gambling

INTRODUCTION

Gambling, despite its recognition as a pleasurable pastime, has always been associated with individuals of depraved character. This view was carried forward through the British era where a carpet ban was imposed on all gaming houses hosting any form of gambling.

At the time of framing the Constitution, the members of the Constituent Assembly, with the aim to enable states to handle gambling as they saw fit, allotted ‘gambling and betting’ to List II of Schedule VII also known as the ‘state list’. This entry granted autonomy to frame their individual legislations on the same. Most states adopted the Public Gambling Act with minor variations. Although, there are a few states whose ideology on the subject differs which has led to variations in the extent of the clamp of gambling and ancillary activities, which range from a complete ban on gambling to make an exception for ‘games of skill’. This exception for games of skill existed even under the Public Gambling Act but the meaning of skill in such games took much longer to be established.

Problems with a change in the interpretation

The interpretation of gambling has always been under scrutiny and its presence under the state list has further contributed to the absence of any semblance of uniformity amongst state gambling laws. This has hindered progress towards uniformity of rules and regulations. The Judiciary, on multiple occasions, interprets the wide and evolving ambit of ‘gambling’. Despite considerable uniformity, there exist few judgments which have digressed from the general flow of thought. The presence of individual state legislations has been an influencing factor since courts are limited by the powers of interpretation and are not to interfere with the functions of the legislature in policy matters. This has resulted in a lacuna with regard to a uniform stance on gambling and betting.

The introduction of online gambling has increased the already-present need for comprehensive legislation that is capable of providing a uniform stance on the legality of gambling. Technology facilitates transactions beyond state boundaries with such ease that a statute with wide-reaching capabilities is necessary to govern all users. Unfortunately, there does not seem to be any step towards that direction and the status quo can be altered only with a Constitutional Amendment, bringing gambling under the union list.

The objective of the article

This article aims to highlight the need for a constitutional amendment in order to bring ‘gambling and betting’ under List I of Schedule VII of the Constitution so as to facilitate the framing of central legislation on the same. This article does not comment on the legality of gambling in India and instead, only advocates for a consensus on the same. The benefits of a uniform are also under observation.

HISTORY OF GAMBLING IN INDIA

Over time, gambling has been looked down upon and it is believed to be one of the evils of the society – one which is capable of devouring man entirely. This has also been highlighted by the Supreme Court of India where, while drawing reference to the Vedas, it was noted that although the general view has been that gambling destroys truth, honesty and wealth, many philosophers such as Kautilya and Yajnavalkya advocated for state control and the possibility of earning revenue therefrom.

Pre- Independence

Even in the British era, there was a stronghold on gambling and strict penalties for defaulters. Derived from the British Gaming Act, 1845 and Betting Act, 1845, the Public Gambling Act, 1867 had banned all forms of public gambling and the establishment of common gaming houses. However, this was not applicable to lotteries, horse racing, and games involving the use of skill.

Post-Independence

After the passing of the Adaptation of Laws Order, 1950, the jurisdiction of the Public Gambling Act was limited to Uttar Pradesh, Punjab, Delhi, and Madhya Pradesh. Although this Act still provides an option for the aforementioned states to frame their own guidelines. However, once betting and gambling was added to the state list, the Public Gambling Act has been rendered otiose since each state has the autonomy to frame their own law on betting and gambling. Furthermore, the Law Commission had termed this law as obsolete and recommended that it be repealed but the Government is yet to act on this recommendation.

INTERPRETATION OF ‘GAMBLING’

Although legal lexicons have defined gambling as the act of risking something of value, especially money, for a chance to win a prize, there does not exist a uniformly accepted legal definition.

The Public Gambling Act, which was also India’s first attempt at central legislation. However, it provided an exception to ‘games of skill’ wherein it laid down that this legislation will not apply to games involving considerable use of skill.

