A few weeks ago, Google pulled Paytm from the Play Store for violating its gambling policies. The growing popularity of gaming platforms like Dream11 and Paytm First Games raise questions about whether they are proxies for online gambling as they can involve financial transactions but are currently classified as ‘games of skill’. In a conversation moderated by Jayant Sriram , Jay Sayta (has extensively tracked issues pertaining to the gaming industry and gaming laws over the last decade and now advises several gaming companies on policy, regulatory, tax and legal issues) and Vidushpat Singhania (Managing Partner of Krida Legal and specialises in sports and gaming laws) discuss the current legal position in India on games of skill versus games of chance, the size of the gambling industry, and issues of regulation. Edited excerpts :
We’ll start the discussion with Paytm First Games and Dream11, both of which, I think, most people are familiar with now. The current legal position is that though they are transaction-based, various courts have held that they are games of skill rather than games of chance. Is this settled law now or is there still some grey area?
Jay Sayta: As you said, games of skill are exempt from the ambit of gambling. Gambling and betting are a State subject. Every State has its own legislation on gambling, and most States have an exemption for games of skill. However, these statutes are pretty old, and they do not clearly define or enumerate which games fall within this skill category. Nagaland, for instance, has a separate legislation which details what are games of skill. But for the most part, most States do not have that kind of clarity. So, it falls within the judiciary’s ambit to interpret whether a particular game falls within the ambit of skill or not.
Now, with regards to Dream11 and daily fantasy sports, the matter has gone to multiple High Courts starting from 2017. In 2017, the Punjab and Haryana High Court ruled that the format of Dream11, which involves picking 11 players from a real-life match from both sides and allocating points based on their real-life performance, is a game of skill and does not fall within the definition of gambling. Following that, in 2019, the Bombay High Court also passed a similar ruling. The Rajasthan High Court gave a similar ruling earlier this year. However, on March 6 this year, the Supreme Court, while hearing the appeals from the Maharashtra government against the Bombay High Court’s order on Dream11, issued notice to all parties and stayed the operation of the Bombay order, which means that they will go into the merits of the matter in detail and adjudicate finally on whether it is a game of skill or not.
Vidushpat Singhania: The State Acts largely don’t define what is a game of skill. What you go by is the interpretation given by the Supreme Court in various judgments starting from Satyanarayana (pertaining to the card game Rummy), where it said skill predominates over chance. It’s still open to interpretation for a range of other games. The Rajasthan High Court, Punjab and Haryana High Court, and then the Bombay High Court all held that in the format being offered currently, Dream11 is a game of skill. There have been several appeals filed and dismissed against these judgments. But earlier this year, in another petition that is pending, the Supreme Court looked at it and stayed the order of the Bombay High Court and is looking to hear the matter afresh. What this means is, if the Supreme Court says that daily fantasy sports are games of chance, then the entire industry shuts down and the issue goes back to the States in a sense. State governments can issue licences for these games. If the Supreme Court says it is a game of skill, then the industry is open all over India.
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The user base has grown phenomenally for online gaming, especially in this lockdown period. Are most of these transaction-based in some way? What is the size of the industry we are talking about in monetary terms?
Vidushpat Singhania: It’s a very tricky question because the gaming industry has legal as well as illegal components. And not everything is about paid gaming; there is also a lot of free gaming, casual gaming, gaming just for entertainment. Some parts of it are regulated. Betting on horse racing is regulated, casinos in Sikkim and Goa are regulated, certain games of skill are also regulated in States like Nagaland. According to companies like KPMG, the gaming industry in India would be worth about $150 billion.
Jay Sayta: Within that, the category of skill-based games is a complicated one because while these games can involve monetary transactions, they are largely offered for free. These skill-based games themselves could cross a billion dollars in value, the KPMG report states, and are growing at around 30% annually. Now that’s the skill part, but if you’re looking generically at gaming, both skill or chance, it is a very high number. Largely it is unregulated and in the grey space.
Let’s get to the issue of regulation and what that might look like within each of these categories. Let’s start first with illegal gambling.
Jay Sayta: Just taking a step back from how to go about regulation or legalisation, the question we need to ask is whether this is desirable or not; whether a ban or more stringent laws are the answer; or whether we need to take a more nuanced perspective and recognise that even if we pass new laws, this would still continue in some manner or shape.
