Abstract
BACKGROUND
Online sports betting has been traditionally considered as a prohibited activity in most parts of India, except for betting on regulated platforms in the states of Nagaland and Sikkim which have introduced specialized licensing processes for offering the services within their territory. Regulation of online sports betting in India is similar to the United States of America (USA) where states are competent to legislate on the subject. In India, the Indian Constitution provides similar legislative and regulatory powers to the states (List II-State List, Seventh Schedule of the Constitution of India, 1950, Entry No. 34), instead of the Union Government (similar to the Federal Government in the USA). This power of the state governments to regulate online sports betting has been recognized by the Union Government, which has otherwise decided not to legislate on the subject, 1 even though it may have indirect competence to regulate sports betting operations being run purely in an online mode. 2
In recent years, the Indian Government has received a number of reports regarding the marketing of offshore online sports betting platforms which are available for access in Indian territory. 3 These platforms enable Indian residents to bet on these platforms. In response to the advertisements published by these offshore betting platforms, the Union Government in India issued advisories on 13 June and 3 October, 2022, through the Ministry of Information and Broadcasting to print, electronic, digital media and OTT (over-the-top) platforms to not publish, broadcast or transmit any advertisements which directly or indirectly (through a surrogate product/service) promote online betting platforms. The government has also investigated online betting and gambling sites for money laundering activities. 4
In light of these advisories and the ongoing investigation by Indian agencies on offshore online betting platforms, the current article seeks to understand the possibility for operation of an online sports betting platform in India, and how such activities may be regulated, including for foreign online sports betting operators.
EXISTING REGULATION ON ONLINE SPORTS BETTING IN INDIA
Sports betting in India is not a recent phenomenon and its regulation under the common law framework can be traced back to the Public Gambling Act of 1867, which was enacted by the British rulers in India. In a sign that the laws regulating gambling in India have not kept up with societal and technological developments, this 19th century legislation is still the Union legislation regulating sports betting (including online sports betting) in India, and is still applicable across a number of states with minor variations. 5 Owing to the power provided to the State governments to regulate betting and gambling under the Constitution after India's independence, a few of the states have been proactive in enacting their own state-specific laws, but others continue to work under the aforementioned 1867 law.
In the absence of updated legislation on the subject, the jurisprudence on gambling in India has evolved substantially with the judgments rendered by the Supreme Court of India. In R.M.D. Chamarbaugwalla v. Union of India, 6 which is one of the first major Indian decisions pertaining to gambling, the Supreme Court laid down the dictum that competitions wherein success does not depend to a substantial degree upon the exercise of skill, is recognized to be of a gambling nature. Axiomatically, competitions which involve exercise of substantial skills are outside the purview of gambling and are protected by the fundamental right of citizens to pursue any trade or profession as provided under Article 19(1)(g) of the Indian Constitution.
It is vital to emphasize here that online sports betting as would be dealt with in this submission is different from fantasy sports platforms where one can pick an actual player or a team of players based on their performance and then make money based on the performance of the players in the fantasy sports chosen by them. The legal position of online fantasy sports in India is quite clear with the Supreme Court of India considering it a game of a skill in numerous decisions rendered by it, and thus, unlike sports betting, is valid and legal as per the Indian laws. The Government has also initiated the process of regulating such skill-based gaming platforms.
UNDERSTANDING THE MODUS OPERANDI OF OFFSHORE ONLINE SPORTS BETTING PLATFORMS
The offshore online sports betting platforms in India depend on the promotion of the platforms in popular Indian websites, mobile applications and television channels, particularly during sporting events. The licensing, governing and regulation of such foreign betting websites is carried out by the gambling regulators of the foreign jurisdiction under which they are registered and operate. India is considered to be an emerging market and in the absence of a specific regulation to govern gambling through online mode, it is a preferred mode for such operating online betting websites to operate under an off-shore license here, even though such an activity may be prohibited.
Since the operation of online betting websites is strictly prohibited under Indian laws, such offshore betting websites operate with servers located in jurisdictions where they are licensed, or where gambling is legally permitted. Some of the preferred jurisdictions for the operation of online gambling websites are the UK, Gibraltar, and Malta. 7
The foreign online sports betting platforms rely on the flexibility that most of the licenses issued by prominent foreign gaming regulators are open-ended in terms of territorial validity, which means that players across different markets in the world where the national regulations do not expressly forbid the users from accessing them or where the remote access of such websites is not blocked, can use them for the purpose of online sports betting. These offshore regulators expressly list down the markets which they do not serve and for the operations on whose territories, they are not responsible. Generally speaking, this involves the U.S. market and any other country's which provides for a local license requirement. As of now, it seems that India is not considered as a prohibited jurisdiction for operation by the prominent gaming regulators abroad.