Many states including Karnataka, West Bengal, and Tamil Nadu have made an exception for games of skill under legislations that have otherwise prohibited all forms of gambling. 8 On the other hand, Sikkim and Goa have adopted a liberal approach. Goa has permitted the operation of casinos in certain five-star hotels and offshore vessels. Sikkim, on the other hand, has decided to legalize and regulate gambling and has prescribed areas in which gambling activities can be conducted. Additionally, Sikkim allows the functioning of casinos.

Though most states have recognized that games involving the use of considerable skill do not fall under the ambit of gambling, some states have chosen to ban all forms of betting, irrespective of the exercise of considerable skill.

Examples of exceptions:

The Assam Game and Betting Act, 1970 12, and Orissa Prevention of Gambling Act, 1955 have not created such an exception. Additionally, Telangana promulgated two ordinances in 2017, amending the Telangana Gaming Act, 1974 to expand the definition of ‘wagering or betting’, which now includes, any act of risking money on any game, including games of skill. These ordinances were challenged as a temporary relief, these companies were permitted to continue operations in states other than Telangana. This position created by the ordinance was cemented by the passing of the Telangana Prevention of Dangerous Activities of Bootleggers, Dacoits, Drug-Offenders, Goondas, Immoral Traffic Offenders, and Land-Grabbers (Amendment) Act, 2018.

Despite the conflicting views of the Supreme Court, the Courts dismissed all petitions against the aforementioned ordinances as the State was well within his powers under Entry 34 of List II. It has been clearly stated by the Apex Court that the Judiciary’s functions are limited to the interpretation of the law and providing guidelines where ambiguity exists and they can only indulge in law-making in case of perversity by the Legislature.

JUDICIAL PRONOUNCEMENTS

The Supreme Court, for the first time in State of Bombay v. R.M.D. Chamarbaugwala, differentiated between ‘games of skill’ and ‘games of chance’. It held that competitions in which success depends substantially on the extent of skill exercised do not come under the ambit of gambling. Furthermore, competitions involving skills are to be regarded as business activities and will be afforded protection under Article 19(1)(g) of the Constitution.

The Apex Court in State of Andhra Pradesh v. K. Satyanarayana laid down that games requiring a certain amount of skill cannot be categorized as games of chance, and would not come under the ambit of gambling. The Supreme Court of India in Dr. K.R. Lakshmanan v. State of Tamil Nadu laid down that the expression ‘game of mere skill’ has been interpreted to mean “mainly and predominantly a game of skill”.

In summary, the following judgments have laid down that:

  • The competitions where success depends on a substantial degree of skill are not gambling; and
  • Despite there being an element of chance if a game is predominantly a game of skill, it would nevertheless be a game of ‘mere skill’.

Despite what seems to be a concerted view of the Judiciary, there has been a disparity in this thought process. The Gujarat High Court in Dominance Games Pvt. Ltd. v. The State of Gujarat took a contrary approach and declared that ‘Texas Hold’em Poker’ would not qualify as a game of skill. Instead, it will come under the ambit of gambling. It declared that the State of Gujarat was well within its powers entrusted on it under List II while passing an order under Bombay Prevention of Gambling Act, 1887, bringing poker under the category of gambling.

Problems associated with the evolution of the gaming industry

With the evolution in the gaming industry, legislations find it hard to keep up. Courts often have to understand the intricacies of these online games. Such an understanding is necessary to verify if it qualifies as a game of skill. A fitting example would be Dream11, which has witnessed rising popularity and a frenzy amongst users. This fantasy sports game came under pressure when critics attempted to classify it as gambling. The Punjab and Haryana High Court settled this issue. They laid down that like sports, fantasy games also require reasonable skill, judgment, and discretion while managing virtual teams. The exercise of skill primarily determines the outcome and hence, it would not constitute gambling. Similarly, the Bombay High Court also dismissed a petition against Dream11.

