By Rupin Chopra and Nihit Nagpal
The Karnataka Police Act, 1963 (hereinafter referred to as the “Principal Act”) was amended through the Karnataka Police (Amendment) Act, 2021 (“hereinafter referred to as the “Amendment Act”).
The Amendment Act came into force on October 5, 2021 and absolutely prohibited online games which were based on chance and skill where risk of money or equivalent stakes was involved.
In the case of All India Gaming Federation v. State of Karnataka & Ors1. , the Division Bench of the Karnataka High Court repealed the Sections 2, 3, 6, 8 and 9 of the Amendment Act, thereby allowing certain online gaming platforms to resume business in the State.
All India Gaming Federation & Ors. V. State Of Karnataka & Ors.
Writ petitions were filed by various gaming platforms under Article 226 of the Constitution of India before the Hon’ble Karnataka High Court for declaring some provisions of the Amendment Act as violative of Fundamental Rights and ultra vires to the Constitution of India. All the writ petitions opposing the blanket ban on these games were clubbed together and heard by the Division Bench of the Karnataka High Court at the same time.
The issues raised in this case are as follows:
- Whether there was lack of legislative competence in bringing the Amendment Act?
- Whether online games are games of skill or games of chance?
- Whether the Amendment Act is in violation of Article 19(1)(a) and Article 21 of the Indian Constitution?
- Whether the Amendment Act is violative of Article 19(1)(g) of the Constitution?
- Whether the Amendment Act violates Right to Equality under Article 14 of the Constitution?
- Whether there has been “manifest arbitrariness” on the part of State in enforcing the Amendment Act?
Submissions of the Parties
The Petitioners collectively challenged the Amendment Act on the following grounds:
- That there is “lack of legislative competence”, as the Amendment Act has been brought into force by the State’s power to amend Entry 34 in List II, Schedule VII of the Constitution of India, which gives power to the State to legislate on the subject-“Betting and Gambling”;
- That the ban on online gaming is a violation of Right to Privacy which is a crucial aspect of the Right to Life enshrined under Article 21 of the Constitution of India;
- That the impugned provisions of the Amendment Act are violative of the Right to Speech and Expression enunciated under Article 19(1)(a) and Right to Business/Profession enunciated under Article 19(1)(g) of the Constitution of India;
- That there has been manifest arbitrariness on the part of the State and the Amendment Act is an outcome of excessive “paternalism” and “populism” as it fails to recognize the difference between the terms “game of chance” and “game of skill”.
The objections raised by the Respondents to the above claims are as follows:
- As regards the first claim, the Respondents contended that the Hon’ble Karnataka High Court had itself, through a prior order, directed the State to enact legislation banning all kinds of online betting and gambling. Thus, the State had exhibited competence in legislating the Amendment Act, by merely following the ruling of the judiciary;
- Respondents argued that online gaming, where stakes are in the form of money or any kind of financial interest, is catastrophic to public interest and public order and well-being, as there is monetary risk on the unknown outcome of an event;
- All the Petitioners who have approached this Hon’ble Court through this petition are companies incorporated either under the Companies Act, 1956 or the Companies Act, 2013 and therefore come under the class of juristic persons, not entitled to exercise the Fundamental Rights enshrined under Articles 19 and 21 of the Constitution of India.
- The Petitioners have no locus standi.
Holdings of the Hon’ble Karnataka High Court
Issue 1: As to Legislative Competence
The Hon’ble High Court of Karnataka after considering the definitions of “betting” and “gambling” through precedents namely, R.M.D. Chamarbaugwalla v. Union of India3 and State of Bombay v. R.M.D. Chamarbaugwalla4 , it was concluded that something which depends on a substantial degree of use of skill does not come under the purview of gambling.
Issue 2: As to Game of Chance v. Game of Skill
The Court stated that several online games are based on skill and not merely on chance. The court gave the example of rummy and referred to the case of K. Satyanarayana v. State of Andhra Pradesh5 wherein it was held that although chance plays a slight role in the distribution of cards, there is substantial role of skill as the player has to memorize the falling cards and the cards that are needed to be picked up or discarded in order to build to rummy.
