Online Gambling – The Legal Framework
Online gambling represents a rapidly expanding sector of service in India and around the world. Its commercial and economic significance is seen in the high standard of technological advancement displayed by gambling operators around the globe as well as the rising tax revenues produced in jurisdictions that permit this activity. Considering the unique characteristics of the Internet and gamblers’ perpetual hunt for new gaming websites that provide better odds, greater variety of games, and more bet combinations, nations throughout the world still struggle to govern and regulate online gambling.
This research paper compares the approaches taken by other nations to online gambling and explores the legality of online gambling in the light of India’s regulatory structure.
OBJECTIVE OF RESEARCH
Over the past few years, gambling has developed into a popular form of entertainment as well as a means of making large sums of money. India has a massive gambling market. Detailed research into the legal framework of online gambling in the country helps in analyzing the rise of gambling in India as well as the rise in demand for Internet gambling in India.
With the development of new forms of Internet gambling media in India, lawmakers have adjusted to the changes and implemented new rules to oversee and regulate these platforms, allowing players to use them safely and securely. This research paper examines modern gambling trends , and compares the laws in different countries to highlight the need for and benefits of regulation.
Online gambling occurs on an internet-based system, similar to conventional gambling at real-world casinos and athletic events. Instead of using currency to place bets, payment cards are used, and earnings and losses are handled electronically. There are many different kinds of internet gambling, including the
game of poker, horse racing, wagering casino slots, blackjack, roulette, and sports betting. Online gambling is the practice of engaging in gambling using the internet for wagering on events and games in an effort to win cash or prizes. It can be played on a variety of gadgets and uses virtual chips or bitcoins rather than actual money.
It’s unnerving to observe how rapidly gambling issues have become prevalent in today’s fast-paced digital world enabling people to use a variety of online resources and play covertly.
THE AMBIT OF ONLINE GAMBLING
.As per the Indian Constitution1 , Gambling is referred to as
“Any activity or undertaking whose determination is controlled or influenced by chance or accident or any activity or undertaking which is entered into or undertaken with consciousness of the risk of winning or losing (e.g., prize competitions, a wagering contract)”
Online gambling encompasses the use of the internet to place wagers and win money is It occurs in an online environment. This includes poker, betting, and sports betting.
It involves the risking or staking of money or any other valuable security that may be described as “stakes” in a situation that does not have an established outcome with the main objective of increasing one’s financial gain or obtaining something of material value.
Gambling generally calls for three main components
the risk taken for a favourable outcome, the amount put on stake, acting as consideration, and the outcome.
Differentiation between Skill and Chance:
1 The Constitution of India, 1950
A substantial amount of competencies are used to play a game of skill. The outcome of a game of skill is determined by each player’s ability and talent. Players in a game of skill are cognizant of the rules and use a variety of tactics to play to win. Rummy, Carrom, and chess are a few examples of skill games.
On the contrary , a game of chance requires no talent, and the winner is determined by luck or any other random component.
Any game involving the act of placing money, wagering for money, or any other act that is equivalent is prohibited by the Public Gambling Act, 18572. However, the only exception to the aforementioned regulation that is permitted in India are games that require skill.
The Supreme Court has defined skill games as “the games where success depends on substantial degree of skill or not gambling and despite there being an element of chance of a game is preponderantly a game of skill it would nevertheless be a game of mere skill”
The Supreme Court also recognized rummy as a game of skill. The Supreme Court opined that building up rummy takes substantial knowledge in retaining and discarding cards, and rummy requires an appropriate amount of skill as the fall of cards has to be tracked in memory. It is mostly and largely a game of skill.
However, a three-card game known as “flash” or “flush” was designated as a game of chance, falling under the ambit of gambling.
In Varun Gumber v. Union Territory of Chandigarh3 the Punjab and Haryana High Court ruled that Dream11 and other digital fantasy sports games are not gambling since they require a significant amount of aptitude and skill.
The Bombay High Court ruled in Gurdeep Singh Sachar v. Union of India and Ors4. that a player’s ability to employ his skill through better knowledge, judgement, and attention determines whether he wins in the Dream11 game. Fantasy sports like Dream11 are therefore a game of skill.
LEGAL FRAMEWORK OF ONLINE GAMBLING IN INDIA
2 The Public Gambling Act, 1857
3 AIR 2017 P&H 237
4 2019 (12) TR 2583
Gambling in India is a state subject, allowing the state to enact state-specific regulations.
