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Regulating online gambling- a cat and mouse game

The online gaming industry in India is a flourishing one. Some decades ago, gaming was limited to being played on expensive consoles with barely-there internet. If not consoles, it at least needed a desktop computer. Not many households had the means of procuring any of these devices, leaving gamers to access their favourite games in internet cafes, and that too, only in top tier cities. And then came the internet and smart technology boom. Affordable, high quality smartphones, and high speed internet has now suffused through the Indian population, trickling down to towns and villages. According to the Ministry of Information and Broadcasting Secretary Apurva Chandra, India now has 600 million smart phone users. The Annual Status of Education Report (ASER) survey found that the availability of smartphones in rural India was 36.5% in 2018, which increased to 67.6 % in 2021. Many of these devices were ostensibly procured for online classes during the covid pandemic, but no doubt, double up as gaming devices. The FICCI-EY report stating that the number of gamers rose to 390 million in 2021 from 278 million three years before bears testament to the fact that the online gaming trajectory in India is only set to soar in the coming years.

Accompanying the rise of the ‘internet gaming’ phenomenon is another worrying trend - the rise of the ‘gaming disorder’. Online games, just like drugs, trigger the release of dopamine, a feel-good chemical which reinforces the behaviour, leaving users vulnerable to overuse. (The term ‘gaming disorder’ is a diagnostic category recognised by the American Psychiatric Association, and  classified by two of the most prominent diagnostic systems for mental disorders - the DSM-5 and ICD-11). The risks of internet gaming are even more pronounced and dangerous when money becomes involved. There are several online games with a scope for earning money - puzzles, quizzes, fantasy sports and of course, those games we typically understand as ‘gambling’ games - poker, roulette, Blackjack, Bingo etc. ‘Gambling’ refers to an event in which an individual risks money or something else of value to earn more money. ‘Disordered gambling’ is already a well recognised psychological condition, and can be applied to pathological gambling where the mode of access can either be in physical outlets or over the internet. Internet gambling particularly magnifies the risks of gambling because it allows for larger wagers, gives rapid feedback and easy, fast access to hundreds of gambling options. The larger sums of money, and the potentially massive profits also attract criminal activities that operate around the periphery of the game or are even central to it. 

CAG, in its customer grievance role, has been approached by families broken up and traumatised by the descent of beloved family members into the addictive world of internet gambling. The recent spate of suicides following debt accrued due to gambling led the government of Tamilnadu to regulate companies and products that fit the description for internet gambling. Herein lies the need to understand the difference between games of skill and games of chance. While gambling merely refers to a high stakes activity, gambling games can be either games of skill or games of chance. Games of skill are those where the gamer brings a set of cognitive skills to the process - these are skills that can be honed and improved with practice, Games of chance on the other hand are based completely on ‘luck’ or to be more mathematically accurate, probability. When it comes to regulating online gambling, games that fit the description of games of skill have historically escaped.  In contrast, casino games including table games, slot machines, a live dealer etc (whether physical or virtual) usually count as games of chance and come under the ambit of legislation, if any. If a game predominantly requires an element of skill, even if only marginally more than chance, it is considered a game of skill. Hence, in State of Andhra Pradesh v. K Satyanarayanan & Ors, the Supreme Court ruled that games like rummy are skill based, and not chance based. Even if played for stakes, they are still legal and since they do not constitute gambling, they fall out of the ambit of the control of the state governments. Neither the Public Gambling Act, 1867 nor Entry 34 of List II of the Constitution of India can prohibit these games. The division between skill and chance is by no means simple or based on universally accepted principles. Poker, for example, is expressly ruled by the states of Nagaland and Meghalaya as a game of skills, while the High Court of Gujarat has opined that it is a game of chance. 

The Tamil Nadu government attempted to address this issue by introducing and implementing amendments in the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021, which completely banned games of skills as well as chance. The Madras High Court, however, through its order dated 3rd August, 2021, struck down this amendment to the Act, saying that the state government did not provide any reason as to why a moderate restriction would not be sufficient, adding that the government did not supply appropriate and sufficient data to substantiate the need for a complete ban on games of skill. The state government has taken up this issue with the Supreme Court of India, contesting the order, and as of the moment the matter is sub-judice. Meanwhile, the state government has promulgated an Ordinance to ban online gambling within Tamil Nadu, which is awaiting the assent of the governor.  The Ordinance classifies games of skill under games of chance, and does not define proper distinctions, which is contrary to judgements by the Supreme Court. Hence, the Ordinance is currently being contested by gaming clubs in the state.

