Law Commission sees revenue potential from casinos, but no decision yet

India’s Law Commission recognizes the government would raise substantial revenue from regulating the country’s $60 billion gambling industry, but its chairman says the legal body has not yet made up its mind on the issue.

Justice Balbir Singh Chauhan was giving the opening remarks to a conference hosted by the All India Gaming Federation and the Federation of Indian Chambers of Commerce and Industry in New Delhi last week. The conference was attended by representatives from legal and gaming firms, as well as general business, and discussed a wide range of issues facing the sector in India.

Chauhan noted that the industry required proper regulation, rather than a complete ban in most states as is the case presently. However, he added that the Law Commission which is looking into the matter is “yet to make up its mind.”

Casino gambling is banned across India, apart from in the state of Goa and the territory of Daman, while online gambling is allowed in Sikkim and Nagaland. If legalized, analysts estimate it could rapidly become one of the biggest markets in Asia, if not globally.

Chauhan estimated that about $2.6 billion could be raised by legalizing and taxing the industry, but added it may come “at the cost of public morality and health. It may lead to the demand to regulate prostitution,” he said.

According to Justice Chauhan, “political will and the philosophy of the party in power” held the key to any such move. Nevertheless, he observed that the revenue that could be generated “was a huge amount to spend on public welfare.”

Several legal experts weighed in on the subject of legalization and regulation of the industry at the conference. They noted that the industry needs a strong overall framework, rather than relying on a patchwork of exceptions to govern the industry.

Ranjana Adhikari, co-head Media Entertainment and Gaming Practice at the reputed Mumbai based firm Nisith Desai Associates, went into the finer points of legislation in Sikkim and Nagaland. She pointed out that there was a lack of clarity on whether the provisions could be implemented in the rest of the country, especially those dealing with licensing online operators outside the borders of the states issuing them, especially in case of Nagaland.

Suhan Mukerjee, one of the panelists and a senior lawyer practicing in Delhi, counseled that the gaming industry would do well to not depend on exceptions like the Nagaland model. “Sustainable businesses cannot be built on exceptions,” he contended. He exhorted the industry to have continuous engagement with the relevant ministries and to come up with a blueprint for the way forward which could be used to facilitate the engagement with judiciary, law enforcement and political parties as well.

Adhikari also noted that under India’s existing gambling laws, the presence of a physical structure, defined as Common Gaming House, where games of chance were being allowed to be conducted with a profit-motive in mind, was critical for initiating criminal proceedings.

The Common Gaming House is relevant as the law distinguishes between public gambling activities and private ones, with the latter not being punishable. Gambling privately on the Hindu festival of Diwali remains widely popular in India.

At present, foreign direct investment is banned in both the casino and the lottery sector, but has not stopped the online sector, especially rummy and fantasy sports websites from receiving funding from foreign partners.

Some speakers pointed to how regulation can lead to improved standards, with companies taking it upon themselves to tighten operations.

Pranav Bagai, of the Poker Sports League, cited the example of the Direct Selling Companies in India, which, when put under the regulatory scanner, “asked hard questions of themselves, created manuals for law enforcement, and worked with lawmakers to remove grey areas.”

In the absence of legislation, other commentators urged the industry to regulate itself.

Nandan Kamath, a Bangalore based lawyer who deals in sports laws, said:  “Change of this nature takes time. Regulate yourself before others do,” cautioned Kamath. He also advised the industry to “push for reforms” in the legal arena.

Post deliberations on legal issues, two panel discussions were held. The first, moderated by Albert Climent, of Bluesea Gaming, covered issues related to responsible gaming and ‘cyber security.’

The second panel was moderated by lawyer Vidushpat Singhania and covered the current scenario in Indian gaming industry. The panelists, including Kamlesh Vijay of Sugal and Damani Group, and Kalyan Gudladana of Tykhe Gaming, agreed that the recent move to demonetize high-value currency notes in India had a major impact on both lottery and casino business in the country, while giving a boost to the online industry.

In India last year, the government in a surprise move, announced the withdrawal from circulation of Rs500 and Rs1000 notes to reduce counterfeit cash and illegal activities. The move created chaos in the largely cash-based society and had a particularly hard impact on casinos.

Vijay added that a "negative perception" with respect to the industry existed in the country and it was necessary to “educate the general masses.”

L. Badri Narayanan, a Mumbai-based specialist in commercial laws, focused on the impact of Goods and Services Tax on the sector. The GST is to be implemented in India from July 1 onward. “The new law is more for goods than services, which makes it complicated when it comes to a sector such as gambling,” he said, adding that it was yet to be determined if lottery would fall under the category of goods or services. Citing ‘greyness’ in the provisions, he contended that  “special rules and regulations (were) required” for the gambling industry as far as the GST was concerned.