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India is home to some of the world’s best-known sports personalities like Sachin Tendulkar, Milkha Singh, Dara Singh, Kapil Dev, Major Dhyan Chand etc. However, all these athletes belong to the games which are played on the field in an open environment with thousands of spectators supporting and cheering their favourites on the ground.
There was no concept of online gaming back then. No one could ever think of playing cricket or football sitting on the couch from the comfort of their home. But now it has become a reality. More and more users are joining this platform for fun, entertainment and as a source of reducing stress and to connect with different people.
Major devices that are used for online gaming involve PCs, Consoles, Mobile Phones, Virtual Reality (VR) Boxes etc. From being the source of entertainment to the source of Income, Online Gaming has come a long way.
With this changing and continuously evolving nature of online gaming the need for some specific legislatures to govern this segment has sparked a row. Let’s dig deep into this segment to get a better and clear view.
Evolution:
With the introduction of Internet, PCs, Consoles in the Indian Market in the decade of 2000-2010, the online games were introduced to the Indian Audience. Indian Audience was familiar with the video games but online games were a new thing.
But due to expensive PCs and Consoles they were not popular among the lower- and middle-income class section of the Indian Community during the years 2000-2005. However, in the second half of the decade, with the introduction of Social Media Platforms and the reducing prices of the PCs, online games started gaining popularity among the Indian Youth. The social media users were increasing and so does the online gamers.
In first half of the 2010-20 decade, the next big thing that added to this revolution was the launch of the smart phones and Mobile Internet. Traditional keypad phones were being replaced by the smart phones with LED screens. Technology was evolving at a rapid pace. The trajectory of the Smart phone users saw a significant jump. The features were increasing and the prices were decreasing. This strengthened the foundation of the Indian Online Gaming Industry.
The next Cherry on Cake was the introduction of the 4G Internet and the rapid reduction in the prices of the mobile internet. “Jio” a unit of Reliance Industries, changed the entire screenplay with the provision of free internet to entire Indian Population for almost 6 months. This attracted more and more mobile users towards various online gaming platforms.
During the Covid Lockdown period, people used to spend most of the time using screens. As per the report of Economic Times around 45% of Indian mobile users introduced to gaming during the pandemic. As it is said that “Every cloud has a silver lining” the same was the case with the online gaming industry. The pandemic proved to be the silver lining for them. Games like PUBG, Call of Duty gained millions of players in a very short span. Various tournaments are being organised now a days where online gamers participate Like PUBG EMEA Championship which has a mammoth price pool of USD 95,000. Indian players also participate in this event.
Statistics:
Online gaming generated a whooping revenue of USD 2.60 billion during 2022. It is projected that it will touch a revenue generation of around USD 8.6 billion by 2027 with a CAGR of 27%. Further the average revenue per user in India is USD 8.8.
With less than 5 Indian Companies producing and publishing online games in the decade of 2000-10 to more than 400 Companies at present, shows that the Indian Online Gaming Market is growing at a rapid pace. With more than 500 million online gamers that constitute around 17% of the total online gamers around the globe, still Indian Online Gaming Industry is generating even less than 1% of the total global online gaming revenue. So, the future growth prospects and the potential is quite high luring big companies to set-up their base in India.
Major Issues Associated With Online Gaming:
Online games are not only a source of revenue and entertainment but there are many serious issues associated with online gaming. Some of these issues are:
- Harassment and Cyberbullying: Online gaming is gradually becoming a medium of cyberbullying and harassment. Many users have experienced these types of problems. Verbal abuses and threats are some of the constituents of cyberbullying.
- Privacy and Data Security Concerns: Online Gaming platforms asks for multiple types of permissions at the time of installation including but not limited to the access to gallery, contacts, messages etc. Moreover, users have to create a login ID using the Gmail account which also provides direct access to the confidential and personal data of the users. This creates a significant risk of personal data leak.
- Exposure to inappropriate content: It is often seen that many online games are not suitable for a particular age group because of their violent or abusive or sexually oriented themes or for any other genuine reasons, still they are easily available on the Internet. This easy access is very concerning particularly in the case of children and teens.
- Terrorism and Illegal Activities: New age online games have introduced some features where the player can purchase some virtual accessories by making payment either in Cash or through Virtual Digital Assets. These accessories are freely transferrable which facilitates transfer of money through inappropriate channels. This may catalyse the money laundering and terrorist financing activities.
- Frauds and Cheating: Many times, it is seen with the Freemium Games (Games which are free to download and play but provide some additional features upon payment of some money) that once the user enters his payment details his bank account gets hacked or he is not provided the feature for which he has paid for.
