Gaming has evolved over the years. From an era of video games, arcade machines, and bowling alleys, real time online strategy games, multi-player online games, and battle royale games have now gained mainstream popularity. Access to affordable technologies, advent of social media platforms, and ease of digital payments have led to exponential growth of online gamingindustry worldwide.
With over two-thirds of its population being under 35 years of age, India has long been an enticing market for online gamingindustry. However, the regulatory uncertainty has resulted in constant judicial intervention and scrutiny of the business models adopted by companies engaged in online gaming and the same has been a roadblock for the development of the industry.
In this context, in order to streamline the regulatory framework on online gaming, the Ministry of Electronics and Information Technology (“MeitY”) notified amendments to Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Online Gaming Rules”) on April 6, 2023.
This article intends to provide the reader a run-through of the existing gaming regulations in India and the expected change inthe regulatory climate with the introduction of the Online Gaming Rules.
The Existing Landscape
Pursuant to the enactment of the Constitution, while the archaic Public Gambling Act, 1867 (“Gambling Act”) continued to apply to certain parts of India, the Legislatures of the States were entrusted with the power to make laws on matters relating to‘betting and gambling’. As a consequence, the States either adopted the Gambling Act in its entirety or enacted their own gambling legislations modelled on the Gambling Act.
The objective of the such laws, at the time of their enactment, was simple – to prevent wagering and provide a safe harbour to such gaming activities which involved skill, game-knowledge, attention, and judgement (popularly referred to in the industry as ‘games of skill’). To summarise, as on date, there is no specific central legislation regulating online gaming per se. While there exist certain State specific regulations on online gaming, there is a lack of a uniform consensus or guidance on what constitutes a ‘permissible online game’ across such States (While the States of Nagaland, Sikkim, and Telangana have proactively enacted legislations that apply specifically to online gaming, States like Delhi, Gujarat, and UttarPradesh have adopted regulations limited to prohibition of gambling only.)
From Gambling Act to Online Gaming Rules
Though the Government has proactively issued various advisories from time to time, cautioning online gamers of the perils ofgaming addiction and associated disorders, the first notable movement showcasing the Government’s inclination towards regulating the sector came with the constitution of group of ministers by the Ministry of Finance (“MOF”) in early 2021. In this context, the MOF was tasked with the responsibility to evaluate the goods and services tax leviable on services provided by online gaming portals.
At this juncture, while the industry was keenly awaiting clarity on the applicable GST, the Ministry of Electronics and Information Technology (“MeitY”) was appointed as the nodal ministry to oversee online gaming vide amendment to the Government of India (Allocation of Business Rules), 1961 (https://www.meity.gov.in/meity-business-rules), ultimately resolving the long-standing overlap of multipleministries having jurisdiction over the subject matter including the Ministry of Broadcasting, MeitY and Ministry of YouthAffairs and Sports. Within months of its appointment, the MeitY came up with the draft version of the Online Gaming Rules,which set the ball rolling for further deliberation on the future of online gaming in India. The introduction of definitions pertaining to ‘winnings’ and ‘deposits’, and identification and verification requirements; establishment of self-regulatory organisations (“Gaming SROs”); and additional due diligence requirements for online gaming intermediaries were fresh concepts (if not completely alien) for the Indian gaming industry to assimilate.
Fairplay, Transparency, and Accountability
With the notification of the final draft of the Online Gaming Rules, the regulatory framework which till now hinged on the lack of clear distinction between what constitutes as ‘game of skill’ or ‘game of chance’, has completely been overhauled. But the overhaul in the industry as contemplated under the Online Gaming Rules may not be as overwhelming as the industry currently fears. This is primarily since the due-diligence requirements additionally introduced for all online gaming intermediaries aresubstantially focused on increasing transparency and accountability of online gaming intermediaries and do not intend toburden the operations of such entities. Such due-diligence requirements are broadly on the same lines as those applicable tointermediaries (like social media platforms, messaging platforms, digital news publishers, online content curators, etc.) acrossthe digital ecosystem.
Having said the above, an interesting takeaway in this regard is the applicability of the Online Gaming Rules on all intermediaries which offer/ facilitate online gaming. Essentially, in contrast to the definition of ‘social media intermediary’ which is an intermediary that primarily or solely enables online interaction between two or more users, the definition of ‘online gaming intermediary’ seems to be broad enough to cover any and all intermediaries which offer/ facilitate online games.Essentially, it appears that the intent of the Government is to regulate even such intermediaries which may merely incidentally enable their users to access online games. Resultantly, numerous entities which primarily enable their users to access certain services, but also separately provide online games (like spin the wheel, raffles/ lotteries, quizzes, etc.) as an ancillary feature on their platforms, for instance, Amazon or Cred, may be required to adhere to the compliances set forth under the Online Gaming Rules.
Another reasonably fair concern of the industry revolves around the new verification requirements, know-your customercompliances, and prohibition on financing of the users by online gaming intermediaries for online real money games. Giventhat the fate of intermediaries facilitating online real money games depends on, inter alia, the determination by the relevantGaming SRO that the concerned online real money game does not involve wagering on any outcome, it is natural for the industryto have certain apprehensions. Even the Indian courts have grappled with creation of a clear and unambiguous distinction between “games of chance” and “games of skill” and to date, the criteria of determination remains purely a question of fact, and depends on the manner in which a game is played (If, on a consideration of all facts, the dominant element of a particular game is chance, then the game will be considered a ‘game of chance’. If, however, the dominantelement of a particular game is skill, then the game will be considered a ‘game of skill’.) Since the determination by the Gaming SROs will be made in accordance with the provisions of the Online Gaming Rules and the reasons for declaration of any specific online real money game as being impermissible will be required to be informed in writing, it is likely that Gaming SROs will take reference from the existing legal precedents on the subject matter. In this context, the Indian courts broadly set down the following principles and criteria for determining whether an online game can be identified as a ‘game of skill’:
(a) competitions where success depends upon the substantial degree of skill are not gambling.
(b) despite there being an element of chance, if a game is preponderantly a game of skill it would nevertheless be a game of “mere skill”.
(c) mere inclusion of an element of chance within an online game is not enough to declare such game as betting.
Overall, while a promising step has been taken towards recognizing and regulating online gaming in India, however, a deeper intervention may be required considering the law is still in its nascent stage and its practical implementation is yet to beexamined from an industry-lens. Further, given that gambling (whether offline or online) continues to remain a subject matter of State, the interplay of State specific legislations with the Online Gaming Rules (a central law) is bound to take some time.