How To Structure A Gaming Business in India

ONLINE GAMING, CASINOS
AND FANTASY SPORTS

How to structure a gaming business in India

Online Gaming, Casinos And Fantasy Sports
Learning objectives
● To understand the steps to be kept in mind while setting up a gambling/gaming
business in India;

Gambling/gaming in India is strictly regulated and is considered legal in only
selective areas. Such activities enjoy immense popularity amongst Indians. The
legislation for the same varies from state to state.

The following steps have to be kept in mind while setting up a gambling/gaming business in
India:

1. Identify the type of gaming activity
You will first need to identify what is the exact nature of the business that you intend to
conduct. All forms of gambling businesses are not universally permitted. For example,
Goa permits offshore and onshore casinos, Sikkim permits online gambling, Nagaland
permits online games of skill and West Bengal permits certain card games, specifically
excluding them from common gaming house legislation in the state.

This will be a crucial factor in taking the next steps. You will need to accordingly choose
where to incorporate your business vehicle or have your website server. It will be
needed to be in a state where such activity is permitted, else it may be shut down by
law enforcement authorities and you could face punishment. For example, if you intend
to create an online poker website, it would be safer to have your company and server
in West Bengal where poker is not within common gaming house legislation, as
compared to locating it in some other state where there is no regulatory clarity, on the
basis of the argument that poker is a game of skill.

Make sure you are prepared to handle law enforcement inquiries and raids. For
example, in Mumbai, the crime branch raided NWOS, a poker club on the information
that it was running illegal activities and on the grounds of it being a ‘common gaming
house’ as under the Maharashtra Prevention of Gambling Act, 1887 (see here). Rummy
has been held by the Supreme Court as a game of skill which does not fall under the
purview of gambling, but poker still lacks regulatory/judicial precedent. (Read more on
this, here)

2. Business structuring
The most common forms of structuring a business include sole proprietorship,
partnership, limited liability partnership (LLP) and a private or public limited company.
With respect to your proposed venture, refer to whether there is any restriction on
what kind of business entity can carry out the specific activity in that state.

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Sikkim
For online games: The Sikkim Online Gaming (Regulation) Act, 2008 (see here) permits
the State to issue a license to any person that is interested in operating a gambling
house. As per Rule 2(g) of the Sikkim Online Gaming (Regulation) Rules, 2009 (see here),
the term “person” includes a partnership firm or company registered by law relating to
such company/partnership firm in the state. The term ‘company’ is further defined as
‘any body corporate which includes firm/other association of individuals duly
constituted and registered under the provisions of the Registration of Companies Act
(Sikkim), 1961'.

It is also clarified that the operation of any kind of online gaming must be through a
valid online gaming website. The state government may grant a license on its
satisfaction after all the inquiries have been made. The licensee must be a company
incorporated in India and must operate only in Sikkim.

The State through Rule 3 of the Sikkim Online Gaming (Regulation) Rules, 2009 have
prescribed that games such as roulette, black jack, pontoon, punto banco, bingo, casino
brag, poker, poker dice, baccarat, chemin-de-for, backgammon, keno and super pan 9
may be played online, after a license has been issued in this regard. The Rules even go
a step further to specify that these games have to be safe, secure and fair.

For Casinos: The state of Sikkim through the Sikkim Casinos (Control & Tax) Act, 2002
has permitted casinos to operate both electronic games and live gaming in five-star
hotels through a licensing regime. Sikkim Casino Games (Control and Tax) Rules, 2007
(see here) were also notified to issue further directions with respect to setting up of
casinos in Sikkim. As per Rule 3 of Sikkim Rules for casinos, any person/company/firm
desiring to obtain a license to operate Casino Games may apply for issue of license in
Form-A.

Note: Sports betting is also allowed in Sikkim. An operator must obtain a license to
offer such games under the Act. Such games may be offered through the intranet
within the State of Sikkim. In most other States, law enforcement authorities seek to
prosecute players engaged in sports betting.
Goa
Section 13A of the Goa, Daman and Diu Public Gambling Act, 1976 (see here) states that
the government may authorise any game of electronic amusement/slot machines in
five-star hotels (inserted by the 1992 amendment) and onboard offshore vessels
(inserted by 1996 amendment). Thus, the Act has allowed for two forms of
gambling/gaming spaces to be set up:

1. Onshore casinos - mainly set up with a five-star hotel; and


2. Offshore casinos - boats/vessels docked in offshore region.

The state government awards licenses after a detailed inquiry to either five-star hotels
or offshore vessels. They have to pay an application fee and the validity of the license
needs to be renewed after expiry. For offshore vessels, other regulatory approvals are
required, such as a ‘No-objection certificate’ from the captain of ports to move the
vessel in inland waters.
Nagaland
The state of Nagaland has passed the Nagaland Prohibition of Gambling and
Promotion and Regulation of Online Games of Skill Act, 2015 (see here) and the
Nagaland Prohibition of Gaming and Promotion and Regulation of Online Games of
Skill Rules, 2016 (see here) which allow the granting of license for ‘games of skill’ such
as chess, sudoku, quizzes, binary options, bridge, poker, rummy, nap, spades, auction,
solitaire, virtual golf and virtual racing games to be played on online gaming sites. This
Act, though it prohibits games involving betting and wagering or any game of chance, it
allows for all games of skill where there is a preponderance of skill over chance.
West Bengal
An operator can apply for a permit to organize games of skill in a public market, fair,
carnival or in the street, or in any place that the public can access.

3. Meeting the requirements
If you want to start a business in the gaming or gambling sector, you are free to select a
business structure that you want. Requirements vary depending on which state or type
of business you are planning to invest in.
Sikkim
For Online Games:

As per Section 4 of the Sikkim Online Gaming (Regulation) Act, 2008, any person
desiring to obtain a license can make an application in writing to the State Government.
After making any inquiries it considers necessary, the State government can grant a
license or refuse to grant the license without assigning any reasons. A license remains
in force for 5 years unless it is cancelled or revoked as specified in Section 5 of the
Sikkim Online Gaming (Regulation) Act, 2008. As per Section 6 of the Sikkim Online
Gaming (Regulation) Act, 2008, a license fee is to be paid.

The licensee is to make an application using the form as specified in the Sikkim Act and
Rules along with an application fee of INR 500 as per Rule 4 of the Sikkim Online
Gaming (Regulation) Rules, 2009. After the amendment of these Rules in 2010 (see


here), Rule 5(1) provides that on receipt of an application under Rule 4, the
Government shall examine the application and after making such inquiry as it
considers necessary, may grant a provisional licence in Form-2 on payment of a fee of
INR one lakh to enable the licensee to set up the necessary infrastructure and other
requirements so as to be in a position to commence operation of online games and
sports games.

Thereafter, on the satisfaction of the Government that the applicant is fully ready to
commence operations of online gaming and sports gaming activity and has complied
with the stipulations prescribed in the said provisional licence and such other terms
and conditions prescribed, the Government may grant a regular licence for operation
of online games and sports games in Form-2A for five years on payment of a fee of INR
five lakh.

For casino:

As per Rule 3 of the Sikkim Casino Games (Control & Tax) Rules, 2007, any interested
person/company/firm needs to apply for a license in Form-A if they want to operate
casino games. (It is important to note that only Indian entities can apply for such a
license) Further, Rule 4 of the Sikkim Casino Games (Control & Tax) Rules, 2007 states
that after making any enquiries it considers necessary, the State government can grant
a provisional licence for five years or refuse to grant the license without providing any
reasons.

Rule 16 of the Sikkim Casino Games (Control & Tax) Rules, 2007 mandates the person
who wants to obtain a license to produce the No Objection Certificate from the Health
Department (Promotion of Food Adulteration), Energy and Power Department and
Directorate of Fire Services. Further, Rule 17 of the Sikkim Casino Games (Control &
Tax) Rules, 2007 states that on receipt of an application in the prescribed form and
subject to the provision of these rules, license may be issued in FORM – ‘B’ for
operating of Casino and Casino Games. The casino should be set up in a hotel having
infrastructure and other facilities of the standard of any 5 (five) star hotel with
capability to establish and operate casinos games. A license fee is to be charged as per
the latest notification/amendment of the State Government.
Goa
Section 13A of the Goa, Daman and Diu Public Gaming Act, 1976 allows five-star hotels
and offshore vessels to set up casinos without the same being prohibited under the
definition of ‘common gaming house’. The Act contains provisions on the operation of
licensed games of electronic amusement/slot machines. However, a licence can only be
applied for a maximum of 20 slot machines. A license fee is to be paid which is subject
to annual increases.


Nagaland
The process of obtaining a license has been given in the Nagaland Prohibition of
Gaming and Promotion and Regulation of Online Games of Skill Rules, 2016. Any
person, firm or company desirous of obtaining a license has to apply to the Nagaland
government in a prescribed format along with an application fee of fifty thousand
rupees.

