Introduction
The Madras High Court (‘HC’) in All India Gaming Federation v. The State of Tamil Nadu[1], partly allowed the appeals filed by several online gaming companies challenging the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (‘TNA’). The primary challenge was to the classification of online games of rummy and poker as games of chance and thereby prohibit engagement and facilitation of such games.
Brief Facts of the Case
The Petitioners have challenged the TNA. The said act has been enacted in the backdrop of the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 (‘Act of 2021’) which sought a ban on online games such as ‘rummy’ and ‘poker’ and was struck down by the Madras High Court.
After the repeal of the Act of 2021, a five-member committee was constituted under the chairmanship of Justice K. Chandru (Retd.) for the enactment of new legislation on online gaming. The State Government on the recommendation of said committee promulgated the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Ordinance, 2022 on 01.10.2022. The ordinance was challenged but the petitions were allowed to be withdrawn as no date was notified for the operation of the ordinance with the liberty to make representations when the date was notified.
The said ordinance was introduced as a Bill on 19.10.2022 and passed by the legislative assembly but returned by the Governor over concerns regarding the similarity between the Bill and the Act of 2021. However, the bill was re-enacted by the legislative assembly and subsequently assented by the Governor.
S. 2(i) of the TNA defines “online gambling” as online wagering or betting and includes playing any online game of chance for money or other stakes in any manner. The said definition has been further expanded to inter-alia including receipts or distribution of winnings or prizes or any acts of collection, solicitation, receipt, or distribution within its ambit.
S. 2(l) of the TNA defines ‘online game of chance’ to include any game; where there is an element of chance as well as skill and the element of a wheel, is dominant or there is an element of chance which can be eliminated only by superlative skill or that is presented as involving element of chance or involves cards, dice, wheel or such other device working on the random outcome or event generator.
S. 7 of the TNA prohibits online gambling and playing online games of chance with money or stakes. S.7(3) prohibits online game providers from providing the above-mentioned prohibited activities. The classification of games of chance which are prohibited has been enumerated in the Schedule of the TNA.
The said schedule includes rummy and poker as online games of chance and as such prohibits such activities.
Held
Legislative Intent
The HC has held that the intention of the legislature to enact the said legislation as promulgated in the preamble of the legislation is laudable and bonafide. But this wouldn’t suffice, and legislation has to withstand the test of legislative competence and should be free from manifest arbitrariness.
Games of Skill v. Games of Chance
On the issue of whether online rummy and poker are games of skill or chance, the HC held that consistently the Apex Court and High Courts have held that rummy and poker are games of skill. However, the said judgments pertain to an era where such games were played physically, and the contention is the said case was an online format of such games. Under such circumstances, there was a heavy burden on the State to prove how the characters of such games would interchange when played online.
On this issue of the distinction between online and physical formats of such games, the HC held that the state has miserably failed to demonstrate how the online format of such games was different and distinct from offline formats.
On the contention of the State that the petitioner may use bots the HC held that the same to be without any basis and there was nothing on record to substantiate that software has information on the card. Hence were there nothing to substantiate such contention it would be far-fetched to conclude that the game of rummy when played online partakes in the character of the game of chance and is distinctly different from the one played offline. The HC further concluded that the State failed to even remotely demonstrate tampering of software or devices that would take away rummy or poker from the contour of the game of skill.
Further, the HC held that with the advent of an era of digitalization and spurt in online gaming activities, the games of rummy and poker which have been considered games of skill are sought to be played online. In online games of rummy and poker, the same brain activity as needed for physical format is required. Relying on the judgments of online fantasy sports being categorized as games of skill and other judgments pertaining to games of skill and chance the HC held that the inclusion of games of rummy and poker as games of chance merely on the basis of presumption cannot be protected. Hence inclusion of such games in the Schedule of TNA is erroneous, and the said schedule deserves to be set aside.
On the contention of the State of public order, the HC held that there was no evidence to substantiate the disturbance of public order.
Legislative Competence
On the contention of the petitioners that the State Legislature was not competent to legislate because Entry 34, List II (State List) of the Constitution of India only empowered state legislature to legislate on betting and gambling and games where there was predominance of skill over chance would fall outside the ambit of said entry, the HC held that power to regulate games of skill lied with State Legislature in light of Entry 26, List II of the Constitution of India viz., “Trade and Commerce”. If that was the case, the State certainly had the power to regulate such games.
On the said issue the HC finally concluded that the State is well within its power to enact legislation prohibiting online gambling and regulating online games of skill in the State of Tamil Nadu. But the State, instead of regulating such games of skill has prohibited games of skill which were beyond legislative competence.
Vires of Legislation
On the vires of complete TNA, the HC held that TNA in its entirety need not be held ultra-vires as the State is well within its legislative competence to prohibit online gambling i.e., games of chance and regulate online games of skill.
The HC further held that the definition of ‘online gambling’ under s. 2(i) of TNA shall be read as restricted to “games of chance” and not involving skill. Further s. 2(l)(iv) has been read down to exclude games of skill viz. rummy and poker.
The validity of ss. 7,8 & 9 have been upheld as not being ultra vires while Schedule under s.23 incorporating rummy and poker as games of chance have been set aside.
Analysis
The said judgment is another positive step in recognizing the protection granted to games of skills such as rummy and poker even when played in an online format. The HC, by recognizing the power of the State to legislate on games of skill in Entry 26 of List II instead of Entry 34 of List II has reiterated the established jurisprudence that games of skill are not in the nature of betting and gambling. In light of recent legislative and executive/administrative crackdowns on the online gaming industry, the said pronouncement reaffirms the position of the gaming industry that online games of skill are legitimate business activities and have the constitutional protection of Art. 19(1)(g) of the Constitution of India and cannot be categorized otherwise. The judgment will strengthen the stance of the online gaming industry with respect to show cause notices issued under the Goods and Service Tax Law wherein activities of online money gaming have been categorized as betting and gambling for the purpose of levy under the said law.
End Notes
[1] W.P. Nos.13203 of 2023
Authored by Huzaifa Salim, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.