The King should prohibit gambling and betting. These two vices cause the destruction of the kingdom – Manu Smriti
Since the very beginning of time, the concept of luck and the lure of easy winnings has fascinated kings and paupers alike. Contrary to the teachings of Manu, in India, stories of gambling find mention in religious textures like the Mahabharata (for example the game of chauser between the Pandavas and the Kauravas where the Pandavas lost their Kingdom). Moreover, games of chance are ingrained in our culture to the extent that people across varying economic strata indulge in games of chance during myriad festivals celebrated in India. The Public Gambling Act of 1867 (‘Central Act’) is the central legislation which governs the subject of gambling and betting in India. “Betting and Gambling” as subjects fall under Entry 34 of List II within the Seventh Schedule i.e. the State List to the Indian constitution. Consequently, each state in India retains the power to enact state legislations controlling gaming and gambling activities. Almost all the states in India have adopted the Central Act albeit with minor amendments.
The term ‘gambling’ is not defined in the Central Act or in state legislations. Black’s Law Dictionary defines gambling or gaming as “the act of risking something of value for a chance to win a prize”. As a general practice all state legislations have pursuant to the adoption of the Central Act included the definition of ‘gaming’ within their ambit, which (barring some minor additions and alterations) generally means the following-
‘Gaming’ includes- (a) Wagering or betting and includes wagering or betting on the digits of a numerical figure arrived at by manipulation; (b) Any transaction by which a person employs another person or engages for another to wager or bet with any other person; and (c) The collection or soliciting of bets, receipts or distribution of winnings or prizes in money of wagering or betting or any act which aids or facilitates wagering or betting or such collection, soliciting, receipt or distribution.
The Central Act defines a ‘Common Gaming House’ as any house, walled enclosure, room or place in which cards, dice, tables or other instruments of gaming are kept or used for the profit or gain of the person owning, occupying, using or keeping such house, enclosure, room or place, whether by way of charge for the use of the instruments of gaming, or of the house, enclosure, room or place or otherwise howsoever.
Some State legislations have excluded Bridge, Poker, Rummy and Nap (West Bengal), Horse and Dog Racing (Maharashtra) from the ambit of the respective state acts for gambling. The state of Goa has incorporated specific provisions to enable off shore water vessels to carry out gambling activities on-board. The state of Tamil Nadu has additionally ratified the Tamil Nadu Prize Scheme (Prohibition) Act, 1979which prohibits and penalizes any person from promoting and conducting any prize scheme.
Gaming Legislations in India generally do not apply to games of ‘mere skills’ on account of specific provision which in essence exclude games of mere skill from the ambit of these laws. Courts in India including the Supreme
Court of India have also recognised the distinction between “games of chance” and “games of skill”. The High Court of Andhra Pradesh in the case of D. Krishna and Anr V. State of AP while discussing the legality of Rummy being played for stakes in a club held that, “Since the Supreme Court in K.R. Lakshmanan (1996 Cri LJ 1635) held that ‘mere skill’ means substantial and preponderance of skill, and further held that the game of rummy is a game of ‘mere skill’, Section 15 of the Act would come into operation and so none of Sections 2 to 14 apply to the game of rummy wherever played”.
In the case of Dr. K.R. Lakshmanan v. State of Tamil Nadu and another, the Supreme Court of India opined that, “The courts have reasoned that there are few games, if any, which consist purely of chance or skill, and as such a game of chance is one in which the element of chance predominates over the element of skill, and a game of skill is one in which the element of skill predominates over the element of chance. It is the dominant element – “skill” or “chance” – which determines the character of the game.” In the case of State of Bombay v. R.M.D. Chamarbaugwala, the Supreme Court also stated that the competitions which involve substantial skill are not gambling activities. Therefore, games where the element of skill outweighs the element of chance will be considered a game of skill for the purposes of the Gaming Legislations. A reading of the Gaming Legislations and the precedents set out by the Supreme Court, further suggests that if a game in question is predominantly a game of skill, the Gaming Legislations will not apply to the same, whether it is played for stakes or otherwise.
