A Step Towards Fair Play: Evaluating The Key Provisions Of India's Online Gaming Regulation
With 130 million players, India has become the fantasy sports industry's largest
market. An online game is a game accessible via the Internet and can be played
by a user through a computer/smartphone, where the user deposits money with the
expectation of winning, however, there is a very fine line of segregation
between games of skill and games of chance, the latter when played with money
constitute gambling which is prohibited under the Public Gambling Act, 1867.
In order to oversee online gaming at the federal level in India, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 ("Gaming Rules") were amended and notified on April 6, 2023. The two-pronged intention behind these rules was for the government to firstly disallow betting and gambling platforms, and secondly to create a framework to legitimately recognise players providing real money gaming online without the element of wagering.
India currently has a fragmented system for regulating gaming, with each state having its own regulations that are frequently out-of-date and inappropriate for online gaming. As a result, there are disparities in how different governments view and regulate skill-based real-money online games. Some states have even outlawed these games, despite legal precedence that suggests they are not intrinsically illegal. This lack of clarity creates uncertainty for businesses engaging in the online gaming industry, as different states have varying interpretations of what is allowed within their jurisdiction.
The Indian government has introduced Gaming Rules, intended to offer a centralised structure for regulating online skill-based real-money games, to alleviate these challenges. These rules bring the online gaming industry under the authority of MEITY. Implementing these rules is a response to the longstanding demand from the industry for clear and consistent regulations to foster a stable business environment for online gaming in India.
Chance-based games played for money or money's worth, with an expectation of winning, are expressly not allowed under Indian law.
Online Games and Online Real Money Games: Indian Government acknowledges the difference
Over the past decade, consumers in India have had access to a dramatic increase in the number of online real-money games. However, legitimate real money games have frequently suffered from state government intervention and a lack of public trust in the absence of statutory accreditation. In addition, because the industry was unregulated, Indian users were the victims of several offshore and domestic frauds and fraudulent games.
The Amendment Rules have now introduced the following concepts:
Permissible online games:
This includes permissible online real money games and all other online games which are not real money games.
Permissible online real money games:
This includes only such games which have been verified by a self-regulatory body. ("SRB")
Online Gaming Intermediaries (discussed further below) will now have to ensure that they do not host or allow any third party to host through their platforms any online real money game that has not been verified as a permissible online real money game. As a result, Indian users can now distinguish between genuine real money games and fraudulent ones. This is a huge step towards legalising online games, including those that involve real money, and it may dramatically boost both the user base of those games and investment interest in the Indian online gaming market.
SRBs to determine the permissibility of Online Real Money Game?
Online Gaming Self-Regulatory Bodies, have been tasked with the job of verifying whether an online real money game is permissible under the Gaming Rules or not.
To do so, they need to ensure, inter alia, that:
While this is a good measure, there are some factors that may become a business hindrance.
Gaming Rules will place the power in the hands of the SRB alone to verify if a game can be offered for real money via the online mode in India. Hence independent assessment by the gaming company would be disallowed causing business hindrances for the companies. Moreover, online games have multiple formats which are updated on a regular basis and if such regular updates would be considered a "new game" it would be cumbersome for the companies to get approvals every now and then.
Gaming Intermediaries
The Amendment introduces the concept of an "online gaming intermediary." The Amendment Rules in India classify online game providers as "Online Gaming Intermediaries," placing them under the purview of the Information Technology Act, 2000. This term refers to intermediaries that enable users to access one or more online games through their computer resources. The definition of "intermediary" includes various service providers such as telecom service providers, internet service providers, search engines, online marketplaces, etc.
The broad definition of "online gaming intermediary" raises concerns about the kinds of entities that might qualify, nevertheless. A literal meaning might include intermediaries who don't necessarily play a direct part in online gaming, including cloud service providers or web hosting companies.
This categorization gives the government extensive authority to compel these intermediaries to forbid users from accessing any online games if it is deemed necessary to protect national sovereignty, integrity, defence, security, friendly relations with foreign states, public order, or prevent user harm. The government may also demand that online gaming intermediaries give any information that is required to law enforcement. This significant step gives the government overall control over online gaming platforms and includes intermediaries for online gaming under the regulatory framework.
Obligations for Online Games other than Online Real Money Games?
