Online real money gaming industry’s fate to be decided by two High Courts in the next few months

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For the last few years, during every IPL or cricket match, viewers are inundated with advertisements about real money skill-based games such as online daily fantasy sports, poker and rummy. A recent report by FICCI and EY states that transaction-based online gaming grew by 21per cent  in 2020 and is expected to grow at a robust 27per cent year-on-year to reach Rs. 13,300 crores in revenues by 2023.

However, the robust growth of the industry has also led to greater challenges that are faced by the industry, which its critics claim leads to addiction, accumulation of debts, suicides and other social problems. The governments of Andhra Pradesh and Tamil Nadu issued ordinances (later converted into laws passed by the state legislative assemblies) to ban online gambling and betting, including skill-based games such as poker, rummy, fantasy sports and more. played for stakes or wagers. The government of Kerala on the other hand issued a notification removing the exemption from gambling for online rummy if played for stakes.

The laws passed by the states of Andhra Pradesh and Tamil Nadu have promptly been challenged by affected online rummy companies in the respective High Courts, with several rounds of hearings already held over the last few months.

Whether ban on online games is unconstitutional

Top legal luminaries appearing for online gaming companies in both Madras and Andhra Pradesh High Courts argued at length for several hours attacking the amendments in the Andhra Pradesh and Tamil Nadu state gaming Acts banning all online games of skill, including rummy.

The counsels for the petitioners, citing a previous five-judge bench judgment of the Supreme Court, contend that a sweeping law banning all kinds of games played for stakes or wager is violative of the right to free trade and commerce (both for online gaming operators as well as for players who play such games professionally) guaranteed under the constitution. They further note that a blanket ban on all such online games is a manifestly arbitrary and disproportionate response by the state governments.

Further, they averred in court that previous rulings of the Supreme Court in the context of rummy played in recreational clubs and horse-racing (and betting thereof) to be games of skill bolster the claim that state governments cannot ban judicially recognised games of skill like rummy, chess and bridge, even if played for stakes, under gambling statutes.

Additionally, the online gaming companies state that although framing laws on gambling and betting falls within the legislative domain of the state governments, since games of skill fall outside the ambit of gambling, states have no power to frame laws on the subject, and rather it is the central government under its power to regulate posts, telegraph, wireless broadcasting and other form of communication (including internet) that can at best regulate such games, but not completely ban them.

Thus, on grounds that the amendment to the gaming laws passed by the Andhra Pradesh and Tamil Nadu governments violate the fundamental rights to trade and commerce and equality guaranteed under the constitution as well as lack of legislative competence of state governments, online gaming companies want the amendments banning them to be struck down.

Both the Madras and Andhra Pradesh High Courts have heard the petitioner online gaming companies at length for several hours over the past few months.

The Madras High Court has indicated that it will hear the matters for three consecutive days, from 7June to 9 June, 2021 and has asked all the lawyers, including the state’s Advocate General to complete all their arguments, including rejoinders within those three days. A final judgment of the Madras High Court can thus be expected on the issue within the next three months or so.

Similarly, the Andhra High Court is also likely to hear the remaining arguments of the online gaming companies and submissions by the Advocate General and his team post the court holidays, in June or July, and after conclusion of all arguments, it may pass its final judgment within the next few months.

Ramifications of the High Court judgments

The expected judgments of Madras and Andhra High Courts will have widespread ramifications for the online gaming industry. If the High Courts, decide to rule in favour of the online rummy companies, not only will the operators be allowed to resume their operations in those states, which are fairly big contributors to the revenues of the companies, but it may also help in the perception battle and turn the regulatory tide in favour of online gaming.

It has been reported that the state governments of Rajasthan, Uttar Pradesh, Karnataka and Gujarat, among others, are also contemplating laws on similar lines to prevent and ban all forms of online gambling and games played for stakes.

A High Court decision that rules such state action as unconstitutional will certainly compel such states trying to bring similar administrative measures to a re-think. On the other hand, if the High Court gives a green signal to the legislations and finds no fault in them, similar bans on real-money online gaming companies by other state governments may be accelerated, spelling death-knell for the industry.

Of course, the High Court judgments on the issue may not be the final word and is unlikely to bring closure to the debate on the legality of online real-money games, as the losing side (either the state or online gaming companies) are likely to appeal the decision to the Supreme Court, which will have to finally pass a definitive ruling on the issue within the next couple of years. An authoritative and reasoned verdict of the apex court will finally bring an end to the debate on whether skill-based games enjoy constitutional protection or can be banned by respective state governments.