Online Gaming: Regulate, Don’t Ban, Experts Say

Three southern states — Tamil Nadu, Andhra Pradesh and Karnataka — have sounded the death knell for online gaming. The first two have promulgated an ordinance banning all kinds of online games, including prize competitions, which involve any kind of purchase. And Karnataka’s home minister has indicated that his state, too, is considering a ban on online games involving money.

While states have cited adverse social impact as the reason for the ban, companies are asking for a uniform regulatory framework. Recently, the Madras High Court underscored the need for comprehensive regulations for online/virtual games.

The absence of a clear regulatory framework has lead to an industry struggling to discern its legal mandate, resulting in chaotically different interpretations and implementation practices, Rishi Anand, partner at DSK Legal, told BloombergQuint.

Fallout Of Regulatory Inconsistency

The power to regulate gaming or gambling opportunities in the country is with the states but there is a central law that serves as a model. The Public Gambling Act, 1867 excludes games of skill from its purview, and has been adopted in entirety by states or with modifications.

For instance, Sikkim has a licensing regime and has permitted gaming parlors within state limits which are connected to each other through the intranet. It has also provided a list of games which could be offered by these parlors. Nagaland, too, offers online gaming licenses for skill games such as chess, sudoku, quizzes, bridge, poker, rummy, spades, auction, solitaire, virtual golf and virtual racing games, etc.

But Tamil Nadu and Andhra Pradesh have decided to extend a blanket ban on games involving money. According to Tamil Nadu’s ordinance, people who are found gaming will be punished with a fine amount of Rs 5,000 and six months imprisonment. Anyone running a common gaming house will attract a fine of Rs 10,000 and two years imprisonment.

While the Tamil Nadu ordinance is still being studied to understand the implications and seek appropriate recourse, it will nonetheless have an impact on the overall business and the gaming ecosystem, Roland Landers, chief executive officer of All India Gaming Federation, said.

Gambling has been a social reality for centuries and a complete prohibition may actually not help those who suffer from its ill effects, said Nikhil Narendran, partner at Trilegal.

When you ban something, it means that the healthier and controlled ways to access a facility are closed which makes those who are suffering even more vulnerable to get access to risky ventures which may exacerbate the problem. The answer, therefore, lies in regulation and not a ban.

Nikhil Narendran, Partner, Trilegal

According to Pranav Bagai, CEO and co-founder of Poker Sports League, the bans can also hurt the perception of games which are otherwise only games of skill and do not fall under betting.

When studied in-depth, the line between gambling and sports betting is well-defined. But with the recent decision of the state governments, the definition will be diluted on a superficial level and leave a high fraction of the Indian population confused.

Pranav Bagai, CEO and Co-Founder - Poker Sports League

In turn, this will also further spread negative sentiment around skill-based games like poker, Bagai said.

Game Of Skill Or Chance: No Clarity

The woes of online gaming industry have been compounded by this eternal question—whether a particular game involves skill or is it a matter of chance.

For instance, the fantasy game Dream-11 has faced court challenges on whether it is an example of betting or a game involving skill. Courts have taken the view that it is the latter as participants have to apply their skill to create a team. It cannot be said that the game is substantially based on the happening or non-happening of an event based on chance, the Supreme Court has upheld high court rulings to this effect.

The evaluation of whether a game involves skill or chance has been done on a case to case basis and there is no clear pattern that emerges on how courts have achieved this distinction. It is a very tricky question, Narendran said.

For example, rummy can be a game of skill for an experienced player whereas for an amateur just learning, it is a game of chance. The approach taken by courts is that we will take it as a case to case approach.

Nikhil Narendran, Partner, Trilegal

So, Where Does That Leave The Industry?

The online gaming industry in India has seen a 14-fold increase over the last decade and is expected to touch over $180 billion by 2022, as per a FICCI-EY report.

If the industry wishes to flourish, the answer lies in self-regulation since the existing statutes offer little clarity and governments are increasingly viewing online gaming as a social evil, experts said.

This approach has been favoured by several leading operators, particularly in the online fantasy sports space, according to Arun Prabhu, a partner at Cyril Amarchand Mangaldas.

Self-regulatory organisations prescribe detailed charters and codes of conduct and courts have in fact examined and found such safeguards to be satisfactory. Some operators provide counselling against addiction and carry out KYC, while others place limits on spending. These align with some recommendations of The Law Commission of India.

Arun Prabhu, Partner, Cyril Amarchand Mangaldas

Experts BloombergQuint spoke with unanimously agreed that a complete ban is not the answer. The present spate of bans, they said, have the potential of taking the industry underground and defeating the aim of these ordinances.

Niti Aayog has also recommended self-regulation. In a discussion paper released earlier this month, the central government think tank has reiterated the “vast potential of the Indian gaming industry”, especially online fantasy sports platforms. The paper states, upon consultation with stakeholders, that there was unanimous support for a single self-regulatory organisation for the fantasy sports industry. It has also offered draft guiding principles for the industry.