A Shareholders Agreement is a legally binding contract among the shareholders of a company that governs their relationship, outlines their rights and obligations, and establishes mechanisms for managing disputes and significant business decisions. While often overlooked in the early stages of a business, this agreement becomes critical as the company grows, raises capital, or experiences ownership changes.

What is a Shareholders Agreement?

A Shareholders Agreement supplements a company’s constitutional documents (such as the Articles of Association). Unlike public documents filed with the Registrar of Companies, a shareholders agreement is a private contract that allows shareholders to create a more customized governance framework based on mutual understanding and trust.

It protects minority shareholders, prevents future misunderstandings, and ensures that all parties are aligned regarding the direction of the company.

Key Clauses in a Shareholders Agreement

1. Shareholding Structure and Capital Contribution
   The agreement records the percentage of shares held by each shareholder and details any capital investment obligations.
2. Governance and Decision-Making
   It defines how directors are appointed, how the board functions, and which matters require board vs. shareholder approval. Certain “reserved matters” (like taking on debt, issuing new shares, or selling assets) may require supermajority or unanimous consent.
3. Transfer of Shares
   To prevent hostile takeovers or unwanted new shareholders, the agreement may restrict share transfers and include:
   • Right of First Refusal (ROFR)
   • Right of First Offer (ROFO)
   • Tag-Along Rights (minority shareholders can join in on a sale by majority holders)
   • Drag-Along Rights (majority shareholders can compel minority shareholders to sell if an exit opportunity arises)
4. Exit Mechanisms
   Whether due to retirement, death, disability, or disagreements, the agreement provides structured exit options such as share buybacks, sale to existing shareholders, or third-party acquisition, along with fair valuation methods.
5. Dividend Policy
   It may include how and when dividends are to be declared or distributed, based on profits, board discretion, or predefined thresholds.
6. Confidentiality and Non-Compete
   To safeguard the company’s intellectual property and business secrets, the agreement often includes clauses preventing shareholders from competing with or disclosing sensitive information about the company.
7. Deadlock Resolution
   In case of a 50-50 ownership or equal voting strength, the agreement may set out methods to resolve deadlocks – through third-party mediation, buy-sell mechanisms, or arbitration.
8. Dispute Resolution
   To avoid prolonged litigation, the agreement typically includes an arbitration clause or names a specific tribunal to settle disputes arising out of the agreement.

Why is a Shareholders Agreement Essential?

• Reduces Legal Risks: Pre-empts future disagreements with well-defined procedures and rights.
• Attracts Investors: Venture capitalists and angel investors often demand a robust shareholders agreement before investing.
• Protects Minority Interests: Ensures that smaller shareholders are not overridden by majority decisions without protection.
• Provides Business Continuity: Smoothens transitions in ownership, exit, or succession planning.

When Should You Draft a Shareholders Agreement?

Ideally, this agreement should be executed at the time of company incorporation or when new shareholders are added. Delaying it until disputes arise can complicate negotiations and lead to irreparable damage to the business.

Conclusion

A well-drafted Shareholders Agreement is not just a legal formality—it is a business safeguard. It brings clarity, reduces conflicts, and aligns shareholder expectations with the long-term vision of the company. Whether your company is a startup or a mature enterprise, having a tailored shareholders agreement is a proactive step toward business stability and governance.

📩 For professional assistance in drafting, reviewing, or negotiating a Shareholders Agreement, you may reach out to SS Global Law Firm.

researched and written by Khutejatulkubra M Patil

An employment contract is a contractual document that defines the responsibilities and rights of both the employee and the employer.
A contract of employment is a bilateral agreement based on an offer, acceptance, consideration, competent parties, legal object, and free consent. An employment contract is entered into for a certain period of time in exchange for service and compensation. There are numerous rules that control the relationship between the employer and the employee, each of which is significant in its own right.
There is no standard contract. Instead, the terms and provisions vary depending on the company’s business, the position offered, and the internal policies and procedures.
India’s labour law governs every employment contract made with a company based in the country. According to Indian regulations, it is not required for an employer to provide a newly recruited employee with either a written contract of employment or an official written declaration.
It is common for employment contracts to have some essential clauses, despite the fact that there are numerous variants. Some of the most common terms in an employment contract are listed below.

There are two types of employment agreements:
1. Collective Agreements (CA): Collective bargaining agreement (CBA) is a contract between an employer and a union that represents the employees that is legally binding. Wages, working hours, and other employment-related issues were extensively negotiated between the parties in order to arrive at the CBA’s provisions.

2. Individual employment agreements (IEA): A contract of employment agreed into by one employer and one employee who is not bound by a collective agreement that binds the employer.

Important Clauses of an Employment Agreement:
1. Title of Position Offered: The contact should highlight the employee’s key responsibilities, as well as the job description given in the employee’s offer letter. The employer should explicitly state in the employment contract the department or person the employee will report to. This category includes things like job title, responsibilities, and tasks.
2. Confidentiality Clause / Non – Disclosure Obligations: It prohibits the employee from exposing sensitive information to any other party without the employer’s prior approval. A non-disclosure agreement prevents an employee from disclosing sensitive or valuable company information. By signing the non-disclosure agreement, the employee agrees that disclosing or abusing the company’s secrets would result in a breach of the contract. The Indian Penal Code and the Information Technology Act of 2000 both provide for criminal prosecution and imprisonment or fine (or both) as penalties for violating confidentiality and disclosure restrictions.

3. Non-Compete clause: A non-compete provision is contract provision that prohibits an employee from competing with his or her former employer. This provision prohibits an ex-employee from utilising vital knowledge such as company strategy, client information, and so on in connection to his previous job. Restrictive covenants protect both the company and the employer during the employee’s employment time and even after the employee’s employment period expires.

This clause prevents an employee from competing against his or her former employer for a certain time period after he or she has disassociated himself with the company. A restrictive covenant must be drafted carefully to avoid restricting the employee’s freedom of movement. It should also be drafted in such a way that it doesn’t impose undue pressure on the employee.

Certain variables, such as the extent of the geographical region, the length of time for applying such post-employment limitations, the type of information being safeguarded, and so on, must be considered.

4. Non-solicitation covenants: This is often included in non-compete agreements or non-disclosure agreements. This clause forbids an ex-employee from interacting with or soliciting the clients or customers of his previous employer. It also forbids the employee from asking his co-workers to leave the employment, such as by attempting to recruit them away from the organisation. It prevents an employee from to the benefit of the organization’s clients or customers after he leaves.

5. Termination: The termination clause is a vital part of a contract of employment that states that the employee can terminate their employment relationship by providing a certain amount of notice. This contract usually includes details related to the termination period and the obligations of the employer. A termination clause specifies the requirements and obligations that must be fulfilled by both the employer and the employee upon termination of employment. Every employee has an implicit provision in their employment contract that they will serve a suitable termination notice.

The relationship between an employee and the employer is governed by the Labour Law of India, 1947, which is known as the Industrial Disputes Act. This act specifies the procedures to be followed when workers are terminated or retrenched from their jobs, as well as the compensation that must be paid.

6. Jurisdiction Clause: Sometimes, a contractual dispute can arise out of a disagreement. In such cases, some parties prefer to resolve the issue through arbitration instead of going through the judiciary. A jurisdiction clause clearly states that the forum or court that will resolves the dispute will have the right to deal with it. An employer and employee can resolve a legal disagreement over their employment contract by agreeing to a jurisdiction provision in their contract, which defines which court or forum will have jurisdiction over the issue.

7. Governing clause: In an employment contract, a governing law provision specifies the parties’ choice of law. The rules regulating employment differ from state to state, so it’s a good idea to specify which laws will govern the contract in advance. By specifying which set of laws shall be applied to settle disputes between the parties to the contract, this provision helps to avoid initial misunderstanding.

8. Dispute Resolution / Arbitration Clause: A grievance between an employer and an employee in an employment relationship is a complaint made by one side against the other, which should be resolved in the workplace either in a formal or informal manner. There are three possibilities for resolving disagreements. If there are minor concerns or disagreements at the lower levels of management, the corporation may establish an internal policy to deal with and resolve them as a first step. More serious conflicts will be handled through arbitration or by identifying a certain jurisdiction in which all legal claims must be submitted and litigated.

