On December 23, 2022, the Government of India (Allocation of Business) Rules, 1961 was amended by virtue of which ‘matters relating online gaming’ was brought under the purview of Ministry of Electronics and Information Technology (“MeiTY”). Later, on January 2, 2023, MeiTY published draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Intermediary Rules”) in relation to online gaming to safeguard the users of online games against potential harm (“Draft Online Gaming Rules”).

Key Highlights of the Draft Online Gaming Rules and Analysis

  1. Definition of ‘online gaming intermediary’ and ‘online game’:

The Draft Online Gaming Rules defines ‘online gaming intermediary’ as an intermediary that offers one or more than one online game. An ‘online game’ is defined as a game that is offered on the internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings. Further, ‘deposit’ is defined as the deposit made or committed to, in cash or in kind, by the user for participating in an online game; and ‘winnings’ is defined as any prize, in cash or in kind, that 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.

Analysis: The definitions so provided under the Draft Online Gaming Rules pave way for ambiguity and vagueness in terms of which intermediaries could fall under the ambit of ‘online gaming intermediary’. The IT Act defines intermediary as ‘with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes.’ Shri Ashwini Vaishav, Minister of Electronics and Information Technology (“MeiTY Minister”) answering questions in relation to promotion of gaming start-up ecosystem in the Lok Sabha on February 8, 2023, clarified that the definition of ‘intermediary’ does not include publishers within its scope. This would mean that the publishers of online games will not fall under the ambit of ‘online gaming intermediary’. However, whether gaming developers will fall under the ambit of ‘online gaming intermediary’ is still unclear and uncertain.

Further, the definitions of ‘deposit’ and ‘winnings’, provide for inclusion of the terms ‘in cash or in kind’. This may entail a situation in which an online game that does not require a monetary deposit or promise any monetary return as reward to the user, to be considered as an ‘online game’, as defined under the Draft Online Gaming Rules. An online gaming organization offering functions such as group text chat, group voice chat and multi-player functions may fall under the definition of ‘intermediary’ and by usage of the term ‘in cash or in kind’, such organizations may fall under the definition of ‘online gaming intermediary’ as defined under the Draft Online Gaming Rules. Therefore, all such organizations and such online games may be subjected to regulation under the Draft Online Gaming Rules.

Furthermore, let us consider an instance where an online gaming organization offers the relevant online game on subscription basis, wherein a user willing to subscribe to such game makes payment of the specified subscription amount in order to access various levels of the game rather than ‘the expectation of earning winnings’ (as provided under the definition of online game’). While the specified subscription amount may fall under the definition of ‘deposit’, since there is no expectation of the user to earn winnings, it may not fall under the definition of ‘online game’ as envisaged under the Draft Online Gaming Rules. In the event the said game does not fall under the definition of ‘online game’, the scope for regulation under the Draft Online Gaming Rules is thus ousted.

We suggest that MeiTY should crystalize and clarify the scope of the Draft Online Gaming Rules while amending the IT Intermediary Rules in order to root out any ambiguity that could arise from the amended IT Intermediary Rules.

  1. Additional Due-Diligence Requirements for Online Gaming Intermediary:

The Draft Online Gaming Rules provide for additional due-diligence requirements to be observed by an online gaming intermediary, including but not limited to the following:

  1. Mandatorily publish the following information on its website and/ or mobile based application:
    • a demonstrable and visible registration mark on all online games registered with a self-regulating body (registered with MeiTY) and the said self-regulating body may register an online game in conformity with, inter alia, the present laws of India including laws relating to betting /gambling or competence to enter into a contract;
    • a random number generation certificate and a no-bot certificate from a reputed certifying body for each online game offered along with relevant details thereof;
    • physical contact address in India for receiving any communication addressed to it; and
    • its rules and regulations, privacy policy, terms of service, and user agreements of the online gaming intermediary, the associated risk of financial loss and addiction with the online game, etc.
  2. Mandatory appointment of the following personnels:
    • A resident ‘chief compliance officer’ to ensure compliance with the Information Technology Act, 2000 (“IT Act”) and rules made thereunder and who shall be liable in any proceedings relating to any relevant third-party information or data or communication link made available or hosted by the online gaming intermediary;
    • A resident ‘grievance officer’ to implement appropriate mechanism for grievance redressal; and
    • A resident ‘nodal contact person’ for 24X7 co-ordination with law enforcement agencies and officers.
  3. Know Your Customer (KYC) procedure to be followed at identification and verification of a customer as required to be followed by an entity regulated by the Reserve Bank of India (“RBI”) under directions issued by it for identification and verification of a customer at the commencement of an account-based relationship.

