Source: https://thelawreviews.co.uk/edition/the-gambling-law-review-edition-3/1170452/india
Timestamp: 2019-04-25 12:52:04+00:00

Document:
Gambling is not an offence and it becomes one only when it takes place in a common gaming house or a public place. The mere fact that occasionally people used to play cards and perhaps for money does not necessarily make it a common gaming house. The presumption of gambling on Diwali is not so strong as the gambling at other times . . . . A person simply allowing the use of his house to gamblers during Diwali festival without any idea of demanding rent etc, cannot be said to be keeping a common gaming house. Gambling on Diwali day should not be considered to be an offence.
After the promulgation of the Constitution of India and it coming into effect on 26 January 1950, the issues pertaining to gaming were divided. Betting and gambling were listed under Entry 34 of the State List (i.e., List II of the Seventh Schedule). This means that only the state legislature has the power to make laws pertaining to betting and gambling. Lotteries are mentioned in Entry 40, List 1 of the Union List, meaning that the Parliament of India is the appropriate body to make laws pertaining to lotteries. In addition, the state legislature has the power under Entry 62 of the State List to make laws pertaining to taxation of betting and gambling.
‘lottery’ means a scheme, in whatever form and by whatever name called for distribution of prizes by lot or chance to those persons participating in the chances of a prize by purchasing tickets.
Games of skill are identified as a separate category because various states in India (excluding Assam7, Odisha (Orissa)8 and Telangana9) have gambling acts that exclude games of skill from the ambit of gambling. In the absence of a legislative definition of a game of skill, the Supreme Court in Dr KR Lakshmanan v. State of Tamil Nadu;10 State of Andhra Pradesh v. K Satyanarayana;11 and State of Bombay v. RMD Chamarbaugwala12 has laid down that a game of chance is where the element of chance predominates over the element of skill, whereas a game of skill is where the element of skill predominates over the element of chance. The card games of rummy and bridge, along with other sports like golf and chess, have been classified as games of skill. In R Shankar Creation Association v. State of Karnataka,13 the Karnataka High Court classified poker, darts, carom and chess, among others, as games of skill.
Under the Lotteries (Regulation) Act 1998, it is the state governments that have the power to organise, conduct and promote lotteries, subject to the conditions prescribed. The lotteries department of each state, generally established under their revenue departments, are in charge of running lotteries. States have appointed agents that are private companies, to operate and promote lotteries on their behalf within the state and to other states. Lotteries in India14 are permitted in the following states: Maharashtra; Mizoram; Bodoland Territorial Council;15 Goa; Sikkim; Andhra Pradesh; Nagaland; Kerala (only paper lottery); Punjab; and West Bengal.
These turf and race clubs lay down the rules of racing, as well as control their enforcement. The licences to conduct horse races were issued to them by their respective state governments. The totalisator and the bookmakers at these race clubs, including for off-course betting, are licensed under the respective state’s act on entertainment and betting tax. In Delhi it is the Delhi Entertainments and Betting Tax Act 1996, and in Andhra Pradesh it is the Andhra Pradesh (Telangana Area) Horse Racing and Betting Tax Regulation 1358F.
Nagaland has sought to regulate and license games of skill throughout India, through the Nagaland Act. The Nagaland Act contemplates the regulation and promotion of games of skill through the issuance of licences. A licence can be procured by a person, firm, company or limited liability company incorporated in India that is substantially held and controlled in India. A licensee is allowed to offer games of skill across India, in states where such games are not classified as games of chance and in states where an exception for games of skill exists in the state’s gambling act.
Foreign direct investment (FDI) in India is governed by the Foreign Exchange Management Act 1999 (FEMA) and the regulations made thereunder. FDI is subject to the Foreign Direct Investment Policy (the FDI Policy), as amended. The FDI Policy was formed by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, and is implemented by the Reserve Bank of India (RBI). The DIPP has a practice of issuing a consolidated version of the FDI Policy encompassing the contents of all the press notes, press releases, circulars and clarifications issued by it from time to time.
Under the FDI Policy, FDI remains prohibited in certain sectors, including lottery business, gambling and betting. Besides FDI, any form of foreign technology collaboration, such as licensing for franchise, trademark, brand name, management contract, etc., for lottery business, gambling and betting activities has also been prohibited under the prevailing FDI Policy. The rationale of prohibiting FDI and technological collaboration in the aforesaid sectors is to discourage foreign investments in lottery, gambling and betting businesses that have been judicially held to be mere ‘games of chance’, as opposed to ‘games of skill’. Thus, while FDI for games of chance and lotteries is prohibited, there is a lack of clarity on whether the same prohibition applies for games of skill, sports betting, horse racing, teer and prize competitions.
