Recent amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 have brought much needed clarity to the online gaming sector by providing legal backing to real money gaming and creating a self-regulatory mechanism to govern the sector.

Crucially, the rules allow all forms of online real money games except those which involve ‘wagering on any outcome’, leaving it up to the soon-to-be designated Self Regulatory Bodies (SRBs) to decide which games involve wagering and which don't.

What is a wager on outcome?

‘Wager on outcome’ refers to the act of betting or gambling. This was explicitly reiterated by Minister of State for IT Rajeev Chandrasekhar in comments subsequent to the notification of the rules. The Finance Act, 1994 defines ‘betting or gambling’ as “putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring.”

The term ‘wager on outcome’ in the current rules seems to be derived atleast in part from this Act, which was the last Central legislation to define betting and gambling.

A ‘wager’ is a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event. By extension, a wagering contract is “one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of that event, one shall win from the other, and that other shall pay or handover to him, a sum or money or other stake”.

Section 30 of the Contract Act makes wagering agreements, subject to specific exceptions, void and unenforceable.

Under Indian law therefore, for an agreement to constitute a wager, there are four critical elements that must necessarily be present:

i. There must be two sides to the transaction with a mutual chance of gain or loss, i.e if one side ‘wins’, the other side has to necessarily ‘lose’.

ii. The outcome of the event which forms the basis of the agreement must be uncertain.

iii. The determination of the uncertain event must be the sole condition of the contract. The stake or the bet amount must be the only interest the parties have in the contract and neither side should look to anything but the payment of money on the determination of an uncertainty.

iv. There must be an intention to wager, and this intention must be mutual, i.e. both parties should agree to the wager.

While these four elements provide a theoretical framework to judge whether an agreement is a wager on outcome, implementing them in practice is likely to be tricky for SRBs.

Proposed regulatory principles for SRBs on wagering

In this scenario, when trying to decide whether a particular online real money game involves wagering/betting or not, three guidelines derived from the abovementioned elements could be used by any SRB.

First, as mentioned, ‘wagering on outcome’ refers explicitly to gambling. While what constitutes gambling itself can be a tricky issue, from the SRBs’ perspective, the focus should be on preventing ‘organised betting’ in real money online gaming platforms, wherein platforms pool money from players betting on opposite outcomes taking place. In such a scenario, players are asked to place money on the possibility of a binary opposite - yes/no - outcome. Any online game which involves such specific instances of pooling can be said to constitute wagering on outcome.

Second, in wagers, generally the winners gain at the expense of losers. There is therefore direct movement of consideration from one player(s) to another dependent on a specific outcome happening. Therefore, games which do not involve redistribution of monies between 'winners' and 'losers' based on a specific event happening do not include any ‘wagering on outcome’, and can be safely accepted as permissible online games by SRBs.

Third, any wager on outcome requires the odds of the outcomes to be agreed to beforehand. In organised betting these odds are decided by the 'house' or the 'bookmaker'. It is, therefore, essential to look at the involvement of the 'house', which may be the developer, publisher, or platform, which explicitly lays down odds of a specific event happening, based on which players put in money. Any game which does not have the direct involvement of the 'house' or does not rely on odds is not a game which involves wagering on outcome.

Path forward

These guidelines can operate in tandem or be used as individual criteria, to determine whether a game involves wagering on outcomes. However, SRBs need to keep in mind that the amended IT Rules do not differentiate between games of skill and games of chance while barring wagering on outcomes. This could lead to potential conflicts with state laws, as states continue to have constitutional power to legislate on gambling and betting, and use the distinction of games of chance and skill to enact state regulations. Most states in India ban games of chance. However, some like Goa and Sikkim are more permissive, while Nagaland allows online wagering on games of skill.

With SRBs still being subject to relevant state laws, this convoluted scenario creates a potential legal minefield for them to navigate, opening up possibilities for further litigation on whether an online game includes ‘wagering on outcome’, and therefore, whether it should or should not be allowed to operate in India.

While there remains considerable uncertainty on how SRBs are meant to determine whether a particular online game includes wager on outcomes, the above mentioned guidelines should provide an immediate meaningful path forward for SRBs to take and ensure they do not fall foul of the amended IT Rules.

Shashank Reddy is Partner at Evam Law & Policy.