SC backs state crackdown on online gaming with stakes, sets aside HC orders

The Supreme Court on Wednesday separately upheld the constitutional validity of the Tamil Nadu and Karnataka laws regulating and prohibiting online gaming with stakes, ruling that state legislatures are competent to curb even skill-based online games when played for money.

A bench of Justices J.B. Pardiwala and R Mahadevan set aside the judgments of the Madras and Karnataka high courts that had struck down portions of the respective state legislations.

In the second major ruling delivered alongside the GST verdict in the ₹2.5 lakh crore online gaming dispute, the apex court held that the constitutional entry dealing with “betting and gambling” cannot be interpreted narrowly to exclude games of skill played with stakes.

Reading out the operative portions of the judgment, the bench framed seven constitutional questions, including whether Entry 34 of List II of the Seventh Schedule empowers states to regulate only gambling activities or also extends to betting on games involving skill.

The court rejected the argument advanced by gaming companies that games of skill automatically fall outside the legislative competence of states merely because courts have historically distinguished them from pure games of chance.

“The High Court of Madras and the High Court of Karnataka respectively committed an error in giving a very narrow interpretation to Entry 34,” the bench observed.

According to the court, both High Courts “failed to take into account the power intended to be bestowed upon the state legislatures under the said entry by the framers of the Constitution,” effectively rendering states powerless to prohibit betting activities linked to games of skill.

The bench held that once monetary stakes are introduced, the “element of betting and gambling endures” irrespective of whether the underlying activity predominantly involves skill or chance.

“The expression betting and gambling cannot be split to mean only games involving chance while excluding the aspect of staking money attached to games of skill,” the court said.

“The element of betting and gambling endures the picture. The nature of the game ceases to be of relevance. The common aspect of addiction and desire to gain more and more looms large,” the bench added.

The ruling is significant because the online gaming industry had relied heavily on earlier Supreme Court judgments such as the State of Bombay vs R.M.D. Chamarbaugwala decisions and K.R. Lakshmanan vs State of Tamil Nadu to argue that games involving substantial skill enjoy constitutional protection from blanket prohibitions.

However, the Supreme Court clarified that those precedents did not prevent legislatures from regulating or prohibiting online games played with stakes.

The bench said the judgment in K.R. Lakshmanan related to a situation where the legislature itself had carved out statutory exceptions for games of skill, particularly horse racing, under existing gaming laws.

“The decision in K.R. Lakshmanan has no application to cases like the one at hand where the state legislature in its wisdom has deemed it appropriate to regulate games where monetary stakes are involved without affording any special protection to games of mere skill,” the court observed.

The judges also distinguished the heavily regulated structure of horse racing from the “uncertainty and veil of invisibility associated with online gaming activities”.

“The observations of the court clearly indicate that the entire process of conducting races and betting on them was highly regulated and organised, which is very different from the uncertainty and veil of invisibility associated with online gaming activities, whether of skill or of chance,” the bench said.

Rejecting the industry’s challenge on grounds of proportionality and excessive restriction, the court accepted the states’ arguments that online gaming with stakes has implications for public order, addiction and public health.

“In terms of addiction, in terms of societal impact respectively, online money gaming has a definite impact on the public,” the bench observed.

“When such is the case, it has to be recognised that online money gaming can disturb public tranquillity. It is supported and backed by empirical data contrary to the assertions of the respondents,” the court added.

The ruling also rejects the contention that the expression “gaming” had acquired a settled legal meaning restricted only to games of chance.

“In that case, gaming is a statutory definition, which can be altered according to the will of the legislature. In no way can it be dependent on the element of chance,” the bench said.

The judgment marks a major victory for states seeking greater powers to regulate online real-money gaming platforms amid growing concerns around addiction, financial distress and social harm.

With the ruling, the Supreme Court has effectively upheld the validity of key provisions of the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act and corresponding Karnataka legislation that prohibit or regulate online games played with stakes.

The verdict is expected to have nationwide implications as several states continue to explore tighter restrictions and regulatory frameworks for online gaming platforms, fantasy sports operators and real-money gaming apps.