13 May 2011

The farce called Sikkim online gaming licenses

There has been considerable interest about online gaming licenses issued by the Sikkim government and legal issues involved in it. In the absence of clear laws passed by various states of India banning online gaming; businesses and entrepreneurs sensed an opportunity to target India’s huge gaming market.

However, though there has been no clear bar on participants; the legal environment clearly makes it impossible for for businesses to carry out online gaming in India, whether from a legal and licensed state in India or otherwise. The recently published Information Technology (Due diligence observed by Intermediaries Guidelines) Rules, 2011 (a copy of the rules published in the gazette of India can be accessed here) has imposed a blanket ban on anything relating to or encouraging gambling and may be the last nail in the coffin for the Sikkim Online gaming licenses.

Rule 3 of these rules says

3. Due diligence to he observed by intermediary The intermediary shall observe following due diligence while discharging his duties, namely :

(b) is grossly harmful, harassing, blasphemous defamatory, obscene,
pornographic, paedophilic, libellous (sic), invasive of another’s privacy, hateful, or racially, ethnically objectionable, disparaging, relating or encouraging money laundering or gambling, or otherwise unlawful in any manner whatever…

Rule 4 of these rules says

“The intermediary, on whose computer system the information is stored or hosted or published, upon obtaining knowledge by itself or been brought to actual knowledge by an affected person in writing or through email signed with electronic signature about any such information as mentioned in sub-rule (2) above, shall act within thirty six hours and where applicable, work with user or owner of such information to disable such information that is in contravention of sub-rule (2). Further the intermediary shall preserve such information and associated records for at least ninety days for investigation purposes…”

Rules 3 (b) and 4 make it abundantly clear that any gaming website is illegal and would have to be shut down. Thus, websites based out of Sikkim or any other part of the world can be disabled/made inaccessible to Indians when the names of such websites come to the knowledge of Indian authorities.

Thus, as such even though the State of Sikkim as a separate state of India has the Constitutional right to regulate aspects relating to betting and gambling (as per entry No. 34 of List II of the Seventh Schedule of the Constitution), the pan- India and also extra-territorial applicability of the Information Technology Act, 2000 (as per Section 1 of the Act) and the rules created thereafter; make these rules applicable across India, including Sikkim.

The Central government has presumably made the rules under entry no. 31 (which includes wireless and other forms of communication); it may be argued that the State government has a Constitutional right to regulate all forms of gambling and betting, including online gaming, the fact that it is impossible to regulate different forms of gaming from websites abroad by different states in different manner compels the Central government to pass such a law to regulate gaming. U.S.A has also passed a similar federal law banning online gaming, though individual states are free to regulate brick and mortar casinos.

Secondly, the foreign direct investment (FDI) policy clearly prohibits any foreign investment in the gambling and lottery sector, including technical collaboration, thus clearly thwarting world-class gaming facilities to be made available to Indians.

Thirdly RBI guidelines prevent payment gateways from accepting payments for any lotteries or any form of gambling; thus making it extremely difficult for players to deposit wagers or encash winnings.

In particular the new I.T. Rules which could effectively disable all sorts of gaming websites (whether based in India or elsewhere) from being accessible in India could spell doom for the online gaming industry in India; unless of course the Central government decides to repeal/amend the unsuitable provisions and allows to open the online gaming sector.

Until then, it seems that the attempts of the Sikkim government to earn revenue out of online gaming would clearly not succeed; as I fail to understand why someone would pay lakhs of rupees and issue bank guarantees of crores of rupees when he/she is not allowed traditional payment gateways, foreign expertise, technology and investment and is almost certain to face legal liability.

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