Earlier this year, the Indian Ministry of Electronics and Information Technology (‘MeitY’) published a draft amendment (on January 2, 2023) to India’s existing Information Technology (Intermediary Guidelines and Digital Media Ethics Code)Rules,2021 (‘IT Rules’).

For reference, the IT Rules, read together with Indian Information Technology Act, 2000 (‘IT Act’), comprise the predominant legislation governing online ‘intermediaries’ operating in the country and prescribe compliances to be observed by various categories of intermediaries (as enumerated therein).

Through the aforementioned draft amendment, MeitY proposed to incorporate specific provisions in the IT Rules for regulation of online gaming (and online gaming intermediaries) in India. While comments were invited from trade and public on the draft amendment (until January 17, 2023), some stakeholders asserted that the release of the draft amendment should have come about following open discussion, or the release of a written report or white paper, concerning proposed regulation of the online gaming industry.

Shortly afterwards (as of April 06, 2023) MeitY notified the ‘Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023’ (‘Amendment Rules’) which chiefly contain provisions for regulation of the online gaming sector in India. The Amendment Rules seem to have received a mixed response from stakeholders. While many welcomed the initiative taken by MeitY, some have criticized the provisions introduced under the Amendment Rules and pointed out that, upon scrutiny, the Amendment Rules differed from the draft amendment previously released by MeitY (for public consultation).

The Amendment Rules mark a major amendment in the Indian IT Rules (and a major overhaul of the online gaming regulatory landscape in the country) and thus merit close scrutiny. The different aspects of the proposed regulatory mechanism introduced under the Amendment Rules have been analyzed in detail herein.

I.  Online Games and the Online Gaming Intermediary 

The Amendment Rules introduce quite a few significant statutory definitions (pertaining to online gaming) in the IT Rules, as scrutinized hereinbelow.

Notably, an ‘online gaming intermediary’ has been defined in the Amendment Rules as an intermediary that ‘enables the users of its computer resource to access one or more online games’. For reference, an intermediary (per the IT Act) includes any person who ‘receives, stores or transmits an electronic record or provides any service with respect to that record on behalf of another person.

Meanwhile, the term ‘online game’ has been (quite broadly) defined as any ‘…game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary…’. The statute goes on to narrow down the scope for what comprises a ‘permissible online game’, stating that this shall constitute a ‘permissible online real money game’ or ‘…any other online game that is not an online real money game…’. With numerous terminologies being used, interpretation of the term ‘permissible online real money game’ essentially boils down to the essential term – ‘online real money game’ (which in itself is expected to the subject of varied interpretations in the near future).

The Amendment Rules defines a ‘online real money game’ as an ‘…online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit’. For the purpose of the relevant definition, the term ‘winnings’ is defined to mean ‘any prize, in cash or kind, which is distributed or intended to be distributed to a user of an online game based on the performance of the user and in accordance with the rules of such online game’. The scope of this definition thus covers any online game in which a user may participate (through payment in cash or kind) with the expectation of winning vouchers or discounts or other similar perks, and not just monetary rewards. It is also pertinent to note that a ‘permissible online real money game’ (under the Amendment Rules) would only include an ‘online real money game’ which is verified by the ‘online gaming self-regulatory body’ (‘SRB’) proposed to be set up under the Amendment Rules (as further analyzed herein below).

II. Due Diligence Requirements

The Amendment Rules introduce new due diligence requirements for an ‘intermediary’ (including an online gaming intermediary as newly defined under the Amendment Rules). Notably, all due diligence stipulated to be observed by an intermediary under the IT Rules is now prescribed to be carried out by an online gaming intermediary. Further, there have also been some changes in the due diligence required to be carried out by intermediaries, and specifically, by online gaming intermediaries, as enumerated below.