9. Ownership Clause: The idea behind an ownership agreement is straightforward: Anything you create while working for the firm is owned by the company. When an employee creates a game-changing product, procedure, or idea, things get a lot difficult. Even if the corporation produces billions of dollars as a result of the employee’s efforts, the employee is only entitled to the remuneration specified in the employment contract. These rights for employers can even include intellectual property that hasn’t been completely realised.

10. Disability and Death: When an employee dies or becomes disabled, prominent companies with a focus on employee relations often help the family of the deceased by offering monetary compensation or even career possibilities to the surviving spouse or children.

11. Remuneration Clause: The remuneration clause must include a reference to the amount to be paid to the employee for providing services. According to Indian remuneration legislation such as the Equal Pay for Equal Work (Remuneration) Act, the Minimum Wages Act, and others, this phrase must be included by advocates. International conventions such as the Equal Remuneration Convention must also be followed.

12. Reimbursement of Expenses: Employees may incur expenditures while going about their daily work. These expenses are necessary if the company is to accomplish its objectives. This involves holding a business dinner, making phone calls to company clients, and being financially responsible for all of the aforementioned expenditures. This clause ensures that the employee is being reimbursed for this expenditure.

13. Probationary Clause: Employers may benefit from including a period of probation to assess if a candidate is suited for employment. As part of a probationary period, an employer is allowed to terminate an employee’s employment without giving prior notice or giving any reason. However, in order for this clause to be enforceable, it must meet the minimum notice period required by employment standards legislation during that time period.

14.
Other clauses:
1. Appointment: If the employee accepts the job offer, a formal employment contract must be drafted before the person may be officially hired. There should be a statement of when the employee was hired or when their job began. The employee must remember that he is commencing anew and that the employment rights he acquired during his previous job are no longer relevant. This regulation, however, does not apply if an employer buys the entire business and keeps the existing personnel.

2. Payment Terms: The gross pay provided to the employee should be specified in the employment contract. Any tax deductions, insurance deductions, or other deductions from the employee’s pay should be noted. The contract should also specify when the employer is expected to make the payment, such as the day the payment is due.

3. Vacation and leaves: A contract should state how many vacation days the employee will get throughout the course of their work, as well as any limitations. A termination clause should also indicate whether or not an employee may carry over any unused vacation days to the next year or get any severance money in exchange for these unused days upon leaving the company.

4. Retirement: When a person reaches the normal retirement age, they are automatically terminated from their jobs. Instead of include a language in an employee’s employment contract, most companies choose to design a separate retirement policy for them. In instances where employees determine when to retire, the retirement policy guarantees that the justified retirement age is not necessary.

5. Pension: Statutory employment contracts include a pension provision for the employer’s employees in the event of a mandatory termination when they reach the standard retirement age. This provides information about the company’s upcoming pension plan. A clause in the employment agreement must state whether the company does not offer pension benefits.

6. Working hours: The normal working hours must be specified in the contract or agreement. To guarantee adherence with the Factories Act of 1948, the working hours must be adhered to.

7. Work Place: The agreement should specify the location of the employee’s reporting point for the start of his or her work. In the time of pandemic where employees are allowed to work from home, the employment agreement must include the clause whether the employed is appointed to work from home or office.

8. Validity of the contract: The basic rule is that a contract or agreement for employment is valid for the time being. The job will continue until either the employee resigns or the company fires them. To terminate an employee, an employer must have good cause. If the agreement is still in effect, then the employee has a stable or long-term work. A fixed-term contract or agreement specifies the start and end dates of the employee’s service, which are agreed upon in advance by both parties. In other words, the length of time the services will be provided will be specified.

9. Golden Parachute: There is a “golden parachute” when a company is acquired by another and senior executives lose their jobs as a result of the merger or acquisition Employees who lose their jobs due to a takeover will get a pay out or perk as compensation.

Online betting in India

Under the Constitution of India, the state legislatures have been given the power to frame state specific laws on ‘betting and gambling’. There is no single piece of legislation regarding betting and gambling which is followed uniformly through the country but most of the states have bases their laws regulations gambling and betting on the Public Gambling Act, 18671. The public gambling Act 1867 has been adopted by certain states. The other states in India have enacted their own legislation to regulate gaming gambling activities within its territory. Along with this there are other there still exist certain Central Legislations, affecting the subject. The Indian Penal Code, 1860 (IPC), the Indian Contract Act, 1872 (Contract Act), the Foreign Exchange Management Act, 1999, and the Prevention of Money Laundering Act, 2002 (PMLA) are some examples which are explained below in details.

I. Legal Analysis in details

Under the Constitution of India, the state legislatures have been entrusted with the power to frame state specific laws on ‘betting and gambling’2. The Public Gambling Act, 1867, is the central enactment on the subject, which has been adopted by certain states of India. The other states in India have enacted their own legislation to regulate gaming / gambling activities within its territory (“Gambling Legislations”). Most of these Gambling Legislations were enacted prior to the advent of virtual / online gambling and therefore primarily refer to gambling activities taking place in physical premises, defined as “gaming or common gaming houses”.

A. Public Gambling Act, 1867 and adaptations by different states

Some Gambling Legislation regulating physical gambling and sports betting or betting in general are as follows:
Assam Gaming and Betting Act, 1970 Bombay Prevention of Gambling Act, 1887
Goa, Daman and Diu Public Gambling Act, 1976 Karnataka Police Act, 1963
Madhya Pradesh (C.P.) Public Gambling Act,1867 Madhya Bharat Gambling Act, 1949
Orissa Prevention of Gambling Act, 1955
Public Gambling Act, 1867 (applicable to Uttar Pradesh, Punjab, Delhi and Madhya Pradesh)

1 Copy available at https://indiankanoon.org/doc/1824663/
2 Constitution of India, Seventh Schedule, List II, Entry No. 34

Tamil Nadu Gaming Act, 1930
The Andhra Pradesh Gaming Act, 1974 The Andhra Pradesh Gaming Rules, 1976 The Delhi Public Gambling Act, 1955 The J. & K. Public Gambling Act, 1977 The Kerala Gambling Act, 1960
The Meghalaya Prevention of Gambling Act, 1970 The Pondicherry Gaming Act, 1965
The Rajasthan Public Gambling Ordinance, 1949
The West Bengal Gambling and Prize Competitions Act, 1957 The West Bengal Gambling Rules, 1958
Uttar Pradesh Public Gambling Act,1961

The Gambling Legislations were introduced before the emergence of the internet. Therefore, the provisions of these laws do not expressly contemplate online gambling. The states of Sikkim and Nagaland are the only states to have adopted specific legislation that permits and regulates online gambling and betting, namely the:

Sikkim Online Gaming (Regulation) Act 2008 (“Sikkim Gambling Law”) was passed on June 28, 2008 with the dual objects of controlling and regulating online gaming through electronic or non-electronic formats, and imposing a tax on such games in the State of Sikkim. The Sikkim Online Gaming (Regulation) Rules, 2009, were subsequently passed on March 4, 2009 (and the same have been amended from time to time). The Act, 2008 is the first Indian legislation to expressly permit and regulate online gaming.

The Sikkim Online Gaming (Regulation) Rules, 2009 are framed under section 23 of the 2008 Act. Rule 3 of these Rules, read with the Sikkim Online Gaming (Regulation) Amendment Act, 2009, provides that the following games may be operated and played under a licence obtained from the State Government:
(i) Roulette
(ii) Black Jack
(iii) Pontoon
(iv) Punto Banco
(v) Bingo
(vi) Casino Brag
(vii) Poker
(viii) Poker Dice
(ix) Baccarat
(x) Chemin-de-for
(xi) Backgammon
(xii) Keno

(xiii) Super Pan 9
(xiv) sports betting on games, which involve prediction of the results of the sporting events and placing a bet on the outcome, either in part or in whole, of such sporting event, and including football, cricket, lawn tennis, chess, gold, horse-racing, etc.

The Government of Sikkim, however, restricted the offering of “online games and sports games” to the physical premises of ‘gaming parlours’ through intranet gaming terminals within the geographical boundaries of the State, by enacting the Sikkim Online Gaming (Regulation) Amendment Act, 2015.

Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act 2015 and the Nagaland Prohibition of Gaming and Promotion and Regulation of Online Games of Skill Rules 2016 (“Nagaland Gambling Law”), which regulate games of skill such as chess, sudoku, quizzes, binary options, bridge, poker, rummy, nap, spades, auction, solitaire, virtual golf and virtual racing games. The Act, 2015 defines “Gambling” as the act of “wagering or betting on games of chance but does not include betting or wagering on games of skill”. “Wagering” or “Betting”, has been defined in section 2(5) as “the staking of money or virtual currency, whether or not it is equivalent to a recognized currency”.

The Nagaland Act is the only legislation in India, section 2(3) thereof defines the term, “games of skill”, to “include all such games where there is preponderance of skill over chance, including where the skill relates to strategizing the manner of placing wagers or placing bets or where the skill lies in team selection or selection of virtual stocks based on analysis or where the skill relates to the manner in which the moves are made, whether through deployment of physical or mental skill and acumen”.

The Explanation to section 2(3) broadens the ambit of “games of skill” in the following words:
i. All Games provided in Schedule A of this Act shall fall under the category of “Games of Skill”
ii. ‘Games’ which have been declared or determined to be ‘games of skill’ by Indian or International courts or other statutes, or games where there are domestic and international competitions and tournaments, or games which can be determined to be ‘games of skill’ shall further be entitled to be included in Schedule A.
iii. Games of skill may be (a) Card based and (b) action/ virtual sports/ adventure/ mystery and (c) calculation/ strategy/ quiz based.

Section 2(4) of the Act, 2015 states that “Games of chance”, subject to the provision of section 2(3), are defined to mean “all such games where there is preponderance of chance over skill”. Schedule A to the Act lays down a detailed list of games that are considered to be ‘games of skill’ for the purpose of the Nagaland Act. These games are as follows:
1. Chess
2. Sudoku
3. Quizzes
4. Binary Options
5. Bridge
6. Poker
7. Rummy
8. Nap
9. Spades
10. Auction
11. Solitaire
12. Virtual Golf
13. Virtual racing games, including virtual horse racing, virtual car racing, etc.
14. Virtual sports, including virtual soccer, virtual cricket, virtual archery, virtual snooker/ bridge/ pool
15. Virtual fighting
16. Virtual wrestling
17. Virtual boxing
18. Virtual combat games
19. Virtual adventure games
20. Virtual mystery and detective games
21. Virtual stock/ monopoly games
22. Virtual team selection games
23. Virtual fantasy games

The Nagaland Act seeks to have pan-India application by virtue of the Explanation to section 2(1) and section 2(2). The Explanation to section 2(1) reads as follows:

Once a licence has been obtained under this Act, wagering or betting on online ‘games of skill’ or making profit by providing a medium for playing ‘games of skill’ shall not amount to gambling so long as they are being provided to players and are being accessed by players operating from territories where ‘games of skill’ are exempted from the ambit of gambling.

Section 2(2) defines the term “territory” for the purpose of this Act, as “any territory in India in which “games of skill” are permitted, and are recognized as being exempted from the ambit of “gambling””.

A conjoint reading of section 2(2) and the Explanation to section 2(1), provides for a pan India application of the Nagaland Act, 2015 in matters of Online Gaming, to all those States where the games so being offered are legally permissible ‘games of skill’.

Section 3 provides that as long as a licensee under it is not providing a portal to players from other territories, games that are prohibited or considered to be gambling in those territories, the same shall be considered to be a genuine business venture not amounting to gambling.

Further, Rule 3(1) of the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Gaming Rules, 2016 makes eligible for a licence, only those individuals/ companies/ firms that are not engaged in ‘gambling’.

Meaning of Gambling
‘Gambling’ as per most Gambling Legislations is understood to mean “the act of wagering or betting” for money or money’s worth. Gambling under the Gambling Legislations however does typically not include (i) wagering or betting upon a horse-race/dog-race, when such wagering or betting takes place in certain circumstances, (ii) games of “mere skill” and (iii) lotteries (which is covered under Lottery Laws).

Games of Skill Outside the Purview of Gambling
The Gambling Legislations provide that the restrictions would not apply to games of “mere skill”. The Supreme Court of India (“SC”) has interpreted the words “mere skill” to include games which are preponderantly of skill and have laid down that (i) the competitions where success depends on substantial degree of skill will not fall into category of ‘gambling’; and (ii) despite there being an element of chance if a game is preponderantly a game of skill, it would nevertheless be a game of “mere skill”3. Whether a game is of chance or skill is a question of fact to be decided on the facts and circumstances of each case.4 The judicial view has been very strict in this regard. Thus, it may be possible that games which satisfy the test of “skill versus chance” are not regulated under the Gambling Legislations and may be legally offered through the physical as well as virtual mediums (including internet and mobile), throughout India.

3 State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699. 4 ManoranjithanManamyilMandram v. State of Tamil Nadu, AIR 2005 Mad 261.

In the case of State of Andhra Pradesh v. K. Satyanarayana & Ors. 5 (“Satyanarayana Judgment”), the SC specifically tested the game of rummy on the principle of skill versus chance and held that Rummy was not a game entirely based on chance like the ‘three-card’ game. (i.e. ‘flush’, ‘brag’ etc.) which were games of pure chance. It was held that Rummy was a game involving a preponderance of skill rather than chance. The SC based its conclusion on the reasoning that Rummy requires a certain amount of skill as the fall of the cards needs to be memorized, and the building up of Rummy requires considerable skill in holding and discarding cards. The chance element in Rummy is of the same level as that involved in a deal in a game of bridge. In all games in which cards are shuffled and dealt out, there exists an element of chance, because the distribution of the cards is not according to a predetermined pattern, but is dependent upon how the cards find their place in the shuffled pack. In this judgment the SC has also passingly observed that bridge is a game of skill. Presently, there has been no case in India where card games (apart from Rummy) have been tested against the principle of skill versus chance.

Concept of Common Gaming Houses
Under the Gambling Legislations (except states like Assam and Orissa where gambling per se is an offence), most offences and prohibitions are in relation to a “common gaming house”. Generally, under the Gambling Legislations, to qualify as a “common gaming house”, there should be (a) an enclosed physical premise such as a house or a tent; and (b) “instruments of gaming” kept or used in such enclosed physical premises for the purpose of accrual of profit or gain to the person owning, occupying, keeping such enclosed physical premises or using any such instrument of gaming in the enclosed physical premises; and (iii) profit or gain by way of charge for use of the same enclosed premises or “instruments of gaming” or otherwise.

However, under certain Gambling Legislations, like Delhi, it may not be necessary for such “profit or gain” to accrue to the person owning, occupying or keeping such premises in order for it to qualify as a common gaming house for certain purposes/games only.

“Instruments of gaming” means ‘any article used or intended to be used as a subject or means of gaming, any document used or intended to be used as a register or record or evidence of any gaming, the proceeds of any gaming, and
any winnings or prizes in money or otherwise distributed or intended to be distributed in respect to any gaming.’

5 AIR 1968 SC 825.

In today’s context, there is a school of thought that believes that computer terminals used for gambling and servers on which gambling takes place and related e-records are maintained also constitute “instruments of gaming”. On analysis of the definition of “common gaming house” in general under the Gambling Legislations, it seems that the intention of the legislatures is to impose restrictions on the use of a physically enclosed premises for the purposes of making “profit or gain” from the use of such premises. Thus, a private house should not ideally constitute a “Common Gaming House”, if there is lack of intent on the part of the owner to derive any profit or gain from the use of his house for gambling purposes. Extending the same analogy to the digital world, when a person is accessing online gambling websites from his house, it would not be a “common gaming house”. The situation may however be different where such gambling activities are carried out in places such as clubs or cyber cafés, where the cyber cafés derive profits by allowing the use of the computer terminals (which may be caught within the scope of “instruments of gaming”). Most of the Gambling Legislations refer to “any place” in the definition of “Common Gaming House”. In the absence of a specific exclusion, the definition could include a server/portal/ website providing means of gaming. Taking money for providing the online medium to play games may also fall within the ambit of profiteering from providing and maintaining “Common Gaming Houses”. To put an end to his confusion, the online rummy websites had approached the Supreme Court6(details of the case have been discussed below) to clarify whether the Gambling Legislations cover online gambling portals. within the scope of “instruments of gaming”).

