PRoG Act, 2025: A Turning Point for India’s Online Gaming Industry

By Adv. Sreeraj Muralidharan, BBM, FCS, LLB, CFORA

Email: Advsreerajm@gmail.com

Mob: +91-9778307400 

 

1.     Introduction:

The Promotion and Regulation of Online Gaming Act, 2025 (“PRoG Act”) represents the most sweeping reform in India’s gaming landscape in my recent memory. In one legislative stroke, Parliament has outlawed all online money games, whether of skill or chance, while simultaneously promoting e-sports and educational/social games as legitimate pursuits. The Act, however, raises profound constitutional questions. It unsettles decades of judicial precedent that distinguished between gambling and games of skill, touches upon the delicate federal balance between the Union and the States, and imposes sweeping prohibitions with far-reaching consequences for industry, investment, and employment.

2.     Games, e-Games, and Their Social Imprint

The Indian gaming ecosystem has long been diverse. On one end lie e-sports, organised competitions demanding strategy, agility, and teamwork, increasingly aligned with professional leagues and broadcasting rights. On another lie, social and educational games, casual formats designed for leisure, learning, and cultural storytelling. At the contested centre are online money games, where users stake deposits or fees, hoping for financial returns.

The latter category has generated the most controversy. Public-health experts have drawn links between monetised play and addiction, indebtedness, and even money laundering. The World Health Organisation’s ICD-11 now classifies “gaming disorder” as a diagnosable condition, a development that has heavily influenced legislative responses worldwide.

3.     The Position Before the Act

Prior to 2025, India’s legal framework was fragmented. “Betting and gambling” fall within Entry 34 of the State List, giving States authority to legislate. Some states like Goa and Sikkim experimented with licensing; other states like Karnataka and Tamil Nadu attempted outright bans—even on skill games.

At the national level, the Information Technology Act, 2000 and its intermediary rules empowered the Centre to block unlawful websites and impose due-diligence obligations on gaming platforms, such as KYC verification and grievance redressal. Taxation further shaped the sector: GST applied at 28% on gaming revenues, and winnings were subject to TDS.

Judicially, the line between games of skill and games of chance was decisive. The Supreme Court in State of Bombay v. R.M.D. Chamarbaugwala (1957) declared that while gambling fell outside commerce, games of skill were legitimate occupations protected under Article 19(1)(g). In K.R. Lakshmanan v. State of Tamil Nadu (1996), the Court held horse racing to be a game of skill, thereby within constitutional protection. Earlier, in State of A.P. v. K. Satyanarayana (1968), rummy was similarly categorised as skill. These principles were later extended to online formats: Varun Gumber v. UT Chandigarh (2017) upheld fantasy sports; Junglee Games (Madras, 2021), Head Digital Works (Kerala, 2021), and All India Gaming Federation (Karnataka, 2022) struck down blanket state bans on online rummy and poker.

4.   The PRoG Act: A New Paradigm

The PRoG Act extends across India, applying even to foreign platforms that target Indian users. Its core provisions prohibit the offering, promotion, or facilitation of any online money game. Banks and financial intermediaries are barred from processing related transactions. Its conceptual pivot is categorical: no person may offer, aid, abet, promote or facilitate an online money game; no advertisement may directly or indirectly induce participation; and no bank or payment intermediary may process transactions tied to such services. Parallelly, the Act promotes the “good” halves of gaming—recognising e‑sports as sport and fostering social/educational games—and contemplates a national Authority to recognise, categorise and register online games, and to issue directions and codes of practice. Violations attract imprisonment of up to three years and fines of up to Rs 1 crore, with stricter penalties for repeat offenders.

Yet, alongside these prohibitions, the Act seeks to nurture “constructive play.” It expressly recognises e-sports as sport and promotes social and educational games. A new National Online Gaming Authority is tasked with registering and categorising permissible games and issuing compliance standards.

5.     Who Is Affected—and How

Real‑money operators confront immediate illegality risks for offering India‑facing money games, regardless of asserted skill predominance. Payment intermediaries must operate interdiction controls for merchant onboarding, descriptors and transaction monitoring. Media, app stores and influencers face strict advertising prohibitions. Users lose lawful access to monetised play. By contrast, e‑sports publishers and social/educational studios gain a clearer, nationally backed pathway to recognition and policy support.

6.     What Is Lawful Versus Unlawful After the Act

Lawful, in broad strokes, are e‑sports and properly registered social/educational titles that avoid monetary stakes and comply with intermediary diligence: KYC aligned to RBI norms, RNG/no‑bot disclosures where applicable, grievance and compliance officers resident in India, and effective content moderation. Unlawful is the entire gamut of online money gaming: offering or facilitating the service, advertising inducements (including surrogate promotions), and processing payments. The older “skill exception” no longer preserves monetised formats once deposits, fees or stakes are in play.

