While it took India nearly sixty years to become a trillion dollar economy, it has been forecasted that it may cross five trillion mark by the year 2029 and the online gaming industry is expected to be one of the significant contributors thereto. As per the KPMG’s media and entertainment report[1] in 2020, during the pandemic years the online gaming industry witnessed a rapid growth with 433 million users contributing to the whopping revenue of 136 billion rupees.
With exponential growth both in the user base and revenue, the requirement to regulate the online gaming industry became more than ever. Accordingly, in December 2022, the central government amended the Government of India (Allocation of Business) Rules, 1961 and allocated “matters related to online gaming” to the Ministry of Electronics and Information Technology (“Meity”). Before the said notification, gaming including online gaming was covered by the State list under the entry “betting and gambling” which means that each State is entitled to make its own law in relation to betting and gambling.
On April 6, 2023, Meity released and implemented Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Guidelines 2023”) to regulate the online gaming industry. However, as the Guidelines 2023 do not supersede the state-wise legislations in relation to betting and gambling laws, it appears that states may still continue to exercise its legislation irrespective of the Guidelines.
Before the advent of online gaming, laws related to gaming were governed by the Prize Competition Act 1955 and Public Gambling Act 1867. Terms like ‘Game of Skill’ and ‘Game of Chance’ found mention under the Public Gambling Act 1867. As the aforesaid terms were not defined under the legislation, the Supreme Court[2] defined the game of skill and game of chance as follows: –
- Game of Skill: “is one in which success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player”. Therefore, a game which requires physical or mental ability, strategies, technical expertise and tactics would be considered as a game of skill. A game of skill would mean that despite there being an element of chance involved, the outcome of such a game must predominantly depend on the skill.
- Game of Chance: “is a game wherein the outcome is determined entirely or in part by lot or mere luck” or by random chance. A game can be considered a game of chance wherein it is impossible to lose on purpose.
The Supreme Court also held that a game may be of skill, or of chance with a combination of skill. In a different case[3], Supreme Court clarified that the dominant element of the game determines the nature of the game (“Preponderance Test”) i.e. a game of skill is one wherein the element of skill predominates the element of chance and in a game of chance, the element of chance predominates the element of skill.
The Courts in India have interpreted the business model of online gaming on the basis of provisions of the aforesaid legislations for instance, the Court[4] held that online rummy would remain to be a ‘game of skill’ on the basis of Supreme Court’s decision[5] wherein the Apex Court observed that “Rummy is a game in which element of skill is more predominant than the element of chance”.
Therefore, in India, the Preponderance Test is the legal standard applied to determine whether a game is a game of skill or a game of chance. To evaluate the predominant element of a game, the list of skills of the player (i.e. factors in control of the player) must be compared to the list of factors outside the control of the player (such as rolling of the dice, coin-toss, special power, random guesses etc.) within the game and if either list contributes to more to the outcome of the game, the said list would be considered as predominant.
Internationally, especially the U.S. Courts follow two different tests to evaluate whether a game is one of skill or chance: –
- Predominance Test: Under the said test one must envision a continuum with pure skill on one end of the scale and pure chance on the other. If a game predominantly falls closer to the skill end of the continuum it would be considered as a game of skill.
- Material Element Test: means that chance plays a material role in determining the game’s outcome even if it is primarily a game of skill, the said game would be considered as a game of chance.
In light of the above, it is clear that the test to ascertain whether a game is one of skill or chance has to be determined on a case to case basis. In the absence of one size suits all criteria, determining the nature of games may result in divided decisions. For instance, the Calcutta High Court held that poker is a game of skill, however, the Gujarat High Court classified poker as a game of chance which creates confusion as well as panic amongst the investors and starts-ups in the gaming industry.
Having said that, the Guidelines 2023 aims to bridge the lacunas in the previous legislations which has been welcomed by the developers, service providers and investors of the online gaming industry. As per the Guidelines 2023, only online games[6] and permissible online real money games[7] are permissible. The onus of determining ‘whether an online game is a real money game’ or ‘whether an online real money game is permitted to operate in India’ as per the Guidelines 2023 has been put on the self-regulatory bodies (SROs) and would act as a link between the service providers of the online gaming industry and regulators.
To conclude, one may think for a hot minute that Guidelines 2023 have put to bed the endless debate on Game of Skill V. Game of Chance but Mr. Rajeev Chandrasekhar’s (Minister of State for Electronics and Information Technology) tweet[8] (reproduced below) has posed a new challenge for the stakeholders of the online gaming industry.
“wagering on the outcome of a game is barred under all circumstances, irrespective of the game being labelled a game of skill or chance. “There is no need in this framework to get into “nuances” of chance or skill, bcz the harm of wagering is directly being prohibited – regardless of nature of game,”
In fact, Guidelines 2023, states that a SRO may declare an online real money game as ‘permissible online real money game’ if it is satisfied that such “online real money game does not involve wagering on any outcome”[9]. It would be interesting to see how the online gaming industry, SROs and regulators interpret this clause as in our view, any online game can be argued to be wagering on an outcome.
[1] https://assets.kpmg.com/content/dam/kpmg/in/pdf/2021/06/digital-mobile-casual-gaming-in-india.pdf
[2] K R Lakshmanan v. State of Tamil Nadu, (1996) 2 SCC 226
[3] State of Andhra Pradesh v. K Satyanarayan and Others, (1968) 2 SCR 387
[4] Head Digital Works (P) Limited v State of Kerala, WP (C) No 7785 of 2021
[5] State of Andhra Pradesh v. K Satyanarayan and Others, (1968) 2 SCR 387
[6] Section 1 [(qa) ‘online game’ means a game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.
[7] Section 1 (qd) ‘online real money game’ means an online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit.
[8]https://economictimes.indiatimes.com/tech/technology/wagering-barred-in-all-forms-be-it-game-of-skill-or-chance-mos-it-rajeev-chandrasekhar/articleshow/99467329.cms
[9] Sub-clause 3 of Clause 4A of Guidelines 2023