Gaming cos deploy geofencing as TN online gambling ban disrupts operations

Geofencing refers to the use of GPS or RFID technology to create a virtual geographic boundary, enabling software to trigger a response when a mobile device enters or leaves a particular area

Regulatory ambiguity about online ‘skilled games’ like Rummy and Poker is far from over. Tamil Nadu’s blanket ban on such games on Monday has disrupted operations for many game developers, who are now enforcing geofencing mechanisms, even as industry players look to challenge the decision in court.

Geofencing refers to creating a virtual geographic boundary, enabling software to trigger a response when a mobile device enters or leaves a particular area. The app may use a global positioning system (GPS), radio frequency identification (RFID), Wi-Fi or cellular data technologies to block users from accessing the app from a particular area.

The central government last week notified new rules for online gaming with a provision to create multiple self-regulatory bodies (SRBs) to certify “permissible” real-money online games. The rules will allow online games operating with a monetary deposit, with some user safety obligations on the platforms.

However, within the next two days, Tamil Nadu Governor R N Ravi approved the state’s long-pending Prohibition of Online Gambling and Regulation of Online Games Bill, prescribing criminal penalties for the promotion of games like rummy and poker.

“Knee-jerk bans like this can have a huge impact on the revenues of some gaming companies, especially for firms deriving this revenue from southern parts of the country,” Saumya Singh Rathore, co-founder, WinZO, a social gaming platform, told Business Standard.

Rathore believes the ban has made the environment unstable. “Companies will have to go to court to overturn the ruling – which is also a drain on resources – for a business which is constitutionally protected and recognised by the Centre,” she says.

The ban has thrown a spanner in the works of gaming firms that have operations in the state. One such firm is Nazara Technologies, a gaming and sports media platform.

“Tamil Nadu is one of the key states where rummy has been a popular game for ages. It is one of the primary markets for us and this ban would have a short-term impact. But we have been consciously diversifying geographically and would be able to reduce any long-term effects,” says Sudhir Kamath, COO, Nazara Technologies, a listed entity.

Gaming firms and industry bodies claim that the blanket ban is “unconstitutional” and plan to seek legal recourse against the move, which they say, does not distinguish between games of skill and of chance as defined in earlier judgements of various courts.

“As the oldest and largest industry body, representing the greatest number of Indian MSME start-ups, we will challenge the constitutionality of the law, once the effective date is notified and have full faith that our judicial system will uphold the fundamental rights of the gaming platforms and their users,” says Roland Landers, CEO, All India Gaming Federation.  

Meanwhile, game developers are enforcing geofencing mechanisms to sidestep compliance issues.

“We do not want to operate in any grey zone of non-compliance. Hence, we will employ geofencing technology to withdraw our real-money games of skill – which are otherwise allowed to operate through the country – from the state. WinZO offers many gaming services, be it free games or real-money games of skill. Once we employ geofencing, consumers from that particular region cannot access these restricted offerings,” Rathore says.

Like WinZO, Kamath says that Nazara will also put the necessary geofencing restrictions in place in line with the state regulations.

Legal experts Business Standard spoke to say that the Tamil Nadu government will need to strongly justify its ruling despite central regulation on the subject. Although betting and gambling are listed under the state-list in the seventh schedule of the constitution, the Ministry of Electronics and Information Technology (MeitY) is the nodal ministry for governing online skill games.

“It is fair to say that the central government now occupies the field in terms of regulating online skill games. All the concerns that the state governments have had for so long get covered in a very wholesome fashion in the centre’s rules. The reason why Tamil Nadu needed a state law is not clear and it is just going to have an unnecessary effect of litigation and conflict of laws,” says Ranjana Adhikari, Partner at IndusLaw.

She added that there was a need for clarity on which law would override the other in case of states having their own laws on online gaming.

“From a business standpoint, such regulatory divergence is not healthy. It creates ambiguity and uncertainty. Regulatory consistency across the country is a prerequisite for growth of the gaming sector with responsibility and respect,” Kamath says.

Game developers argue that gaming intermediaries validated by SROs must be allowed to function across the country, especially for games of skill.

“Despite widespread global conviction and investor interest in the Indian gaming industry, these knee jerk reactions can discourage FDI (foreign direct investment) from coming into the country. This uncertainty, which has existed for the last two years, leads to further apprehension in the global investor community,” Rathore adds.