7.     Consequences of Default

Contraventions invite prosecution with custodial exposure and significant fines. Expect blocking under the IT Act, seizure and search powers under the new procedural code, and layered corporate liability. Repeat violations escalate penalties; directors and officers face personal exposure where due diligence cannot be demonstrated.

8.     Constitutional Challenges: The A23 Petition

Within days of enactment, petitions challenged the Act’s constitutionality. Most prominently, Head Digital Works Pvt. Ltd., operator of A23, approached the Karnataka High Court, contesting Sections 2(1)(g), 5, 6, 7, and 9. The petition raises four core grounds:

1. Legislative Competence – Betting and gambling fall within the State List. The Centre had previously admitted before the Madras High Court and in Parliament (March 2025) that States alone could regulate skill games. The Union’s sudden assertion of power is argued to be an unconstitutional encroachment.

2. Article 19(1)(g): Games of Skill as Occupation – Following Chamarbaugwala, Lakshmanan, and Satyanarayana, games of skill are protected occupations. By banning even rummy and poker, the Act obliterates settled law.

3. Proportionality and Overbreadth – As held in Modern Dental College v. State of M.P. (2016) and Puttaswamy v. Union of India (2017), restrictions must be narrowly tailored. A blanket prohibition ignores alternatives such as licensing, KYC, advertising codes, and deposit limits. The analogy with Shreya Singhal v. Union of India (2015), which struck down vague speech restrictions, and Internet and Mobile Association of India v. RBI (2020), which annulled disproportionate restrictions on crypto transactions, is compelling.

4. Legitimate Expectation – Until recently, the Union actively promoted online skill gaming as a sunrise industry. Investments exceeding ₹23,000 crore and over two lakh jobs were created on that assurance. A sudden ban, without consultation, undermines legitimate expectations recognised in Navjyoti Co-op. Housing Society v. Union of India (1992).

These arguments are reinforced by High Court precedents—Junglee Games, Head Digital Works (Kerala), and AIGF (Karnataka)—all of which struck down similar bans. The Centre, however, justifies the Act by citing risks of addiction, offshore evasion, bots, and money laundering. The judiciary must now balance these competing visions of public interest.

9.     PMLA, UAPA, GST—and the Enforcement Web

The Act’s statement of objects ties monetised play to risks spanning fraud, tax evasion, money‑laundering and, in edge cases, terror financing. Even absence of sector‑specific reporting‑entity status under PMLA today, proceeds of crime and unlawful gains are attachable. UAPA consequences lie where financing is implicated. GST measures—including offshore supplier registration and tax‑led blocking—forged a parallel enforcement track that now dovetails with the PRoG Act’s prohibitions.

10.  How Companies Can Reposition—Immediately

For companies operating in the online gaming space, the first step is to bring India-facing real-money gaming operations to a complete halt. This means winding down products that involve deposits or winnings, stopping new user acquisition, suspending advertising campaigns, and ensuring that payment channels for such formats are blocked.

Once this is done, the focus must shift to what the law actively encourages—the “green zone.” Here, companies can build opportunities around e-sports by investing in training platforms, organising tournaments, developing broadcasting rights, and creating franchising models similar to professional sports leagues. In addition, there is considerable scope for social and educational games, particularly those that promote cultural learning or align with the fast-growing ed-tech sector. Partnerships with schools, colleges, and CSR initiatives can give these products both legitimacy and scale.

Equally important is strengthening compliance frameworks. Companies should ensure that their KYC processes align with Reserve Bank of India requirements, publish fairness certifications such as RNG (random number generator) or “no-bot” assurances, and appoint India-based grievance redressal, compliance, and nodal officers. Transparent consumer-facing policies will also be vital to demonstrate credibility to regulators and courts.

Finally, two areas deserve special attention. The first is advertising and geofencing—content must be carefully vetted, and services should be accessible only where legally permitted. The second is consumer trust, which rests heavily on safeguarding children, protecting user data, and embedding responsible-gaming design features such as playtime reminders, spending limits, and parental controls.

Taken together, these measures allow companies not just to survive under the new regime but to reposition themselves as responsible players who can thrive in a compliant, innovation-friendly market.

11.  Economic and Social Fallout

The immediate consequences of the Act have been stark. Companies like A23 suspended operations, affecting hundreds of employees directly and thousands indirectly. Industry bodies estimate losses exceeding ₹23,440 crore in investment. Start-ups nurtured over the past decade now face collapse, and global investors have begun reassessing India’s regulatory stability.

Yet, opportunities remain. The recognition of e-sports opens a legitimate pathway for growth in competitive gaming, sponsorship, and broadcasting. Social and educational games may find alignment with government initiatives in education and digital literacy.