Law Commission Report No. 276

In 2017, the Supreme Court agreed to hear a PIL praying to direct the government to frame a law to legalize gambling in India. The Court listed this matter along with the matter concerning the Cricket Association of Bihar. Basing its arguments on the Lodha Committee’s report in favor of gambling, the aforementioned PIL sought the enactment of central legislation to regulate gambling and betting. However, the Supreme Court referred the matter to the Law Commission.

Chaired by Former Supreme Court Justice B.S. Chauhan, this commission noted that despite the Lodha Committee’s recommendations, it failed to consider the socio-economic status of many states. Thus, the Law Commission’s initial recommendation was to ban all forms of gambling in India. However, despite their initial commendation, they were of the thought that it is not feasible to completely ban online gambling since illegal gambling sites will continue to exist. Instead, the Commission suggested that the legislature should legalize and regulate gambling rather than ban it entirely.

The Commission laid down guidelines in order to regulate gambling such as the presence of licensed operators. This was possible with the linking transactions with PAN or Aadhar Cards. Additionally, the Commission also noted that regulating gambling would lead to a significant reduction in the circulation of black money. All transactions would be cashless and monitored. The Commission also advocated for all legislations regulating gambling and betting to recognize the exception granted to games of skill under the ambit of gambling.

FDI IN GAMBLING AND BETTING

The growth in the gaming industry has caught the attention of foreign investors. This has led to a significant increase in FDI. The current FDI regulations prohibit investment in ‘gambling and betting’. However, recent judicial developments have categorized multiple online games as games of skill. Thereby, exempting it from the ambit of gambling. This has led to an increase in investment in these companies. Notably, the Government has approved 100% FDI under the automatic route in e-commerce activities. This has paved the way for substantial foreign investment in the online gaming industry, giving the economy a much-needed boost.

Recent Investments

The most recent investment was in the fantasy sports league, Dream11. Tencent Holdings Ltd., a Schengen investment firm, led funding as part of its Series D funding in 2018, which was slightly higher than $100 million. They had faced a roadblock when Dream11 faced a petition filed to declare fantasy sports as gambling. However, the Punjab and Haryana High Court declared that it does not come under the ambit of gambling. According to them, fantasy sports leagues warrant the exercise of skill and judgment. Additionally, in early 2019, Dream11 witness the completion of a secondary investment by UK based investment firm, Stead view Capital. This round of investment was worth $60 million, bringing the valuation of Dream11 to approximately $1 billion.

However, in April 2017, a Canadian investment firm, Clairvest Group Inc., along with limited partnerships owned by it, acquired an 85% stake in Head Infotech India Pvt. Ltd., which owns Ace2three, an online rummy portal. The deal was worth $73.7 million where Clairvest paid $40 million. Clairvest faced losses of $11 million in that quarter as Ace2three was not operating for 9 days in June 2017. Ace2three has now suspended operations in Telangana. The application is operational outside Telangana. Its operations outside Telangana constitute only 60% of its revenue. Along with this, in 2012, U.S. Hedge Fund, Tiger Global invested in Play Games 24×7.

Effect on FDI

As discussed above, Dream11 has already secured investment from Tencent Holdings and Stead’s view. Furthering this, online sports gaming has witnessed tremendous growth in the past few years. Amassing Rs 43.8 billion in 2018, and can to grow to Rs 118.8 billion by 2023. Similarly, companies like MyTeam11, Halaplay, 11Wickets, Fantain, and Starpick also possess the potential to attract further investment.

A stable legal system attracts foreign investors. Unlike the current situation where each state has the power to make its own gambling laws. Legal and political stability are critical in attracting investment. Unpredictability and sudden changes in-laws have a negative impact on the company. It can even lead to the withdrawal of existing investments. Moreover, investors seek predictability and efficiency in the implementation of laws and regulations. As stated earlier, Clairvest suffered a loss of $11 million in one quarter. Because it was not operational for nine days. This was the result of Telangana’s abrupt decision to pass an ordinance placing a blanket ban on betting activities of any kind. Post this loss, Clairvest reduced the carrying value of the equity investment by 50 % or $12.39 million. These losses act as deterrents for other investors looking to invest in India.