The main legislation on the subject is the Public Gambling Act of 1867, which forbids all games of chance other than lotteries and games of skill. Any infringement of the legislation would result in a fine of 200 Indian rupees or imprisonment for up to three months.
States in India have implemented their own regulations to govern such activities, with most states exempting skill games.
Internet gambling and betting are not covered by the Public Gambling Act of 1867, as it is an old statute. There are numerous online sites pertaining to gambling that enable the use of the internet to place wagers.
The Payment and Settlement Act of 2008 authorised the Reserve Bank of India to run or launch a system of payments for controlling the use of electronic payments of all types in India, primarily for regulating and limiting online gambling in that country. The use of FDI policies has also made it difficult for businesses to participate in gambling and lottery betting. IT intermediary policies also restrict access to specific websites and gambling-related content.
Hence, the IT Act 2000 governs online gambling or cyber activities in India in a way that enables the Indian Government to prohibit or regulate foreign gambling apps and websites.
It could be stated that there is no particular legislation in India that declares internet betting and gambling to be against the law. Theoretically, it is acceptable to place bets on these reputable casino websites without fear of facing penalties.
Online gambling has been a contentious topic in India in recent years. The Indian Law Commission (LCI) encouraged the government to legalise gambling in July 2018. by publishing a thorough report urging India to legalise gambling in order to generate much-needed tax revenue.
IMPACT OF THE LEGAL FRAMEWORK
In India, there are numerous regulations that control lottery and other gambling operations. The biggest problem of controlling unlawful gambling in India is the enforcement of the law. Each state has the authority to legislate any gambling laws
under Entry 34 of the State list of the Constitution. The strict interpretation of this Act gives police personnel enough authority to harass people and execute raids on unlawful gambling establishments.
Many notable Indians are involved in gambling and are very opposed to making it fully outlawed. The current regulations in place to combat illegal gaming are essentially neutralized by these powerful individuals through corruption. Gambling is getting increasingly popular in society.
The state has two major arguments for outlawing these gambling activities,
- Itsduty towards each individual to protect them from doing self-sabotage.
- Thesegambling activities have indirect effects on poverty and A large number of people participate in it which shows great social acceptance by people.
Recent Judicial Trend:
- The Supreme Court’s ruling in R. Lakshmanan v State of Tamil Nadu(1996)5,concluded that horse racing betting was a skill game. Competitions in which victory depended on a significant degree of skill were not gambling, and despite the presence of some element of chance, if a game was preponderantly of skill, it would be a game of “mere skill.”
- The Punjab and Haryana High Court reasoned that participating in fantasysports requires the same level of skill, judgment, and discretion. As a result, it was decided that the component of skill controlled the outcome of the fantasy game, and that fantasy games were of “mere skill” and weren’t eligible for consideration as In addition, the Punjab and Haryana Court ruled that since fantasy sports were not gambling, the activity was also protected under the Constitution.
- The legal status of the well-known game show Kaun Banega Crorepati (or”KBC”) came up in the case of Bimalendu De vs. Union of India & Ors (2001).6KBC, a game show modelled after the format of the well-known British program “Who wants to be a Millionaire,” and Jackpot Jeeto were the targets of a Public Interest Litigation brought before the Calcutta High Court that argued that they constituted gambling and were therefore illegal under the law. The court determined that game shows did not fall under the definition of a “prize competition” after reviewing the
5 1996 AIR 1355
6 AIR 2001 Cal 30
terms of the West Bengal Gambling and Prize Competition Act, 1957 (which has a clause similar to the Prize Competitions Act).
- In the case of Ramachandran v. The Circle Inspector of Police7, the Hon. Kerala High Court determined that playing rummy for stakes would constitute a violation of the Kerala Gambling Act, 1960. The court quashed the review petition and noted that whether or not rummy was played for stakes, including online rummy, doing so would constitute a breach of the Act and would need to be determined on a case-by-case basis. The majority of Indian law recognizes gambling as a legitimate activity.
PRIZE COMPETITION GAMES
Games and contests with monetary or other prizes are more common in India than other countries. Examples include Sudoku, crossword puzzle, and photo prize competitions. Such prize giveaways used to be advertised on the radio or in the local newspaper. Prize competitions, however, have started to appear in many media outlets recently due to the media landscape’s constant expansion. For instance, in television programs. Additionally, there have been an increasing number of internet- and SMS-driven competitions with prizes.
