Legal Aspect of Betting and Gambling Laws in India

This Research Paper is on “Betting and Gambling Laws in India: A Legal Analysis” It inspects the extent of gambling, gaming laws and the rise of the gambling, gaming industry in India, and its legislations managing it and recent events about betting and gambling in India.

According to the Constitution of India, the state legislatures have been given separate powers to frame state-specific laws regarding betting and gambling. ‘Betting and Gambling Act, 1867 is the central enactment on the subject matter, which has been taken on by several states of India. The other states in India have enacted their own legislation to control gaming/gambling activities within their territory.

Betting and gambling has developed over a period of time with changes and establishment in the digital and online interface and is still growing rapidly. A recent examination by market research firm Nielsen gave an interesting insight into the utilization of mobile phones in India, according to which its voice calls and texting accounted for only 25% of Smartphone usage and multimedia, games, apps, and internet browsing made up the rest, games were the most popular group among paid apps with nearly 3 out of 5 users (58%) paying for games[1].

Meaning of Gambling

Gambling’ as per most Gambling Legislations recognizes it as “the act of wagering or betting” for money or money’s worth.

Gambling according to the Gambling Legislations however does not commonly include:

• Wagering or betting at horse-race/dog-race, when such wagering or betting takes place in a certain situation
• Games of “mere skill” and
• Lotteries (which are mentioned under Lottery Laws).

Some games  skill outside the gambling previews

According to the Gambling Legislation, the restrictions would not be applicable to the bid over the games of“mere skills”. The Supreme Court of India had examined the words “mere skills” in the whole depth to incorporate games which are preponderant of skill and have laid down in their judgment that:

• The competitions in which the success depends on the substantial degree of skills will not fall under the category of ‘gambling’; and
• In spite of that the game is an element of chance, if a game is dominantly a game of skills, it would however be a game of “mere skill”[2]. Whether a game is based on chance or skill is a question of fact to be pronounced in the facts and circumstances of each case[3]. The judicial view has been very strict in this view.

Thus, it may be possible that games may convince the test of “skill versus chance” but are not controlled under the Gambling Legislations and may be legally offered by the physical as well as virtual mediums (i.e.Internet and mobile), in whole of India.

In the case of the State of Andhra Pradesh vs. K. Satyanarayana&Others.[4] (“Satyanarayana Judgment”), the Supreme court precisely in depth tested the game of rummy on the principle of skill versus chance and held in its judgment that Rummy was not a game absolutely based on chance like the ‘three-card game (i.e. ‘flush’, ‘brag’ etc.) which were games of pure chance. It was held in the judgment that Rummy was a game involving a prevalently of skills preferably than of chances. The Supreme Court based its conclusion that Rummy needs a certain amount of skill as the fall of the cards needed to be memorized by the player, and the building up of Rummy requires an appreciable amount of skill in holding and discarding cards. The chances that element in Rummy is of the same magnitude as that involved in a deal in a game of bridge. In all games in which cards are shuffled and dealt out, there subsists an element of chance, because the distribution of the cards is not according to a fixed or pre-decided pattern, but is dependent on how the cards have found their places in the shuffled pack. In the following judgment, the Supreme court also had observed that the bridge is a game of skill. At present, there has been no case in India where card games (apart from Rummy) have been tested against the principle of skill versus chance.

In most authorities, including India, the growing popularity of Texas Hold’em Poker cannot be questioned. Though there is an absence of clear jurisprudence on this subject matter in India presently, there seems to be an increasing craze internationally considering Texas Hold’em Poker as a game preponderantly of skill, and not a game of chance only.

Instruments of Gaming

“Instruments of gaming” includes ‘any article used or intended to be used as a subject or means of playing that particular game, any document used or intended to be used as a register or record or evidence of any gaming, the procedure of any gaming, and any winnings or prizes in form of money or otherwise distributed or intended to be distributed in respect to any gaming.’[5] In the present-day situation, there is a school of thought that believes or thinks that computer terminals that are being used for gambling and servers on which gambling takes place and interconnected e-records are maintained should also be included in the instruments of gaming.

Concept of Common Gaming Houses

Under the Gambling Legislations (except in states like Assam and Orissa where gambling in itself is an offence), most of the offences and prohibitions are in connection to a particular “common gaming house”.

Generally, under the Gambling Legislations, to be engaged as a “common gaming house” there should be:

1. An enclosed physical establishment such as a house or a tent or a flat.
2. Instruments of gaming kept or used in such enclosed physical establishments or premises for the reason of accumulation of income or gains to the person owning, occupying, keeping such enclosed physical establishment or using any such instrument of gaming in the enclosed physical property.

• Profit or gain by the method of charge for use of the same enclosed establishment or “instruments of gaming”. Although, under some Gambling legislation, like Delhi, it may not be necessary for such profit or gain (income) to accrue to the person owning, occupying, or keeping such premises in order for it to qualify as a common gaming house for precisely for purposes/games only.