Under FEMA, the Foreign Exchange Management (Current Account Transactions) Rules 2000 (the Current Account Rules) were framed to impose reasonable restrictions for current account transactions. The Current Account Rules provide that transactions included in Schedule I are prohibited. Remittance from lottery winnings, racing or riding, purchase of lottery tickets, football pools, sweepstakes, etc., are included within Schedule I, which essentially means that all foreign exchange gaming transactions are prohibited. Thus, an offshore gaming operator is unlikely to be able to offer his or her services from outside India within India.
If the public has access to a foreign gaming website within India, then the courts would be able to exercise jurisdiction as per the principle in Banyan Tree Holding (P) Limited v. A Murali Krishna Reddy and Anr.17 This jurisdiction would be exercised on the basis that the site is an interactive website and seeks to target website users in India. The authorities could look at initiating action for violation of the applicable Indian laws (a website offering a game of chance would be in violation of a state’s gambling Act). Under Section 69A of the Information Technology Act 2000, the government has the power to direct its agency or an intermediary to block access to the infringing website. Intermediaries under the Information Technology (Intermediaries Guidelines) Rules 2011 and the registrar accredited with the Internet Corporation for Assigned Names and Numbers have blocked access to gaming websites coming from outside India.
The Supreme Court of India in BR Enterprises v. State of UP 18 has held that a lottery is a game of chance and is not a business or trade; rather, it is in the nature of res extra commercium. The Supreme Court also held, while interpreting Section 5 of the Lotteries Act 1998,19 that a state could not exclude other states from its own lottery. Either the state had to declare itself as a lottery-free zone or permit lotteries from other states. In a subsequent judgment, in All Kerala Online Lottery Dealers Associations v. State of Kerala,20 the court distinguished from the principle of the earlier judgment (the BR Enterprises case) and held that paper lotteries and online lotteries fell in different classes. Therefore a state would be permitted to ban online lotteries and allow paper lotteries or vice versa, without violating the provisions of Section 5 of the Lotteries Act 1998.
Horse racing and betting on horse racing has been classified as a game of skill by the Supreme Court in Dr Lakshmanan v. State of Tamil Nadu,21 therefore it is considered outside the ambit of gambling. Horse racing and betting on horse racing is permitted in licensed premises.
In News Television India Ltd v. Ashok Waghmare,22 the Bombay High court held that prize competitions do not include skill games, and even popular TV quiz shows like Kaun Banega Crorepati (a version of ‘Who Wants to be a Millionaire’) are excluded from its ambit.
The status of betting on sports, and whether it is a game of skill, has not been addressed by the High Courts of the states or the Supreme Court. However, the Supreme Court has directed the Law Commission of India to consider whether betting on sports can be regulated in India.
The issue of games of skill for stakes, and whether they fall within the ambit of a state’s gambling act, has not been adjudicated upon by the Supreme Court. In absence of an express judgment of the Supreme Court, contrary opinions exist among the High Courts of the states. In the case of D Krishna Kumar v. State of AP,23 the Andhra Pradesh High Court held that since games of skill fall outside the ambit of Andhra Pradesh’s Gaming Act, games of skill for profits and stakes would therefore also fall outside the Gaming Act. However, the Madras High Court in DG of Police, State of Tamil Nadu v. Mahalakshmi Cultural Association,24 held that while games of skill at physical premises fall outside the ambit of the state’s gambling act, games of skill for stakes and profit fall within its ambit and are therefore prohibited. An appeal against this decision was filed by the Mahalakshmi Cultural Association in the Supreme Court.25 This appeal was withdrawn by the appellants on the ground that the criminal case against them had been dismissed, thus the appeal had become infructuous. The government of Tamil Nadu, however, took a stand that the state government had not initiated any action against the online operators, as it had not taken a decision as to whether an online game of rummy fell foul of the law or not.
The Punjab and Haryana High Court, in its decision dated 18 April 2017 in Varun Gumber v. Union Territory of Chandigarh and Ors,26 held the fantasy game format offered by one of the fantasy game operators to be a game of skill.
The Telangana government, in the Telangana Gazette in June 2017 27 and July 2017,28 prohibited the residents of Telangana to play or operate any game of skill in the state of Telangana for stakes.
