JULY 2023

EDITION

LEXTECH: CENTRE FOR

LAW, ENTREPRENEURSHIP
AND INNOVATION
CONTENTS

1. Technology, Media and

Telecommunications

2. Online Gaming and

Betting laws

3. FinTech

4. Artificial Intelligence

5. Data Privacy
TECHNOLOGY, MEDIA
AND
TELECOMMUNICATIONS

SECTION 1
TELECOM REGULATORY AUTHORITY OF INDIA
(‘TRAI’) HAS ISSUED A CONSULTATION PAPER ON
REGULATING OVER-THE-TOP (‘OTT’) PLATFORMS
NEWS
TRAI has released a consultation paper seeking input from stakeholders on the
regulation of social media and OTT platforms. It specifically requests suggestions
regarding the possibility of selectively banning certain OTT services instead of
implementing a total Internet shutdown.

THE LEGAL TALK

The Department of Telecommunications and TRAI have jointly issued a consultation
paper on the regulatory framework for OTT services. They are seeking input from
relevant stakeholders to develop recommendations regarding the same. Accordingly,
a consultation paper has been issued which aims to gather suggestions on regulating
OTT services, including possible collaboration between OTT providers and licensed
telecom services. The paper is also exploring the potential outcome of selectively
prohibiting OTT services in certain situations. It also emphasizes the significance of
differentiating distinct categories within OTT services

THE WAY FORWARD

As per the suggestions in the consultation paper, if OTT services and social media are
brought under TRAI's regulatory control, platforms offering voice, video, and
messaging services will need a telecom licence. As a result, these services might
become subject to telecom interception obligations, including integration with a
centralised monitoring system. This could lead to security agencies having the
capability to monitor any call at any time, potentially compromising the integrity of
end-to-end encryption mechanisms.
 KARNATAKA HC UPHOLDS GOVERNMENT'S
AUTHORITY OVER SOCIAL MEDIA CONTENT

NEWS
LEGAL TALK
In the matter of X Corp v Union of India, In the present case, the government derives its
the Karnataka High Court upheld that authority to issue content blocking orders from
social media intermediaries are obligated Section 69A of the IT Act. Under this provision,
to adhere to the government's blocking such orders may be issued to SMIs when the content
orders without any room for resistance. is deemed highly objectionable and poses a threat to

Further, the court held that Social Media public order, national security, and the sovereignty

Intermediaries (‘SMIs’) must diligently and integrity of the nation. The responsibility for
evaluating objectionable posts lies with the
comply with the government's blocking
examining committee established in accordance
orders or promptly initiate legal
with Rule 7 of the IT Rules, 2009. The committee is
measures against objectionable posts to
entrusted with undertaking diligent and reasonable
avail themselves of the safe harbour
efforts to assess the nature of the content.
provisions under the Information Additionally, Section 69A of the IT Act confers
Technology Act, 2000 (‘IT Act’); and to discretionary power on authorities to communicate
avoid potential criminal charges. the reasons for issuing blocking orders.

THE WAY FORWARD

The court's decision weakens the right to freely express oneself, as it restricts content
without adequately communicating the reasons. This action suppresses digital rights
and uses the excuse of "fake news" to limit right to speech. Moreover, it ignores
fundamental constitutional principles and gives the government too much power,
establishing a dangerous precedent.
CANADA PASSED ONLINE NEWS ACT
NEWS
The Canadian Senate's recent passage of the Online News Act (Bill C-18) represents a
notable development in the ongoing dispute between the Canadian government and tech
giants like Google and Meta (formerly Facebook). The legislation requires social media
platforms to provide remuneration to media outlets for sharing news content on their
platforms, intending to create a more equitable environment. The implementation of this
law is expected to have significant implications for the dynamics of news distribution in
the digital space.