Offences, Offenders & Penalties
Most Gambling Legislations prohibit the act of:
a) Owning, keeping, occupying or having care and management of a gaming house/common gaming house;
b) Advancing or furnishing money for the purposes of gambling to persons frequenting any such gaming house;
c) Gambling in common gaming house or present for the purpose of gambling in Common Gaming House;
d) Gambling or suspected gambling in any public street, place or thoroughfare;
e) Printing, publishing, selling, distributing or in any manner circulating anything with the intention of aiding or facilitating gambling.
f) Gambling per se (This is not applicable to every state. Only the Gambling Legislation of states like Orissa prohibit the act of gaming itself)
g) Offering online gaming with stakes in Telangana;

6 SLP No. 15371 / 2012

h) Offering of skills games online in Nagaland without a license;
i) Offering those games in the State of Sikkim that are sought to be covered under the
j) Sikkim Gambling Law, without a license to operate these online games.

The liability for offences under the Gambling Legislations usually vests with: The owner of the gaming/common gaming house; The person keeping or having charge of the gaming/common gaming house; The person gambling or possessing instruments or records of betting or suspected of gambling or possessing such instruments

All Gambling Legislations prescribe penalties which are more or less similar. The Bombay Prevention of Gambling Act, 1887 imposes a fine and imprisonment for offenders. A first offence is punishable with a fine of at least INR 500 (approximately USD 8) and 3 months imprisonment, a second offence is punishable with a fine of at least INR 1,000 (approximately USD 15-20) and imprisonment for 6 months. and a third or subsequent offence entails a fine of at least INR 2,000 (approximately USD 30-35) and imprisonment for one year.

Licenses for Physical & Online Gambling & Sports Betting
While all the above legislations prohibit gambling in common gaming houses, there are certain state legislations that have legalized some form of gambling and issue specific licenses to the gambling / gaming establishments. For instance, the West Bengal Gambling & Prize Competition Act, 1957 specifically excludes ‘games of cards like Bridge, Poker, Rummy or Nap’ from the definition of “gaming and gambling” and allows the organizing of such games on procuring a permit from the Commissioner of Police in Calcutta or the District Magistrate or the Sub-divisional magistrate when such game is played in any place where the public may have access.

Further, under the Sikkim Gaming Laws, an interested person can obtain a “license” for the purpose of conducting online games such as Roulette, Black- jack, Pontoon, Puntobanco, Bingo, Casino Brag, Poker, Poker dice, Baccarat, Cheminde-or, Backgammon, Keno and Super Pan 9 and sports betting, including its organization, management or promotion or negotiation or receipt of bets. A licensee can take the prior approval of the state government to offer any other /addition online games under the license. The Nagaland Gambling Law only permits skill- based games. Licences allow operators to organize betting or wagering on online games of skill or to make a profit through the operation of online platforms for playing games of skill. Games of skill are all games where there is a preponderance of skill over chance, and include card- based games (such as poker, rummy and solitaire), quiz/strategy-based games

(such as chess or sudoku) and action, sports and adventure games (such as fantasy leagues and virtual sports) (Nagaland Gambling Law).

Under the Nagaland Gambling Law, a licence can be granted to an individual, a public company or a limited liability company incorporated in India and with a substantial holding and controlling stake in India (that is, the ownership of more than 50% of a company’s voting stock must be Indian). Only entities that have no interest in any online or offline gambling activities in India or overseas can apply for a licence. Applicants must not have any criminal history or have been charged with, or convicted for, any offence under the Foreign Exchange Management Act 1999 or for money laundering in India and abroad. Firms and companies must ensure that their controlling stake remains in India and that all executive decisions are taken in India. The operations of both the companies holding the licence and those providing technology support (such as the platform, software, servers and so on) must be controlled, maintained and operated from India.

B. Other Legal Provisions

Whilst ‘betting and gambling’ and taxation thereof are State subjects, as enumerated under Entries 34 and 62 of List II (State List) of the Seventh Schedule of the Constitution of India, there still exist certain Central Legislations, affecting the subject. The Indian Penal Code, 1860 (IPC), the Indian Contract Act, 1872 (Contract Act), the Foreign Exchange Management Act, 1999, and the Prevention of Money Laundering Act, 2002 (PMLA) are some examples. A brief description of these laws is as under:

1. The Lotteries (Regulation) Act, 1998
“Lotteries”, falling under Entry 40 of List I of the Seventh Schedule of the Constitution of India is a Central Subject and is therefore governed by the Lotteries (Regulation) Act, 1998, a Central enactment. Accordingly, “lotteries” have been generally excluded from the scope of ‘betting and gambling’.

The Act of 1998 lays down the conditions subject to which lotteries may be organized by State Governments, viz. the place of the draw should be located in the concerned State, and vide section 4, sale proceeds to go to the State treasury, etc. At the same time, section 5 of the Act, 1998 gives to the State Governments, the prerogative to run lotteries, within their geographical territories, while prohibiting the sale of their lottery tickets in any other State.

2. Indian Penal Code, 1860
Sub-section (1) of section 292 of the Indian Penal Code provides for a “matter” to be obscene if:

[I]t is lascivious or appeals to the prurient interest or if its effect, or (where it comprises two or more distinct items) the effect of any one of its items, is, if taken as a whole, such as to tend to deprave and corrupt persons, who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it.

Sub-section (2) supplements Sub-section (1) of Section 292 by laying down a list of instances as also the penalties of offences covered under this provision. Section 294 strikes at punishing anyone who “to the annoyance of others does any obscene act in a public place or sings, recites or utters any obscene song, ballad or words, in or near any public place”.

These provisions of the IPC may be attracted if any obscene matter is used for the purpose of advertising ‘Betting and Gambling’ activities.

3. The Indian Contract Act, 1872 (Contract Act)
Section 23 of the Contract Act, states that “the consideration or object of an agreement is lawful, unless – it is forbidden by law; or is of such a nature that, if permitted it would defeat the provisions of any law”. This opens the gateway for Section 30 to come into operation which states that an agreement by way of wager is “void and unenforceable, but at the same time it is not forbidden by law and hence, cannot be termed illegal.7 In such a situation, no suit can be brought to enforce any winnings accruing out of winning a bet or gamble. However, this provision makes an exemption for betting on horse- racing, making them legally permissible under the Contract Act.

4. Prize Competitions Act, 1955
Prize Competitions in India are treated as a separate category from the general proscription on gambling. Accordingly, they are governed by the Act, 1955.

Section 2(d) of the Act defines the term “Prize Competition” as:
any competition (whether called a cross- word prize competition, a missing- word prize competition, a picture prize competition or by any other name) in which prizes are offered for the solution of any puzzle based upon the

7 Gherulal Parakh v. Mahadeodas Maiya & Ors., AIR 1959 SC 781

building up, arrangement, combination or permutation, of letters, words, or figures.

Section 4 of the Act provides that maximum prize that may be offered in a prize competition cannot exceed Rs.1,000, with the upper-limit of entries not exceeding 2,000 persons. Further, it lays down the condition that a licence must be obtained before offering a prize competition and provides for a detailed mechanism for grant and revocation of such licences. The Act also provides that any person violating these provisions shall be liable for penal consequences.

The Prize Competition Act, 1955 has, in fact, been enacted by the Parliament Of India in exercise of its powers under Article 252(1) on being authorised to legislate on prize competitions by the States of Andhra, Bombay, Madras, Orissa, Uttar Pradesh, Hyderabad, Madhya Bharat, Patiala and East Punjab States Union, Saurashtra and all the erstwhile Part C States.

5. Foreign Exchange Management Act, 1999
Remittances of Income from lottery winnings, racing/riding, sweepstakes etc. are prohibited under the Act, 1999 read with Rule 3 and Schedule 1 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000.

The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 20178 and the Consolidated Foreign Direct Investment (FDI) Policy, 20179 issued by the Government of India, vide clause 5.1(a) prohibit both, “Foreign Direct Investment” and “investment by a person resident outside India” in entities conducting “lottery Business including Government/private lottery, online lotteries etc.” and “Gambling and Betting including casinos etc.” by clause 5.1(b).

The Consolidated FDI Policy and the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 are reflective of the National Policy of India in matters pertaining to foreign direct investment and investment by a person resident outside India. Similarly, collaborations in foreign technology in any form whatsoever, for the purposes of gambling and betting activities is also prohibited.

