Written by Swayam Samarth*
The Pandemic might have distorted specific industries and forced them to pack their bags, yet it has likewise inhaled new life into some particular others, especially the online gaming sector. Online gaming includes video games e-sports and the highly disputed one being Fantasy Sports. The growth of Fantasy sports has been tremendous and commendable when most industries seemed to be falling apart. This unprecedented growth helped India up the maturity curve in online gaming but consequently led some people towards a path of addiction and suicide. Hence, legislation was enacted by various states keen on putting up an outright ban on online games of skill that involve a monetary transaction. However, each of them was unsuccessful in their approach as the judiciary became the saviour. The Karnataka Government faced a similar fate as recently, on 14th of February, 2022, the High Court of Karnataka struck down the offending provisions of the Karnataka Police (Amendment) Act, 2021, hereinafter referred to as the "Act", which aimed to bar and criminalise all kinds of gaming activities involving money. The court declared that any impugned legislation imposing a restriction on such gaming activities would be held violative of fundamental rights guaranteed under 19(1)(g) of the Constitution of India and be held ultra vires the constitution.
On 5th October 2021, the Karnataka Government passed the Act, which barred and prohibited all forms of online gaming activities involving the transfer of money, even after decisions of the High Court have previously struck down various similar legislation of different states. This was a huge setback to the country's ever-growing start-up capital, which houses more than 90 gaming companies and has a huge employment base.
A close look into the key terms in the online gaming sector: -
A Fantasy sport is basically an internet-based mobile application or website where gamers assemble their own set of players to be selected from virtual proxies of real players of a professional sport. Gamers would have access to past results of the games, statistical performance over the period, available players etc. Subsequently, the gamers would register their fantasy team on a platform. As the match commences, points, known as Fantasy Points, would be allocated according to the performance of the virtual proxies in the real match. Rewards are apportioned according to a gamer's rank in that match. A good rank implies better rewards.
Games of Skill vs Games of Chance
None of the legislation in the country had earlier properly defined the terms game of skill and game of chance. It was necessary to highlight the difference between these two terms because of a rise in the online gaming space. The Indian courts have embraced the "dominant factor test," or "predominance test," used by United States courts in addressing the question of "skill versus chance." The test requires ascertaining whether the skill or chance is the dominating element in determining the game's outcome. In the case of Dr K.R. Lakshmanan v. State of Tamil Nadu, horse racing, rummy, golf was recognised as skill games by the apex court. With special reference to horse racing, it went on to say that bets placed on horse races are skill-based since the bettor has to judge aspects such as the horse's fitness and the jockey's skill. Recently, the apex court upheld the decision of the Rajasthan High Court that the fantasy gaming platform Dream 11 to be a game of skill and not gambling. When the Rajasthan High Court first discussed the question, in A. Mehrotra vs the State of Rajasthan, it stated that horse racing, boat racing, baseball and football are all games of skill and judgement rather than chance. The decision of a gamer to pick his virtual team is fuelled more by his skill, judgement and discretion rather than chance.
In the case of Junglee Games India Private Limited vs The State of Tamil Nadu, the Madras High Court reiterated their stance that gaming involves some element of chance. The court also mentioned that "every game or like activity is dependent upon an element of chance. On the other side, if the game requires the gamer to add his mentality, knowledge, ability, training, experience, awareness, and most importantly, his skill, that would constitute a game of skill. A gamer's success would be incidental to all such factors combined. In other words, if the consequences of the action are channelled more through skill than by chance, then that would fall into games of skill. They are outside the ambit of gambling. The court decided in favour of the petitioners who had challenged Part II of the Tamil Nadu Police (Amendment) Ordinance ("ordinance) and struck down Part II of the Ordinance, declaring it to be unconstitutional and ultra vires the constitution. The Amending Act and the law established on the subject in a slew of court decisions were so incompatible that they couldn't coexist.
Effects of Non-Compliance of the Act
If any person tried to operate, abet or shelter such gaming activities, that would have amounted to a cognisable, non-bailable offence, attracting a 3-year prison sentence and a compulsorily payable fine of up to INR 1 Lakh. Many industry stalwarts like Paytm First Games and MPL have ceased their respective operations in the State of Karnataka, fearing the risk to their business and punishment.
Gaming was considered no less than taboo in India, but the stance of different High Courts around the country in support of fantasy gaming platforms like Mobile Premier League (MPL) and Dream 11 have bought a paradigm shift in this booming industry. Online fantasy sports in our country operate under the charter for Online fantasy sports platforms governed under the self-regulatory body, Federation of Indian Fantasy Sports ("FIFS"). Justice Ashok Bhushan, Former Judge of the Supreme Court of India, opined that a player who participates in the online fantasy sports platform invests his time, money, knowledge, and, most importantly, skill, just like the role of a real-life player team manager plays. His opinions were predominantly based upon such "charter". Playing online games can also help develop the competitive trait of an individual, as pointed out by the court. Yet, the majority of the apps had been geo-locked, i.e. players located in the State of Karnataka would not have been able to open the app and play the games. The ban was a setback to all the online gaming aficionados and the industry as a whole. The online gaming sector is being considered as a significant industry of the economy, and an outright ban would have decelerated its growth. The contribution to the economy and job opportunities are commendable and expected revenues are in excess of $3 bn. by the end of 2025.
Furthermore, big online gaming companies are backed by major institutional investors. Hence, the ban would have affected these companies' future development plans and would have created a negative impact on investor sentiment. It also mentioned that the state government did not provide any data or statistics supporting a blanket ban. An outright ban without any substance would have been completely against the right to freedom of expression and to carry on any occupation or trade. Thus, engaging in online games of skill is backed by the constitution's fundamental rights.
By stating the amendments to be unconstitutional, the court has helped the companies sigh relief. These companies have an enormous consumer base, generate a huge amount of revenue and will be able to create a digital gaming ecosystem in the country.
Instead of an outright ban, it is hereby suggested that the government take the initiative and create a regulatory framework/gaming code to guide ethical online gaming and the gaming ecosystem. The government should specify age limits, maximum playing hours, spending and winning limits in its gaming code to curb addiction issues. While determining if the game falls under a game of chance or skill, the Skill-Chance test laid down by the court has to be applied to conclude. Games of skill have been protected for a long and is a means of business under Article 19(1)(g) of the constitution of India. The gaming sector is a billion-dollar industry, and its potential should be explored and maximised. The Indian gaming community has been contributing to the economy even in this pandemic, and there is room for a lot more. However, the country must abandon its antiquated regulations favouring a unified regulatory gaming code that allows the market to keep up with swiftly evolving technologies whilst also providing authorities with greater flexibility for prospective adjustments as the market and times progress.
* The author is a law scholar at KIIT School of Law Bhubaneswar, India.
(The image used here is for representational purposes only)