Shikhar Sharma

Introduction

The amendments to the IT Rules (Intermediary Guidelines and Digital Media Ethics Code) 2021 were notified on 5th April 2023. They designate gaming companies as intermediaries (under Section 2(w) of the IT Act 2000) and list down compliance requirements for these, among other things. While there has been intense discussion on some aspects of the amendments, including the establishment of self-regulatory bodies, one aspect of the regulation has gone unnoticed. This is Section 4C of the IT Rules, under which the Central Government can deem any game to be under the ambit of these Rules.

Under Entry 33 and 34 of the State List read with Article 246 of the Constitution, the power to legislate on ‘betting and gambling’ rests with the State. Nonetheless, games of chance can come under the ambit of the IT Rules using Section 4C. On this conflict, the Information Technology minister, Rajeev Chandrasekar, believes that Ministry of Electronics and Information Technology (‘MEITY’) has exclusive jurisdiction over anything happening online, including online gambling and betting, and his remarks have also been reiterated by other senior bureaucrats. This exclusive jurisdiction flows from the power of the central government to legislate on residuary matters not covered in any of the three lists, under Article 248 of the Constitution. Prima facie, both the laws can be validly enacted under their respective fields- the ‘betting and gambling’ field for the state and the residuary online field. Nonetheless, a situation may arise in the future where a State Act, legislating on gambling, may be de hors the IT Rules 2021. Indeed, one such situation has already arisen – the State of Tamil Nadu has enacted the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022. Section 7(2) of the Act bans games of chance, but includes rummy and poker in that list, which have been judicially recognized to be games of skill (viz. State of A.P. v. K. Satyanarayana, paragraph 12; Junglee Games Private Limited v. State of Tamil Nadu, paragraph 114)  and are legal under the IT Rules. This is just one instance of a conflict, but with states not relenting on banning these games, there might be many more such conflicts upcoming.

It is relevant to note that the IT Rules 2021 are a delegated legislation, promulgated under Section 87(2) of the IT Act 2000. This raises an interesting and relevant query – what happens when there exists a conflict between the delegated legislation of a Central Act and a State Act?

This is precisely the question that this article seeks to answer. It does so by first, laying out a brief background on different states’ attempts on legislating on online real-money games, second, analysing the case law on Centre-State conflicts in legislations in an attempt at arriving at an answer, and third prescribing normative comments at addressing the conflict.

History of Centre-State Tussle in Legislating on Online Games

Online Real-Money Games have been in contemporary relevance as states (for instance, Karnataka, Kerala, Tamil Nadu) have sought to ban them, citing ill-effects of these games on people viz. addiction, economic loss, etc. However, the state bans have been struck down (Karnataka- All India Gaming Federation v. State of Karnataka, Tamil Nadu-Junglee Games Private Limited v. State of Tamil Nadu, Kerala- Play Games 24 X 7 Private Limited v. State Of Kerala) by the judiciary on grounds of disproportionality, legislative incompetence ( because of the legislation ignoring the distinction between games of skill and games of chance). At the same time, online gaming companies have been petitioning the Central Government for recognition of their sector, and the Government has, in light of the same, brought in the IT Rules 2021 recognising the sector. 

The distinction is important because a majority of online real-money games, while involving deposition and rewards on money, and having some element of chance, are games where skill is a pre-dominant factor. As per established case law (including Dr. K.R. Lakshmanan v. State of Tamil Nadu), activities will not be classified as gambling merely because they involve some amount of skill.  Instead, the element of chance has to be pre-dominant than the element of skill. If the games are that of skill, the state government does not possess any competence to regulate them as they do not fall into any of the entries under the State List in the Seventh Schedule .

Competence

Schedule 7 demarcates subjects into three lists – Central, State, and Concurrent. Those matters that do not fall under any of these three lists would be legislated by the Centre under Article 248. Case law (including cases such as Prafulla Kumar Mukherjee) has established that the test for mapping whether an impugned legislation falls under one of the entries enumerated in the lists would be of ‘pith and substance’ (i.e., whether the legislation, on a holistic analysis, relates to the concerned entry that it claims to derive its competence from) and mere incidental encroachment by the provisions of the legislation into an entry in another list (for instance, deeming provisions that render the act’s applicability to all kinds of games) will not devoid the legislation of its competence. It must be noted that competence is a different, and earlier stage than repugnance (or ‘conflict’), despite case law conflating the two. Competence is merely analysing whether the legislature has the requisite authority to legislate on an issue under Schedule VII. This analysis does not require comparison and is independent of another legislation of a different legislature. Repugnance, on the other hand, is the analysis of how to address conflicting provisions of two validly enacted legislations and necessarily requires comparison. 

Applying this test of pith and substance, it is clear that the IT Rules have been enacted with valid competence. The rules derive from the IT Act 2000, which has been enacted in pursuance of the residuary power of the Centre under Article 248. They primarily deal with games of skill, as can be seen by the Section 2(qc) of the Rules, which hold the term ‘winnings’ in an online real-game money to be one that is based on the performance of the user.

Similarly, even the Tamil Nadu Act is intra vires, insofar as it seeks to ‘regulate games of chance’ and the Act’s treatment of rummy and poker can be argued to be mere incidental encroachments. 

