertisements which directly or indirectly promote or induce any person to indulge in online gambling or online games of chance, through any media.[11] Further, no bank, financial institution or payment gateway provider is permitted to engage in any transaction or authorization of funds for the payment of any activity prohibited under the Act.[12] Violation can lead to a penalty of prison term of up to one year, a fine of up to rupees five lakhs or both.[13] This creates exposure for intermediaries that may host third party advertisements. For e.g., social media intermediaries that show advertisements on online gambling or games of chance will be held liable under the Act. This is in line with the Ministry of Information and Broadcasting’s recent advisory[14] to media platforms including intermediaries to refrain from displaying advertisements of betting/gambling platforms. - Regulations for local online game providers: The TN Act places strict compliance requirements on local online game providers.[15] Local online game providers have been defined as entities whose central management and control of service is within the geographical boundaries of Tamil Nadu or whose service being accessed by customers, is hosted in Tamil Nadu. Local online game providers are required to obtain a certificate of registration from the Authority. Local online game providers can only provide services of games for which they have obtained a certificate of registration.[16] Failure to comply with the conditions stipulated in the certificate or obtaining registration through fraud or misrepresentation can lead to revocation of the certificate of registration[17].
- Regulations for “non-local online game providers”:[18] Any online game provider who does not fit the definition of local online game provider (discussed above), is identified as a non-local online game provider under the TN Act. A non-local online games provider is prohibited from providing any online gambling service within the state of Tamil Nadu, that allows playing of an online game of chance or any other online game prohibited under the Act. Non-local online games provider will not be held liable if they either geo-block the prohibited games in Tamil Nadu or exercise due diligence as prescribed under the Act. This is to ensure that no person physically present within the geographical boundaries of Tamil Nadu can accesses any prohibited games. Due diligence obligations include the following – inform prospective users from Tamil Nadu about the prohibition of online gambling and games of chance including rummy and poker; enter into a contract with users specifying that users shall not use their service if they are physically present in Tamil Nadu; obtain data that demonstrates that users were not physically present in Tamil Nadu when their account was opened and when their services was used by them. Tamil Nadu Online Gaming Authority can also recommend the state government to request the Central government to block access to prohibited games under the Act under Section 69A of the Information Technology Act 2000.
- Establishment of Tamil Nadu Online Gaming Authority: The Act provides for setting up of the Tamil Nadu Online Gaming Authority (Authority).
i) Composition: The Authority will have five members, including one chairperson. The Chairperson is required to have a minimum qualification of having been a Chief Secretary to the government. The other members include a retired government official not below the rank of Inspector-General of Police, an expert in the field of IT, an eminent psychologist, and an expert in the field of online gaming.[1][1] Section 3, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022
ii) Powers of the Authority:[20] The Authority will have the power to regulate online games in Tamil Nadu. It will also issue certification of registration to local online game providers. Importantly, this Authority will be responsible for identifying games of chance that will be prohibited under the Act. The Authority will act as an overseer that is responsible for collecting and maintaining information related to online gaming activities of online game providers, resolve grievances against online game providers. - Establishment of appellate authority (Appellate Authority): The Appellate Authority acts as a forum to hear appeals against orders passed by the Authority that revokes or suspends an online game providers registration certificate.[21] The Appellate Authority will be headed by a retired Judge of a High Court or a person with similar qualification.[22] The TN Act does not specify the qualifications of the other two members and gives the Government the power to determine the same at a later point in time.
C. Interplay between the TN Act and the IT Rules
In the wake of passing of the Act, the Minister of State for Electronics and Information Technology (MeitY), Rajeev Chandrasekhar reportedly[23] stated that state governments are not required to regulate online gambling after the amendment to IT Rules have been notified and that states are required to observe the minimum threshold set by the IT Rules. He also stated[24] that while gambling is a state subject, activities that occur on the Internet – including online gambling and gaming – fall exclusively within the MeitY’s domain to regulate. The online gaming industry had raised concerns[25] about conflicts between state legislations and the IT Rules and are expected to challenge the Tamil Nadu Act in court.
