Despite the prevalent acknowledgement of games such as poker and rummy as skill-based activities, the Indian online gaming sector finds itself entangled in a convoluted mesh of regulations, both central and state. Numerous amendments and regulatory measures have been implemented by various states to either prohibit or supervise such games despite them being games of skill by calling them or getting them under the ambit of betting and gambling.

The prevalence of the afore-stated conundrum was recently visible, when the Allahabad High Court, vide its order dated August 28, 2024, in DM Gaming Pvt Ltd vs. State of Uttar Pradesh and Ors^[1] directed the concerned authorities to revisit the jurisprudence qua the legitimacy of such games and accordingly, decipher the permission to be granted to operate a gaming unit.

Therefore, given the seemingly growing uncertainty, it is pertinent to navigate through the current landscape and developments therein, especially at a juncture where concerted efforts by the judiciary, coupled with legislative advancements, were fostering a more settled and improved landscape for skill-based games.

The present article encounters an additional layer of restraint which has been sought by delineating online games from their physical counterparts and delves into the recent dicta of the High Court of Judicature at Madras (“Madras HC”) encountering the distinguishment and subsequent prohibition vis a vis the games of skills and chance, in the backdrop of the changes and amendments in the Tamil Nadu Gaming Act, 1930 (“1930 Act”) brought by way of the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 (“Amendment Act”) and the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (“2022 Act”) which is a befitting case study on the jurisprudence and growth of the ever-lasting tussle between ‘games of skill’ and ‘games of chance’.

‘Games of Skill’ v ‘Games of Chance’

The Supreme Court of India (“SC”) along with numerous High Courts have emphatically and consistently harped on the distinction between ‘games of skill’ and ‘games of chance’. It has been realised that a game is classified as a game of skill if it is predominantly determined by skill, whereas a game reliant largely on luck is considered a game of chance, and the same will be kept outside the purview of gambling being a game of skill.

While connoting the said distinction, the SC noted that albeit the games of skill comprise an element of chance (which in its entirety cannot be eliminated), the success in the games of skill depends principally and majorly upon the superior knowledge, training, attention, experience and adroitness of the player.^[2]

This was formalised by the SC in State of Andhra Pradesh v K. Satyanarayana & Ors^[3] and State of Bombay v R.M.D. Chamarbaugwala,^[4] whereby the SC differentiated between the game of rummy (game of skill) from the “three-card” game such as “flush”, “brag” etc., (games of chance). The SC was incumbent to note that while the shuffling and dealing of cards contains an inherent element of chance due to the unpredictable distribution of the cards in the shuffled deck, it ruled that rummy is a game of skill as it requires a certain amount of skill, particularly in memorising the sequence of falling cards and strategically holding or discarding cards to build a strong hand, whilst the latter is a game of pure chance.

Further, the law is clear on the exemption of games of skill from the purview and categorisation of the same as ‘gambling’ pursuant to Section 12 of the Public Gambling Act and other state legislations^[5]. Gambling has been understood to mean wagering or betting on games of chance and would comprise only the games determined merely by chance or accident without the involvement of substantial skill.^[6] The courts have realised that businesses involving games of skill are akin to business activities, protected by Article 19(1)(g) of the Constitution of India, 1950 (the “Constitution”) pertaining to the right to practice any profession or carry out any occupation.

The Madras HC in Manakadu Elainger Nala Sports, Narpani Mandram v State of Tamil Nadu^[7], noting the exclusion of games of skill from gambling, ruled that games such as chess and carom, being games of skill and exempted from the Public Gambling Act, 1867, even when involving payment of club fees, i.e., payment of consideration, did not amount to gambling.

Round #1: Junglee Games India Private Limited v. State of Tamil Nadu^[8]

In the case of Junglee before the Madras HC, challenging the Part II of the Amendment Act which amended the 1930 Act, whereby the Amending Act prohibited all forms of games being conducted in cyberspace, irrespective of the game involved being a game of mere skill, if such game is played for a wager, bet, money or other stake.

Interestingly, the Amendment Act did not only turn the law on its head by making changes to definitions of “common gaming-house” and/or “instruments of gaming” to extend their scope to computers and cyberspace, but through the replacement of Section 11 of the 1930 Act, which exempted games of “mere skill” from the application of the statute, whereby now even games of mere skill are also included within the fold of offences under the statute if such games are played for wager, bet, money or other stake. Moreover, whilst the Amending Act confers the prohibition to cyberspace, the prohibition on games of skill for even the slightest of stakes or prize renders the provisions applicable even to the physical forms of games and encapsulates a sweeping and ultra vires inclusion of games of skill.