Impact of FDI

India recently progressed up the Ease of Doing Business Ranking by 14 places, now holding the position of rank 63. During the previous year, India had jumped to rank 77. This was the result of improved infrastructure reforms and the introduction of GST, among others. Smooth and unhindered business transactions were leading to increased business investment. As a result, India became a suitable destination for foreign investors. This also seems to be the narrative of the Narendra Modi led NDA Government. Similar uniform laws and regulations in the gaming industry would contribute to a further increase in India’s ranking.

Need for Uniformity

With the evolution of technology, online betting does not conform to boundaries. Transacting with an individual at the other end of the country is the same as transacting with someone in person. It can’t be on the same platform as other prohibitions since it transgresses boundaries, both national and international. However, the difference in laws among states provides an unnecessary hindrance.

Legal Uncertainty

Most states seem to have passed laws in favor of games of skill. However, there continue to exist legislations that are turning the wheel back, causing a great deal of confusion. The Public Gambling Act does not provide a solution as states continue to enjoy autonomy. The Public Gambling Act does not serve its purpose. It is not practical since gambling and betting come under List II. Thereby, taking away the power of this British-era legislation.

Fulfilling the purpose of the Law

The Constituent Assembly, while debating on the amendments to the state list, brought up the inclusion of ‘gambling and betting’ under Entry 45 of List II. Shri Lakshminarayan Sahu argued that the purpose of this entry was to regulate gambling, i.e., to permit it or prohibit it. Whichever, it would be, the State Government would have the power to take this decision. Gambling would be deemed to come under Entry 91 of List I, which is currently Entry 97.

Hence, the result would be the same. Keeping this in mind, the motion was adopted and gambling and betting were added to the State List. Therefore, an amendment whereby gambling and betting are added to the Union List instead of the State List would not stray from the motive of the Constitution makers, and would ultimately serve the same purpose.

Further, a similar subject i.e., lottery, is already under the Union List. Bringing gambling and betting also under the Union List does not seem to stray too far. A central law will address the same concern, but at a national level, after considering characteristics affecting all States.

CONCLUSION

With the exponential growth being witnessed in the gambling industry, the need for central legislation on gambling has never been more present. A unified regulatory scheme will immensely benefit investors, both domestic and foreign. However, as long as this item exists under the State List, there will be uncertainty in economic and social factors. This in turn will result in varying approaches by State Governments.

It is inevitable that political parties will pass laws in furtherance of their individual propaganda. Goa and Sikkim have casinos. On the other hand, a ban on gambling in Telangana and Orissa is evidence of this. The unification of laws can only take place via a Constitutional Amendment, bringing ‘Gambling and Betting’ under the Union List.

Final Thoughts

Irrespective of the views of central legislation, it will lead to a simplified and reliable regulatory system, providing much-needed certainty. The current regime is very unreliable and the plethora of judgments on this subject. Central legislation, much like the one in the United Kingdom, will provide uniformity in our legal system. Though the U.K. has decided to legalize and regulate gambling, India needs not to do the same. However, the benefit of having national legislation, as opposed to multiple state legislation, still stands.

The Public Interest Litigation filed in 2017 made a step in this direction. But it did not lead to anything. However, the ability of the courts to direct the Government seems to be in doubt given the court’s limitations under the principle of separation of powers. Nevertheless, it reflects the mindset of the people regarding the need for a statute imparting certainty. Apart from the Law Commission report, there does not seem to be any headway yet. But hopefully, this necessity will be realized before we find ourselves to be in the midst of a legal system, so turbulent that it drives away all investment in this promising sector.


Author:

mayank chandra Mayank Chandra

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