Usually, the leading foreign regulators aspire to maintain responsible gaming policies, provide consumer protection and use secure payment methods to maintain their reputation in the market. One of the most sought licenses by online gambling websites operating in India is the one granted by Malta Gaming Authority (MGA). Malta has been quite progressive with its gambling regulations and is thus, considered as a first-rate international gambling permit. It enacted a new gaming Act in 2018 which substantially revamped its gambling regulatory framework. This new regulatory framework, inter alia, provides a higher level of reliability, but also longer procedures (approximately six months). Moreover, the policies pertaining to anti-money laundering have become more stringent under the new legislation earning the MGA a favorable reputation in the international market. Online betting companies rely on this reputation of the MGA when operating in unregulated jurisdictions like India.
It would, however, be wrong to assume that all offshore sports betting operators in India are regulated. Recently, the Hyderabad Police unearthed an online gambling racket run by foreign nationals which involved digital money transactions on a large scale and was used as a tool for money laundering. 8 The alleged gambling operators involved in the scam floated numerous websites and through the aid of Indian Chartered Accountants made use of digital wallets for sending and receiving payments amounting to millions of Indian rupees in India as well as other countries.
EFFORTS OF THE UNION GOVERNMENT IN INDIA FOR REGULATING FOREIGN BETTING WEBSITES
In the absence of direct legislative power to regulate online sports betting in India, since the power is provided to the state governments, the Union government has attempted to use indirect means to regulate the operation of offshore online sports betting platforms. The attempts to control the operation of such platforms have been targeted at advertising (to limit the reach of offshore online sports betting platforms), and the regulation of money transfer abroad to offshore online sports betting platforms, as is described below.
A. By prohibiting advertising
Advertisements are one of the most significant ways of promoting and encouraging the use of a particular product or service. Online betting websites are not any different in this aspect and they use advertisements as one of the most common ways to attract customers. However, the Government of India recognizing the various risks associated with online betting, be it social, financial, or economic, issued an advisory through the Ministry of Information and Broadcasting which banned advertising of online betting websites in print, electronic and digital media. 9 The advisory highlighted the illegal status of gambling and betting in most parts of the country as well as its detrimental effects on youth and children of the country. It further pointed out the manner in which these advertisements were helping to promote the online betting platforms and consequently, increasing the practice of an illegal activity.
The Advisory stated the misleading nature of the advertisements and how they were not in conformity with the relevant provisions of the Consumer Protection Act of 2019, 10 the Advertising Code under the Cable Television Networks Regulation Act of 1995, 11 and the norms pertaining to advertisements as laid down in the Press Council Act of 1978 12 by the Press Council of India. It also asked the social media platforms including the online advertisement intermediaries and publishers to refrain from displaying such advertisements in India or use them to attract users from India. It also should be noted that the Ministry of Information and Broadcasting had issued a second advisory to private satellite channels to comply with the guidelines issued by the Advertising Standards Council of India (ASCI) pertaining to online gaming which listed out specifics of what was to be and not to be done with respect to audio-visual advertisements of online gaming. 13
The Advisory also dealt with the issue of use of surrogate websites by offshore online betting platforms wherein websites purporting to broadcast news are actually floated by the offshore companies to promote their betting platforms on digital media. It was further noted by the Ministry that these surrogate websites used logos of their parent company and were not registered with any legal authority as per the Indian law. In the guise of sports blogs and sport news platforms, they provided a list of online betting platforms which were using these surrogate websites for promotion of online betting.
The advisories have had limited success as sports betting platforms have continued to advertise in India, both through direct ads on websites and mobile applications, and through celebrities. 14
B. By preventing foreign investment in gambling and prohibiting foreign exchange payments for betting
The Master Direction on Foreign Investment in India as published by the Reserve Bank of India (India's Central Bank) in 2018 strictly prohibits foreign investment in India in gambling and betting, including casinos, etc. 15 The same Master Direction also prohibits foreign technology collaboration in any form, including licensing for franchise, trademark, brand name, and management contract for activities related to gambling and betting.
The Government has also attempted to prevent remittance of funds abroad for sports betting by including “remittance for purchase of lottery tickets, banned/proscribed magazines, football pools, sweepstakes, etc.,” as a prohibited transaction for Indian residents under the Foreign Exchange Management (Current Account Transactions) Rules of 2000 (India). Payments for these activities are also prohibited by Indians using their credit and debit cards abroad.
In addition to this, the Government has also undertaken action of money laundering and “hawala” (informal money transmission) being undertaken for online betting. 16
POSSIBILITY FOR RUNNING AN ONLINE SPORTS BETTING PLATFORM IN INDIA
In light of the actions by the Union Government in India to prevent access of its residents to foreign online sports betting platforms, the question arises as to whether there is a path, even limited, for such platforms to operate legally in India. To answer this, the following section evaluates the possibility for such operators to establish operations in India and the hurdles which may be faced by them.
A. State laws on the subject governing licensing of online sports betting
As highlighted above, state governments in India have the power to regulate and legislate on gambling and betting, but few have exercised the powers to provide for a regulated sports betting or gambling framework. At present, Sikkim and Nagaland are the only states in India which permit sports betting through licensed operators. Both the states have used different frameworks to provide for licensing frameworks for the same, but the possibility for online sports betting for licensees in the two states is very limited, as discussed below.