8 Notification No. FEMA 20(R)/ 2017-RB, Reg. 15, 07-11-2017, available at: https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=11161 (last visited on 12.9.2018).
9 D/o IPP F. No. 5(1)/2017-FC-1, 28-8-2017, available at: http://dipp.nic.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17.pdf (last visited on 12.09.2018).

6. Payment and Settlement Systems Act, 2007
The Reserve Bank of India is the sole authority in India to regulate all forms of electronic payment under the Act, 2007.

Section 4(2) thereof provides that any payment system or clearing house with majority of the equity held by a foreign bank requires prior authorization of the RBI to operate in India.

Under section 17 of the Act, 2007, the Reserve Bank of India has been given the right to draft policies, in accordance with this Act, on demand for almost everything involving payment processing in India, which are to be compulsorily complied with as provided in section 19 of the Act.

In the past, RBI has exercised the powers under this Act to achieve its objective, by going after PayPal India10, Neteller and Entro Pay 11. If the RBI were to similarly decide to go after gambling processors, the legal framework and authority, as it already exists, would, in fact, make it possible to curb the functioning of these gambling processors.

7. The Prevention of Money Laundering Act, 2002
The Act, 2002 came into force with effect from 1st July, 2005, governs the law relating to anti-money laundering in India. All entities offering games to be played for cash or its equivalent, whether online or offline, are required to adhere to the provisions of the Act and The Prevention of Money Laundering (Maintenance of Records) Rules, 200512. Section 12 of the Act requires “reporting entities”, as defined in Section 2(1)(wa) to include “a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino” to maintain records of transactions and documents showing the identity of their clients in accordance with the 2005 Rules. These rules prescribe the nature as well as value of the transactions for which such records are to be maintained.

10 “India Says Paypal Not Authorized For Money Transfer” available at https://www.reuters.com/article/urnidgns002570f3005978d8002576c7004772a9/india-says-paypal-not- authorized-for-money-transfer-idUS16299391020100211/ (last viewed on 12.09.2018).
11 “Paypal Banking” available at: https://sportsbetting.net.in/banking/paypal/ (last viewed on 12.09.2018).
12 The Prevention Of Money-Laundering (The Manner Of Forwarding A Copy Of The Order Of Provisional Attachment Of Property Along With The Material, And Copy Of The Reasons Along With The Material In Respect Of Survey, To The Adjudicating Authority And Its Period Of Retention) Rules, 2005, brought to force by Section 73 (1)(b) & (2) of The Prevention of Money Laundering Act, 2002, available at: http://www.enforcementdirectorate.gov.in/pmla_rules.pdf (last visited at 12.09.2018)

After the Prevention of Money Laundering (Amendment) Act, 2013 Section 2(1)(sa) reads that “a person carrying on designated business or profession” shall include “a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino”. Thus, offering games of chance or activities associated with casino, after the amendment of 2013 constitute a “designated business or profession” under the Act.

8. The Young Person’s (Harmful Publications Act, 1956)
The Act, 1956 prohibits the dissemination of certain types of publications harmful to young persons. Section 2(a) of the Act defines “harmful publication” to mean any book, magazine etc. “which as a whole tend to corrupt a young person”13.

Section 3 of the Act further provides for penal consequences in case of sale etc. of such ‘harmful publication’. Accordingly, any literature related to gambling and betting activities, that may adversely influence “young persons”, would attract the relevant provisions of this Act.

9. The Indecent Representation of Women (Prohibition) Act, 1986
In India, many games and gaming websites display content, portraying animated human caricatures depicting women in a manner which is offensive/indecent. It must be noted that, any indecent or derogatory depiction of women, as defined in section 2(c), is prohibited under Section 3 of the Indecent Representation of Women (Prohibition) Act, 1986, which would also cover within its ambit, the above-mentioned offensive/indecent content displayed on online gambling/gaming platforms.

10. The Information Technology Act, 2000 (IT Act)
Publishing and transmitting material “which is lascivious or appeals to the prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it”, in electronic form is prohibited and a violation thereof is punishable under section 67 of the IT Act. Further, section 67A strikes at any material which “contains sexually explicit act or conduct”, penalizing the same.

13 Section 2(c) defines ‘young person’ to mean a person under the age of twenty-years

11. Information Technology (Intermediaries Guidelines) Rules, 2011
(Intermediaries Rules)14
The Intermediaries Rules, which have been framed under Section 87(2)(zg) read with Section 79(2) the Information Technology Act, 2000. Rule 3(2)(b) thereof requires ‘intermediaries’ like internet service providers, network service providers, search engines, telecom operators etc. not to host or transmit any content which inter alia relates to or encourages gambling.

Further, Rule 3(4) requires intermediaries to remove content relating to or encouraging gambling within thirty-six hours, either “upon receiving actual knowledge or on being notified to do so by the appropriate government or its agency that any information, data or communication link residing in or connected to a computer resource controlled by the intermediary is being used to commit the unlawful act…”

12. Telecom Commercial Communications Customer Preference Regulations, 2010
The Telecom Commercial Communications Customer Preference Regulations, 2010 have been issued by The Telecom Regulatory Authority of India, with the objective of prohibiting “Unsolicited Commercial Communications”. These regulations have been framed in response to various complaints made against spam calls and SMSs. Therefore, any sort of unsolicited commercial communication pertaining to gambling or betting will attract the prohibition contained in these Regulations.

13. The Cable Television Network Rules, 1994
The Cable Television Network Rules, 199415 prohibit the advertisement of gambling activities. However, as set out in rule 7 the advertisement of games of skills, such as horse racing, rummy and bridge, is not prohibited.

14. Income Tax Act, 1961
The current taxation regime in India covers the gaming industry, both directly as well as indirectly, in terms of imposition of tax and the revenue generated from taxation of legalized and regulated gambling contributes towards India’s GDP. The “tax on winnings from lotteries, crossword puzzle, races, card games, betting [etc.]” is levied under Section 115BB of the Income Tax Act, 1961.

14 Notification No. G.S.R. 314(E), 11-04-2011.
15 Notification No. G.S.R 729 (E), 1944.

This position is augmented by section 194B, which provides for Tax Deduction at Source (TDS) in cases of winnings from lotteries, crossword puzzles, card games or any other games and horse races.

15. The Consumer Protection Act, 1986
Section 2(1)(r) of the Act, 1986 defines the term “unfair trade practice” to mean a trade practice which, for the purpose of promoting the sale, use or supply of any goods or services, adopts any unfair method or unfair or deceptive practice. Section 2 (1)(r)(3)(b) includes the conduct of any contest, lottery, game of chance or skill, for the purpose of promoting, directly or indirectly, the sale, use or supply of any product or any business interest in the ambit of unfair trade practices.

16. The Prevention of Money Laundering Act, 2002
The Act, 2002 came into force with effect from 1st July, 2005, governs the law relating to anti-money laundering in India. All entities offering games to be played for cash or its equivalent, whether online or offline, are required to adhere to

Accordingly, if a ‘contest’, ‘lottery’ or ‘game of chance or skill’ is employed for the purpose of promoting betting and gambling activities, such ‘means of promotion’, and not the concerned betting or gambling activities themselves, would be understood to fall within the meaning of an unfair trade practice, and would accordingly, attracts sections 6 and 14 of the Act. For instance, the same may be in the nature of a lucky draw to win free credits at a casino, etc.

17. Central Goods and Services Tax Act, 2017
Unlike the previous indirect tax regime, the new Act, 2017, has put in an integrated unitary system in place, i.e. Integrated Goods and Services Tax (IGST), Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST), depending upon the “location of the supplier” and the “place of supply of services”.
“Actionable claims in the form of chance to win in betting, gambling, or horse racing in race club”, being in the nature of services are also taxable under the new GST system, thereby ensuring that both, the States as well as the Centre earn revenue from the same16

C. Bill pending before the Lok Sabha

16 https://cbec-gst.gov.in/gst-goods-services-rates.html (last visited on 13.09.2018).

The National Sports Ethics Commission Bill, 2016
This Bill was introduced as private member bill by Shri Anurag Singh Thakur, MP in the Lok Sabha in 2016 with the following objective:

To provide for the constitution of a National Sports Ethics Commission to ensure ethical practices and fair play in sports including elimination of doping practices, match fixing, fraud of age and sexual harassment of women in sports and for matters connected therewith or incidental thereto.

