By India Legal Bureau
India’s gaming industry will finally be able to discard its “gambling den” stigma, with the government agreeing to the setting up of a self regulatory body that will oversee the online gaming sector in the country. To an extent, this has been boosted by a Supreme Court ruling that decided that rummy was mostly a game of skill and not of chance, hence it cannot be categorised as a gambling game. Apart from the Court, the government has also agreed that it is necessary to restrict all gaming activity online to games, including fantasy sport, involving skill and not chance.
What the government has proposed—and the gaming industry has welcomed—are revisions to the IT (Intermediary Rules and Digital Media Ethics Code) Rules, 2021, that apply to the online gaming industry. The revisions envision a self-regulatory body, quite like what the Press Council of India (PCI) does for mainline media. The PCI is a statutory, adjudicating organisation, formed in 1966 as the self-regulatory watchdog of the press, for the press and by the press, and it operates under the Press Council Act of 1978. Similarly, this Self-Regulatory Organisation (SRO) will have to be registered with the Ministry of Electronics & IT (MeITy).
Other than that, it has been proposed that there has to be mandatory KYC player verification for online gaming companies. Gaming companies have, for long, wanted clarity in the different rules governing esports (games of skill) and gaming (fantasy, card games and other games of chance, etc). The latter, however, remains under scrutiny by various state governments, this being a state subject.
There has been an economic angle to this. While the new rules will provide open access for these Indian gaming sites/companies, they will definitely hurt foreign betting firms that have been ruling the roost for long. MeITy has released a draft for public consultation, and the final amendment to the IT rules after industry consultation will be notified by April.
A thin red line
That leaves only a fine line separating what is legally acceptable as an online skill game and one that involves betting. While the top court has agreed to categorise rummy as a game of skill and there have been arguments on how rummy has too little to do with chance (see box on page 47), the very definition of the term “online game” may invite debate. The definition says it is “a game that is offered on the Internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings.”
For all practical purposes, our imagination can stretch this definition to wider fields. As of the ministry’s proposed definition only “games of skill” will be allowed to operate legally in India. So far, such games have been defined through various court rulings in India and include games like rummy and the Dream11 model of online fantasy sports.
However, what if an actual game of football, or a T20 cricket match is offered on the internet, and “deposits” are accepted for anticipated “winnings”? Football and cricket are definitely games of skill, yet, when deposits are accepted on different aspects of the game, with players expecting enhanced financial returns, does it stay legal? This debate will linger, and probably the SRO will have an important role to play in such cases.
There is another serious issue associated with online gaming. The KYC system is fraught with aberrations, because it has been found before that underage children have used their parents’ credit/debit cards to play online games, inflicting immense financial damage to the family. There may be an initial KYC verification process involved, but it may not be possible for the company to verify that the same person was playing every time, physical verification not remaining an option.
Checks and balances
Among other government proposals are the creation of a self-regulatory framework, mandatory KYC verification, the appointment of compliance and nodal officers, and having a physical address in India. Other recommendations include publishing measures taken to protect user deposits and informing the user about the “risks of financial loss and addiction associated with online games”.
Also, online games must display a registration mark issued by SROs, which will have to be registered with MeITy and will be required to ensure that their members are adhering to IT rules before they receive the mark, and only firms that acquire the mark will be allowed to advertise on social media, such as Google or Facebook. Social media firms are, in turn, required to check for registration and consult the SROs before accepting advertising.
When the gaming company adheres to the rules, it will get safe harbour protection, defined under Section 79 of the IT Act. This will protect intermediaries from being prosecuted for misuse of the platforms by third parties. With the adoption of the rules, online gaming intermediaries will be included, alongside existing social media intermediaries and significant social media intermediaries.
POSITIVE REACTIONS
The idea of an SRO has been welcomed by major players in the industry. Mitesh Gangar, one of the founders of PlayerzPot, a gaming site that specialises in fantasy games such as ludo, rummy, snakes and ladders and cricket, etc., has been quoted as saying that an SRO will “provide a favourable environment” for the growth of this multi-million dollar industry. He talks of setting standards and of “responsible gaming.”
