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  • Archit Jain & Ujjwal Agrawal

Discounting Federalism: Newly Amended I.T. Rules Require Reconsideration

Introduction

Despite majorly being detrimental to other businesses of the economy, the COVID-19 pandemic has proven to be instrumental in the growth of the already-evolving online gaming industry in the country. Against this backdrop, the latest amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code), 2021 (hereinafter referred to as “I.T. Rules, 2021”) have spurred speculations as to the rules and regulations surrounding online gaming in India. As the archaic central legislation, Public Gambling Act, 1867, was enacted prior to the advent of digital gaming or even the internet, the new amendments can prove to be very significant for providing a centralized framework to deal with the issues arising in this industry. These amendments become even more significant in lieu of the recent grant by the Tamil Nadu governor, assenting to the bill banning online gambling in the state.


This article seeks to critically evaluate these amendments in light of their impact on prohibiting online gambling in India with reference to the law already in place for dealing with this aspect and offer suggestions as to how this legislation could avoid possible inadequacies in its implementation.

 

Background of Rules and Regulations Surrounding Online Gambling in India

Owing to the absence of a centralized framework, the aspect of digital gambling in India is dealt with by several states according to the legislation passed by them. Additionally, this is due to Entry 34 of the State List's requirement that states regulate gambling, but several High Courts have made it clear that the regulatory ambit of state governments is limited to only those games which have dominating element of chance and not of skill.


The Conundrum of Skill and Chance

In recent years, with an increase in skill-based online games like chess and fantasy sports, which require considerable application of mind and formation of strategy, it has become crucial to set these games apart from games of chance that are considered gambling by the established legal standards.


The distinction becomes all the more consequential as those games falling under the ambit of skill would enjoy the sanctuary of Article 19(1)(g) of the Constitution, which provides the right to practice any profession or to carry on any occupation, trade or business to all citizens. The main distinction between the two was highlighted by the apex court in Dr. K.R. Lakshmanan vs. State of Tamil Nadu & Anr., 1996, wherein according to the court, a game of chance is mostly influenced by luck, and the outcome is typically ambiguous and questionable, but a game of skill primarily rests on the player's "superior knowledge, training, concentration, experience, and adroitness". The court even admitted that the element of chance might not be entirely eliminated but skill must play the dominant part in the game.


The Karnataka Police (Amendment) Act, 2021, which sought to outlaw "any act on risking money or otherwise on the unknown result of an event including on a game of skill," is a contemporary instance which clearly demonstrates the incongruity between National and State legislations pertaining to online games based on skill and those based on chance. The said amendment was eventually struck down by the High Court of Karnataka, and rightly so, on the grounds that a state government’s power to regulate online gaming was restricted to “games of chance”. It was opined that merely because a game of skill is played on an online platform, it does not metamorphose into that of chance, and a game of skill is protected by virtue of its recognition as a ‘business’ and that it was beyond the ambit of its authority to enforce a law that violates the fundamental rights accorded by the Constitution of India, 1950.


What do the New Rules entail? – The Saga Continues

At the outset, the I.T. Rules, 2021 had the effect of extending overbroad and stricter governmental control over social media platforms, threatening online free speech, user rights and media-independence. In a continuing saga, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023, instead of remedying this lacuna of the parent rules, will have the impact of further aggravating the inadequacies and illegalities as they seek to extend the ambit of I.T. Rules, 2021 to regulate online games.


The contours of the new rules are predominantly similar to the draft rules proposed in January this year. On the face of it, these rules seek to scheme out a comprehensive framework for online gaming in the country and cater to the dual challenges of catalyzing and augmenting innovation in the online gaming ecosystem and protecting citizens from illegal betting and wagering online. These rules tend to largely leave the industry to self-regulate through Self-Regulatory Bodies (“SRBs”) approved by the Ministry of Electronics and Information Technology (“MEITy”).


The proposed amendments, effective in 2023, also introduce new due diligence obligations under Rule 4A that online gambling intermediaries must follow in addition to the ones already in place under Rule 3.


The know-your-customer (KYC) process is also introduced by these due diligence regulations and must be fulfilled by the online gambling middleman when a user registers for an account. When a user account-based connection for an online game begins, the online gaming intermediary is also required by the proposed Regulation 4A(d) to identify the user and confirm his identification.


One of the more significant aspects of these rules is introduced in Rule 4B of the Amendments, wherein the Ministry is to register SRBs and all online gaming intermediaries are required to be registered under these SRBs.