The Central Act and most of the state legislations (collectively the ‘Gaming Legislations’) came into force before the dawn of the e-revolution inter alia e portals, e-commerce places, and therefore this gap continues to complicate the scope and legality of online gambling portals within the Gaming Legislations.
That said, the State of Sikkim is the only state in India which has enacted a law for online gaming and sports betting. ‘The Sikkim Online Gaming (Regulation) Act, 2008’ was passed on June 28, 2008 with an object of controlling and regulating online gaming through electronic or nonelectronic formats, and to impose a tax on such games, in the State of Sikkim. The Sikkim Online Gaming (Regulation) Rules, 2009, were subsequently passed on March 4, 2009 (and amended from time to time). Under the aforesaid legislation, an interested person can obtain a “license” for the purpose of conducting online games and sports betting, including its organization, management or promotion or negotiation or receipt of bets. Further, a licensee can take the prior approval of the State government to offer any other / addition online games under the license.
Basis the strict stance of the Reserve Bank of India (‘RBI’), regarding permissions to payment gateways to accept deposits on such gambling websites, the state of Sikkim allows limited betting activity only through intranet gaming terminals (a private network). This ensures that such online gambling services are only available within the territory of state of Sikkim.
The Information Technology Act of 2000 (‘IT Act’) sets out the definition of an Intermediary with respect to any particular electronic record to mean any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web hosting service providers, search engines, online payment sites, online auction sites, online market places and cyber cafes. Rule 3(3) of the Information Technology (Intermediary Guidelines) Rules, 2011 (‘Rules’) sets out the due diligence guidelines to be observed by an Intermediary himself as well as to observe the same vis-à-vis third party material. As a general rule intermediaries are expected to disallow via their terms and services as well as upon notification a host of unlawful activity including money laundering or gambling. Section 85 of the IT Act sets out penal provisions for violation of the Act as well as of any Rules notified under the Act by companies. A strict interpretation of the provisions under the IT Act would mean that any intermediary which hosts information relating to or encouraging money laundering or gambling including online payment sites will attract the penal provisions under the statute.
In the case of M/s. Gaussian Network Pvt. Ltd. v. Ms. Monica Lakhanpal (Suit No. 32/12, Judgment dated 17.09.2012), the District Court of Delhi while opining on the issue of hosting both games of skills and chance on websites held that, “…Such portals merely seek to replace the brick and mortar gaming rooms, offering all the frills and facilities of a gaming house and nothing better than virtual Casinos, banned in most States.” In essence, the District Judge held that playing games of skill for money being legal is applicable only to the games being played in “the physical form” and further held that online games cannot be equated to real games. That said, being an order of the District Court the precedent value of the same is in doubt, and in any case the matter is presently under appeal with the Delhi High Court. Under the current scenario (i.e. dearth of judicial precedent and legislation alike), the answer to this multi-million dollar industry question is a resounding ‘No’. The apex court is quite clear in its interpretation of the Gaming Legislations that if a game is predominantly a game of skill, then the provisions under the Gaming Legislations will not apply, notwithstanding factors such as the involvement of stakes in such game of skill.
Therefore, as long as games being hosted by any online gaming portal are games of skill (as decided by the judiciary and perceived in general practice) such as Rummy, Bridge, Pool (the status of Poker still being in the grey), the same will be within the four corners of the legal framework including the Gaming Legislations as well as the IT Act and Rules Anything to the contrary will in all certainly attract the strict penal provisions of the abovementioned laws.
Although, online gambling portals for all practical purposes are prohibited from operating in India, however in reality there are several foreign websites (viz. Bet365, Ladbrokes, William Hill just to name a few) which allow gambling and accept bets from residents of India. This consequently also includes subscribers in India paying for and receiving funds from gambling activity in India.
