Critical Analysis of the Promotion and Regulation of Online Gaming Act, 2025

Introduction

The rise of technology has significantly transformed the structural basis of human entertainment, artistic expression, and economic engagement. A strong legislative action is necessary in India due to the online gaming industry's explosive growth, which is estimated to be worth $29 billion and is expected to reach $38 billion by 2030. An important turning point in this development was the passing of the Promotion and Regulation of Online Gaming Act, 2025 (hereafter referred to as "PROGA" or "the Act"), which signifies a shift from decentralized state-level regulation to a centralized federal system.

The Act challenges seven decades of court precedent while attempting to reduce the "egregious implications" on economic, social, and mental health, particularly among young people. The scope of federalism, the integrity of basic rights under Article 19(1)(g), and the state's authority to label some economic activity res extra commercium are at the center of an intensive debate about the constitutional legality of PROGA 2025. The industry is in a condition of operational standstill as the Supreme Court of India gets ready for a final hearing in 2026. At present the hearings are taking place regarding PROGA, 2025. Gaming companies like, Head Digital Works are challenging the real money ban and they are claiming that it is ruining the gaming industry and the entire gaming ecosystem is facing losses. On the contrary, the Central Government is defending PROGA as necessary for public order. The matter is ongoing.

Background

The argument of gaming regulation in India is marked by an ongoing conflict between recognizing of a skill necessary for the game and moral restriction. The Public Gambling Act of 1867 served as the main regulating tool prior to internet boom and the popularization of cellphones. The purpose of this colonial act was to criminalize both the sharing of wins from games of chance and public gaming operations. This act's exclusion of "games of mere skill" under Section 12(a) that lasted through Article 372 of the Indian Constitution. This exemption allowed games like betting on horses and card games like rummy to be legal as they prioritize strategic and intellectual skill over chance.

As the industry moved to the digital sphere, the lack of a uniform central legislation resulted in the states making their own laws. Entries 34 and 62 of List II (State List) of the Seventh Schedule gave states the authority to develop these laws. Some states like Sikkim and Nagaland, recognized the potential for tax revenue and consumer protection by enacting licensing regimes such as the Sikkim Online Gaming (Regulation) Act of 2008 and the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act of 2016. On the other hand, governments like Telangana and Andhra Pradesh imposed complete prohibitions on all real-money online gambling, claiming that the "skill vs. chance" debate was irrelevant due to the addictive nature of these online gaming platforms.

Platforms operating nationwide faced a regulatory problem as a result of the inconsistency across different states. Litigation increased as a result of platforms frequently being lawful in one jurisdiction but criminalized in another. Additionally, the sector's rapid rise was accompanied by an increase in public anguish, including reported suicide occurrences in Bengaluru and Mysore and Hassan that were connected to significant financial losses. As per police records 32 suicides have been reported in Karnataka over 31 months. The legislative shifted in favor of a centralized solution as a result of these episodes, and PROGA was passed in August 2025.

Online gaming platforms like Mobile Premier League (MPL), Dream11 and Gameskraft sites managed to be legal as they differentiated as skill-based sports, they have accelerated the industry's growth. These businesses brought in around ₹25,896 crores in foreign direct investment (FDI) and an estimated ₹20,000 crores in taxes per year. The human cost of this expansion, however, is a huge concern. Government documents presented to the Supreme Court provide an estimate that shows 45 crore people have suffered financial losses surpassing ₹20,000 crores yearly as a result of playing online games.

PROGA's dual regulatory objective emphasizes its socioeconomic relevance. It grants institutional acknowledgment of e-sports as a genuine competitive discipline while simultaneously attempting to ban the Real Money Game industry. For the first time, e-sports are kept apart from "money gaming" and included into more general sports regulations, which include requirements for the creation of research facilities and training academies. This dichotomy represents a judgment that non-monetized competence is a cultural asset, but monetized skill has a  harmful influence too.

Analysis

Important Sections

In an effort to address the longstanding issue of extra-territorial enforcement, the PROGA 2025 regulates the whole of India and extends its reach to offshore platforms that provide services to Indian customers. The Act includes broad definitions and a centralized regulating body. Section 2(f) of the Act defines "online money game" broadly as any software-operated game played on an electronic device via the internet. But the crucial categorization takes place in Sections 2(f), 2(c), and 2(i), which separate the industry into three different categories:

1. Online Money Gaming (2f) : “Irrespective of whether such a game is based on skill, chance, or both,” this refers to any online game in which players pay fees or deposit stakes in the hopes of earning money. The "preponderance of skill" standard, which has governed Indian jurisprudence for decades, is expressly disregarded in this section, which is the most radical aspect of the Act.

2. E-sports (2c): Multiplayer competitive activities determined exclusively by skill elements such as physical dexterity and strategic thinking; registered under the National Sports Governance Act of 2025. These do not feature any kind of betting or staking, although they may include performance-based rewards.

3. Online social games (2i): There is no financial advantage for the participant, they are only for fun or pastime. They may impose entry fees, but these are not regarded as stakes.

Section 7 of the act is particularly significant as it requires banks and financial institutions to prevent processing transactions for illegal platforms. This has resulted in financial services providers blocking accounts for unrelated reasons. In addition, Section 18 has an "overriding effect," claiming that PROGA supersedes any contradictory provision in other state or central legislation, essentially seeking to negate state-level gaming laws that allow skill-based games.

