The Promotion and Regulation of Online Gaming Act, 2025: Dawn of a new era - Critical Analysis

In continuation with Part I of this article, we now analyse the legal, constitutional and stakeholder implications of the “The Promotion and Regulation of Online Gaming Act, 2025." (“PROGA”)

India is a Union of States that distributes powers between the Union and the States (Schedule VII, Constitution of India). While "gaming" itself is not explicitly mentioned in any of the lists, the Centre and States have been vested with certain powers relevant to online gaming. For instance,

• Centre: Regulates aspects linked to online communication and technology.

• States: Empowered to make laws relating to “betting and gambling” and “sports and entertainment” within their territories.

Historically, this has resulted in scattered laws regulating gaming and gambling, both physical and online. The Centre, separately, has used the Intermediaries Code [Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021] to mandate due diligence by online gaming companies. The adoption of PROGA, especially with its ban on online money games of skill and chance, signals a new assertion of legislative competence by the Centre, raising concerns about the extent of its powers and potential encroachment on State domains.

PROGA claims its competence under Entry 52, Union List, which empowers the Centre to legislate on “Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.” The preamble and recital of PROGA highlight why it is expedient for the Centre to regulate the online gaming sector, especially on grounds of user harm, public health, financial harm, pervasive advertising, inter-State inconsistency in laws and the involvement of offshore jurisdictions bypassing State laws. However, this may require judicial scrutiny for the following reasons:

a. Whether the Centre has legislative competence to enact PROGA.

b. Whether PROGA is violative of the right to freedom of trade and commerce.

While PROGA has already been challenged in the Karnataka High Court, the above issues are likely to come up for judicial review in different courts and thus need assessment.

A. Legislative competence

The powers of the State to enact legislation is subject to the Parliament’s power and therefore in cases of overlap there is a presumed dominance of Parliament, subject to constitutional restraints. The Entries in Schedule VII are interpreted broadly, including matters “ancillary and subsidiary” to the original intent, which can be fairly and reasonably comprehended in it.

However, the principle has certain limitations:

• Ancillary powers shouldn’t substantially encroach on the powers of other legislatures.

• Ancillary powers should be in aid of and not inconsistent with the granted power.

In case the above limitations are triggered, the courts resort to the “doctrine of pith and substance.” If a legislature exceeds its powers and an encroachment is evident, then the legislation is struck down as a “colourable legislation”.

Doctrine of pith and substance and determination of a colourable legislation

A colourable legislation is one where a body under the guise, pretence or in the form of an exercise of its own powers, carries out an object which is beyond its powers and trespasses on the exclusive powers of the other.

Generally, to determine an Act as colourable, the court should look into the substance and not merely the form of the legislation. To determine such transgression, the court examines the (a) effect of the legislation, and (b) object or purpose of the Act and thus determines if one legislature transgresses into the subject matter of another or is legislating on a prohibited subject using the doctrine of “pith and substance." This doctrine provides that where a statute is found in substance to relate to a topic which is within the legislature’s competence, it should be held intra vires, even though it might incidentally trench on topics not within its legislative competence, unless if in the guise of making a law, the legislature transgresses on subjects that are beyond its competence.

Based on the above, it can be argued that the Centre has substantially transgressed into the powers of the State wherein PROGA puts a complete ban on all online money games. This can be argued as a substantial encroachment on the powers of the States specifically with respect to regulating “betting and gambling” and “sports and entertainment." While assuming legislative competence, in pith and substance, PROGA is disabling the States to regulate any form of online betting and gambling, within its territory.

With respect to the categorisation of games under PROGA viz. e-sports, online social games and online money games, only online money games are prohibited, while e-sports and online social games will be regulated by the Centre. It is relevant to highlight that the States also have powers to regulate all forms of games categorised under PROGA. Therefore, an incidental and ancillary expansion to the regulation of online gaming sector may be seen as an encroachment upon the jurisdiction of States. On the contrary, the Centre can argue public interest in regulating the online gaming sector.

B. Freedom of trade and commerce

The Supreme Court has established that the games with a substantial degree of skill are not considered gambling and, therefore, protected under the fundamental right to freedom of trade, commerce and intercourse. Several High Courts have afforded protection to online skill-based games for stakes, which were otherwise challenged as gambling.

It is further relevant to note that in a catena of judgements, the courts have upheld the freedom of trade and commerce as a constitutional and fundamental right over the ban proposed by States on online games of skill. This right, however, is qualified by reasonable restrictions that can be imposed by law in the general public interest.

Therefore, to curtail the fundamental rights of the owners of online money games, the government will have to establish that (a) the restrictions are in the interest of the general public and (b) restrictions imposed on the trade are reasonable.

The recitals and the preamble of PROGA highlight why the regulation of the online gaming sector by the Central government is in the general public interest. However, it might not be a straight walk to establish that an absolute ban on skill-based online money games is reasonable, considering the precedents regarding skill-based games. While strict regulation of stake-based games would have been a reasonable approach, an outright ban would have a higher threshold to prove reasonability before the judiciary.

PROGA, like any other law, is presumed to be valid unless held unconstitutional or stayed. The government will now have to prove reasonable cause to legislate on the gaming sector and show how an absolute ban on skill-based online money games is a reasonable restriction.

On the other hand, PROGA brings a much-awaited stability in the gaming industry, offering consistency and clarity on gaming regulations. While in the short run, PROGA has disrupted the skill-based online money games, in the long run, the express recognition and promotion of e-sports and online social games will help the industry to grow. 

It is, however, pertinent to note that, while we have PROGA, the States retain the power to regulate the gaming industry under the State List as they can regulate “sports”, “entertainment” and “betting and gambling” within their territory. Further, to the extent they are not in conflict with central laws, the State specific gaming laws will continue to remain in force, and companies may still need to be compliant with its requirements.

About the authors: Vikash Kukreti is a Partner and Gaurav Tiwari is a Senior Associate at Luthra and Luthra Law Offices India.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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