TaxTMI 
TaxTMI 
2023 (11) TMI 672
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....ini Vaidialingam, Mr.L.Nidhiram Sharma For the Petitioners in W.P.No.13720 of 2023 : Mr.C.Manishankar, Senior Counsel for Mr.R.S.Diwaagar For the Petitioners in W.P.No.13722 of 2023 : Mr.Satish Parasaran, Senior Counsel for Mr.R.S.Diwaagar For the Petitioners in W.P.No.14704 of 2023 : Mr.Mukul Rohatgi, Senior Counsel for Mr.R.S.Diwagar, Mr.Akhil Anand, Mr.Himanshu Vij, Mr.Bharadwaj Ramasubramanian, Mr.Durga Bose Gandham For the the 1st Respondent in W.P.Nos.13203, 13720, 13722 & 14704 of 2023 : Mr.Kapil Sibal, Senior Counsel assisted by Ms.Aparajita Jamwal For the the 2nd Respondent in W.P.Nos.13203, 13720, 13722 & 14704 of 2023 and for the sole Respondent in W.P.No.13593 of 2023 : Mr.R.Shunmugasundaram Advocate General assisted by Mr.P.Muthukumar State Government Pleader, Ms.A.G.Shakeena and Mr.B.Thiyagarajan For the the 3rd Respondent in W.P.Nos.13203, 13720, 13722 & 14704 of 2023 : Mr.Amit Anand Tiwari Additional Advocate General, Supreme Court assisted by Ms.Devyani Gupta and Mr.Amartya A.Sharan For the the 4th Respondent in W.P.Nos.13203, 13720, 13722 & 14704 of 2023 : Mr.P.Muthukumar State Government Pleader assisted by Mrs.R.Anitha Special Government Pleader; Mr.K.M.D....
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....tforms and offering competitive games of rummy in three popular formats of tournaments, points rummy and pool rummy. 8.1. Dr.Abhishek Manu Singhvi, learned Senior Counsel for the petitioners in W.P.No.13593 of 2023; Mr.Mukul Rohatgi, learned Senior Counsel for the petitioners in W.P.No.14704 of 2023; Mr.Sajan Poovaiya and Mr.V.Ragavachari, learned Senior Counsel for the petitioner in W.P.No.13203 of 2023; Mr.C.Manishankar, learned Senior Counsel for the petitioners in W.P.No.13720 of 2023; Mr.Satish Parasaran, learned Senior Counsel for the petitioners in W.P.No.13722 of 2023, put forth the case of the petitioners. The contour of their submissions can be summed up as under: 8.2. The impugned Act is solely based on the report submitted by the Committee under the Chairmanship of Justice K.Chandru (Retd.). The said report has arbitrarily categorised games of skill, i.e., online rummy and online poker, to be games of chance. The said report is directly in the teeth of the law settled by the Division Bench of this Court in the case of Junglee Games India Private Limited v. State of Tamil Nadu 2021 SCC Online Mad 2762, and that of the Apex Court in a catena of judgments. The report fai....
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....d online. The said report further erroneously suggests that online gaming portals utilize digital currency. However, it has been clarified that the petitioners do not accept any digital currency on its platform. Money is accepted only through legally recognized banking channels like net banking, debit cards, wallets, UPIs etc. 8.6. The said report refers to the 246th Law Commission Report, but conveniently ignores Section 3 of the Law Commission Report, wherein it has been held that the games of skill are not gambling activity. The report cannot be placed on a higher pedestal. It does not have appropriate value. The said report suggests that suicides are committed by students, but no empirical data exists in that regard. Suicides are unfortunate, however, it is in no way substantiated that the same are because of the online games. 8.7. Section 2(i) of the Act of 2022 defines "online gambling" to include wagering or betting. Section 7(1) of the Act of 2022 prohibits online gambling. Section 10(5)(a) and Section 14(1)(a) of the Act of 2022 restrain local and non-local online games providers from providing online gambling services. These provisions, which form the bedrock of the Act....
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....itutional Bench judgments in The State of Bombay v. R.M.D. Chamarbaugwala AIR 1957 SC 699, and R.M.D. Chamarbaugwala v. Union of India AIR 1957 SC 628, it was observed that gaming means the act or practice of gambling on a game of chance, where chance is the controlling factor. Reliance is also placed on the judgment of the Karnataka High Court in the case of All India Gaming Federation v. State of Karnataka 2022 SCC OnLine Kar 435. 8.13. Reliance by the State on the judgment of the Apex Court in the case of M.J.Sivani & Ors. vs. State of Karnataka & Ors. (1995) 6 SCC 289, is misplaced. The said judgment is with regard to rigging of video game machine at video game parlour, which is very distinct from the online games offered by the petitioners. Further, it is stated by the State that this Court has not dealt with the judgment in M.J.Sivani case while delivering the judgment in the case of Junglee Games (supra). However, this Court has specifically referred to the case of M.J.Sivani (supra) in Junglee Games (supra). 8.14. Reliance by the State on the last four lines of the judgment of the Apex Court in the case of State of Andhra Pradesh vs. K.Satyanarayana and Ors AIR 1968 SC 82....