Constitutional Validity

The fundamental argument against PROGA is that "betting and gambling," a topic designated for the states under Entry 34 of List II, cannot be legislated by the Union Parliament. According to the Union government online gambling comes under wireless communication (Entry 31, List I), interstate trade (Entry 42, List I), and residuary powers (Entry 97, List I). Under the "Doctrine of Pith and Substance," the court must examine the true character of the law. Petitioners argue that if the "essential character" of the Act is the regulation of gambling, the digital medium is incidental. In State of Rajasthan v. G. Chawla, the Supreme Court previously held that a law regulating loudspeakers was "public health" (State List) and not "communication" (Union List) despite using electronic devices. Similarly, petitioners contend that PROGA is a "gambling regulation" masquerading as a "communications regulation".

Furthermore, Article 249 enables Parliament to act on state issues in the "national interest" if the Rajya Sabha votes a two-thirds resolution. Although the Union has this authority it must be used in caution as the Act is a "significant federal overreach" that goes against the cooperative federalism. If all internet action is integrated into the Union List under Entry 31, the State List would become useless and irrelevant, which would undermine the constitutional separation of powers.

Another major challenge before the Act is the fundamental right to carry on a profession or trade. The judiciary has distinguished between games of skill, which are legal economic operations, and gambling, which is res extra commercium or outside the purview of protected trade, since State of Bombay v. R.M.D. Chamarbaugwala (1957). PROGA is alleged of violating Article 19(1)(g) by prohibiting skill-based money games. The Supreme Court has said time and time again that "wagering on horse-racing is not gambling" in Dr. K.R. Lakshmanan v. State of TN and that "Rummy is preponderantly a game of skill" in State of AP v. K. Satyanarayana.

The Act is challenged under Article 14 on the grounds of "manifest arbitrariness." PROGA is accused of treating "unequal, distinct, and separate categories of activities equally" by using a classification that is too wide and has no logical connection to its objectives. The "least intrusive measure" criteria established by Modern Dental College & Research Centre v. State of Madhya Pradesh compels the government to investigate regulatory alternatives prior to implementing a complete prohibition, even when the goal of reducing addiction is acceptable.  Tamil Nadu has already proved that strong regulation, such as Aadhaar-based KYC, time constraints (for example, no login between midnight and 5 a.m.), and deposit ceilings, may prevent harm without harming the sector. A complete prohibition is seen as "grossly disproportionate," particularly when it permits elite clubs to continue playing card games in person while making their online counterparts illegal.

 

Consequences of Ban

Just 3.4% of Indian gamers used unregulated offshore platforms prior to the ban's adoption. This percentage shot up to 44% after the ban. These offshore sites lack consumer protection, do not pay Indian taxes, and frequently act as channels for money laundering and terrorism funding the same problems PROGA was intended to eliminate since they operate outside of Indian jurisdiction. Government efforts to restrict these sites under Section 69A of the IT Act are frequently circumvented by URL switching and VPN services, resulting in a digital "cat and mouse" game that jeopardizes user safety. Research shows that offshore betting sites employ fake bank accounts to embezzle more than ₹5,700 crores from India each year, further harming the country's financial independence.

The "tax then ban" policy, in which the government severely taxed the industry for two years under the Finance Act 2023 before banning it in 2025, has generated a perception of regulatory violation. According to reports, foreign venture capital is pulling out of the larger Indian IT industry due to worries that other sectors (such as ed-tech or health-tech) can suddenly become illegal according to perception rather than facts.

276th Law Commission Report

The Law Commission of India's 276th Report (2018) is evidence for opposing the blanket prohibition. A total prohibition, according to the Commission, is "difficult to enforce" and encourages "illegal markets, black money, and corruption." The 276th Report promoted a "sophisticated regulator" guidelines that views gambling as a controllable social reality as opposed to a social evil that should be eradicated by legislation. PROGA is as an "over-protective" measure that prioritizes perception above scientific approach and facts since it disregards this expert advice.

CONCLUSION

An important but controversial attempt to reform India's digital entertainment market is the Promotion and Regulation of Online Gaming Act, 2025. Its constitutional validity is uncertain. On one hand, the Union Government's goal of defending national security and public health against the harm of uncontrolled gambling is a valid. However, the Act's general approach, which eliminates the distinction between games of skill and games of chance, directly challenges the proportionality and constitutional safeguards for trade.

Absolute ban has backfired in terms of real consumer protection. The goal of the law is undermined by users shifting to unregulated offshore areas and the dark web, which creates a more unsafe atmosphere with no monitoring and no tax revenue. A "middle path" similar to the Law Commission's 2018 proposals is necessary for Indian gaming to have a sustainable legal future should include:

1. The Act should be narrowed down to uphold the "preponderance of skill" standard, preventing the prosecution of respectable intellectual pursuits and competitive sports.

2. Using digital platforms technical capabilities to impose compulsory "self-exclusion" tools, dynamic spending limitations, and stringent age verification (Aadhaar/OTP).

3. Giving the Online Gaming Authority the authority to act as a licensing agency that brings platforms into compliance with the law, as opposed to a restrictive body that pushes them into hiding/ shifting to the dark web.

Author: Kuval P Amberkar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

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