The “Prize Competition Act, 1955” is the primary statute that governs these competitions. According to the Prize Competition Act, a “prize competition” is any contest where “prizes are offered for the solution of any puzzle based upon the building up, arrangement, combination, or permutation, of letters, words, or figures.” 8Anyone planning to run such prize competitions must apply for a license before starting their business.
The Hon’ble Bombay High Court noted in the case of News Television India Ltd. and Others
- Ashok D. Waghmare(2006)9and Another that the prize competition has a very narrowscope and excludes games of skill and competitions like KBC. The “prize schemes” in the Tamil Nadu state are governed by the Tamil Nadu Prize Schemes (Prohibition) Act, 1979 (the “Tamil Nadu Act”). The administration of a prize competition is prohibited by this law . The applicability of this law depends only on the specifics of each case’s facts and circumstances. If the game structure entails (i) the purchase of goods; and (ii) the selection of the prize winner by lot from those who have made the product purchase, then such a format would be included within the scope of the enactment.7 Writ Petition (Civil) No. 35535 of 2018 8Section 2(d) of the Prize Competition Act 9 2006 (2) MhLj431
None of the other states in India has made a specific law banning prize schemes on products similar to the Prize Schemes Act of Tamil Nadu. This enactment does not provide any exceptions to games of skills.
STATE LEGISLATIVE LAWS
Given the fact that courts have ruled that a game of skill is not gambling, many jurisdictions have enacted broad restrictions on it. It is seen that some states only have laws governing games of skill, others have laws governing both games of skill and chance. This illustrates the lack of consistency in state-by-state online gambling legislation.
Different states have laws that distinguish between games of skill and games of chance. Some states forbid playing either a skill-based or chance-based game for money.
The Karnataka Police Act, 1963, was amended by the Karnataka Police (Amendment) Act, 2021. According to the aforementioned Act, gambling of any form, including online gaming, is a non-bailable offense that can be prosecuted. In essence, if a game was played for a reward or money, all games, even skill-based ones, would be forbidden.
The state governments of Andhra Pradesh and Telangana have outlawed online games, including skill-based games that are also played for money, in addition to Karnataka and Tamil Nadu.
While the aforementioned jurisdictions have outlawed even skill-based games if they are played for cash, there are a number of states that have authorized them and have effective online gambling regulations in place.
Tamil Nadu’s state legislation banning online gambling was not only criticized by the gaming industry but was also overturned by the Madras High Court.
The Tamil Nadu Gaming Act, 1930 was amended with the passage of the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2020 (Amendment). The Amendment was created particularly to outlaw skill-based games that involve wagering, betting,
money, or other forms of stakes. The High Court of Madras heard an appeal on this amendment. The Amendment was invalidated by the court for a number of reasons.
The judge ruled that:
- Gamesof skill are considered commercial activities under Article 19(1)(g) of the Indian Constitution10. Therefore, it was decided that skill games could not be The prohibitions outlined in the Amendment are out of proportion to what it is trying to accomplish.
- Thestate’s objective, according to the court, was to forbid gambling exclusively on games of chance and not on games of skill. The Amendment is therefore irrational and
- The Constitution only gives the states the authority to pass laws restrictingbetting and gambling to chance games, not games of skill. As a result, it was decided that the Amendment was unlawful
By passing the Sikkim Online Gaming (Regulation) Act of 2008 and the Sikkim Online Gaming (Regulation) Rules of 2009, Sikkim became the first state in the nation to legalize online gambling. All types of games, including games of chance that are illegal in the majority of other jurisdictions, are included in the scope of online gaming under the aforementioned Act.
The Sikkim government grants licenses to applicants for the operation of online games and sports games for a time frame of five years. However, individuals from other states are unable to access such games via websites. Such authorized online games and sports games are only permitted within the Sikki gaming parlor’s physical grounds.
The Meghalaya Regulation of Gaming Act, 2021 was introduced by the Government of Meghalaya in 2021 to control the state’s internet gambling market. It controls both skill-based and chance-based games. The Meghalayan government provides its applicants licences that last for five years. The “gaming royalty” that the10 The Constitution of India, 1950 § Article 19(g)
licensees are required to pay is a portion of the earnings after the prize money deductions and other expenses and charges are subtracted.
Only skill-based internet gambling games are permitted in Nagaland; other games of chance are forbidden. To regulate online games of skill, the state passed the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015, which issues licences to organisations that provide games of skill on its platforms.
The formation of a black market for online gambling sites is prevented by having very clear-cut laws regulating online gaming.