As per Section 7 of the Nagaland Prohibition of Gaming and Promotion and Regulation
of Online Games of Skill Act, 2015, it is a requisite to obtain a license for setting up an
online website dealing with games of skill that the applicant must be a person/entity
incorporated in India and must have a substantial holding and controlling stake in
India. The executive decision making powers and process required to be performed
from within the territorial boundaries of India and the technology support provision
including hosting and management of website, placement of servers, etc. should be in
India. Further, the applicant should have no criminal history.

The state government has to forward the application forms for the license to
empanelled firms, i.e., law firms, chartered accountants, financial experts and IT firms
of repute to scrutinise and certify the application and simultaneously grant a Letter of
Intent to the applicant. Rule 3 and Rule 4 of the Nagaland Prohibition of Gaming and
Promotion and Regulation of Online Games of Skill Rules, 2016 further explain the
procedure involved in obtaining a license. A license fee is also to be paid as prescribed.
This fee is subject to annual changes.
West Bengal
The West Bengal Gambling and Prize Competitions Act, 1957 (see here) lays down the
procedure. An application for a permit to host games of skill in a public place must be
made to the Commissioner of Police if the permit is sought in Kolkata, or to the District
Magistrate or Sub-Divisional Magistrate if the permit is sought elsewhere in the state.
Currently, under the framework of different applicable laws, an Indian operator would
be in the best position to apply.

4. Internet-related issues
Location of server
It is advisable to establish your internet server which is used for online gaming in a
state where the area of gambling is legalised. For example - setting up an internet
server in Sikkim where online gambling is legal.

The problem of setting up servers in State where only games of skills are permitted is
that police raids are common due to bad interpretation and lack of regulatory


precedent. Thus, the location of the server is thereby an important aspect while setting

up.
Promotion through online or of line ads and distributors in

other states where the activity is not permitted
In states where ‘gambling’ is illegal, any advertisement to the general public to
participate in the illegal common house will also be prohibited. It amounts to ‘aiding or
assisting a common gaming house’ which is an offence in all states where gambling is
illegal and the accused would be liable for imprisonment.

Rule 3(2)(b) of Information Technology (Intermediaries Guidelines) Rules, 2011, (see
here) requires ‘intermediaries’ like internet service providers, network service
providers, search engines, telecom operators, etc. not to host or transmit any content
which inter alia relates to or encourages gambling (this includes online advertisement
of gambling and betting related activities). Further, Rule 3(4) requires intermediaries to
remove content relating to or encouraging gambling within thirty-six hours, either
“upon receiving actual knowledge or on being notified to do so by the appropriate
government or its agency that any information, data or communication link residing in or
connected to a computer resource controlled by the intermediary is being used to commit
the unlawful act...”

Cable Television Network Rules, 1994 prohibit the advertisement of gambling
activities. However, as set out in Rule 7, the advertisement of games of skills,
such as horse racing, rummy and bridge, is not prohibited. The Advertising
Standards Council of India (ASCI) has released a self regulatory code which is
binding on the television/broadcasting industry, and therefore, gambling
advertisements on television. This code prohibits the propagation of products,
the use of which is banned under the law.

In Sikkim, licensees can advertise online games, provided that they comply with certain
requirements such as inclusion of the address of the online gaming operator’s website,
it should be based on the facts, not be directed at any person under the age of 18, also
not to be directed at any jurisdiction in which online games are prohibited, etc. In
Nagaland, licensees can advertise on online and offline mediums however, they have to
display that they hold licences from the government of Nagaland.

Further, Sections 292 and 294 of the Indian Penal Code, 1860 (IPC) and Sections 67, 67A
and 67B of the Information Technology Act, 2000 (IT Act) penalize the publication,
distribution and transmission of obscene content. As per the IPC and the IT Act, any
material which is lascivious or appeals to the prurient interest or which may deprave
and corrupt persons, is considered obscene. Both online and offline advertising is
regulated under these Acts. Indecent Representation of Women (Prohibition) Act, 1986
(see here) prohibits any indecent representation of women, whether through


advertisements or in publications, writings, paintings, figures or in any other manner
and provides for penalty in connection with the same.
Location of players
There is no law in India which states that online gambling is ‘legal’, or that it is ‘illegal’.
The question arises that if anyone accesses an online gaming site from a state where it
is held to be illegal, are they liable under the state Act? The answer is that, though it is
not expressly mentioned that the act is illegal, the player is at risk of facing
consequences.

