Insights of Online Gaming (Regulation) Bill, 2022

The recently adopted gaming Bill, which was submitted in the Lok Sabha on April 1, 2022, properly states that India has about 420 million active online gamers with a $1 billion value, with the sector expected to expand to $5 billion by 2025. Given the gaming company’s exponential expansion and the lack of a regulatory structure to oversee it, the whole business has been struck with uncertainty. It is at the mercy of operating parlance. The proposed measure wants to establish a strong regulatory framework to regulate the operation of online gaming websites and combat illicit online gaming.

Key Abstract

On April 1, 2022, the Online Gaming (Regulation) Bill, 2022 (Bill) was introduced in the Lok Sabha to establish an efficient framework for regulating the online gaming business in order to avoid fraud and misuse. Recognizing the consequences of online gaming’s addictive qualities and highlighting the gaming business’s tremendous impact on the nation, the Bill proposes the establishment of a regulatory body to govern the online gaming sector.

The objective of the Online Gaming (Regulation) Bill, 2022

To develop an effective framework for regulating the online gaming business, preventing fraud and abuse, and dealing with problems related to or incidental to it. Any online game played on electronic devices such as cell phones, personal computers, tablets, laptops, and so on is referred to as online gaming.

Current Scenario and Regime

Most real money game operators are now supervised by charters given by the All India Gambling Federation (“AIGF”) and the Federation of Indian Fantasy Sports (“FIFS”), two self-regulating entities formed to oversee online gaming in India. Although these charters help to streamline the operation and control of online gambling platforms, the lack of enabling national law is felt keenly.

In India, the state has the authority to regulate ‘betting and gaming’ under Entry 34, List II of the Indian Constitution. Gambling, as a game of chance, is prohibited or tightly controlled in the majority of Indian states. When it comes to online money-based gaming, the judiciary has endeavored to distinguish between a game of skill and a game of chance over the years, with online games of chance being understood as gambling. However, a such distinction must be made on a case-by-case basis, which is time-consuming. Furthermore, each state has its own law that governs the internet gaming sector.

As a result, the same gaming operator has been needed to comply with different rules across the country, which has created a substantial barrier for parties in the online gambling business.

As a result, even while the gambling business is expanding and generates considerable money across populations and income levels, it remains fraught with controversy and lacks regulatory certainty. As a result, a single core law is essential.

Online Gaming (Regulation) Bill, 2022

The Bill intends to establish an Online Gaming Commission (“the Commission”) and provide a licensing framework where offering and running gaming enterprises in India would be subject to acquiring an appropriate license from the Commission. The Bill makes it a punishable and bailable offense to offer and operate gaming businesses without a license. Anyone found guilty of playing on an unlicensed website will face penalties under the Bill.

The Commission will have the authority to supervise the operation of online gaming websites and to take measures to prevent illegal online gaming. The Commission will also develop rules and regulations governing license conditions, permits, authorization for players eligible to use gaming websites, requirements for providing gaming services, conditions for providing credit facilities to players, fines or penalties, and any other matter that it deems appropriate.

Highlights of the Online Gaming (Regulation) Bill, 2022

According to the Bill, “Online Gaming” encompasses any game played on electronic devices such as personal computers, mobile phones, tablets, and other devices. Because the language does not distinguish between a “game of skill” and a “game of chance,” it is clear that the Bill intends to regulate all types of games played on such electronic devices.

The Bill includes establishing a regulating agency, the Online Gaming Commission (“OGC”), comprised of five members chosen by the Central Government, each having at least one specialist in the fields of law, cyber technology, and law enforcement expertise.

The OGC will be able to oversee the functions of online gaming websites, make periodic or special reports on Online Gaming issues, suggest appropriate measures to control and curb illegal Online Gaming, grant, suspend, and revoke licenses for online gaming websites, and determine the fee for license applications and renewals of such websites.

The Bill intends to make online gaming illegal without a website and a non-transferable and non-assignable license. Anyone who operates an online gaming server or an online gaming website without a license faces up to three years in jail and a fine. The permit will be valid for a period of six years.

The license intended to be given under the Bill may be terminated or canceled if the licensee breaches any of the license’s requirements or violates any of the Bill’s provisions. However, the Bill does not apply to anyone who provides backend services in India, including hosting and maintenance for any international gaming website situated outside of India.

