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AIGF Presents Game On: India (May '23)

All India Gaming Federation (AIGF)

AIGF is the apex industry body for online gaming in India

发布日期: 2023年5月2日

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Hi there!

April 2023 saw the online gaming industry level up in its quest for regulatory recognition and certainty. But Tamil Nadu muddied the waters with its own law regulating the sector.

In this edition, we feature the central government’s plan for supporting the growth of legitimate online gaming companies, while weeding out bad actors. We share our deep dive into MeitY’s rules of online gaming and Tamil Nadu’s new online gaming law and give you a quick round-up of other developments in the online gaming industry.

We also feature an interview with Mr. Rakesh Maheshwari, a stalwart in the cyber laws division at MeitY with over 30 years of experience. We asked Mr. Maheshwari, who played a pivotal role in framing MeitY’s online gaming regulation, about how it all happened, and what he believed was the online gaming industry’s role in the process.

As always, we love hearing from our readers. Do share your views on the newsletter or give us ideas on what more you’d like to see/hear on online gaming in India, at [email protected]

Game on!

Roland

Policy Updates

Government says “Game on India!”: The Ministry of Electronics and Information Technology (MeitY) notified the amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (Rules) on 6 April 2023. The Rules define ‘online games’ and ‘online real money games’ and disallow wagering on any outcome in online games. They also create obligations for ‘online gaming intermediaries’ and guide the establishment and functioning of self-regulatory bodies (SRBs) for the sector. SRBs have been tasked with verifying the permissibility of online real money games in India. The Rules bring certainty to the sunrise sector will boost its growth and attract investments. Here are some of the key bright spots from the Rules:

Recognition of the industry and spurring innovation: The Rules are the first piece of federal legislation that specifically recognises the online gaming industry and provides it legal legitimacy. They treat all games of skill equally, without any special carve-out for a particular game, and adopt light touch regulation that will allow for continuous innovation of games and growth of the sector.
Centre-state skirmishes and unlocking previously closed states: The Rules also give hope that previously restrictive states will reconsider their statutes and ease regulations, opening for business much quicker than anticipated.
Opening distribution channels for games of skill: The verification and legal recognition of online games will, hopefully, influence mobile application stores to ease their onboarding policies. This would allow online gaming apps to be available in app stores and open wider distribution channels for them. The Rules could also encourage access to new marketing channels and removal of restrictions on digital advertising tools.
Potential for settling the GST issue: The Rules may also have persuasive value in cases against the GST department, as it counters the department’s view that there is no distinction between online gaming and online gambling. The Rules reinforce the federal position of other government ministries like MeitY, Ministry of Information and Broadcasting (MIB), and the Ministry of Commerce that demarcate between online gambling and online gaming.
Reduced litigation: The uncertainty prior to the Rules resulted in significant litigation for gaming companies. The Rules now provide certainty to businesses that are likely to reduce the need for litigation and lower legal costs.
Combatting offshore gambling to encourage legitimate providers: Gambling and non-compliant gaming platforms will be further curbed through the clear distinction between online gaming and online betting/wagering/ gambling. In the medium term, the squeeze on offshore gambling players may attract more business for Indian skill gaming operators.

Ad-talk: In tandem with MeitY’s Rules, the MIB issued a fresh advisory on advertisements (Ads) and surrogate ads of online betting platforms on 6 April 2023 (Advisory). Think of surrogate Ads like alcohol companies advertising clothing lines with their logo and branding. The Advisory identifies instances of companies engaging in surrogate advertising and reiterates MIB’s stance that direct or indirect ads or promotion of online betting and gambling games violate Indian laws. The Advisory will help weed out offshore illegal, anti-national betting and gambling websites that pose as legitimate online gaming platforms.

Fund flows for gaming: MeitY may reportedly issue a separate order to fintech and payments companies, to block access to their payment gateways, in online real money games that are not verified by SRBs under the Rules. The move is reportedly aimed at cracking down on offshore illegal, anti-national online betting and gambling companies.

Tamil Nadu flips the game: The Governor of Tamil Nadu finally assented to the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 on 7 April 2023 (TN Law).

The TN Law applies to gaming companies whose central management and control of the game is within the state or whose services for online games are hosted in the state (local online games providers).
The TN Law prohibits online gambling, which includes online games of chance. Concerningly, the TN Law defines “online game of chance” broadly to include: (i) games involving cards or dice that work on random outcomes or event generators; (ii) games where the chance elements dominate the skill elements to determine the outcome of the game; and (iii) games where only ‘superlative’ skills can eliminate the element of chance.
On the recommendation of the Tamil Nadu Online Gaming Authority (TNGA), a body established under the TN Law, the state government can notify any online games that will be prohibited. From the commencement of the TN Law, the state government has banned rummy and poker, both judicially recognised games of skill. AIGF has already filed a challenge against the law’s constitutionality, as we believe that the law disregards over six decades of settled legal jurisprudence and is based on incorrect technical understanding.
On 21 April the state government notified the TNGA to regulate online games and local online game providers in Tamil Nadu.?The local online games providers are now required to apply for a certificate of registration from the TNGA and deposit a fee of INR 1 lakh by 20 May 2023 to offer an online game in the state.

