Luck Factor - An analysis of changes in Gaming Law

Introduction

In today’s world, there is no sector or industry which does not marginally, if not entirely, depend on technology for its business purposes. This has shrunk the physical world and enlarged the virtual space, increasingly so in the field of gaming, thereby changing its rules. Now, almost all games can be played online.

We may note that some states like Assam and Orissa have made games played with stakes illegal. In a similar fashion, the recent Ordinances issued by the Government of Telangana, (4 and 6 of 2017) [See Endnote 1] (Ordinances), amending certain provisions of the Telangana State Gaming Act, 1974, have dealt a bad hand to the players and organisers of Online Rummy, resulting in their casting away their cards abruptly.

The Ordinances have explained that ‘rummy’ is partly a game of skill and partly a game of luck/chance. To clarify further, the Ordinances conclusively state that a game that depends partly on skill and partly on chance, cannot be termed as a skill game. Further, the Ordinances also defines the term ‘wagering’ in an elaborate manner, to mean, collecting or soliciting bets; receiving or distributing winnings for any wager or bet; an act intended to aid, induce, solicit or facilitate wagering or betting, or an act of risking money or otherwise, on the happening of an uncertain event with an unknown result (including a skill game); any action carried out directly or indirectly by players playing any game, or by third parties.

In order to understand the inherent issues embedded in online rummy, we may briefly discuss the evolution of law in this regard, which began as early as 1867, with the introduction of the Public Gambling Act.

Public Gambling Act, 1867

The first law relating to gambling and betting in India was the Public Gambling Act, 1867. It is essential to note that ‘Gambling and Betting’ fall under Entry 34 of List II of the Seventh Schedule of the Constitution of India, i.e. under the State List. Accordingly, States are empowered to legislate on such activities, with the exclusion of lotteries[See Endnote 2].

The scheme that was adopted by the Public Gambling Act, 1867, has been extended to other States by either extending the provisions of this Act or by enacting new statutes with similar provisions. The Public Gambling Act, 1867 and most of the State legislations have, however, expressly excluded ‘games of skill’ from the application of the different gaming statutes, except Assam and Orissa. However, the term ‘game of skill’ has not been defined in the said Act. Sikkim has brought about Sikkim Online Gaming (Regulation) Act, 2008, for regulating and restricting online gaming, which includes all or any games of chance or games which are a combination of skill and chance. There are certain important terms that have been defined in the said Act such as ‘common gaming-house’ which includes all the places where games are played, ‘instruments of gaming’ through which games are played.

Constitution of India

The term ‘gambling’ has not been defined in any of the Acts. According to Black’s Law Dictionary “gambling involves, not only chance, but a hope of gaining something beyond the amount played. Gambling consists of consideration, an element of chance and a reward.” Further, the Supreme Court in State of Bombay v. R.M.D. Chamarbaugwala[See Endnote 3], and Dr. K.R. Lakshmanan v. State of Tamil Nadu & Another[See Endnote 4], has interpreted the term ‘gambling’ to not include events where a ‘substantial degree of skill’ is involved.

It is however to be noted that for a limited tax purpose, Section 65B (15) of the Finance Act, 1994 defines the term ‘betting or gambling’ as follows:

"betting or gambling" means putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring.

The Hon’ble Delhi District Court in Gaussian Network Private Limited v. Monica Lakhanpal and Ors.[See Endnote 5] had opined that games played online, with stakes, are illegal in States which prohibit gambling, and enterprises which organise/conduct such games do not enjoy the protection of freedom to practice any trade under Article 19(1)(g) of the Constitution of India, since gambling would be an illegal trade in that State. However, the revision petition filed before the Hon’ble Delhi High Court against the afore-mentioned case has been withdrawn. Article 19(1)(g) of the Constitution of India does allow every individual to practice any trade as he pleases, as long as it is not illegal. However, if a legislation prohibits playing of certain games which fall within the ambit of gambling, then anyone who practises trade using such games, would essentially be conducting an illegal activity, thereby losing the umbrella of protection offered under Article 19(1) (g).

Other legislations applicable to the Gaming Industry

Intermediaries i.e. telecom/network/internet/web-hosting service providers, search engines, online payment/auction sites, online market places and cyber cafes, have the obligation to inform users of computer resources not to host, display, upload, modify, publish, transmit, update or share any information that encourages gambling[See Endnote 6]. User agreements and other policies floated by the intermediaries are required to contain terms which prohibit the above.

A person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino, shall fall under the purview of a ‘person carrying on designated business or profession’ under the Prevention of Money Laundering Act, 2002 (PMLA)[See Endnote 7] and shall be required to comply with the reporting requirements of PMLA, like maintaining records of all transactions, furnishing the same to the Director of Financial Intelligence Unit, verifying identities of clients etc.

The Foreign Direct Investment (FDI) Policy, 2016, prohibits FDI activity in some sectors, which inter alia, include (i) Lottery business including government/private lottery, online lotteries; and (ii) Gambling and betting including casinos etc. Even collaboration of foreign technology in any form like licensing for franchise, trademark, brand name, management contract, is prohibited for lottery business and gambling and betting activities[See Endnote 8].

Further, even remittance of foreign exchange by any person for (i) lottery winnings; (ii) income from racing/riding, etc., or any other hobby; and (iii) for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc.[See Endnote 9] is prohibited.

What is rummy?

