Legal Route To Gambling- Indian Perspective

Article posted by: office@indialawoffices.com

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Gambling is the wagering of money or something of value on an event with an uncertain outcome with the primary intent of winning money or material goods. Gambling basically requires three elements:


  • Consideration
  • Chance
  • Prize

A person is gambling whenever he or she takes the chance of losing money or belongings, and when winning or losing is decided mostly by chance. Gambling in India is mostly restricted except for selective categories including lotteries and horse racing. Many people have started making cash bets upon prohibited betting and gambling activities in India. Gambling is seen as a crime leading to corruption and money laundering by the critics. Gambling is a state subject and only states in India are entitled to formulate laws for gambling activities within their respective states. The Public Gambling Act, 1867 is one such central law that prohibits running or being in charge of a public gaming house along with visiting gambling houses.

Gambling under the Gambling Legislations however does typically not include

  • Wagering or betting upon a horse-race/dog-race, when such wagering or betting takes place in certain circumstances,
  • Games of "mere skill" and
  • Lotteries (which is covered under Lottery Laws).

Purview Of Gambling

The gambling legislations provide that the restrictions would not apply to games of “mere skill”. Under section 12 of the Act, it means that the act wouldn’t apply to any game of mere skill.

"12. Act not to apply to certain games - Nothing in the foregoing provisions of this Act contained shall be held to apply to any game of mere skill wherever played”

In the case of State of Bombay v. R.M.D. Chamarbaugwala the supreme court of India has interpreted the words “mere skill” to include games which are preponderantly of skill and have laid down that

  • The competitions where success depends on substantial degree of skill will not fall into category of gambling;
  • Despite there being an element of chance, if a game is preponderantly a game of skill, it would nevertheless be a game of “mere skill”

In the case of Manoranjithan Manamyil Mandram v. State of Tamil Nadu, it was said that whether a game is of chance or skill is a question of fact to be decided on the facts and circumstances of each case.

It may be possible that games which satisfy the test of "skill versus chance" may not be regulated under the gambling legislations and may be legally offered through the physical as well as virtual mediums throughout India including internet and mobile.

In 1968, State of Andhra Pradesh v. K. Satyanarayana & Ors. , Rummy (also known as Paplu) was determined to be a skill game:

"Rummy, on the other hand, requires certain amount of skill because the fall of the cards has to be memorized and the building up of Rummy requires considerable skill in holding and discarding cards. We cannot, therefore, say that the game of Rummy is a game of entire chance. It is mainly and preponderantly a game of skill. The chance in Rummy is of the same character as the chance in a deal at a game of bridge."

Although poker, another widely played card game, is not specifically classified as a “game of skill” by any court ruling, the interpretation regarding the legality of poker will be based on the aforementioned judgments.

The following are the categories for doing gambling in India:

1. Casino
The Gambling Legislations regulate casinos in India. The gambling legislations of Goa, Daman & Dui and Sikkim allow gambling to a limited extent, under a license, in five star hotels. In Goa, the law also permits casinos on board and offshore vessel.

2. Lottery
Under the constitution, the central legislature has the power to enact laws with respect to lotteries. Lotteries have been expressly excluded from the purview of gambling legislations and are governed by the central law – Lotteries (Regulation) Act, 1998 under the Lottery (Regulations) Rules, 2010 and the state specific rules have been framed. The Central Lottery Laws allow the state governments to organize, conduct or promote a lottery, subject to the condition specified in the Central Lotteries Laws. The state governments may appoint an individual or a corporate as a “distributor or selling agent” through an agreement to market and sell the lotteries on behalf of the organizing state. While some states such as Punjab, have gone to the extent of specifically providing for and approving online lottery systems to be governed by the state lottery laws, lottery is banned in certain states in India, for example, Madhya Pradesh.

Online gambling
The state of Sikkim is the only state in India which has enacted a law for online gambling and sports betting. The Sikkim ‘Online Gaming (Regulation) Act, 2008’ was passed on June 28, 2008 with the dual objects of controlling and regulating online gaming through electronic or non electronic formats, and imposing a tax on such games in the state of Sikkim. The Sikkim Online Gaming (Regulation) Rules, 2009 were subsequently passed on March 4, 2009. Other states such as Goa and Nagaland are contemplating enacting laws on similar lines.

4. Horse racing
Horse racing has been given a special status under the gambling legislations. Most legislation specifically excludes betting on horse races from within their purview. In the case of K R Lakshmanan vs State of Tamil Nadu , the Supreme Court held that betting on horse racing was a game of skill since factors like fitness and skill of the horse and jockey could be objectively assessed by a person placing a bet. The analysis is interesting to note as this reasoning could possibly be used to justify other forms of betting as games of skill, especially sports betting.