Chhattisgarh’s move to regulate online gambling: Chhattisgarh notified the Chhattisgarh Gambling (Prohibition) Act, 2022 (Chhattisgarh Law) on 23 March 2023. The Chhattisgarh Law tackles the proliferation of online betting and gambling apps in the state while carving out an exception for games of skill. The Chhattisgarh Law defines ‘Gambling’ as wagering and betting offline or online for financial gain. It penalises, with fines and/or imprisonment, those involved in gambling or aiding others to gamble as well as the advertisement of gambling activities and providing wallets/bank accounts for online gambling and betting. Since 2017 this is the first instance of a state amending its gambling laws and not bringing games of skill under its scope.

Tax Talk: Following developments in the Finance Bill 2023 and amendments to the IT Rules 2021 to legitimize online gaming, the Group of Ministers (GoM) set up by the GST Council may reportedly change its earlier recommendation of levying 28% on gross gaming revenue (GGR) for online gaming without betting to 18%. GGR refers to the platform fee that a gaming platform charges for facilitating the game and providing its services. The online gaming industry has asserted that online games and gambling are not the same, with online games being predominantly skill-based, and therefore, could not be taxed at par with gambling. The GST Council is likely to meet in June 2023, to decide the GST tax rate for online games. Follow the AIGF Game On! Newsletter for further updates on the GST issue.

Judicial Updates

Delhi High Court levels the NFT playing field: On 26 April 2023, the High Court of Delhi passed India’s first judicial order (Digital Collectibles v. Galactus Funware Technology) on NFTs and their interplay with intellectual property and personality rights. The court in its interim order, took a strong position against gatekeeping or monopolizing of web3/ NFT technologies. The court clarified that publicly available information (e.g., player name, image, and performance statistics) cannot be monopolised. Such information can be used by online fantasy platforms both in web2 and web3 formats, to make player cards, while ensuring they are not endorsements. The court also stated that NFT technology cannot be monopolised and can have multiple use cases, thus confirming the opportunity to innovate use cases beyond just digital collectibles. The Court also noted that there was no single standard format of fantasy sports, and the platforms are innovating to bring new formats to differentiate their games. AIGF, taking note of the larger impact of the matter on the online gaming industry, intervened in the court case to defend online fantasy platforms’ right to use publicly available information in their offerings. The interim order is a victory for independent game developers who continue to innovate in the nascent Indian online gaming industry.

Ad swing and a miss? The Central Consumer Protection Authority (CPA) on its own accord has reportedly issued notices to Lotus 365 and its celebrity endorsers Nawazuddin Siddiqui and Urvashi Rautela over concerns of misleading advertisements by the gaming company. Lotus 365 claimed that it was ‘India’s most trusted sports exchange since 2015.’ The CCPA asked for proof of the company’s claims and the assessments of the celebrities before endorsing the company. In June 2022 and March 2023 respectively, the CCPA released ‘CCPA Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022’ and Endorsement guidelines for celebrities. Watch this space for more on this developing issue.

Competition concerns. The National Company Law Appellate Tribunal (NCLAT) recently upheld the penalties of INR 1,337.76 crores imposed on Google by India’s anti-trust regulatory body (CCI) for abusing its dominant position in multiple markets. The CCI had previously held that Google had to allow other app store developers including gaming app developers to distribute their app stores through Google Play Store. However, the NCLAT disagreed with the CCI as it believed that there was no evidence of abuse of dominance by Google. NCLAT also differed with the CCI on the issue of sideloading of third-party applications, stating that Google could display warnings to users about the risks of downloading sideloaded apps. For online games’ mobile applications, the access to mobile application stores for online real money games will depend on whether they have SRB verification as mentioned in the Rules.

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Whose Law is it Anyway?

The online gaming industry has long called for a resolution to the patchwork of Indian states’ laws on online gaming.?MeitY’s amendments to the IT Rules 2021 to regulate online gaming were hailed as just that, a force for clarity and certainty for this sunrise sector. But here’s where it gets spicey. Around the same time as the Rules were published, Tamil Nadu also notified its own gaming laws!