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....It is the further submission that games of skill do not cease to be one even when played with stakes. The Kerala High Court in the case of Head Digital Networks Pvt. Ltd. vs. State of Kerala 2021 SCC OnLine Ker 3592 has held that playing games of skill for stakes does not amount to gambling. There is no concept of an independent category of "betting" on games of skill. All "betting", sought to be got in the ambit of "betting and gambling", is betting on games of chance. Reliance is placed on the judgment of the Apex Court in the case of Dr.K.R.Lakshmanan (supra) and the judgment of this Court in the case of Junglee games (supra). 8.18. The word "betting" cannot be segregated from "gambling" in order to create an alternate field of regulation by the respondent State. The State can only legislate on betting pertaining to gambling, inter alia, betting only on games of chance. Reliance is placed on a judgment of the Division Bench of this Court in Junglee Games (supra). 8.19. The words "betting and gambling" cannot be read as "betting or gambling". When the provision is clear and unambiguous, the word "or" cannot be read as "and", the word "and" cannot be read as "or". 8.20. The game....
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....ronics and Information Technology, being the nodal Ministry for regulation of games on the Indian internet. The impugned Act is not a validating Act. The judgment of this Court in the case of Junglee Rummy (supra) is binding on the State and no law under Entry 34 in the State List can be enacted to prohibit games of skill. 8.24. The State's reliance on the screenshots of the petitioners to suggest that the petitioners' incentives to the players is to gain profits is incorrect. Every business runs legitimate promotions and schemes to expand their business to ultimately make the business profitable. Any activity protected under Article 19(1)(g) of the Constitution of India is for the purpose of gaining profits and permitted activity and earning profit out of it and paying applicable taxes in compliance with law. If the State's argument is to be accepted, then all business activities, making profits, ought to be prohibited. This necessarily implies that if the petitioners were running at a loss, then the State would have no objection to the business activities of the petitioners. The petitioners do not profit from the winnings of the players, but charge a predetermined se....
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....te Government Pleader canvassed their submissions on behalf of the State of Tamil Nadu (respondents). 9.1. The Preamble of the Act of 2022 establishes the societal concerns, which need to be addressed with reference to betting and gambling and its impact on the family and its societal impact. The Government of Tamil Nadu constituted a Committee, chaired by Justice K.Chandru (retd.). The Committee comprised five Members. The Committee incorporated experts from the fields of law, psychiatry and technology to understand the legal and social implications of online games. The allegations of bias as against the Committee are misguided and bereft of merits. The terms of reference of the Committee were wide and open, including the determination of whether online games involve skill and to study the algorithm and its susceptibility of being tweaked. 9.2. The provisions of the impugned Act are traceable to the matters enumerated in the Entries 1, 6 and 34 in the State List. The impugned Act is also referrable to the subject of "Criminal Law" under Entry 1, List III (Concurrent List) of the VII Schedule of the Constitution of India. 9.3. Entry 34 in the State List relates to "betting and g....
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....ing service providers is not abrogated by the State, instead, the enforcement mechanism consists of a provision enabling the Online Gaming Authority to make a recommendation to the State Government, which in turn would merely request the Central Government to exercise its powers under Section 69-A of the Information Technology Act, 2000 in respect of offending gambling service. In any event, under Article 246(3) of the Constitution of India, the Tamil Nadu Legislature has exclusive competence to make laws on the subjects mentioned in the State List. The matter of "betting and gambling" is enumerated in Entry 34 in the State List, and as such, the State of Tamil Nadu has an exclusive jurisdiction in respect of the same. 9.7. It is the Ministry of Electronics and Information Technology notification, amending the Intermediary Guidelines, which is invalid for lack of legislative competence. The definition of "online real money game" in the Ministry of Electronics and Information Technology notification takes into its fold all games, whether of skill or chance that involve "betting", which is in the area of the State's exclusive legislative competence under Entry 34 in the State Li....
