Looking Into What’s Inside And Beyond The New Online Gaming Rules

Harish Kumar And Itee Singhal

24 May 2023 5:02 AM GMT

  • Looking Into What’s Inside And Beyond The New Online Gaming Rules
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    With an objective to regulate the fast growing ‘online gaming’ ecosystem in India, the Ministry of Electronics and Information Technology, (“MeitY”) on April 6, 2023, notified amendments to Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (the “Rules”). While the Rules are largely in line with the draft rules issued for public consultation in January 2023, there are certain noticeable tweaks in the final Rules which have a noteworthy impact.

    Importantly, unlike the draft, the final Rules have created a clear demarcation between ‘online game[1]’ and ‘online real money game[2]’. The objective is to regulate ‘online real money game’ i.e., the online games, where a deposit is made (in cash or kind) in expectation of earning money (“Money-Game(s)”). The Government has, however, reserved a power with itself to extend applicability of certain provisions of the Rules to even those online game(s) which are not Money-Game(s). The burden of complying with the Rules is on online gaming intermediaries (“OGI"), and in case of failure, the OGI would lose the ‘safe harbor’ immunity provided under section 79 of the Information Technology Act, 2000, and would be additionally subject to penal provisions.

    SRB’s verification: Only those Money-Games can be hosted by OGI that have been verified as ‘permissible online game’ by the self-regulatory body (“SRB”), and while hosting such games, the SRB’s verification mark would have to be displayed. Only ‘members’ of SRB may apply to SRB for obtaining such verification. The members of SRB should be representatives from gaming industry who have been offering/promoting online games in responsible manner. It would have to be seen if the foreign gaming entities which offers Money-Games to Indian users would be allowed SRB’s membership, as the Rules do not provide any further criterion for becoming a member of SRB. The SRB may initially provide verification for three months, relying upon the information provided by the applicant, and within these three months, the SRB would need to complete enquiry as to whether the applicant meets the prescribed requirements or not.

    The SRB’s would need to devise a framework for verifying Money-Game, and such framework shall inter alia cover (a) measures for protection against financial loss or financial fraud; (b) safeguards for user harm including psychological harm, and game addiction; and (c) safeguards to protect children through parental access control and age-rate classification based upon nature and content of the game etc.

    In order to be designated as SRB, the application would have to be made to MeitY, and the concerned applicant would have to meet the prescribed criterion, which inter alia, require the applicant to be registered as a non-profit Indian company[3]. The Board of Directors of SRB would need to comprise of experts/representatives from different fields such as online gaming, psychology or mental health, information and communication technology, child rights protection, public policy, law enforcement, public finance etc.

    A transition time of 3 months from the date on which at least 3 SRB’s have been designated by MeitY, has been provided for complying the online game related obligations. As per the media report(s), the Government has informed gaming companies that the industry has 3 (three) months to submit proposal for their SRB, failing which the Government will initiate its own process of establishing SRB.

    Explicit restriction on wagering/gambling and advertisement thereof: The SRB’s have been empowered to not verify a Money-Game as ‘permissible’ if it involves wagering as an outcome, and the OGI cannot host any advertisement or surrogate advertisement which promotes non-permissible online game. Besides, the OGI cannot host any information that encourages gambling. These restrictions are in line with the advisories issued by the Ministry of Information and Broadcasting on June 13, 2022, October 3, 2022, and April 6, 2023, to various online and offline media platforms and intermediaries to refrain from publishing/transmitting any advertisement/ promotional content of betting platforms including depiction of such content as news website in a surrogate manner[4].

    Extensive due diligence obligation on OGI(s): The OGI would need to ensure that no information on online game that causes ‘user harm’ is displayed/hosted on the platform. This is in addition to existing requirement of not hosting any information which is ‘harmful’ to child. The term ‘user harm’ and ‘harm’ shall mean any effect which is detrimental to a ‘user’ or ‘child’, as the case may be. Given the subjective meaning provided to these terms, it would be interesting to see the checks which the OGI(s) would bring in to comply these requirements. Besides, while allowing access to permissible Money-Game(s), the OGI would need to inform the users about the policy related to withdrawal or refund of deposits, manner of determination and distribution of winnings, fees payable by user, KYC procedure followed to identify user’s identity, measures taken to protect user’s deposit, and the SRB’s prescribed framework for verifying permissible online game.

    The Rules are silent on compliance requirements to be adhered on receiving ‘deposit’. Depending upon the game model, the money deposited by user(s) may be distributed to other winning user(s) or may be allowed to be used by the user for playing additional games, or any balance left may be credited to the game provider’s account as charge/fee. In the absence of clear guidelines, the applicability of different regulations governing ‘deposits’ such as Companies Act, 2013, the Payment & Settlement Systems Act, 2007, c, 2002 etc. would have to be assessed for each respective model. The Government should therefore consider issuing appropriate clarification in this context.

    KYC of user: The draft rules required the OGI to identify and verify user identity before commencement of a user account. However, the final Rules mandates such verification to be done only at the stage of accepting deposits from user. This may offer some breather for those online games which allows users to play for free to test their capabilities before making any deposit. The verification process to be followed shall be the same as is followed by RBI regulated entities such as banks, financial institutions, and NBFCs before commencement of an account-based relationship.

    Other requirements: The OGI which enables users to access to any permissible Money-Game cannot itself finance, by way of credit or enable financing to be offered by a third party for the purpose of playing such Money-Game. At times, to attract the users, the online games allow participation at zero cost or at discounted deposit value. It would have to be seen if such game models would be covered by this restriction. Further, the OGI offering permissible online games would need to have a physical contact address in India, and would need to appoint a chief compliance officer, a nodal officer, and a grievance officer, all of whom need to be Indian residents.

    Hitherto, many states have either enacted or were in process of enacting their own regulations to regulate online games. Games involving betting and gambling were prohibited in most states. However, different approaches were adopted by different states with few states putting a complete ban on online games involving real money, whereas some states banning only those which involves an element of ‘chance’, and few others offering a licensing-based regime. Now, with the enforcement of a central legislation, it would have to be seen, how gaming industry would deal with both the central and state requirements, and the approach to be followed in case of conflict between the two.

    Authors: Harish Kumar (Partner) and Itee Singhal (Managing Associate) at Luthra And Luthra Law Offices India. Views are personal.

    [1] ‘Online game’ has been defined to mean a game that is offered on the Internet and is accessible by a user through computer resource or an intermediary,

    [2] ‘Online real money game’ has been defined to mean a game where a user makes a deposit in cash on in kind with the expectation of earning winnings on that deposit. Further, ‘winning’ means 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.

    [3] Registered under section 8 of [Indian] Companies Act, 2013.

    [4] While issuing such advisory, the Ministry indicated that betting and gambling is an illegal activity and hence advertisements/promotion of such activities directly or indirectly on any of the media platforms falls foul of the various statutes, including under the Consumer Protection Act, 2019, the advertisement norms issued under Press Council Act, 1978, Advertising Code under the Cable Television Networks Regulation Act, 1995 etc.

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