Gaming and technology lawyer Jay Sayta has concerns about India’s proposed online gaming rules, an unconventional take amidst the generally optimistic initial industry responses to them. Sayta’s main concerns—the rules are overbroad, contradictory, and outsource regulatory functions to private organisations. Or, as he puts it:
“While the need to regulate online gaming websites and apps is almost universally acknowledged and the purpose for which the process of framing an online gaming policy is initiated is well-intentioned, the draft rules are a farrago of confusing and contradictory provisions coupled with lack of backing of a plenary legislation.”
Why it matters: Paying attention to the weaknesses of these rules is important because India’s gaming and gambling laws are already a mess. For starters, they’re often based on dusty colonial laws ill-equipped to regulate the Internet. Gambling is also regulated by states in India, with governments differently defining and banning games of chance, or gambling games, based on their own legislative prerogatives. Indian gaming companies have to operate within this regulatory maze without concrete definitions of what constitutes gaming and gambling. While governments and companies navigate the murky sector, Indians play online with little legal protection from the sector’s harms. So, the real question here is: do the rules adequately address all these concerns?
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What Sayta recommends: Governing the sector through a separate draft law, or under the impending Digital India Act. The Indian government can also “implead itself as a party in pending matters before the Hon’ble Supreme Court on legislative competence of states to pass laws on online games for stakes,” he adds.
Read Sayta’s full statement on the rules below.
On 2nd January, 2023, the Ministry of Electronics and Information Technology released draft amendments to the Information Technology (Intermediary and Digital Media Ethics Code) Rules (“Draft Rules”) in relation to regulation of ‘online gaming intermediary’ for public consultation.
While the need to regulate online gaming websites and apps is almost universally acknowledged and the purpose for which the process of framing an online gaming policy is initiated is well-intentioned, the draft rules are a farrago of confusing and contradictory provisions coupled with lack of backing of a plenary legislation.
The following are the major points of concern regarding the draft rules:
1. The draft rules travel beyond the scope of the parent legislation
It is judicially and legally well accepted that delegated legislation, i.e., rules framed by the executive cannot supplant or add provisions to the parent statute framed by the legislature from which it draws power.
Delegated legislation cannot travel beyond the purview of the parent Act and cannot bring into existence substantive rights, obligations or disabilities not contemplated within the scope of the legislation.
In this case, the Draft Rules derives its authority from the power granted by Section 79 of the Information Technology Act, 2000 which exempts intermediaries from liability in certain cases and ‘if the role of the intermediary is limited to providing access to a communication system or does not initiate the transmission, select the receiver of the transmission or select or modify the information contained in the transmission’.
The term ‘online gaming’ has not been defined in the Information Technology Act and neither have online gaming platforms been classified as intermediaries. In fact, the provisions applicable to intermediaries may not be applicable to online gaming apps and websites as they are actively responsible for publishing and providing access to online games to users and play an active role in facilitating online games on their platforms.
Therefore, it is difficult to construe online gaming websites and apps as intermediaries and secondly, regulation of online gaming platforms is not contemplated within the scope of the Information Technology Act, 2000.
The draft rules are therefore susceptible to being declared ultra vires by courts. It may be noted that several petitions challenging the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 are already pending before various courts and the Hon’ble Supreme Court is also hearing a transfer petition consolidating all such matters before it.
In fact, Bombay, Madras, and Kerala High Courts have passed Interim Orders staying the application of these rules and barring the government from taking any coercive action against digital media organisations and OTT platforms for non-compliance.
Therefore, backhand regulation of online gaming platforms via an amendment to existing rules (part of which have already been stayed by courts) instead of a separate legislation is inappropriate and may be liable to be struck down by courts.
2. Centre may lack legislative competence to enact draft rules
The issue of whether online gaming can be regulated by the centre or states has not been resolved and is pending before the Hon’ble Supreme Court in appeals filed by the Tamil Nadu and Karnataka governments. The orders of the High Courts have not clarified whether the central government can pass legislation on the subject and even while striking down state legislations on grounds of arbitrariness, disproportionality and violation of the right to trade and commerce, kept the option open for states to enact their legislations covering the fields of online gaming, gambling and betting.
The central government has also in affidavits before High Courts and in written replies in parliament until now consistently claimed that the power to legislate on the subject rests solely with states. Therefore, the introduction of the draft rules without consultation and consensus amongst states is not appropriate.
3. Draft rules have contradictory provisions and do not distinguish between games of skill and chance
The draft rules at Clause 2(1)(qa) define ‘online game’ as ‘a game that is offered on the Internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings’. The said definition of ‘online game’ does not distinguish between skill-based and chance-based games played for stakes.
The problem is compounded by the fact that Clause 3(2)(ix) is proposed to be added in the draft rules which prohibits intermediaries, including online gaming intermediaries from hosting, displaying or sharing information ‘that is not in conformity with any law for the time being in force in India including any law relating to gambling or betting…’
In the absence of a definition of gambling and betting within the rules and clarity on which category of games are sought to be regulated if the online game for consideration is sought to be regulated on one hand and gambling or betting content is prohibited on the other hand.
Therefore, clarity on the definition of ‘online game’ and whether it specifically covers only skill-based games as well as providing a definition of gambling and betting in the draft rules is imperative.
4. Draft rules do not have penal provisions
Except for providing safe harbour to online gaming intermediaries under Section 79 that are self-regulated under Section 79 of the Information Technology Act, and a limited protection against blocking access to such websites under Section 69A of the IT Act, there are no penal provisions prescribed for non-compliance of rules relating to KYC, age-gating and other player protection measures prescribed in the draft rules.
In the absence of provisions imposing a penalty on erring online gaming platforms, the draft rules do not serve much purpose and cannot be effectively implemented.
5. Draft rules outsource regulatory functions of the state to private organisations
The draft rules abdicate the government’s responsibility to monitor and control online gaming platforms and instead task self-regulatory organisations to register online games, undertake testing and verification of such games as well as ensure their compliance with various laws.
Most self-regulatory organisations are funded and backed by one or two major online gaming companies and therefore there are serious questions on their credibility, independence and autonomy. Further, the government abdicating its responsibility to regulate and monitor an important sector such as online gaming that has various socio-economic implications is not appropriate.
It is therefore suggested that the central government appoint an independent regulatory body on the lines of SEBI and IRDAI to monitor and oversee the online gaming sector instead of outsourcing the responsibility to private bodies.
Given the serious concerns stated above, it is requested that the central government reconsider its decision to issue the draft rules and instead:
- Enact either a separate draft legislation to govern online gaming that may be introduced in Parliament after due consultation with all stakeholders including state governments or incorporate provisions for regulation of online gaming within the draft Digital India Act;
- Implead itself as a party in pending matters before the Hon’ble Supreme Court on legislative competence of states to pass laws on online games for stakes.
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