The Sikkim government provides for granting of licenses to sports betting operators under the Sikkim Online Gaming (Regulation) Act of 2008 17 (as amended) read with the Sikkim Online Gaming (Regulation) Rules of 2009 (as amended). 18 Instead of using the term “betting”, the law Act regulating the subject in Sikkim uses the term “sports gaming”. Under these legislations, “sport gaming” is permitted which involves “prediction of the results of the sporting events and placing a bet on the outcome,” either in part or in whole, of such sporting event, and includes football, cricket, lawn tennis, chess, gold, horse-racing, etc.
Based on the above provisions of the law, sports betting is possible in Sikkim, but licensed operators have limited scope for expanding their operations, or for offering online sports betting on websites or mobile applications, even within the borders of Sikkim. This is because licensed sports betting operators are required to offer the “sports games” only through intranet gaming terminals situated within physical premises of “gaming parlours” located within the geographical boundaries of the State. 19
The Nagaland legislation called the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act of 2015 also allows the state to grant licenses to sports betting operators. The law permits licensed operators to provide a mechanism for wagering or betting on online “games of skill”. The “games of skill” on which bets can be made by the players are included in a separate schedule called “Schedule A”.
While the Nagaland law does not limit the operation of online sports betting offerings of the licensees to terminals and allows them to also accept “players operating from territories where ‘games of skill’ are exempted from the ambit of gambling”, it places a different form of limitation. Nagaland has included a very limited number of games in “Schedule A”, which prevents licensees in the state from providing an option to bet on outcomes of popular sports, like offshore online sports betting operators do.
The “games of skill” included in Schedule A, on which bets can be placed at the moment are very limited and do not include popular sports like football, cricket, lawn tennis or badminton. The non-inclusion of popular sports may be an offshoot of the Law Commission of India's conclusion that “legalising betting and gambling is not desirable in India in the present scenario.” 20 With no popular sports included, sports betting would be limited to the small number of enthusiasts of the less popular games included in Schedule A.
In light of the limitations prescribed in the laws of both Nagaland and Sikkim, operation of a very large online sports betting platform may not be possible. In a nutshell, local sports betting operators who wish to secure a first mover advantage may attempt to start limited operations in the two states, but may not be able to be expand their operations beyond the state boundaries, due to license limitations, and Union and state laws in India. No opportunities exist at the moment for investment in either state, or even the rest of the country, for foreign operators seeking to invest in India in sports betting operations, due to explicit prohibition in law on such investments.
B. Local restrictions on sports betting
Foreign online sports betting operators may also have to deal with prohibitions under local legislations in certain states in India which have enacted local legislations to govern gambling in their respective states (inter alia Assam, Telangana, Andhra Pradesh, Odisha and Tamil Nadu). The State governments under these legislations have expanded the scope of “gambling” under the Public Gambling Act of 1867. Certain states may also invoke provisions of more stringent law such as Maharashtra which had in the past invoked the penal provisions of the stringent Maharashtra Control of Organized Crime Act (MCOCA) 21 in addition to the Bombay Prevention of Gambling Act of 1887 22 against individuals accused of indulging in gambling activities, when they have a nexus with organized crime. 23 Similarly, in 2017, Uttar Pradesh enacted the Uttar Pradesh Control of Organized Crime Act, which is based on the MCOCA to tackle organized crimes in the state. 24
CONCLUSION
The key problem in regulation of online sports betting in India lies in the lack of explicit prohibition of online sports betting in most states in India, primarily as a result of old legislation which have not been amended to deal with updates in online gambling and betting. Amendments would be required in law at both the Union and State levels if online sports betting is sought to be regulated. Even if sports betting is permitted in certain states, it is believed that since Section 30 of the Indian Contract Act of 1872 25 (a Union law valid across the country), declares wagering agreements to be void and unenforceable in a court of law, gambling debts cannot be enforced in courts, and sports betting operators may face significant hurdles in operation unless this provision is amended. Further, amendments would also be required to foreign investment rules and foreign exchange laws if foreign investment is sought in the sports betting industry.
It becomes imperative that the regulatory framework pertaining to online sports betting in India is made clear by enacting express legislations on the subject. With gambling being a state subject, the onus lies on the states to enact legislations which either expressly prohibit sports betting or properly regulate it. While an express prohibition by states would help in putting an end to the operation of offshore betting platforms in India, a legislation which regulates it through an efficient mechanism merged with appropriate amendments in Union law, would help in generating revenue and potentially more employment opportunities. Either way, an updated framework to govern this market seems to be pertinent considering the increased penetration of the Indian market by offshore betting platforms. This would help significantly in curbing the increased operation of the offshore betting websites in the country which currently exploit the legal vacuum with respect to online sports betting.