An intermediary is now expected to make reasonable efforts ‘by itself’ to cause the users of its platform to not ‘…host, display, upload, modify, publish, transmit, store, update or share any information…’ of the nature that is expressly prohibited under the Amendment Rules and otherwise unlawful. The inclusion of this requirement implies that an intermediary will now be held to a much higher threshold of compliance.

Further, the categories of prohibited information under the Amendment Rules have been expanded to include the following:

  • An online game that causes ‘user harm’ [For reference, it is clarified under the Amendment Rules that the term(s) ‘harm’ and ‘user harm’ refer to any effect ‘…which is detrimental to a user or child, as the case may be…’]; or
  • Any information which is in respect of any business of the Indian government [having being ‘…identified as fake or false or misleading by such fact check unit of the…’ Indian government (as may be notified)]; or
  • Any information which is ‘…in the nature of an online game that is not verified [i.e. not verified by the SRB proposed to be set up under the Amendment Rules] as a permissible online game (as defined under the Amendment Rules); or
  • is in the nature of ‘…advertisement or surrogate advertisement or promotion of an online game that is not a permissible online game, or of any online gaming intermediary offering such an online game’.

Interestingly, the Indian government seems to have attempted to make the scope of coverage of the provisions of the Amendment Rules as wide as possible, which could have far reaching consequences for online gaming intermediaries. Illustratively, the definitions of the terms ‘harm’ and ‘user harm’ are quite wide and leave room open for subjective interpretation (by the Indian government and SRBs) to analyze whether or not they are detrimental to a user or a child.

Further, while the restriction on advertisement/surrogate advertisement for any online game which is not a ‘permissible online game’ seems fine, the restriction on advertisement/surrogate advertisement of an ‘online gaming intermediary’ (which is offering any online game that does not qualify as a permissible online game) reinforces due diligence requirements on online gaming intermediaries. This particular restriction implies that if an online gaming intermediary hosts numerous games on its platform and even if one of those games is not a ‘permissible online game’, the advertisement/surrogate advertisement of such an online gaming intermediary is not permissible.

Further, we note that specific timelines have been stipulated for online gaming intermediaries (for the purpose of informing users about changes in terms and conditions, privacy policy or the user agreement, as the case may be) as part of the due diligence required to be discharged under the Amendment Rules. An online gaming intermediary which enables its users to ‘…access any permissible online real money game…’ is obligated to inform its users of this change as ‘…soon as possible, but not later than twenty-four hours after the change is effected…’. Further, such an online gaming intermediary (who ‘…enables the users to access any permissible online real money game…’) is expected to provide any information or assistance as may be lawfully requisitioned by the Indian government (and authorized agencies) under the Amendment Rules within a span of twenty-four hours.

Moreover, some changes have also been made to the grievance redressal mechanism which an intermediary was obligated to maintain under the IT Rules (prior to amendment). Under the Amendment Rules, an additional scope of role and responsibilities of the Grievance Officer required to be appointed by an online gaming intermediary have been stipulated. Namely, the Grievance Officer is responsible for dealing with user complaints in relation to the additional due diligence specifically expected to be carried out by an online gaming intermediary (as enumerated herein). In addition, the timelines within which a response must be addressed to user (in respect of certain compliances) have also been stipulated.

Lastly, it is pertinent to note that the Amendment Rules have now clarified that the obligation to ‘prominently publish’ terms of use and privacy policy (which is applicable to all intermediaries including online gaming intermediaries) requires that the same should be published by an intermediary in a clearly visible manner on ‘…the home page of the website or the home screen of the mobile based application…’ or both or ‘…on a web page or an app screen directly accessible from the home page or home screen…’.

III. Grievance Appellate Committee

As mentioned earlier, as part of the compliances prescribed under the IT Rules (prior to amendment), intermediaries are obligated to maintain a grievance redressal mechanism and appoint a Grievance Officer to deal with grievances (i.e., complaints in relation to the categories of prohibited content enumerated thereunder and/or any defaults under the provisions thereof) within the time period prescribed therein.