The Gujarat High Court, in its decision dated 4 December 2017 in the case of Dominance Games Pvt Ltd v. State of Gujarat and ors,29 held that poker is a game of chance, and hence prohibits it in the state of Gujarat.
Lotteries are regulated by the Directorate of Lotteries under the Finance Department of each state. Horse racing, and betting on horse racing, is regulated by the relevant turf authority or club. The entertainment tax inspector performs a limited role of inspecting the books for detecting tax evasion, if any, however, this is likely to change with the Central Goods and Services Act 2017.
there must be an advance payment of sale proceeds.
Licences for teer bookmakers can be issued under Section 14(3)A of the Meghalaya Amusement and Betting Tax Act. Further, under Section 14A(1)m of the Meghalaya Amusement and Betting Tax Act, terms and conditions for a licence are to be prescribed. Details pertaining to the licensing conditions and the process to be followed for licensing, are not readily available.
Under the prize competition rules of states,31 the application for running a prize competition needs to be made in Form A and should be submitted personally or sent by registered post to the licensing authority. The licence is effective throughout the state. The fee for granting a licence is 25 rupees where an entry fee is charged, and 10 rupees where no such fee is charged. The fee for renewal is half of the initial fee.
the technology and support platforms are within India.
over 500m2 – 70 million rupees (hiked by 5 million rupees in the Goa Budget 2017.
over 400 passengers – 112 million rupees (hiked by 10 million rupees in the Goa Budget 2017).
Lotteries used to be subject to a lottery tax or charge. The states of Kerala, Punjab, West Bengal and Maharashtra imposed lottery taxes. Maharashtra imposed a tax of 50,000 rupees per draw for online lottery companies. Provisions under the Maharashtra Tax on Lotteries Act 2006 were applied while assessing lottery tax.33 However, with the promulgation of the Central Goods and Services Tax 2017 (GST), a dual rate of tax on lotteries was introduced on 18 June 2017. While the state-run lotteries would attract a GST of 12 per cent on the face value of the ticket, lotteries authorised by a state government would attract a tax of 28 per cent on the face value of the ticket.34 In addition, as per Section 115BB of the Income Tax Act, winnings on lotteries in the hands of an individual are taxed at 30 per cent.
Previously, different states had different rates of taxes on horse racing. In Delhi and Andhra Pradesh, an entertainment tax of 15 per cent was levied on all money paid to the totalisator and the bookmakers.
In July 2017, the government introduced the GST, which subsumed the services tax, the entertainment tax and all other state indirect taxes. The GST council placed gambling and totalisator services provided by a racecourse as well as betting with licensed bookmakers in racecourses in the 28 per cent tax band. Further, the GST Council on 18 January 2018 provided clarification pertaining to GST on horse racing,36 which stated that GST would now be leviable on the entire bet value (i.e., total of face value of any or all bets paid into the totalisator or placed with licensed book makers, as the case may be).
In addition, all winnings of a player or individual are taxed under Section 194BB of the Income Tax Act at 30 per cent.
Under entry 34 of the Central Goods and Service Tax notification dated 28 June 2017, all services rendered pertaining to an entry into a casino would be chargeable with a GST of 28 per cent on the gross amount collected as admission charge or entry fee. In a subsequent circular dated 4 January 2018, it was clarified that the tax of 28 per cent would apply on entry to casinos as well as on betting and gambling services being provided by casinos on the transaction value of betting (i.e., the total bet value), in addition to GST levy on any other services being Circular No. 27/01/2018-GST provided by the casinos (such as services by way of supply of food and drinks, etc., at the casinos).
Owing to the Indian Premier League’s betting and fixing scandal, the Supreme Court formed a Committee under the aegis of Justice Mukul Mudgal to determine the facts. This Committee recommended to the Supreme Court that betting in sports should be legalised and regulated. The Committee formed under the aegis of the former Chief Justice of India, Justice RM Lodha, confirmed this recommendation. The Supreme Court in its judgment dated 18 June 2016 in BCCI v. Cricket Association of Bihar 38 has made a reference to the Law Commission of India to consider legalisation of sports betting. The Law Commission in this regard is seeking opinions from stakeholders and has also engaged with the UK India Business Council to understand the legislative framework and governance by the UK Gambling Commission and the Isle of Man Gambling Commission.
the Indian Federation of Sport Gaming, which seeks to self-regulate the sports gaming industry of online sport-based games of skill including e-sports, fantasy sports and casual sport games.