Rummy is a popular 13 card game played with sets of playing cards. Rummy in India is usually played among 2 to 6 players where each player has to, in turn, draw and discard one card until the 13 cards form a sequence in sets. The basic objective in every rummy game is to improve the player’s hand by dealing sets of cards and forming a particular sequence adhering to certain rules of the game, which require a certain set of skills in memorizing the fall of cards and building up the game in holding and discarding the cards. Similar rules are followed when the game is played online.
 

Skill Game v. Luck Game

Since the term ‘game of skill’ has not been defined, except in the Ordinances, it becomes important to understand the meaning of this term and apply the ratio to ‘online rummy’. If any game is purely a skill game, then it will not fall foul of the Ordinances. Contrarily, chance/luck games are penalised for being played. 

Rummy, predominantly a skill game

The issue as to whether rummy, as described hereinabove, is a game of ‘chance’ or ‘skill’ was considered by the Hon’ble Supreme Court in State of Andhra Pradesh v. K. Sathyanarayana[See Endnote 10], wherein, while allowing rummy to be played in clubs, it was observed that it is mainly and preponderantly a game of skill.

The Hon’ble Supreme Court in Dr. K.R. Lakshmanan v. State of Tamil Nadu & Another (Supra) observed that rummy is a game of skill, like golf and chess, since an element of chance, although present, is not the fulcrum on which the game rests, but superior knowledge, experience and finesse of a player are the deciding factors, which roughly translate to ‘skill.’

The division bench of the Hon’ble Andhra Pradesh High Court in D. Krishna Kumar & Anr v. State of Andhra Pradesh[See Endnote 11], discussed the provisions of the Andhra Pradesh Gaming Act, 1974, and had held that since rummy (which is a game of skill) played with stakes does not fall under the definition of ‘gaming’ under the said Act, till such time the legislature amends the said Act, it would be considered legal.

Position if played with/ without stakes

The Hon’ble Madras High Court in The Director General of Police v. Mahalakshmi Cultural Association[See Endnote 12], had opined that playing rummy without stakes is legal and if the same is played with stakes, it would amount to gambling. However, on an appeal against the above-mentioned decision of the Hon’ble Madras High Court, the Hon’ble Supreme Court has stayed the operative portion of the decisions and has observed that the decision of Madras High Court has nothing to do with online rummy.

Is there any game with no element of ‘chance/luck?’

The Hon’ble Supreme Court has, in the case of M.J. Sivani and Ors. v. State of Karnataka and Ors.[See Endnote 13] held that:

“No game can be a game of skill alone. In any game in which even great skill is required, chance must play a certain part. Even a skilled player in a game of mere skill may be lucky or unlucky, so that even in a game of mere skill, chance must play its part. But it is not necessary to decide in terms of mathematical precision the relative proportion of chance or skill when deciding whether a game is a game of mere skill. When in a game the element of chance strongly preponderates, it cannot be a game of mere skill.”

Reasonable Classification

From the above decisions, it can be noted that ‘rummy’ is predominantly considered as a substantial game of skill. The decision in M.J. Sivani (cited supra) clarifies that the element of chance/luck is inherent in every game, be it a skill game or a game of chance. It is difficult to not decipher some element of chance in all games. Be it the game of cricket, football, or chess, all of which begin with a ‘toss’, which, more often than not, may put one player/team, at an advantageous position. Furthermore, even trading in securities over stock exchanges involves immense speculation, resulting in the existence of an element of chance. The stipulation in the Ordinances that a ‘skill game’ is a game which is totally based on skill and the ability of the player, is counter-intuitive. In light of this, the question which may arise is whether classification of a game as a partly skill game and a partly chance game as a ‘non-skill’ game is appropriate or not.

Other Jurisdictions

Countries with which India has trading relations, like USA, UK, France, Italy and Ireland have legalised online gaming played with stakes, by virtue of central or state legislations, thereby attracting positive investment. Countries like Singapore, UAE, North Korea, among others, have made online gaming, played with stakes, illegal. However, predominantly, online gaming played with stakes is a permitted legal activity across the world.

Conclusion

The decisions of various Courts essentially stipulate that rummy is not a game of chance and is a substantial game of skill. Therefore, it will not be altogether wrong in stating that the view of the legislature which has passed the Ordinances, making even rummy (online or not) illegal, is not in line with the view of the judiciary, leading to the rise of dawning confusion.

Many entrepreneurs have, in Telangana, invested in infrastructure related to hosting online games, but their hands will now be tied, since the Ordinances have, in no unclear terms, stated that rummy (whether played online, or offline, with or without stakes), not being a game of skill, is illegal. The basis of attempting to make such a law is indistinct, but as stated earlier by the Hon’ble Apex Court, there is no game which does not have even an iota of chance in it. Therefore, the Ordinances have, in a way, negated the view of the judiciary, by trying to establish that rummy is not a skill game.

However, writ petitions have been filed before the Hon’ble High Court at Hyderabad, challenging the validity of the Ordinances, as being ultra vires Articles 14, 19(1) (g) and 21 of the Constitution of India, which are pending adjudication. Upon their adjudication, we may understand whether the judiciary elects to follow its own precedents or would resort to not interfering in the legislative process.

[The authors are Joint Partner and Senior Associate, respectively, in Corporate law Practice, Lakshmikumaran & Sridharan, Hyderabad]