Online Gaming Amendments - A catalyst for growth or a harbinger of ambiguity?

The background...

When the Covid pandemic forced Indians to stay confined to their homes, it triggered a growth in the online gaming industry as more and more people sought entertainment indoors. The industry today is booming with approximately 130 million players across over 200 platforms and the fastest new paying users growth rate across the world. The vast potential for growth, led by expanding smartphone usage and increasing digitization has drawn a number of companies, particularly tech companies, to enter the online gaming space.

The online gaming industry has typically been governed by rules of the states with most states allowing games of skill, some states restricting games of chance, and others disallowing even skill-based games. This, coupled with the pace of growth in the industry and the need to safeguard users from harm, led the Ministry of Electronics and IT, Government of India (Meity) to introduce amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 which lay out a comprehensive Centre Government led framework for the Online Gaming Eco-system.

What the amendments entail...

As per the IT Act 2000, an intermediary is "any person who, on behalf of another person, receives, stores, or transmits a record or provides any service with respect to that record and can be any entity that facilitates the use of the Internet but does not create any information by itself". The IT (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 impose special obligations on social media and significant social media intermediaries. The latest amendments broaden the purview of these obligations to include online gaming intermediaries, which are defined as "intermediaries that offer one or more online games". "Online game” means a game that is offered on the Internet and is accessible by a user through a computer resource if he or she makes a deposit with the expectation of earning winnings. Online gaming intermediaries are expected to follow all the due diligence that is applicable to social media intermediaries under the IT Rules 2021 and then a few additional requirements specific to gaming intermediaries.

Self Regulatory Bodies introduced...

The amendments propose notification of several self-regulatory bodies, which shall be representative of the online gaming industry and shall comprise a Board of Directors representing different stakeholders such as online games users, educationists, psychology or mental health experts, ICT experts, persons with child rights protection experience, and Government-nominated public policy and administration professionals, who are free from conflict of interest and function at arms length from the self-regulatory body. The self-regulatory body will have the authority to register an online game post inquiring and satisfying itself that the online game does not impact the sovereignty, integrity and safety of the country, does not involve wagering on any outcome, that the online gaming intermediary and the game complies with the laws in force, including any such law that relates to gambling or betting, or the age at which an individual is competent to enter into a contract. It shall also evolve and ensure compliance with a framework that incorporates safeguards against user harm, including psychological harm, risk of financial fraud, gaming addiction with adequate warning mechanisms and safeguards for children (such as age-appropriate ratings, parental controls etc).

Obligations of the online gaming intermediaries...

The amended rules make it obligatory on the online gaming intermediaries to not publish, share or host fake, false or misleading information in respect of any business of the Central Government. When hosting, publishing or advertising an online game on their platforms for a consideration, the online gaming intermediaries must 1) ascertain whether that online game has been registered with the concerned self-regulatory body and shall be required to display a demonstrable and visible mark of registration with the self-regulatory body, 2) inform its users regarding its policy related to withdrawal or refund of deposit, manner of determination and distribution of winnings, fees and other charges payable, KYC procedure for user account registration and the framework of the self regulatory body under which it is registered, and 3) verify user identity before accepting deposits from them. If in case the Central Government issues a notification in the interest of users or other specified grounds, the same rules and obligations will be made applicable to even those games where the user is not required to make any deposit for winnings.

Other Compliances...

The online gaming intermediaries shall have to have a physical address in India and shall appoint from among their employees, a Grievance Officer, a Chief Compliance Officer (CCO) who is a managerial/senior personnel, a nodal contact person (other than CCO) to ensure 24x7 coordination with law enforcement, all of who need to be resident of India. they shall also implement an appropriate complaint receipt and tracking mechanism. The time given for gaming platforms to provide information in response to an order from a Government agency is within 24 hours of receiving an order, as compared to 72 hours for the other social media intermediaries. Where the Meity is of the view that a self-regulatory body has not complied with the rules, and if the non-compliance continues despite a written notice to rectify the same and after an opportunity has been given for a hearing, Meity has the power to suspend or revoke the registration of the self-regulatory body. Interestingly, no financial penalties have been proposed under the amendments for non-compliance by the intermediaries.

Ambiguities that remain...

While these amendments that lay central rules for online gaming are a welcome change in protecting citizens from illegal betting and wagering online and eliminate state level discretion, they also leave a lot to the discretion of the self regulatory bodies, particularly as they lay a framework for what constitutes a game of betting and wagering, and what is a game of chance that is disallowed, versus a game of skill that is allowed. In 2021, the apex court had upheld an order of the Rajasthan High Court which has ruled that fantasy games are games of skill and not chance, and accordingly games such as Dream11 and CrickPe would continue to be allowed. Similarly, games such as Rummy and Poker which are dependent on probabilities, and hence more games of chance rather than skill, also qualify. Another debate that is ongoing is that given gambling and betting continue to remain a State subject, will this give State Governments a room to decide whether a game of betting and gambling would qualify in their jurisdictions, though the general view is most likely not. Lastly, there is also a point of view regarding whether online gaming platforms should be classified as publishers rather than intermediaries, and thereby not be eligible for a safe harbor under Section 79 of the IT Act, since most of them publish their own gaming content.

The gaming industry would welcome more clarity on each of these points from the Meity as they prepare themselves to align with these new amendments.