Abstract
The Law Commission of India (“Commission” or LCI) has finally released the hotly anticipated and somewhat contentious report on legalizing betting and gambling in India (“Report”). 1 While the Report was met with jubilation from the industry, it also faced immediate backlash. A day after releasing the Report, the Commission released a cautious press note to underscore that its recommendation was to ban betting and gambling in India. However, if the central government or state governments did consider regulating it, the Report set out some positive and logical measures to combat player fraud, enhance investment, and tackle problem gambling, amongst other recommendations.
While the Report covers the wider gamut of gambling and betting, the real trigger for the Report was to address the mayhem around rampant sports betting in India. In this article, we get the ball rolling on how the reference to the Law Commission arose, some of the Commission's key recommendations, and what the industry can expect in the wake of the report.
From Match Fixing to the Mudgal Committee: Murky Beginnings of the Law Commission's Report
In 2013, the Indian Premier League, a professional cricket league in India, was rocked with allegations of match fixing and sports betting. The Supreme Court of India appointed Justice Mukul Mudgal, former chief justice of the High Court of Punjab and Haryana, to investigate these allegations. The “Mudgal Committee,” so constituted, stressed the ineptitude of investigative agencies to track sporting frauds. The committee recommended that legalization and regulation of sports betting was key to the detection of fraud. These recommendations were mirrored by another committee, the “Lodha Committee,” constituted by the Supreme Court under the stewardship of former chief justice R.M. Lodha. The Lodha Committee opined that legalizing betting within a robust regulatory framework would enable the government to tackle match‐fixing issues.
While considering the report of the Lodha Committee in the case of Board of Cricket Control in India v Cricket Association of Bihar & Ors., 2 the Supreme Court made a reference to the Law Commission of India to, inter alia, examine the issue of legalizing sports betting in India.
On May 30, 2017, the Law Commission issued a public appeal inviting the views of industry stakeholders on the issue. After a yearlong wait, the Report was finally released.
Law Commission's Playbook to Regulating India'S Gaming Industry: Key Recommendations
Stories of, and references to, “gambling” and “betting” activities are found in epics of Ramayana and Mahabharata and ancient texts like Rig Veda and Atharva Veda. Authors of Indian scriptures and texts have been skeptical in their approach and consider them as risky activities which can lead to “self‐harm” and “self‐destruction.” 3 The Report has alluded to certain factors which make India an unsuitable climate for legalizing betting and gambling activities. Namely, the fact that one‐third of the population is below the poverty line, and that these activities are considered immoral by the Indian society, right from the time of the early scriptures. The Report has identified extreme financial losses, loan‐sharking, and a blow to the moral fiber of the nation as possible ramifications of legalizing betting and gambling in India.
However, the Report acknowledges the benefits of legalizing gambling, such as the potential to generate revenue and employment, boost ancillary industries such as tourism and information technology (IT), protect the consumer, and mitigate risks faced by operators and players alike at the hands of law enforcement authorities. 4 The Report also concludes on a positive note by recognizing that “as society changes, the law cannot remain immutable” and “the law exists to serve the needs of the society which is governed by it.” Regulation could also assist in the identification of problem gambling and the protection of vulnerable sections of society. Furthermore, a regulated industry would curb money laundering and fraud.
Upon weighing the competing considerations, the Report has provided the following recommendations for the introduction of a regulatory framework for betting and gambling in India:
Constitutional Framework: Betting and gambling are presently subjects on the State List
5
of the Constitution of India. This means that individual states have the exclusive legislative competence to enact laws regulating betting and gambling activities in India. However, since betting and gambling has extended to a variety of other media, the Report suggests that central Parliament can derive competence to legislate on these subjects through an alternate entry governing “Posts and telegraphs; telephones, wireless, broadcasting and other like forms of communication,”
6
which falls under the Central List of the Constitution. Alternatively, the Report proposes that Parliament may enact a model law which could then be adopted by individual states, or Parliament may legislate on these subjects in exercise of its powers under Article 249
7
or Article 252
8
of the Constitution of India. Article 249 empowers Parliament to legislate with respect to a matter on the State List in the national interest, whereas the mechanism under Article 252 of the Constitution allows two or more states to approach Parliament to legislate on a subject by those states' consent. Other states may then pass resolutions to adopt the law as introduced. Eligibility for a license: The Report has cautioned that gambling and betting should only be permitted to be offered by Indian licensed operators “operating from within India.” While the Report suggests that licenses should be awarded by a “game licensing authority,” it does not provide any recommendations on how such an authority shall be constituted, or how it shall operate. The Commission also recommends that the Foreign Direct Investment Policy under the Foreign Exchange Management Act, 1999, should be relaxed to allow investment in the industry. Currently, foreign direct investment is prohibited in gambling and betting, including in casinos.
