Karnataka passes bill banning online ‘game of chance’

As Karnataka Assembly passed amendments to Karnataka Police Act, severely impacting the online gaming industry, industry is hopeful of a clarification on the bill regarding exclusion of ‘games of skills’.

As per the bill that was tabled and passed in the Karnataka Assembly, the State is looking at a ban on all formats of online gaming that involve an entry fee or registration fee.

IndiaTech, an industry body representing start-ups like Dream11, MPL, Zupee among others, has sent a letter to Karnataka’s chief minister Basavaraj Bommai seeking clarification that the bill amendments will not be applicable to online skill based gaming and sports.

“We have requested the Chief Minister and Home Minister to immediately issue necessary statements to ensure the right signals go to the startup and investment community. Multiple court orders have well established the legality around games of skills, even where money is involved and therefore should not be construed as gambling or betting or wagering,” Rameesh Kailasam, CEO, IndiaTech.org told BusinessLine.

He added that the Karnataka government should appropriately issue guidelines, in consultation with the industry to ensure that its objective is aligned with the industry over clamping down on gambling and betting.

All India Gaming Federation CEO Roland Landers said, “We first need to see if there's a clarification on the bill. We will wait for the final notification, to see if there are some changes in tonality or language of the bill. Based on which, we will strategise on the way forward.”

Following various State regulations, online games operating in formats like online fantasy sports (OFS) and online rummy have had to prove skill predominance in their respective formats. States such as Telangana, Andhra Pradesh, Assam, Odisha, Nagaland and Sikkim have put a ban on online rummy. However, a similar ban did not pass in Tamil Nadu where the high court has held that online rummy involves high dominance of skills and thus cannot be considered as gambling, even when played with stakes.

Impact on players

“The move by the State government in passing the Karnataka Police (Amendment) Compliance Act, 2021 comes as a real setback to the large professional players community that resides in the State. These players, who represent India in domestic and international level tournaments such as the 2018 Asian Games and World Series of Poker look to this globally accepted sector as a means to their livelihood, which has already witnessed a severe impact due to the Covid-19 pandemic,” said PK Misra, President Players Association – AIGF (Ex-IAS).

The bill is expected to impact all gaming formats including casual games, strategy games, and even esports. “While the bill says it is to actually ban online gambling, what in effect has happened is that it has banned everything, including skill games. So, anybody who wants to pay an entry fee, and play a game of speed chess, fantasy cricket on MPL would actually not be allowed to do so,” said Landers.

Impact on start-ups and jobs

According to EY-All India Gaming Federation (AIGF) report, ‘Online gaming in India-The GST conundrum’, the Indian online gaming sector touched about $1 billion in 2020, and is expected to reach $2 billion by 2023 in terms of rake fees earned.

“The decision in Karnataka could have a negative effect on growth and investment in the industry. At present, Karnataka is home to more than 91 gaming companies and developers, which employ about 4,000 people. The Bill, in its current form, will have a severe impact on these companies, in the form of revenue and job loss, and stifle the growth of this sector.” said Kazim Rizvi, Founder of a public policy think tank, The Dialogue.

Earlier this week, IAMAI (Internet and Mobile Association of India) has noted that international investors have invested about ₹3,000 crore in gaming and animation startups in Karnataka. The industry body added that such legislative actions may “create a cloud of confusion and create regulatory uncertainty, which may unintentionally result in investors recalibrating their investments and many existing companies may consider shifting base from the State.”

Secretary General of The Confederation of All India Traders (CAIT), Praveen Khandelwal has also recently written to Basavaraj Bommai, the Chief Minister of Karnataka stating that game of chance is pure gambling and should be rightfully banned. “However, by including games of skill in the ambit of the bill, it has not only gone against established jurisprudence but threatens the thriving Indian gaming startup sector,” he added .

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