Are India’s online gaming infrastructure and regulations adequate

Updated: June 12, 2021 10:16 AM

An inherent challenge is lack of uniformity in the legal position across states, since each state has the power to make its own betting and gambling laws

Gaming laws of most states are adapted from the Public Gambling Act, 1867, a pre-independence central law.Gaming laws of most states are adapted from the Public Gambling Act, 1867, a pre-independence central law.

By Akshay Sachthey

The Madras High Court, in 2020, observed that “…a comprehensive regulatory framework by a regulatory body is necessary to regulate the online sports and to curb any illegal activities…” “…regulation of online sports would encourage investment in the sector, which could lead to technological advancements as well as generation of revenue and employment.”

One year later, these observations continue to be extremely relevant. FICCI & EY estimate that in 2020, India had over 350 million gamers and witnessed growth of 21% in transaction-based online gaming, with over 27% YOY growth expected ahead. Recent developments have no doubt prompted considerable regulatory activity. But there is some way to go to overcome the challenges of the current regulatory framework and unlock the industry’s potential.

Uniformity across states

An inherent challenge is lack of uniformity in the legal position across states, since each state has the power to make its own betting and gambling laws. Andhra Pradesh and Telangana have banned real money games altogether while Tamil Nadu permits skill games. Kerala has banned online rummy played for stakes.

The legal regime is ambiguous which poses a challenge for investors and significant compliance burden for game operators. It is imperative to have some method to the madness and this should not be impossible to achieve. After all, gaming laws of most states are adapted from the Public Gambling Act, 1867, a pre-independence central law.

States could be encouraged to deliberate and agree upon broad regulatory principles. The Central Government could propose a model law for states to adopt – this has proved effective, to some extent, for the model shops and establishments law which was adopted by Maharashtra and Gujarat and partially by Tamil Nadu.

Clarity in the legal position

Legality of online games is determined by the skill vs. chance test developed by the Supreme Court. First, the test is not objective and different courts have applied it differently. A classic example is Poker which is a chance game as per Gujarat and Bombay High Courts but a skill game as per Karnataka High Court. Barring online fantasy sports (OFS) games, most other modern day games face similar ambiguity.

Second, the test was developed decades ago and may need revisiting. For instance, the Supreme Court indicated that rummy is a skill game, but may be treated as a chance game if played for stakes or if game operators make profits. Such a classification seems odd in a digital era where the country is witnessing umpteen gaming startups, at least one gaming unicorn, and where netizens have easy access to stock and even cryptocurrency (another regulatory concern) trading platforms online.

A possible solution is for commonly played games to be examined by experts and categorised as skill vs chance games, taking into account real-money variants. Niti Aayog has proposed that this categorisation be done by a self-regulatory organisation (SRO) for OFS games. But such a categorisation would necessarily have to be recognised under law or by a court.

Regulatory authority

Next is the need for an authority to monitor regulatory compliance. For OFS games, Niti Aayog has proposed self-regulation by an SRO. An SRO could indeed provide an effective redressal mechanism for gamers similar to the OTT framework. But an SRO cannot exercise judicial powers and categorise games into skill vs chance.

Niti Aayog has also proposed a national safe-harbour for OFS skill games, citing success of a similar mechanism in the US and Canada. But it remains to be seen whether this mechanism would be effective in India where, absent clear regulations, game operators could potentially face the threat of criminal proceedings (like one has seen for OTT platforms). This is more so because several state laws specifically recognise criminal penalties for gambling. A safe-harbour would not do away with the need for clearer regulation in sync with the current scenario.

Gamer protection and safeguards

Lack of protections for gamers and safeguards against illegal activity are other areas of concern. There have been instances of gamers being exploited and some having lost their lives, causing states to ban online games. But this is not the only answer. Caps on stakes per player could be considered. Niti Aayog has proposed a minimum age for gamers, fairness in game T&Cs, disclaimers and responsible advertising. ASCI has also proposed self-regulation of real money game ads. These measures are needed across the board and not just for OFS games. Game operators should carry out KYC checks, user authentication etc. to prevent illegal activities and financial dealings.

A clear and structured set of regulations is the need of the hour and with that, India’s online gaming sector looks set for an incredible growth story going ahead.

The author is a Principal Associate at Phoenix Legal.

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