Tussle of Jurisdiction:
Gambling, betting, wager games all are covered under Entry No. 34 of List-II of the Seventh Schedule of the Indian Constitution. This implies that in the case of gambling and betting it is the State Government that has the power and jurisdiction to make and implement laws related to gambling and betting.
After independence many State Governments adopted the then prevailing Public Gambling Act, 1867 while a few States have enacted their own laws. However, most of the states have not amended these laws to include online gaming within their ambit yet. So, in the case where users from multiple states are participating in an online game being organised from different locations, it will become very difficult to determine the jurisdiction in the event of any dispute. So, it is very important to specifically mention in the statutes the manner of determining the jurisdiction.
Legal Aspects:
New and growing industries often bring new legal challenges with them. To deal with these challenges efficiently the need for the robust and credible legal system is increasing than ever. The growth in gaming segment has increased the number of people placing bets and gambling.
The Gaming Act of 1845 and the Betting Act of 1853 continue to prevail even after the independence. No new acts specifically governing the online gaming are enacted after the Independence. Many states have modified the above acts according to the requirements and have adopted the revised version.
However, Sports (Online Gaming and Prevention of Fraud) Bill, 2018 was introduced in the Lok Sabha in December, 2018 but the same was lapsed due to dissolution of Parliament prior to general elections.
Online Games can be broadly classified into two segments: (a) Game of Skill & (b) Game of Chance. As the names suggest Game of Skill requires skill, practice, experience and talent to play these games while Game of Chance is based on the luck factor. It is more like a wager. For obvious reasons games of skill are allowed without any restrictions while games of chance are classified as gambling and are banned in most of the states.
While deciding whether a particular game is game of chance or game of skill, the Supreme Court in the case of Dr. K R Lakshmanan v. State of Tamil Nadu and Anr., held that a game of chance is where the element of chance predominates over the element of skill, whereas a game of skill is where the element of skill predominates over the element of chance.
As the judgement in the case of Geeta Rani Vs. Union of India & ors. is still awaited, the answer to the question whether betting in online games is gambling or not is pending. The judgement of this case will set the precedent for future purposes.
However, in the case of Ramachandran K Vs. The Circle Inspector of Police, it was held by the Kerala High Court that playing rummy for stakes would amount to gambling under the Kerala Gaming Act, 1960.
Through, Sikkim Online Gaming (Regulation) Act, 2008 and Sikkim Online Gaming (Regulation) Rules, 2009, the government of Sikkim made it compulsory to acquire licence for placing bets in sporting events. Thus, Sikkim become the first state to legalise sports betting within the territory of its state.
Nagaland has also passed Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 that allowed licensed virtual team selection and wagering activities on online games.
Many PILs’ have been filed before different courts for seeking complete ban on game of chance like poker, sports betting, gambling, fantasy games etc. along with the advertisement of the same but no concrete action has been taken yet.
Legal Implications on Various Types of Online Games:
- Betting: One thing that is common under all the state laws is that they prohibit betting on game of chance and not game of skills. However, there are many instances where both game of chance and game of skill are involved mostly. In these cases, it gets very difficult to identify the real nature of the game.
In the case of Dr. K R Lakshmanan v State of Tamil Nadu, it was held by the hon’ble Supreme Court that betting on the horse racing is a game of skill, thereby making it legal and exempt from any prohibitions under various statutes that ban betting on game of chance. Further, whether the betting on sports is a game of chance or skill is yet to be decided by the Supreme Court in the case of Geeta Rani v Union of India & Ors.
- Lottery: Lotteries in India are primarily governed by Lotteries (Regulation) Act, 1998 and the Lotteries (Regulation) Rules, 2010. As per these legislations, the state governments have the power to organise, conduct, manage and promote lotteries whether online or offline. Different states exercise their powers differently like in the state of Madhya Pradesh the lottery is completely ban while in Punjab there is provision for online lotteries only while in some states there is provision for physical lotteries only like West Bengal. However, Indian Penal Code (IPC) through its Section 294A specifically prohibits private lottery.
- Casino: Since Casinos are purely a game of chance, these are banned in most of the states in India. However, the Government of Goa vide powers conferred by Goa, Daman, and Diu Public Gambling Act, 1976, has made Casinos legal. This act also legalises gambling and betting in Goa, thereby allowing online betting games as well. There are a total of 15 casinos in Goa. However, to open a Casino, it is mandatory to obtain licence from the government upon payment of the prescribed fee. Further, the residents of Goa were barred from using Casinos since February 2020. Only local and international tourists are allowed to use the casinos.
