The Ministry of Electronics and Information Technology (“MEITY” / “Ministry”) was designated as the nodal ministry for matters relating to online gaming on 23 December 2022. Soon after this allocation, on 2 January 2023, MEITY issued draft amendments to Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediary Guidelines”) directed towards regulation of online games in India (“Proposed Amendments”). Under the Proposed Amendments, MEITY has proposed a self-regulatory mechanism for online games in India requiring establishment of self-regulatory bodies and registration of certain online games with such self- regulatory bodies.

The Proposed Amendments are currently in a draft form and have been issued for public consultation where comments from public and different stakeholders can be submitted until 17 January 2023. This update sets out a brief overview of the proposed self-regulatory regime for online gaming and certain key issues relating to the same.

1. Applicability

• The Proposed Amendments intend to cover:
  (a) ‘online games’ which are computer games offered on internet where a user: (i) can access such game if such user makes a deposit (in cash or kind) to participate in the game, and (ii) expects a prize (in cash or in kind) to be awarded to such user based on his / her performance as per the rules of the game; and
  (b) ‘online gaming intermediaries’ which are online gaming platforms offering one or more such online games (“OGIs”).
• The definition of online games appears to be wide and it remains to be seen if the intent is to also cover situations where the user does not pay directly to participate in the game but instead has to make a deposit to purchase certain items on the gaming platform to access the game (a common structure in the gaming industry).
• The definition of ‘online games’ does not cover games which are or could be played without payment of any participation fee; or where there are no tangible winnings to be awarded (“Permitted Online Games”). This would infer that all, and such Permitted Online Games are generally not proposed to be regulated. Given that gambling must involve payment of consideration (as interpreted by the Supreme Court in prior judgements), this appears to be in line with the legislative intent to regulate ‘for cash’ online games/ real money games only. However, unlike various state level statutes which provide a carve out for ‘games of skill’ from the purview of gambling, the Proposed Amendments seek to cover all online games for cash (irrespective of it being a game of skill or chance).
• The Ministry could bring a Permitted Online Game within the scope of Intermediary Guidelines by way of a gazette notification if it is satisfied that such Permitted Online Game may: (a) harm the sovereignty and integrity of India, security of the state or friendly relations with foreign states or the public order; or (b) cause addiction or other harm among children. While the Ministry has wide powers to bring a Permitted Online Game within the regulatory fold of Intermediary Guidelines, the Proposed Amendments require such notification to be backed by reasons which are recorded in writing.

2. Setting-up Self-Regulatory Bodies

• The Proposed Amendments contemplate registration of one or more self-regulatory bodies (“SRBs”) proposed by the OGIs with MEITY. These SRBs to be registered with MEITY can be formed either as a company incorporated under Section 8 of the Companies Act, 2013 or a society registered under the Societies Registration Act, 1860. In terms of their functioning, the SRBs will be responsible for formulating, verifying and testing a framework to ensure compliance with Section 69A of the Information Technology Act, 2000 (“IT Act”).
• The registration of an SRB with the Ministry is dependent upon a number of factors which, amongst others, include: (a) the number of OGIs who are its members; (b) its potential to promote responsible online gaming; (c) the suitability of the individuals comprising the board of directors or governing body of such SRB; and (d) the capability of the SRB to function at an arm’s length from its member OGIs.
• The Ministry can suspend or revoke the registration of the SRB upon the SRB’s non- compliance with the Proposed Amendments.
• OGIs and the online games offered by such OGIs will have to be registered with an SRB. The SRBs are required to consider the request for registration of online games basis various conditions including: the online game is in compliance with the laws in force in India (including any such laws which prohibit or regulate gambling or betting in India). Additionally, OGIs while seeking registration need to show their track record in responsible offering of online games (in a way that interests under Section 69A of the IT Act have been protected). This requirement to evidence track- record may be onerous for freshly launched start-ups. Hopefully, this requirement will be addressed and clarified in the final rules/ guidelines such that its doesn’t hinder registration of newly started gaming platforms.
• Different states across India have legislations which regulate and/or prohibit betting or gambling. Accordingly, online games which involve betting or gambling (or are games of chance) cannot be registered with an SRB and consequently, cannot be offered by an OGI. Further, given that the state-specific legislations regulating or prohibiting gambling will continue to apply, the policies and functioning of the SRBs will continue to be driven by state-specific restrictions and to that extent lack uniformity. This means that while a registered online game can be certified and be available for other states, the registration of the game would be subject to it not being available in states where online gaming is completely prohibited (even if such online game does not involve gambling).
• Every SRB will also be required to intimate the Central Government about registration of each online game along with a report on rationale for granting such registration.
• Earlier, the determination of a game being a game of skill or game of chance (i.e., gambling) had only been undertaken by the courts for a limited number of games where this question was raised as a part of legal proceedings. The obligation on the SRB to endorse the permissibility of an online game (from a gambling law perspective) prior to registration is a welcome step and may help clear the air and formulate market views for those online games where there has been ambiguity regarding the level of skill/chance involved.

