Case Analysis: All India Gaming Federation and Ors. vs State of Tamil Nadu
Recently, the Madras High Court (“Court”) on November 9, 2023, in the case of All India Gaming Federation vs. the State of Tamil Nadu, while upholding the validity of the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (“2022 Act”) has set aside the inclusion of ‘rummy’ and ‘poker’ as games of chance from the 2022 Act.
This comes in the backdrop of the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021, which was struck down by the Court in its entirety and was declared as ultra vires of the Constitution of India (“Constitution”), in the case of Junglee Games India Private Limited v. State of Tamil Nadu 1. After the Junglee games judgement, the state government appointed a 5 member committee for advising the government for enacting a fresh legislation on online games. On the recommendation of such committee, the state government promulgated Online Games Ordinance, 2022 (“Ordinance”). The Ordinance was subsequently introduced as a bill and passed by the state legislative assembly on March 23, 2023.
Facts
All India Gaming Federation along with certain other gaming companies challenged the 2022 Act as being ultra vires to the Constitution. The 2022 Act defined ‘online game of chance’ as a game which includes an element of skill, Further, it categorically banned online games like rummy and poker when played with real money as the same were categorised as games of chance.
Arguments presented by the Petitioners
- The petitioners argued that the 2022 Act was solely based on the findings of the report submitted by the committee chaired by Justice K. Chandru (Retd.) (“Committee”) and that this report arbitrarily categorised games of skill, i.e., online rummy and online poker, to be games of chance. Referencing the case of Junglee Games India Private Limited, the petitioner emphasized that the Committee’s findings conflicted with established legal precedents, including judgments from the Hon’ble Supreme Court and various high courts. The petitioner further submitted that the Committee further disregarded the limited role of the random number generator.
- The petitioners argued that pursuant to the central government’s notification dated December 23, 2022 which amended the allocation of Business Rules, Ministry of Electronics and Information Technology (“MeitY”) was designated as sole authority for regulating online games. The petitioners further argued that Entry 31 read with Entry 14, List I (Union List) of the 7th Schedule of the Constitution of India deals with posts, telegraphs, telephones, wireless, broadcasting and other like forms of communication. Considering this, the same is a union subject and the state of Tamil Nadu had no power to legislate with regard to the same. Furthermore, it was argued that Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (“IT rules”), have anyway brought stringent regulations for ‘online gaming intermediaries’.
- The petitioners further submitted that the state of Tamil Nadu does not have the legislative competence to enact the 2022 Act as the Entry 34, List II (State List) of 7th Schedule of the Constitution of India only contemplates the states legislating on “betting and gambling”, which does not include games of skill, but only games of chance. It was further argued that the word ‘betting’ cannot be segregated from gambling to create parallel regulations. Furthermore, the state cannot use public order under Entry 1 in the state list to govern such matters, as there is no material to prove that online games of skill affects the public order.
- The petitioners argued that the Hon’ble Supreme Court in multiple judgments has held that competitions which involve substantial skill are not gambling activities. The petitioners placed reliance on a judgment of the Hon’ble Supreme Court in K.R. Lakshmanan v. State of Tamil Nadu2, wherein it was observed that gaming means the act or practice of gambling on a game of chance, where chance is the controlling factor.
- The petitioners also argued that the respondent’s reliance on MJ Sivani & Ors. vs. State of Karnataka & Ors.3 is misplaced as the facts of the case involved rigging of the video game machine at a game parlour, which is very different from the online games offered by the petitioners and that the case has already been considered by the Court in the Junglee Games judgment.
- The petitioners further argued that poker is a game of skill, referencing various courts’ judgments, the 276th Law Commission of India report titled “Legal Framework: Gambling and Sports Betting including Cricket in India”, and certain international case laws, arguing that skill dominates over chance in poker.
- It was argued that the state’s argument that the petitioners’ (gaming companies) incentivises the players to gain profits is incorrect. Furthermore, it was clarified that the petitioners do not earn from the winnings of the player, rather, they charge a pre- determined service fee. Furthermore, the petitioners also argued that the respondents have failed to substantiate their arguments that AI or bots are employed by the petitioners because in fact no bots or AI is employed in the games and they take place based on a random number generator. The petitioners also placed on record a certificate issued by an independent auditing firm based out of Australia certifying that bots are not used or present in the online game.
Arguments by the State of Tamil Nadu
- The respondent argued that the 2022 Act aligns with entries in the State List, specifically Entry 1 (public order), 6 (public health and sanitation, hospitals and dispensaries) and 34 (betting and gambling). The respondents further argued that the 2022 Act is also referable to the subject of “Criminal Law” under Entry 1, List III (Concurrent List) of the Schedule VII. It was further argued by the state that there was no legal impediment preventing the state from making a law on the subject of “betting” per se, including “betting” on games of skill, pursuant to Entry 34 in the State List and thus, the enactment of a law, regulating “betting” on games of skill, was not contrary to any binding judicial decisions.