The Central government is sparing no effort to maintain a stronghold, and Rule 4B of the new amendments is just another testament. This rule provides the MEITy, and not the State governments, with authority to consult any appropriate government or any one of its agencies before registering an SRB. It goes a step further and allows the Ministry to suspend or revoke the registration of an SRB, “as it may deem necessary” or “if it is satisfied that it is necessary so to do”. Such a peremptory power is further bolstered by Rule 6A, in lieu of which the Ministry can declare any game, irrespective of whether it requires a deposit, as an online game for the purposes of the rules in question, on the pretext of it being detrimental to the sovereignty, integrity and the security of the State.


Another important provision, which also pertains to online gambling is Contained in rule 4B (5) which talks about the criteria which these SRBs must look into for registering an online game. Clause (c) says that the concerned game must be in conformity with the laws at the time being in force including “any such law that relates to gambling or betting or the age at which an individual is competent to enter into a contract.


Critical Analysis of the New Rules

Despite there being a central law in our country for the purpose of regulating gambling, the Indian Constitution, under its Seventh Schedule, List II, makes gambling an exclusive state subject, thus, empowering the State governments to make State-specific laws pertaining to gambling and betting.


Post-independence, nearly all of the states have enacted their specific laws prohibiting gambling as well as betting. The States of Goa and Sikkim are an exception in the sense that they have legalized many forms of gambling and betting. In accordance with The Goa, Daman and Diu Public Gaming Act, 1976, any game pertaining to electronic amusement or slot machines in 5-star hotels and related table games in offshore vessels, with the prior permission of the State Government, may be authorized and notified. Similarly, the Sikkim Regulation of Gambling (Amendment) Act, 2005 authorizes the Sikkim government to use its discretionary power to permit gambling on specified days and to legalize certain gambling houses by way of a grant of license.


Although gambling is a state subject, it can only remain so in the offline medium; as soon as a game goes online and is played by people from different parts of the country, it can no longer be regulated by a single state, and that is why a central legislation is required to regulate online gambling. The new rules become problematic in the sense that they are ignorant of the federal principle of division of power.


The said rules fail to elaborate upon the role of the State governments in the regulation of online gaming in their respective states. Considering the fact that gambling is an exclusive state subject, the said rules do not provide the warranted clarity regarding the powers of the State governments to add, remove or modify any of the restrictions imposed on the online gaming intermediaries.


Further, under these rules, the State Governments do not enjoy any entitlement to appoint SRBs in their respective state. Therefore, even though a central legislation on gambling is a welcome move, in view of streamlining its regulation, these new rules confer too much power in the Central government and none in the State governments, thus, exacerbating the imbalance of power and fueling the fire of conflict between the Centre and the State govt.


However, the central regulation is also a welcome move as online gaming, if left solely to the states, would result in an inefficient system of checks and balances as states can find it very difficult to deal with the situation where two users are located in a different part of the country and it may also find difficult to use measures like geo-blocking, when dealing with websites and online games promoting illegal activities like gambling among others but at the same time looking at the large scale expansion of gaming industry, the Central Government and these SRBs may prove to be ineffective in implementing these new amendments if the support of the state governments is not there.


The SRBs also have potential flaws in the way they are supposed to function and take decisions. They are highly likely to be influenced by the Centre, and thus, there may not be transparency in their decision-making. However, if we remain with the self-regulatory paradigm, more can be done to improve consumer grievance resolution and increase the independence of SRBs.


Suggestions

The introduction of new centralized rules by the Centre is a welcome move but the mechanism of regulation itself requires more clarity, otherwise, it might prove to be counterproductive. Until now, in the absence of appropriate regulations or, more appropriately, a centralized framework, state-specific regulations surrounding online gaming in India led to a cluttered/ disarranged legal environment.   


The new amendments seem to suggest that the online game must satisfy the criteria of being a game of skill for it being able to be registered. But as already clarified earlier that there is no straight jacket formula to decide whether a game is dominated by the aspect of skill or chance, and it would depend on a case-to-case basis, so it is not clear as to how these bodies would clearly decide whether a game comes within the prohibition of gambling or not.


Although a central legislation is required to regulate online gambling, but at the same time, the Centre should proceed with caution as states’ assistance will be instrumental going forward.


Conclusion

The new Rules can put forth a strong prerogative in the hands of the Central government, which has a potential for misuse, and looking at the gigantic economic advantages of this ever-growing industry, we cannot afford to have a regulatory framework which is too preferential and does not provide space for smooth functioning. We require a system where even the states have some sort of power so that the power imbalance doesn’t shift too much against them because the result of this, as our past is evident, is never fruitful. In such a scenario, the Centre should gamble at its own risk!

 

This article has been authored by Archit Jain and Ujjwal Agrawal, second year students at the National Law University, Jodhpur (NLUJ). It is a part of RSRR's Rolling Blog Series.

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