- Fantasy Games: There are multiple fantasy gaming platforms operating in India like Dream11, Vision11 etc. These platforms have seen a skyrocketed growth in the past few years. Fantasy Games are considered as the game of skill and is thereby exempted from prohibitions. In the case of Varun Gumber Vs Union Territory of Chandigarh & Ors, popularly known as Dream11 case, it was held by the High Court of Punjab and Haryana that the Format of Dream11 fantasy game is a game of skill and it cannot be banned. In this case of Gurdeep Singh Sachar Vs. Union of India, the High Court of Maharashtra held that online fantasy games do not involve betting and gambling and it is a game of skill and not the game of chance. Further the court held that the GST shall be levied on the commission or any other fees charged by the platform and not on the entire sum of money deposited by the user on that platform.
- Online Poker: Different State Governments have different stands on whether online poker is a game of chance or game of skill. West Bengal has excluded poker from the definition of gambling under West Bengal Gambling and Prize Competitions Act, 1957. Nagaland vide Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 has categorised poker as a game of skill. However, in the case of Dominance Games Private Limited Vs. State of Gujarat & Ors. the High Court of Gujrat held that Poker is a game of chance and not a game of skill and thus it is a gambling activity under the Gujarat Prevention of Gambling Act, 1887.
Penalties For illegal Gambling, betting & wager:
The penalties for unlawful gambling, betting and wager games vary according to states. The Public Gambling Act 1867 (PGA) imposes a penalty of Rs. 200/- or imprisonment for a term not exceeding 3 months for owning, keeping or having charge of an illegal gaming house, and a fine of Rs. 100/- or imprisonment for a term of 1 month for being found in an illegal gaming house whether physically or virtually.
Applicability of Other Statutes:
Taxation Laws: As per the provisions of Income Tax Act, 1972, any income by way of winnings from any lottery, crossword puzzle or card game or other game exceeding Rs. 10,000/- is subject to a tax of 30%.
Further as per the GST Act, services by way of admission to the casinos or any betting or gambling services shall be chargeable to GST at the rate of 28% on the transaction value. Further, the online gaming platform shall be liable to GST at the rate of 18% on the commission or fees charged by them form the users.
Prevention of Money Laundering Act, 2002 (PMLA): PMLA was introduced with a view to curb the instances of Money Laundering. The provisions of PMLA act also applies to the entities known as reporting entities that provide platform for playing games for cash or kind. Thus, these platforms have to comply with the disclosure and other requirements of the PMLA Act. Further, if these platforms deal in virtual digital assets, then compliance with the AML & CFT Guidelines dated March 07, 2023 is also mandatory.
Digital Personal Data Protection Act, 2023: Since online gaming platforms collects private and confidential data including but not limited to the name, mobile number, email, PAN number etc. it is the responsibility of the data fiduciary to maintain the confidentiality of the personal data and to prevent data leaks.
The provisions of Digital Personal Data Protection Act, 2023 may be applied to prevent the data principal from the potential damages due to personal data leak and to fix the responsibilities and the obligations of the Data Fiduciary regarding the maintenance of confidentiality.
Information Technology Act, 2000: Although the IT Act does not directly cover online games within its ambit, but a few provisions related to cyber-crimes may apply, like unauthorized access to computer systems (Section 43), hacking (Section 66), identity theft (Section 66C), and phishing (Section 66D). Since Online Gaming Platforms are more prone to cyber-attacks, it is very important for them to implement robust cyber security measures including provision for periodical audits.
Foreign Exchange Management Act, 1999: In terms of Section 5 of the FEMA, persons resident in India are free to buy or sell foreign exchange for any current account transaction except for those transactions for which withdrawal of foreign exchange has been prohibited by Central Government, such as remittance out of lottery winnings; remittance of income from racing/riding, etc. or any other hobby; remittance for purchase of lottery tickets, banned / proscribed magazines, football pools, sweepstakes, etc.
The Bottom Line:
The online gaming industry in India is continuously booming leading to a surge in legal issues associated with it. To tackle these problems, it is very important to have a specific legislation that deals with the issues associated with online gaming. The Digital India Act, that seems to be the replacement of Information Technology Act 2000 is still not enacted by the government. Until this act or any other act is for online gaming is introduced, it is very important to take cautious steps with regard to online gaming whether you are a user or the platform provider.
For detailed guidance, please feel free to consult with Team BusinezExcellence, who can provide specific advice based on the current legal framework and your particular situation.
Happy Reading!
Team Businezexcellence