- The respondent argued that the judgment in Junglee Games is per incuriam to the extent that it holds that ‘betting’ in Entry 34 cannot be divorced from ‘gambling’ and treated as an additional field for the State to legislate on, apart from the “betting” involved in gambling. Furthermore, the respondent while placing reliance on Elel Hotels & Investments Ltd. vs. Union of India 4. Referencing error. Argued that the entries in the lists should be given a wide interpretation and the restrictive reading of Entry 34 in Junglee Games ignores the set rules of interpretation.
- The respondents argued that the IT Rules do not affect the competence of the state of Tamil Nadu as the IT Rules only regulate “online real money gaming” which involves ‘winning’ any prize based on the ‘performance’ of the user, and does not pertain to online games of chance or gambling. Additionally, the respondent also argued that under Section 15 of the 2022 Act, the Online Gaming Authority has the authority to propose a suggestion to the state government of Tamil Nadu. Subsequently, the state government would then formally petition the Central Government to utilize its powers outlined in Section 69-A of the Information Technology Act, 2000 concerning offending gambling services.
- The respondent further relied on the state’s interest in reasonably restricting online gaming as the same may have negative unchecked effects on the populace like developing addictive behaviours, the game developers getting users addicted to the games and profiting off of it, money lending for supporting online games, etc.
- The respondent while placing reliance on of the judgement of Gujarat High Court in Dominance Games Pvt. Ltd. v. State of Gujarat 5 which held that poker is a game of chance, argued that with respect to the game of poker, even when poker is played physically, it is a game of chance.
- The respondent further argued that online rummy and online poker are substantially different from rummy and poker played in a physical space. In physical card games, there is truly a random process (shuffling of cards), which can be seen and verified by the players. In online rummy/poker, there is no actual shuffling of cards and the same is simulated by the computer usually using a random number generator software. Computers are incapable of generating a truly random outcome, that is, the “chance” element in online rummy/poker is not comparable to the “chance” element in the physical versions of these games.
- The respondent while relying on the case of Kartar Singh vs. State of Punjab 6, argues that public disorder under Entry 1 in the state list should be of state-oriented nature and should not transcend matters outside the bounds of the state including terrorist activities which threaten the sovereignty and integrity of the nation. Substantiating the same, the respondents argued that the state of Tamil Nadu was remedying the public disorder caused by addiction to online gambling.
Judgement
- The Court acknowledged the catena of judgements of the Hon’ble Supreme Court and various high courts, wherein the distinction between game of chance and game of skill was laid down. The Court further discussed State of Andhra Pradesh vs. K. Satyanarayana7 wherein the Supreme Court held that ‘rummy’ and ‘poker’ are mainly and preponderantly a game of skill. The Court also recognized the apex court’s judgment in K.R. Lakshmanan, wherein the apex court specified in detail the difference between a game of chance and game of skill and held that even though a game of skill has an element of chance, however, a game of skill is one in which success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player.
- The Court stated that since the 2022 Act only bans online games of rummy and poker, and does not ban the physical version of the same, the primary question then revolves around if the games of rummy and poker, played physically and construed as games of skill, would not remain games of skill if played online. The Court further recognized the respondent’s argument regarding the dealer knowing all cards to be dealt, all unopened cards during a game, lack of knowing the identity of the other players, etc. and the petitioner’s counter argument that the petitioner gaming companies use 1.strict. security measures and abide by a code of conduct, lack of intervention of petitioners, information security, and randomness of allocation, etc.
- The Court rejected the state’s argument as being baseless and without any record to substantiate the position that the dealer in such games knows the unopened cards, etc. The Court recognized that since the game is played online it is difficult to collect evidence regarding the presence of bots and other arguments presented by the state, however, due to the lack thereof, the court determined that it is too far- fetched to conclude that the games of rummy and poker when played online takes the character of a game of chance. The Court further stated that the same brain activity would be involved in the online version of the game and various high courts of the country have even held fantasy sports, which are played exclusively online, as a game of skill as there is no element of betting or gambling in such games.
- In view of the above, the Court held that the inclusion of online rummy and poker in the schedule of the 2022 Act thereby prohibiting the same is based merely on presumption and the same is contrary to the judgments of the Hon’ble Supreme Court and various high courts. The Court then set aside the inclusion of online rummy and poker in the schedule as being erroneous and not having any reason. The Court further observed that as stated in K. Satyanarayana it was held that if the club was not charging a fee on the winning then a case for illegality cannot be made out and in the case of the petitioners only a fixed sum is charged and the petitioners do not share the winning.
