Abstract
This article focuses on the power struggle between the Center and the States in the realm of regulation of online games. States have time and again contended and argued before the courts that games involving real money are to be considered as only “games of chance” and, therefore, the power to regulate them falls within Entry 34 of the state list—“betting and gambling.” However, the Indian Courts have categorically stated that all online games involving real money cannot be considered games of chance, and hence the states cannot put a blanket ban on the same. Despite this position adopted by the Supreme Court, the states have continued to frame legislations that overlook the distinction between games of chance and games of skill and impose a blanket ban on the two by placing such regulatory power under entry 34 of the State List. Through this article, the authors argue how such a blanket ban placed by the state on online games involving real money is not only against the position taken by the Supreme Court but also against the constitutional mandate. Additionally, the authors try to counter other possible entries under the State List that can be used by the States for constitutional authorization for the regulation of online games. While limiting the regulatory power of the states, the authors also put forth an argument that regulation of online games is not in the exclusive domain of the states but is shared with an overarching regulatory power lying with the Center. Finally, the authors look at the policy aspect as to why the regulation of the gaming industry should primarily vest with the Center, with state laws being in line with the Central legislation.
I. INTRODUCTION
Online gaming is well on its way to becoming a booming industry in the Indian landscape. Not only has it amassed a large user database within a short time, but also this database consists of people across the demographics. Presently, a large number of people resort to online gaming for the purpose of recreation. The easy accessibility of such games due to the widespread use of smartphones has enlarged the reach of this industry to even the remotest corners of our country.
While the ambit of online gaming and the types of games encompassed by it is quite large, we will be focusing on the specific type of games that are played by most of the “Bharat” as opposed to those which are played by a few of the elite class of India. Herein, by referring to and distinguishing between India and Bharat, the authors try to highlight the difference in the nature of games played by the majority of the population across age groups and those played by a handful of people limited to a certain age group and more importantly to a certain extent a specific economic background.
This article explores the area of online games involving real money that has garnered a huge chunk of Indian players within a few years since their arrival in the Indian gaming arena. This discussion becomes germane in light of the large-scale mischaracterization of these games that have been done by numerous Indian states as games solely based on chance. By misconstruing these games as mere games of chance, the states have time and again tried to posit them as games involving betting and gambling and thus have imposed an unconditional blanket ban on them. While the states have tried to justify such ban as within their legislative competency under various entries of the State List, the authors, through this article, highlight how such a claim is completely misplaced and the states do not have unbridled powers to regulate the functioning of online games involving real money. In doing so, the article is divided into five parts. Part II of the article briefly discusses the distribution of powers between the state and the center under Schedule VII of the Indian Constitution. Part III discusses and analyses the entries under which states have tried to justify the regulation of online games as lying strictly within their domain. It further showcases how none of the entries establish powers of the states, and the regulation of online games should thus be done solely by the central government. Part IV of the article thereafter offers policy recommendations as to why the online gaming industry should be regulated only by the central government. Finally, part V summarizes the article’s findings and offers concluding remarks.
II. THE CONSTITUTIONAL DISTRIBUTION OF POWERS BETWEEN THE STATE AND THE CENTRE
Federalism has always been celebrated as a pathway to democracy and a guarantor of the rights of a populace. 1 It not only enables a balanced distribution of powers but also precludes any one monopoly over law-making power. 2 It draws a balance between the factions which support concentration of power in the hands of the few and the dispersal of it in the hands of a greater number of people. 3 The decentralization of power is necessary for the purposes of representation and acknowledgment of the diversity present the enormous population any country.