It was introduced in pursuance to United Nations General Assembly Resolution No. 58/5, adopted on 17.11.2003, recognizing sports as a means to promote education, health and peace120.

This Bill of 2016, till date, remains pending in the Lok Sabha.

II Scope of advertisement of Online Betting Sites

There are no specific advertising laws in India. However, the Advertising Standards Council of India, a self-regulated organisation, prescribes an advertising code. This code does not expressly prohibit gaming-related advertisements. However, certain Gambling Laws, including those applicable in Goa, Daman & Diu, Gujarat, Karnataka, Maharashtra and West Bengal, expressly prohibit the publication of information that facilitates gaming. Additionally, with respect to online gaming, the Information Technology Act, 2000 and the Information Technology (Intermediate Guidelines) Rules, 2011 (together, “IT Laws”) require an intermediary (i.e., any person who, on behalf of another person, receives, stores or transmits that message or provides any service with respect to that message – typically, an internet service provider) to publish rules and regulations informing users of computer resources not to host, display, upload, modify, publish, transmit, update or share any information that relates to gambling. Notwithstanding the foregoing, gaming advertisements are prevalent online. Sikkim Gaming Laws specifically permit the advertisement of online games subject to certain restrictions, which, amongst others, require that the advertisement: (a) of an online game must contain a URL or hyperlink (in each case if advertised online) to the website offering such online game; (b) should not be indecent, offensive, false, deceptive or misleading and should be based on facts; (c) should not contain any statement as to the legality or otherwise of online game betting in states and union territories other than Sikkim; and (d) should not be directed at any state other than Sikkim in which online

games or any kind of online game is prohibited. Lottery Laws allow for the promotion and advertisement of lotteries by lottery providers. Indian criminal law prohibits the promotion and advertisement of lotteries. However, Lottery Laws exempt persons who are authorised to promote and advertise lotteries under such laws.

III Case studies on the issue of Online Betting:

1. First Indian Court to Rule Fantasy Sport Preponderantly Skill- based
– Case: Shri. Varun Gambhir v. Union Territory of Chandigarh and others; CWP No.7559 of 2017

The PH Court has given fantasy sports 17 the sanction of a preponderantly skill
– based game in a recent ruling. 18The PH Court’s ruling has provided respite to fantasy sports operators by safeguarding them from the prohibitions under the Central Act as it had been made applicable to Punjab and Haryana19 (“Punjab State Enactment”).

A petitioner (“Player”) was a customer of the respondent company Dream 11 Fantasy Private Limited (“Dream 11”) and claimed to have fallen prey to the alleged gambling business of the Dream 11 through their website https:// fantasycricket.dream11.com.in. Following the rules of the play, the Player created virtual cricket and football teams and joined various leagues. The Player bet on his virtual teams, and lost the entire amount he had bet, a sum of INR 50,000/-. The Player consequently approached the PH Court to issue directions to initiate investigation or criminal investigation against Dream 11, alleging that fantasy sports were not based on skill, but were purely gambling activities.

In its defense, Dream 11 described the nature of fantasy sports to the PH Court, and the integral skills required by a player in effectively drafting virtual teams and partaking in leagues. The crux of Dream 11’s arguments in contending that skill predominated chance in playing fantasy sport is as follows: A participant was, while drafting his team, required to: assess players

17 Fantasy sport is a game which takes place over a number of rounds (i.e. a single match, or an entire league). Participants select players to build virtual teams, and act as managers of their virtual teams. These virtual teams compete against one-another to collect points based on the results/achievements of real sportspeople or teams in professional sporting events. The winner is the participant whose virtual team garners the maximum number of points across the rounds.
18 CWP No.7559 of 2017
19 The Public Gambling Act, 1867, was made applicable to the State of Punjab and Haryana via the Public Gambling (Punjab Amendment) Act, 1929

and evaluate the worth of a player against the other available players keeping aside bias for an individual or a team; Adhere to an upper credit limit, and ensure that the team did not entirely/substantially consist of players from a single real- world team. This pivotal precondition also ensured that a player did not create a situation resembling the act of betting on the performance of a single real- world team; Evaluate a player’s anticipated statistics, for example, in the case of a batsman in a fantasy cricket game, the batting averages, total runs, number of centuries, etc. This evaluation was based on past statistics, as well as prevailing circumstances such as age, player injuries, etc.

In playing in the fantasy game, a participant was also required to constantly monitor the scores of athletes drafted by him, and make substitutions where necessary. He also had the opportunity to avail of Dream 11’s free-to-play variants to test his skill and gain experience. Dream Eleven canvassed the argument that the Player had been unable to perform well in the fantasy game as he had failed to exhibit the aforementioned skills.

Apart from the aforementioned factual arguments made by Dream 11, it also relied heavily upon the landmark judgment of the Supreme Court in K.R. Lakshmanan v State of Tamil Nadu 20in which the SC had held that betting on horse races was a game of skill. The PH Court studiedly analyzed the Lakshmanan Case, in which it had been held that the inherent capacity of the animal, capability of the jockey, the form and fitness of the horse, distance of the race etc., were all objective factors capable of assessment by race- goers. Thus, betting on horse- races was a game of ‘mere skill.’ The PH Court construed that the SC had held that competitions in which success depended upon a substantial degree of skill were not gambling, and despite there being some element of chance, if a game was preponderantly of skill, it would be a game of ‘mere skill.’ Pertinently, the PH Court also held that since fantasy sports did not amount to gambling, dream 11 was conducting a business activity protected under Article 19(1) (g)21 of the Constitution.

The PH Court held, relying on the Lakshmanan Case, that playing fantasy sports too required considerable skill, judgment and discretion. The wide gamut of factors that a participant would need to assess, as elucidated above, would undoubtedly affect the result of the fantasy game. In drafting players, a participant was required to study the rules and regulations of strength of the athlete, along with his weaknesses. Success in Dream 11 fantasy sport had its genesis in a user’s knowledge, judgment and attention. Thus, the element of

20 AIR 1996 SC 1153
21 Article 19(1)(g) of the Constitution of India states that all citizens have the right to practice any profession, or to carry on any occupation, trade or business

skill predominated the outcome of the fantasy game, and fantasy sport was a game of ‘mere skill,’ which did not amount to gambling.

This law holds good as on date as the appeal in the matter has been dismissed by Supreme Court. This judgement has paved way to the growth of fantasy sports in India.

2. Poker: Whether a Game of Skill or Chance
Case: Dominance Games Pvt. Ltd. vs State of Gujarat & 2 Ors.; C/SCA/6903/2017

I. Facts
The petitioners in the Gujarat Proceedings (“Petitioners”) filed special civil applications seeking, (i) to set aside an order/communication dated March 15, 2017 from the Commissioner of Police rejecting the petitioner’s request for a No Objection Certificate (“NOC”) to conduct poker (“Communication”) and
(ii) a declaration that poker was a game of skill and not a game of chance and therefore, covered under the exception for games of skill (“Exception”) under the Gujarat Prevention of Gambling Act, 188778 (“Gujarat Act”).

The High Court of Gujarat (“Gujarat HC”)rejected the petitions and held that that (i) poker is a game of chance; (ii) accordingly, conducting poker games falls within the prohibitions under the Gujarat Act.

II. Issue

Whether Poker was a game of skill and thus fell within the Exception

III. Petitioner’s Arguments

The Petitioners submitted that once it was shown that Poker was a game of skill, the provisions of the Gujarat Act would not be attracted due to the Exception. Accordingly, the Petitioners argued that Poker was a game of skill based on the following legal and factual arguments:

 As per the test laid down by the SC, if the game involved a substantial degree/ preponderance of skill, it would be a game of skill. However, in every game of skill, there was an element of chance, as recognized by the SC in the Satyanarayana Case and the Lakshmanan Case. However, if it was predominantly a game of skill, it would be exempt from the Gujarat Act.

 Akin to a game of Rummy, there is an element of chance in Poker too when cards are shuffled and dealt out initially. However, as recognized by the SC in the Satyanarayana Case (in which Rummy was held to be a game of skill), it is how, after receipt of the cards, the player plays the game which makes a game predominantly one of skill. In Poker, too, the manner in which the player plays after having been dealt the cards rendered it a game of skill, based on the following:

o a person had to assess rival players’ reaction whilst maintain a ‘poker face,’ i.e. keeping one’s expression concealed;
o Every turn of the card required a player to assess whether to continue or not. The exercise of judgment was recognized to be an exercise of skill in the Lakshmanan Case.
o A player must possess intellectual and psychological skills. They must know the rules and mathematical odds, as well as how to read tells and styles of other players, as well as know when to hold and fold and raise, as well as how to manage their money.

