ONLINE GAMING – now on the path of regulation*

The Ministry of Electronics and Information Technology (“MeitY”) rolled out the draft amendments to the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”), for public consultation inviting feedback and comments from the public on the proposed amendments (“Draft Amendments”). The proposed Draft Amendments by MeitY can be accessed here.

On December 26, 2022, the Government through a gazette notification, notified change in the Government of India (Allocation of Business) Rules, 1961, designating MeitY as the nodal ministry for online gaming related concerns. Thereafter, on January 2, 2023, MeitY released the Draft Amendments. The Draft Amendments essentially focus on the regulation of online gaming business, legality of which, despite various judicial pronouncements, has continued to be a grey area in India.

The Draft Amendments have been proposed to ensure that online games should be offered in conformity with Indian laws and that the users of such games be safeguarded against potential harm. Further, the Draft Amendments continue to prohibit gambling, betting and wagering in India.

A detailed analysis of the major amendments under the Draft Amendments along with our comments vis-à-vis their implications and related challenges are as below:

➢ Definition of ‘Online Game’

The term ‘online game’ is defined under the Draft Amendments as a game that is offered on the Internet and is accessible by a user through a computer resource if he makes a deposit¹ with the expectation of earning winnings² .

Further, the Draft Amendments do provide for an umbrella provision, wherein, if MeitY is satisfied in respect of any game made available on the Internet and accessible by a user through a computer resource without making any ‘deposit’, that such game may create a risk of harm to the sovereignty and integrity of India or security of the State or friendly relations with foreign States or public order, then MeitY can declare that such game shall be treated as an online game for the purposes of the Draft Amendments.

Comment: This definition along with the explanations thereto under the Draft Amendments are broad in nature and leads to ambiguity which may include other business activities which may not in strict sense involve a gaming activity.

Firstly, the Draft Amendments do not provide as to what constitutes a ‘game’. In the absence of a specific definition, the term ‘game’ may have a wide interpretation to include contests, surveys, questionnaires, lucky draws, crosswords, etc. Further, it can be argued that intermediaries with business models which offer cashbacks, discounts and/or reward/ loyalty points upon shopping or making recurring payments which eventually lead to freebies, through the platform, are also into gaming business as the winnings through an act of performance by the user has led to cashbacks, discounts and/or reward/ loyalty points earned by the user, whereby, the use of the platform or doing certain acts on the platform can be construed as a ‘deposit’.

Furthermore, the Draft Amendments define ‘deposit’ to include deposit made or committed to, in cash or in kind, by the user for participating in an online game, however, it does not identify as to what will be construed as a deposit ‘in kind’. Does sharing of personal data, responses to surveys, time spent by the user on the online platform (which is usually monetised by the platform owners), etc., qualify as a ‘deposit’?

Such ambiguity could lead to other intermediaries offering such contests, surveys, questionnaires, cashbacks, discounts and/or reward/ loyalty points, etc. being construed as an online gaming intermediary³ under the Draft Amendments, thereby, attracting additional compliances and registrations. We are uncertain whether or not MeitY intends to regulate such entities as online gaming intermediaries.

➢ Certain prohibitions

The Draft Amendments continue to prohibit gambling or betting in line with the other laws in India. Further, an age gating provision has been proposed which restricts the age for online gamers to ‘18 years or above’, which is the age at which an individual is competent to enter into a contract as per the Indian laws.

Comment: The prohibition of gambling or betting seems to be in line with the existing Indian laws, however, with respect to the age restriction for the use of online games, practically speaking, substantial number of users are below the age of 18 years, especially, in the online gaming sector. While, MeitY mentioned in its press release⁴ dated January 2, 2023, that the age for online gamers under the online gaming laws shall remain restricted to 18 years for the time being and that MeitY would like to observe if the current framework leads to expansion of the online gaming sector while this restriction is in place, it becomes pertinent to note that there is no mechanism to check whether a user is a minor or major. There have been many instances where minors/ teenagers have been misusing their parents’ details to complete the KYC procedures and access various online platforms which are not generally available for minors. In such circumstances, the absence of a mechanism to identify the age of the user may pose a constant threat for the online gaming intermediaries, thereby, leading to a risk of non-compliance.

As a standard practice, currently, various online gaming intermediaries have been publishing the terms and conditions or terms of use (“T&Cs”) on their gaming website/ mobile application stating that the use of their website is for people above 18 years of age, to which the users have to agree, thereby, being bound by such terms, however, the question remains whether these T&Cs are sufficient to safeguard the online gaming intermediaries from non-compliance of the age restriction provision under the Draft Amendments.

➢ Formation and powers of a self-regulatory body

The Draft Amendments further provide for formation, functioning and powers of the self-regulatory body. This self-regulatory body shall be registered with MeitY. A company incorporated by online gaming intermediaries under section 8 of the Companies Act 2013, or a society registered under the Societies Registration Act, 1860 by online gaming intermediaries, can apply to MeitY for registration as a self-regulatory body.

MeitY may grant the registration to the self-regulatory body upon evaluating the number of online gaming intermediaries who are its members; its track record in promoting responsible online gaming; general repute; presence of certain individuals on the board of directors⁵ of such company or society; provisions in its Articles of Association or bye-laws to ensure its functioning independently and at arm’s length from its member online gaming intermediaries; its capacity, in terms of deployment of technology, expertise, etc.

Comment: One of the major concerns under the Draft Amendments is that the members of the selfregulatory body will consist of both big and small market players in the gaming industry, which may lead to discrimination at the hands of the dominant players who are members of such self-regulatory body.

In the current scenario, where start-ups or new businesses are coming up with disruptive technology and innovations in the gaming industry, this provision under the Draft Amendments could be a road blocker to their innovation and talent.

