Real Money Online Gaming: A Deep-dive into The Regulatory Conundrum

The digital revolution in India has given rise to a burgeoning online gaming culture.

Various types of online gaming categories present distinct regulatory challenges. It is evident that strategy-driven games like fantasy cricket or online rummy/poker/chess cannot be directly compared to an action-packed game like Call of Duty.

This paper delves into the regulatory complexities surrounding online gaming and contends that typical arguments raised against skill-based real money online games are largely based on conjecture and lack robust empirical or jurisprudential support.

The central hypothesis of this paper is that gambling, by definition, is a game of chance played with monetary stakes. Therefore, equating such games with skill-based games that also involve monetary stakes is a jurisprudentially flawed conflation.

The jurisprudential distinction between "games of skill" and "games of chance" has been a cornerstone of Indian law for nearly seven decades. Initially, this distinction was crucial in determining the threshold for constitutional protection under Article 19(1)(g), which guarantees the right to practice any profession, or to carry on any occupation, trade or business. In contemporary times, this distinction has acquired significant economic ramifications, particularly in the context of Goods and Services Tax (GST) jurisprudence.

The landmark case of R.M.D. Chamarbaugwalla v. Union of India firmly established that games of skill, as opposed to games of chance, are activities that warrant constitutional protection under Article 19(1)(g).

Building upon this foundational principle emerged the 'predominance' test, emphasizing that if a game is "mainly and predominantly a game of skill," it cannot be classified as gambling. The Supreme Court in the case of K. Satyanarayana v. State of Andhra Pradesh held that rummy, a card game involving strategic decision-making and calculated moves, is predominantly a game of skill and, therefore, not gambling.

The case of K.R. Lakshmanan v. State of Tamil Nadu provided a succinct and authoritative articulation of the definition of ‘games of skill’ - “….one in which success depends principally upon the superior knowledge, training, attention, experience, and adroitness of the player.”

This jurisprudential foundation has been consistently upheld in subsequent judicial pronouncements. In the 2021 case of Junglee Games India Pvt Ltd v. Union of India, the Madras High Court struck down certain amendments to the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021. The Court held that a complete ban on games of skill involving money constitutes an unreasonable restriction on a citizen’s fundamental right to practice a profession under Article 19(1)(g). The Court emphasized that games of skill, even when played with monetary stakes, are legitimate economic activities and cannot be equated with gambling.

This consistent line of judicial interpretation makes it clear that games of skill, whether or not they involve money, fall within the purview of Article 19(1)(g). Consequently, any attempt to impose restrictions that are disproportionate qua such games would be deemed unreasonable and unconstitutional.

A similar approach was adopted by the Punjab and Haryana High Court in a case where a fantasy gamer sought legal intervention after incurring significant losses on the Dream11 platform. The gamer argued that fantasy games were essentially gambling. However, the Court, relying on established legal precedents, rejected this contention, highlighted the various skill-based elements involved in fantasy gaming and affirmed that fantasy games are games of skill.

The Supreme Court upheld the decision of the Punjab and Haryana High Court in 2017 by dismissing a Special Leave Petition against the same (and subsequently dismissing a review petition against the dismissal too). Similar interpretations have been adopted by other High Courts too, further solidifying the position.

It is evident that the design and format of these games inherently work to minimize the influence of chance. However, it is equally important to acknowledge that a certain degree of uncertainty is inherent in any competitive activity and even investment decisions. The stock market, particularly the futures and options segment, exemplifies this principle. Even the most experienced investor faces inherent uncertainties.

However, equating this inherent element of risk and uncertainty with betting and gambling in the context of online gaming simply because money is involved would be a fundamental error and would disregard the well-established jurisprudential distinction between games of skill and chance.

This raises a crucial question: How can one objectively determine whether a particular game predominantly involves skill or is primarily chance-based?

Professor Bimal Roy, former Chairman of the National Statistical Commission, in collaboration with the policy think tank ‘The Dialogue’, has developed a framework that employs quantitative and scientific methods to classify online games based on the role of skill.

The framework utilizes statistical techniques such as the Chi-Square Test and Pearson Correlation Test to conduct three key assessments:

• Persistence of Skill: This test evaluates whether top players consistently outperform others over time, providing a clear indication of the influence of skill.

• Experience Gap: This test measures whether experienced players regularly outperform less experienced players, further demonstrating the impact of skill on performance.

• Exemplary Skill: This test identifies standout performers, providing additional evidence of the importance of skill in achieving success.

By applying these statistical tests, it becomes possible to objectively differentiate between games where skill is a primary determinant of success and those that are predominantly driven by luck.

Consequently, a game that is classified as a game of skill does not transform into a game of chance or gambling simply because real money is involved - It should not be regulated or taxed as such.

Another critical issue that demands careful consideration is the potential for addiction to online games.

"Gaming Disorder" has been recognized as a diagnosable public health concern. While ‘Problem Gaming’ is indeed a concern it is pertinent to remember that as per studies, within the larger cohort of those who played games, ‘problem gaming’ is reported only among approximately 1–3% of such population. Further, psychiatrists have found addictive behaviour to exist in individuals irrespective of the mode or mechanism. Thus, unilaterally clamping down on Online Gaming owing to its addiction potential is nothing but being selective and prejudiced, bereft of logic or reasoning.

These apprehensions can in any case be mitigated by focused regulatory interventions like having caps in terms of total time played, total money invested etc.

Two conclusions emerge. First, it is absolutely necessary to underscore the point that the jurisprudential distinction between a game of skill and a game of chance continues to be relevant in the regulatory context. A game that has a predominant involvement of skill can thus never be brought within the ambit of gambling which is predominantly a game of chance, simply because such game of skill is played with monetary stakes.

Secondly, as much as there is a need to regulate addictive behaviour, it is unfair to pinpoint and single out online games as the singular contributory to such addiction.

Any attempt towards overregulation or imposition of prohibitive rates of taxation will not only have an economically debilitating impact on this sunshine sector, such attempt would also not be sustainable on the touchstone of our Constitution.

Dr. Shameek Sen is a Professor of Law at The West Bengal National University of Juridical Sciences, Kolkata. Dr. Sen is also the Director of the Centre for Technology, Entertainment and Sports Law (CTESL) and the co-editor of a Book titled “Online Gaming in India: Technology, Policy and Challenges”, published by CRC Press, Taylor & Francis.