Common Gaming House

Under the Gambling Legislations (except states like Assam and Orissa where gambling per se is an offence), most offences and prohibitions are in relation to a “common gaming house”. Generally, under the Gambling Legislations, to qualify as a “common gaming house”, there should be:

  • An enclosed physical premises such as a house or a tent; and
  • “Instruments of gaming” kept or used in such enclosed physical premises for the purpose of accrual of profit or gain to the person owning, occupying, keeping such enclosed physical premises or using any such instrument of gaming in the enclosed physical premises; and
  • Profit or gain by way of charge for use of the same enclosed premises or “instruments of gaming” or otherwise. However, under certain Gambling Legislations, like Delhi, it may not be necessary for such “profit or gain” to accrue to the person owning, occupying or keeping such premises in order for it to qualify as a common gaming house for certain purposes/games only.

On analysis of the definition of “common gaming house” in general under the Gambling Legislations, it seems that the intention of the legislatures is to impose restrictions on the use of a physically enclosed premises for the purposes of making “profit or gain” from the use of such premises.

Online Gambling

Online gambling is in its infancy in India, but Sikkim planned to offer three online gambling licenses in 2010. This failed despite India being the most sought out country for online gambling. Sikkim also permits an online lottery, which takes bets from players throughout India. It was expected that other states would follow Sikkim, thereby opening up a major online gambling market throughout India. Sikkim became the first Indian state to legalize internet gambling.

Central Government Actions against Online Gambling

Although the Central Government has no jurisdiction over UK licensed bookmakers whom operate legally under European and International Law, they have taken some action to make using these sites more difficult. This comes in the form of two laws, neither of which has been highly effective.

Payment and Settlement Act, 2007

President Pratibha Patil signed the Payment and Settlement Systems Act, 2007 on 20th December 2007 and it went into effect on 12th August 2008. This act gives authority to the Reserve Bank of India (RBI) to regulate all forms of electronic payment. Section 4 is key which in part states:

Payment system not to operate without authorization:

(1) No person, other than the Reserve Bank, shall commence or operate a payment system except under and in accordance with an authorization issued by the Reserve Bank under the provisions of this Act:

The act goes on to say any payment system or clearing house with less than 51% of the equity held by an Indian bank requires authorization to operate in India. Much the rest of this 14 page Act, gives RBI all sorts of authority over all aspects of payment processing in India, as well as the rights to enter and inspect with or without notice and access to all financial and customer data upon request.

The most important factor here is RBI has the right to make policies almost on demand (in concordance with this Act) for all things involving payment processing. They have exercised this authority numerous times. This is what caused the PayPal in India fiasco, and also what caused Neteller to stop issuing Neteller plus cards, and EntroPay to stop issuing Plastic MasterCard branded debit cards. So in short, RBI has the full right to instruct banks to decline or refuse and payments or deposits involving any particular payment processor, e-wallet or clearing house. While they seem more concerned with going after businesses and freelancers who might be evading tax, should they in the future decide to go after gambling processors, the legal framework and authority for them to do so already exists. Again to be clear, at the current time this does not seem to be a priority for them.

Internet Service Providers (ISPs)

On 14 April 2011, the Gazette of India published the Information Technology (Intermediaries guidelines) Rules, 2011. This legal document is issued under authority granted in Information Technology Act, 2000. In short this act instructs Internet Service Providers and Website Hosts, to block access to certain types of websites and content. While the majority of this is for areas of National Security, things that would shine India in an improper light, things that are blasphemous, illegal, pornographic etc., Section 2 item B includes anything “relating or encouraging money laundering or gambling”.

The addition of gambling to the IT Act of 2000 is in conflict where much the rest of India is headed. Again, the Sikkim Government has legalized sports betting and casino gambling, Goa has legal casinos, and 13 states have legalized lottery. Even Mr. Haroon Lorgat, the CEO of the International Cricket Council (ICC), has urged Indian officials to make cricket betting sites legal, as he feels this is the best way to prevent corruption and match fixing in the sport. So while the push for legal gambling in India is strong and has made some progress, the Central Government is still taking action in an attempt to make it more difficult.

Conclusion

There is a huge potential for the gambling industry of India, though much of the market falls today in illegal domain. It is necessary to project the income and employment potentials and future prospects of this industry in India .There are divergent views amongst policy makers on gambling. It can be betting on sports, political outcomes or wars, films, weather or on celebrities. Transparency and counter-party guarantees can bring the illegal market into the legal ambit. This segment can primarily cater to the upper middle and rich class of Indian society. But today's laws address neither the economic nor the social costs. The development of a gambling industry in India requires a three-pronged strategy: reforming the existing gambling (lottery, horse racing) market and legalizing the present illegal market (introducing new products), while introducing stringent and over-arching regulations. India can have regulations to ensure transparency and fair play in the gambling business and also address the social costs associated with gambling.

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