In my view, regulation, rather than a ban, has certain benefits. One is the revenue argument. Since it’s happening largely underground, it’s a huge source of black money. So, if it is legalised and taxed in a realistic and reasonable manner, it can be a huge source of revenue for the government. The second is with regard to sports betting where there are a lot of allegations of match-fixing. Now, regulated and licensed betting regimes, as in the U.K. and many European countries, have a strong mechanism to monitor each of the betting websites, track suspicious patterns if there is a sudden spike in betting for certain events, and investigate them. And there are, of course, other ancillary benefits like employment.
Vidushpat Singhania: By way of a legal framework, we have regulations in Goa and Sikkim, where there is a licensing regime to allow certain types of casino games. So, you could expand that kind of legislation itself. Or you could look at international examples like the U.K. which has the Gambling Act of 2005. The Act has four or five categories, and they regulate it based on those categories. So, they have casual gaming, mid-level gaming, serious gaming, high-stake gaming. They’ve divided the games into four or five categories, and then based on that, they have a licensing regime. This applies across all games, whether skill or chance. That is the closest we could also go, where we divide various games into various categories and have a different licensing fee for each. Now, whether that can be pan-India or State by State is the issue.
Games of skill seem to exist in a legal grey area. How is this nascent industry being regulated?
Vidushpat Singhania: Games of skill are largely self-regulated. There are bodies such as the All India Gaming Federation, FIFS [Federation of Indian Fantasy Sports] and The Rummy Federation which have developed self-regulation codes for advertisements, the way of playing, taxation... The only State where gaming or skill gaming has been regulated is Nagaland. Otherwise, games of skill are generally self-regulated by these industry bodies, which is not bad. I don’t think we need the government to step in to regulate everything. Maybe a basic level of licensing regime can come in, but the operational regulation, I think, should always be with the industry.
Jay Sayta: I have a bit of a different opinion because self-regulation, be it in gaming or in broadcasting or anywhere else, has always been less than satisfactory. There are no sanctions or penal measures that can be invoked against any erring operators. While it is great that these guidelines or charters are there, there are various operators out there who don’t follow them and there is nothing that can be done against them apart from naming and shaming them. A lot of people must have also seen advertisements about skill gaming companies. Some of them are misleading and give false assurances.
The Consumer Protection Ministry has issued certain guidelines on advertising. Perhaps these real money games can be included in that ambit and certain dos and don’ts [can be specified]. For example, I don’t think it is appropriate to give the message that during the lockdown, you can play day and night on these platforms and use them as instruments to solve your social or financial problems. So, the government should step in.
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One issue that immediately stands out is whether there should be a cap on the amount of money people can play with. Is there regulation on this aspect?
Vidushpat Singhania: This is an issue that the Law Commission of India has also gone into. It has said we will have to demarcate serious gaming and casual gaming limits. If somebody is putting up ₹100 or ₹200 a day, you can allow it as a kind of social gaming, because the prizes will also be limited in that sense and you don’t really need a licence. But where the monies are bigger, say you are allowed to put ₹5,000 and you can win up to a crore, that goes into the serious gaming or gambling aspect and that will definitely need complete regulation.
What is the revenue possibility for the government? And how does that tie into the question of regulation?
Vidushpat Singhania: GST [Goods and Services Tax] and income tax are still applicable to these games. It’s only a licensing fee which may not be applicable at this point of time. Dream11, for instance, is paying GST, and the winners will end up paying income tax as well. So, if it is regulated as a game of skill, and the court allows it, then there will be an exponential growth in this game and the collection of GST will increase.
Jay Sayta: The activity is already being taxed. The only aspect is the category of tax. Right now, the argument is that it has legal basis as a game of skill and so it does not fall within the sin category of, say, gambling and casinos. So they are paying a lower amount of tax. That is one aspect which needs to be thought through — whether there needs to be a slightly higher rate of tax for these kinds of activities.
The revenue potential has also been weighed in. If taxed in a rational and reasonable manner, games of skill or chance could lead to tens of thousands of crores in revenue. For instance, the Maharashtra government is already looking at the aspect of regulating sports betting, as per reports.
Vidushpat Singhania is the Managing Partner of Krida Legal and specialises in sports and gaming laws; Jay Sayta has extensively tracked issues pertaining to the gaming industry and gaming laws over the last decade and now advises several gaming companies on policy, regulatory, tax and legal issues