Online gambling involving cash is now banned in Karnataka

In a major setback for online gaming platforms and all other Karnataka gaming entities falling under the betting or betting category, the government of Karnataka on October 5, 2021 notified the Police Act of 2021 of Karnataka (amendment), (“Act” / “Amendment”) which prohibited any form of online gambling involving the transfer of money.

The controversial legislation comes against the backdrop of the upcoming T20 World Cup involving a huge stake for online gaming companies including MPL, Dream11, to name a few. In addition, it would undermine Bangalore / Karnataka’s position as the start-up capital of the country, which is home to around 92 gaming companies and employs over 4,000 people.

Key changes

The amendment broadens the scope of certain definitions in section 2 of the Act. Some of the main amendments are:

The definition of the term “Games“under Article 2 (7) has been revised to include online games which involve”all forms of betting or betting, including in the form of tokens valued in terms of money paid before or after their issue, or electronic means and virtual currency, electronic transfer of funds in connection with any game of chance“.

Likewise, article 2 (11) which defines “Playing instruments“has been significantly expanded and now includes”any item used or intended for use as a subject or a means of play, including computers, computer system, mobile or internet application or cyberspace, virtual platform, computer network, computing resource, any communication device, electronic applications, software and accessories or means of online gaming, any document, record or record or evidence of any game in electronic or digital form, the proceeds of any online game or any prize or prize in cash or otherwise distributed or intended to be suspicious of the ‘regard to any game“.

The amendment also introduced a new section 12 (A) which defines “online games” like “games as defined in Article (7) played online by means of gaming instruments, computers, computer resources, computer networks, computer systems or mobile applications or the Internet or any communication device, electronic application, software or on any virtual platform;

In addition, section 78 has been amended to criminalize activities related to the opening of certain forms of gaming centers and to penalize anyone who opens, maintains or uses cybercafés, computer resources, mobile applications, the Internet or any communication device as defined in the Computing Act for online games. The offenses under article 78 were made knowable and liable to security.

The amendment also increased the nature and scope of penalties for various offenses. Violations of Articles 78 and 87 of the Law which deals with gambling in public streets are punishable by imprisonment of up to six months or a fine of up to ten thousand rupees.

The penalties under section 79, which criminalizes the operation of a joint gaming house, and section 80, which criminalizes gambling in a joint gaming house, have been increased to imprisonment for up to up to three years and fined up to one lakh rupee.

Previously, Articles 79 and 80 did not apply to betting in games of pure skill. The amendment removed this exception, also placing games of skill under the ban.

Analysis

Recently in Junglee Games v. Tamil Nadu State[1], the Madras High Court struck down the Tamil Nadu Gaming and Police Act (Amendment) of 2021, which was similar to the Karnataka Amendment, ruling that such a blanket ban was excessive and disproportionate and that it violated article 19 (1) g) of the Constitution.

The High Court of Rajasthan in Saahil Nalwaya v. State of Rajasthan and Ors. [2] has found that Online Fantasy Sports, which operates under the Online Fantasy Sports Platform Charter of the Indian Fantasy Sports Federation, the self-regulatory body of the online fantasy games industry which we have already discussed, are protected under Article 19, paragraph 1 (g) of the Constitution.

The Supreme Court in Avinash Mehrotra v. State of Rajasthan[3], rejected an SLP of a ruling by the High Court of Rajasthan, thereby upholding the judgments of the High Court of Rajasthan, the High Court of Punjab and Haryana and the High Court of Bombay, according to which the games such as Dream11 do not involve any commission of the gambling and betting offense.

Given these judicial positions, the constitutional and legal validity of the amendment is also in question, and the amendment will likely be challenged in court.

Effects of the amendment

Immediately after the notification of the amendment law, online platforms began to geolocate and block access to their applications for users in Karnataka. While MPL and PayTM First appear to have blocked access to their users in Karnataka, other fantastic online sports apps are still trying to interpret and comply with the new legislation.

Industry experts predict that the ban will impact more than 10% of online transactions in the country and lead to a loss of revenue of around 7-12% for the online gaming industry, other than damaging the investor-friendly label of Karnataka.

Conclusion

The move is the latest in many attempts by legislatures in different states across the country to ban online gambling. Such actions are criticized for showing the legislature’s misplaced concern for online gaming, and critics argue for regulation instead of an outright ban. While clarity is needed and the rules that have yet to be framed may help clear the air, the gaming industry may not wait until then to go to court to challenge the blanket ban.


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