The fundamental basis of the challenge hinged on the prohibition of games of skill which was averred to not only be in disregard to the settled position of law as has been set forth above but also on the grounds of lack of competence and unreasonableness, as under the garb of a beneficial and welfare legislation, it attaches a sweeping/blanket parlance to all forms of gaming and fails to satisfy or elucidate the nexus and/or relation qua the intent and the practical implication of the same.

Whilst the Madras HC affirmed the intent behind the Amending Act being that to combat the delirious effects of gambling, the court was absolute on the distinction ascribed by the SCs qua games of skill and held the Amending Act to be unreasonable as well as manifestly arbitrary. The Madras HC reasoned that gambling involves “chance to such a predominant extent that the element of skill that may also be involved cannot control the outcome” whereas in games of skill, ordinarily, “the exercise of skill can control the chance element involved in the activity such that the better skilled would prevail more often than not.”

The Madras HC abhorring the express and absolute prohibition on the games of skill (especially in the online/cyberspace) held that the provisions of the Amending Act ipso facto have enlarged the scope of betting and gambling beyond reason and eliminated any chance of display of skill in any game on the virtual mode if any stakes, however little, are involved, and observed as follows:

“A person may be gifted in card games or another’s talent may lie in word games. Rationally, such persons should be free to exploit their skills; and only reasonable restrictions that do not completely blunt their chance to show off or make a living out of their skills may be permissible.”

Further, in a welcome step, the Madras HC explicitly held that rummy and poker are games of skill involving considerable memory, working out of percentages, the ability to follow the cards on the table and constantly adjusting to the changing possibilities of the unseen cards. Moreover, the court observed that there is no distinction between the skill involved in the physical form and/or the virtual form.

Whilst striking down the Amending Act which amended the 1930 Act being ultra vires the Constitution, the Madras HC held as follows:

“The present matter does not turn merely on the two games named in Section 3-A of the amended Act being regarded as games of skill. The absurdity of the amended provisions has more to do with all forms of games – where games must be understood to be distinct from gaming, whether in the ordinary parlance or as per the convoluted meaning ascribed to it in the impugned legislation – being prohibited in cyberspace if played for any prize or stake whatsoever. The cause for bringing the amendments does not appear to have any nexus with the effect that has resulted thereby; and that, in essence, is the unreasonableness and grossly disproportionate feature of the impugned statute.”

Round #2: All India Gaming Federation vs. State of Tamil Nadu and Ors.^[9]

The State, thereafter, to overcome the rigors of Junglee, promulgated the 2022 Act basis the recommendations made by a five-member committee. Similar to the Amending Act, the 2022 Act prohibited online games of chance provided for under the Schedule which were played with money or other stakes. This legislative action was premised on the assertion that the intricacies of online gaming and gambling transcend the traditional dichotomy of “game of chance” versus “game of skill.” It posited the need for a new conceptual framework that integrates an understanding of Information Technology at its foundational level, acknowledges the substantial disparities between physical and online versions, and distinguishes between their respective versions of games despite there being an earlier ruling in the same regard.

However, the provision mainly under scrutiny was the Schedule which enlisted poker and rummy as online games of chance, which came into the judicial scanner vide a writ petition challenging legislative competence and vires.

The petitioners argued that the categorisation of online rummy and online poker as games of chance is against the settled principles of law as well as the mandate of Article 19(1)(g) of the Constitution. Further, the petitioners submitted that neither has there been any data shown to demarcate any distinction between the offline and online mode of playing the said games, nor has there been any empirical data put forth to elucidate the harmful effects of the said games or qua disturbance of ‘public order’, and that the State has set forth an unreasonable classification and creates an artificial distinction between online and offline rummy. Per contra, the online games abovementioned involve legitimate, legal transfer of money, due and proper KYCs done of the players, limited use of the Random Number Generator (RNG) Software and security measures to prevent/regulate the use of bots, if any.^[10]

Moreover, it was argued that the State did not have the power to legislate about games of skill, since its power is limited to ‘betting and gambling’ which only includes games of chance. It was reasoned that not only are poker and rummy games of skill, but they are also not deemed to be gambling merely because they are played for stakes.^[11] Further, the online platforms do not profit from the winnings of the players, but charge a predetermined service charge from the players (which includes GST).