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....n what is, from his perspective, an uncertain event, hence, he would be "betting". The correctness of the judgment in the case of Junglee Games (supra) is also under challenge before the Apex Court. 9.11. Online rummy cannot be described as a game of skill due to various reasons, as its dealer (software) knows all the unopened cards. 9.12. More over, the State's interest in reasonably restricting the same is weightier in view of the following aspects: (a) online games are available at all times of the day to be played by an unlimited number of players from anywhere in the world; (b) there is no social check of any sort on addictive behaviour of an individual and the game user is totally at the mercy of the game providers who would naturally be inclined to make him play more and more; (c) the design elements are used to ensure that the online game user becomes psychologically dependent on the positive feeling generated upon winning even a few rounds of the game, even though they make a loss overall; (d) most of the money staked by the online game users gets converted as profit of the online gaming firm; and (e) money lending for supporting online gambling is a full-b....
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....hat should be adopted, no matter the cost. The measures comparable to the impugned Act have withstood the test of Proportionality, since Courts worldwide have acknowledged the risk of social and economic hardship posed by online gambling. In Liga Portuguesa de Futebol Professional (Case C-42/07), the Court of Justice for the European Union upheld Portugal's Legislation prohibiting operators which are established in other Member States, in which they lawfully provide similar services, from offering games of chance via the internet in Portugal. Similarly, the Supreme Court for the State of Washington in the United States in the case of Rousso vs State 170 Wn.2d 70; 239 P.3d 1084 upheld a similar prohibition on remote gambling services. 9.18. Online rummy and online poker are substantially different from rummy and poker played in physical space. In physical card games, there is truly random process (shuffling of cards), which can be seen and verified by the players. In online rummy/poker, there is no actual shuffling of cards and the same is simulated by the computer usually using a Random Number Generator Software (RNG). Every computer, from the simple Babbage Engine to the mode....
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....tors such as, each player knows only his/her own cards and not other players' cards; no one, including the dealer, knows the unopened cards; no one, including the dealer, can touch the unopened cards or change the order; no one, including the dealer, knows which card is at which place. In the absence of such factors, the "chance" element in any card game cannot be described as a true element of "chance". The predominance or otherwise of the "skill" element in an online game cannot be measured, because the "chance" element in an online game is not a true element of "chance". A computer, at best, is able to generate only a pseudo-random outcome, which is never a truly random outcome. Despite harping on the equivalence between real-life "true chance" and the chance generated via RNG, the petitioners or its Members do not appear to have faith in the mechanism. For this reason, several online games providers include a disclaimer as to the consequences of deploying RNG. 9.21. The impugned Act does not seek to overrule any binding judicial precedent or pronouncement. There is no inter partes finding of fact by any Court for the specific online games of rummy and poker offered by the ....
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....rder before invoking its legislative power under Entry 1 in the State List. The petitioners have failed to distinguish between the scope of "public order" under Entry 1 in the State List vis-a-vis the phrase "maintenance of public order", which appears in Entry 3 in the Concurrent List. The judgment relied on by the petitioners in the case of Ram Manohar Lohia (supra) relates to the interpretation of the phrase "maintenance of public order", while the judgment in the case of Alijan Mian vs. District Magistrate (1983) 4 SCC 301 also discusses the same phrase. 9.25. Reliance is placed on the judgment of the Apex Court in the case of Kartar Singh vs. State of Punjab (1994) 3 SCC 569. It is contended that the only conclusion regarding Entry 1 in the State List, emerging from the case of Kartar Singh (supra), is that public disorder, targeted by a law under Entry 1 in the State List, must be of a lesser gravity having impact within the boundaries of the State and cannot extend to matters such as terrorist activities which threaten the sovereignty and integrity of the Nation. 9.26. The impugned Act is valid under Article 245 of the Constitution of India as long as it meets the Doctrine....
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.... the State List. 9.29. The impugned Act does not violate any fundamental rights of the petitioners. The petitioners cannot claim fundamental rights guaranteed by Article 19(1)(g) of the Constitution of India solely on the basis of there being an aggregation of citizens (shareholders), that is to say, the right of the citizens composing the Body. Reliance is placed on the judgments of the Apex Court in the cases of Divl. Forest Officer vs Bishwanath Tea Co. Ltd. (1981) 3 SCC 238 and A.P.Dairy Development Corpn. Federation vs B.Narasimha Reddy (2011) 9 SCC 286. As for the Shareholders and Directors in online gaming Companies, assuming that they are citizens of India, in such case, the petitioners lack locus to file such petitions, because unlike the legislation under challenge in R.C.Cooper (Banks Nationalisation) vs. Union of India (supra), the impugned Act does not deal with their rights qua the Shareholders and Directors and only targets the activities of the Company. The indirect consequences, if any, of the impugned Act on the values of the shares of the Shareholders pursuant to the enactment of the impugned Act would not confer locus on such petitions. 9.30. The petitioners a....
