India's New Online Gaming Amendment Rules: Implications and Insights

INDIA'S NEW ONLINE GAMING AMENDMENT RULES: IMPLICATIONS AND INSIGHTS

The Amendment has come as a positive development for India’s gaming industry offering a path towards regulatory certainty and investor confidence

On 6 April, 2023, the Ministry of Electronics and Information Technology (“MeitY”) notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023¹ (“Amendment Rules”) in a bid to regulate the online gaming industry in India.

The Amendment Rules have been formulated in an addition to the already existing Information Technology (Intermediary Guidelines and Digital media Ethics Code) Rules, 2021 (“Rules”)² and focus specifically on online gaming intermediaries.

The Aim of the Amendment Rules

The new Amendment Rules aim to impose certain regulatory checks and balances on online gaming platforms and social media intermediaries, introduce provisions for regulation of such platforms through self-regulating bodies, guard online users from exposure to harmful content and addiction as well as curb the spread of fake/false information related to the Government.

Definitions and its Scope

The Amendment Rules have introduced the definitions of online game³ (“OG”), online gaming intermediaries⁴ (“OGI”), online real money game⁵ (“RMG”), online gaming self-regulatory bodies⁶ (“SRB”), permissible OG⁷ and permissible RMG⁸.

Earlier the OGIs were not specifically defined under the Information Technology Act, 2000 (21 of 2000) (“IT Act”) which led to arbitrary interpretations as to how such platforms were to be treated. With the advent of these Amendment Rules, the domain of OGIs has been clearly classified as a special class of online intermediaries.

An RMG has been defined as any game which involves making a deposit of cash or kind in the expectation of earning winnings on such deposits. Although the clause explains winnings in lieu of deposits made, the scope of ‘cash or kind’ are not defined leaving its ambit ambiguous.

It is imperative to highlight that all existing and upcoming RMGs have to be granted permission by SRBs in order to fall within the purview of a ‘permissible’ RMG and thereby be able to offer its services to users. A failure of an RMG to be verified by the SRBs would lead to a risk of such RMG being classified as operating illegally and such RMG shall not be permitted to offer its services to users.

Analysis of the Amendment Rules and What Changes

• Self-Regulatory Bodies

The Amendment Rules have put in place a framework wherein MeitY shall appoint SRBs as it may deem necessary, subject to certain eligibility criteria stated under the Amendment Rules. An eligible SRB shall have the power to verify an RMG as a ‘permissible’ RMG. In order to ensure transparency in such verification process, the SRBs are required to publish a report on their website entailing the details of the permissible RMGs that have been allowed, the period and validity of such permission, basis for approval of their application and details of suspension or revocation of such permission. Furthermore, each SRB is required to publish on its website the framework for the redressal of grievances and the contact details of the Grievance Officer to whom an aggrieved applicant can raise a complaint regarding the decision of the SRB.

Earlier, the OGIs could operate legitimately only when they were classified as offering games/competitions that required a specific skill set of the user being part of such games/competitions. Such legitimacy was recognized and affirmed by courts in their judicial pronouncements wherein they have in the past, permitted platform(s) offering “games of skill”⁹ to operate as they are excluded from being considered a mere wager, bet or gamble.

The Amendment Rules intend to offer a defined framework for the verification of RMGs in order to ensure that there exists a balance between Government oversight as well as industry centric self-regulation which is a measure towards promoting ‘ease of doing business’.

• Due Diligence Requirements for OGIs

In addition to the due diligence obligations stipulated under the Rules for intermediaries, the Amendment Rules further aim to extend the application of following due diligence requirements to OGIs and other intermediaries:

A. Pursuant to Rule 4(1)(a) of the Amendment Rules, an OGI shall appoint a Chief Compliance Officer who shall be responsible for ensuring due compliance with the IT Act and the Rules made thereunder;

B. As per Rule 3 of the Amendment Rules, an OGI shall prominently publish on its website and/or mobile application, the rules, regulations, privacy policy, as well as the user agreement for access or usage of its computer resource by any person (“Policies”). Such Policies shall prevent the users from hosting, uploading, publishing, storing any information that are not permissible under Rule 3(1)(b) of the Amendment Rules.

C. If any OGI has provided access to a RMG it must comply with additional obligations as given under Rule 3(1)(b) of the Amendment Rules such as informing its users of any changes in the rules, regulations, user agreement or privacy policy within 24 hours after such change has been effected.

D. The OGI is also required to display a verification mark of a ‘Permissible RMG’.

E. The OGI is required to verify the identity of users before accepting any deposit as per the procedure laid down by the Reserve Bank of India i.e. verification of a customer at the commencement of an account-based relationship.

Furthermore, the Amendment Rules require OGIs to clearly set out their policies for the withdrawal or refund of deposits, distribution of winnings, fees and charges levied, KYC procedures adopted, and the protection of user deposits. The amendment also forbids OGIs offering permissible RMGs from financing or providing credit to users to facilitate their online gaming activities.

• Framework for RMGs

An SRB is required to set in place a defined framework for the verification of an RMG, and such framework is required to include measures that ensure that that an RMG is not operating against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order. In addition to this, an RMG has to offer adequate safeguards against user harm by providing measures for parental or access controls and introducing age-rating mechanisms. Furthermore, it has to provide for measures to curb the risk of addiction, financial loss and fraud as well as inculcate mechanisms to assure adherence to the user’s designated monetary and time limits.

Under the Amendment Rules, an SRB can initially classify an RMG as ‘permissible’ for up to three months. After this period, the SRB may either confirm the RMG’s permissibility or inform the OGI that the RMG does not meet the criteria to be classified as ‘permissible’. If necessary, SRBs may cancel the pre-existing verification of an RMG provided such RMG is given reasoning for doing so.

Conclusion

The Amendment has come as a positive development for India’s gaming industry offering a path towards regulatory certainty and investor confidence. However, challenges related to implementation must be addressed to fully realize the benefits of the amendment. One significant challenge is the lack of clarity regarding the regulatory regimes applicable to OGIs offering RMGs across states. While the Amendment Rules require SRBs to conduct due diligence to verify whether an RMG is permissible in a particular state of operation, it is silent as to compliance mechanisms in a situation where there are conflicting/varied state-specific laws, in relation to RMGs operating across states.