- The Court further held that the state’s contention on the effect of long period of gaming which can harmfully affect the public health can be dealt with section 5 of the 2022 Act, which empowers the Online Gaming Authority to make rules to regulate games of skill. The Court recognized the state’s power to regulate games of skill and the timing and age restriction in such online games can be decided by the state and this power flows from Entry 26 of List II (Trade and Commerce). The Court affirming that the regulation of a game of skill would flow from Entry 26 of List II also settled the question of legislating under Entry 6 (public health and sanitation, hospitals and dispensaries). The Court then observed, that instead of regulating poker and rummy, the state has outrightly banned the games and the same is in excess of the legislative competence of the state.
- The Court also rejected the submission of respondents that there was8 public disorder and relied on Ram Manohar Lohia vs. State of Bihar & Anr to state that a mere disturbance of peace or law and order does not necessarily constitute requiring action. Further, the Court also stated that the state could not substantiate its claims that there was public disorder.
- The Court also rejected the argument of the state government which justified the ban by claiming that online iterations of skill-based games like rummy and poker involved considerable risk due to the potential use of “Artificial Intelligence (AI) and bots to manipulate” outcomes, noting that there was no evidence provided to support the claim that AI and bots were being utilized.
The Court held that the 2022 Act in its entirety need not be held ultra vires as the state is competent to legislate on online gambling i.e. games of chance, and also the authority to regulate games of skill. The Court then ruled to set aside the inclusion of games like rummy and poker in the 2022 Act’s schedule, specifying that Sections 2(i) and 2(l)(iv) should pertain to games of chance, excluding games involving skill, such as rummy and poker and the exclusion of the games from the schedule under section 23. Sections 7, 8, 9 & 10 were also upheld owing to the state’s need to regulate online gaming entities in India.
Analysis
This is a welcome decision of the high court as it has relied on the previous judgements of various courts to arrive at the decision thereby legitimizing their ratio. The big takeaway of the judgement comes in the Court’s rejection of unfounded arguments based on presumptions regarding the online version of rummy and poker. The Court also rightfully recognized that games of skill are amenable to be regulated by the state government under relevant entries in the state list.
The Court also had the opportunity to discuss the interplay between the state legislation and the IT Rules and how some intersections between the 2022 Act and the IT Rules have put onerous obligations on gaming companies which can be negated by just one entity regulating the space. However, the Court only gave a passive reference to the IT Rules and did not delve into the interplay and the state-center dynamic that is created in regulating online gaming.
Furthermore, the whole scheme of the 2022 Act is such that it may give the state the power to indiscriminately ban other skill games, therefore, specifically setting aside rummy and poker as game of chance, but not setting a guideline to ascertain games of skill going further is also something the judgment could have clarified for better application of the 2022 Act.
It is to be noted that the petitioners argued that the state is purporting to create an artificial distinction and an unreasonable classification between the online and the offline version of the game and that the same violates the Article 14 of the constitution. The Court had the opportunity to rule out such a classification or further delve into the deeper implications of creating such a classification, however, to the contrary the court rejected such an argument solely on the basis of lack of evidence, which still keeps the issue of creating such a classification open-ended.
We also think that going further, gaming companies should actively ensure that their software functions like random number generator or any algorithms employed by them in online gaming ensures that it imitates the real-world gaming experience, as the same may become a point of contention if such a software increases the element of chance in a game. Furthermore, use of AI or bots should be checked and it is recommended that no bots are present and AI is used in a limited manner to make the online version the same as the physical setting. Companies can also carry out an annual review of the technology being used by them in order to remain compliant. It is to be noted that the court did not into the audit reports issued by the petitioners disproving any involvement of bots, this does not align with the push for legislators focus on self-regulation and how the same has assumed importance in the age of deep tech.
As noted earlier, the Court acknowledged the judgements of other courts and passed a judgement along the same lines by categorizing poker and rummy as games of skill. The Court also specified that the state has the power to regulate a game of skill, thereby, striking a certain balance. Notwithstanding the aforesaid, the Court left certain pertinent aspects like the online-offline gaming distinction under/unaddressed which creates room for further discussion on something which could have been settled in this judgement.
- [1] 2021 SCC Online Mad 2762
- [2] (1996) 2 SCC 226
- [3] (1995) 6 SCC 289
- [4] (1989) 3 SCC 698
- [5] 2017 SCC OnLine Guj 1838 [6] (1994) 3 SCC 569
- [7] 2017 SCC OnLine Guj 1838
- [8] (1966) 1 SCR 709