So, what’s the issue? Simply put, the duplicity of compliances for online gaming companies and a muddying of regulatory waters that were just getting clear:

The Rules and the TN Law aim to weed out gambling (which courts state are games whose outcome is decided predominantly by chance, and not the skill of the gamer). Yet the TN Law bans outrightly bans judicially recognised games of skill like poker and rummy, irrespective of their skill elements. The Rules, on the other hand, require all online real money games to be judged on their compliance with the law. SRB recognition of various online game formats and the criteria in the Rules will form the baseline for verification of these online games and will guide the assessment of skills in newer game formats.
The Rules and the TN Law both establish/recognise bodies for assessing online games and deciding whether the online game can be offered or not. The duplicity of authorities may lead to the same game being permissible nationally but prohibited in Tamil Nadu or vice versa. Ideally, an SRB recognised by MeitY decided on the permissibility of an online game.
Further, the TN Law requires that online gaming companies should give details of all online games of skill (including casual or free-to-play formats) in its application for registration. Whereas, the Rules require that only online real money games of skill be verified by the SRB before offering in India.
Multiple courts have time and again reiterated that state governments legislative competence is limited only to betting and gambling i.e. games of chance.

So, who’s law is it anyway? It should be the centre's, MeitY’s

Consilience 2023: an industry collective and a law university come together to discuss all things online gaming!

Consilience 2023 celebrated the Rules, discussed tax policymaking, and emphasized the market potential of the online gaming industry in India and globally. Consilience was organised by the All India Game Developers’ Forum (India’s largest forum exclusively for game developers) and the Law and Technology Society of the National Law School of India University. Game developers, the gaming industry, lawyers, and academicians attended and spoke during panel discussions and chats. Consilience showcased the ambitious and meticulous planning to create AAA games that are steeped in Indian culture and storylines.
Various panelists hailed the certainty brought by the Rules to the online gaming industry. And highlighted the importance of state governments giving the Rules time to regulate the space effectively. Some panelists also noted that a reasoned approach must be taken for taxation, which balances policy considerations (e.g., disincentivizing online gambling) with the growth of the industry. Panelists also agreed that gaming application distribution being key to the growth of mobile-first games, requires attention, to ensure fair policies for mobile application distribution.
All in all, each discussion noted the need to support and invest in the Indian online gaming industry, to support its members to harness their innate creativity, technical talents (e.g., on coding and animation), and business acumen and strategic thinking.

AIGF participated in realizing AVGC potential in India: A ‘National Workshop and Consultation on Draft AVGC Policy’ organized by the MIB, Government of India on 18 April 2023. At the Consultation which was attended by various bureaucrats from the Federal and multiple state governments, AIGF also made a presentation on Creating World Class Gaming Content in India.

AIGF talks strategy: AIGF recently organised a strategy meet to discuss MeitY’s online gaming rules and the next steps for members. The meet saw participation from more than 70 AIGF members.

This month, Rutuja Pol (Lead, Government Affairs, Ikigai Law) and Shambhavi Ravishankar (Consultant, Ikigai Law), sat down with Mr. Rakesh Maheshwari (Former Group Coordinator, Cyber Laws and Data Protection Division, MeitY) to delve into the intention and specifics of the Rules that he played a key role in drafting. Covering a wide range of issues, Mr. Maheshwari provided the unique, and often unheard, perspective of the Government in formulating laws for a sunrise sector like online gaming. Amongst his many insights, he particularly noted the positive role played by the online gaming industry and gamers in helping MeitY understand the nuances of online games and the sector’s immense potential. While you can check out the full interview on Ikigai’s YouTube channel , here are some key points raised by Mr. Maheshwari from the interview:

Stakeholder learnings: “We were able to interact with all the stakeholders including the players, the children, parents, teachers, and the gaming service providers. We also received a very large number of comments through the online portal and had multiple rounds of discussions before and after drafts of the Rules were released. We were able to get the nuances of the games, we hope we were able to. The Rules have primarily confined themselves to online real money games, but also have a window where any casual game likely to have harm can also be brought under the rules. Two gamers I met were presidential award holders. From them, we learnt the potential of online games and the entertainment value of online games. We realised India has the potential to do well in online gaming competitions.”

SRB functioning: “On arms-length, the SRB should be a neutral body in relation to its OGI members. The final decision of verifying online games will be with the Board. Some technical evaluation committees should support the Board to evaluate online games and the credentials of the OGI members. Provisions of the Companies Act 2013 for section 8 companies are applicable to the Board.”

Wagering: “The way the rules are written, wagering on any outcome is not allowed. Whether it is a game of skill or a game of chance. Rest, the courts have already conveyed that games of skill are allowed and that games of chance are gambling. The states can take up gambling.”