Online Gaming: Navigating A Regulatory Grey Area 

Earlier this month, the Madras High Court dealt a blow to online gaming companies by upholding regulations laid down by the Tamil Nadu government for gaming platforms operating in the state. The ruling adds to the growing list of challenges faced by online gaming companies, which must now contend with perception battles, tightening regulations, potentially crippling tax liabilities and, in some cases, existential threats. 

A host of gaming companies had approached the court, seeking to have the state’s rules struck down. The court, however, upheld the state’s right to impose stricter rules, including enhanced ‘Know Your Customer’ norms, age restrictions, and caps on the amount of real money that can be played with. Gaming companies view these restrictions as barriers to acquiring and retaining users. However, the development once again underscores the pressing need for regulatory clarity in the sector. 

Online gaming continues to operate in a regulatory grey area, with no comprehensive law addressing its legality. The Public Gaming Act, a colonial-era Central legislation, prohibits betting and gambling involving games of chance but allows games based on skill. Because ‘betting and gambling’ fall under the State List in the Seventh Schedule of the Constitution, many states have enacted their own laws, leading to a fragmented legal landscape. 

There is no denying that the online gaming industry, which includes free-to-play games, real-money games, and fantasy sports, urgently requires regulation, particularly given the diverse forms it can take. Key regulatory priorities include overseeing real-money transactions, ensuring compliance with disclaimers and advertising norms, and enforcing tax obligations. The Madras High Court, in upholding Tamil Nadu’s stringent rules, endorsed the state’s paternalistic approach, stating that it must consider the physical, mental and financial well-being of people in the state. Critics argue, however, that such measures disadvantage companies and potentially infringe on personal liberties. 

Nevertheless, this does not detract from the broader issue: the urgent need for a unified government stance on online gaming. The current regime of disjointed rules and lack of a clear enforcement framework benefits no one—not regulators, not companies, and certainly not users. 

A centralised, one-stop legislation that harmonises state and central interests could help resolve this regulatory muddle. Yet, the Centre’s position on the issue has been inconsistent. On the one hand, it states that states are free to legislate on online gaming; on the other, it is reportedly exploring a unified regulatory framework that would override state-level laws. 

At the heart of this regulatory uncertainty is the unresolved question: should online gaming be categorised as gambling? And if not, how should it be distinguished? The distinction between a game of skill and a game of chance is now under consideration by the Supreme Court in a set of tax-related appeals. The outcome of this legal battle could provide the much-needed clarity and help lift the current state of ambiguity. Ultimately, it’s the executive, not the courts, that must step up and take responsibility for regulating the space. Relying on piecemeal judicial decisions is no substitute for a coherent, forward-looking policy that balances innovation, user protection and legal clarity.