The State, on the other hand, has argued a legitimate and reasonable classification basis for the distinction between online rummy and online poker from their physical counterparts, where in the latter mode, there is a truly random process, strict check of age, absence of monetary compensation in favour of the club, absence of Artificial Intelligence and bots. Not only that, the State believes that 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.

As was the case with the Amending Act, the Madras HC is in full conformity with the State’s intent and vision for promulgation of the 2022 Act, the Madras HC, realising that since the games of poker and rummy are held to be games of skill, the onus/burden is on the State to distinguish as to how online games of rummy and poker would partake the character of games of chance and not skill, which the State has failed to fulfil.

The Apex Court and the High Courts have consistently held that rummy and poker are games of skill, and since in the present matter, what is sought to be banned is only the online games of rummy and poker, and given the authoritative pronouncements of the Apex Court holding rummy and poker to be games of skill, a heavy burden was upon the State to distinguish as to how online games of rummy and poker would partake the character of games of chance and not skill. The Madras HC and various other courts have time and again analysed this issue and looked at whether online or offline has any variation or not and have disagreed with the state in its analysis of the issue, whilst noting that the brain activity, as well as the constituents/factors involved in the online and offline mode, are the same, and no reasonable or proper distinction has been able to be culled out by the State in any of the said matters.

Further, the Madras HC observed that the online platform was merely charging a fixed sum, has measures to prevent children from registering, and has security measures as well, and thus, basis the above and upon failure of the State to substantiate qua the grounds for difference in the games owing to their virtual presence, held that categorising online poker and/or rummy as games of chance is completely arbitrary and the Schedule incorporating the said games was liable to be set aside.

While the Madras HC relied on the judgements of inter alia Varun Gumber vs. Union Territory of Chandigarh & Ors,^[12] Chandresh Sankhla vs. State of Rajasthan^[13] and Gurdeep Singh Sachar vs. Union of India,^[14] which exempted online fantasy games to be games of skill, to hold online rummy and online poker to be games of skill, interestingly it failed to consider the stay order passed by the full bench of the SC in State of Maharashtra vs Gurdeep Singh Sachar^[15] which is the third appeal in the Gurdeep Singh Sachar matter and still holds the field. Being a full-bench division, it might also overrule the settled decisions of the division bench of the SC in Varun Gumbar and Chandrakalyani matters and may have larger ramifications, in the event the larger bench differs from the opinion passed by the division bench of the SC.

Conclusion

The two Madras HC rulings mentioned earlier are poised to play a pivotal role in conclusively resolving the ongoing debate surrounding the classification of poker and rummy, including their online variants, as games of skill. These judgments suggest that such games may be exempted from the prohibition imposed by both the Amending Act and the 2022 Act. While this development is significant, the narrative is far from concluding, as the Tamil Nadu government has initiated appeals against the Madras High Court decisions. Presently, the matter is sub-judice before the Supreme Court, adding an additional layer of complexity to the legal discourse.

It is crucial to underscore the gravity of the appeal currently before the SC, as its outcome holds profound implications for the online gaming industry. All stakeholders, including enthusiasts, operators, and regulatory bodies are closely monitoring the proceedings. The resolution of this legal battle is eagerly anticipated, as it has the potential to set a precedent for the treatment of online gaming platforms within the broader legal framework. The unfolding saga in the courts adds a layer of uncertainty to the industry, underscoring the need for clarity in the regulatory landscape governing online gaming activities.

Footnotes:

[1] WRIT – C No. – 3880 of 2024; Order dated August 29, 2024

[2] K.R. Lakshmanan v. State of T.N., (1996) 2 SCC 226.

[3] (1968) 2 SCR 387.

[4] 1957 SCR 874.

[5] which specifically exempt games of skill.

[6] Gurdeep Singh Sachar v. Union of India, 2019 SCC OnLine Bom 13059.

[7] 2005 SCC OnLine Mad 8.

[8] 2021 SCC OnLine Mad 2762.

[9] WP Nos. 13203, 13593, 13720, 13722 (09.11.2023).

[10] Random Number Generator use various algorithms to pick the numbers from large pre-compiled databases of numbers, and generate random numbers.

[11] Head Digital Works (P) Ltd. v. State of Kerala, 2021 SCC OnLine Ker 3592.

[12] 2017 SCC OnLine P&H 5372.

[13] 2020 SCC OnLine Raj 264.

[14] 2019 SCC OnLine Bom 13059.

[15] SLP(Crl) No. 002213/2020.