By Akshay Sachthey
The Madras High Court, in 2020, observed that “… a comprehensive regulatory framework by a regulatory body is necessary to regulate online sports and curb any illegal activity …” “… the regulation of online sports Online sports would encourage investment in the sector, which could lead to technological advancements, as well as the generation of income and employment. “
One year later, these observations remain highly relevant. FICCI & EY estimate that in 2020, India had over 350 million players and witnessed 21% growth in transaction-based online games, with over 27% year-on-year growth expected in the future. Recent events have undoubtedly sparked considerable regulatory activity. But there is still some way to go to overcome the challenges of the current regulatory framework and unlock the industry’s potential.
Uniformity between states
An inherent challenge is the lack of uniformity in legal position between states, as each state has the power to make its own gambling and gambling laws. Andhra Pradesh and Telangana have completely banned real money gambling, while Tamil Nadu allows games of skill. Kerala has banned online gambling rummy.
The legal regime is ambiguous, posing a challenge for investors and a significant compliance burden for gaming operators. It is imperative to have some method for insanity and this should not be impossible to achieve. After all, the gambling laws of most states are adapted from the Public Gaming Act of 1867, a pre-independence central law.
States could be encouraged to deliberate and agree on general regulatory principles. The Central Government could propose a model law for the states to adopt; this has been effective, to some extent, for the model law for shops and establishments that was adopted by Maharashtra and Gujarat and partially by Tamil Nadu.
Clarity in legal position
The legality of online gaming is determined by the skill versus opportunity 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 game of chance according to the Gujarat and Bombay High Courts, but a game of skill according to the Karnataka High Court. Except for online fantasy sports games (OFS), most other games today face similar ambiguity.
Second, the test was developed decades ago and may need to be revised. For example, the Supreme Court ruled that rummy is a game of skill, but it can be treated as a game of chance if played for bets or if the operators of the game make a profit. Such a ranking seems odd in a digital age where the country is witnessing countless gaming startups, at least one gaming unicorn, and where netizens have easy access to trading platforms for stocks and even cryptocurrencies (another regulatory concern). online.
One possible solution is for experts to examine commonly played games and classify them as games of skill versus gambling, taking into account the real money variants. Niti Aayog has proposed that this categorization be done by a Self Regulatory Organization (SRO) for OFS games. But such a categorization would necessarily have to be recognized by law or by a court.
Then there is the need for an authority to monitor regulatory compliance. For OFS games, Niti Aayog has proposed self-regulation by an SRO. In fact, an SRO could provide an effective repair mechanism for gamers similar to the OTT framework. But an SRO cannot exercise judicial powers and classify games in skill versus chance.
Niti Aayog has also proposed a national safe harbor for OFS games of skill, citing the 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, in the absence of clear regulations, gaming operators could face the threat of criminal prosecution (as seen for OTT platforms). This is more true because several state laws specifically recognize criminal penalties for gambling. A safe harbor would not eliminate the need for clearer regulation in sync with the current scenario.
Protection and safeguards for players
Lack of protection for players and safeguards against illegal activity are other areas of concern. There have been cases where players have been exploited and some have lost their lives, prompting states to ban online games. But this is not the only answer. Limits to bets per player could be considered. Niti Aayog has proposed a minimum age for players, fairness in the terms and conditions of the game, disclaimers and responsible advertising. ASCI has also proposed self-regulation of ads for real money games. These measures are necessary across the board and not just for OFS games. Gaming operators must perform KYC checks, user authentication, etc. to prevent illegal activities and financial transactions.
A clear and structured set of regulations is the need of the moment and with that, the Indian online gaming sector looks set for an incredible growth story in the future.
The author is a senior associate at Phoenix Legal.