The IT Rules provide any ‘person’ (including a user) who is aggrieved by a decision of the Grievance Officer (as may be appointed by an intermediary) the option of preferring an appeal against such decision before a (three member) Grievance Appellate Committee (established pursuant to rule 3A of the IT Rules). The IT Rules further provide that the relevant appeal must be made within thirty days of the receipt of communication of decision from the Grievance Officer and the order passed by the Grievance Appellate Committee in this regard must be complied with by the concerned intermediary. In furtherance, the concerned intermediary is also required to upload a written report (affirming its compliance with the order issued) on its website.

Under the IT Rules (as amended and up to date), however, any person may now prefer an appeal to the Grievance Appellate Committee (within the prescribed thirty-day timeline) in case he/she is aggrieved by the decision of the Grievance Officer as well as in case

 such person’s ‘… grievance is not resolved within the period specified…’ under the IT Rules. Further, as per the provisions introduced under the Amendment Rules, the orders of the Grievance Appellate Committee will be binding upon the SRB proposed to be set up thereunder.

IV.Additional Due Diligence Requirements

Under the IT Rules (prior to amendment), additional due diligence requirements were required to be observed only by an intermediary qualifying as a ‘significant social media intermediary’ in India. Under the Amendment Rules, however, certain additional due diligence requirements are also required to be observed by any online gaming intermediary that ‘…enables the users to access any permissible online real money game…’ (hereinafter referred to as ‘eligible online gaming intermediaries’) These have been enumerated for reference hereinbelow:

The Amendment Rules require eligible online gaming intermediaries (as well as significant social media intermediaries) to appoint a appoint a ‘Chief Compliance Officer’ (responsible for ensuring compliance with the IT Act and rules thereunder, including the Amendment Rules), a ‘Nodal Contact Person’ (for 24×7 coordination with law enforcement agencies) as well as a ‘Resident Grievance Officer’ (for the purpose mentioned hereinabove). While the IT Rules (prior to amendment) required only the Chief Compliance Officer and the Resident Grievance Officer (as may be appointed by the concerned intermediary) to be resident in India, the Amendment Rules stipulate that all three post-holders should be resident in India.

Further, eligible online gaming intermediaries are now required to provide for the following:

  • To implement an appropriate mechanism for the receipt of complaints and grievances (in relation to the categories of prohibited content enumerated thereunder and/or any defaults under the provisions thereof). For reference, as part of such mechanism, a unique ticket number facility must be allotted to every complaint or grievance received by the concerned intermediary so as to allow for a complainant to track the status of such complaint or grievance.
  • Further, to the extent reasonably possible, the concerned intermediary must provide reasons to the complainant for taking an action (or not taking an action) pursuant to a complaint or grievance.
  • To publish periodic compliance report(s) on a monthly basis mentioning the details of complaints received and action taken thereon.
  • To publish on the concerned intermediary’s website and/or mobile based application a physical contact address (at which communication may be addressed to the concerned intermediary).To enable registered users (either from India or using the concerned intermediary’s services in India) to voluntarily verify their accounts by using any ‘appropriate mechanism’ (as a result of which the user is provided with a demonstrable and visible mark of verification, which

  • Further, specific additional due diligence requirements for eligible online gaming intermediaries have also been incorporated in the Amendment Rules. Such intermediaries are further required to provide for the following:

  • To display a ‘demonstrable and visible’ mark of verification (as may be granted by the SRB proposed to be set up under the Amendment Rules) in respect of any ‘permissible online real money game’ which the concerned intermediary enables its users to access;
  • To ensure to include all the prescribed information (under Amendment Rules) while informing users regarding the concerned intermediary’s ‘…rules and regulations, privacy policy, terms of service and user agreements…’ in the manner required under Amendment Rules. For reference, such prescribed information includes: a policy related to withdrawal or refund of the deposit made by user with expectation of earning winnings, manner of determination and distribution of such winnings, fees and other charges payable by the user, the KYC procedure followed by the concerned intermediary for verifying the identity of the users of such online game among other information.