Analysis: The Draft Online Gaming Rules provide for registration of online games with a self-regulatory body, which is registered with MeiTY, and thereby conform with the framework evolved by such self-regulatory bodies. Presently, All India Gaming Federation (“AIGF“) and Federation of Indian Fantasy Sports (“FIFS“) are the self-regulating bodies which have issued charters to regulate online gaming space applicable to the members of the respective federations. There is no consistency in respect of certain key provisions under the charters published by the said self-regulating bodies such as user restrictions, restriction on foreign cards/payments, grievance redressal, and audits. For detailed analysis on the inconsistencies of the charters of the said self-regulating bodies, please see our article titled ‘Game On, Rules Unclear!’.

Further, additional due-diligence requirements in terms of (a) publication of necessary additional information on the website and/ or mobile application; and (b) mandatory appointment of aforesaid personnels is an appreciable and welcome move in order to duly regulate the online gaming industry for effective and smooth functioning as well as safeguarding the interests of its daily growing users. However, the extensive KYC requirements as issued by the RBI i.e., RBI (Know Your Customer (KYC)) Direction, 2016 (“KYC Master Directions”) proposed to be implemented by the online gaming intermediaries may in all likelihood slowdown the progress of the fast-growing gaming industry as it may act as an impediment in the process of onboarding of new users, since the KYC checks and compliances under the KYC Master Directions have strict thresholds such as proof of possession of Aadhaar in offline mode, video based customer identification process (V-CIP) in case where offline verification cannot be undertaken, and verification of digital signature for any other digital officially valid documents (OVD), etc.

We suggest that such strict thresholds of KYC checks and compliances should only be required for high value deposits and winnings, and simpler KYC checks and compliances should be required for low value deposits and winnings. MeiTY should consider the same and notify such thresholds for value of deposits and winnings for clarity and consistency. This would not only safeguard the interests of the users, but also reduce the friction of onboarding new users as compared to the proposed system and aid in growth of the online gaming industry.

  1. Advertisements:

As per the Draft Online Gaming Rules, all intermediaries are required to determine whether the relevant online games have been registered with a self-regulatory body, approved and registered with MeiTY, prior to hosting/ publishing/ advertising the said online game.

Analysis: In addition to the registration requirements for an online gaming intermediary with a self-regulatory body, it is prudent to provide for compliance with Advertising Standards Council of India (‘ASCI’) Code for Self-Regulation in Advertising (“ASCI Code”), which has received recognition from the Supreme Court, various government ministries and organizations as well as statutory recognition under the Cable Television Network Rules, 1994. It is noteworthy that ASCI Code already prescribes specific guidelines for ‘Online Gaming for Real Money Winnings’ which is relevant to safeguard and protect the interests of the users of the online games.

Conclusion

The Draft Online Gaming Rules address some of the key issues in the online gaming sector such as appointment of personnel for compliance with laws and redressal of customer grievances, customer onboarding procedures, and certifications/ registrations of the online games. Further, the data protection laws presently applicable to ‘intermediaries’ will be extended to ‘online gaming intermediaries’ by virtue of such amendment in the IT Intermediary Rules. While the said issues which are proposed to be addressed by the Draft Online Gaming Rules are only in relation with the IT Act, certain key issues such as consumer complaints and redressal in relation to ‘unfair trade practices’ as envisaged under the Consumer Protection Act, 2019 are still missing.

The Draft Online Gaming Rules further miss out on addressing key concerns in the online gaming sector such as geographic restrictions and exclusions, and applicability of regulations under the Foreign Exchange Management Act, 1999. While the Draft Online Gaming Rules only provide for regulation of online games including ‘deposits’ and ‘winnings’ which are ‘in cash or in kind’, it does not provide clarity on the differentiation between ‘game of skill’ and ‘game of chance’ which have been fairly settled by the Indian courts and yet to be addressed in legislations governing the online gaming space.

The operation of Draft Online Gaming Rules in various states was unclear and uncertain since there are state specific conflicting gaming and gambling laws, especially for the states such as Assam and Odisha wherein all games of ‘chance’ are expressly prohibited without any exception of games of ‘mere skill’, and other states such as Nagaland and Sikkim wherein the online games are regulated under the respective state legislations. However, on February 8, 2023, MeiTY Minister clarified that the IT Intermediary Rules are not in derogation of laws enacted by the respective state legislatures. In effect, the Draft Online Gaming Rules will not change the position of legality of the games that are either prohibited or regulated by the respective state legislations.

Considering the aforesaid, the Union Government may consider enacting a fresh legislation in order to govern and regulate the online gaming industry, which would holistically deal with all pertinent issues involving online gaming including but not limited to the issues discussed above.

Authors:

Ambuj Sonal, Associate Partner

Subham Biswal, Associate

Disclaimer:

The views expressed in this piece are those of the authors and is not intended for any solicitation of work. Readers are always advisable to take prior legal consultation before proceeding formally.

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