On examination of the definition of the common gaming house in general under the Gambling Legislations, it shows that the main aim of the legislation is to impose limitations over the use of the physically enclosed establishments which are used for the purposes of making profits or gains (income) from the use of such establishments by using them for gambling.

Thus, a private house should not ideally have a Common Gaming House in it, if there is an absence of intent on the part of the owner of the house to obtain any kind of profits or gains (income) by using his house for gambling purposes. Increasing the same analogy to the digital world, when a person obtains or accesses online gambling websites from his house, it would not be a common gaming house.

The situation may however be different when such gambling activities are carried out in places like cyber cafes or clubs, where the cyber cafes make their profits or gains by allowing the use of their computer terminals (which may be caught within the scope of instruments of gaming).

The majority of the Gambling Legislations refer to “any place” that fulfils the definition of the Common Gaming House. In the non-appearance of a specific exclusion, the definition could include a server/portal/ website providing meant for gaming purposes. Collecting money for the purpose of providing the online medium to play games may also fall within the ambit of profiteering from providing and maintaining Common Gaming Houses. To put an end to this confusion, the online rummy and gambling websites have approached the Supreme Court[6] to clarify whether the Gambling Legislations cover online gambling portals or not.

License for physical and online gaming sports betting

There are many different states that have legalized some form of gambling and matters are particularly given licenses to gambling/gaming establishments. For an instance, the West Bengal Gambling & Prize Competition Act, 1957 specifically excludes games of cards like Bridge, Poker, Rummy, or Nap from the definition of “gaming and gambling” and allows the organization and playing of such games by providing a permit from the Commissioner of Police in Calcutta or the District Magistrate or the Sub-divisional magistrate when such game is played in any place where the public should be granted access.

Further, under the legislation of Sikkim Gaming Laws, a captivated person can get a license for the motive of conducting online games such as Roulette, Black-jack, Pontoon, Punto Banco, Bingo, Casino Brag, Poker, Poker dice, Baccarat, Backgammon, Keno, Super Pan 9 and sports betting, including its establishments, management or promotion or negotiation or receipt of bets. Further, a licensee can be issued as the prefatory approval of the state government to provide any other /addition online games under the license.

Selection of a state from players playing games

Another important issue that comes to light is whether the owners of gaming houses can collect stakes or derive profits or gains from the players? In the Satyanarayana Judgment,[7] the Supreme Court inter alia observed that clubs usually charge an additional amount for anything they supply to their members; the additional payments are used to manage the club and provide other amenities.’ The court observed that merely charging an extra fee for playing cards (unless excessive) will not amount to the club making an income (profit or gain) so as to give the club a common gaming house. The court gave this principle in general and has not specifically applied it to games of skill like rummy.

The courts of India have also held that while it is the right of the clubs to have recreational activities which are not prohibited, the authorities have the right to take proper proceedings in case of illegal games of betting, wagering, etc. Thus, the owners of clubs need to be careful about the manner in which services against which fee/stakes are collected from players are carried out, in order to avoid falling under the penal rules of the Gambling Legislations.

In a subsequent case[8] before the High Court of Andhra Pradesh, the court stated that penal statutes should be strictly construed and the benefit of any loophole in the statute was to be given to the accused. Therefore, it is for the legislature to conciliate and amend the law, and lay down that playing rummy with stakes would also be ‘gambling/gaming’ within the intent of the law.

In 2012 the Madras High Court in the matter of Director General of Police, Chennai v. Mahalakshmi Cultural Association[9] interpreted the Satyanarayana Judgment differently in the context of a statute in primavera and held that rummy played with stakes would amount to gambling. This judgment had discomposed a rather settled position of law. The Supreme Court was seized of the matter by way of a Special Leave Petition filed by the Mahalakshmi Cultural Association. Certain online gaming websites filed intervention applications on the apprehension that they would be subject to criminal prosecution like brick and mortar rummy providers. The Supreme Court heard arguments based on business models adopted for example, in the context of online gambling, if a fee was collected for the services provided by the hosts of a website, as opposed to buy-in for a particular game, would the same be considered ‘stakes’? The Inventors were also asked to submit detailed affidavits by the Supreme Court, explaining the structure of the games offered, the fees charged for such games, and the flow of profits in relation to the same.

It was anticipated that the Supreme Court would set guidelines on what business models (including online) would add up to gambling as restricted/prohibited under the gambling legislation of multiple states (even when skilled games were played for a fee/stake).

The Supreme Court on 13 August 2015 disposed of the petitions of the Investors stating that it was found that the impugned order was not to deal with the online Rummies and that it would be applied specifically to the Rummy which is played in the format of bricks and mortars format. Moreover, the judges noted that the States had not laid hold on any decision on whether the provision of online Rummy would constitute gambling under the Chennai City Police Act. Therefore, the Supreme Court was of the opinion that it was not necessary to entertain this petition. The Supreme Court also mentioned that the examination in the Impugned order may not necessarily relate to online rummy. The Supreme Court at this stage had yet to deliver its own verdict on the issue raised of taking stakes from the Rummy, in the offline contexts.

