Karnataka’s take on online gaming might stitch the hand beyond the cloth


The advent of technology has opened many doors only to close a lot of windows. The adoption of the virtual future by a conventional past has always been a difficult journey. Gaming, one major chapter both from the screen of commerce and a desktop, might have to see more hurdles than the already existing moral ones.

The Karnataka assembly last week passed a bill banning online skill games involving entry fees. This step comes on the back of the Karnataka High Court’s demand to come up with a law on online gambling.

The Bill passed amended Karnataka Police Act, 1963 in order to ban all forms of gambling in the state, including online gambling and “any act or risking money, or otherwise on the unknown result of an event including a game of skill” with the exception of horse races and lotteries. The state government commented that “the bill will help keep youth from rural areas from being idle in cities and towns as they tend to become habitual gamblers.”

This move has already drawn a lot of questions and criticism. But moving beyond players with recreational concerns, this step might forge damages in economic fields and face legal hurdles as well.

Employment in State

Before anything else, the first yard with fallen fences will be that of employment. Karnataka itself encompasses more than 91 gaming companies and developers, employing over 10,000 people directly, and several others indirectly. The ban would bring in job losses, fallen revenue and repel tech companies looking at Karnataka for future investments.

Online gaming grew the fastest in the M&E space this year, carving a significant space for itself in the economy of India. The sector promises around two lakh new jobs and a $4 billion market opportunity in India by 2025.

An organisation emphasising on startups and entrepreneurs, Startup Business Academy, conducted a survey involving more than 650 respondents from a pool of startup founders and employees. Around 70 percent of the respondents believed that the ban on online gaming will have a negative impact on other segments of the IT industry and startups as well. Moreover, almost 80 percent of them firmly agreed that if gaming start-ups shift to other start-up destinations in India because of lack of policy support, there will be a massive negative impact on the image of Bengaluru and Karnataka as a start-up destination.

Neeraj Kapoor, CEO and Founder, Start-up Business Academy, said: “Karnataka, led by the city of Bengaluru has been India’s flag bearer as a global hub for IT development and start-ups led by young, energetic entrepreneurs. The recent developments threaten its pole position as compared to other Indian states when it comes to its friendliness and readiness to drive the next level of growth from IT and related services.”

Gaming market in General

According to data by consultation firm EY and All India Gaming Federation, India is the fourth largest online gaming market in the world, showing a 43 percent CAGR, with gamers in India expected to grow from 360 million in 2020 to 510 million in 2022.

“The move to pass

the Karnataka Police (Amendment) Compliance Act, 2021 will act as a setback to the online skill gaming sunrise industry as well as to the state’s reputation of being a tech-hub and start-up capital,” Roland Landers, CEO of All India Gaming Federation said.

“There is the clear distinction that needs to be drawn between games of skill such as bridge, eSports and games of chance.”

In India, games are broadly categorised into two parts; games of skill and games of chance. While games of skill require players to possess analytical and decision-making capabilities, games of chance, as the name suggests, are based purely on luck.

“Games like Dream11 and Mobile Premier League (MPL) offer skill-based games, where players use relevant data like career statistics, career form, strengths and weaknesses to choose sportspersons to include in their ‘fantasy team’,” stated Tanmay Singh, litigation counsel at Internet Freedom Foundation (IFF).

Shivani Jha, Director of eSports Players Welfare Association, added that players are not risking money to win an uncertain event while playing skill-based games. “They are paying registration fees for an event with a controlled outcome because skill in involved. This must not be confused with wagering,” Jha added.

The gaming industries charging fees for skill-based games should not be dragged under the umbrella of the law, according to Landers. He added that the unicorn delivering industry is legitimate and will be a significant contributor to the Indian economy in the future.

Singh called the move an “impermissible expansion of the law that encroaches upon fundamental freedoms and violates the constitutional rights of the residents of the state.”

Home-grown startups and youth innovations are at their peak right now. Throughout the several meetings that Prime Minister Narendra Modi had on his trip to the US recently, the ideas of technological advancement, 5G, vRAN, digitalisation and subsequent investments into these fields kept popping. At such a ripe time for digital commerce, such overarching amendments might not be healthy. This may send wrong signals to not just Indian investors, but to investors all across the globe.

Pegged to reach $3.8 billion by 2025 with over 600 million gamers and many looking to go professional, this move will hinder the pavement marked for India to become a global tech leader.

Legal Trouble

The new Karnataka law aims to strengthen the Karnataka Police Act to make gambling a cognisable and non-bailable offence and “curb menace of gaming through the Internet, mobile apps”.

The law has also been introduced to “include the use of cyberspace including computer resources or any other communication device as defined in the Information Technology Act 2000 in the process of gaming to curb the menace of gaming through internet, mobile app”.

The law enhances maximum punishment for owners of gambling centres from one year to three years of imprisonment and fines from Rs 1000 to Rs 1 lakh. The minimum punishment proposed is six months instead of the current one month and a fine of Rs 10,000 instead of Rs 500. For aiding or abetting gambling, the punishment has been enhanced to six months imprisonment and a Rs 10,000 fine.

A first offence of managing a gaming house will attract the minimum sentence of six months in prison and a fine of Rs 10,000 while a second offence will entail imprisonment for a year and a fine of Rs 15,000. A third offence will attract an imprisonment of 18 months and a fine of Rs 20,000.

However, experts say the Karnataka Police (Amendment) Bill, 2021 may face legal hurdles, as “it lacks clarity, particularly over how authorities identify an activity, website or app as ‘problematic.’”

A similar law, the Tamil Nadu Gambling and Police Laws (Amendment) Act, 2021 passed in February in Tamil Nadu ended up being struck down by the Madras High Court this August as being ultra vires.

The Court held that the complete prohibitions on for money online games of skill under the Amendment Act were unreasonable, excessive, and manifestly arbitrary, thereby falling afoul of Article 19(1)(g) of the Constitution.

The distinction between games of skill and games of chance is not very evident. It is difficult to categorise games, especially the ones in the Online Fantasy Sports genre, as they draw features from both baskets.

In 2017, the High Court of Punjab and Haryana became the first Indian court to rule a fantasy sports game to be a game predominantly based on skill.

The HC observed that playing fantasy sports games required the same level of skill, judgment, and discretion as in the case of horse racing.

“While deciding the question of ‘skill versus chance’, Indian courts have adopted the test followed by the US courts known as the ‘dominant factor test’, or ‘predominance test’. This test requires a court to decide whether chance or skill is the dominating factor in determining the result of the game,” said Prasanth Sugathan, Principal Associate, MCA law.

According to various judgments by courts in India, it is only games of chance that are of the nature of gambling that may be banned, owing to which Karnataka’s recent amendment most probably would not get through the tunnel.

 

 

 

With absolute acknowledgement to the fact that online games with monetary involvement often stir up some serious issues, enabling a lot of people not familiar with the format of these games to lose bulks of money, outright banning of such a major segment of the economy might end up doing more harm than good. The law needs some in-depth research, analysing the differences between gaming formats, followed by judicial alterations, so that the Bill sits in a place to impress both its neighbours.



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