 The Petitioners referred to the testimony of the experts Robert C. Hannum and Anthony N. Cabot, which had been relied upon by the United States District Court in holding that poker was a game of skill in United States of America v Lawrence DiCristina22 The testimony hypothesized that a game of skill was one in which the player could alter the expected outcome. The expected win in poker, too, was dependent on the skill or strategy employed by the player in making key decisions, which could be developed as a skill.

 Poker had been recognized as a game of skill by other state legislatures. The legislatures of West Bengal23 and Meghalaya had already carved out an exception for poker from the ambit of gambling, while the legislature of Nagaland had deemed poker to be a skill-based game.24

 The High Court of Calcutta had held25 that playing of poker could not be treated as an offence under the West Bengal Gambling and Prize Competitions Act, 1957. Certain courts of the United Kingdom, the United

22 United States of America against Lawrence DiCristina, United States District Court, Eastern District of New York
23 Section 2(1)(b), West Bengal Gambling and Prize Competitions Act, 1957, specifically carves out an exception for poker from the definition of gambling
24 Poker has specifically been enlisted under the Schedule to the Nagaland Prohibition of Gambling and Promotion and Regularisation of Online Games of Skill Act, 2015 as a game of skill
25 Shri Kizhakke Naduvath Suresh, Indian Poker Association v. State of West Bengal & Ors.

States of America, Brazil and Australia, had held that poker was a game of skill, and such decisions ought to be considered.

The Petitioners further canvassed the following arguments:

 The observations of the SC in the Lakshmanan Case were relied upon to submit that Poker being a game of skill, the offering of Poker was protected under Article 19(1) (g) of the Constitution of India. The refusal of the NOC could not be said to be a reasonable restriction on such right, which was in the nature of an arbitrary and illegal prohibition. The legislative competence of the State legislature was also challenged by the Petitioners. The Constitution provided that States had the exclusive legislative competence to legislate on ‘betting and gambling.’ 26 Accordingly, unless both betting and gambling were involved, the State did not have the competence to legislate on the game. The Petitioners also argued, based on principles of natural justice that the decision of the Commissioner of Police in the Communication that poker was a game of chance was taken without hearing the petitioners. Moreover, the Petitioners relied on Siemens Engineering & Manufacturing Co. of India Ltd. v Union of India & Anr., 27to submit that acharge had to be supported by reasons, and the decision in the Communication was baseless, as it was unsubstantiated by any material to show that poker was a game of chance.

Respondent’s Arguments

The Respondents outlined, at the outset, the historical prohibitions on gambling in India. To this end, the Respondents traced Indian scriptures which had highlighted the evils of gambling, and religions which had forbidden gambling. It was submitted that the moral fabric of society was eroded by gambling. Against this backdrop, the Respondents’ argued that Poker was a game of chance based on the following legal and factual contentions:

 The judgments referred to by the Petitioners were in the context of the game of Rummy, which had been held to be a game of skill and accordingly fell outside the purview of gambling.
 The outcome of the game of poker depended on the card dealt to a player. This by itself would suggest that it was merely a game of chance. The skill involved in Poker was at the most how a person could bluff irrespective

26 Schedule 7, List II, Entry 34, Constitution of India

27 Siemens Engineering & Manufacturing Co. of India Ltd. v Union of India & Anr., (1976) 2 SCC 981

the card he was dealt. However, at that stage as well, the outcome of the game was totally dependent on the card dealt. Accordingly, Poker was a game of chance. The submissions of the Petitioner with reference to mathematical assessment and psychological observation and other assessment could not render Poker into a game of skill. Furthermore, how a player plays is not a skill as it depended on the traits of a player and how deep- pocketed he was.
 The SC in M.J. Sivani & Ors v State of Karnataka & Ors 28 had, while referring to poker machines, observed that such games were games of chance.

The Respondents also advanced the following

In response to the Petitioner’s claim that they had a fundamental right to carry on trade or business under the Constitution, the observations of the SC in M.J. Sivani & Ors v State of Karnataka & Ors were referred to, in which it was recognized that no one had an inherent right to carry on a business which was injurious to the public. Trade or business with attendant danger to the community may be totally prohibited or permitted subject to restrictions.

The Respondents also relied upon the Chamarbaugwala Case, in which the SC had held that the provisions under the Prize Competitions Act, 1955, are severable in their application to only games of chance. The Respondents relied upon the fact that the SC had held in that case that gambling was never intended to be a part of ‘trade, business or commerce,’ protected under Article 19(1)(g) of the Constitution of India, nor form part of the country’s trade, commerce or intercourse under Article 301.

Judgment

At the outset, the Judge cautioned that sports betting had been brought within a regulatory framework in countries such as Australia, the UK and USA. However, one could not overlook the ground realities in India where (i) the majority of the population were struggling for basic amenities, and (ii) there was a lack of awareness amongst people of whether betting was permitted amidst the craze for easy money. Accordingly, law had been enacted to prohibit and restrict such activity. Such laws could not be challenged by the Petitioners in the guise of challenging the Communication. The judge referred to the Chamarbaugwala Case in which the SC had outlined the evils of

28 1995) 6 SCC 289

gambling by quoting from the ancient Indian scriptures, and also underscored that gambling had been looked down upon by English common law.

The judge rejected the contention of the Petitioners that every game involved some element of skill and some element of chance. The judge proceeded to hold that, in applying the test of predominance of skill, Poker was a game of chance based on the following:

 The history of poker clearly suggests that it is a game of chance. The judgments of some foreign countries and some articles suggest that it had originated from Flush/Teen Patti. Teen Patti had originated from Brag. Like Teen Patti, chance was a dominant factor in Poker as well. The SC in the Satyanarayana Case had observed that Flush, Brag and Teen Patti were games of chance. As a natural corollary, Poker, being a variant of the said games, was a game of chance as well.

 Poker begins with the distribution of three preflop cards and the game proceeds when the cards are turned or opened. Thus, Poker consists of two stages – an initial distribution of cards and the opening of the cards with betting. The second stage had been submitted to render Poker a game of skill by the Petitioners, such as assessing others players’ faces and inducing them to bet. However, these factors would infact reflect that it was a game of chance which depended upon the initial distribution of cards over which a player has no control. If he had a bad day with a bad card, a player could not turn around the table. All he can do is limit his losses.

 Much of a player’s decision to bet depended on the individual personality of a player, for instance a player with good luck or deep pockets may be induced to play even after being dealt an average card.

 Bluffing or deception could not be termed as a skill or an art, as the same would amount to offences under the Indian Penal Code, 1860. If the submission of the Petitioners that these amounted to an exercise of skill were accepted, many such acts which amounted to fraud or cheating could be said to be skills, notwithstanding that they were offences under law.

 Rummy, which has been held to be a game of skill in the Satyanarayana Case, was distinguished on the ground that it had nothing to do with stakes. Whereas, in Poker, betting was an inescapable part of gameplay. It was this factor which differentiated Poker from Rummy. Accordingly, even if it was a game of skill, if it was played with stakes, it would amount to gambling.

The judge also rejected the reliance placed by the Petitioners on foreign articles and judgments. He held that the hypotheses in these articles could not take a game out of the purview of the Gujarat Act. Furthermore, the Di Cristina Case had been reversed upon appeal. In the appeal it had been clearly observed that the parties did not dispute that Poker constituted gambling under New York State law. Even in the judgment of R v Kelly,29 the UK’s Court of Appeal had held that the jury in the Trial Court was entitled to hold that Texas Hold’em Poker was a game of chance as defined under the Gaming Act, 1968.

