[This piece has been authored by Astutya Prakhar, a student at the National University of Study and Research in Law, Ranchi and Prachi, a student at the ICFAI Law University, Dehradun]
Introduction
The advent of technology and availability of faster internet facilities has led to exponential growth in the newfound interest in online gaming, especially in India, which has such a vast youth population. As per KPMG’s media and entertainment report, there are more than 365 million online gaming users in India – approximately 46 percent of the total 604 million internet subscribers. The number is expected to surge in the upcoming year, and the market value of the online gaming industry (“Industry“) is expected to touch $2.8 billion by 2022. As the craze of online gaming continues to grow, companies have significantly improved the gaming experience they offer – a wide range of games, where a player competes with many unknown global faces.
Despite the advancement of the industry, there is no uniform legal framework to oversee this complex sector in India. The existing legislation, such as Public Gambling Act, 1867 (the “Act“) and relevant state laws, were formulated primarily to regulate offline gaming, and these often fall short in regulating online gaming. As gaming law varies across states, and the absence of a uniform mechanism creates a sense of uncertainty, the development of and innovation in the industry may be at stake. To begin with, there is a reduced chance of attracting foreign investments in this sector that can negatively impact revenue generation and employment opportunities. Therefore, there is an exigency to implement comprehensive legislation to regulate online games.
Analysing the Legislative Lacuna – A Major Concern
There has been a public debate regarding the legality of online games involving monetary stake as it is often confused with gambling. Hence, it is pertinent to understand the difference between online skill games involving stakes and gambling, and that both these terms cannot be used interchangeably. The term gambling becomes relevant when a game of chance is played for stakes. In a game of chance, outcomes are rather unpredictable, and success depends more upon the factor of luck, as opposed to skill. However, when the outcome of a game is predominantly based on skill, it is considered a game of skill. This distinction was highlighted by the Supreme Court in State of Andhra Pradesh v. K. Satyanarayana, where the Court recognized the legality of a game of skill. Resultantly, even when played for stakes, skill-based games are exempt from the ambit of gambling. This was reiterated in R.M.D. Chamarbaugwala v. Union of India, where the Court affirmed that a game where success depends on the players’ skill rather than chance, would not be considered gambling. The Court further emphasized that such a game involving substantial skill constitutes a legitimate business activity and is protected under Article 19(1)(g) of the Indian Constitution.
In India, the online gaming industry is governed mainly by the Act and State laws. Under Entry 34 of List II to its Seventh Schedule, the Constitution provides states the power to regulate gambling within their territory. The states are free to decide which online games will fall under the category of gambling and which games may be immune to the law. Therefore, many states such as Andhra Pradesh, and Telangana, have passed ordinances imposing a blanket ban on online games without excluding skill games involving stakes. On the other hand, many states rely on the broad provisions of the Act, which is mainly limited to offline gaming since it was enacted before online games existed. Furthermore, the archaic Act does not remove the ambiguity between the game of skill and chance. It does not specify what constitutes games of mere skill for the effective regulation of present-day online gaming. There are only three states – Nagaland, Sikkim, and Meghalaya – with specific legislation for online games. These have explicitly outlined the criteria to determine games of skill, permit skill-based games involving stakes, and authorize the operators to offer gaming services within the state after obtaining a license.
The above discussion elucidates the existing irregularity between state laws, which often puts game providers in a dilemma. A game may be legal in one state and illegal in another, which is a problem considering that the internet is a medium that traverses state boundaries without restrictions, and specific games can hardly be regulated effectively in this patchwork of state laws. Therefore, in the absence of a uniform regulatory mechanism, the Industry suffers from an excessively complicated framework that adversely impacts its growth and ease of doing business.
The Roadmap to Revamp the Intricate Legal Framework
The Industry offers a plethora of opportunities while also contributing to economic growth in the form of a large consumer base and sustained demand for new games. However, like any other sector, the industry also requires robust legislation to bloom. The need for the regulation of the Industry arises from the fact that pre-existing legislation has proven inadequate to cope with issues related to online gaming. In D Siluvai Venance v. State, the Court also emphasized the need for a comprehensive regulatory framework to regulate online skill games rather than simply prohibiting these. Similarly, the 276th Report of the Law Commission of India also suggested regulating gambling and recognizing the exception granted to online skill games involving stakes. The report highlighted that the Constitution under Entry 31 of List I of the Seventh Schedule allows the Parliament to enact a uniform law to regulate gambling activities. Therefore, the Parliament can consider implementing a regulatory framework that classifies explicitly and separates online games involving skills played for stakes from gambling. They can prohibit a game that comes under the purview of gambling and explicitly allows online skill games involving stakes. A central law can resolve the unequal regulation of online games after taking into account factors affecting all States and other stakeholders. A seamless regulation under a licensed-based regime for companies offering their gaming services can also be introduced. Several countries have adopted a similar regime and only companies with a valid license are permitted to provide their services.