3. Due Diligence Requirements

• By way of the Proposed Amendments, an OGI will be required to comply with such due diligence requirements which are applicable to other intermediaries (social media intermediaries and significant social media intermediaries) covered under the Intermediary Guidelines including publication of terms of use and privacy policy to the users.
• Further, an OGI will be required to comply with certain additional due diligence requirements which include:
  (a) display mark of registration with SRB;
  (b) inform the users about risk of financial loss and addiction;
  (c) inform users about policy on withdrawal of deposits made by them;
  (d) publish a random number generation certificate and a no bot certificate from a reputable certifying agency in relation to every online game it offers;
  (e) while registering the user account, identify the user based on the process followed by RBI for customer verification at the start of an account-based relationship. This means that OGIs will now have to follow ‘know your customer’ (KYC) norms for users. In practice, most online gaming companies have been following KYC norms for purposes of either opening wallet accounts or determining geo-location to comply with state laws where online gaming is regulated or banned;
  (f) inform users about change in its rules, regulations, policies immediately after such change is effected as against the annual update applicable to other intermediaries under the Intermediary Guidelines; and
  (g) furnish information regarding cyber security incidents within 24 hours of receipt of the order.
• Generally, these changes are a positive step to regulate users on online gaming platforms and are intended to ensure that user interest is protected.

4. Hosting, publishing or advertising an online game

• Under the Proposed Amendments, all intermediaries will be required to confirm the registration of an online game with the SRB and verify such registration with the relevant SRB before hosting, publishing or advertising an online game for a fee.

5. Physical presence related requirements

• Under the Proposed Amendments, an OGI will also be required to appoint a Grievance Officer, Chief Compliance Officer and a nodal contact person, each of them being residents in India.
• Further, the OGI will also be required to have a physical address in India which will be available publicly for receiving communications addressed to the OGI. These requirements, in certain aspects, make physical presence of an OGI in India, along with appointing employees in India who will hold the aforementioned designations (and consequently, be statutorily responsible for certain compliances), mandatory. This may require some structuring for foreign entities who operate purely from an offshore location.

6. Grievance Redressal

• The Proposed Amendments also require an OGI to employ an appropriate grievance redressal mechanism – which includes appointment of a Grievance Officer (an Indian resident employee of the OGI, as mentioned above) and provide a unique identification and tracking system which enables complainants to track the status of their complaints.
• Complainants whose grievances remain unresolved by the OGIs can approach SRBs, which, under the Proposed Amendments, have been mandated to provide time bound resolution of user complaints.

7. Consequences of breach

• As a consequence of non-compliance of the Proposed Amendments, the safe-harbour provided to intermediaries under Section 79(1) of the IT Act will not be available to the intermediary and it will liable for punishment under the applicable laws including the IT Act and Indian Penal Code, 1860. However, the safe-harbour protection is not particularly relevant in case of OGIs as they will have control over the content offered by such intermediary.

Authors: Kunal Thakore & Sachin Mehta – Partners