It was not relevant whether certain states such as West Bengal had considered Poker to amount to gambling, as per the Constitutional scheme, each State Legislature was empowered to regulate betting and gambling.
The judge also rejected the other contentions of the Petitioners on the grounds below:

The judge rejected the contention of the Petitioners that their rights under Article 19(1)(g) of the Constitution had been affected by the Communication, by relying upon the observations in the Chamarbaugwala Case in which it was highlighted that gambling was not a trade but res extra commercium, and accordingly did not fall within the purview of Article 19(1)(g). A parallel was drawn with the gambling and liquor, and reference was made to the SC’s judgment in Sheoshankar v State,30 upholding an Act regulating consumption of liquor upon challenge to it under the said Article, on the ground that liquor was a noxious object which ceased to be a legitimate object of property or commerce. The SC also held that the rights under Article 19(1)(a) – (g) of the Constitution were not absolute, and could be curtailed in the interest of the general public as per Articles 19(2) – 19(6). Accordingly, the State was empowered to make laws to protect the public interest and such legislative competence could not be challenged on the ground of violation of Article 19(1)(g).

When the State legislature had not provided for the licensing of such activities, as was the case with the US and the UK, a Court could not read or add into it. In the case of horse-racing, a specific provision was made.

The argument of the Petitioners based on principles of natural justice could also not be accepted as it was not an issue for adjudication by the authority when the Gujarat Act itself prohibited gambling. Accordingly, the judge held

29 R v Kelly [2008] EXCA Crim 137

30 AIR 1951 Nagpur 646

that poker was a game of chance, and the Communication could not be set aside.

3. The ‘Mahalakshmi’ Saga31
-An update on the Supreme Court’s stand on the case of the Online Rummy Operators
-Ranjana Adhikari & Gowree Gokhale

The matter was essentially a challenge before the SC by Mahalakshmi Cultural Association to order of the Madras High Court32 in relation to the game of Rummy being played in brick and mortar clubs. Since the online Rummy portals feel a slight brunt of this order, they had also approached the SC for clarity on the position of law vis-à-vis online gaming. In a dramatic turn of events over last one week the SC has delivered two orders, which gives the operators organizing skill- based games some respite.

While on 13 August 2015, the SC observed that the Impugned Order has not dealt with online Rummy and therefore any observations made in the Impugned Order may not necessarily relate to online Rummy, on 19 August 2015, there was a unique twist in the tale where the Association withdrew the matter, thereby making the original Impugned Order infructuous.

Facts of the Mahalakshmi Case
The gambling laws in India are State specific. In most State enactments games of skill are excluded from the application of gambling laws. In the case of State of Andhra Pradesh v. Satyanarayana33”), the SC had held that Rummy (the 13-card game) was a game of skill.

The Mahalakshmi Case was essentially an appeal filed against the Impugned Order of the Madras High Court before the Supreme Court by the Association. To give a brief background, the Inspector of Police, Chennai raided the premises of the Association on the grounds that the premise of the Association was being used for gambling and that the members were playing Rummy with stakes. A case was accordingly registered against the Association.

31 Mahalakshmi Cultural Association v. The Director, Inspector General of Police & Ors Special Leave to Appeal (C) No(s).15371/2012 (Arising out of impugned final judgment and order dated 22/03/2012 in WA No. 2287/2011 passed by the High Court of Madras)
32 The Director General of Police vs Mahalakshmi Cultural Association (2012) 3 Mad LJ 561
33 AIR 1968 SC 825

Aggrieved, the Association filed a Writ petition before a single judge for seeking directions to forbear the police from inter alia interfering with the activities of the Association in any manner, including playing 13 cards game of Rummy with or without stakes. The said writ petition was disposed of by the court in favor of the Association, on the grounds that Rummy is a skill based game and hence is not illegal. Certain directions were also issued to the police in this case.

It was this order of the single judge that had been challenged by the Appellants (Police) in the writ appeal before the division bench of the Madras High Court, where the court had interpreted the Satyanarayana Case slightly differently and held that in the event the club /association allows its members or guests to play Rummy with stakes or make any profit or gain out of such play, the police has the authority to invoke the provision of Chennai City Police Act. The Impugned Order had unsettled a rather settled position of law. Various courts had previously held that games of skill fall outside the purview of the gambling laws and therefore stakes or profit can be made from such games. Different interpretations by different high courts gave rise to ambiguities on the position of law on collection of stakes from the game of Rummy. During the course of the proceedings before the SC an application for intervention was filed by Games 24*7 and Play Games (“Rummy Websites”) to be impleaded in this matter since their operations were being affected by the refusal of banks to process payments of the players on these sites. There was also the apprehension of criminal prosecution, since physical rummy providers were being prosecuted. Further, many states had exemptions for games of skill in their statutes but certain states like Orissa had no such exemption. It was expected that the Supreme Court would lay down guidelines on what business models (including online) would constitute gambling as restricted / prohibited under the gambling legislations of various states (even when skilled games were played for a fee / stake). Extensive submissions were made by the counsels for the Rummy Websites over the course of hearings conducted in 2014-15. There have been many arguments and debates before the SC on the different kinds of business models adopted – for example, in the context of online gambling, if a fee is collected for the services provided by the hosts of the website, as opposed to a buy in for a particular game, would the same be considered ‘stakes’?

Some of the online operators who had made representations before the SC in this case, had been asked to submit detailed affidavits, explaining the structure of the games offered, the fees charged for such games to be played, and the flow of profits in relation to the same. It was contended that previously34 the SC had held that horse racing was a game of skill and playing for stakes in a game of skill was not illegal. It was urged that the logic followed in the Lakshmanan Case should be

34 K. R. Lakshmanan v. State of Tamil Nadu, 1996 AIR 1153.

applied in case of Rummy given that the Satyanarayana Case had held that Rummy was a game of skill. It was further contended that Rummy being a game of skill, even when played for money would not amount to gambling as the sole motivation was not money but the display of skill. The skill required to engage in the activity would not be eliminated by the addition of the monetary factor. There is a clear distinction made in common law between games of skill and games of chance under common law. Further, the jurisprudence reflected that there was a legal, judicial and executive policy to put games of skill in a different genus and specie from games of chance.

II. The Verdict

The SC on 13 August, 2015 disposed of the petitions of the Rummy Websites stating that it found that the Impugned Order did not deal with online Rummy and that it applied specifically to Rummy played in the brick and mortar format only. Further, the judges noted that the States had not taken any decision on whether the provision of online Rummy would constitute gambling under the Chennai City Police Act. Therefore, the SC was of the opinion that it was not necessary to entertain this petition. The SC also mentioned that the observations in the Impugned order may not necessarily relate to online rummy. The SC at this juncture was yet to deliver its verdict on the issue of taking stakes from Rummy in the offline context.

The 19th August 2015 saw under twist in the tale. The counsel for the Association stated that the trial court had passed an order on 11th October, 2014 by way of which the Association had been acquitted. Interestingly, the issue before the trial court brought by the prosecution was not based on the case of Rummy (or any other 13 card game) but for members indulging in a game colloquially and locally called by betting money for profit. The counsel for the Association sought permission to withdraw the original writ filed before the Madras High Court and such permission was granted by the SC with an observation that since the writ petition is dismissed as withdrawn, the observations made by the Madras High Court in the Impugned Order or the matter before the SC do not survive as the writ is infructuous.

The law continues to remain grey in terms of whether the state wise gambling enactments cover online gaming sites as well. The Mahalakshmi Case could have been the turning point where it was expected that the SC would lay down the law stating whether the state gaming enactments cover online models as well.

Credits: Article write up and research by Sonia Saini

Company Law Board(Fees on Applications and Petitions) Amendment rules, 2014

The Ministry of Corporate Affairs has issued a notification dated 3rd November, 2014 with respect to the Company Law Board(Fees on Applications and Petitions) Amendment Rules, 2014 and in the said schedule of the fees the following points shall be inserted after point no. 33:
34: 2(41) of the Companies Act, 2013; Allowing any period other than April to March as financial year: Rs. 5,000
35: 58 and 59 of the Companies Act, 2013; Rectification of Register of members; Rs. 500
36: 73(4) of the Companies Act, 2013 read with section 76; Directing the Company to pay the sum due or for any loss or damage incurred as a result of such non-payment: Rs. 100
37: 74(2) of the Companies Act, 2013; Allow further time as considered reasonable to the company to repay the deposit: Rs. 5,000
The notification shall come into force from the date of notification in the official gazette.
The amendment rules containing the full details and particulars can also be accessed at the link given below.

The Company Law Board (Fees on Applications and Petitions) Amendment Rules, 2014