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....ongs of the test of proportionality outlined by the Apex Court in the case of Modern Dental College and Research Centre (2016) 7 SCC 353. 9.33. Artificial Intelligence and bots are used in online games in several scenarios. Detecting the use of AI and AI-assisted bots as part of online gaming services is impossible by merely examining the functioning of the online game program itself. Thus, the regulation of online games for ensuring fair play and equal chance of betting poses challenges of a different nature and scope as compared to regulating offline games. It is on this basis that the Tamil Nadu Legislature, in its wisdom, has taken the most social and economic step of prohibiting online gambling services altogether. 9.34. The impugned Act pursues the legitimate goal of countering ruinous addiction to online gambling and of protecting vulnerable and under age persons who are at great risk of harm to their finances and mental health on account of the uninterrupted and unrestricted access to gambling platforms. Prohibition on online gambling services is a suitable measure for achieving this goal. No measure, other than prohibition of online gambling services would be as effectiv....
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....fication, bringing the impugned Act into force, was issued on 21.04.2023. 12.1. Section 2(i) of the impugned Act defines "online gambling" as online wagering or betting and includes playing of any online game of chance for money or other stakes in any manner. The said definition is further explained as wagering or betting shall be deemed to comprise the collection or soliciting of bets, the receipt or distribution of winnings or prizes, in money or otherwise, in respect of any wager or bet, or any act which is intended to aid or facilitate wagering or betting or such collection, soliciting, receipt or distribution. 12.2. Section 2(l) of the impugned Act defines "online game of chance" as hereunder: "2(l) "online game of chance" includes any online game which,- (i) involves both an element of chance and an element of skill and the element of chance dominates over the element of skill; or (ii) involves an element of chance that can be eliminated only by superlative skill; or (iii) is a game that is presented as involving an element of chance; or (iv) involves cards, dice, wheel or such other device, which works on random outcome or event generator." 12.3. The Online Gami....
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....is true that whenever there is a challenge to the constitutional validity of an Act enacted by the Legislature or provisions thereto, one has to keep in mind that presumption is in favour of constitutional validity of law enacted by the Legislature and the petitioners will have to demonstrate transgression of the constitutional provisions and the mandate. It is well settled that the legislative enactment can be challenged on two grounds: (i) That the Legislature does not possess the competence to make the said law; (ii)The same is arbitrary, irrational and that it takes away or abridges any of the Fundamental Rights enumerated in Part III of the Constitution of India or any other constitutional provisions. It is on the touchstone of the aforesaid principles, the matter will have to be decided. 15. The essence of the impugned Act has been clearly encapsulated in its Preamble. The impugned Act is based on the pretext of achieving public welfare and to maintain public health. The impugned Act is enacted under the premise that the issues of online gaming and gambling cannot be dealt with by the old binary of "game of chance" versus "game of skill" and a new conceptual framework i....
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....e of entire chance. It is mainly and preponderantly a game of skill". 17.5. The Apex Court in the case of K.R. Lakshmanan v. State of Tamil Nadu (supra), has elaborately dealt with the concept of gaming. The Apex Court in the said case had observed that gaming is an act or practice of gambling on a game of chance. It is the game of chance, where chance is the controlling factor. Gambling would mean wagering or betting on games of chance. It would not include games of skill. It further held that the games of skill, although the element of chance necessarily cannot be entirely eliminated, is one in which success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player. Golf, chess and even rummy are considered to be games of skill. In the said case, the club was charging 5% commission, however, was not earning an income from the betting money. The same was held to be legal by the Apex Court. 17.6. The Division Bench of this Court in the case of Junglee Games India Private Limited v. State of Tamil Nadu (supra) also held that the games of rummy and poker are games of skill. Even in the 276th report of the Law Commission, poker is ....
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....ever, if the State fails to regulate, the Act of 1867 will continue to govern. Few States have made certain amendments to the Act of 1867 according to the requirement of the State. Gambling is generally prohibited in all States except Sikkim, Goa and Daman. 18.2. According to Section 12 of the Act of 1867, any game in which skill is the dominant factor, it will not be considered gambling, while games of chance would be considered as gambling. The Apex Court and High Courts in various decisions have given interpretation of games of chance and games of skill. 19. Wagering, gambling and betting have often been confused to be synonymous. This Court, in the case of Public Prosecutor v. Veraj Lal Sheth AIR 1945 Mad 164, explained the distinction as follows: "The principal distinction between gaming and betting or wagering is thus immediately apparent; in gaming the stake is laid by the players upon a game, the result of which may depend to some extent upon the skill of the players, but in a bet or wager, the winning or losing of stake depends solely upon the happening of an uncertain event". In a game of skill, although the element of chance necessarily cannot be entirely eliminated (s....