Federalism can be divided into two categories: “coming-together federalism” and “holding-together federalism.” “Coming together” federalism refers to the independent countries which form a federation together for the purposes of security, resources, and better administration. 4 The U.S.A. is the example of such federalism and this was the traditional model of federalism. Recently, however, Asian countries have adopted another form of federalism called the holding-together federalism. In this form, the central authority of a country decentralizes its power to smaller units to prevent their secession from the country. 5
India is a quasi-federal country with the powers of administration divided between the state and the center. 6 The architects of the Indian Constitution were enthusiastic about federalism as an effective tool for establishing a unified Indian nation and a robust, unified government. 7 Even though the drafters envisaged a jurisdictional federal structure, that is, federalism linked to the idea of sovereignty and autonomy, 8 it is evident that the Indian system endorses asymmetrical federalism. 9 This becomes even more pronounced by doctrine of residuary power, which gives the Center the power to legislate on any matter which is not listed in the Seventh Schedule of the Constitution. 10 Such measures have mostly been taken to ensure the unity and integrity of the country considering the trauma that the country had to go through during its independence in the form of partition. Considering this backdrop, the Constituent Assembly, always had the intent for the Indian governance to function on the anvil of asymmetrical federalism. 11 This became evident when the Constituent assembly declined to label the Indian federalism structure as either federal or unitary and instead held: 12
“Here is a Constitution, which cannot be strictly classed under either of these two heads [federal and unitary]. It is almost of a new type […], a union Constitution. It bids to be a new phraseology that is contributed to constitutional thought by this assembly […] this is a new type of Constitution altogether, and we have to work it with that spirit.” 13
The requirement of an asymmetrical or quasi-federal Indian state has also been noted by the Indian Supreme Court as:
“extent of federalism in Indian Constitution is largely watered down by the needs of progress and development of a country which has to be nationally integrated, politically and economically coordinated, and socially, intellectually and spiritually uplifted. In such a system, the states cannot stand in the way of legitimate and comprehensively planned development of the country in the manner directed by the central government.” 14
Part IX Chapter I (Articles 245–255) of the Constitution of India deals with the legislative relations between the Union and the States. 15 The distribution of powers between the state and the central government is governed by lists present under Schedule VII of the Constitution. The VII schedule contains three lists: List I (Union List), List II (State List), and List III (Concurrent List). 16 The subjects enumerated in List I are under the direct and exclusive control of the Central government. 17 On the other hand, the subjects under List II are to be governed only by the state governments. 18 It is to be noted that neither the Center can make laws on matters in the state list nor the state governments can make laws on subjects present in the Central List. In addition to these two lists, List III, or concurrent list, consists of matters on which both the Center and the state can make laws. 19 However, in case of conflict between the Central and the state law, the former prevails over the latter. Moreover, matters which are not present in any of the three lists fall within the domain of the Center under Entry 97 of List I, also referred to as the residuary power of the Center.
A detailed critical analysis of the Constitution of India is necessary for this article as it seeks to dissect the phenomenon of distribution of powers to show how the same is extremely tilted in favor of the Center. As the Indian Constitution is a union constitution, its primary aim is to formulate a framework that is beneficial for the entire country. The rationale behind framing List I of Schedule VII and granting residuary powers to the Union Government is that there should be a uniform framework of law on these subjects. Otherwise, a multiplicity of laws might create unwanted situation and, in some circumstances, may be unfeasible to follow.
The next two sections appraise the concept of distribution of powers within the State and examine the various entries of List II of the Seventh Schedule to establish its legislative competency in the context of online gaming.
III. ARGUMENTS FORWARDED BY THE STATE FOR LEGISLATING ON THE SUBJECT OF ONLINE GAMING
This sections critically appraises the scope of the various entries in List II of the Seventh Schedule of the Constitution to check the validity of the arguments raised by the State Governments to regulate the subject of online gaming.
Entry 1 list II (public order)
Entry 1 of List II in the Constitution of India provides competency to the State Legislatures to legislate on matters pertaining to public order. 20 Public order refers to the State of tranquillity prevailing among the members of a political society due to the regulations implemented by the Government and includes the concept of public safety. 21 The test for applying “public order” is to determine if an issue disturbs the current life of the community as a whole and disrupts its public order. 22
Online gaming, especially fantasy sports, has been a source of leisure for working people and was a great source of enjoyment for the people of the country when they were stranded during the COVID-19 pandemic. 23 The ill effects of online gaming have often been found at the individual level rather than the public level and with people who are involved in excessive hours of such activities. Overall, the public has largely benefitted due to the phenomenon of online gaming, which has increased the steady flow of income as well as helped them to cope with the stress in their daily lives. 24 According to a study, fantasy sports have been found to be safer than investing in mutual funds, and often, the financial risks involved in online gaming are exaggerated without any proper data to back such information. 25
In most cases, where online gaming has caused financial loss and extreme addiction, these are individual instances and cannot be elevated to the category of public disorder. 26 There is a clear distinction between a situation which disturbs “law and order” and one which leads to “public disorder.” 27 Since online gaming has not led to a situation of public disorder, the State Governments do not have the competency to enact laws banning them from their territory under the garb of invoking this Entry of the Constitution.
Entry 2 list II (police)
Entry 2 of List II provides the State Legislature with the competency to legislate on matters pertaining to police. 28 Police refers to the nonmilitary personnel charged with the responsibility to maintain the peace and order in the territory of a particular State. 29 As already mentioned in the previous subsection, the issues with regard to online gaming, namely, financial ruination and addiction, are not large-scale problems that would qualify them as “public order” or “law and order” problems. Presently, such issues are only restricted to individual cases of people unable to exercise proper self-control or poor financial management.
