India: Karnataka's Amendment To Its Gaming Laws: What's At ‘Stake' For Online Gaming Companies?

The Karnataka Government was the recent southern State prohibiting all forms of online games involving monetary stakes.

Interestingly, this State law comes at a time when the Madras High Court clarified that games of skills that  can be played  online for stakes, cannot be categorised as betting or gambling. Further, the Madras High Court struck down the overarching ban on games of skills pursuant to the recent amendments to the Tamil Nadu gaming laws; and stated that such a ban was ultra vires the Constitution and was an 'excessive and disproportionate' exercise of authority.

So why has the recently notified Karnataka Police (Amendment) Act, 2021 ('Gaming Act') created such a stir in the online gaming industry; and opposed by prominent industry bodies such as the All India Gaming Federation and Federation of Indian Fantasy Sports?

The concerns are two-fold: firstly, the Gaming Act now prohibits all forms of gaming that includes wagering or betting, including games of skill; and, secondly, the Gaming Act is also vague in relation to the operation and hosting of such online gaming platforms from Karnataka.

Up until the recent amendment, the State of Karnataka permitted online games of skills played for stakes; and notably, only prohibited all forms of wagering or betting in connection with any games of chance. However, the Gaming Act now has amended the term 'gaming' to include online games involving all forms of wagering and betting. Further, the terms 'wagering or betting' have also been amended to include 'any act of risking money or otherwise on an unknown result including on a game of skill'. In essence, this would mean any game (even skill-based) which involves a user putting in money to participate in a game (even money paid as 'registration fees' or 'entry fees' to participate); and having a chance to win money.

Over the years, courts have made attempts to make a clear distinction between games of skill and games of chance. Considering that the courts have carried out this exercise after rationally interpreting the terms 'games of chance' and 'games of skill', through the Gaming Act, the Karnataka Government puts the State's economy at a backfoot, by banning any game which involves the act of risking money, and making the Gaming Act overtly arbitrary.

Another amendment which has caused concern to the gaming industry, is the amendment to the definition made to 'instruments of gaming', which now, also includes computers, computer systems, mobile apps, internet or cyber space, virtual platforms, software, accessories etc. used as a subject or means of gaming. Considering the broad construct of the definition, there is lack of clarity on whether computer resources used to host or operate online gaming platforms i.e., used as a subject or means of gaming – would be considered 'instruments of gaming', even if such platforms are not offered or available to users in Karnataka.

Further, if the platform is considered as an 'instrument of gaming', the place wherein these computer resources are situated or stored would constitute 'common gaming houses'. This would have a direct impact on online gaming companies with offices and servers in Karnataka since such places would be considered to be a 'common gaming house'. Notably, the Gaming Act makes operation of a common gaming house a punishable offence; and such offence being a cognizable offence; gives the police the right to initiate action without a warrant or prior sanction by a magistrate.

The Government must clarify gaming companies can continue to operate their business within Karnataka, so long as the gaming companies do not provide online gaming to users in Karnataka. If there is no clarification provided, gaming companies would look to move their operations outside of Karnataka, which not only impacts the economy of the State; but may also be viewed as a violation of their fundamental right to practice any trade. The ambiguity in the definition of 'instruments of gaming' further heightens the fear of gaming companies to operate within Karnataka, since the police are not trained in statutory interpretation of the law; and there is a risk where the police may even consider operating the gaming platform to be in non-compliance under the Gaming Act; and may use their powers to restrict gaming companies' operations in Karnataka

Pursuant to the strict prohibitions and ambiguous language in the Gaming Act, it may be interesting to see how gaming companies restructure their operations in Karnataka and cater to the users of Karnataka.   However, going by recent trends, where courts have emphasised on the fact that games of skills, even if played for stakes, should not be considered as a form of wagering or betting; it is likely that the Gaming Act may also be challenged before the Karnataka Hight Court. In fact, the All Indian Gaming Federation, Mobile Premier League; and three other petitioners from the gaming industry, have, very recently filed a writ petition before the Karnataka High Court against the State's Gaming Act. What is to come out of this petition? This would be a wait and watch situation. However, it may be good for the State Government to reconsider its position in relation to the Gaming Act, after taking feedback from the gaming industry players, to ensure that the Gaming Act is balanced. This balancing act could be done with a focus to reduce gaming addiction; but at the same time, also keep in mind that the law must (i) not impact  individuals' livelihood, i.e., those individuals who are 'professional gamers', that play games of skill for stakes, within a well -established set of rules and regulations laid down by the gaming industry; or violate an individual's fundamental right to trade.