The date of 19th August 2015 saw a great twist in the tale of gambling. The counsel of the Association had stated that the trial court had passed an order on the date of 11th October 2014 by which the Association has been acquitted. rivetingly, the issue before the trial court brought by the prosecution was not built on the case of Rummy (or any other 13 card game) but for members spoiling in a game colloquially and locally(mostly) called Mangatha “ulle, velliye” by betting money for profit. The counsel for the Association sought permission to withdraw the original writ filed before the Madras High Court and such permission was granted by the Supreme Court with an observation that since the writ petition is dismissed as withdrawn, the observations made by the Madras High Court in the Impugned Order or the matter before the Supreme Court do not survive as the writ is infructuous.

In the famous case of Gaussian Network: The question which arose was that whether any of the virtual platforms could be permitted the games of skills to be played for stakes was also came up for consideration prior to the Delhi District Court[10]. The petition was filed under Order 36 Rule 1 of the CPC seeking the opinion of the district court on inter alia that whether there was any kind of restrictions in allowing the participants to play the games related to skill for stakes with the intention of making gains.

The Court had suggested that it would be illegal to allow skill-based games to be played for stakes in the virtual space. It also detected that the degree of skill prevalent in games played in the physical form cannot be equated with the degree of skill involved while the game was played online. The Court seems to have supposed that the degree of chance would enlarge in online gambling and there was a possibility for manipulation of outcomes by cheating and collusion April 21, 2016, saw a very unanticipated turn of events. The Counsel which appeared on behalf of Gaussian sought permission from the High Court to withdraw its revision petition from the court. The Counsel argued that in common law as well as established case-law such as R. M. D. Chamarbaugwalla v. Union of India, State of Andhra Pradesh vs. K. Satyanarayana&Orsand K. R Lakshmanan v. State of Tamil Nadu In this case it was an exception which provided for the games of skill in India. In states like West Bengal, offering or presenting games like Poker for stakes was permissible.

The Counsel for the Gaussian case sought permission that an approach should be followed by the Supreme Court of India while dismissing the Mahalakshmi case was to be taken in the present scenario also. As mentioned above also in the Mahalakshmi case, petitioners looked for permission for the withdrawal of the original writ petition filed before the Madras High Court and permission for the same which was granted by the Hon’ble Supreme Court. In consequence, to which, the proceedings before the Supreme Court of India became infructuous and the observations of the Madras High Court did not survive and were considered void.

The High Court accepted the request made by the parties and granted permission to withdraw the reference made before the Delhi District Court and the revision petition filed before the High Court. The observations of the District Court thus, do not survive any longer.

At present also the law continues to remain grey in the terms of whether the state legislature wise gambling enactments also cover the online gaming sites. The Mahalakshmi Case and the Gaussian Network Case could have been the turning point where it was expected that the Supremes Court and Delhi High Court respectively would lay down the law which stated that whether the state gaming enactments also cover online models. Nevertheless, the shadows of doubts of actions on part of the judiciary are now clear of the dilemma of the online operators of the internet gambling for the last four years have finally seen their end.

Offences, offenders, and punishments

Most Gambling Legislations forbid the act of:

1. Owning, keeping, or having care and management of a gambling house/ common gambling house
2. Advancing or furnishing money for the purposes of gambling to persons frequenting any such gaming house

• Gambling in common gaming house or present with the main agenda of gambling in Common Gaming Houses.tt

1. Gambling or suspected gambling in any public places, streets or through fare or any other establishments.
2. Printing, publishing, selling, distributing, or in any way circulating anything with the intention of aiding or facilitating gambling.
3. Gambling in a way (This is not applicable to every state. Only the Gambling Legislation of states like Orissa prohibit the act of gaming itself) to avoid

• The liability for offences under the Gambling Legislations usually lies with :
• The owner of the gaming/common gaming house to place
• The person keeping or having charge or authority of the gaming/common gaming house
• The person gambling or possessing instruments or records of betting or suspected of gambling or possessing such instruments.

All Gambling Legislations direct penalties that are nonetheless similar. The Bombay Prevention of Gambling Act,1887 inflicts a fine and imprisonment for offenders playing the game of gambling and games related to it. The first offence is punishable with a fine of at least minimum INR 500 and 3 months imprisonment, the second offence is punishable with a fine of at least or minimum INR 1,000 and imprisonment for 6 months and the third or subsequent offence necessitates a fine of at least or minimum INR 2,000 and imprisonment for 1 year[11]

Reward Competitions Fettle

Conventionally, one would find a prize competition in a local newspaper or announced or declared on the radio. However, in the recent situation, with the increasing number of media outlets, prize competitions have started to feature in different ways For example, on television shows in the form of a puzzle, crossword, or a picture prize competition where the viewers would successively send the solutions to the organizer through or by the way of SMS’ or calls. Also, there is an increasing number of SMS driven competitions as well as online prize competitions.