Satyam Rastogi of Khiladi Adda and GamerPe promises to “adhere to responsibly.”
Rohit Agarwal of Alpha Zegus, which calls itself “the next-gen marketing agency specializing in the domains of gaming & lifestyle,” hits the nail on the head, when he says: “The rules now require stringent KYC and transparency on monetary transactions, especially winnings. This has been a grey area for a while in the online gaming ecosystem, and the IT department is now trying to regulate it.”
THE FINANCIAL ANGLE
That brings one to the basics. When these proposals go through and are adopted, this industry sector will get legal protection. Which means legal acknowledgement. That also means that financial alleys start opening up for this sector, including debt (bank loans), IPOs, etc. The entire system is gearing up to add to India’s GDP and, of course, to GST earnings for the government.
Technically, this industry sector will be the second one in betting, after horse racing. Horse racing is controlled throughout India under several legal jurisdictions of different states. Bring the parameters as described by courts to horse racing, and the “skill” factor will override all other concepts. However, horse racing factors in some pretty long “odds” at times, and this inspires speculation. The SRO will have the onerous task of controlling the temptation factor in these online games, so the court cannot come back into the picture with strictures.
Moreover, when the companies do go to the public for Initial Public Offerings, they have to present before the SEBI a realistic picture of their business model. A casino-type model may be looked down upon by SEBI. And if that happens, the banks will have to take sterner measures in disbursing loans and holding collateral.
Hence, apart from overseeing the ethical angle of the entire industry sector, the SRO will also have to keep in mind the long term financial viability of the sector as a whole.
FIFS
The move is supported by the Federation of Indian Fantasy Sports (FIFS). This is a large and growing group of companies in the field, who are pushing the boundaries of online gaming.
The following are the current members of this group:
- Dream11
- Fantasy Akhada
- Guri11
- A23
- Khelo Fantasy
- Faboom
- Sportasy
- Loft League
- Spoxid
- Vinfotech
- Twelfth Man
- Namma 11
- FSL11
- Fanstrike
- Albatross Media
- IDfy
- Kyve Sports
- Pavo11
- Synarion Solutions
- Spice Fantasy
- Choic11
- Kubera Fantasy
- Mega Games
- Famous11
- MyGround11
- Super4
- Galicrickets
- 11Players
- FreeStrike
- ThunderShots
Law and gaming
The legal society in India is coming to terms with the gaming industry’s cry for legitimacy. Rules have been framed, keeping in mind rights of individuals and existing laws, so that the gaming industry may survive.
Section 122 of the Public Gaming Act make an exception for games where an element of skill predominates the element of chance. Accepting this, “skill” games are excluded from the Public Gambling Act in India. That means each game is being tested for its ability to project skill over chance.
The Indian courts have used the so-called “dominant factor test” to determine if a game is a game of skill or a game of chance. A game of “mere skill,” according to this criterion, is one in which the element of skill is the most important component in selecting the game’s winner.
In RMD Chamarbaugwalla vs Union of India, the Supreme Court construed the words “mere skills” to include games that are based on a preponderance of skill and laid down that competition where a substantial degree of skill is involved will not come into the category of “gambling” even if an element of chance is present in it.
Following the rationale of Chamarbaugwalla case, the Supreme Court in State of A.P. vs K. Satyanarayana held that game of rummy is not entirely based on the game of chance, it involves a substantial degree of skill.
The Supreme Court based its conclusion on the fact that the game of rummy involves memorising the fall of cards and the building up of rummy requires considerable skill in holding and discarding cards.
Some states are trying to regulate online gaming by bringing an amendment to their respective State Gaming Act. For instance, Section 14 of the Kerala Gaming Act, 1960, provides that provision of the Act will not be applicable to any game where skill is involved. Section 14-A, which was added at later date, states that the government may exempt any game from the Act by notifying the public in the Gazette if it is satisfied that the element of skill outweighs the element of chance in the game.