What Karnataka’s gambling law means for gaming apps, players, industry

Even as the digital/mobile gaming industry in India is gathering critical mass, it faces an arduous legal road. Zealous State governments have been issuing successive bans on gambling, taking within the purview of the new laws, online gaming, too.

Precedents suggest that such legislation will probably get struck down by a higher court, and never really be implemented. Yet, even as the legal process rolls out, it has implications for all stakeholders in the gaming space — from operators (including mobile apps) to players to stock market investors.

What exactly does the Karnataka ban entail, and how is it likely to hit the industry?

What the law covers

The State government, in September, amended the Karnataka Police Act, 1963, to make gambling of all forms — including online — a cognisable and non-bailable offence. This amendment kicked in on October 5.

Watch: What does the Karnataka ban on online gambling mean for online gaming?

The Karnataka government reasoned its move, saying that since gambling was earlier a non-cognisable and bailable offence, police had to procure a formal order from a magistrate before raiding gambling dens. This made the raids less effective, and the amendment was designed to ensure greater police jurisdiction on online gaming companies, it said.

Also spurring the amendment were public interest litigations (PILs) calling for a ban on online gaming and gambling.

The amended law broadens the scope of ‘gambling’ to cover “all forms of wagering or betting, including in the form of tokens valued in terms of money paid before or after issue of it, or electronic means and virtual currency, electronic transfer of funds in connection with any game of chance”. This means, legally, gaming websites are on par with physical gambling houses.

Across the fence

Legal experts say it is strange that Karnataka went ahead with the legislation without noting how similar efforts by its neighbouring States fell flat. Parallel pieces of legislation introduced by the governments in Tamil Nadu, Kerala and Telangana faced legal challenges.

For instance, the Madras High Court, in August, struck down the Tamil Nadu Gambling and Police Laws (Amendment) Act, 2021 as being ultra vires. A month later, the Kerala High Court cited the TN precedent to strike down a similar amendment to the Kerala Gaming Act, 1960.

The amended Karnataka law, for now, stands in force. On October 7, it was used to file an FIR against online fantasy sports platform Dream11.

Players and investors

For online gaming enthusiasts, the ban does deal a blow. Most of the apps/sites have been geo-locked — this means players located in Karnataka will not be able to open the app/site to play their favourite games online.

Mobile gaming firms are rapidly entering the mainstream, and the stellar stock market debut of Nazara Technologies in March is still being talked about. Start-ups such as Dream11 have proved the favourite of institutional investors. The bans being put up by various States may down investor sentiment to some extent.

What the apps have done

Online gaming entities have mostly geo-locked their apps and sites in Karnataka to avoid police action. However, there are start-ups running such apps that are headquartered in Bengaluru, who may find the going tough.

The mobile gaming firms have repeatedly pointed out that gaming and gambling are not the same, and should not be legally clubbed — that games of skill played for prizes are not the same as games of chance played with a jackpot as the end. But here, again, there are several shades of grey between skill and chance, and the legalities are rather complex.