With respect to curbing activities that could lead to user harm, the IT Rules have further bestowed power on the Indian Government under rule 4C (wherein obligations in relation to online game other than online real money game have been covered).
The Amendment grants the central government the power to direct various intermediaries, including platforms like Google Play Store, App Store, and ISPs, to fulfil certain obligations related to online games.
The grounds for invoking these provisions in relation to online games include factors that affect the sovereignty, integrity, and security of India, friendly relations with foreign states, public order, and the prevention of user harm.
The term "user harm" is broadly defined under the Gaming Rules, leaving room for interpretation and granting extensive powers to the government. A clearer definition, similar to the one proposed in the data protection legislation, could have been included.
While the intent seems to be to treat online free-to-play games similarly to permissible online real money games only in exceptional circumstances, such provisions may raise concerns for operators of free-to-play games. The government's ability to intervene and direct platforms to restrict or remove specific games, as seen in the case of the Blue Whale game, may cause worry for operators in the free-to-play gaming sector.
Centre vs States: Who will regulate?
Under the Constitution of India, each state has the power to regulate betting and gambling within its jurisdiction. This has resulted in different states having different definitions of betting and gambling. In line with this, the Governor of Tamil Nadu approved the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (TN Act). This Act introduces its own definitions of "online game," "online gambling," and "online game of chance" specific to Tamil Nadu.
The TN Act can potentially come in conflict with the Amendment Rules, as an online real money game verified as permissible under the Amendment Rules may nevertheless be deemed an "online game of chance" and prohibited under the TN Act. This is evident in the case of online poker and online rummy, which have been recognized as predominantly games of skill by Indian courts but have been specifically designated as games of chance and banned under the TN Act.
Additionally, while the Amendment Rules emphasize self-regulation, the TN Act establishes a separate regulatory regime for local online game providers, including the requirement to register with a Tamil Nadu authority. This regulatory dichotomy is likely to exist in other states as well, indicating the potential for each state to enact its own laws regarding online gambling.
Where are we on the debate of game of skill and game of chance?
The Supreme Court in the case of RMD Chamarbaugwala v Union of India, observed that in games where a substantial degree of skills is involved, the game cannot be categorized as gambling. Moreover, a 3-judge bench of the Supreme Court in Dr. KR Lakshamanan v. State of Tamil Nadu, while ruling horse racing to be a game of skill, noted that while there could be betting or wagering in a game of skill, it would not amount to gambling.
The Amendment Rules firmly confirm that the Central Government has side-stepped the debate of what is betting or gambling, i.e., what constitutes a game of skill (which is not seen as betting or gambling) and what constitutes a game of chance (which is seen as betting or gambling and is prohibited in various Indian states).
The Amendment Rules puts an obligation on SRBs to satisfy themselves during the verification process of a real money game that such game "does not involve the wagering of any outcome." Under the Indian constitutional framework, the Central Government does not have the power to regulate betting and gambling.
Such power rests with state governments, who can, under Entry 34, List II, Seventh Schedule of the Constitution of India, legislate on betting and gambling within such states. Therefore, stakeholders, as well as SRBs, will have to continue to rely on guidance from Indian case laws and asymmetric state legislations on a case-to-case basis to determine what constitutes betting, gambling or wagering and which games will be permissible in which location.
Conclusion
The regulatory step of distinguishing online games from gambling is a significant forward-looking measure that has been appreciated by the gaming industry. The implementation of a self-regulatory mechanism for online gaming is a testament to the government's trust in the industry.
There are also concerns regarding the involvement of state governments, especially in cases involving real money. Gambling and betting fall under the jurisdiction of states, and certain jurisdictions have considered other real money games as gambling. The issuance of a whitelist of certified apps by self-regulatory bodies (SROs) is expected to assist companies in advocating their case to state governments.
In conclusion, the latest developments in India's online betting laws and regulations hold promise for players. The government's active involvement, the establishment of governing bodies, improved regulation, and increased attention to protecting minors and individuals with addiction issues all bode well for the industry.
Reference
In order to oversee online gaming at the federal level in India, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 ("Gaming Rules") were amended and notified on April 6, 2023. The two-pronged intention behind these rules was for the government to firstly disallow betting and gambling platforms, and secondly to create a framework to legitimately recognise players providing real money gaming online without the element of wagering.