These competitions are controlled under the multiple or various prize competition laws in India including the Prize Competition Act, 1955 (Prize Competition Act) which is a central enactment. Only some of the states of India have passed orders to give effect or action to this law, being the states of Andhra Pradesh, Maharashtra, Tamil Nadu, Odisha, Uttar Pradesh, Madhya Pradesh, Punjab, and Gujarat. Some states have also regulated different laws for controlling or regulating prize competitions in their respective states, such as West Bengal. However, the definition of prize competition in such state enactments is nevertheless similar to that in the Prize Competition Act.

The Prize Competition Act prohibits all the prized competitions which include the total value of the prizes whether in cash or are been offered in any other way in any month crosses Rs. 1,000, and prize competition where the value of entries crosses or exceeds INR 2,000. Further, any person intending on conducting such prize competitions has to get a license to captivate in such activities, and the details for gaining such licenses are given in the rules framed by thereunder. Any person who has been found directing the competitions falls within the purview of the Prize Competition Act, won’t be allowed to get a license, is punishable with imprisonment up to the time period of 3 months, or with a fine which may or can be extended to INR 1,000 (or there can be both also). The derived word “Prize competition” has been defined under the Prize Competition Act which defines it as any competition in which “prizes are being offered for the solution of any puzzle which is based upon the building up, arrangements, combinations or permutations, of letters, words, or figures, etc.”[12]

In the case of Bimalendu De vs. Union of India &Ors[13]. the legality of the popular show KaunBanegaCrorepati (“KBC”) was the main issue. Public interest litigation was filed in the Kolkata High Court in which it has been requested that the game shows such as KBC and Jackpot Jeeto should be completely prohibited from being telecast on the national television on the basis of the grounds that the same or it amounted to gambling, and should be prohibited according to by law.

The court analyzed the provisions of the West Bengal Gambling and Prize Competition Act, 1957 (which has a cognate provision to the Prize Competitions Act), and said that game show does not fit within the definition of a ‘prize competition.’

In the same manner, the Bombay High Court[14] has also said that the Prize Competition has a confined meaning and does not include games of skill and competitions such as KBC. As the Prize Competition Act only has held over the competitions where prizes are offered for the solutions of any of the numerical or alphabetical puzzles.

While the prize competitions are controlled by the Prize Competition Act and the state-specific prize competition laws, depending on the facts and circumstances of each and every case, the Gambling Legislations may also get attracted while all in all in such competitions.

The Tamil Nadu Prize Schemes (Prohibition) Act, 1979 was passed for regulating prize schemes in Tamil Nadu. Under this enactment, there is a prohibition on the management or promotion of a “prize scheme”[15]. The relevancy of this provision is specified purely on the facts and circumstances of each case. If the game format includes the:

• Purchase of goods shock
• The draw of lots to select the prize winner from the people who have purchased the product, then such a game format would fall within the scope of this enactment. Under this enactment, there was no specific exception given for the skill-based (or preponderantly skill-based) games or prize scheme.

Although the Prize Competition Act did not expressly slaughter out the exceptions for skill-based games, the Supreme Court in the case of R. M. D. Chamarbaugwalla vs. Union of India[16]gave the principle that skill-based or preponderantly skill-based competitions were not to be regulated by the Prize Competition Act. The Supreme Court of India observed, inter alia (the intention of the legislators) the mischief that they try to address in the legislation, and the history before the legislation was conducted in action.

Nevertheless, under the Tamil Nadu Act, this position has not been clarified till the present also. Therefore, till the time the courts or the legislature specifically elucidate the legal position under the Tamil Nadu Act vis-à-vis skill-based games/prize schemes, depending upon its desire for risk, companies organizing such games/prize schemes have been relying on either of the interpretations. In view of the same, some entities have in their terms and conditions for the games, expressly keeps out players from the state of Tamil Nadu, India.

Legal and governing issues

Some laws which affect the contexts of the game

Pornographic and obscenity Laws

In the present time, there are many games as well as gaming websites in India that include content that can be considered objectionable under the pornographic and obscenity laws in India. For example, some of the major popular websites offer games that have animated caricatures of human beings, including women too, depicted in a manner that may be construed as offensive as per the moral standards of Indian law.

1.) IndianPenalCode, 1860 and the Information Technology(IT) Act, 2008too

The Indian Penal Code (“IPC”) and the Information Technology Act, 2008 (“IT Act”) penalize the publication, distribution, and transmission of obscene material or content. The IPC inter alia prohibits any sale, hire, distribution, exhibition, and circulation of any kind of obscene materials as well as also penalizes any person who gets engaged, advertises, promotes, offers or attempts to do any obscene activity[17]n. The IT Act inter alia penalizes the transmission of any obscene content[18] or sexually explicit material in electronic form[19] including child pornographic content[20].

According to the IPC and the IT Act, any material which is lascivious or appeals to be of prurient interest or which may deprave and corrupt any person, will be considered as Obscene. In determining whether or not the games and the images depicted in the games are lascivious or appeal to the licentious interest, the court takes into consideration factors such as:

1. Whether the work is taken as a whole appeals to the prurient interest
2. whether the work is patently offensive too
3. Whether the work taken as a whole lacks serious literary, artistic, political, or scientific value. The court also takes the account of other factors depending on the facts and circumstances of the case[21].

