Recently, a writ petition was filed by a Noida-based NGO, Social Organization for Creating Humanity (SOCH) before the Delhi High Court challenging the provisions of the amendment rules which regulate online gaming[1].

In this case, the petitioner contends that the power to enact laws in matters pertaining to betting and gambling lies solely with the State Governments as per the Constitution[2] and the amendment rules, in so far as they regulate online gaming, are beyond the Central Government’s legislative competence. Further, it is argued that this move has resulted in a dual set of laws, causing significant confusion in the domain of online gaming.

India’s Federal Structure – Overview

In the case of Dharam Dutt v. Union of India[3], the Hon’ble Supreme Court opined that the distribution of power is the most important characteristic of a federal constitution. The origins of this federal structure date back to the Government of India Act, 1935, from which the Constitution derives its federal framework. To bring out this federal structure in the Constitution, Part XI was enacted, which deals with the distribution of legislative power. Article 246 gives exclusive power to the Centre and States to legislate on the subjects enumerated under the Seventh Schedule.

This distribution of power between the Centre and the States does not carry a fixed formula and usually depends on whether the concerned matters are of national importance or local importance. Accordingly, there are three Lists under the said Schedule – List I (Union List with 100 entries), List II (State List with 61 entries) and List III (Concurrent List with 51 entries).

State Legislations on Online Gaming

States are empowered to legislate on subjects such as sports, entertainment & amusements, and betting and gambling under entries 33 and 34 of the State List. In the exercise of these powers, various laws pertaining to sports, gambling and betting have been enacted by state legislatures. Likewise, there are state laws in place for regulating online gaming.

The Sikkim Online Gaming (Regulation) Act, 2008 regulates online games, specifically digital casinos offering games like blackjack, etc. by imposing licensing and other requirements. Similarly, in Meghalaya, the gaming law allows for the operation of digital casinos once licensed[4], and in Nagaland, games of skill such as poker are permitted[5]. In the State of Tamil Nadu, the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 has been enacted. The same received the governor’s assent on April 7, 2023, and prohibits online gambling and online games of chance played for money or other stakes, including Rummy and Poker.

The amendment to the Telangana Gaming Act, 1974 banned all forms of online games without distinguishing between games of skill and games of chance. And in Rajasthan, a draft of the Rajasthan Virtual Online Sports (Regulation) Bill, 2022 was introduced, which proposes a licensing regime to regulate fantasy sports and e-sports. Other skill-based games such as virtual poker, stock exchange, quiz games etc. have not been expressly included in the Bill and can reasonably be construed as allowed.

On the other hand, an attempt was made to ban all forms of online games by amending the Karnataka Police Act, 1963. However, this amendment was struck down by the Karnataka High Court in the case of All India Gaming Federation v. State of Karnataka & Ors.[6], as they were held to be ultra-vires the Constitution. The State of Kerala too issued a notification removing the exemption from general prohibition for online rummy citing reasons such as increased suicide rates, cheating, theft, etc. in the State[7]. This was also struck down by the Kerala High Court in September 2021. In these cases, the blanket ban on online gaming and banning games of skill were held to be violative of Article 19(1)(g) as it restricted the right to trade and profession. It was determined by the Courts that though the legislatures had the competence to enact said laws, they couldn’t pass such legislations which were violative of fundamental rights.

Regulation of Online Gaming under the IT Amendment Rules

The amendment rules seek to regulate online gaming, by way of self-regulation, by imposing due-diligence obligations on a new category of online gaming intermediaries and setting up a new body called the online gaming self-regulatory body. The amendments made with respect to online gaming intermediaries are discussed herein.

• Firstly, the amendment has added the phrase “or an online game that causes user harm” to Rule 3(b)(ii), which enumerates the due diligence requirements to be followed by the three intermediaries – social, significant social, and online gaming intermediaries. This mandates intermediaries to take down those games which are causing user harm. The definition of user harm is limited to any effect that is harmful or detrimental to a user or child.

• Secondly, the amendment has added Rule 4A, empowering the online gaming self-regulatory body to disallow such online real money games whose outcome depends on wagering.

• Thirdly, under Rule 3(b)(xi), the general obligation of all three classes of intermediaries including online gaming intermediaries is to ensure that the information (or an online game in the case of an online gaming intermediary) does not contravene any laws in force in the country.

Overlapping of Powers and Resulting Conflict

By interpretation, it can be said that Rule 3(b)(xi) allows for the harmonious existence of the Central and State enactments. And mandating that the intermediaries have to ensure compliance with state laws does not restrict the power of the States. By such an imposition, the States are free to decide on what kind of online games they wish to allow/ disallow.

However, the amendment to Rule 3(b)(ii) and the introduction of Rule 4A, directly restrict the State governments’ power to decide the category of games it wishes to allow/ disallow and does not allow for the harmonious functioning of the legislations. Rule 4A restricts games that allow wagering or games that cause user harm. Here, the subject of wagering is purely within the purview of the States’ competence to legislate.

The Centre may argue that entry 31 under the Union List grants the Central Government the power to enact laws for forms of communication such as wireless, telecom and broadcasting. While the parliament has the legislative competence to enact laws for internet intermediaries under this entry, the pith and substance of the part of the amendment are to restrict online games that involve real money whose outcome depends upon wagering. The amendment, to this extent, is stepping into the powers of the States. Under the guise of the internet and entry 31, the Centre is trying to colourably exercise its powers which are in the exclusive domain of the state legislature.

It may also be contended that a Centrally controlled law for an all-encompassing medium such as the Internet is better than individual States legislating. However, with growing technology, it is not an impossibility to block content for a particular State. Geo-blocking may be used by different State Governments to disallow certain online games. It has already been used by intermediaries in States such as Tamil Nadu where a legislation has already been passed banning certain types of online games.

Implications

The distribution of power between the Centre and States is the backbone of the country’s federal structure. The dilution of such a power by holding the internet as a façade will only increase the risk of centralisation of power. With techniques such as geo-blocking available, there is no reason for the Centre to step into the powers of the State to bring in regulation in the sphere of online gaming. Such a circumvention of the Seventh Schedule of the Constitution creates a bad precedent and could be held unconstitutional as well.