The Amendment Rules further restrain eligible online gaming intermediaries from financing their services ‘…by way of credit…’ or otherwise enabling ‘…financing to be offered by third party for the purpose of playing such online game…’.

Interestingly, the Amendment Rules also restrain any ‘online gaming intermediary’ (and not just an eligible online gaming intermediary) from accepting any ‘…deposit in cash or kind from any user for a permissible online real money game…’ if the online gaming intermediary has not identified such user and verified the user’s identity. In this regard, the Amendment Rules provide that the KYC procedure required to be followed by an entity regulated by the Reserve Bank of India (for customer identification and verification) will also be required to be followed (with whatever changes as may be necessary) for identification and verification of the users of such online gaming intermediary.

It is pertinent to note that all the above additional due diligence requirements are required to be observed in addition to the standard due diligence requirements (as have been elaborated herein above) prescribed under the Amendment Rules for intermediaries (including online gaming intermediaries).

V. Verification of Online Real Money Games

The Amendment Rules prescribe procedures for verification of online real money games. It is provided therein that that MeitY may notify several SRBs or ‘online gaming self-regulatory bodies’ for verifying an ‘online real money game’ as a ‘permissible online real money game’. In this regard, the Amendment Rules further provide for the designation of SRBs in India and set out certain additional requirements in relation to online games and online real money games.

VI. Designation of SRBs

The role of the SRB or ‘online gaming self-regulatory bodies’ proposed to be established under the Amendment Rules promises to be critical for the gaming industry in the time to come. This is since a ‘permissible online real money game’ (under the Amendment Rules) includes only an  ‘online real money game’ which is verified by an SRB (as proposed to be set up under the Amendment Rules).

Importantly, under the Amendment Rules, only select entities – necessarily being [private limited] companies registered under the Indian Companies Act, 2013 – may be designated (upon application) as an SRB, provided such entities meet the following criteria:

  • The applying entity possesses a membership which ‘…is representative of the gaming industry…’ and further, can evidence that such ‘…members have been offering and promoting online games in a responsible manner…’
  • The Board of Directors (‘BOD’) (of the relevant entity) is comprised of ‘…individuals of repute and do not have any conflict of interest and possess special knowledge or practical experience suitable for the performance of the functions of such self-regulatory body…’ and is composed of all the following categories of individuals:
  • An individual having ‘…special knowledge of or practical experience in the online gaming industry…’
  • An individual having ‘…experience in promoting the interests of users of online games…’
  • An educationist
  • An expert in the field of ‘psychology’ or ‘mental health’ or ‘…such other relevant field…’
  • An individual having ‘…special knowledge of or practical experience in the field of information and communications technology…’
  • An individual who either currently is or previously has been a ‘…member or officer of an organisation dealing with the protection of child rights…’
  • An individual ‘…having practical experience in the field of public policy or public administration or law enforcement or public finance or other relevant field to be nominated by [MeitY]…’ and;
  • Other individuals ‘….as may be appointed with the previous approval of [MeitY]…’
  • The memorandum of association (‘MOA’) and articles of association (‘AOA’) of the relevant entity contain provisions suitably relating to:
  • The performance of functions prescribed under the Amendment Rules including (but not limited to) the redressal of grievances ‘…in a manner free from conflict of interest and at arm’s length from its members…’
  • The ‘…disclosure and reporting by and accountability of its members…’ in relation to any online games verified by the entity (upon designation as an SRB).
  • The ‘…clear and relevant criteria…’ (consistent with the Amendment Rules) for the ‘…acceptance and continuation of a person as its member, and for revoking or suspending such membership after giving such person an opportunity of being heard…’
  • The requirement that any amendment in the MOA and/or AOA (of the relevant entity) in relation to all the above contents (required to be contained in the MOA and AOA) will be carried out only with the prior government approval.
  • The relevant entity possesses ‘sufficient capacity’ including the ‘…financial capacity, to perform its functions as an online gaming self-regulatory body…’ under the Amendment Rules.