Indecentpresentation of Women

The Indecent Representation of Women (Prohibition) Act, 1986 was passed by the legislature for prohibiting any obscene representation of women i.e. the representation in any kind of the figure of a woman, of her form or of her body in such a way as to have them out to be being indecent,
or derogatory to or denigrating women, or which is likely to deprive or injure the public morality or morals[22]. The statute prohibits any such depiction or presentations, whether through advertisements or in publications, writings, paintings, figures, or in any other way possible and also gives or provides penalty in connection with the same.

The mode of transmission of advertisements is not specifically mentioned and it can be said that such advertisement may also be transmitted in electronic form. This legislation also penalizes the circulation of any matter or material(including a film, any writing, or any drawing) having an obscene representation of women, and may get attracted if the usual games represent women in the manner stated above also. The penalty for violating provisions of the Indecent Representation of Women (Prohibition) Act, 1867 is imprisonment for a term of up to 2 years and a fine of up to INR 2,000 with provisions for many more severe punishments in case of often repeat offences [23].

Laws Related to SMS

In light of various complaints made against spam calls and SMS, the Telecom Regulatory Authority of India has (“TRAI”) issued the Telecom Commercial Communications Customer Preference Regulations, 2010 (“Regulations”) which
seeks to prohibit Unsolicited Commercial Communications (“UCC”).

These Regulations prohibit the transmission of SMS to subscribers who have elected not to receive such messages. With help of these rules or Regulations, subscribers have been given the option of registering either under the fully blocked category or the partially blocked category depending on their choice.

In the category which is fully blocked, a subscriber selects the option of not receiving any type of commercial communication, while in the partially blocked category allows subscribers to receive commercial communications only in the categories they have chosen. Hence, in the event, if the subscriber has registered under the fully blocked category, he should not be sent any kind of promotional/ commercial messages or calls.

As long as subscribers under this partially blocked scheme may choose from a selection of categories which may include banking, insurance, financial products, and credit cards, education, health, consumer goods and automobiles, communication, broadcasting and entertainment, IT, and tourism.

However, certain SMS does not need to adhere to the above-mentioned restrictions and may be sent to any subscriber. Such messages are known as transactional messages which are messages that present the transaction undertaken by the subscriber, for say messages regarding banking transactions, ticket reservations, and many more that. since these SMSes are generated pursuant to a request made by the subscriber himself.

Interactive games modelled around SMS typically face the following embargos:

1. The Regulations lay down that only an entity registered with the TRAI (“Telemarketer”) may send commercial communication and that no other entity shall send commercial communication.
2. There are many other restrictions placed on commercial communication, such as these messages can only be sent from 9 AM to 9 PM and no commercial communication can be sent thereafter.

Fore says interactive SMS based games need to be patterned carefully so that SMS qualifies as transactional messages.

Further, the telemarketers sending commercial communication have been prohibited from receiving incoming messages. This posed a challenge when the interactive games had required responses to be sent through SMS by the subscribers. Hence, we have observed that most interactive games in India are now constructed in a way that the number which the participant needs to respond to, is included in the body of the texted with instructions to reply to the designated numbered.

Gambling Industry Joining Together (Foreign Direct Investment & Foreign Technology )

According to the Foreign Direct Investment Policy (FDI Policy) of India which was issued by the Ministry of Commerce & Industry of the Government of India, Foreign Direct Investment (FDI) is prohibited in entities involved in:

1. Lottery, including government, private lottery, online lotteries, etc; and
2. Gambling and betting including casinos, etc.

The terms “lottery, gambling, and betting” have not been defined or given under the FDI Policy. One can rely on the statutes in primavera, judgments (both domestic and foreign), dictionaries, etc. for the meaning of these terms used. Many operations such as fantasies sports games are offered in India can be classified as games in which an element of skill predominates elements of chance, hence an argument could be made that foreign direct investment may be permitted in such games.  Even though, due to the absence of any precedent where the scope of these phrases, ‘lottery, gambling and betting is now been analyzed by the regulators from the FDI Policy perspective, although there is a possibility that these regulators may take different views since these are matters of government policies.

Moreover, the FDI Policy also prohibits foreign technology collaborations in any way including licensing for franchise, trademark, brand name, management contract for lottery business and gambling and betting activities, etc. Hence, any arrangement between the Indian and foreign entities for conducting a gambling/gaming business needs to be structured carefully in order to avoid risks under the FDI Policy. For violating the FDI Policy, one may have to pay a penalty of up to thrice the sum involved where such amount is quantifiable, or up to INR 2,00,000 (approx. USD 4000) where the amount cannot be quantifiable, and where the contravention is of a continuing one, a further penalty which can be extended up to INR 5,000 (approx. USD 100) for every day after the first day during of which the contravention continues to exist.

