Media Nama, June 14, 2022
The state government of Rajasthan has released a draft bill to “regulate pay-to-participate formats” of virtual online sports within the state, as per a copy of the draft reviewed by Medianama. The draft defines virtual online sports to include “esports competitions, fantasy sports, and derivative formats as provided by the sports engagement platforms” in addition to formats approved by the courts and the self-regulatory organisations.
The Rajasthan Virtual Online Sports (Regulation) Bill, 2022, lays down several provisions in its regulatory framework for virtual online sports such as licensing of formats, formulation of a self-regulatory organisation and the gaming commission, and penalties for violations.
It must be noted that the bill’s scope extends to esports and fantasy gaming but it does not cover skill games such as rummy, poker, and ludo which have attracted the attention of states like Tamil Nadu and Karnataka. The draft was released for consultation by the Rajasthan government in the last week of May and stakeholders had time till May 28, 2022, to send their suggestions.
Why it matters: The Indian gaming industry has witnessed exponential growth in the last few years but it has also been mired in regulatory uncertainty. The draft by Rajasthan is an interesting one as it steers clear of the ‘skill versus chance’ debate and may serve as a blueprint to other states.
Conception of Rajasthan Virtual Online Sports Commission
The draft paves the way for the establishment of a Rajasthan Virtual Online Sports Commission (RVOSC).
Who will be the members: The members will be nominated by the government for a period of three years. The term can be extended for another three years. It will consist of the following—
- Retired judge of the High Court or the Supreme Court as the Chairperson;
- A person having vast experience in the field of sports and sports federations;
- Retired government servant not below the rank of a Secretary.
What are the powers and functions of the RVOSC: The commission has the following powers—
- Act as an appellate body against orders passed by the Ombudsman constituted by the self-regulatory organisation (SRO),
- Recommend terms and conditions to the government for licence procurment,
- Provide licence to the person offering, exhibiting and organising any virtual online sports,
- Issue advisories, caution notices and recommendations to the SRO to enforce the provisions of the Act,
- Monitor and submit periodic reports to the state government of the activities of all licensees to ensure compliance with the Act,
- Recognise an SRO and the codes of ethics and governance adopted by them.
Forming a self-regulatory organisation
The draft has proposed an SRO to handle the responsibility of administration and regulation of virtual online sports. It must be recognised by either the courts or the gaming commission mandated under the bill.
Who can apply: The draft permits any industry-led organisation to obtain recognition as an SRO. The approval will be granted by the commission which is supposed to adjudicate upon the SRO’s application within 90 days
What are the criteria for approval: The application for an SRO should contain the following criteria—
- Must have its registered office in India and Indian citizens as members of the SRO’s board;
- Purpose of the SRO concerns the “administration, regulation and promotion” of every aspect of a sport engagement platform (It means and includes any platform of pay-to-participate sports related online competitions using online interface in the form of any software).
- Demonstrated functioning of a “minimum of 3 years with an existing office of the Ombudsman or similar dispute resolution mechanism”;
- Member companies should have the majority of the pay-to-participate registered users in India;
- Articles of Association and Memorandum of Association should provide for the following:
- Code of ethics and governance
- Rules of fair play
- Consumer grievance redressal mechanism and consumer protection rules
- Dispute resolution inter-se consumers and platforms and platform to platform;
- Responsible advertising and marketing standards;
What is the function of the SRO: The draft confers the following responsibilities—
- Administer and regulate day-to-day operations of each class of virtual online sports,
- Issue directions or orders for compliance with the code of ethics and governance,
- Evaluate, certify and approve a format as a virtual online sports in accordance with this Act,
- Constitute an office of Ombudsman that shall act as a Dispute Redressal body for disputes,
- Levy penalties and fines and transfer collected fines to the state government.
Creating a licensing regime for virtual online sports
“No Virtual Online Sports format shall be offered, organised or exhibited by any person at any place in the State and no Virtual Online Sports format offered by any person shall permit residents of the State to participate in any Online Competition offered by Sports Engagement Platforms without such person obtaining a Licence granted in accordance with the provisions of this Act..,” read the draft of the bill.
It also specified that the provisions of the Rajasthan Public Gambling Ordinance, 1949, will not be applicable to virtual online sports for money under this Act. A company carrying out operations of a sports engagement platform without a licence will attract a penalty of up to Rs. four lakhs for every day it is operational.
Who can apply: The licence can only be issued to an Indian citizen or legal entity incorporated in India, as per the bill.
