In a major setback for online gambling platforms and all other gambling entities in Karnataka falling under the category of betting or betting, the Government of Karnataka on October 5, 2021 notified the Police of the Karnataka Act 2021 Karnataka (Amendment) (“Law”/”Amendment”) which prohibits any form of online gambling involving the transfer of money.
The controversial legislation comes against the backdrop of the upcoming T20 World Cup involving a huge stake for online gaming companies including MPL, Dream11 to name a few. Additionally, it is said to be hurting Bangalore/Karnataka’s position as the startup capital of the country, which is home to around 92 gaming companies and employs over 4,000 people.
The amendment expands the scope of certain definitions under section 2 of the Act. Some of the main amendments are:
The definition of the term “Games” under section 2(7) has been revised to include online games which involve “all forms of betting or betting, including in the form of tokens valued in terms of money paid before or after they are issued, or electronic means and virtual currency, electronic transfer of funds in connection with any game of chance“.
Similarly, Article 2(11) which defines “game instruments“has been greatly expanded and now includes”any item used or intended for use as a subject or means of play, including computers, computer system, mobile application or the Internet or cyberspace, virtual platform, computer network, computer resource, any communication device, electronic applications, software and accessories or means of online gambling, any document, record or record or evidence of any gambling in electronic or digital form, the proceeds of any online gambling such as or any winnings or prizes in cash or otherwise distributed or intended to be suspected in respect to any game“.
The amendment also introduced a new section 12(A) which defines “online game” like “games as defined in clause (7) played online by means of gaming instruments, a computer, a computer resource, a computer network, a computer system or by a mobile application or Internet or any communication device, electronic application, software or on any virtual platform;“
In addition, section 78 has been amended to criminalize activities related to the opening of certain forms of gaming centers and penalize anyone who opens, maintains or uses cyber cafes, computer resources, mobile applications, the Internet or any communication device as defined in the computer law for online gaming. Section 78 offenses have been made knowable and releasable.
The Amendment also increased the nature and scope of penalties for various offences. Violations of sections 78 and 87 of the Public Street Gambling Act are punishable by imprisonment of up to six months or a fine of up to ten thousand rupees.
Penalties under Section 79, which criminalizes keeping a communal gambling house, and Section 80, which criminalizes gambling in a communal gambling house, have been increased to a term of imprisonment of up to up to three years and a fine of up to one lakh rupees.
Previously, Articles 79 and 80 did not apply to bets in games of pure skill. The amendment removed this exception, placing games of skill under the ban as well.
Recently in Junglee Games v. State of Tamil Nadu, the Madras High Court struck down the Tamil Nadu Gambling and Police Laws (Amendment) Act 2021, which was similar to the Karnataka Amendment, finding such a blanket ban to be excessive and disproportionate and that it violated Section 19(1)(g) of the Constitution.
The High Court of Rajasthan in Saahil Nalwaya v. State of Rajasthan and Ors.  has ruled that Online Fantasy Sports, which operates under the Online Fantasy Sports Platforms Charter of the Fantasy Sports Federation of India, the online fantasy sports industry self-regulatory body that we have already discussed, are protected under Section 19(1)(g) of the Constitution.
The Supreme Court in Avinash Mehrotra v. The State of Rajasthan, rejected an SLP of a Rajasthan High Court ruling, thereby upholding the judgments of the Rajasthan High Court, Punjab and Haryana High Court and Bombay High Court that gambling such as Dream11 do not involve any commission of the gambling and betting offence.
Given these court positions, the constitutional and legal validity of the amendment is also in question, and the amendment will likely be challenged in court.
Effects of amendment
Immediately after the notification of the Amendment Act, online platforms started geotagging and blocking access to their apps for users in Karnataka. While MPL and PayTM First seem to have blocked access to their users in Karnataka, some other online fantasy sports apps are still trying to interpret and comply with the new legislation.
Industry experts predict that the ban will impact more than 10% of online transactions in the country and result in a revenue loss of around 7-12% for the online gambling industry, in addition to damaging Karnataka’s investor-friendly label.
The move is the latest of many attempts by state legislatures across the country to ban online gambling. Such actions are criticized for highlighting legislators’ misplaced concern for online gambling, and critics argue for regulation rather than outright banning. While clarity is needed and perhaps the rules yet to be worked out can help clear the air, the gaming industry may not wait until then to move to court to challenge the general ban.