Limitations  Under Exchange Control Regulations

Under the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Current Account Transaction) Rules, 2000 (Current Account Rules), remittance of income from winnings from the lottery, racing/ riding, or any other hobby is prohibited. Though in letter remittance for the purpose of betting is not prohibited, keeping in view the spirit of this provision, remittance for the aim of betting or any prizes to any of the player in foreign currency can be potentially contravened by these rules and incur penalties that may extend up to three times the amount remitted. Further, remittance of money from India, by the Indian players over the gaming websites is strictly prohibited. The developments in relation to E-wallets and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Anti-Money Laundering Laws

In India, the Prevention of Money Laundering Act, 2002 (PMLA) is one of the laws that prevent all kinds of money laundering activities. The PMLA was amended by the Prevention of Money Laundering (Amendment) Act 2012, which brought many significant changes in the compliance procedures required under the PMLA. Among other things, entities carrying out the activities like playing games for cash or kind (including casinos) are also required to be adhered by the provisions of the PMLA and related rules (“Rules”)[24]

The PMLA requires reporting entities[25]to maintain records of transactions[26] and documents evidencing the identity of their clients in accordance with the rules[27]

 Hence, the following documents are required to be maintained by all kinds of gaming entities:

1.) Documentation of all the transactions, including[28]

1. All cash transactions of the value of more than INR 1,000,000 (or its equivalent in foreign currency is hot
2. All sequence of cash transactions internally connected to each other which have been individually valued below INR 1,000,000 or its equivalent in foreign currency where such series of transactions have taken place within a month and about the monthly aggregate exceeds an amount of 1,000,000 or its equivalent to the foreign currency

• All transactions involving receipts by non-profit organizations of value more than INR 1,000,000 or its equal amount in foreign currency

1. All suspicious transactions whether made in cash or not.
2. All cross border wire transfers of the value more than INR 5,00,000 or its equivalent in foreign currency where either origin or destination of the fund is in India.
3. All purchase and sale by any person of immovable property valued at fifty lakh rupees or more that is registered by the reporting entity, as the case may be.

2.) Information about the identity of the clients is required to be maintained as:

It had been provided with every reporting entity of the commencements of any account-based relationships with its client must:

1. Identify its client
2. Verify their identity

• Obtain information on the purpose and intended nature of the business relationship is bad

Adding up to this, in all other cases, the reporting entity must verify identity while carrying out:

1. Transaction of an amount equal to or exceeding INR 50,000 (whether conducted as a single transaction or several transactions that appear to be connected or maybe
2. All international money transfer operations can also

The PMLA provides the procedures regarding inquiry and penalties in the case of non-compliance within the obligations as mentioned above. The director on his own person, or upon any application made by any authority, office or person, make such inquiry or cause such inquiry to be made, as he thinks fit to be necessary[29]of my

During the course of any inquiry, if the director finds out that the reporting entity or its designation director of the Board or any of its employees has failed to comply with the obligations under the PMLA, to follow with specific instructions or instruct such,; or by an order, impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees, which shall not be less than INR 10,000 but may extend to INR 100,000 for each failure.[30]

Recent Developments

• Nagaland to issue online gaming licenses for skill games[31]

The State of Nagaland, which is located in the eastern part of India has recently passed The Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 (“Act”). The Act contemplates the issuance of online gaming licenses for skill games. This act is the first of its kind legislation in India, consequently,
this act has created a lot of excitement among Indian as well as international operators. The Act is a very short piece of legislation, therefore only when the government issues rules in support of the Act. In India, gaming and gambling are State subjects that each State is free to legislate on the said subject for activities within its State.

• Gaining aim is granted

The revenue models adopted by the licensing may involve earning revenue through advertisement, claiming a percentage of the winnings, and charging a fixed fee for membership, as per the Act. Therefore, a licensee may follow the profit motive based model. Recently before the Supreme Court, in Mahalakshmi Cultural Asso.. vs. Dir. Inspector Gen. of Police &Others, the issue of profiteering on skill-based games was discussed and debated, profiteering activities on such games should be permitted. This position should assist a licensee to offer skill games to residents of other Indian States as well too

• License

In the so far conditions of license or eligibility criteria are concerned, there are certain hurdles and ambiguities in involving the foreign operators are concerned, especially when they are involved in gambling activities. Some of the issues are as follows:

1. A license may be granted to a person, company or limited liability company incorporated in India, and having a substantial holding and controlling stake in India. This may be a point of concern for Indian companies that have or propose to have foreign investments and consequently, a degree of foreign shareholding got the case
2. The executive decision making powers and processes of the licensee would be required to be performed within India too

• Technology support, including hosting and management of the website, placement of the servers would need to be within India you

1. The applicant for a license cannot be the entity having any interest in any online or offline gambling activities in India or overseas. It is hence not clear how the government will interpret ‘gambling activity’, nor it is clear whether the group companies of the potential licensee could be involved in the gambling activity he

In order to ensure predictability and accountability in the procedure for grant of a license, the Act mandates that the licensing authority make a decision within 6 months from the date of receipt of an application, on whether or not to issue a license to an applicant to me.

