In September, 2021, the Government of Karnataka passed the Karnataka Police (Amendment) Bill, 2021 ("Amendment") which amended the Karnataka Police Act, 1963, to outlaw "any act on risking money or otherwise on the unknown result of an event including on a game of skill" (emphasis supplied, and Amendment accessible here). This law also increased penalties for operating, aiding, abetting, or facilitating 'illegal' activity. Karnataka (which contains Bangalore) is the digital hub of India, and this Amendment was consequential for the nascent Indian 'real money' gaming industry.
This Amendment was challenged on the grounds that it was beyond state's authority to enforce such a law, that violates fundamental rights accorded by the Constitution of India, 1950, and is arbitrary. On February 14, 2022, the Karnataka High Court ("Kar HC") in the matter of All India Gaming Federation vs The State of Karnataka & Ors (WP 18703/2021), struck down the provisions which effectively prohibited wagering on games of skill. A copy of the Kar HC's judgement can be accessed here.
Key takeaways from the Judgement:
- Online games played for stakes are legal:
Relying on erstwhile supreme court rulings, the Court observed that
games of skill do not metamorphosize into games of chance merely
because they are played online. Games of skill do not cease to be
ones of skill, even when played with stakes. Each game warrants
independent assessment to determine whether the elements of skill
preponderate over chance (see Para X (v) – Page 56-58, and
Para XII - Page 62).
- Violation of fundamental rights: The Court
clarified that a state's power to regulate gaming was
restricted to 'betting on gambling', i.e., betting on games
of chance. Citing Supreme Court precedent, it ruled that games of
skill are protected by virtue of their recognition as a
'business', and also as a form of artistic expression (see
Para IX - Page 47; Para XV (c) (ii) - Page 73; and Para XIX (g)
– Page 101).
- Arbitrary Restrictions Illegal: Supreme court pronouncements and legislations have recognised the distinction between games of skill and games of chance. The Amendment clamped an absolute embargo on all games of skill, and defied the principle of proportionality (i.e., measures to be in accordance with the legislative intent). It was ruled that the Amendment was arbitrary and violated Article 14 (right to equality) of the Constitution (see Para XXII (b) - Page 118).
On a related note, the Court noted that the state's arguments on the perils of gambling addiction were not supported by a scientific or empirical data driven research. The proliferation of online gaming as a business, and growing indulgence, warranted a data driven exercise to introduce reforms to prevent addiction, as opposed to acting on traditional and anecdotal beliefs.
What this means for businesses:
The Karnataka HC's judgement reinforces the views of other high courts on games of skill. It is clear that online games of skill have constitutional protection in India, and this gives a great boost to businesses looking to India as the biggest online gaming market in the world. The Karnataka State Government (and other states) may, in due course, come up with a revised version of the law that is in line with this judgment. The battle between courts and legislature, when it comes to online gaming, is far from over; but we are likely at the 'end of the beginning'.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
