Ban Or Regulate? How Tamil Nadu's Online-Gaming Law Differs From Central Rules

Tamil Nadu's insistence on a ban stemmed from rising social tensions and suicides due to mounting online gambling debt.

<div class="paragraphs"><p>(Photo Source: Tarun Saavy/Unsplash)</p></div>
(Photo Source: Tarun Saavy/Unsplash)

The Tamil Nadu government's ban on certain online games like poker and rummy has reignited the debate around the legality of the state-led prohibition.

While the state law takes a strict stand, the central government prefers a soft-touch regulatory approach. This straddles two already contested issues—the legal jurisdiction of states in banning certain online games, and the definition of games of skill and games of chance.

Under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules 2023, the Ministry of Electronics & Information Technology notified that self-regulatory organisations will determine if online real money games are permissible, depending on whether wagering is involved.

The ministry defines real money games as an online game where a user makes a deposit in cash or kind with the expectation of earning winnings.

Under the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, which received the governor's nod on Monday, advertisement in any form promoting online gambling or playing of 'online games of chance with money or other stakes' is prohibited in the state. The specified online games of chance are rummy and poker.

Against 'Established Jurisprudence'

Asish Philip Abraham, partner at Lakshmikumaran and Sridharan, told BQ Prime that a state has the constitutional power to decide on activities of betting and gambling. But if it is a game of skill, it doesn't have any authority to ban and can only regulate.

He said that listing rummy and poker for prohibition as games of chance or gambling under the new legislation ran contrary to the established jurisprudence on games of chance and skill by the apex court, based on mode of game.

In August 2021, the Madras High Court also struck down an amendment made to the Tamil Nadu Gaming Act, which imposed a ban on online gaming of rummy and poker with stakes.

Tamil Nadu's insistence on a ban comes in the wake of increased social tensions and the tally of suicides owing to mounting online gambling debt in the state. In October 2022, the state had promulgated an ordinance before passing a bill to prohibit online gambling and regulate online games in the state.

Southern States Want To Ban Online Gaming But Regulation May Work Better

'Better' To Align With Central Rules

E-Gaming Federation described the move as an "extremely unfortunate and a disappointing development" for the online gaming industry and said it would take appropriate action based on legal advice in due course of time.

Arun Prabhu, partner and head (technology and telecommunications) at Cyril Amarchand Mangaldas, said states might have been "better served" by aligning with the MeitY’s recently notified online gaming intermediary framework, which is more sophisticated and industry-specific.

"The central government framework includes a robust mechanism for independent self-regulatory bodies to examine formats and take a view on whether they are problematic or constitute gambling," Prabhu said.

He said a ban stands at the risk of potentially disincentivising the operation of a valuable, innovative and growth industry within that state.

"I feel that aligning with that framework and limiting consequences under state legislation to games that are not registered with self-regulatory bodies may have been a better way to go about this," he said.

Abraham said the approach taken by the Tamil Nadu government has led to dual compliance in the state. The state licensing regime will be in addition to the role of an online gaming self-regulatory body.

The new rules translate to an additional compliance burden for other online games also as they will need to be licensed by the state, Abraham said.

Clarity Needed

TR Venkateswaran, partner at Price Waterhouse and Co., said there was a lack of clarity in laws and it would only lead to more confrontation in the courtroom. He doesn't expect this move to have a significant revenue impact for gaming platforms as they would have factored it in.

They are only looking at where they can operate, so this will affect their growth strategy, Venkateswaran said. "There is a need for clarity and clear intention from the state and central governments as to what they want to regulate—whether it is a game of chance or skill."

This has been long contested within the walls of the goods and services tax council, he said.

"There seems to be a dichotomy in thought. The state governments imply that if money is involved, then it is betting. But this is not coming out in the GST GoM (Group of Ministers) either," he said.

The voting on the report of the GST GoM on casinos, horse racing and online gaming was not taken up in the 49th GST Council Meeting in February.