India currently has a fragmented system for regulating gaming, with each state having its own regulations that are frequently out-of-date and inappropriate for online gaming. As a result, there are disparities in how different governments view and regulate skill-based real-money online games. Some states have even outlawed these games, despite legal precedence that suggests they are not intrinsically illegal. This lack of clarity creates uncertainty for businesses engaging in the online gaming industry, as different states have varying interpretations of what is allowed within their jurisdiction.
The Indian government has introduced Gaming Rules, intended to offer a centralised structure for regulating online skill-based real-money games, to alleviate these challenges. These rules bring the online gaming industry under the authority of MEITY. Implementing these rules is a response to the longstanding demand from the industry for clear and consistent regulations to foster a stable business environment for online gaming in India.
Chance-based games played for money or money's worth, with an expectation of winning, are expressly not allowed under Indian law.
Online Games and Online Real Money Games: Indian Government acknowledges the difference
Over the past decade, consumers in India have had access to a dramatic increase in the number of online real-money games. However, legitimate real money games have frequently suffered from state government intervention and a lack of public trust in the absence of statutory accreditation. In addition, because the industry was unregulated, Indian users were the victims of several offshore and domestic frauds and fraudulent games.
The Amendment Rules have now introduced the following concepts:
Permissible online games:
This includes permissible online real money games and all other online games which are not real money games.
Permissible online real money games:
This includes only such games which have been verified by a self-regulatory body. ("SRB")
Online Gaming Intermediaries (discussed further below) will now have to ensure that they do not host or allow any third party to host through their platforms any online real money game that has not been verified as a permissible online real money game. As a result, Indian users can now distinguish between genuine real money games and fraudulent ones. This is a huge step towards legalising online games, including those that involve real money, and it may dramatically boost both the user base of those games and investment interest in the Indian online gaming market.
SRBs to determine the permissibility of Online Real Money Game?
Online Gaming Self-Regulatory Bodies, have been tasked with the job of verifying whether an online real money game is permissible under the Gaming Rules or not.
To do so, they need to ensure, inter alia, that:
- The online real money game does not involve wagering on any outcome; and
- Is in compliance with its due diligence obligations, and any framework
that may be developed by the SRB in pursuance of the Gaming Rules.
While this is a good measure, there are some factors that may become a business hindrance.
Gaming Rules will place the power in the hands of the SRB alone to verify if a game can be offered for real money via the online mode in India. Hence independent assessment by the gaming company would be disallowed causing business hindrances for the companies. Moreover, online games have multiple formats which are updated on a regular basis and if such regular updates would be considered a "new game" it would be cumbersome for the companies to get approvals every now and then.
Gaming Intermediaries
The Amendment introduces the concept of an "online gaming intermediary." The Amendment Rules in India classify online game providers as "Online Gaming Intermediaries," placing them under the purview of the Information Technology Act, 2000. This term refers to intermediaries that enable users to access one or more online games through their computer resources. The definition of "intermediary" includes various service providers such as telecom service providers, internet service providers, search engines, online marketplaces, etc.
The broad definition of "online gaming intermediary" raises concerns about the kinds of entities that might qualify, nevertheless. A literal meaning might include intermediaries who don't necessarily play a direct part in online gaming, including cloud service providers or web hosting companies.
This categorization gives the government extensive authority to compel these intermediaries to forbid users from accessing any online games if it is deemed necessary to protect national sovereignty, integrity, defence, security, friendly relations with foreign states, public order, or prevent user harm. The government may also demand that online gaming intermediaries give any information that is required to law enforcement. This significant step gives the government overall control over online gaming platforms and includes intermediaries for online gaming under the regulatory framework.
Obligations for Online Games other than Online Real Money Games?
With respect to curbing activities that could lead to user harm, the IT Rules have further bestowed power on the Indian Government under rule 4C (wherein obligations in relation to online game other than online real money game have been covered).
The Amendment grants the central government the power to direct various intermediaries, including platforms like Google Play Store, App Store, and ISPs, to fulfil certain obligations related to online games.
The grounds for invoking these provisions in relation to online games include factors that affect the sovereignty, integrity, and security of India, friendly relations with foreign states, public order, and the prevention of user harm.
The term "user harm" is broadly defined under the Gaming Rules, leaving room for interpretation and granting extensive powers to the government. A clearer definition, similar to the one proposed in the data protection legislation, could have been included.