VII. Manner of Verification of ‘Permissible Online Real Money Games’

The Amendment Rules provide that an online gaming intermediary – necessarily being a member of SRB – may apply (to the relevant SRB) for the verification of an ‘online real money game’, as a ‘permissible online real money game’ under the Amendment Rules. Thereafter, the relevant SRB may designate the relevant game as an ‘permissible online real money game’ only if – upon inquiry – the relevant SRB finds that the below set criteria has been suitably satisfied:

  • The ‘online real money game’ doesn’t involve betting or wagering ‘on any outcome’ thereof; and
  • The relevant applicant (and its online real money game) is compliant with the due diligence requirements prescribed under the Amendment Rules (as elaborated hereinabove).

In addition, the relevant SRB will also consider whether the relevant applicant is compliant with the ‘…provisions of any law relating to the age at which an individual is competent to enter into a contract…’ (which, for reference, is eighteen years and above for the purpose of the Indian Contract, Act 1872). Further, it will consider whether the relevant online real money game (in respect of which the applicant has approached the relevant SRB) is compliant with the framework made by the relevant SRB (per the obligations imposed on SRBs under the Amendment Rules, as elaborated herein) for verification of online real money games.

Notably, the Amendment Rules provide that an SRB may make an initial declaration as regards an ‘online real money game’ qualifying as a ‘permissible online real money game’ in reliance upon only the information furnished by an applicant (for the purpose of verification) – however such declaration can be validly made only ‘…for a period not exceeding three months…’. In this regard, the Amendment

  Rules further provide that the relevant SRB (having made the initial declaration) must ‘…endeavour to complete the inquiry within the said period of three months and, upon its completion, either declare the online real money game as a permissible online real money game or inform the applicant in writing with the reasons thereof that such online game does not meet the requirements…’ under the Amendment Rules.

As part of obligations prescribed under the Amendment Rules (in relation to verification of online real money games, as elaborated hereunder), upon verification of an online real money game as a permissible online real money game (in the manner mentioned above), the relevant applicant/online gaming intermediary (which ‘…enables access to such online real money game…’) is required to display a ‘…demonstrable and visible mark of such verification stating that the online real money game is verified by the online gaming self-regulatory body as a permissible online real money game…’ under the Amendment Rules.

 VIII. Obligations of SRBs

The following obligations are prescribed under the Amendment Rules (in relation to verification of online real money games) specifically for SRBs or online gaming self-regulatory bodies (as may be designated thereunder).

Notably, an SRB is required to ‘publish and maintain’ the following on its website and/or mobile application (as may be applicable):

  • An updated list of all permissible online real money games verified by the SRB (in accordance with the Amendment Rules). This list is required to contain the details of the relevant game(s), applicant(s), the dates and period of validity of the verification, reasons behind such verification and if applicable – the details of any suspension or revocation of the verification of any online real money game.

As mentioned above, under the Amendment Rules, an SRB holds the right to suspend or revoke the verification of an online real money game verified by it ‘at any time’, if it is satisfied that the same is not in compliance with the provisions of the Amendment Rules. As further mentioned above, however, the relevant SRB is required to communicate its reasons (concerning its decision to revoke or suspend verification) to the relevant online gaming/applicant member in writing as well as grant such member the opportunity of being heard.

  • An updated list of all (existing as well as former) members along with ‘…the dates of their acceptance as member, their corporate or business-related identity number and other details, and the details of suspension or revocation of membership of any member…’

An SRB is further required to ‘prominently publish’ (in the manner mentioned hereinabove) the following on its website and/or mobile application (as may be applicable).

