The last 12 months have been an inflection point for the online gaming industry with the nation-wide lockdown and COVID-19-related restrictions helping the sector grow at an unprecedented pace. Many startups in the space saw their valuations double or treble in a few months, with a whopping $438 million worth of investments being seen in this space in the last 10 months.
While the online gaming space is seeing a phase of hyper growth in light of changing behavioral norms in the post-COVID world, the last few months have also seen increased legal and regulatory scrutiny for the business models of various companies in the real-money skill games space.
PILs and legislative action by states
Due to complaints of addiction, suicides and other societal problems caused by rampant and unchecked online gaming and gambling, at least two Southern Indian states, Tamil Nadu and Andhra Pradesh moved swiftly to pass ordinances in 2020 (while Telangana had passed a similar legislation in 2017), banning online games for stakes or money (which were later converted into Acts passed by the legislature).
The Karnataka and Kerala state governments have also told their respective High Courts in response to petitions that they would be introducing appropriate changes in their legislations to monitor and control online gaming and gambling.
At last count, at least 10 different Public Interest Litigations (PILs) were filed in various High Courts across the country in the past 12 months, from Indore (Madhya Pradesh High Court) to Madurai (Madras High Court) and Delhi to Gujarat.
The common demand in most of these PILs was that the state and central governments either ban or regulate online gambling and online games like rummy, which are played for stakes, as the common man has the propensity to lose massive sums of money and fall prey to addiction and depression if the activity is allowed to go on unchecked.
The courts in most cases have suggested or recommended that state governments bring in legislation to either strictly regulate or ban online games or gaming, while being cautious not to tread into legislative or policy domain themselves.
Operators in a tizzy
Most people who understand or have studied the online gaming space, agree that there needs to be some sought of oversight and regulation, as allowing the activity to go unchecked could lead to societal problems. The question however remains whether state-level, disjointed and contradictory regulations are what is needed or whether the central government needs to step in.
With some states like Tamil Nadu, Andhra Pradesh and Telangana banning online games for stakes or wagers and Nagaland, Sikkim and Meghalaya choosing to regulate the activity with checks and balances, it has become increasingly difficult for companies to comply with rapidly changing regulatory regimes at the state-level.
Further, state governments lack the expertise as well as power to effectively track, monitor and take punitive action against erring online gaming operators, partly due to lack of jurisdiction, as many companies may not even have a presence in that particular state and partly because powers to block or ban websites state-wise is almost impossible.
The Central role
Until recently, the central government has consistently maintained both on the floor of Parliament as well as in courts that the issue falls squarely within the domain of respective state governments. There however seems to be some change in this long-held stance of the central government in recent months, with at least two Chief Ministers (Andhra Pradesh and Puducherry), several parliamentarians and other stakeholders urging the central government to step in with regulations.
Recently, the Ministry of Information and Broadcasting issued an advisory asking television channels to show a warning on the financial and addiction risks associated with online gaming as per guidelines for real money gaming advertisements framed by the Advertising Standards Council of India (ASCI).
Further, central government think-tank NITI Aayog also issued a draft paper suggesting uniform national-level guidelines for fantasy sports, including recognition of a single self-regulatory body for such games.
The NITI Aayog’s draft document and I&B Ministry’s guidelines to television channels are good first steps towards regulating the sector, however, a more holistic framework is required to bring clarity, consistency and certainty for the sector, while ending potential loopholes and grey areas.
Whilst gambling, betting, sports, entertainment and amusements fall squarely within the legislative domain of states, regulation of the internet and inter-state trade and commerce are responsibilities of the Union government.
It can certainly be argued that the central government is competent to bring in a framework defining online games and gambling while leaving implementation of the proposed regulatory framework at the hands of individual state governments.
Alternatively, Centre can also step in if two or more states so request it to. State legislatures can use their powers under Article 252 of the Constitution to ask Parliament to frame laws even on matters pertaining to the state list. Such a law framed by the Parliament can be adopted by other states at their option.
Indeed, such an approach was used by the Parliament to frame a law to regulate and license crossword and other word-based prize contests by passing the Prize Competition Act, 1955, notwithstanding the fact that ordinarily competitions for entertainment, recreation etc. fall within the domain of states.
The Act was passed at the request of state legislatures of Andhra Pradesh, Bombay, Madras, Orissa, Uttar Pradesh, Hyderabad, Madhya Bharat, Patiala and East Punjab States Union and Saurashtra. Many other states subsequently framed similar legislations to regulate prize competitions.
There is no reason why a similar approach cannot be taken to co-opt states in the spirit of cooperative federalism to adopt a model legislation for online games and gaming to ensure uniformity in implementation, better monitoring and certainty for existing businesses and investors.
In response to one or two PILs, the central government has averred that it does not have ‘judicial wisdom’ to determine the legality of various formats of games and whether such games amount to being ‘games of skill’ and hence outside the ambit of gambling or if they amount to being ‘games of chance’.
Since litigation is pending at various levels in High Courts either challenging state legislations broadly banning all games for stakes or PILs seeking ban on certain formats of games calling them ‘chance-based’ games, an option could be that the central government first asks the Supreme Court to give a conclusive determination on what games fall within the category of games of skill, whether such games can be played for stakes and profit, guiding principles for such determination as well as whether states or central government have the legislative competence to frame laws for online gaming.
This can either be done expeditiously if the Attorney-General in exercise of his power under Article 139A of the Constitution requests the Supreme Court to transfer these more than half a dozen cases in various High Courts raising the same substantial questions of law to itself; or alternatively the central government through the President of India requests the Supreme Court to give its advisory opinion on these issues under Article 143.
In both events, an authoritative view expressed by the Supreme Court on the above questions will also conclusively settle all issues of which government should regulate the activity, the contours and manner of online games that should be permitted as skill-based games and guiding principles for regulation.
One hopes that whichever route the central government adopts, this issue is settled authoritatively and conclusively to ensure fair play and certainty for all stakeholders.
(The writer is a lawyer and advises the online gaming industry on legal, regulatory and policy issues. Views expressed are personal).