Karnataka High Court Strikes Down Law Banning Online Gaming With Stakes

Sanjeev Sirohi, Advocate
Defence Enclave, Sardhana Road, Kankerkhera, Meerut, Uttar Pradesh
Email Id : sanjeevsirohimrt@gmail.com

Date : 18/02/2022 Location : S/o Col. BPS Sirohi, A-82, Defence Enclave, Sardhana Road, Kankerkhera, Meerut-250001, U.P.

Karnataka High Court Strikes Down Law Banning Online Gaming With Stakes

While taking a very clear stand, the Karnataka High Court has while giving relief to online gaming operators and players in a learned, laudable, landmark and latest judgment titled All India Gaming Federation v. State of Karnataka in WP 18703/2021 : 2022 LiveLaw (Kar) 47 delivered finally on February 14, 2022 declared as unconstitutional certain provisions of the Karnataka Police (Amendment) Act 2021, by which the state government has banned and criminalised online games with stakes to be ultra vires to the Constitution and struck them down. A Division Bench comprising Chief Justice Ritu Raj Awasthi and Justice Krishna S Dixit delivered the judgment while allowing the petitions filed by associations of gaming operators, such as Online Gaming Federation, Federation of Indian Fantasy Sports and a few individuals who are online gaming enthusiasts. The court said it was not striking down the entire law, but only some contentious provisions.

Simply put, the petitioners had contended that Karnataka's law effectively curbed online games of skill too, which had been allowed by the Supreme Court. It may be recalled that the Karnataka government had notified the law banning betting and wagering in online games on October 5 after the legislature passed the Bill in January. The Karnataka state government's stand before the court was that its amendments did not ban online "games of chance" or "game of skill", but only restrained people from risking money "on the happening of an uncertain event" and that "online platforms are prohibited from inducing gullible public with lure of unattainable prizes."

Sameer Barde who is CEO of E-Gaming Federation said that, "E-Gaming Federation offered to work with Karnataka in developing a comprehensive regulation for the sector." Bimal Julka who is the Chairman of Federation of Indian Fantasy Sports while hailing the verdict said unequivocally that, "The verdict is welcome news for all sports fans in India - the biggest market for fantasy sports globally - with over 130 million users playing across more than 200 platforms. This judgment follows other positive judgments given by the High Courts of Punjab and Haryana, Rajasthan and Bombay that recognized fantasy sports as games of skill and a legitimate business activity protected under Article 19(1)(g) of the Constitution of India."

It must also be mentioned here that Salman Waris who is a partner at Delhi-based law firm TechLegis opined that, "The overall impact of the judgment for the sector is positive in the short term, as this formally allows entities involved in the business to continue to offer their services in Karnataka. Earlier due to amendments to the Karnataka Police Act, such service providers were facing business disruption issues and regulatory hassles, more so as many of them are based in the state."

Manish Mishra who is a partner at J Sagar Associates says that, "This judgment may also have a persuasive value for similar disputes in other states and one hopes that certainty in this regard is achieved soon." It may be recalled that the Tamil Nadu government had earlier in 2021 had passed a law to ban online games such as rummy, poker, and other skill-based games that involved betting and money prizes but it was revoked in August. Karnataka High Court is the third High Court after Kerala and Madras to scrap restrictions imposed by the state governments on the online gaming industry.

Needless to say, India has over 130 million online fantasy sports players across more than 200 platforms. Dream Sports which is the parent firm of fantasy sports platform Dream11, raised an investment of $840 million at a valuation of $8 billion in November and is the most-valued gaming start up in India. It must also be mentioned here that Virat Kohli backed Mobile Premier League is in second place and it raised $350 million at a valuation of $2.3 billion in September. It was estimated by a report that was published by venture capital firm Sequoia and management consulting company BCG in late 2021 that India's mobile gaming sector will grow from $1.5 billion of revenue in 2020 to $5 billion by 2025.

It would also be instructive to note that the report said that while India's gaming company initially monetized through in-game advertising, 80 percent of the $1.5 billion generated by mobile gaming in 2020 came from in-app purchases and real-money game spends. It is no ordinary matter that there are now over 300 million gamers in India and revenue across all gaming devices reached $1.8 billion in 2020, up 500 percent from 2016.

To start with, the Division Bench first and foremost sets the ball rolling by noting that, "The tickling tone for this judgment can be set by what Lord Denning had humoured in Tote Investors Ltd. v. Smoker (1968) 1 QB 509 : "...The defendant has in the past occasionally had a wager on a horse-race. Today she has been taking part in another game of chance or skill - the game of litigation...""