To invoke the entry of “police,” there must be some problem that disrupts the peace and order in the territory of the State. Since there is no such disruption of peace and order, the State Government cannot exercise their legislative powers emanating from Entry 2 to ban or regulate the online gaming industry.
It is pertinent to note that the Karnataka High Court has also struck down the Karnataka Police (Amendment) Act, 2021 30 which imposed a blanket ban on all forms of online gaming. 31 This shows that even though a state may have legislative competency to regulate its police for the maintenance of peace and order in its territory, it cannot invoke the same to ban or regulate online gaming for the aforesaid purposes of “public order” and “police.”
Entry 6 list II (public health and sanitation)
Entry 6 of List II provides that the State Legislature has a competency to make laws on the subjects which affect the public health of the citizens of the State. 32 Under this entry, a State is competent to prohibit or control activities that lead to the deterioration of the public health of the people in its territory. 33
Often there has been a narrative over-highlighting the multiple health concerns of online gaming such as vision problems, and internet gaming disorders. 34 However, there are multiple positive health effects of online gaming too such as improved hand-eye coordination, enhancement of short-term memory, and other cognitive benefits. 35 Therefore, online gaming like any other activity has both positive and negative health effects and there is no need to over-emphasize on of the aspects while ignoring the other.
Till date, no State has been able to show any medical evidence or survey based on objective standards carried out by any national or state authority entrusted with public health which shows that online gaming has affected or, in future, can affect a substantial portion of its population. 36 A State cannot arbitrarily invoke Entry 6 of List II to enact a law regulating or banning online gaming in its territory.
States have cited research and disease classification by the World Health Organization in their 11th version of International Classification of Diseases whereby they have classified the excessive gaming as an “gaming disorder.” 37 It has stated that the same leads to a cohort of health concerns along with affecting the family, societal and occupational life of a person. 38 According to a systematic review for prevalence of gaming disorders, no data of such disorder being prevalent in India has been found. 39 This disease predominantly occurs in countries like North America, Middle-East Asia, and China. 40
Under Article 253 read with Entry 10 of List I, it is the Union Government which has the responsibility of enforcing international treaties and other international obligations within the territory of India. 41 Therefore, if at all, there is any obligation to prevent gaming disorders in India, it is the Union Government and not the State Government, which will have the primacy for laying down directives with regard to online gaming.
Hence, the State Government for no feasible grounds at the present moment can enact any law for regulating or banning online games.
Entry 33 (sports)
The states may present an argument that online games fall within the ambit of sports and, thus, by virtue of entry 33 42 of the state list, they have unlimited and exclusive power over their regulation. However, this argument would be completely misplaced, given the scope of power envisaged by entry 33. While there has not been any case where entry 33 has been argued by states in the context of online games, such an argument has been presented in the context of the regulation of National Sports Federations. Primarily in the case of the Indian Olympic Association v. Union of India, 43 the states argued that the Center is precluded from playing any role in the regulation of sports since entry 33 provides exclusive power to the states for their regulation. Rejecting this submission, the Court held that the power of the states to regulate “sports” is only limited to the local teams within the territory of the state concerned. However, regulation of teams at the national level, dealing with inter-state events, fall within the power of the Center under entry 97 of List 1. 44 The court held that regulation of sports federations at the national level falls under the residuary power of the Central government. The same position can also be seen in the case of Narinder Batra v. Union of India 45 wherein the court has noted that since the union government has the authority to frame laws on sports at the national and international level, even the executive will be competent to frame guidelines on the same. 46 Thus, the court has consistently held that the legislative competence to frame laws on “sports” at the national and international level lies within the exclusive domain of the union government. Additionally, since the Union Government has the power to make laws, the executive automatically gets the legitimacy in framing regulations on the same subject matter by virtue of Article 73 of the constitution. 47 When this position is applied to online games, it becomes lucid that the Union Government and, thereby, the executive has the authority to frame guidelines governing its regulation.
In respect of online games, people from all over the country engage and play games. When this is seen as a sporting activity, the nature of the activity changes from just being intrastate to being interstate. Thus, applying the reasoning of the court to online games, the power of the states to regulate online games is only limited to their respective territories. However, at the national level, that is, when online games are played by players residing in different states, it is the Union government which should have the authority, under Entry 97 of List 1, to regulate the functioning of such games. This is also reaffirmed by the fact that Schedule VII only demarcates the legislative fields between the center and the state. 48 It does not confer the power to legislate. Therefore, a restrictive interpretation of the Parliament’s power to legislate will be antithetical to the plenary power given to it under article 248 of the Constitution. 49 Thus, when Article 248 is read in tandem with Entry 97 of List 1, it is apparent that the parliament’s legislative and executive power should be given a broad interpretation. 50
Therefore, since regulation of online games involves formulation of laws and guidelines at the national level, the parliament has the authority to do the same under Entry 97 of List 1 of the Indian Constitution.
