Despite Its Flaws, Nagaland’s Legislation On Online Games Of Skill Excites The Gaming Industry

Last week, the Nagaland legislative assembly passed the Nagaland Prohibition of Gambling and Promotion of Online Games of Skill Bill,2015, India’s first law addressing the issue of games of skill such as poker, rummy and fantasy sports. The Bill introduced by Chief Minister TR Zeliang in July, 2015, was passed after being vetted by a  five member Select Committee.

While the Bill was passed unanimously by the legislative assembly, it created its share of controversies in the state and was opposed by a section of the civil society, local press and the powerful Nagaland Baptist Church Council (NBCC). The Online Skill Games legislation introduces a licensing regime to regulate a list of online skill games played for stakes or profit while prohibiting online gambling activities.

Although the legislation is seen as a step to regulate online rummy and poker websites already operating in the country and a smart move by the state government to earn some revenues out of licensing fees and taxes, it is ironic that Nagaland, a state with a population of a little over 20 lakhs and hardly any internet penetration (as per the 2011 census, only 1.7 percent of the total households in the state had access to an internet connection) is the first Indian state to take initiative in this space.

Additionally, although the new law maybe a first step to regularise staking of money on ‘games of skill’ and may show the way to other state governments to prepare a legal framework for online games of skill and earn some revenues, the alacrity with which the Nagaland government has framed the new law, arguably the first such legislation in the globe, out of the blue, leads to some apprehensions that the Bill may have been designed by some gaming companies with tailor-made conditions in the licensing regulations to further their business.

Legality of skill-based online gaming in India

Online skill-based websites offer real-money games such as rummy, poker and fantasy sports based on judicial precedents and statistical evidence.

Gambling legislations in all states with the exception of Assam and Odisha exempt ‘games of mere skill’ from the ambit of gaming or gambling, thereby absolving those indulging in judicially proven games of skill from any criminal liability.

However, in 1967 a Supreme Court judgment while holding rummy to be a game of mere skill noted that the police could take appropriate action in case there was any profit or gain involved.

As regards to poker and fantasy sports, there has been no conclusive ruling by any Indian courts so far, declaring them to be games of skill, although operators argue so, based on some International judicial/legislative precedents and statistical data.

In August 2015, reacting to a bunch of petitions filed by online rummy companies as well as brick-and-mortar clubs, the Supreme Court declined to entertain petitions on the legality of online and offline rummy games played for profit or gain, which some assume to be a tacit approval. However, till date, there has been neither been any conclusive verdict nor any legislative provision to clarify the legality of real-money online skill-based websites.

Implications of the Nagaland Online Games of Skill Bill

The Nagaland Bill defines games of skill as any game where there is preponderance of skill over chance or those that are recognised as games of skill by Indian or International courts or legislations. The Bill further gives a list of deemed skill games. The list includes games like chess, poker, rummy, sudoku, nap, virtual golf, quizzes, virtual sport fantasy league games etc.

The law states that games of skill can be played for real money and a profit or gain can be derived from it if a license is obtained from the state government. Curiously the enactment is allows licensed websites to offer services to any territory or region where ‘games of skill’ are not barred.

Further, onus has been placed on other state governments to inform the licensing authority of Nagaland if there are irregularities or violations of any laws. Additionally, the proposed law does not require the websites or license-holders to be based within the state boundaries. One also gets the indication that the pan-India turnover of ‘skill-games website’ will be taxed by the Nagaland government and the taxation provisions will not be restricted to revenues earned from within the territorial boundaries of the state.

These provisions raise doubts regarding the constitutional validity of the Bill. It is worth noting that several Supreme Court judgments require a state legislation to have territorial and geographical nexus with the concerned state. It is also a well-settled principle of law that a law made by a particular state government cannot apply outside the geographic boundaries of the state. All these issues make the law susceptible to a constitutional challenge before courts.

Another problem with the proposed law is a provision that bars any entity having interest in gambling activities either in India or abroad from applying for a license. This clause is also vulnerable to a legal challenge on the grounds that it violates the constitutional right to equality and freedom of trade and commerce.

A third area of concern is the manner of awarding licenses under the new law and whether the state government adopts a transparent and fair process (which needs to be evolved through
Rules framed under the Bill) and avoids favouritism and nepotism.

Another aspect that has to be kept in mind is whether the state government frames sufficient policies for consumer protection, prevention of fraud and manipulation, restricting access to minors or vulnerable groups and taking steps to prevent addiction to the games.

However, despite its flaws, the Nagaland Bill is a good first step towards gaming recognition for games of skill and separating it from the ambit of gambling. The new law may prompt other state governments to follow suit and regulate the activity, rather than allowing the activity to continue without any policy framework. Additionally, the new law will also provide guidance to courts in case of any legal challenge to the business model of online gaming websites.