[Authors: Aayush Laddha and Rishab Jain, students of law at National Law University, Jodhpur, India]
With the COVID-19 lockdown, the young population resorted to online gaming as a stress reliever. Changing the landscape of the industry, it resulted in an ever-increasing rate of new users in the online gaming segment. Smartphone affordability, affordable high-speed internet, and increased interest in fantasy sports further contributed to the industry’s growth. Despite people returning to normal life with relaxed COVID standards, online gaming is growing with new users and increased average playing time.
The lack of a uniform regulatory structure for online gaming business has led to criminal activity, financial loss, privacy infringement, and data theft. A rigorous regulatory structure for online games is needed, as affirmed by the Madras High Court and Gujarat High Court. The Lodha Committee also advocated regulating betting and gaming to reduce unethical betting.
Earlier in 2021, the Ministry of Electronics and Information Technology came up with Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 to regulate online gaming. On the same footing, the Online Gaming (Regulation) Bill, 2022 was introduced to regulate such business. The proposed Bill aims to develop an effective regulatory mechanism for the virtual gaming industry for reducing online fraud and misuse. Considering the Bill’s objective, it may be viewed as a step forward in regulating internet gaming. However, due to its regressive nature, the Bill’s effectiveness in achieving its goal is dubious.
B. Problems associated with the Online Gaming (Regulation) Bill, 2022
1. Fails to consider the functioning of online gaming apps
Section 4 of the Bill outlines the functions of the Online Gaming Commission. As defined under Section 2(g), online gaming website shall mean the internet domain registration or URL address of the Licensee The Commission’s jurisdiction is limited to Online Gaming Websites. With the growth of technology and the affordability of smartphones, customers and gaming companies are migrating to mobile games. The Bill fails to consider the same, leaving mobile applications used for online gaming unregulated and unsupervised.
At the outset, the Bill limits the engagement of a player in online games through online gaming websites only, as provided under Section 5(1). However, this does not fulfil the purpose of regulating the online gaming platforms for preventing fraud and misuse, as purported in the Bill, raising serious questions about its efficacy.
2. Inapporipriate classification of online games
With easily accessible internet connection, affordable smartphones, improved technology, and rising digital infrastructure, offline gaming has turned to online gaming. The Online Gaming (Regulation) Bill, 2022 is anachronistic because it fails to differentiate between casual games, fantasy games, and e-sports. Online gaming is described as “games played on any electronic device” under Section 2(e). The very definition puts casual games, fantasy games, and e-sports under the same category, thus attracting the same regulations and mandates.
In Dr. K. R. Lakshmanan v. State of Tamil Nadu, the Supreme Court of India opined that a game of skill is different from a game of luck or chance. A game of chance depends on luck or chance. Such games have speculative and dubious outcomes. No human brain can foresee the game’s outcome before the dice are thrown, the wheel stops, or the cards are dealt. On the other hand, dexterity, experience, training, focus, and knowledge are crucial in a game of skill. Thus, “in a game of chance, chance predominates over skill.
Putting games of skill and games of chance in the same basket makes it difficult to ascertain their legality and applicable regulations. Games of skill come under the aegis of Article 19(1)(a) of the Constitution of India as they are regarded as business activities. Due to multiple state and central legislations, such protection is not attributed to games of chance. Taxation is another issue with grouping online games. India’s existing tax system applies 18% GST on online skill-based gaming platforms. However, games dealing with gambling are taxed at 28%. By putting these disparate categories of the game under the same umbrella, the Bill has the effect of hampering the growth of the industry by attracting more tax.
In Junglee Games India v. State of Tamil Nadu, the Madras High Court ruled that unreasonable restrictions on games of skill violate Article 19(1)(g) of the Indian Constitution. Reiterating the position in Lakshamanan case, the Court observed that the games of skill and the games of chance are distinct in nature. Imposing similar restrictions on games of skill and games of chance would violate the Lakshamanan ruling.
The very lacuna of the Bill is that it fails to diversify regulations on the basis of various categories of games like casual games, real money games, esports, etc. Casual games do not require as stringent regulations as real money games require. Keeping all game genres in one basket discourages investment and stifles casual game growth and industry exposure.
3. Constitutional hurdles
The Online Gaming (Regulation) Bill, 2022 has some constitutional conundrums as well. According to Section 2(e), the Bill attempts to regulate online gaming, which includes online betting and gambling websites. The Bill seeks to establish the Online Gaming Commission for the same, which is to be regulated by the Central Government. However, the power to legislate on the matters pertaining to “betting and gambling” is vested in state legislatures, by virtue of Entry 34 of List II (State List). The Supreme Court of India addressed Entry 34 of List II in State of Karnataka & Anr. v. State of Meghalaya & Anr – the Court ruled that ‘betting and gaming’ includes all sorts of lotteries save for those organized by the Government of India or the States, which are carved out of Entry 34 List II by Entry 40 List I. Thus, it can be said that State Legislatures have the authority to act on all sorts of betting and gambling, except for a government-run lottery. As ‘betting and gambling’ is a state topic, regulating it through a central law that tries to establish an Online Gaming Commission may face constitutional obstacles. If permitted, the same would be in contravention of Article 246.