The state of Kerala had also proposed a similar bill to ban online rummy, which was challenged by various gaming companies in Kerala before the High Court of Kerala. The High Court quashed the government’s decision, as did the High Court of Madras. The High Courts overturning the state governments’ decisions on similar grounds and on a very ad hoc basis has created a regulatory lacuna in the sphere of online gaming. The resulting lack of protection can harm users who are now at the mercy of  illegal sites, or even legal sites that cause actual damage to users. 

The most recent in this cat and mouse game is draft regulations issued by the Ministry of Electronics and Information Technology (MEITY), the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.  At the outset, the regulations seem to offer a little bit more clarity on the type of games which will come under its ambit - any online game where the player makes a deposit in the hopes of any form of winnings. The winnings must be in the form of real money. All online gaming intermediaries (which are search engines like Google, social media platforms like Facebook) will have to register with a self-regulatory body which will be registered with the IT ministry. The self regulatory will comprise five members from diverse fields, including online gaming, public policy, IT, medicine and psychology. There can be more than one self-regulatory body (SRB). 

How the SRB will adjudicate the merits of each game, and ensure there is uniformity in the functioning of all SRBs is an unaddressed question within the draft rules. Ironically, the biggest issue remains that there is still no clarity as to which are games of skill and which are games of chance. And leaving this all important classification to the self-regulatory body could easily thwart any efforts to regulate the industry. Industry led SRBs could make judgements based on profits and not by considerations of ethical and moral values.

To ensure that offshore gaming entities are also regulated, the proposed rules provide that a compliance officer be appointed who will be an Indian resident and is responsible for ensuring compliance. Additionally, it also prescribes for appointment of a nodal contact person, ensuring there is a physical contact address of the company in India.

While the regulations are certainly a good move, it strays into what is essentially a state’s territory. States like Tamilnadu have for long called for regulations far stricter than what the draft regulations allow. About whether the states rights are now impinged upon, the Minister of State, MEITY, Rajeev Chandrasekhar says that “everything internet comes under MEITY and all intermediaries on the internet are regulated by the IT Act. The states can do whatever they want to do vis-a-vis gambling and betting”. Considering that so far the industry has managed to fight off any efforts to regulate using regulatory arbitrage, this overlap of responsibilities will only allow the industry forces to continue operating even more forcefully in this manner. The Union Government needs to give clear guidelines as to whether state governments are still empowered to ban online gambling as it is to ban offline gambling. This is important, not only for reasons of maintaining state sovereignty, but also to allow for laws that are more responsive to the needs of the local population.

Apart from regulations, the All India Gaming Federation (AIGF) is India’s largest industry body of online gaming, and its members supposedly adhere to the Self-regulatory Charter, along with being audited by the All India Skill Gaming Council, which comprises  former Supreme Court judges, senior bureaucrats, data scientists and educators.  However, the members of AIGF only constitute around 10-15% of the gaming industry in India. 

As per a report by Ikigai law, most online gaming companies are fine with statutory regulations being put in place. However, they want predictability and regulatory certainty along with it, which has not been provided so far, since the legal position of online gaming remains unsettled. While the new draft regulations offer some amount of clarity, much more clarity is needed to make these enforceable.

While the draft regulations are clear that they apply to only a certain subset of online games (ie gambling games), it does not mean that other online games are low risk and can be allowed to operate without regulations. Any form of online gaming leaves users vulnerable to addiction. This is a well documented experience of several gamers - and one which families struggle to cope with. This has resulted in several countries around the world trying to regulate online games also. For example, in 2019, Beijing enacted laws that gamers under 18 cannot play online between the hours of 10 pm to 8 am. Additionally gamers are only allowed to play for 90 minutes on weekdays with a three hour limit on weekends and holidays. There is also a spending limit of 200 yuan a month. Following the regulations, China’s gaming giant Tencet has restricted people playing on its portals, based on the user’s age. While China perhaps has the most restrictive of laws, other countries have also responded to the needs of their communities by imposing needed regulations. For example, the Netherlands has an incredibly lengthy and expensive process which a gaming company needs to follow before it is approved by the Dutch Film and Television Rating Board, the country’s gaming regulatory board; Venezuela has outright banned all shooting games that involve human targets; Brazil also has a similar policy.

India has certainly woken up to the fact that its ecosystem is ripe for an online gaming explosion; and to the harm that it can cause individuals personally and the society at large. The recent draft regulations are a welcome start in the right direction. But to truly put in place safeguards that will protect vulnerable users, regulations need to be based on robust scientific evidence. If the aim is to protect users from the risks of addiction, then online gaming needs to be brought within the ambit of these laws. Equally important is the need to protect states’ rights to tighten the laws based on the needs of local groups.

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