Online gaming gets court relief in TN but there may be other legal battles

Relief by the Madras High Court on the Tamil Nadu government's ban comes as a booster dose for the Rs 7,700-crore online gaming industry but could be a precursor to legal battles in other states

“We are not as bad as people think.”

This was the immediate response from a gaming industry major soon after the Madras High Court on August 3 revoked a law by the Tamil Nadu government banning online games such as rummy, poker and other skill-based games that involve betting and money prizes.

If you thought this judgment impacts a marginal section of the society, you will be wrong. Based on data available with The Online Rummy Federation (TORF), around 400 million people in India are engaged in some form of online game, and out of that around 35 million may be playing games in which real money is involved.

The verdict in Tamil Nadu was seen as a relief for a nascent industry that was already fighting legal battles in several states. Soon after the order, Tamil Nadu Law Minister S Ragupathy said a new legislation will be passed to ban such games in the state. Other states that have clamped down on the industry include Telangana, Andhra Pradesh, Kerala, Assam and Odisha, citing a variety of reasons, including “gambling, addiction, financial losses and rising suicides”.

Rummy accounts for around 60 per cent share of the skill-based gaming ecosystem, according to industry estimates, with poker, fantasy games, bridge, chess and quizzes making up the rest. “Rummy as a game is predominantly south Indian. So the ban on it in key states such as Andhra Pradesh, Telangana, Tamil Nadu and Kerala, along with Odisha and Assam, has wiped out around 65 per cent of the industry’s market share,” said Deepak Gullapalli, founder of Head Digital Works.

Gullapalli was the first to launch the concept of online rummy in India in 2006 through the platform A23(Ace2Three), from a garage in Hyderabad, following the success of Solitaire on Microsoft Windows. Estimates by the Tamil Nadu government suggest that games like “Rummy Circle” have 30 million registered players and about 50,000 new players every day.

Between the court order and the state ban lies a debate on the nature of these games. Do they amount to gambling and betting or are they merely games in which participants can win prizes? Tamil Nadu appears to hold the former view; online gambling has been banned in Andhra Pradesh, Telangana and Kerala, it said, stressing the deleterious effect of gambling. In fact, the Kerala High Court had issued notices to Indian cricket team captain Virat Kohli as well as actors like Tamannaah and Aju Varghese for their alleged endorsement for such games.

THE PLAYING FIELD

• Rs 7,700 crore: Size of the skill-based online gaming industry
• Rs 4,000 crore: Size of rummy industry in India
• 400 million: Total number of people playing some online game

According to Sameer Barde, chief executive officer of TORF, since games like rummy, poker and fantasy games involve skills, it cannot be treated as gambling, a point that the Madras High Court judgment highlighted. “These are games of skill and not games of chance,” Barde said. TORF is the self-regulatory body for online rummy gaming platforms in India, which has around 25 platforms, including major ones such as Rummy Circle, Paytm First Games, A23, Junglee, Junglee Rummy, PlayRummy and Osom Rummy. “Over the decades several Supreme Court judgments have held rummy as a game of skill and protected under Article 19(1)(g) of the Indian Constitution,” he added. The article empowers Indians “to practise any profession, or to carry on any occupation, trade or business”.

Based on a report by EY and FICCI, the online gaming industry grew 18 per cent in 2020 to touch Rs 7,700 crore. The report showed that the number of online gamers increased from 300 million in 2019 to 360 million in 2020. According to TORF, the size of the rummy industry nationally comes to around Rs 4,000 crore in terms of turnover.

“Before six months, it was growing at a CAGR of 30 per cent. The ban in Tamil Nadu and decline in disposable income due to the second wave of Covid-19 has led to a slowdown in the industry,” Barde added. Tamil Nadu alone is estimated to have around 5 million users with a market size of over Rs 400 crore.

Interestingly, a Niti Aayog paper early this year indicated that the fantasy gaming industry alone has the potential to attract foreign direct investment to the tune of more than Rs 10,000 crore over the next few years, as well as generate 1.5 billion online transactions by 2023. Experts indicate that a blanket ban on the sector may affect such growth prospects.

 

In any case, does a ban work for online gaming where there is no physical presence involved? In 2017, Telangana was one of the first states to ban such games by law, when the size of the industry was not even Rs 1,500 crore. Despite the ban, in August 2020, the Hyderabad Police busted an online gaming racket involving Chinese nationals, which turned out to be a Rs 1,100-crore scam.

The subsequent investigation revealed that the racket was operating through Telegram Groups in a multi-level-marketing format, where entry is given through reference with commission. On a daily basis, these Telegram group admins used to give fresh links of websites for registered members to play games and place bets.

“Only a fraction of apps or portals or fake apps are bad in nature. Such sort of cybersecurity threats occur in all sectors that have a high demand, including the banking sector. For such bad players, it is a way to get into your system or mobile; gaming is not an isolated sector. So, banning these applications will not serve the purpose,” said Rahul Sasi, cybersecurity expert and founder of machine intelligence firm CloudSEK, and who was part of a Reserve Bank of India panel to examine digital lending.

This is the reason people like Barde are batting for a regulation by the state governments concerned, allowing only legitimate, legal operators who follow strict protocols rather than going for a blanket ban. “We want them to set up a joint committee to explore the possibility of setting up a licensing regime to regulate the gaming sector as a whole and the skill gaming sector in particular,” he said.