With growing interest in the e-sports sector among people in India, the Esports Federation of India (ESFI) was formed as a company under Section 8 of the Companies Act, 2013 to promote, organise, educate and control e-sports in India and to provide facilities for training in e-sports, and build and sustain the eco-system for e-sports in India, not limited to organising leagues and tournaments.
There has been much debate on the regulation of sports betting in India. With the support of the Supreme Court, the Law Commission of India is likely to submit its report on legalisation of sports betting in 2018. Once submitted, the report is likely to cause debates on its content.
A 1976 notification issued by the state of Kerala exempted games such as rummy, darts, cup and coin contests from the ambit of gambling. Based on the notification, the government has been advised to include games of poker and bridge in the list of exempted games, it remains to be seen whether this is accepted. The petitioners in the judgment classifying poker has a game of chance have filed an appeal before the division bench of the High Court of Gujarat. The rummy service providers from the state of Telangana have filed a writ petition in the High Court of Andhra Pradesh challenging the constitutional validity of the Telangana Gaming (Amendment) Act 2017, classifying game of skill for stakes as betting.
1 Vidushpat Singhania is the managing partner of Krida Legal.
9 The Telangana State Gaming (Amendment) Ordinance, 2017 dated 17 June 2017 and the Telangana State Gaming (Second Amendment) Ordinance, 2017 dated 8 July 2017.
10 See footnote 6, supra.
11 State of Andhra Pradesh v. K Satyanarayana (1968) 2 SCR 387, AIR 1968 SC 825.
12 State of Bombay v. RMD Chamarbaugwala AIR 1957 SC 699.
13 R Shankar Creation Association v. State of Karnataka, WP No. 16622/2012, decision dated 4 June 2012.
14 As of 30 November 2015.
15 The Bodoland Territorial Council is not a state as per the Indian constitution. This is an area in the north-eastern region of India, which was created recently by carving out areas from eight districts of Assam, namely, Kokrajhar, Dhubri, Bongaigaon, Barpeta, Nalbari, Kamrup, Darang and Sonitpur within the state of Assam. It is an autonomous administrative unit constituted under the Sixth Schedule of the Constitution of India covering an area of 8795km2 (provisional).
17 2011 (5) RAJ 255(Del); CS (OS) No.894/2008 decided on 23 November 2009.
18 BR Enterprises v. State of UP (1999) 9 SCC 700.
20 Civil Appeal Nos. 3518–3520.
21 See footnote 6, supra.
22 News Television India Ltd v. Ashok Waghmare (2006) 2 MhLj 431.
23 D. Krishna Kumar v. State of AP (2002) 5 ALT 806, 2003 Cr LJ 143.
24 DG of Police, State of Tamil Nadu v. Mahalakshmi Cultural Association, WA No. 2287 of 2011, decided on 22 March 2012.
25 SLP Civil No. 15371/2012.
26 CWP No. 7559 of 2017.
27 Telangana Ordinance No. 4 of 2017 dated 17 June 2017.
28 Telangana Ordinance No. 6 of 2017 dated 8 July 2017.
29 Special Civil Application No. 6903 of 2017.
30 Malik M, ‘Horse race turn troublesome in Punjab’, The Pioneer 10 July 2015.
31 Bombay Prize Competitions Rules 1959 and the West Bengal Prize Competitions Rules 1958.
32 Government of Goa, ‘Budget Speech’, accessed 10 April 2017 at www.goa.gov.in/wp-content/uploads/2017/03/Budget-Speech-2017.pdf.
34 ‘Decisions taken by the GST Council in 17th Meeting-18th June 2017’ accessed on 18 March 2018 at www.cbec.gov.in/resources//htdocs-cbec/gst/Decisions%20taken%20by%20the%20GST%20Council%20in%20the%2017th%20Meeting%20-%2018.06.2017.pdf.
35 ‘Entertainment Tax rate structure’, accessed 6 April 2016 at http://mumbaisuburban.gov.in/html/entertainment.htm.
37 Example (f), Chapter 1 of the Code.
38 Civil (Appeal 4235 of 2014 with Civil Appeal 4236 of 2014).
40 ‘Offshore casino, ship to Chennai among Narayanasamy proposals’, 7 July 2016, Deccan Chronicle.
41 ‘Offshore casino in Vizag, AP may have first mover advantage’, 11 September 2015, The Hindu.

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 Application No. 6903