Who wins in case of a conflict?

Now that we have established that both the enactments can theoretically be justified insofar as the legislatures were competent to enact those, we need to analyse what happens when they conflict. Would a central, delegated legislation prevail over a state primary legislation?

Firstly, latest case law (including Mar Appraem Kuri Co) on Article 254 has applied repugnance to mere possibilities of the conflict. This means that Courts undertake analysis under Article 254 in absence of any existing law of the State/Centre that conflicts with the law of the other legislature. In other words, the mere possibility of another legislature forming a law is sufficient to trigger the repugnancy analysis. This goes against the previous case law (for instance, Tika Ram Ji), which had applied Article 254 only in instances of actual conflicts. In the present case, however, there exists actual conflict between the Tamil Nadu Act and the IT Rules insofar as rummy and poker are concerned.

In cases of conflicts, ideally the courts should turn to Article 254(1), which deals with repugnancy. Unfortunately, case law (including Hoescht Pharamaceuticals and VK Sharma) on Article 254 has restricted the application of Article 254(1) to only cases where the State Law and the Central Law arise from entries in the Concurrent List. The same has been criticized by prominent scholars (including P.K Tripathi) as being against the plain text of the article as the term ‘Concurrent List’ in the language of Article 254(1) does not qualify the entire sub-section, but only a portion of it. This qualification has been made grammatically explicit by the use of a comma. For greater clarity, the provision is extracted here:

“254(1). If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause ( 2 ), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void” (emphasis added)

Therefore, a plain reading of the above article would mean that conflicts between any lists should be addressed by the contours of this article. The same is also suggested by necessary implication: – it does not make sense for the legislature to create a provision that accounts for only one set of repugnancy (i.e., arising from the concurring list), and leaving the other possibilities of repugnancies to be adjudicated by the Court without any guidance. Thus, on a textual and legislative basis, the article should be allowed to cover all repugnancies. In any event, at present this is not the case. In the absence of the applicability of Article 254, courts have resorted to dealing with conflicts amongst different lists by resorting to Article 246(1), whose non-obstante clause grants supremacy to the Central Legislation. Again, this is not correct also because Article 246 was supposed to only demarcate the powers to make laws on certain subjects (‘competence’), and not delineate how to deal with conflicts (‘repugnance’).

Secondly, the Central legislation would have priority despite it being delegated. The same is evident from the decisions of Gambhirdan K. Gadhvi v. State of Gujarat and Sreejith P.S v Rajasree M.S. These have, admittedly, been criticised to be against the text of the article as Article 254 explicitly qualifies the term ‘law’ (which would otherwise include delegated legislation under Article 13(3)) by the terms Legislature/Parliament, thereby belying the legislative intent to exclude delegated legislation. Additional criticism focuses on the hierarchy of laws (viz. delegated, plenary legislation being intuitively lower in priority than primary legislation, and therefore, the primary legislation gaining precedence), and the negative implications on democratic polity when the will of the state legislature, elected by people), is made sub-servient to the will of the unelected executive. The criticism on democratic polity holds true from a realistic perspective, since delegated legislations often assume essential legislative functions in light of vague guidance by primary legislations. It is to be noted that delegated legislations have been justified on the ground that their primary legislation gives guidance to the executive as to the contours of the delegated legislation, thereby putting limits that are supposed to prevent exercise of arbitrary, executive discretion. However, many legislations enacted recently only give vague guidance, thereby going against the permissible limits of delegation as per case law. Nonetheless, the criticism of how an object’s actual implementation has been cannot be used to criticize the object itself. As long as the primary legislation lays down and provides guidance for the promulgation of delegated legislation, the criticism about implications for democratic polity fails. The same condition also defeats the criticism of hierarchy, since then, delegated legislations could be argued to be merely extensions of the primary legislation. Indeed, the Court has, in Avinder Singh v. State of Punjab, suggested this reading by holding that delegated legislations are enacted to opertionalise the purposes of the primary legislation. While the argument from legislative intent based on the textual interpretation remains good, the same does possess its limitations while interpreting statutes, without being supplemented by any pragmatic or other forms of reasoning. There cannot remain a definitive normative answer to which legislation should have primacy, as the question carries significant implications for federalism and requires a deep gaze into Indian polity. Thus, the same remains beyond the scope of this article.

Conclusion

This article has examined how a tussle between the Tamil Nadu Act (or any other future State Act) and the IT Rules would be positively adjudicated, as well as the nuances in its normative adjudication. Online Gaming Companies are already planning on challenging the constitutionality of the Tamil Nadu Act, and this would bring a stellar chance to the constitutional courts to correct the position on repugnance. 

Shikhar Sharma is an undergraduate student at NLSIU and Editor, LSPR.

[This post was inspired by the remarks of Mr. Arun Prabhu (Partner, Cyril Amarchand Mangaldas) in a panel discussion on the gazetted amendments to IT Rules 2021, organised as part of Consilience 2023 by the Law and Technology Society (of which the author is the Convenor) in collaboration with the All India Game Developers’ Forum (‘AIGDF’).]