As a regulatory procedure, any entity seeking registration as an online gaming intermediary will be required to disclose its business model to the self-regulatory body, wherein it is to disclose its business practices, this may lead to infringement. This could further create an anti-competitive situation for the new entrants. The dominant players may misuse their powers to influence the board of directors of the self-regulatory body which may in some cases even delay the registrations of entities intending to carry out bona-fide business activities. MeitY must look into this specific issue in detail to avoid red-tapism in the gaming industry.

Furthermore, the list of individuals who shall comprise of the board of directors of the self-regulatory body do not consist of any individual with legal acumen and qualification. Considering that it is the responsibility of the self-regulatory body to ensure that the online gaming intermediaries are in compliance with the applicable laws, this mandates the requirement of an independent eminent practising advocate in the field of online gaming, sports or entertainment, or such other relevant field.

➢ Suspension or revocation of registration of the self-regulatory body

In the event, a self-regulatory body is found to be non-compliant, MeitY may, if it is satisfied that it is necessary so to do, suspend or revoke the registration of a self-regulatory body. The Draft Amendments further state that in the interest of the users of any online game that was registered with such body may give such interim directions as it may deem necessary.

Comment: While, MeitY has addressed that interim directions may be passed in the interest of the users, it has overlooked the concerns of the online gaming intermediaries who would have obtained registration from such self-regulatory body who’s registration gets suspended or revoked. It is important to note that such a situation may hamper the business of such members of the selfregulating body carrying out business for a bona-fide purpose.

The Draft Amendments should have a provision mentioning the way-forward for such online gaming intermediaries and how their registration shall be treated in case the registration of the self-regulatory body is suspended or revoked by MeitY or include or extend the provisions of the interim order to the members of such self-regulatory body who’s registration is suspended or revoked, alongside its users.

➢ Provisions vis-à-vis additional due diligence

A new rule with respect to the obligation of the online gaming intermediaries observing additional due diligence has also been introduced under the Draft Amendments. While, MeitY has laid down a detailed list of requirements to be carried out by the online gaming intermediaries, the following may have an immediate business impact:

• obtaining and publishing on their website/ mobile application a random number generation certificate and a no bot certificate from a reputed certifying body for each online game offered;
• identification and verification of the user in accordance with the applicable guidelines issued by the Reserve Bank of India (RBI);
• appointment of a grievance officer, Chief Compliance Officer and a nodal contact person; and
• requirement of a physical contact address in India published on the website/ mobile based application, or both, of the online gaming intermediary for the purposes of receiving any communication addressed to it.

The above requirements and obligations will become applicable upon expiry of three months after enforcement of the Draft Amendments.

Comment: The additional due diligence obligations might be quite challenging for the new age startups which may not have enough funds or may not be financially as strong as the other developed market players in the online gaming industry. The requirement of a random number generation certificate and a no bot certificate from a reputed certifying body for each online game offered can be an expensive affair for the start-ups and an inability to obtain these certificates will tantamount to non-compliance. This will also lead to suppression of new talent and innovation.

Further, the Draft Amendments pose strict compliances including the applicability of the RBI guidelines for the purposes of identification and verification of the user.

Furthermore, the requirement of having a physical contact address in India could be a concern for the online gaming intermediaries who have been operating from a foreign land and had no physical presence in India. This requirement will require such foreign online gaming intermediaries to comply with other applicable Indian laws after establishing a presence in India.

➢ Intermediaries to verify the online games

The intermediaries which host, publish or advertise an online game for a consideration are now required to ascertain from the online gaming intermediary (offering such online game) and verify from the concerned self-regulatory body, whether such online game has been registered with such selfregulatory body. Such intermediaries are further required to display on their website, mobile based application or both, the fact of such registration. MeitY has provided a timeframe of three months after enforcement of the Draft Amendments for its implementations, thereafter, these requirements will be applicable.

Comment: The Draft Amendments do not address as to how will the intermediaries ascertain that an entity is an online gaming intermediary, especially, where the definition of online gaming intermediary is broad. While, the self-regulatory body will be in place for long existing businesses carrying online gaming, however, the Draft Amendments do not address the situation where, if in future, any unique business model is established in the gaming industry, in that case, a self-regulatory body may not be in place or registered with MeitY, whereby, they would not be given a level playing opportunity by these intermediaries at the time of their verification.

Moreover, while, MeitY has provided the timeframe of three months, the Draft Amendments do not provide for what would happen, in the event, no self-regulatory body is formed even after the expiry of the said three months.

¹ As per the explanation to Rule 2(1)(qa)(ii) of the Draft Amendments, ‘deposit’ means the deposit made or committed to, in cash or in kind, by the user for participating in an online game.

² As per the explanation to Rule 2(1)(qa)(iii) of the Draft Amendments, ‘winnings’ means 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.

³ As per the explanation to Rule 2(1)(qb) of the Draft Amendments, “online gaming intermediary” means an intermediary that offers one or more than one online game.

⁴ Available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1888143

⁵ As per Rule 4B(3)(d) of the Draft Amendments, the presence of the following in the Board of Directors or governing body of such selfregulatory body, namely:—
(i) an independent eminent person from the field of online gaming, sports or entertainment, or such other relevant field;
(ii) an individual who represents online game players;
(iii) an individual from the field of psychology, medicine or consumer education, or such other relevant field; and
(iv) an individual with practical experience in the field of public policy, public administration, law enforcement or public finance, to be nominated by the Central Government;
(v) an individual from the field of information communication technology.

*This article is written as on January, 2023, any changes or amendments thereafter are not covered under this piece.

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