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Karnataka’s ban on online gambling takes effect, much to the dismay of gaming industry

Apart from outlawing games of skill, the bill revised clauses and definitions to bring online gaming under regulation.

Online gambling has been banned in Karnataka after the state government notified an amendment to the Karnataka Police Act on October 5, The Economic Times reported. Under the amended act, online gaming is considered a non-bailable offence with fines up to Rs 1 lakh and imprisonment of up to 3 years.

The amendment has been passed by both houses of Karnataka’s bicameral legislature and is effective immediately. All kinds of online betting and gambling, including games of skill, have been banned by the law.

While gambling is a state subject in the Indian constitution, the judiciary has curtailed state governments’ ability to outright prohibit betting and gambling when they involve some element of skill. The Madras High Court recently struck down a Tamil Nadu law banning games of skill on similar grounds. The central government is also reportedly considering a uniform approach to regulate online gambling. Karnataka’s gambling bill might run up against such countrywide norms that are emerging to regulate online gambling.

What the amendment to the Karnataka Police Act says

Aside from banning games of skill, the amendment is largely focused on changing clauses and definitions to bring online gaming under the ambit of the act. Here are the key changes implemented:

  • Revised definition of gaming: The Police Act amendment expands the definition of “gaming” to include online games and games that use “electronic means and virtual currency, electronic transfer of funds in connection with any game of chance.”
  • Games of skill included: The law’s ambit will now include “any act or risking money, or otherwise on the unknown result of an event including on a game of skill” (emphasis provided)
  • Instruments of gaming: Instruments of gaming now include “computers, […] mobile app or internet or cyber space, virtual platform, computer network, computer resource, any communication device, electronic applications, software and accessory or means of online gaming, any document […] in electronic or digital form.” Cyber cafés are also included in the amendment.
  • Fines increased: The amendment increases the fines and prison time to people caught under gambling prohibitions. A maximum term of one year has been made three years, and a Rs 1,000 fine has been increased to Rs 1,00,000. Minimums for these penalties have also been changed from one month to six months and Rs 500 to Rs 10,000.

How did the industry react to the bill?

  • The Internet and Mobile Association of India said that “the bill may hurt Karnataka’s position as the country’s startup hub and lead to the loss of jobs and revenue for the state. There are 92 gaming companies registered in Bengaluru which employ over 4,000 people. In the past three years, international investors have invested around INR 3,000 crores in gaming and animation startups in the state. […] Legislative actions such as this, may create a cloud of confusion and create regulatory uncertainty, which may unintentionally result in investors recalibrating their investments in the state and many existing companies may consider shifting base from the state.”
  • The Federation of Indian Fantasy Sports, which represents fantasy betting apps like Dream11 and Mobile Premier League, said that “the Bill appears to be misguided since it penalises legitimate businesses by treating them at par with illegal online gambling, betting and wagering platforms […] Such confusing signals from the Karnataka government could result in impeding the development of sports in the State.” (Emphasis theirs)
  • Arpit Gupta and Rutuja Pol, Senior Associates at Ikigai Law, a law firm that authored a report for IAMAI extolling the “huge economic returns” of the real money gaming industry, said: “It is quite strange that the Karnataka government decided to go ahead with this law, despite several precedents on why a law like this is unlikely to work. There is the recent Madras High Court judgement, with many of its observations directly applying to this situation.”
  • The Confederation of All India Traders, a large trader union, said that the bill would hurt startups. “The bill will end up encouraging illegal offshore gambling and betting apps who operate in the online grey market,” Praveen Khandelwal, CAIT’s National Secretary-General, wrote in a letter to Karnataka Chief Minister Basavaraj Bommai.
  • Ranjana Adhikari, Partner – Media, Entertainment & Gaming with the TMT Practice group of IndusLaw said: “The approach adopted by State of Karnataka is best described as being paternalistic and in ignorance of very set legal principles regarding skill gaming right, at the level of the Supreme Court. Skill games have the protection under the Constitution of India as a legitimate industry protected under the fundamental rights guaranteed. […] The manner in which the bill has been passed is certainly open to challenge and unlikely to pass the muster of the legal tests that have evolved.”

How have other states regulated online gaming?

Different states have taken different approaches to online betting and gambling.  Some states have tried bans, and others have tried licensing. For instance:

  • Sikkim‘s Online Gaming (Regulation) Amendment Act, 2015 restricted the offering of ‘online games and sports games’ to the physical premises of ‘gaming parlours’ through intranet gaming terminals within the geographical boundaries of the State.
  • Nagaland enacted the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act in 2015. The law banned games of chance but allowed games of skill to be carried out from the state in any territory across India where games of skill are permitted.
  • Andhra Pradesh amended its gaming act to prohibit online betting and “online games for money or other stakes”. The law did not ban online gambling or betting apps, but the act of indulging in such activities was criminalised. The ban is being challenged at the Andhra Pradesh High Court, though it is unclear who the petitioners are.

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