12.  International Comparisons

Globally, India’s approach is unusually strict. The UK regulates online gambling through licensing and technical audits; Malta has built a thriving licensing hub; the United States regulates at the state level, with New Jersey pioneering internet-gaming codes; and China has opted for harm-reduction by limiting minors’ playtime. India, by contrast, has chosen prohibition for money games while promoting non-monetised formats.

13.  Advisory to Industry: A Pivot, Not an End

For years, our legal advice rested on the distinction between skill and chance. Companies could operate real-money skill games with compliance safeguards. That era has ended.

Today, the path forward lies in pivoting. Companies, under current circumstances, should exit real-money formats and instead build e-sports ecosystems with franchising, sponsorships, and broadcast rights. Social and educational games offer scope for CSR partnerships and ed-tech collaborations. Early compliance with the new Authority—through registration, KYC, RNG certifications, and advertising discipline—will position companies as leaders shaping the sector’s future.

14.  Possible Loopholes—and Why They Likely Fail

Some operators may be tempted to look for workarounds under the new law. Models that offer tokenised rewards, coupons that can later be converted into money, or subscription-only schemes that in practice mimic staking are likely to be treated as “online money games” once their substance is examined. Similarly, attempts to push content that indirectly encourages participation may still fall foul of the Act’s clear prohibition on advertising and inducement.

Efforts to route payments through offshore channels or to rely on crypto-based transactions will also face formidable barriers. The Act has built-in payment interdiction measures, tax-registration requirements, and the power to block platforms that attempt to evade oversight. The legislature has gone further by explicitly recognising manipulative design, automated play (bots), and offshore routing as policy concerns. This demonstrates a deliberate intent to look beyond the form of an arrangement and to prohibit any structure that, in effect, recreates a money game.

In practical terms, this means that cosmetic adjustments or technical facades are unlikely to survive scrutiny. The focus is not on the label given to a product but on its true substance and effect. For companies, the safer course is therefore to pivot to permissible formats rather than to risk non-compliance through schemes that courts and regulators will see through.

15.  The Road Ahead

The constitutional future of the PRoG Act will turn on two key questions. First, will the courts continue to preserve the long-standing distinction between games of skill and games of chance, which has been the foundation of Indian gaming jurisprudence for decades? Second, will the judiciary accept Parliament’s authority to legislate in an area that has traditionally been left to the States under the Constitution?

It is possible that the courts may arrive at a middle path. They may uphold the recognition of e-sports and educational games as legitimate formats while at the same time narrowing the scope of the prohibition so that it does not entirely eliminate skill-based games. Such a pragmatic outcome would strike a balance between consumer protection and economic freedom.

As Justice Oliver Wendell Holmes once observed, “The life of the law has not been logic; it has been experience.” Indian courts have experience with striking down overly broad bans in the past, and that history will inevitably guide their approach here. The ultimate test for the Act will be whether it can harmonise competing values: the need to protect vulnerable consumers, the constitutional promise of liberty and occupation, the demands of public morality, and the opportunities of economic growth.

16.  Conclusion

The PRoG Act, 2025, is both ambitious and disruptive. Its stated goal is to eliminate the risks associated with money-based gaming while simultaneously promoting e-sports and non-monetised forms of play. In doing so, the law seeks to strike a careful balance, but by discarding the judicially recognised distinction between games of skill and games of chance, it has inevitably invited constitutional challenge.

The real choice for India is not between prohibition and unregulated permissiveness, but between driving the industry underground and creating a transparent, well-supervised framework. The experience of other jurisdictions is instructive. The United Kingdom has channelled online gaming into a licensed and highly regulated environment, using the revenue to fund treatment and public health initiatives. Germany has experimented with strict caps on deposits and stakes to reduce harm while keeping the market legal. Ontario has successfully converted a grey market into a regulated and taxed ecosystem. New Jersey has demonstrated how strong supervision and taxation can build a safe and globally respected industry.

India can retain the public health orientation of the PRoG Act while also adopting these global safeguards: licensing, national self-exclusion systems, cross-operator spending caps, advertising restrictions, and robust KYC/AML frameworks. Such measures would make the system constitutional, enforceable, economically viable, and socially responsible.

For companies, this is not the end of online gaming in India—it is the end of monetised play disguised as legitimate skill-based formats. For policymakers and courts, the real task is to design a regime that protects citizens without suffocating innovation and investment. And for counsel, the responsibility is to provide clear, forward-looking guidance that aligns constitutional principles with practical business realities.

                                                                                                                

Disclaimer: The views expressed in this article are for informational and academic purposes only and do not constitute legal advice. While care has been taken to ensure accuracy, the analysis is based on publicly available sources and my professional understanding of the law as on the date of publication. Readers are encouraged to seek specific legal advice before acting on any aspect discussed here. Neither the author nor Esquire Legal LLP shall be liable for any action taken or not taken on the basis of this article.