While elaborating, the Division Bench then states that, "All these petitions by the companies & individuals involving substantially similar questions of law & facts seek to lay a challenge to the validity of the Karnataka Act No.28 of 2021 (hereafter 'Amendment Act') whereby the Karnataka Police Act, 1963 (hereafter 'Principal Act') has been amended; the cumulative effect of these amendments, according to them, is the criminalization of playing or facilitating online games. After service of notice, the respondents having entered appearance through the learned Advocate General have filed their common Statement of Objections and Addl. Statement of Objections resisting the challenge."

While giving a brief description as to who the petitioners are, the Division Bench then observes that, "Petitioners in W.P. No.18703/2021 and W.P. No.19322/2021 are the societies registered under the Societies Registration Act. Petitioners in W.P. No.18729/2021, W.P. No.18732/2021, W.P.No.18733/2021, W.P. No.18738/2021, W.P. No.18803/2021, W.P. No.18942/2021, W.P. No.19241/2021 and W.P. No.22371/2021 are the

companies incorporated under the Companies Act. Petitioners in W.P. No.19271/2021 and W.P. No.19450/2021 are the individuals. Some of the petitioners in the petitions filed by the companies happen to be Directors. All the petitioners are associated with online gaming in one or the other way. These games are rummy, carom, chess, pool, bridge, cross-word, scrabble and fantasy sports such as cricket, etc."

Most commendably, the Division Bench has minced just no words to hold resolutely that, "Learned Advocates appearing for the petitioners are justified in complaining that the Amendment Act is violative of Article 14 of the Constitution inasmuch as it does not recognize the long standing jurisprudential difference between a 'game of skill' and a 'game of chance' which animates the scheme of the Principal Act, even post-amendment. Consequently, in the eye of Amendment Act, the persons who play games of chance and the persons who play the games of skill (in terms of predominance test) unjustifiably made to constitute one homogenous class. Our Constitution does not permit things which are different in fact or opinion to be treated in law as though they were the same. The doctrine of equality enshrined in Article 14 is violated not only when equals are treated unequally but also when un-equals are treated equally disregarding their difference vide E.P. Royappa v. State of Tamil Nadu, AIR 1974 SC 555 wherein the Apex Court observed:

"... The basic principle which therefore informs both Articles 14 and 16 is equality and inhibition against discrimination. Now, what is the content and reach of this great equalising principle? It is a founding faith, to use the words of Bose J., "a way of life", and it must not be subjected to a narrow pedantic or lexicographic approach. We cannot countenance any attempt to truncate its all-embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be "cribbed, cabined and confined" within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Art. 14, and if it affects any matter relating to public employment, it is also violative of Article 16. Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment. They require that State action must be based on relevant principles applicable alike to all similarly situated and it must not be guided by any extraneous or irrelevant considerations because that would be denial of equality...""

It cannot be lightly dismissed that the Division Bench has minced just no words to hold that, "In the considered view of this Court, the impugned legislative action that has clamped an absolute embargo on all games of skill defies the principle of proportionality and is far excessive in nature and therefore violates Article 14 of the Constitution on the ground of 'manifest arbitrariness'."

Finally, the Bench concludes by holding in the concluding para that, "In the above circumstances, these writ petitions succeed:

1. The provisions of Sections 2, 3, 6, 8 & 9 of the Karnataka Police (Amendment) Act 2021 i.e., Karnataka Act No.28 of 2021 are declared to be ultra vires the Constitution of India in their entirety and accordingly are struck down.

2. The consequences of striking down of the subject provisions of the Karnataka Police (Amendment) Act 2021 i.e., Karnataka Act No.28 of 2021 shall follow. However, nothing in this judgment shall be construed to prevent an appropriate legislation being brought about concerning the subject i.e., 'Betting & gambling' in accordance with provisions of the Constitution.

3. A Writ of Mandamus is issued restraining the respondents from interfering with the online gaming business and allied activities of the petitioners. No order as to costs."

In conclusion, this notable judgment is certainly a very welcome news for those fond of playing online games and those involved in its business also. It is a temporary setback to the Karnataka State government which had banned online gambling. But what should not be lost on us is that the Bench made it clear that the entire Act is not struck down and the judgment will not stand in the way of the legislature bringing in new law in consonance with the Constitution against gambling. So all is not yet over! This alone explains why Deepak Gullapalli who is the Managing Director and CEO of Head Digital Works which owns online skill gaming platform A23 said that, "We welcome the verdict but at the same time urge the state to view this sector as one that can be regulated. It has always been our intention to work with the state and stakeholders to have a solution that works for all stakeholders." The state definitely needs to ponder on this worthwhile suggestion made and act as it deems fit in the interest of the state and in the interest of the country!

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