THE SITUATION IN INDIA AT PRESENT :
India is currently struggling to define what constitutes gambling in light of recent developments in the laws governing online gaming in the states stated above. It’s also uncertain whether additional governments will try to outlaw internet gaming after Tamil Nadu and Karnataka. There are, however, rumours that India is prepared to accept it. A draft law regulating online gambling in India has recently been made available for revision, according to the Ministry of Electronics and IT (MeitY). The proposed restrictions aim to address the rising concerns about problematic gaming practices among adolescents.
The proposal includes a number of policies, including mandated complaint procedures for customers and the recruitment of a compliance officer in charge who would work with operators and law enforcement to ensure thorough player verification has been carried out. The regulator will also be in charge of examining the game’s content. Any content that transgresses India’s sovereignty and integrity will not be permitted. This covers a variety of topics, including violence, addiction, and sexual material.
The IT ministry thus provides registration as a mandate for online gambling servers , wherein the regulations are open for public input and revised.
ONLINE GAMBLING AROUND THE WORLD
Due to the growing popularity of online gambling and betting, it is crucial to understand the rules and restrictions that are applicable to this popular form of entertainment. Recognizing that there are multiple levels of legislation covering various gambling laws is the most significant feature of these regulations governing online gambling.
WAYS OF REGULATION
❖ Absence of Ban
The largest category of countries include Bolivia, Egypt, and Venezuela, . These countries neither forbid nor authorise internet gambling sites. A variety of online gambling games are available in about 90 different countries, many of which have neither been registered nor certified. Most of Africa is also included in this.
❖ Local ban
These countries are where international gambling sites can operate online despite local online gambling sites being banned. These include 28 nations, like Japan, Mexico, and Nigeria. Local online gambling sites are absent, but a wide variety of foreign alternatives will be available because the governments lack the means to cease their operations.
❖ Partial Ban
These nations require a local licence to operate, which is issued by a local gambling organisation, irrespective of it being a foreign or local platform. These regions encompass the majority of Europe, North America, and the South and North Poles. Virtual blackjack, slots, and roulette tables at casinos can be found in these nations; they are all carefully regulated and built on tested generators of random numbers to guarantee the highest level of fairness. Verification websites make it very apparent where they have been authorised and with which gambling board they are associated. Sports betting and internet gambling have some differences, but both are lawful as long as they are conducted in an environment that is recognized by the law.
There has been no modification in Canada’s legislation governing internet gaming. No law prohibits Canadians from using gambling sites that are situated outside of Canada, but there is legislation that makes it illegal for any corporation to offer betting and gambling services to Canadians without a government license. To further complicate matters, each Canadian province has the authority to control gambling in its own territory. Hence, several local governments run their own internet gambling and gaming businesses.
It is evident that there are certain legal ambiguities regarding domestic US online gaming. For years, it seemed like no problems existed when many websites offered their services to US citizens. There remained debate, nonetheless, as to whether or not online gambling and wagering had been incorporated under the Wire Act of 1971. There was obviously no mention of online gambling in it. The Unlawful Internet Gambling Enforcement Act (UIGEA), which was passed in 2006, slightly modified the situation. Although online gambling was not expressly prohibited, it did make it unlawful for banking institutions and other financial agencies to execute transactions between US locals and gaming establishments. Numerous websites stopped accepting customers from the United States as a result, interpreting this as a certain indicator that the US government prohibited online gambling as .
The prevailing opinion was—and still is—that anyone utilising a gambling website isn’t breaking the law. The legal environment has once again transformed in recent years. Some governments have even granted gaming and betting licences to businesses looking to offer their services locally. Several states have introduced legislation that clearly permits internet gambling. While some states are still debating the matter, several others have indicated plans to follow their lead.
There has been no modification in Canada’s legislation governing internet gaming. No law prohibits Canadians from using gambling sites that are situated outside of
Canada, but there is legislation that makes it illegal for any corporation to offer betting and gambling services to Canadians without a government license. To further complicate matters, each Canadian province has the authority to control gambling in its own territory. Hence, several local governments run their own internet gambling and gaming businesses.
Online gambling is totally legal and well-regulated in the United Kingdom. As long as they possess a direct license from the Gambling Commission, both regional and international websites are permitted to provide services to UK citizens. The most recent amendment was made in 2014. Prior to that, any websites with a license from one of the nations on the white list may accept UK visitors.
Europe is a continent made up of numerous diverse nations, each of which is accountable for its own legal system. The European Commission, having some influence over their rights and obligations, serves to rule EU members in part. They are, however, largely allowed to enact whatever laws they like. As a result, the legal framework for online gambling varies from nation to nation across Europe. Some nations have strict regulations governing the business, while others don’t.
