Online Gaming: Is the Centre Encroaching on the States' Power to Legislate?

The emergence of online gaming in India has been a relatively recent phenomenon, fuelled by a combination of factors such as the widespread adoption of smartphones, the availability of affordable high-speed internet, and the growing interest in e-sports. Online gaming has become increasingly popular among young people which has created new opportunities for entrepreneurs, investors, and gamers alike. However, as the industry continues to grow, there are also concerns about issues such as addiction, player safety, and responsible gaming, which will need to be addressed through appropriate regulations and safeguards.

By way of background, the regulation of gaming (including online gaming) in India is subject to both central and state legislation. While the regulation of betting, gambling and allied activities was initially subject to central regulation, however, post the enactment of the Constitution of India (in the year 1950), the state legislatures in India received the authority to regulate and govern such activities within the territory of their respective state. Namely, Entry 34 in List II of the Constitution provides that the regulation of “betting and gambling” activities is subject to state regulation. Due to this, the regulation of gambling activities in each state leads to differing regulation of gaming. While each state takes a different interpretation as regards the permissibility of gaming within state borders, legislation at the central and state levels mostly categorise games played for stakes (which involve elements of wagering or betting but little to no elements of skill) as “games of chance” and prohibit the same.

The introduction of gaming over online mediums has changed the gaming industry, allowing gamers quick access to a diverse range of entertainment alternatives. This has also led to significant legal and regulatory concerns, particularly about the divisive regulation of gaming between the centre and the states. While the government at the centre seems to be in favour of central control of gaming, a  fundamental argument made by various state legislatures against the central government regulating online gambling is that it infringes on the power of states to control gaming within their borders.

For the purpose of understanding the extant framework surrounding online gaming in India at the state and central level, it is highly recommended that one consult experienced gaming lawyers in India. Ahlawat and Associates is one of the leading gaming law firms in India. Its legal team of experienced gaming lawyers in India can suitably assist their clients in navigating the legal and regulatory environment surrounding online gaming in India, particularly given the latest developments in this sector, as further analysed below.

Central Laws Regulating Online Gaming

The Ministry of Electronics and Information Technology (“Ministry”) recently notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (hereinafter referred to as the “Amendment Rules”). The Amendment Rules (which provide for regulation of online gaming at the central level) are a major amendment to the Indian Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”).

The IT Rules (as amended and up to date) together with the Indian Information Technology Act, 2000 (“IT Act”) comprise the predominant legislation governing online intermediaries operating in the country (at the central level). By way of the Amendment Rules, the Ministry has now expressly sought to recognize and regulate online gaming intermediaries and their activities in the country. For reference, an intermediary, for the purpose of the IT Rules, means “…with respect to any particular electronic records… any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record…”.

The IT Rules (as amended and up to date) define an “online game” as a game that is available on the internet and can be accessed through a computer resource or an intermediary. Further, these define an “online real money game” as one in which a user makes a deposit in cash or kind with the expectation of earning winnings on such a deposit. Meanwhile, an “online gaming intermediary” is defined as an intermediary that allows users of its computer resources to access one or more online games.

According to the amended IT Rules, online gaming intermediaries who seek to provide access to online real money games may only do so after receiving clearance from an “online gaming self-regulatory body” (which are yet to be notified). Such regulatory bodies are tasked (under the amended IT Rules) to verify whether an online real money game comprises a permissible online real money game subject to the criterion prescribed in the amended IT Rules. Amongst other criteria, the verification of an online real money game as a permissible online real money game is contingent upon the satisfaction of the online gaming self-regulatory body that the game does not involve wagering on any outcome.

However, the concept of “permissible online real-money games” enshrined in the IT Rules poses a potential source of conflict. As mentioned above, different state governments have varied legislation for gaming. Under such legislation, the criteria set by each state for permissible and impermissible games (and the regulation or prohibition thereof) varies. Thus, what is permissible in one state, may not be permissible in another. For the purpose of gaining an accurate understanding of the different regulations and sanctions gaming may be subject to at the central and state level in India, there is thus an integral requirement to consult well-versed gaming lawyers in India (prior to pursuing gaming operations in the country).

Authority of States to Regulate Online Gaming

As mentioned above, the Constitution of India authorises state governments to legislate on betting and gambling issues. Further, states are also authorised to legislate on sports activities (under Entry 33 in list in seventh schedule of the Constitution of India).

As further mentioned above, the state governments take a different interpretation as regards permissibility of gaming within state borders, mostly categorising games played for stakes (which involve elements of wagering or betting but little to no elements of skill) as “games of chance” and impermissible.

An argument that has recently been made is that states can regulate games of chance but not games of skill (where the outcome is determined primarily by mental or physical skill, rather than chance). Namely, that states cannot legislate on games of skill because these do not have proximity with betting, gambling, and sports, which are all games of chance. Supporters of this argument argue in favor of consolidation of gaming regulation at the central. Due to the divisive nature of state and central regulation, many players in the gaming industry as well as the Ministry itself are also notably in favour of consolidation of gaming regulation at the central. The notification of the Amendment Rules clearly illustrates the mindset of the Ministry in this regard.

 Is the Centre encroaching on the States' power to legislate?

The notification of the Amendment Rules has raised debates about the scope of the centre's engagement and potential legislative overreach on part of the Ministry as many perceive this as an intrusion on the sovereignty of states legislate on gambling and gaming activities. Among the multiple questions raised regarding the encroachment on the states' power to legislate on gaming and gambling, the imposition of additional requirements on online gaming platforms over and above state regulation has particularly come under fire.

While the Ministry’s objective behind these restrictions is seemingly to limit the spread of harmful and offensive content, the concerns about the centre's infringement on the legislative rights of the states of stakeholders cannot be entirely denied.

It is clear that regulation of gambling and gaming (involving games of skill or chance played for stakes) falls under the purview of state legislature per the Constitution of India. Further, the provisions of the amended IT Rules will inevitably conflict with state-enacted legislation and hinder state government’s ability to develop regulations specific to their state territory, in a way appropriate to their individual socio-cultural settings. At the same time, regulation of gaming at a central level may lead to a gradual uniformity of law and save players in the gaming industry from the compliance burden of dealing with multiple laws.

Conclusion: In light of the above, it seems that a more cooperative approach to the regulation of online gaming may be more in the interest of the gaming industry in India and strike a balance between the Ministry’s desire for central control while preserving the sovereign power of the states. Instead of a top-down approach, including states in decision-making and developing complete regulations collaboratively would not only be more favourable to eliminate the arguments mentioned above but also save players in the gaming industry from the compliance burden of dealing with multiple laws with conflicting or duplicate provisions at the centre and state level. This will also allow state governments to cater to the specific needs and concerns of their residents.