How to get the licence: An entity will have to apply in writing to the Licensing Authority. The body will have thirty days to either grant or refuse the licence. The lack of an order after thirty days will result in the application being approved on its own.
What happens if the application is refused: The authority will have to offer the reasons for such a refusal. The licensee has the opportunity to present its case either in writing, or by an oral hearing.
How long will it last: A licence will remain in force for ten years from the date of grant of the licence.
Is it transferable: The licensee can submit an application to transfer its licence.
How to display the licence: The bill mandates that the licensee will have to display a copy of the licence on the “communication device, computer resource or computer network on which or at the premises where its Virtual Online Sports is made available”.
When can the licence be suspended or cancelled: The authority can cancel the licence if the Adjudicating Officer determines that the licensee has violated the Act, obtained the licence by fraudulent means or by furnishing incorrect information which the licensee believes to be false. The cancellation of the licence will result in the forfeiture of the licence fees.
What are the proposed penalties?
The Rajasthan government has also laid down offences and penalties under the Act. A licensee can be fined up to Rs. two lakh if it fails to comply with the following:
- Directions of the Advertising Standards Council of India (ASCI),
- Code of ethics and governance adopted by the SRO,
- Furnishing incorrect information to procure a licence,
- Deliberate mis-declaration to the Licensing Authority,
- Failure to maintain records or produce documents or information,
Who will adjudicate upon offences: The state government will notify an officer not below the rank of the Additional District Magistrate of the district, where the alleged offence is committed, who will investigate the offence and decide the quantum of penalty.
- The officer has the power to recover losses and compensation from the licensee and transfer it to the government in case of a loss. The accused person can pay up a sum not exceeding 75 per cent of the maximum amount of the fine to settle the proceedings.
How will the quantum of penalty be decided: The following factors will be taken into consideration by the adjudicating officer:
- Amount of gain or unfair advantage, wherever quantifiable, made as a result of the contravention,
- Amount of loss caused or likely to cause to any person as a result of the contravention,
- Repetitive nature of the contravention,
- Whether the contravention is without his knowledge.
How will fines be recovered: The entity will have six months to pay up fines within six months from the day of imposition of the fine. The adjudicating officer can recover the amount from the said person in the same manner as prescribed in Schedule II of the Income Tax Act, 1961, if the penalty is not paid within the stipulated period.
What are the concerns around the draft?
Many stakeholders from across the industry had several concerns with the draft of the bill. The Esports Federation of India (ESFI) questioned the inclusion of esports in the bill, where it is clubbed with fantasy sports. The ESFI termed it as “detrimental” to the growth of esports in India and urged the Rajasthan Chief Minister Ashok Gehlot to remove esports from the scope of the bill.
“It’s important to understand that not all games played electronically are esports. The outcome of any esports match is solely and purely dependent/based on the skills (physical & mental) and performances of the esports athletes are just like cricket, badminton etc. It’s absolutely wrong to club esports (a sport) with fantasy gaming or anything other than sports,” Vinod Tiwari, President of ESFI, Director – International & NOC Relations of Olympic Council of Asia and Convenor-Esports Committee, Olympic Council of Asia, said in a statement.
NASSCOM, on the other hand, has argued for a uniform central framework and said it will be better suited to govern online gaming than a state-wise framework considering the cross-territorial nature of online gaming.
It urged the Rajasthan government to emphasise on centre-state coordinated action on gaming, and urged it to consider collaborating with the Union government’s task force on gaming.
Absence of appeals mechanism needs to be addressed: CUTS
Consumer Unity and Trust Society (CUTS), a consumer organisation, highlighted the exclusion of skill-based pay to play virtual online sports like rummy, poker, etc. It also stated that the bill does not define games of skill and games of chance.
It said that a three-member body may face challenges in performing all the required functions given the growth of the virtual online sports industry in the past few years. CUTS also pointed out the absence of an appeals mechanism in provisions for consumer grievance redressal and consumer protection.
What were its recommendations: CUTS called for a clear definition of games of skill and games of chance, and asked the government to lay down conditionalities for virtual online sports being qualified as a game of skill.
- It urged the government to make the commission powerful as a regulator. The “commission should be empowered to determine the legality of virtual online sports instead of giving these powers to SROs,” CUTS said.
- CUTS said that there was a need to increase the number of independent members (five in total) such as consumer representatives who are players and consumer groups that advocate for consumer protection.
- It urged the government to include a three-step mechanism for grievance redressal of consumers. The organisation also wants the SROs to carry out awareness generation campaigns and build capacity to address consumers issues.
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