LEGAL TALK
In Canada, the Department of Justice Act mandates the Minister of Justice to produce a
Charter Statement for government bills, as stipulated under Section 4.2. Notably, in the
case of Bill C-18, the Charter Statement is aligned with Section 2(b) of the Canadian
Charter of Rights and Freedoms, which guarantees fundamental freedoms such as freedom
of thought, belief, opinion, and expression, encompassing the freedom of the press and
other communication media. The objective of Bill C-18 is to establish a comprehensive
framework that ensures fair and equitable compensation for news content utilized by
technology platforms. In doing so, the legislation seeks to strike a delicate balance between
protecting the right to freedom of expression and addressing the economic interests of
news businesses. By acknowledging and safeguarding Charter rights, the bill aims to
address pertinent concerns and create a regulatory structure that fosters an environment of
accountability and fairness in the digital media landscape.

THE WAY FORWARD

In India, a similar issue arises where media houses and tech giants like Google and
Facebook are at odds over payments for news content. Recently, the Union Information
and Broadcasting Secretary emphasized fair revenue sharing for digital publishers from
Big Tech at the DNPA conference. Also, the CCI is probing complaints about unjust
advertisement intermediation, arbitrary revenue-sharing, content free-riding, and Google's
alleged abuse of dominance in its service agreement.
SECTION 2
 GST COUNCIL ANNOUNCES HIKE IN TAXES
FOR ONLINE GAMING COMPANIES (‘OGC’) –
NEW TAX RATE TO BE 28%
NEWS
Recently, the GST Council announced a hike in the rate of taxes on online gaming
to 28%, which is to be paid by OGCs. Moving away from the previous model of a tax
on the companies’ gross gaming revenue (‘GGR’), the new tax will be applicable on
the full-face value of the bet itself.

LEGAL TALK
Introducing new GST rates have raised concerns that levying tax on the face value
(the entire amount of a player) will override the bounds of GST. Initially, the tax was
levied only on the amount of money that a person paid for the services that he
availed of on the platform, while the remainder was kept by the platform in a
fiduciary capacity, which was used by the customer to place a bet. The levy of the
new tax assumes that all online games are either gambling or betting, which is not
true. Here, the government has failed to distinguish between skill-based games and
chance-based games. Online skill gaming is a legitimate business protected under
Article 19(1)(g) of the Constitution. The Apex Court in M/s Games Kraft
Technologies Pvt. Ltd. v. Director General of Good Services Tax Intelligence has
ruled emphasizing that as long as the game is of the nature of skill, GST would be
levied only on the platform fees and not the entire money.

THE WAY FORWARD

The new GST tax rate would hinder the
digital India dream, by increasing the
illegal and unauthorized offences, which
most of them are unregulated. The GST
council, therefore should reconsider the
new tax rate, make it clearer and more
moderate applicable only on platform fee
and not on the entire face value.
MEITY’S PROPOSES NEW RULES TO REGULATE
ONLINE GAMES
NEWS Real-money gaming (RMG) on the other hand, will
The proposed new rules to regulate online games not be allowed unless stakes are placed on the
have not yet been added to the IT (Intermediary result of the game. The RMG is different from
Guidelines and Digital Media Ethics Code) Rules of gambling in that it requires you to purchase the
2021, which would require amending the same. The chips or coins for real money, which will have a
Ministry of Electronics and IT (‘MeitY’) has tried to monetary value, and then play. RMG are legal as
bring a new model of self-regulation organisations they are skill-based, and the stakes are not on any
(‘SRO’) into the online gaming sector. SROs will be uncertain outcomes. These draft rules were
the body that determines if an online game is introduced by the MeitY through the Government
permissible or not. It is also expected to include of India (Allocation of Business) Rules, 1961. The
experts from different areas, like education, rules are based on the assumption that proper
psychology, mental health, and child rights. regulation will reduce harmful consequences like
financial loss, fraud, or the risk of addiction caused
LEGAL TALK by online gaming. This classification of gambling
The draft gaming rules proposed are issued under and games of skill by the SRO will be very
clauses (z) and (zg) of sub-section (2) of Section 87 beneficial for GST, which would provide a stable
of the Information Technology Act, 2000, that are and equitable platform for the games of skill.
considered to be critically affecting online games:
1.The government will set up SROs, and these will THE WAY FORWARD
decide the permissibility of a game. These rules will promote online games by
2.Online games that involve any kind of gambling boosting the confidence of investors and bringing
will be prohibited, including gambling ads. in stability. This can possibly unlock the potential
of a 20-billion-dollar online gaming industry in
India.
FinTech