The Public Gambling Act, 1867 defines a common gaming house to mean any enclosure, house or space. Section 4 of the aforementioned act lays down punishment for any person who is found in such a common gaming house. Owing to strict interpretation and in absence of any judicial precedence, a website therefore cannot be construed as a common gaming house. Additionally, there appears to be no record for prosecution of persons indulging in online gambling.
The Payment and Settlement Systems Act, 2007 along with regulations notified by the Reserve Bank of India regulate the online payment ecosystem in India. Section 4 of the Payment and Settlement Systems Act, 2007 mandates that-no payment system (by way of credit/debit or any payment gateway) can operate without an authorization from the RBI. The Payment and Settlement Systems Act, 2007 in essence sets out the- (a) powers of the RBI to regulate all forms of electronic payment and payment processing; (b) as well as rights to enter and inspect with or without notice and access to all financial and customer data upon request. Around 2010, the RBI took a major step against gambling services operating via Indian online payments, specifically the RBI took note of payments made via the e-wallet major, PayPal. The RBI put PayPal on notice and asked that it immediately suspend payments to and from India as well as transfers to Indian banks related to gambling activity. PayPal complied with the RBI’s directions immediately. As per the latest directive [RBI/2015-16/185 A.P. (DIR Series) Circular No. 16] issued by the RBI dated September 24, 2015, which relates to processing and settling payments facilitated by online payment gateway service providers (‘OPGSP’) mandates the following- (a)guidelines to banks desirous of liaising with OPGSP- foreign and Indian which includes the banks assessing the bonafides of the transactions; and (b) guidelines to the OPGSP with respect to setting up shop which includes such OPGSP adhering to the IT Act and all other relevant laws/regulations in force. This notification additionally states that the facility to conduct import and export transactions will only be limited to import and export of goods and software.
That said, there are various e-wallet services like Neteller which even today facilitate or allow payments to and from offshore online gaming portals in Indian currency. Two instances of such gambling services where payments can be routed via Neteller. The catch here is that since all gambling related transactions are marked through Neteller as opposed to the gambling portal itself, it appears that the RBI does not red flag such peer to peer transactions per se. The other reason that such services are still available could also be that the RBI as of now is only concerned with businesses which are evading tax and untaxed winnings pocketed by individuals, through off-shore online gaming channels.
In addition to the above, Section 3 of the Foreign Exchange Management Act, 1999 (FOREX Act) makes it illegal to transfer and/or receipt of foreign currency into any individual’s account who is residing outside of India. Therefore, all the off-shore online gambling websites effectively use services offered by electronic wallets such as Moneybookers, Neteller, through which a user can facilitate the flow of money through the Indian national rupee (‘INR’). It does however bear mentioning that some electronic wallets such as Paytm and PayUMoney do mandate “terms of use” which disallow services related to gambling and betting.
With respect to use of credit cards to facilitate payments towards online gambling portals, almost all credit cards companies in India stipulate ‘no use for gambling/betting’ policy as a part of their terms of service mandated by the RBI notifications which disallow payments via credit cards for sweepstakes and lotteries etc. It is thus close to impossible to use a credit card for online gambling purposes in India.
Given the continuing use of electronic wallets for online gambling, it is clear that an enforcement gap subsists between the extant regulations and the actual on ground reality vis-à-vis online gambling portals. The Indian government (including the RBI)is empowered to take action against payment gateways on the basis of the enabling provisions under the Payment and Settlement Systems Act and the IT Act. Access in India to offshore gambling sites can also be blocked under directions of the Department of Telecom under the IT Act. That said, online gambling is rampant courtesy a multitude of variables inter alia the changing purchasing power of individuals, relatively easy access to plastic money and the ever burgeoning reach of the internet. The lack of robust and ongoing enforcement also allows for offshore gambling services to operate surreptitiously.
Logical thinking would only suggest that it is a matter of time before the Indian government shakes off its slumber and decides to plug the gaps from a policy and enforcement perspective in relation to the lucrative online gambling sector
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