9
It seems that the Report recommends that Indian subsidiaries of foreign operators may also be eligible for the license, although no thresholds have been specified. User Restrictions: The report advocates for a variety of restrictions to safeguard users from the hazards of gambling. Some of the key proposals in the report in this respect are as follows: An upper cap on user transactions within a specified period (a month, half a year, or a year). An upper cap on wager amount on the basis of deposits, winnings or losses. A bifurcation between gambling into “proper gambling” (denoting higher stakes gambling) and “small gambling” (denoting lower stakes gambling). Only individuals belonging to higher income groups would be permitted to indulge in the former. Linkage of all gambling transactions to operator and players' Aadhar cards (the Indian equivalent of a social security number)/permanent Account Number cards, as well as ensuring all transactions are through electronic means to ensure transparency. Age gating provisions for minors, and prohibitions on gambling for those who avail of Government social welfare schemes, or below the tax bracket. Regulation of online advertising content, and displaying risks associated with gambling on all operator websites. An establishment of a council to study and prevent problem gambling and gambling by minors. Taxation: One of the key impediments to effective implementation of any regulation are high tax rates which often suffocate the business. The industry had made representations to the LCI to curtail onerous taxes, in the hope that some positive recommendations would be offered on that front in the Report. While the Report made a cursory recommendation that any income derived from betting and gambling be taxed under the Income Tax Act, 1961, and the Goods and Services Tax Act, 2017, this aspect is already covered under the prevailing tax laws. However, the Report remains conspicuously silent on any detailed recommendations in tune with the industry representations. This was a key concern for the Indian gaming industry, which the Report acknowledges, but fails to address. Amendments to existing laws: In order to bring the betting and gambling industry within a regulatory framework, the Report has indicated that certain other laws would have to be appropriately amended as follows: While the prevailing Information Technology (Intermediary Guidelines) Rules, 2011, bar intermediaries from transmitting content relating to or encouraging gambling, the rules should be amended to bar only illegal gambling. This would allow licensed operators to host gambling related content on platforms, as well as advertise their products The National Sports Development Code of India, 2011, introduced by the Ministry of Youth Affairs and Sports, aims to prevent betting and gambling in sports. The Report recommends an exception be introduced for licensed betting and gambling activities Section 30 of the Indian Contract Act, 1872, renders wagering contracts void and unenforceable. The Report proposes that Section 30 be amended to exempt transactions over licensed operators' portals, or casinos, from the definition of “wagering agreements.” Match fixing and other sporting fraud be made criminal offences with severe punishments.
The recommendations in the Report follow global best practices in terms of measures to curb problem gambling, and to stop money laundering and fraud, among others.
Ball in the (Supreme) Court for Fate of Sports Betting?
Interestingly, the Law Commission has recognized in its report that sports betting is a game of skill. 10 It has appreciated that sports betting involves an assessment of physical skill, effort, and strategy. Accordingly, the determination of results in sports games are based on an exercise of skill. The Commission also observes that being a game of skill, sports betting is not tainted with notions of immorality.
As the Supreme Court, in the case of Dr. K. R. Lakshmanan v State of Tamil Nadu & Anr, 11 has already held that betting on horse racing is a game of skill, a convincing argument can be made that the same principles apply to sports betting. Most Indian states carve out an exemption for games of skill in their state gambling laws. It can be argued that sports betting can be offered in most states in India under the current regime. As a natural corollary, sports betting can be safely excluded from the debate on legalization of betting activities or not.
However, instead of making this argument the basis of providing safe harbor to sports betting, the Report has cited the inability of state governments to control rampant sports betting as one of the key reasons to regulate the activity in its report. The LCI notes that, since betting on horseracing is a game of skill and is exempted from the prohibitions, other skill games should also be afforded this exemption.
As the issue of legalizing sports betting is pending before the Supreme Court in the case of Geeta Rani v Union of India, 12 it seems that the apex court will now finally determine the issue.
Next Steps: Are State Governments Ready to Play Ball?
The Report may not be the slam‐dunk victory the industry was hoping for. For starters, the Report has not effectively addressed whether sports betting, being a game of skill, lies outside the purview of “gambling” activities. One would have hoped that the Commission's observation on sports betting as a game of skill would have been carried forward in the final set of recommendations. It has now been left to the Supreme Court to determine whether sports betting is a game of skill in the Geeta Rani proceedings. A ruling to this effect will certainly provide legitimacy to sports betting operators.
Furthermore, the LCI blows hot and cold by recommending both a central legislation to govern betting and gambling activities pan‐India on the one hand, while also leaving it up to individual states to regulate the activity within their jurisdictions. The current state‐focused legal framework has resulted in a myriad of progressive and prohibitory regimes existing in parallel in India. The result is mounting uncertainty and business risk for gaming operators. For instance, the state of Sikkim has introduced a licensing regime for online gaming and sports betting under the Sikkim Online Gaming (Regulation) Act, 2008. The state of Telangana has recently amended 13 the Telangana Gaming Act, 1974, to remove the exemption for skill games in its entirety from its law. Unfortunately, the Report does not clearly recommend that a federal law be enacted, leaving operators to the mercy of such divergent state laws.
Game Plan for 2019—Can India Expect a Federal Law in the Next Year?
The Report may have triggered vocal resistance toward regulation by certain politicians, but this is not unexpected. At the brink of the nation's general elections in 2019, no political party is likely to invite controversy by engaging in discourse on gambling, a taboo subject in many parts of India. But, for a fast‐growing economy like India, the law needs to keep pace with business and technology. Even if a federal bill were to be introduced to regulate betting and gambling activities in India, the industry is looking at a long gestation period before the final Act is introduced. Most bills are required to be introduced and passed by both Houses of Legislature, and receive the president of India's assent before they become an Act of Parliament. While this is a lengthy process, there is no “typical” timeframe in which a bill is passed.
Despite the absence of a legal framework, operators in India's nascent gaming industry have already stepped up to the plate by introducing measures for player protection, among others. These operators also make a strong business case by contributing to the nation's economy through revenue generation and employment.
But it elicits the inevitable question: post elections, will India's government choose to evaluate this business case? Till then, brace yourself for a slew of debates and musings from hopefully, optimistic minds.