SECTION 3
RESERVE BANK OF INDIA (‘RBI’) GIVES A GREEN SIGNAL
TO FIRST LOSS DEFAULT GUARANTEES (‘FLDG’)

NEWS
RBI has recently released its
Guidelines on Default Loss Guarantee
(‘DLG’) in Digital Lending through
which the FLDG arrangement has
been allowed, subject to certain
restrictions. An FLDG arrangement is
a contractual arrangement between
regulated entities (‘REs’) like banks and
Non-Banking Financial Companies
(‘NBFCs’) and Lending Service
Providers (or LSPs’) like FinTech
companies.

LEGAL TALK
Under this arrangement, these LSPs agree to guarantee the REs losses due to
defaults in a particular loan portfolio, up to a certain percentage. Previously, the
RBI had completely restricted FLDGs by classifying them as "synthetic
securitization". Now, the RBI has permitted LSPs to extend guarantees through
the FLDG model up to 5% of the entire loan portfolio. Moreover, the REs can
accept a DLG from the LSP if it is only in three forms: cash, fixed deposits with
a lien marked in favour of the RE, or bank guarantees in favour of the RE.

THE WAY FORWARD

The introduction of FLDG
arrangements is seen as a positive
development that will enhance credit
penetration and financial inclusion
in the digital lending ecosystem. It
will also foster greater transparency
and enhance deeper partnerships
and collaborations between banks,
REs, NBFCs, and the new-age
FinTechs.
 ONLINE PAYMENT
PLATFORMS COME
UNDER THE AMBIT OF
PMLA: DELHI HIGH
COURT
NEWS
The Delhi High Court (‘Delhi HC’)
has held that online payment
platform PayPal is a ‘payment system
operator’ and issued a directive
against the US-based company,
compelling them to adhere to the
provisions of the Prevention of
Money Laundering Act, 2002
(‘PMLA’). This decision of the court
leads to the inference that even
technology intermediaries that assist
LEGAL TALK in transactions through banks
"Payment system operator" has been defined without directly handling funds will
under Section 2(1)(rb) of the PMLA, 2002, as now have to comply with the
an individual or entity running a payment guidelines specified in the PMLA.
system, including overseas principals. An
overseas principal is someone who resides THE WAY FORWARD
outside India and either owns, controls, or
After this judgement, payment operators
manages, directly or indirectly, the activities or
operating within India will be expected
functions of a payment system in India. to bear increased regulatory costs.
Further, Section 2(1)(wa) clarifies "reporting Further, they must form dedicated
entity" as banks, financial institutions, teams for compliance and monitoring,
intermediaries, businesses, or professionals. and conduct more rigorous KYC

From the perusal of the definition of overseas verifications. Additionally, these entities
will be obliged to periodically disclose
principal, it can be understood that technology
transactions of significant worth or those
intermediaries handling funds directly or
arousing suspicion of potential money
indirectly will come under the ambit of PMLA.
laundering to the Financial Intelligence
Upholding the same, the Delhi HC clarified that Unit.
any player that enables the transfer of money
between two ends will fall under the ambit of
the payment system.
AARRTTIIFFIIC
CIIA
ALL
IIN
NTTEELLLLIIG
GEENNCCEE

