The Online Gaming Regulation Conundrum: Who Will Regulate The Sector?

India’s online gaming industry is one of the fastest growing industries, garnering high investments and employment opportunities. Online gaming is not prohibited and games involving money are allowed in most states of the country. A KPMG report suggests that the industry would generate revenue over Rs 29,000 crore by 2025 with an user base of over 65 crore, employing more than 70,000 professionals directly and several others indirectly.

But the sector has now come under the lense of politicians and regulators alike because of the ambiguous nature of difference between games requiring skills and games dependent on luck or chance. The latter forms the foundation of the existing legislation that governs the sector. The confusion around the distinction between the two kinds of games has led to widespread confusion and flurry of litigations in the courts of the country.

Why Did The Debate Begin?

In December last year, Member of Parliament and senior BJP leader Sushil Kumar Modi introduced the topic in Parliament and drew attention to the need for a comprehensive regulation in the sector. “Online gaming is becoming a big addiction. I would like to highlight that this sector, like the crypto industry, certainly has regulatory lacunae. So, I would urge the government to bring a uniform tax on online gaming. I urge the government to make a comprehensive framework of regulation for online gaming,” Modi said in Parliament.

The unregulated nature of the sector and the confusions around definitions have left the general public exposed to gambling addiction, increasing debt, and at the mercy of fraudulent operators. PM Modi had pointed out that since these games are conducted online, there was no way of monitoring them, leaving several young people addicted to these games.

Tamil Nadu has had 17 reported cases of death by suicide in three years because of financial losses incurred due to online gambling addiction, especially to online rummy. Most of the victims are young and middle-aged men with modest incomes. Tamil Nadu government is facing immense public and political pressure due to the rise of online gambling platforms. While gambling is a state subject and is prohibited in all its forms by governments across the country, it is the lack of clarity between games of skills and games of chance that has left Central and state governments flabbergasted. In 2020, the Tamil Nadu government attempted to ban online gambling in the state by bringing in amendments to the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021. But the Madras High Court in 2021 struck down the ban as unconstitutional.

What Is Being Done To Address This?

In April this year, the Online Gaming (Regulation) Bill, 2022, was tabled in the Lok Sabha and it sought to create an online gaming commission. Centre has formed two task forces, of which one would devise the legal contours for regulating the sector and the other would promote the animation, visual effects, gaming and comics (AVGC) sector.

To address this lack of definition, Reuters reported that a government panel suggested that India needs a regulatory body that would categorise online games based on chance and skill, take a stricter view on gambling websites, and have rules enabling blocking of prohibited formats. The panel is drafting regulations for the gaming sector.

“The panel of government officials calls for creation of a new regulatory body under India's IT ministry to determine which online games qualify as games of skill, then ‘seek compliances and enforcement,’” Reuters reported.

The panel’s report has recommended that India would need a new online gaming law which would ensure regulatory flexibility. The government would have punitive provisions as well as blocking powers against prohibited formats of online games.

Not just the legislative, but the judiciary has also waded into the debate. Online gaming platforms that were banned in Tamil Nadu as well as Karnataka and Kerala, had approached the courts. Both the high court of Kerala and Karnataka have struck down the bans on similar grounds. High courts of Haryana and Punjab, Mumbai, and Rajasthan have observed that fantasy sports are skill-based game and are a legitimate business activity under Article 19(1)(g) of the Constitution of India. Supreme Court has observed that the card game rummy and some fantasy games require skills and are legal, but at least one state court classified games such as poker as chance-based, or akin to gambling.

Who Can Legislate?

As per the state laws in Arunachal Pradesh, Telangana, Andhra Pradesh, Assam, and Odisha, all forms of games involving real money are prohibited, including online games for stakes. Despite Karnataka and Tamil Nadu government’s moves to ban online games involving stakes being struck down their respective high courts, both the states have appealed against the decision in the Supreme Court claiming that they (states) have the right to ban online games, even if skill-based played for stakes, which are akin to gambling or betting when played for stakes or wager.

State governments have highlighted the financial losses incurred by a huge section of the population in online gaming platforms and also drew attention to rising cases of suicides and debts due to addiction to these games.

These states have also pointed out that online games like poker and rummy are susceptible to fraud and manipulation. They have argued whether such games are at all skill-based. The Tamil Nadu government has also formed a committee to consider recommending a fresh law after examining various aspects of the functioning of online games, their advertisements and addictiveness.