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....lated to users are stored in a secure environment and is not shared with any third-party, except for the purpose of provision of services by the Platform. The Company enters into Non-Disclosure Agreement with all such third parties; iv. The Petitioner has a dedicated customer support team ensuring prompt response to customer issues, if found and reported. Games are monitored on a regular basis to detect any violation of the terms of the Portal by players; v. Allocation of tables is random, and no table is prefixed for any game. Players, therefore, have no control over selection of players on any table; vi. Players logged in from the same IP address are not allocated seats on the same table; vii. Information about the playing cards is always encrypted, thereby preventing any third party from viewing the same; viii. There is no intervention of the petitioners in the conduct of games between players. Anti-fraud algorithms are applied after conclusion of games to check if players tried to defraud anyone after the completion of games and appropriate action is taken as per the Terms of Service of the Portal, if any such case is found; ix. As per the Code of Conduct, the Playe....
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....t. People, instead of playing in clubs, are now playing online. With the rise of internet connectivity and technological advancements, we see a spurt in online games. Many online games are in vogue. The games of rummy and poker, which are considered as games of skill are also now sought to be played online. In online games of rummy and poker also, the same brain activity would be involved as required for offline games of rummy and poker. Online fantasy games are now held to be games of skill and not games of chance by the High Court of Punjab and Haryana in the case of Varun Gumber vs. Union Territory of Chandigarh & Ors 2017 Cri LJ 3827. The High Court of Rajasthan, in the case of Chandresh Sankhla vs. State of Rajasthan 2020 SCC OnLine Raj 264 observed that in Dream 11, there is no element of betting or gambling as it is a game of skill. The High Court of Bombay has also reiterated the same in the case of Gurdeep Singh Sachar vs. Union of India 2019 (30) G.S.T.L. 441. 25. The State, in the impugned Act, has already included the games of rummy and poker to be online games of chance merely on presumption. The same cannot be protected. The same would be contrary to the judgments of....
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....y be, a framework for verifying an online real money game, which among other things, includes (a) the measures to ensure that such online real money game is not against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order; (b) the safeguards against user harm, including self-harm and psychological harm; (c) the measures to safeguard children, including measures for parental or access control and classifying online games through age-relating mechanism, based on the nature and type of content; and (d) the measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, including repeated warning messages at higher frequency beyond a reasonable duration for a gaming session and provision to enable a user to exclude himself upon user-defined limits being reached for time or money spent. 27. One cannot divorce "betting" from "gambling". The contention of Mr.Kapil Sibal, learned Senior Counsel for the State is that in the case of K.Satyanarayana (supra), the Apex Court held that "if there is evidence of gambling in some other way or that the owner of the house or the club ....
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....rsons/children below the age of 18 years. Online games can be played only by the persons who are 18 years and above i.e., major and not School children. The apprehension raised by the learned Senior Counsel for the State was that there would be no methodology to verify the age of the person playing. The petitioners responded to it by suggesting that a person, before he enrols to play, is required to submit his Aadhaar Card, photograph, KYC and other precautionary measures are taken to confirm that the person playing is 18 years old or more. 33. Another apprehension of the respondent was that the games are played 24 hours, thereby endangering the public and domestic health. As observed above, the concern expressed by the State about public health of its citizens is but natural. The State has to take care of the public health of its citizens. Section 5 of the impugned Act authorises the authority, by notification and with the previous approval of the Government, to make regulations to carry out the provisions of the Act namely, time limit, monetary limit, age restriction or such other restrictions in regard to playing of online games. The State certainly has the power to regulate on....
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....ht within the purview of games of chance. However, in the said case, law existed regulating gaming activity and the same was violated. In the present case, as observed supra, the respondent State could not even remotely demonstrate tampering of software or any such device that would take away the games of rummy or poker from the contour of games of skill. Moreover, the three Judges Bench of the Apex Court in the case of Dr.K.R.Lakshmanan (supra) held rummy to be a game of skill. 37. Another apprehension raised by the State is of public order. Public order in the State List would imply activities that would jeopardize and affect public at large. The Apex Court in the case of Ram Manohar Lohia (supra) observed that "Every breach of the peace does not lead to public disorder. When two drunkards quarrel and fight there is disorder but not public disorder. They can be dealt with under the powers to maintain law and order but cannot be detained on the ground that they were disturbing public order. Suppose that the two fighters were of rival communities and one of them tried to raise communal passions. The problem is still one of law and order but it raises the apprehension of public dis....