Furthermore, Member of Parliament, Dr. Shashi Tharoor, also proposed a private member bill, the Sports (Online Gaming and Prevention of Fraud) Bill, 2018 (“Bill“) for the establishment of the Online Sports Gaming Commission, which can regulate online gaming and prevent illegal activities. However, the Bill lapsed as the Parliament was dissolved before the general election. Many countries actively promote online gaming activities and have adopted a similar model as suggested by Shashi Tharoor to protect the interests of investors and consumers. In the U.K., the Gambling Commission was set up to supervise the online gaming laws and regulate the services offered by the companies. The Commission also issues licenses to the operators and ensures fairness in the market. In France, the Regulatory Authority for Online Games regulates online gaming activities and provides licenses to companies to offer their services in the nation. The explicit legislation in these countries makes them an attractive market for Industries. Therefore, on an equal footing, the government can introduce a competent regulatory body as even suggested in the Bill. This body can regulate gaming activities and ensures that all online games offered by the companies should remain skill dominant. Even the transaction of stakes should be cashless and linked with PAN or Aadhaar card as it can increase transparency, and any transaction resembling gambling should be strictly penalized. It would eliminate the vast number of illegal activities and maintain common standards in the Industry.
Recently, in a draft report titled ‘Guiding Principles for the Uniform National-Level Regulation of Online Fantasy Sports Platforms in India’, the Niti Aayog suggested establishing a single self-regulatory organization for the online fantasy sports industry in India. The Niti Aayog also proposed that the organization should be governed by an Independent oversight board recognized by the Indian government. In fantasy sports, like Dream11, participants create a virtual team of real players and compete with other users in a real-world live sporting event. It also involves stakes, and depending on the performance of their team, the participants earn money. Therefore, there is a significant overlap between online skill games played for stakes and fantasy sports as both involve real money and require skills. Even the Court judgment that fantasy sports come under the ambit of skill in the Varun Gumber case derived from the landmark judgment of other skill games. Thus, by working on similar lines, there is a need to implement a separate regulatory regime for the online skill games, as many games such as rummy, poker, casino, etc., involving stakes, stand in the grey area in many states.
In light of the above discussion, similar administrative policies could be chalked out. On the one hand, this will encourage investment and generate revenue. However, on the other hand, it will ensure that investors, players, and companies are protected under the regulatory framework, enabling the industry to reach its potential. Consequently, it will help various companies develop a better gaming experience for their customers as it can reduce the compliance cost for the developers.
Conclusion
The present laws lack the uniform regulatory framework for ensuring a uniform stance on the legality of online games involving stakes. The gaming companies are continuously looking for ways to scale up their services and ensure user engagement. However, irregular state laws act as a roadblock for companies. With changing times, the law cannot remain immutable, and there is a need to revisit the regulation of online games. The adequate mechanism can ease the entrance of the newcomers, create incentives and promote competition for the companies to comply with the ordinances. Furthermore, the existing laws can also be tailored to resolve the current uncertainties in the Industry. Moreover, the central government may also introduce a single self-regulatory framework for Industry, covering all the companies in the Indian market. It can provide a substantial ability to the Industry to adopt the growing technological innovations and a proper redressal forum for any grievances that arise to a player.
In a nutshell, the present situation calls for a robust regulatory mechanism that caters to modern-day gaming and protects the interests of all stakeholders. Implementing these regulatory approaches can help the government to generate employment opportunities in this sector and earn profit from regulating tax income by the companies providing their services. Also, it will be beneficial for the companies to improve the services they are offering to their customers. Overall, it’s a win-win situation for everyone. Therefore, all these factors highlight the emerging need to rethink the existing laws as the Industry can grow expeditiously in the future.