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Gaming and its Two Verticals – Game of Skill vs Game of Chance
The existence of gaming in India can be traced all way back to the “game of dice” between Yudhishtira and Shakuni in the epic Mahabharata. It is a clear example of reckless gaming wherein, Yudhishtira lost all his brothers and his wife to Shakuni. The gaming industry all around the world has grown extensively and especially in India, the sector is projected to grow at 22% annually and the value of the market will be around INR 118.8 billion by 2023. The Supreme Court (‘SC’) in the case of Dr K.R. Lakshmanan vs State Of Tamil Nadu And Anr settled the confusion between “game of skill” and “game of chance. “A game of chance is one in which the element of chance predominates over the element of skill, and a game of skill is one in which the element of skill predominates over the element of chance.” According to the SC, a game of skill depends upon superior knowledge, training, attention, experience and adroitness of the player. “Mere skill” has been interpreted by the SC to mean mainly and preponderantly a game of skill. As per Section 12 of The Public Gambling Act 1867, a game of mere skills is exempted from the purview of the Act and are not regulated. Whereas, a game of chance (for instance: lottery and betting) is often determined by mere luck as no one can predict the outcome and it always remains uncertain and doubtful and are largely prohibited except in states like Goa and Sikkim.
The term ‘gambling’ is not defined under the Gambling Legislations in India but it essentially means the act of wagering and involves a sum of money. It does not include games of skill, lotteries and betting on a horse race. In the case of R. M. D. Chamarbaugwalla vs The Union Of India, SC held that games of skills are exempt from the regulation of The Prize Competition Act, 1955 in India and it will only apply to the games in which success does not depend to any substantial extent on skill.
Current Regulation Status
List II of the Seventh Schedule of the Indian Constitution grants authority to States to regulate betting and gambling. The Public Gambling Act, 1867 is the central legislation which has been adopted by certain states. Various approaches were adopted by the States while drafting their gambling laws as some prohibited such activities entirely while some permitted them with certain restrictions. Just as how conventional shopping has witnessed a paradigm shift to e-commerce, the gaming industry has also evolved into online gaming. During the current pandemic, the industry is bound to flourish even more as most people will resort to online gaming on their smartphones and laptops. Online gaming will come under the purview of the central act for gambling and gaming but a self-regulatory authority All India Gaming Federation (AIGF) has been established to regulate the online skill gaming industry.
Online Skill Gaming: Position in India
The online skill gaming industry in India is at its budding stage and its growth has been slowed down due to the multiple public interest litigations in its way. Online fantasy games are games wherein the participants are required to make a team or a draft and select the players based on their skill, knowledge and judgement and according to their statistical performance points are given. The players selected are from real games or teams which have scheduled matches in the near future. For instance, considering the attachment Indians have for cricket, Dream11, a fantasy game application introduced “IPL Fantasy League” for those who are interested in cricket matches and want a more real experience. The legality of online fantasy games was challenged in the case of Shri Varun Gumber v. Union Territory of Chandigarh and Ors. The Punjab and Haryana High Court (‘P&H HC’) upheld the validity of online fantasy games and concluded that these games require skill and hence, it does not amount to gambling. The decision of the P&H HC was upheld by the Bombay High Court in the case of Gurdeep Singh Sachar v. Union of India. However, the SC had stayed the operation of the Bombay High Court judgement in the case of Gurdeep Singh and passed an interim order on March 6, 2020, which has ultimately made the legality of online fantasy games uncertain yet again.
The Dilemma of the Value and Rate of Goods and Service Tax
The Goods and Service Tax (‘GST’) on the online gaming industry has been an area of dispute for some time. The first question which arises is that on what value will the tax be paid on – the value of the money which is wagered by the player or on the value of the platform fees. Since this is a grey area, most gaming companies have been paying tax on the platform fee (transactional value) and not on the prize pool fee. For instance, if a platform owner gets an amount of Rs 100 from a player, Rs 80 out of this amount goes to the prize pool and the remaining Rs 20 is the platform fee. The 18% GST is being levied on Rs 20 i.e. Rs 3.6 but if it is charged on the entire amount of Rs 100 then the companies will have to pay Rs 18 instead. However, the issue is whether tax is to be paid on Rs 100 or on the gross revenue earned by the platform owner i.e. Rs 20. The problem with charging tax on the gross revenue is that each service provider has a different fee and the amount varies from platform to platform. Most of the times, players may play for very low stakes such as Rs 50 or 100 and the platform fee may actually be as low as 1% or 2%. The GST to be paid may be higher than the income earned by the platform owner if 18% GST is charged on the ticket price i.e. Rs 100 in our case, as the owners have to shell out tax from their pocket as their income is only Rs 20. But it ideally makes sense to charge it on the platform fee.
Data Protection and Online Gaming
The Privacy Data Protection Bill, 2019 (‘PDP Bill’) introduces new sub-categories of personal data such as sensitive personal data and critical personal data. Section 3(36) of the PDP Bill defines sensitive personal as an individual’s gender, financial data, health data, caste or tribe, etc. Critical personal data is not yet defined and will be defined by the Central Government eventually. Section 33 and 34 of the PDP Bill provide for data localisation and cross border flow which if compared to the 2018 draft has been slightly relaxed. Whenever a data fiduciary is dealing with sensitive or critical personal data, Section 34 of PDP Bill seeks to impose prohibition or restriction on the movement of data across the borders of India which is often considered to be a tedious issue for companies which normally share data with data fiduciaries or processors residing outside India. The gaming companies will be hurdled because several times the players join from different parts of the world and personal data of these players is being collected and shared. Data localisation requirements for any transfer of sensitive or critical personal data requires it to be regulated by a contract or an intra-group scheme which should be verified and approved by the Data Protection Authority in addition to the explicit consent from the data principal. There might be a large number of data fiduciaries in India, the burden imposed on Data Protection Authority will be very high plus the expenses companies have to incur will also increase in order to comply with the requirements. However, once the rules are released, it will bring more clarity as to the situation. Another grey is that even though cross border data flow is prohibited for critical personal data outside India as per Section 34 of the PDP Bill, it is permitted for sensitive personal data which can be processed outside India with the explicit consent of data principal but there is no clarity as to how such explicit consent is to be sought. It will be troublesome for online platforms, gaming companies to seek explicit consent each time as and when data is shared with another entity outside India.
Another problem which persists is with regard to the children’s personal data. Individuals under 18 years will be treated as children and often children on such gaming platforms confirm that their age is 18 years but they are actually younger. Section 16 of the PDP Bill provides that verification of the age of the child and consent of parent or guardian must be obtained as per the manner in the regulations. There will be people who misrepresent their age despite this but as long as the regulations are followed and the necessary due diligence is done, the companies may still have a way out. But yet again, there will be more clarity once the regulations are out.
Online games are something which one might resort to at the end of their long day or even play while taking a break from work. Over the years, this industry has grown significantly and along with such growth, multiple hurdles have come along its way which has been resolved by the courts in India to some extent. However, there are still some grey areas in context to GST and data protection but it is not limited to only these problems. Intellectual property rights, indecent and violent content are only a few of the other issues which will be resolved with due time. The PDP Bill, 2019 has been referred to the Standing Committee and the report of the Committee is expected by the second week of the Monsoon Session, 2020. So up until then, most companies can do is keep a lookout and be ready for anything that may come their way.
ABOUT THE AUTHOR
Laghavi Pahwa is a final year law student at School of Law, Manipal University Jaipur.
In Content Picture Credit: Inc42