Salient features of the Online Gaming (Regulation) Bill, 2022

The following are the salient feature of the Online Gaming (Regulation) Bill, 2022:

• Establish an Online Gaming Commission (OGC) comprised of expertise in cyber-technology, law, and legal enforcement. This commission will have the authority to govern all areas of online gambling, from developing gaming laws and regulations to giving and canceling licenses, among other things.
• Imprisonment measures will be implemented for violations of the license’s terms.
• The OGC has broad rule-making authority.
• Allowing for FDI (including, but not limited to, technology partnership) in the sphere of online gaming.
• To overrule any and all laws that are in conflict with the proposed Bill (once it becomes an Act).
• To submit the Central Government specific reports on Online Gaming issues on a regular basis.

The proposed Bill is a step in the right way since it tries to create consistent legislation for a sector that now has a plethora of rules, many of which are conflicting. Nonetheless, the law leaves a lot out; for example, there is no differentiation between skill-based and chance-based gaming, and increased bureaucracy in the lack of crystal-clear systems for license applications, data protection, and grievance mechanisms, to name a few.

Furthermore, it does not clarify how it will affect current laws and regulations on the subject; the vagueness in the bill simply generates confusion between state and federal laws, further complicating the regulatory framework.

Potential advantages of the Online Gaming (Regulation) Bill, 2022

The Bill is a welcome step toward regulating the online gaming sector; however, the legal framework envisaged by the Bill does not address some of the key areas of concern in the online gaming ecosystem, such as a strict regulatory framework for the conduct of online gaming platforms, which is critical at this juncture.

Given the continued expansion of India’s online gaming business, it may be viewed as a chance for lawmakers to engage in in-depth debates on the Bill during parliamentary sessions and analyze the uncertainties relative to suitable legislation in this sector. The Bill may be revised further to incorporate strong safeguards to protect the interests of both online gamers and stakeholders.

Potential drawback of Online Gaming (Regulation) Bill, 2022

While the Bill intends to provide several checks and balances to govern online gambling in India, it has several flaws in its current form:

• The Bill fails to distinguish between “games of skill” and “games of chance.” The Bill also does not specify whether its rules apply solely to real money games or even to free games.
• This Bill intends to be federal law overseeing gaming in India; nevertheless, it will be susceptible to judicial examination in the future because gaming and gambling are both state matters under the Indian Constitution and can be handled solely by state governments.
• The Bill fails to resolve its conflict with the current licensing structure under Meghalaya, Nagaland, and Sikkim’s state gaming legislation.
• The Bill does not address a number of issues, including Know Your Customer (KYC) standards, customer grievance processes, advertising and marketing rules, user data protection, responsible gaming guidelines, and so on.

The Bill is identical to the Sports (Online Gaming and Prevention of Fraud) Bill, 2018 (“Sports Bill”), which was tabled in the Lok Sabha on December 28, 2018, but has since lapsed. The Bill, like the Sports Bill, aims to implement legislation pertaining to the establishment of a regulatory commission, the licensing of online gaming servers/websites, foreign direct investment, and technical collaboration in online gaming.

However, the Bill does not include measures addressing a number of critical problems, such as user data privacy, regional limits and exclusions, and a consumer grievance process.

Tax may be Imposed on Gaming Business in near Future on Gaming Sector

The proposed bill aims to regulate all forms of online gaming, whether they are skill-based or chance-based, and whether they are money-based or not. While the Central Government has no restrictions on enacting rules and regulations governing internet gaming, gambling remains entirely under the purview of the states.

In addition to this Bill, the Government is considering a 28% GST tax rate for online gaming. The present regime levies an 18% GST on online gaming.

Takeaway

While the intention of regulating this business at the national level is admirable, this Bill attempts to achieve this goal by using an age-old Indian legislative mechanism – the license. A principles-based approach, supported by voluntary disclosures and very significant punitive penalties imposed by a quasi-judicial authority, has shown to be a lot more efficient modern legislative instrument (our experience with the competition commission is an excellent example!). Perhaps reconsidering this really ill-conceived Bill is in order?
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