The Act clarifies that licensees may offer “games of skill” on their website, mobile platform, television, or any other online media to gun

The Act contemplates the issuance of rules which will prescribe the way and format for applications of a license, or the terms and conditions under which a license may be issued. Such rules may also be addressed different aspects such as licensing fees payable and annual fees payable by the operators of the websites to the State Government.

• Punishments too

In case a licensee was found to be engaging in “games of chance or gambling activities”, it would be liable to a fine of INR 20,00,000 in the first instance and may be extended to simple imprisonment in case of a repeat offender. Although this Act does not specify, it is likely that imprisonment would extend to the directors and other officers in charge of the company in the event of a repeated offence.

• Sikkim state government cut down the operation of an online gaming license

The Sikkim State Government on August 19, 2015, amended[32] the Sikkim Online Gaming (Regulation) Act (Sikkim Online Gaming Act) restricting the offering of “online games and sports games” under the licenses issued under the said Act to physical premises of the gaming parlours under the geographical boundaries of Sikkim through intranet gaming terminals.

Initially, the Sikkim Online Gaming Act contemplated that the licenses would allow the licensee to offer the games[33] across India via their websites, and not be restricted to the State of Sikkim. This amendment is bound to have a significant impact on the business plans of the licensees given that there were large investments made in procuring the licenses and setting up the supporting groundwork based on the expectation that they would be able to give or offer the games to players across India.

The Sikkim Government also recently clarified that the online gaming levy payable by a licensee company to the Sikkim Government would remain status quo, i.e. at the rate of 10% of the gross gaming yield (the total amount of all bets or stakes made, and the price of all chances sold, less the value of all winnings sex and prizes due, in the period of the online gaming or sports gaming during the period in question) or INR 50,000,000  whichever is higher[34], until the Sikkim Government deems it necessary to review and revise the online gaming levy Sarita.

• Delhi District Court declares that cricket betting is not considered an illegal thing

The district court in New Delhi not so long ago acquitted famous Indian cricketer S.Shreesanth and 35 others in the not so common betting and fixing case concern to events during the Indian Premier League cricket tournament in 2013oo (“IPL”). In taking up with the arguments, the Court made an outstanding observation on the point that in the case of cricket was a game of skill with the aim of gambling laws. The Court also examined that cricket is solely a game of skill as it attains “extensive training, practice and expertise, and skills in the players.” Taking into consideration some points such as inter alia, study, practice, ability, hand-eye coordination, speed, stamina, strength, precision, and the mental alertness involved in the different facts of the game, the Court found cricket should not to be considered as a game of chance, but a game of skill exempted from the definition of “gambling” by the Section 12 of Public Gambling Act, 1867[35].

The Court also gave relation to the decision by the Supreme Court in K. R. Lakshmanan v. State of Tamil Nadu[36], wherein horse racing betting was said to be a game of skill since many points such as the skill of the horse and jockey could be optionally assessed by a person involved in a bet. Applying the majors of the Lakshmanan Case, the Court said that betting is the outcome of game cricket would not result as an offence under the Public Gambling Act. The order was given by the lower court and therefore may not serve as a binding precedent to other courts too. hence, the order appears to be an encouraging sign for the sports betting businesses and indicates the trends of growing judicial acceptance for the legality of sports betting.

• Central Board of Direct Taxes gives clarification on disclosure of offshore winnings routed through e-wallets

The Central Board of Direct Taxes (CBDT) not so long ago gave a circular with some “clarifications on tax compliance for non-important foreign income and assets”[37]. The Circular clears it that a person who has funds subject to tax in India but on which tax was not paid, lying offshore e-wallets or virtual card accounts managed with online gaming or poker websites and having made gains therefrom is required to disclose to the Indian tax authorities all the details in relation to these accounts. The Circular also says that an e-wallet or virtual card account is as same as that of a bank account where inward and outward (both ways) cash movement takes place. Hence, the same price and announcement of such accounts should be made by persons as in the case of a bank account, in order to comply with certain tax compliance requirements under Chapter VI of the Black Money and Imposition of Tax Act, 2015 (Black Money Act) how

It is also useful to point to note that remittances out of lottery winnings and remittances for the purpose of purchase of lottery tickets, banned magazines, football pools, sweepstakes, and many more are prohibited[38] under the Foreign Exchange Management (Current Account Transactions Rules) Rules, 2000 (“Current Account Rules”). However, although in-letter remittance for the purpose of betting is not explicitly prohibited, it may be concluded as such when seen in the light of the spirit and aim for which the provision was passed.

CONCLUSION/ SUGGESTIONS

It is felt in the present scenario:

1. The increased online gaming and gambling has led to an increase in online/internet frauds especially luring youngsters, it should be looked into by the concerned competent authorities.
2. According to the Foreign Exchange Management Rules 2000, cross border liquidity amidst Indian players and foreign players is a challenge.
3. Gambling and betting laws should be a subject matter of the Central Government as in recent times it has become a matter of concern hampering
4. and corrupting the minds of the youth of the nation and requires collective analysis and regulation.
5. Punishments for contradicting the existing laws be enhanced.
6. Better regulation and implementation of betting and gambling laws be done by making regulatory bodies at lower levels.
7. Needed amendments are made to the existing laws according to the present scenario.