The case of K.R. Lakshmanan v. State of Tamil Nadu was also cited where it had been observed that:
“…A game of chance is determined entirely or in part by lot or mere luck… A game of skill, on the other hand – although the element of chance necessarily cannot be entirely eliminated- is one in which success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player.”6
The court after considering the view of various High Courts came up with a test to adjudge whether a game is based on chance or on skill called the Predominance Test. A game can be of three types, firstly, a game involving only skill, secondly, a game involving only chance and thirdly, a game involving a combination of both skill and chance. According to the Predominance Test, if a game involves a substantial degree of skill, it is a game of skill and not a game of chance but if it does not involve substantial degree of skill, it is a game of chance and not a game of skill.
Issue 3: As to Article 19(1)(a) and Article 21
The court took a very broad approach while discussing the violation of Right to Freedom of Speech and Expression under Article 19(1)(g) and Right to Life and Personal Liberty under Article 21 of the Constitution of India. Online games are interactive and give shape to thoughts which is a kind of artistic expression and individuals must be enabled to pursue their capacities to the fullest degree. Thus, the games of skill are protected within the contours of Article 19(1)(a) and Article 21 of the Constitution.
The court further went on to state that online gaming is a new concept and this business is yet to flourish. Its impact on the people cannot be adjudged at this juncture just by looking at the impacts of offline gambling games. Empirical research and analysis is required to understand if there are any ill-effects of online gaming.
Issue 4: As to Article 19(1)(g)
In order to deal with the issue whether the ban on online gaming is violative of the right to carry out business/profession as enshrined under Article 19(1)(g) of the Constitution of India, the Karnataka High Court placed the onus of proving that the blanket ban imposed on online gaming platforms was a reasonable restriction under Article 19(6). After considering the arguments, the court stated that online gaming platforms which provide games of skill do not come under betting and gambling and thus, can be characterised as business activity protected under Article 19(1)(g) of the Constitution of India. The blanket ban on these platforms by the State through the Amendment Act amounts to unreasonable restriction of the Fundamental Right to business/profession.
Issue 5: As to Article 14
The Amendment Act is discriminatory and violative of the Right to Equality under Article 14 as it does not recognise the intelligible differentia between “game of skill” and “games of chance” which is the most crucial aspect of the Amendment Act.
Issue 6: As to manifest arbitrariness on part of the State
Before the amendment, the Principal Act had differentiated between games of chance and games of skill. After the amendment also, the differentiation persisted in Section 176, but amendment of the definition of “gaming” under Section 2(7) of the Principal Act wherein the phrase “and to wagering by person taking part in such games of skill” was removed, thereby contradicting the classification made under Section 176, bruising the legislative intent and giving way to manifest arbitrariness on part of the State.
Sections 2, 3, 6, 8 and 9 of the Amendment Act were declared to be ultra vires the Constitution of India and thus, repealed.
Dream11 Case: Bhavit Sheth V. State Of Karnataka
After the enforcement of the Amendment Act, a lot of companies blocked their services in Karnataka but Dream11 did not follow suit. Subsequently, a police station in Karnataka registered an FIR, Crime No. 226/2021 on 9th October, 2021 against Dream11, arguably the world’s largest fantasy sports platform, for offences which were made penal after the enforcement of the Amendment Act under Section 79 and Section 80 of the Principal Act. Thereafter, the services of the company were blocked in the State.
Subsequent to the repealing of Sections 2, 3, 6, 8 and 9 of the Amendment Act, the founders of Dream 11, Bhavit Sheth and Harsh Jain filed a writ petition under Articles 226 and 227 of the Constitution of India, read with Section 482 of the Code of Criminal Procedure, praying to quash the FIR, Crime No. 226/2021.
The writ petition filed by Dream11 praying to quash the FIR was accepted by the Karnataka High Court on the grounds that unconstitutionality of the provisions of the Amendment Act left the FIR with no sustainable grounds. The petition succeeded and the FIR was thus quashed.
The Karnataka High Court has taken a wide approach by giving a thumbs-up to online gaming. This paves way for new technology to come in the market, but at the same time brings more risk of cybercrimes. However, the Centre has left it on the State to come up with a new legislation on betting and gambling.
If the State decides to frame a separate law to govern online gaming, it may hamper the business of online gaming platforms. As of now, though, Dream11 has resumed their services in the State of Karnataka.
3AIR 1957 SC 628
4AIR 1957 SC 699
5AIR 1968 SC 825
6(1996) 2 SCC 226