Entry 34 (betting and gambling)
Entry 34 of List II provides that the State legislature has the competency to make laws on subjects which pertain to “betting and gambling.” 51 The State Government does not have legislative competency to invoke Entry 34 to regulate and ban online gaming because: first, online gaming is a game of skill and does not fall within the ambit of “betting”; and second, the use of the words “betting and gambling” has a specific connotation and cannot be used expansively.
Entry 34 does not apply to games of skill
The Supreme Court in the K.R. Lakshman case made the distinction between a game of skill and a game of chance. A game of skill is a game where the results of the game predominantly depend on the superior knowledge, training, concentration and cleverness of a particular player, whereas the game of chance is a game whose results exceedingly depend on the element of luck. 52
Most online games depend on the element of skill for a player to succeed in it. For example, games like Multiplayer Strategy games such as Call of Duty, Free Fire or Battlegrounds India depend exceedingly skills like hand-eye co-ordination, cooperation with your team members and strategy-building. There have decisions 53 across various High Courts in India which have stated Online Money Games like online rummy and fantasy sports games like Dream11 54 fall within the ambit of games of skill and not games of chance.
Although there are several questions with regard to the presence of skill in online games a simple example given Justice Sanjib Banerjee in the Junglee Games case illustrates the need for skill in online gaming and how it may vary depending on the nature of the game 55 :
“It is true that Arnold Palmer or Severiano Ballesteros may never have mastered how golf is played on the computer or Messi or Ronaldo may be outplayed by a team of infants in a virtual game of football, but Viswanathan Anand or Omar Sharif would not be so disadvantaged when playing their chosen games of skill on the virtual mode.”
Therefore, every online game needs a requisite amount of skill in its own and some online games which resemble board games may also be so similar to the actual game that the actual masters of the game can continue showing their charisma in its virtual form.
Thus, most online games do not predominantly depend on the luck factor for the determination of its results and thus fall within the ambit of games of skill. Since the expression “betting and gambling” excludes skill 56 , online gaming would not fall within the ambit of Entry 34.
The words “betting and gambling” cannot be read expansively to include online gaming
The words “betting and gambling” have been explained in various cases by the Supreme Court of India like R.M.D. Chamarbaugwala v. Union of India 57 and is strictly restricted to physical “betting and gambling.” The said phrase is a constitutional phrase with a specific connotation that has existed for centuries. The Constitution-makers had a certain intent while entrusting the subject of betting and gambling under Entry II.
There cannot be a shift in the meaning of such a constitutional phrase without any conscious change on the part of the concerned legislature that is, the Indian Parliament. The Parliament needs to expressly include the phenomenon of online gaming in Entry 34 for it to be within the power of States to make enact laws on online gaming, some of which may be in the nature of online betting and gambling. Previously, the Parliament of India had removed the phrase “betting” from Entry 62 List II when it wanted to change the taxation powers of the State Government with regard to betting. 58
It is important to understand that the phenomenon of online gaming occurs in cyberspace and not within the territory of the said state. States only have the power to regulate betting, gambling, and instant lotteries conducted within its territory. States do not have the legislative competency to enact any statute which might have the effect of regulating such activities conducted in another state. 59
Currently, it is the Union Government that has the power to regulate cyberspace by virtue of its residuary powers, and consequently, it is the Union Government which should enact laws for regulating gaming, betting, gambling, or any other activity within cyberspace. In tune with this argument, the Center, through the Ministry of Electronics and Information Technology, has introduced amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 to control the misuse and abuse of online gaming platforms to target children and other vulnerable sections of the society. 60 From a perusal of the Central Government guidelines, one would be able to discern that the Central Government has been able to understand and identify the aspects of online gaming which need to be monitored and controlled. They have also understood that the issues arising out of online gaming would not be solved by banning the entire industry. Rather, there is a need for a mechanism which would closely scrutinize the entire process to protect the vulnerable people involved in the activity so that the industry does not become a menace to society,
Therefore, the phrase “betting and gambling” cannot be read expansively to include the phenomenon of online gaming. Thus, the State Governments cannot include online gaming within the ambit of “betting and gambling” by reading Entry 34 expansively.