SECTION 4
CLASS ACTION LAWSUIT AGAINST WORLD’S FIRST ROBOT
LAWYER

NEWS LEGAL TALK WAY FORWARD

DoNotPay Inc. (‘DoNotPay’), the Looking at the applicable laws, The main question that arises
DoNotPay’s robot lawyer seems
world’s first robot lawyer in this case is whether the
to be in violation of California’s
service faced trouble recently chatbot can be held guilty of
Unfair Competition Law (‘UCL’)
when a class-action lawsuit was under Business and Professions such an offence in the first
filed against it for unauthorised Code 6125 and 6126 for place. As per the UCL, it can be
practise of law. DoNotPay pretending to be an attorney
enforced only against natural
operates an Artificial with a licence. A similar parallel
persons. In this case, whether
Intelligence (‘AI’)-powered can be drawn in the Indian
context, where Section 33 of the DoNotPay’s liability would
chatbot that uses natural
Advocates Act, 1961, imposes extend to the founders and
language processing and
comparable restrictions. These employees of DoNotPay is yet
machine learning algorithms to laws state that, unless provided
provide legal advice and to be seen. AI and technology
by another law, only persons
assistance to its users. While the enrolled as advocates shall be laws can be drafted, but
matter is still under sub-judice, allowed to practise law. creating laws in a subject area
the legal implications that have Consequently, the operation of that is constantly evolving is
DoNotPay's robot lawyer,
arisen are noteworthy. not feasible as the pace of
purporting to possess legal
licensure, raises concerns of amendments to the law cannot
non-compliance with these match the pace of AI's
statutes in both California and evolution.
India.
AI TRAFFIC CAMERAS ENSURING
SUCCESS OF SAFE KERALA PROJECT

NEWS
The Safe Kerala Project is an initiative by the
Government of Kerala where 726 AI cameras have
been installed on the highways within the state, which
will analyse vehicles in violation and send photos to the
Motor Vehicles Department of the Government of
Kerala. It has been built in a Build, Own, Operate,
Transfer (BOOT) mode. There was a hindrance to this
major advancement when the Leader of Opposition,
VD Satheesan, moved the Kerala High Court, alleging
corruption in the implementation of the project.

LEGAL TALK
In this particular case, the petitioner raised the
argument that the State government's decision to
entrust private entities with the information of
citizens constitutes a violation of the right to privacy
as protected under Article 21. The presiding Justice
PV Kunhikrishnan, while considering the matter
acknowledged the significance of AI and commended
the implementation of AI cameras as a positive
initiative. He emphasized that any issues pertaining
to transparency and corruption which may arise
from this implementation, should be addressed as
separate matters and should not serve as grounds to
discourage the use of AI cameras altogether.

THE WAY FORWARD

While AI represents the future of technology,
but it cannot completely replace traffic police
officers as it cannot detect underage driving, car
registrations, valid driving licences, or pollution
norms. It still does not account for rental cars,
and the accused driver may be different from
the owner of the car. The government also
needs to ensure transparency for a smooth
implementation of the project.
SECTION 5
 NEW DATA PROTECTION BILL SET TO MAKE ITS
APPEARANCE IN PARLIAMENT AFTER CABINET NOD

NEWS
The Right to Privacy was declared a
fundamental right by the Supreme
Court in K.S. Puttaswamy v. Union of
India. The government is responsible
for processing the personal
information of millions of its citizens.
As a result, scholars have insisted on
specific legislation for data privacy to
regulate bodies and prevent the
government from taking decisions
autonomously. The revamped version
of the data protection bill will make
its appearance in front of Parliament
during the monsoon season.

LEGAL TALK
In the present bill, the powers of the intended Data
Protection Board (‘DPB’) has been severely restricted,
and the government reserved the right to appoint
people in power autonomously. Here, Section 8 of
Chapter II has given unbridled power to the
government where they can use the data without
consent for ‘fair and reasonable’ purpose – a
provision opened to diverse interpretations.
Moreover, the bill establishes that a data principal is
'deemed' to have provided consent for various
reasons, thereby granting requisite authorities the
ability to access and use personal data.

THE WAY FORWARD

The provision of deemed consent in the new
data protection bill is unclear and vague and
gives the government and its agencies wide-
ranging exemptions. These issues could
possibly enable the government to misuse its
powers and show a disregard for people’s
fundamental rights.
 CONTRIBUTORS
DESIGNERS
SAMRIDHI BAJORIA
NAMAN OSTWAL

WRITERS
SHLOKA MATHUR
NAYANA KB
LAVANYA CHETWANI
ANJALI PANDE
TRISHNA AGRAWALLA
KUSHAL AGRAWAL

EDITORS
NIKHIL JAVALI
HARSH MITTAL

LEXTECH-CENTRE FOR LAW, ENTREPRENEURSHIP AND

INNOVATION

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