Licensed online gaming websites must put up disclaimers on their sites to alert
individuals from states where such games are illegal to enter at their own risk but many
websites have ignored or failed to put up these disclaimers.
Remittance of winnings to offshore winners (Indians, NRIs

and foreigners)
Under Foreign Exchange Management Act, 2000 (FEMA) read with Rule 3 and Schedule
1 of the Foreign Exchange Management (Current Account Transaction) Rules, 2000 (see
here), remittance from the following is prohibited:

1. Remittance of Income from lottery winnings
2. Remittance of Income from racing/riding, etc. or any other hobby
3. Remittance for purchase of lottery tickets, banned/prescribed magazines,
footballpools, sweepstakes, etc.

Due to inaction against betting and gambling on foreign websites, any winnings
remitted in an Indian bank account even though it is illegal, could be taxed at the rate
of 30% under the Income Tax Act, 1961.

As per Section 13 of the FEMA, one could face penalties upto thrice the remitted
amount if gambling winnings are remitted in India from abroad.

FEMA requires ‘residents’ to bring back foreign currency earned abroad – so, winnings
need to be brought back. Even if you are an exporter and hold a special account (called
Exchange Earner’s Foreign Currency Account), funds need to be brought back before
the end of the calendar year. Read more on this, here.
Payment Gateway
Agreements with payment gateways can occasionally prohibit a business from
engaging in activities related to the gaming sector. These could be in different forms.
For example:


● Citrus

Citrus pay is one of the many payment gateways which has made its mark in India
today. Citrus pay in its user obligation states that any person will not use their
gateway for payment in relation to any illegal purchases or unlawful purposes.
Gambling is not specifically mentioned but can be interpreted as ‘illegal transaction’
only where the act of gambling is held to be illegal.

● Razorpay

Gambling is expressly mentioned under the prohibited services in the terms and
conditions provided by the payment gateway. The term ‘gambling’ is said to include
lotteries, internet gaming, contests, sweepstakes or offering of prizes and
inducement to purchase goods and services. It is mandated that any person using
this payment gateway shall not accept payment from any businesses which deal
with ‘gambling’. Thus, you cannot use this portal for any business activities which fall
under the category of ‘gambling’.

5. Foreign investment
Refer to the chapter 'Overview of Gambling Laws' uploaded in the same module.

6. Taxation
Refer to the chapter 'Overview of Gambling Laws' uploaded in the same module.

Recap

● All forms of gambling businesses are not universally permitted.
● Make sure you are prepared to handle law enforcement inquiries and raids.
● The most common forms of structuring a business include sole proprietorship,
partnership, limited liability partnership (LLP) and a private or public limited
company.
● The state of Sikkim through the Sikkim Casinos (Control & Tax) Act, 2002 has
permitted casinos to operate both electronic games and live gaming in five-star
hotels through a licensing regime.
● If you want to start a business in the gaming or gambling sector, you are free to
select a business structure that you want. Requirements vary depending on which
state or type of business you are planning to invest in.
● As per Rule 3 of the Sikkim Casino Games (Control & Tax) Rules, 2007, any interested
person/company/firm needs to apply for a license in Form-A if they want to operate
casino games.
● Rule 16 of the Sikkim Casino Games (Control & Tax) Rules, 2007 mandates the
person who wants to obtain a license needs to produce the No Objection Certificate


from the Health Department (Promotion of Food Adulteration), Energy and Power
Department and Directorate of Fire Services.
● Section 13A of the Goa, Daman and Diu Public Gaming Act, 1976 allows for five-star
hotels and offshore vessels to set up casinos without the same being prohibited
under the definition of ‘common gaming house’.
● The process of obtaining a license has been given in the Nagaland Prohibition of
Gaming and Promotion and Regulation of Online Games of Skill Rules, 2016.
● The location of the server is thereby an important aspect while setting up.
● In states where ‘gambling’ is illegal, any advertisement to the general public to
participate in the illegal common house will also be prohibited.
● Cable Television Network Rules, 1994 prohibit the advertisement of gambling
activities.
● Licensed online gaming websites must put up disclaimers on their sites to alert
individuals from states where such games are illegal to enter at their own risk but
many websites have ignored or failed to put up these disclaimers.
● Due to inaction against betting and gambling on foreign websites, any winnings
remitted in an Indian bank account even though it is illegal, could be taxed at the
rate of 30% under the Income Tax Act, 1961. Agreements with payment gateways
can occasionally prohibit a business from engaging in activities related to the gaming
sector.


How To Structure A Gaming Business in India

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ONLINE GAMING, CASINOS

AND FANTASY SPORTS

2. Oﬀshore casinos - boats/vessels docked in oﬀshore region.

precedent. Thus, the location of the server is thereby an important aspect while setting

Promotion through online or of line ads and distributors in

Remittance of winnings to offshore winners (Indians, NRIs

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