IV. WHY SHOULD THE CENTRE BE GIVEN THE POWER TO REGULATE ONLINE GAMES (POLICY RECOMMENDATION)?
From the foregoing analysis, it is evident that the claim of the states that they should be given complete authority for the regulation of online games is absolutely untenable. The entries in the State List do not provide the states with unfettered authority in any manner they deem fit. There are constitutional restrictions within the boundaries of which the State Government needs to operate.
As already stated, there has been a tendency of the State Governments to over-regulate the online gaming industry without fully understanding the repercussions and consequences of their actions. From a policy perspective, there are three major reasons why regulation of online gaming at the state level will do more harm than good.
First, every state may come with a different set of regulations to be complied with by the online gaming industry. If this is allowed, it will make it impossible for the online gaming industry to function smoothly, as nonuniformity in the laws and guidelines created by different states would result in a situation of confusion. It would give rise to a scenario where an action which is in compliance with one state law may go completely against the basic compliance requirement of another state law.
Second, in imposition of excessive and arbitrary restrictions on the online gaming industry would make its sustenance extremely difficult in our country. The Supreme Court has already held that all measures that are taken to restrict the right to freedom to trade under Article 19 (1)(g) of the Constitution of India must pass the twin tests of being in the interest of the general public and of being a reasonable restriction within the meaning of Art. Nineteen (6). 61 Furthermore, all restrictions must be proportional to the object considering which such an action is taken. The proportionality of a restriction must be examined on the anvils of legitimacy, suitability, necessity, and balancing fundamental rights with State aims. 62 In the instant case relating to the online gaming industry, neither the State Governments have been able to demonstrate that the measures invoked by them to regulate the online gaming industry can pass the twin tests laid down by the Apex Court, nor have they been successful in illustrating that such measures are proportional to the objects which they aim to achieve.
Third, too many restrictions at the state level across various states will be against the policy of Ease of Doing Business in India at the global level since the online gaming industry would be required to go through unnecessary compliance regulations, making it an unattractive destination for other online gaming companies to shift their base to India despite the country being such a lucrative customer base for the said industry. Such unreasonable restrictions, as illustrated above, imposed by the states may also disincentivize foreign players to invest in such industries since the scope of their activities being declared illegal is very high, considering the different compliance requirements of each state.
Therefore, to ensure proper monitoring and regulation of the online gaming industry, there is a need to provide the Central Government with the power to regulate by virtue of residuary powers vested in it under Article 248 and List I Entry 97. The Central Government has a larger pool of resources to engage experts to formulate a proper policy to supervise and regulate the online gaming industry and provide the much-needed degree of uniformity which is currently lacking in the present framework of regulations. Such central legislation would prevail over all state legislations, which have been formulated by various states by misusing the different entries that have been discussed in the previous section.
Furthermore, there is no reason whatsoever for this Center-State disagreement over governance in the online gaming industry to ripe into a conflict. The two levels of the government, in furtherance of the ideals of “cooperative federalism” and in light of the best interests of the public, should collaborate with each other to formulate the most suitable policy based on which all legislative actions pertaining to the online gaming industry should be taken in the Indian context.
V. CONCLUSION
The article highlighted the importance of the online gaming industry in the current Indian landscape. It discussed how states have often assumed untrammeled powers and tried to impose a complete ban on online games involving money without exception. It further highlighted how all the arguments of the states are legally untenable and that the Center has the ultimate authority under the residuary powers to regulate online games. Finally, the article has tried to give policy reasons as to why states should be given to the Center and the benefits of adopting such an approach. The State Governments’ role in regulating the online gaming industry should be restricted to having a dialogue with the Central Government to suggest the various ways in which the Center could develop its regulations to balance the interests of the various stakeholders involved with the industry.
The Indian Online Gaming industry, with a present market size of $2.98 billion (approximate), has the potential to dominate the global market in Online Gaming. The enormous demographic dividend of the country, consisting of millions of active users and gaming conglomerates like Gameskraft, Dream11, etc., would only facilitate this process. However, the Government of India, while framing rules and regulations, has to remember that the online gaming industry is still at a very nascent stage, and the rules and regulations so formed must provide ample space for the industries to grow. Over-regulation, as already evident from the measures taken by the states, may lead to the emigration of this industry elsewhere. On the contrary, it is also necessary that the Government mandates the creation of adequate safeguards for the people using these games. Therefore, there is a need for a balanced approach to be taken by the various levels of government, namely, the Center and the States, before taking any future steps in this field.