With various states coming out with their own rules and regulations on online gambling, it results in a conflicting profusion of legislation. In certain states, online gaming is banned while in others a license is required. For instance- in Andhra Pradesh, online games are banned. However, in Sikkim and Meghalaya online gambling is licensed. In addition, under Article 245, only the Parliament can the exclusive authority to make laws having extra-territorial operation. As a result, any state legislation cannot be enforced against online games having extra-territorial operations. Since most online games connect their participants to worldwide players, it would be judicious to say that a law made by the Parliament would be more efficacious.
In order to resolve this constitutional conundrum, the Parliament can resort to various powers vested under the Constitution of India. At the very outset, the Parliament can resort to its powers vested under Article 249, 252, 368, Entry 31 and 42 of List I. Under Article 249, the Parliament is authorized to legislate on any of the matters enumerated in the State List by passing a resolution in the Rajya Sabha, if it is necessary or expedient in the national interest. Alternately, the Parliament may use Article 252 to legislate on matters enumerated in State List if two or more states pass a resolution, thereby granting the power to the Parliament. Other states are free to adopt the legislation enacted by the Parliament under Article 252. Additionally, by taking recourse to Entry 31 of the Union List, the Parliament has legislative authority to enact a law pertaining to online games. According to the 276th Law Commission of India report, “Legal Framework: Gambling and Sports Betting Including in Cricket in India,” since online games (including online betting and gambling) are accessed and played through wireless communication, legislation pertaining to online games could be covered under this entry.
Another recourse available to the Parliament to derive legislative competence is by Entry 42 of List I (inter-state trade and commerce). In support of this argument, the Hon’ble Karnataka High Courtand the Hon’ble Madras High Court discerned that the State legislature has legislative competence to enact a law pertaining to games of skill by virtue of Entry 26 of List II (trade and commerce). Online games connect players and operators across states, hence they may be considered ‘interstate trade and commerce’.
4. Limited scope for cancellation of license
In an attempt to regulate the virtual gaming industry and to provide safeguards to the participants, Section 5(2) of the Bill mandates a license for operating an Online Gaming Server or Website. The powers with regards to grant, suspension, and revocation of license have been vested in the Online Gaming Commission. However, the scope of powers pertaining to cancellation and suspension of license vested in the Commission is very limited. The Commission can suspend or cancel a license under the following two conditions:
- when there has been a breach of any of the conditions subject to which the license was granted;
- when the licensee has contravened any of the provisions of this Act or Rules made thereunder.
The Commission’s powers are deficient given the illegal and ingenious ways fraudsters exploit participants. If an illegal activity neither violates the license’s terms nor the Online Gaming (Regulation) Bill, 2022, the Commission cannot revoke or suspend the license. For instance, Rule 3(1)(b)(ii) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 prohibits the advertisement of gambling and betting commercials in India. If an Online Gaming Website broadcasts a gambling advertisement, the Commission cannot revoke or suspend the license while it being against the IT Rules, 2021. In such cases, the powers of the Commission are deficient to achieve the object of the Bill.
5. Fails to include an effective mechanism for data protection, customer grievance and geographic restrictions
The Bill ignores some critical concerns confronting the online gaming industry, such as data privacy, content and visual restrictions, and customer redressal mechanisms. These are some issues that are specific to the online gaming industry and could not be addressed by some other legislation. Albeit the Bill addresses some serious concerns such as underage gambling, it fails to “prevent fraud and misuse” of data as intended by the legislature.
With different states coming out with their own set of regulations, the online gaming industry encounters regulatory turmoil. In such a complex situation, a Bill seeking to regulate and organize different regulations is a welcome step. The regulations put forth in the Bill will not only help in curbing illegal activities but also help in providing safeguards to the participants. Moreover, the Online Gaming Commission may come up with additional safeguards according to the different scenarios that may come up. However, with the changing landscape of the virtual gaming industry, the intent and purpose envisaged in the Bill do not seem to be achieved due to the aforementioned loopholes.
In implementing more effective and robust legislation, the Central Government and the State Governments should work with various stakeholders to develop a concise regulatory framework. Such a framework will help in curbing illegal apps operating in India and will enable legitimate gaming operators and participants to operate with appropriate safeguards.
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PREFERRED CITATION: Aayush Laddha & Rishabh Jain, Online Gaming (Regulation) Bill, 2022 – A progressive step with a regressive framework, SLPRR <https://sportslawandpolicyreviewreporter.com/?p=2716(opens in a new tab)> April 10, 2023.
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