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How Karnataka's online gambling bill could impact skill-based gaming startups

Karnataka government's proposed bill looks to ban all forms of online gaming where the transfer of money in digital or other electronic form is involved.

September 21, 2021 / 09:02 PM IST

Karnataka's proposed amendment to ban online gambling could have major implications on Indian skill-based gaming startups, since it brings them under the ambit of the regulation by removing the distinction between game of skill and game of chance, according to industry experts.

Karnataka's legislative assembly had tabled the bill on Friday to amend Karnataka Police (Amendment) Act, 2021 in the backdrop of a public interest litigation filed in Karnataka High Court to ban online gambling. It includes all forms of online gaming including game of skill and game of chance where transfer of money in digital or other electronic form is involved. The amendment however excludes offline lottery and horse racing.

Federation of Indian Fantasy Sports (FIFS), a self-regulatory industry body for fantasy sports, said the bill appears to be misguided since it penalises legitimate businesses by treating them at par with illegal online gambling, betting and wagering platforms. Such confusing signals could result in impeding the development of sports in the state.

"We request the Karnataka government to remove any ambiguity or uncertainty in the bill to ensure continuity and growth of the fantasy sports sector in the State. FIFS and its members strongly believe that certainty is integral to the rule of law and hence the bill needs to provide certainty and clarity to businesses, the investor community as well as consumers for the orderly growth and development of the industry" it said in a statement. The 35-member body counts Dream11 as its founding member with other members like MPL and My11Circle.

This development also comes at a crucial time for these players who are looking to cash in on the high interest from cricket fans during the ongoing Indian Premier League tournament and the upcoming ICC T20 World Cup.


Putting all categories of games within the same bucket is unjustified since the distinction between games of skill and games of chance is even recognized by the Supreme Court and the Madras High Court recently stuck down a similar law which was passed by Tamil Nadu government, said technology lawyer Jay Sayta.

Industry bodies like IAMAI and CAIT have also urged Karnataka government to relook its bill to ban online gambling, since it will affect Indian startups in the online skill gaming industry and may lead to loss of jobs in the state.

"A game of chance is pure gambling and should rightfully be banned. However, by including games of skill in the ambit of the bill, it has not only gone against established jurisprudence by the Honourable Supreme Court and Karnataka High Court but threatens the thriving Indian gaming startup sector" Praveen Khandelwal, secretary general of the Confederation of All India Traders (CAIT) said in a letter to Karnataka chief minister Basavaraj Bommai.

In the letter, Khandelwal said the bill will hurt the Indian startup sector, the Indian gaming and animation industry and millions of Indian gamers and esports players across the country.

"The bill to ostensibly ban online gambling or betting makes all online games of skill, which charge a small entry or registration fee, illegal. The bill only affects the Indian companies, which mostly charge a small registration fee to play their games, and will not affect other foreign games, where children spend thousands of rupees on in-app purchases. The bill will also prohibit Indian games like Chess, Carrom, Archery, Hockey and digital versions of traditional sports" he said.

Internet and Mobile Association of India (IAMAI) said the bill appears to have been drafted without considering the various legal and constitutional positions by including a wide definition of 'gaming' in amendments against various Supreme Court and High Court judgments. It could also hurt Karnataka’s position as the country's startup hub and lead to the loss of jobs and revenue for the state.

"IAMAI is hopeful that the state government will continue to take a progressive stand and relook at the bill to bring it in line with the Supreme Court and various High Court's judgments and help create a vibrant, inclusive, globally competitive, and sustainable startup ecosystem in Karnataka" it said in a statement. "There are 92 gaming companies registered in Bengaluru which employ over 4,000 people. In the past three years, international investors have invested around Rs 3,000 crores in gaming and animation startups in the state."

The industry body requested the state government to take a progressive view and ensure that legitimate online gaming companies that are protected under Article 19(1)(g) and Article 14 of the Constitution of India continue to operate in the state.

"Legislative actions such as this, may create a cloud of confusion and create regulatory uncertainty, which may unintentionally result in investors recalibrating their investments in the state and many existing companies may consider shifting base from the state" it said.

Gambling is a state subject in India due to which several states are taking different approaches to curb these activities. Andhra Pradesh has banned all forms of online gambling, while Kerala has banned games like online rummy. Tamil Nadu had introduced an ordinance banning online gambling in November last year, however it was struck down by Madras High Court last month.

"We are treading cautiously when it comes to gaming. Blanket banning is not a solution, one needs to have a distinction between games of skill and games of chance" Jayesh Ranjan, Principal Secretary Industries & Commerce (I&C) Department & Information Technology, Electronics and Communications (ITE&C), Government of Telangana said at an industry event earlier this week.

“The pushbacks from law enforcement and other agencies are largely driven by games of chance. We cannot rule out that certain things can’t be manipulated, the need is to understand how we navigate the regulatory framework, we also need to dive deeper and find a middle path… We are taking certain steps in Telangana, but want to ensure that these are not challenged by courts or lead to public outcry,” he said.
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