The interaction between the TN Act and the IT Rules is ground for potential conflict. The TN Act bans any online game of chance played for money or other stakes, however, includes rummy and poker in this list. These are judicially recognised as ‘games of skill’ and therefore [26] should be legal to offer. Whereas the IT Rules allow online games played for real money if they do not involve wagering on any outcome. Though wagering has not been defined under the IT Rules, the aim of the IT Rules seems to be to tackle gambling and betting. Hence the TN Act has banned judicially recognised “games of skill” that may otherwise possibly receive permission to operate under the 2023 Rules.
Further, the IT Rules provides that only online gaming intermediaries offering online real money games (i.e., an online game where a user makes a deposit in cash kind with the expectation of earning winnings on that deposit) are required to get the said game verified by Self-Regulatory Bodies (“SRBs”). Whereas the TN Act requires all local online game providers to obtain registration. This creates a conflicting obligation where even free to play games providers in Tamil Nadu (which are exempted under the IT Rules from getting permission from the SRB) will be required to be register with the Authority in Tamil Nadu. Further, the TN Act creates an additional layer of obligations for local online game providers who will not only be required to comply with requirements under the IT Rules but also the TN Act. For example, a local game provider offering fantasy sports in Tamil Nadu will have to register with the Authority, as well as get their game verified by an SRB.
D. What’s next for online gaming in Tamil Nadu?
The TN Act, thus, fragments regulation of online gaming in the country and creates several ambiguities with respect to compliance requirements for game providers. Conflicting and duplicative obligations between the TN Act and the IT Rules will also increase the compliance burden for online gaming providers.
On 21 April 2023 the Tamil Nadu government also notified[27] the establishment of the Tamil Nadu Online Gaming Authority and Regulation of Online Games Rules, 2023 (“TN Rules”). The TN Rules provides details on the formation of the Tamil Nadu Online Gaming Authority (“TNOGA”), the tenure of the members and disqualifications. It also captures the process related to obtaining a certificate of registration by games providers. There is no specific guidance in the rules on how the TNOGA will determine if a game should be banned.
The All India Gaming Federation (AIGF) has challenged the TN Act in the Madras High Court on behalf of the online gaming industry, on the ground that the state government lacks legislative competence to frame the legislation. AIGF has also sought an interim stay on the TN Act. It also remains to be seen if the TN Act, will survive the legal challenge. An earlier attempt to regulate online gaming by the state government (through the Tamil Nadu Gaming & Police Laws (Amendment) Act, 2021) was struck down by the Madras High Court on the ground that a blanket prohibition on all games played for stakes (including rummy and poker) was arbitrary, disproportionate and excessive in its scope. by the Madras High Court on the ground that a blanket prohibition on all games played for stakes (including rummy and poker) was arbitrary, disproportionate and excessive in its scope.
This post has been authored by Namratha Murugeshan (Associate) and Shambhavi Ravishankar (Consultant), with inputs from Rahil Chatterjee (Associate), Pallavi Sondhi (Senior Associate), Aman Taneja (Principal Associate).
Image credits: Shutterstock
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[1] Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022
[2] Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023
[3] Tamil Nadu Gaming Act, 1930
[4] Section 7(1), Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[5] Explanation Section 2(i), Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[6] Section 2(i), Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[7] Section 7(3), Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[8] Section 2(l) read with Schedule I, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[9] Section 7(2) read with Schedule I, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[10] Section 23(2) read with Schedule I, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[11] Section 8, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[12] Section 9, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[13] Section 16(2), Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[15] Section 10, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[16] Section 10(1), Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[17] Section 11, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[18] Section 14, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[19] Section 3, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[20] Sections 4, 5, 6, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[21] Section 13, Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[22] Section 13(2), Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022.
[26] See here for the State of Bombay vs. R. M. D. Chamarbaugwala
[27] See notification here < http://www.stationeryprinting.tn.gov.in/extraordinary/2023/134_Ex_III_1a_2023.pdf>
[28] See here for more < https://www.thehindu.com/news/national/tamil-nadu/all-india-gaming-federation-challenges-constitutional-validity-of-tn-ordinance-banning-online-games-at-madras-high-court/article66117215.ece>