While the intent seems to be to treat online free-to-play games similarly to permissible online real money games only in exceptional circumstances, such provisions may raise concerns for operators of free-to-play games. The government's ability to intervene and direct platforms to restrict or remove specific games, as seen in the case of the Blue Whale game, may cause worry for operators in the free-to-play gaming sector.
Centre vs States: Who will regulate?
Under the Constitution of India, each state has the power to regulate betting and gambling within its jurisdiction. This has resulted in different states having different definitions of betting and gambling. In line with this, the Governor of Tamil Nadu approved the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 (TN Act). This Act introduces its own definitions of "online game," "online gambling," and "online game of chance" specific to Tamil Nadu.
The TN Act can potentially come in conflict with the Amendment Rules, as an online real money game verified as permissible under the Amendment Rules may nevertheless be deemed an "online game of chance" and prohibited under the TN Act. This is evident in the case of online poker and online rummy, which have been recognized as predominantly games of skill by Indian courts but have been specifically designated as games of chance and banned under the TN Act.
Additionally, while the Amendment Rules emphasize self-regulation, the TN Act establishes a separate regulatory regime for local online game providers, including the requirement to register with a Tamil Nadu authority. This regulatory dichotomy is likely to exist in other states as well, indicating the potential for each state to enact its own laws regarding online gambling.
Where are we on the debate of game of skill and game of chance?
The Supreme Court in the case of RMD Chamarbaugwala v Union of India, observed that in games where a substantial degree of skills is involved, the game cannot be categorized as gambling. Moreover, a 3-judge bench of the Supreme Court in Dr. KR Lakshamanan v. State of Tamil Nadu, while ruling horse racing to be a game of skill, noted that while there could be betting or wagering in a game of skill, it would not amount to gambling.
The Amendment Rules firmly confirm that the Central Government has side-stepped the debate of what is betting or gambling, i.e., what constitutes a game of skill (which is not seen as betting or gambling) and what constitutes a game of chance (which is seen as betting or gambling and is prohibited in various Indian states).
The Amendment Rules puts an obligation on SRBs to satisfy themselves during the verification process of a real money game that such game "does not involve the wagering of any outcome." Under the Indian constitutional framework, the Central Government does not have the power to regulate betting and gambling.
Such power rests with state governments, who can, under Entry 34, List II, Seventh Schedule of the Constitution of India, legislate on betting and gambling within such states. Therefore, stakeholders, as well as SRBs, will have to continue to rely on guidance from Indian case laws and asymmetric state legislations on a case-to-case basis to determine what constitutes betting, gambling or wagering and which games will be permissible in which location.
Conclusion
The regulatory step of distinguishing online games from gambling is a significant forward-looking measure that has been appreciated by the gaming industry. The implementation of a self-regulatory mechanism for online gaming is a testament to the government's trust in the industry.
There are also concerns regarding the involvement of state governments, especially in cases involving real money. Gambling and betting fall under the jurisdiction of states, and certain jurisdictions have considered other real money games as gambling. The issuance of a whitelist of certified apps by self-regulatory bodies (SROs) is expected to assist companies in advocating their case to state governments.
In conclusion, the latest developments in India's online betting laws and regulations hold promise for players. The government's active involvement, the establishment of governing bodies, improved regulation, and increased attention to protecting minors and individuals with addiction issues all bode well for the industry.
Reference
- Public Gaming Act, 1867, Available at https://indiankanoon.org/doc/1824663/
- Gaming Rules, available at https://mib.gov.in/sites/default/files/IT%28Intermediary%20Guidelines%20and%20Digital%20Media%20Ethics%20Code%29%20Rules%2C%202021%20English.pdf
- MEITY Notification, available at https://pib.gov.in/PressReleasePage.aspx?PRID=1914358
- Regulating India's online gaming intermediaries- https://www.foxmandal.in/regulating-online-gaming-intermediaries-the-rules-and-their-implications/
- TN Act- https://prsindia.org/files/bills_acts/acts_states/tamil-nadu/2023/Act9of2023TamilNadu.pdf
- RMD Chamarbaugwala v Union of India- https://indiankanoon.org/doc/725224/
- Dr. KR Lakshamanan v. State of Tamil Nadu- https://indiankanoon.org/doc/1248365/
Award Winning Article Is Written By: Mr.Zaier Ahmad
Authentication No: JL47071500482-17-0723
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