Australia and New Zealand
The Interactive Gambling Act of 2001 (IGA) is largely responsible for regulating online gambling laws in Australia. Only betting on sports and lottery games are permitted under this law, which makes it unlawful for Australian internet casinos to provide some forms of gambling to the country’s citizens. The federal government and local governments both enforce regulations. There is no explicit regulation that forbids Australians from utilizing foreign gambling websites.
New Zealand’s online gambling laws are refreshingly uncomplicated. What is and isn’t legal is clearly spelled out in the Gambling Act of 2003. The majority of online gambling and betting are forbidden, but only for businesses established in the area. Sites located outside of New Zealand are permissible for New Zealanders to access under the aforementioned laws.
The majority of South American nations permit some sorts of online gambling, but not all of it. For instance, only betting on horses and lotteries are permitted in Brazil. In the majority of South America, it is also legal to gamble online at international websites, and several nations have even set up their own industry-specific regulatory frameworks.
Gambling of all kinds is permitted across Africa. Many African nations have offline casinos, and South Africa in particular is a well-liked location for travelers wishing to play their preferred casino games in an alternative setting.
One of the African nations to implement legislation governing online gambling is South Africa.
The decision to criminalise online gambling is extreme, especially given that the sector is thriving and has the potential to significantly strengthen the country’s economy.
In addition, everyone in India has easy access to foreign internet gambling websites that are not subject to Indian law, despite the fact that several states have laws prohibiting it. International governing organisations like the UKGC, the Malta, and Gaming Curacao oversee these websites.
Due to several state governments banning internet gambling, consumers are increasingly turning to foreign websites to play online gambling games. The goal of regulating internet gambling is to safeguard those who are vulnerable to its flaws, which include addiction and monetary losses. Since foreign online gambling websites are accessible without restriction, banning domestic online gambling websites is not effective in limiting access to those websites.
The government has to regulate all forms of gambling, including online gambling. Given the enormous expansion of the internet gambling sector, the Constitution should be amended to incorporate regulation of online gambling in the Union List, thus permitting the adoption of centrally administered online gambling laws.
Likewise, as skill-based games might be viewed as business operations under Article 19(1)(g) of the Indian Constitution, it is unfair to ban them even when they are played for money. According to Section 115BB of the Income Tax Act of 196111, profits from all types of gaming or gambling are taxed at a fixed rate of 30% of the proceeds. This encompasses income from online gambling, thus resulting in the increase in gross income for the country.
Thus, it is essential to have a robust centrally controlled legal framework for online gambling that controls the sites while also ensuring that the funds of consumers are secure. In order to foster domestic online gaming platforms, such law must also prohibit international gambling sites in India.
In order to maintain the safety of players and guarantee that online gambling is carried out fairly and responsibly, regulators and policymakers must confront the considerable issues that online gambling poses.
People must be aware of the regulations in their state and make sure they are only engaging in legal and authorised online gambling activities because the legal environment around online gambling in the country is complicated and can vary greatly across states.
Gambling has an immediate effect on three major variables: social factors, employment, and public revenue.
Social Factors: The accessibility of casinos and lotteries increases suicidal thoughts in the minds of gamblers when they are depressed, which increases the mortality rate. On the other hand, casinos and lotteries generate employment and income, which increases a person’s economic well-being, which leads to a decrease in the mortality rate.
Employment: The government’s legalization of lotteries, casinos, and horse racing creates several job opportunities for the indigenous community. Providing
11 ncome Tax Act, 1961 § Section 115BB 12
employment might keep individuals away from other illegal actions that they perform in order to meet their basic requirements, which helps to reduce the country’s crime rate.
Public revenue : Casino is an important source of public revenue, as it is included in taxation. Casinos bring in additional business annually, thus increasing the state revenue.
The government can increase the effectiveness of gambling by enforcing appropriate regulations that properly control it. An individual complaint against gambling fraud must be treated the same as any other type of fraud. Private agencies should publish statistics on gambling activity to raise public awareness of scams. Persons should only gamble after gathering sufficient information on the casinos in which they intend to invest.
Finally, a fundamental difficulty that is shared by all forms of legalized gambling is the efficiency costs associated with the existing market system. Any stated restriction on market access imposes a deadweight economic penalty on society. Future studies should look into the implications of this market system for consumers. Many significant economic issues must still be researched, and additional investigation is needed.
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