  • The framework for verification of an online real money game, which, inter-alia includes: ‘…measures to ensure that such online real money game is not against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order…the safeguards against user harm, including self-harm and psychological harm…the measures to safeguard children, including measures for parental or access control and classifying online games through age-rating mechanism, based on the nature and type of content…and…the measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, including repeated warning messages at higher frequency beyond a reasonable duration for a gaming session and provision to enable a user to exclude himself upon user-defined limits being reached for time or money spent…’
  • The framework for ‘…redressal of grievances and the contact details of the Grievance Officer to which an applicant aggrieved by a decision of such body with respect to verification may make a complaint in respect of any matter related to such online real money game or verification….’

IX. Administration and Enforcement of the Amendment Rules

The Amendment Rules provide the Indian government discretional powers to direct an SRB to furnish to the government, or to disclose on its online platform, any information as the government may specify in its direction.

While it is provided that MeitY will take into consideration any reasons and other details published by the SRB (on its online platform) in respect of its verification of any permissible online real money game, before issuing any directions in accordance with the Amendment Rules, however, if MeitY is ‘…of the view that any verification of a permissible online real money game by an online gaming self-regulatory body is not in conformity with these rules, it may, after giving such body an opportunity of being heard, communicate, in writing, the fact of such non-conformity to that body and direct it to take measures to rectify the same…’.

Further, the Amendment Rules provide that MeitY may further ‘…if it is satisfied that it is necessary so to do, after giving the online gaming self-regulatory body an opportunity of being heard, by order, for reasons to be recorded in writing, suspend or revoke the designation of such body…’ and may in the ‘…interest of the users of any online game that was verified by such body at the same time or at any subsequent time…’ further pass such interim directions ‘…as it may deem necessary to any intermediary or class of intermediaries regarding enabling its users to access such online game…’.

It seems that MeitY has (somewhat) attempted to ease the burden of compliance imposed under the Amendment Rules by allowing intermediaries time to comply with the new due diligence and additional due diligence requirements incorporated thereunder in relation to ‘online games’ under the Amendment Rules (as elaborated herein above). The Amendment Rules provide that such obligations ‘…shall not apply in relation to online games until the expiry of a period of three months from the date on which at least three online gaming self-regulatory bodies have been designated…’ by the government. Notably, however, MeitY nevertheless (under the Amendment Rules) has reserved the power to pass a notification (at its discretion) directing for the application of such obligations in relation to online games ‘…at any time before the expiry of the said period of three months…’.

Further, the Amendment Rules provide that MeitY ‘…in the interest of the sovereignty and integrity of India or security of the State or friendly relations with foreign States or public order, or preventing user harm [i.e., any ‘effect which is detrimental to users…’].…’ may pass a notification (by giving reasons in writing) directing an intermediary to observe (in respect of an online game) – similar obligations as are contained under the Amendment Rules in respect of permissible online real money games; and further may ‘…specify the period within which the online gaming intermediary which enables access to such online game…’ must observe such obligations. It is clarified that where an online game is so notified, the provisions of the Amendment Rules applicable to permissible online real money games, will also apply in respect of such an online game.

Conclusion

In light of the above analysis of the Amendment Rules, it is quite clear that the Amendment Rules provide for major overhaul of the online gaming regulatory landscape in the country and impose stringent requirements and standards upon online gaming and concerned intermediaries (and for all intermediaries as a whole).

As mentioned above, the sudden release of the Amendment Rules has led to divergent feedback from the public – and invited both laudation and widespread concern concerning the over-reaching nature of the provisions therein (such as the high involvement of government supervision including in relation to the aspect of fact-checking proposed therein). In fact, even as the constitutionality of the Amendment Rules is already under challenge by various stakeholders, a series of gaming bodies have expressed interest in applying to be designated as SRBs.

In view of the mixed public response the Amendment Rules have received in India, it will be quite interesting to witness the impact their implementation has on the Indian online gaming industry in the coming months.

Authored by :

Ashneet Hanspal

 

  Gaurav Bhalla

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