Written By- Kunal Chaudhary

Amity University, Noida (Uttar Pradesh)

E-mail– 0900kunal@gmail.com

Bibliography

• Powell, A. (2010). In Sex, Power and Consent: Youth Culture and the Unwritten Rules (pp. 173-176). Cambridge: Cambridge University Press. DOI:10.1017/CBO9780511777080.009
• https://www.tandfonline.com/doi/abs/10.1080/00224499.2012.700739

[1]Smartphones Keep Users in India Plugged In, dated June 2, 2013. Available at: http://www.nielsen.com/us/en/newswire/2013/ smartphones-keep-users-in-India-plugged-in.html

[2]State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699.

[3]ManoranjithanManamyilMandram v. StateofTamilNadu, AIR2005 Mad 261

[4]AIR 1968 SC 825

[5]The Public Gambling Act, 1867

[6]SLP No. 15371 / 2012.

[7]AIR 1968 SC 825.

[8]D. Krishna Kumar and Anr. v. The state of A.P, 2003.

[9]W.A.No. 2287 of 2011, Madras High Court.

[10]M/s Gaussian Networks Pvt Ltd. v. Monica Lakhanpal and the State of NCT, Suit No 32/2012, Delhi District Court.

[11]Section 4 & 5 of the Bombay Prevention of Gambling Act, 1887

[12]Section 2(d) of the Prize Competition Act.

[13]AIR 2001 Cal 30.

[14]News Television India Ltd. and Others v. Ashok D. Waghmare and Another; 2006 (2).

[15]PrizeSchemes” has been defined as follows: “prize scheme means any scheme by whatever name called whereby any prize or gift (whether by way of money or by way of movable or immovable property) is offered or is proposed to be given or delivered to one or more persons to be determined by lot, draw or in any other manner from among persons who purchase or have purchased goods or other articles from shops, centers or any other place whatsoever specified by the sponsors of the scheme or on any event or contingency relative or applicable to the drawing of any ticket, lot, number or figure in relation to such purchasers.”

[16]AIR 1957 SC 628

[17]Section 292 and 294 of the IPC

[18]Section 67 of IT

[19]Section 67A of IT

[20]Section 67B of the IT Act

[21]Director-General, Directorate General of Doordarshan & Ors vs Anand Patwardhan & Anr, Appeal (Civil) 613/2005; Supreme Court of India

[22]Section 2(c) of the IRWA.

[23]Any person who contravenes the provisions of the act shall be punishable on first conviction with imprisonment of either description for a term which may extend to 2 years, and with a fine which may extend to INR 2,000, and in the event of JJJ second or subsequent conviction with imprisonment for a term of not less than 6 months but which may extend to 5 years and also with a fine not less than INR 10,000 but which may extend to INR 1,00,000

[24]The Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of however maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions, and Intermediaries) Rules, 2005, prescribes the nature and value of transactions for which records are required to be maintained by a financial institution happy

[25]Section 2(a)g of the PMLA, “reporting entity” means a banking company, financial institution, intermediary, or a person carrying on a designated business or profession;

[26]The term ‘transaction’ is defined under rule 2(h) of the Rules as: “transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or the arrangement thereof and includes- (i) opening of an account

[27]Section 12 of the PMLA

[28]Section 2(g) of the Rules: “Suspicious transaction” means a transaction referred to in clause (h), including an attempted transaction, whether or not made in cash, which to a person acting in good faith

[29]Section 13(1) of the PMLA

[30]Section 13(2) of the PMLA

[31]World Online Gaming Law Report

[32]Sikkim OGR Amendment Act, 2015 notification issued by the Law Department

[33]Under Rule 3 of the Sikkim Online Gaming (Regulation) Rules, 2009, the following games can be conducted online under a license issued under the Sikkim Online Gaming Act: (i) Roulette, (ii) BlackJack, (iii) Pontoon, (iv) PuntoBanco, (v) Bingo (vi) Casino Brag, (vii) Poker, (viii) Poker Dice (ix) Baccarat, (x) Chemin-de-for, (xi) Backgammon, (xii) Keno, (xiii) Super Pan 9 and many more

[34]Vide Notification No. 337/FIN/DSSL/972 issued by the Finance, Revenue too and Expenditure Department, Government of Sikkim on Aprilplay the music

[35]Section 12 of the Public Gambling Act does not apply to certain games: “Nothing in the foregoing provisions of this Act contained shall be held to apply to any game of mere skill wherever played.”

[36]AIR 1996,  SC (1153) yes

[37]ClarificationsonTaxComplianceforUndisclosedForeign Income and Assetsyjhjh” issued by Central Board of Direct Taxes (TPL Division), Department of Revenue, Ministry of Finance, Government of India hence

[38]Schedule 1 of the Current Account Rules