The Ministry of Electronics and Information Technology (“MEITY”) has published draft amendments (“Draft Online Gaming Rules”) to the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediary Guidelines 2021”) in order to regulate online gaming and invited feedback on the proposed amendments. The Draft Online Gaming Rules, in addition to regulating online gaming, also aim to enable the growth of the online gaming industry in a responsible manner. Feedback on the Draft Online Gaming Rules may be submitted by January 17, 2023.

Existing Law

Section 30 of the Indian Contract Act, 1872 declares agreements by way of wager as void and prohibits any suit for recovering anything alleged to be won on any wager. Currently, there is no central law governing online gaming and states have promulgated their own statutes for the same. The majority of these state laws have banned ‘gaming’, which is defined as any type of wagering or betting other than wagering or betting on a horse race and excluding lotteries. Additionally, the term ‘gaming’ excludes games of pure skill.

In Karnataka, gaming is regulated by Chapter VII of the Karnataka Police Act, 1963 (“KPA”). As per Section 2(7) of the KPA, ‘gaming’ does not include a lottery but includes all forms of wagering or betting in connection with any game of chance, except such wagering or betting on a horse-race run on any race-course within or outside Karnataka, which satisfies certain specified conditions. ‘Game of chance’ has been defined to include a game of chance and skill combined and a pretended game of chance or of chance and skill combined, specifically excluding any athletic game or sport. Sections 79 and 80 of the KPA punish persons involved in operating gaming houses or participating in such games. Section 176 of the KPA clarifies that the provisions of sections 79 and 80 shall not be applicable to any game of skill and to wagering by persons taking part in such game of skill.

However, since most of the state statutes on gaming are pre-internet, they do not throw much light on online gaming. Sikkim is one of the few states that regulates online gaming by two statutes, namely, Sikkim Online Gaming (Regulation) Act, 2008 and Sikkim On-Line Gaming (Regulation) Rules, 2009. Under these statutes and rules, both gambling and online-gambling are legal.

The Draft Online Gaming Rules do not modify the existing rules regarding gaming and gambling.

Online Games

An “online game”, has been defined by the Draft Online Gaming Rules, to mean a game that is offered on the Internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings. A ‘deposit’ has been defined to mean the deposit made or committed to, in cash or in kind, by the user for participating in an online game. Therefore, even providing credit card details for the purpose of payment collection after the online game, would also amount to a deposit.

Self-regulatory bodies

The Draft Online Gaming Rules allow for self-regulatory bodies to be registered with MEITY. Self-regulatory bodies may register online games of online gaming intermediaries who are its members, provided they meet certain criteria. A self-regulatory body may be a company incorporated under section 8 of the Companies Act 2013, or a society registered under the Societies Registration Act, 1860.

Some of the criteria for registering self-regulatory bodies are as follows:

1. the number of online gaming intermediaries who are members of the applicant;
2. the applicant’s track record in promoting responsible online gaming;
3. the applicant’s general reputation, the absence of conflict of interest and the relevance and suitability of the individuals comprising the applicant’s Board of Directors or governing body;
4. whether the Board of Directors or governing body of the applicant has any independent eminent person from the field of online gaming, sports or entertainment, an individual who represents online game players, an individual from the field of psychology, medicine or consumer education, or 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 or an individual from the field of information communication technology;
5. whether it has 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;
6. its capacity, in terms of deployment of technology, expertise and other relevant resources, for evolving the desired framework, testing and verifying conformity of online games with the same, and continuously updating and further evolving such framework, testing and verification protocols.

Such self-regulatory bodies are also required to have a grievance redressal mechanism to resolve complaints.

Every self-regulatory body is required evolve a framework to secure the Section 69A Interests, undertake testing and verification to establish conformity of online games with such framework, continuously update and further evolve such framework, testing and verification protocols, and shall prominently publish the same on its website, mobile based application or both, as the case may be. Such framework may, among other things, also include suitable criteria regarding—

1. the content of an online game registered or to be registered with such body, with a view to safeguard users against harm, including self-harm; and
2. appropriate measures to be undertaken to safeguard children.

Online gaming intermediaries

The Draft Online Gaming Rules define an “online gaming intermediary” to mean an intermediary that offers one or more than one online game.

The Draft Online Gaming Rules require online gaming intermediaries to comply with a number of requirements, some of which are as follows:

1. Display a demonstrable and visible mark of registration on all online games registered by a self-regulatory body;
2. Inform users, through their rules and regulations, privacy policies, terms of service and user agreements, of, inter-alia:
    

• the policy related to withdrawal or refund of the deposit made with the expectation of earning winnings, the manner of determination and distribution of such winnings, and the fees and other charges payable by the user for each such online game,
• the risk of financial loss and addiction associated with the online game;
• the know-your-customer procedure followed by the online gaming intermediary for registration of the account of a user;
• the measures taken for protection of deposit made by a user
   

3. Prominently publish on its website, mobile based application or both, a random number generation certificate and a no bot certificate from a reputed certifying body for each online game offered by it, along with relevant details of the same;
4. At the time of commencement of a user account-based relationship for an online game, identify the user and verify his/ her identity. The procedure for such identification and verification shall be the same as the procedure required to be followed by an entity regulated by the Reserve Bank of India for identification and verification of a customer at the commencement of an account-based relationship;
5. Enable users who register for their services from India, or use their services in India, to voluntarily verify their accounts by using any appropriate mechanism, including the active Indian mobile number of such users. Where any user voluntarily verifies their account, such user shall be provided with a demonstrable and visible mark of verification, which shall be visible to all users of the service;
6. Appoint a Chief Compliance Officer, who shall be a key managerial personnel or such other senior employee of the online gaming intermediary who is resident in India, and who shall be responsible for ensuring compliance with the Information Technology Act, 2000 (“IT Act”) and the rules made thereunder.  The Chief Compliance Officer shall be liable in any proceedings relating to any relevant third-party information or data or communication link made available or hosted by the online gaming intermediary where he fails to ensure that such online gaming intermediary observes due diligence while discharging its duties under the IT Act and the rules made thereunder;
7. Appoint a nodal contact person for 24x7 coordination with law enforcement agencies and officers to ensure compliance to their orders or requisitions;
8. have a physical contact address in India published on its website or mobile based application, or both, for the purposes of receiving any communication addressed to it; and
9. implement an appropriate grievance redressal mechanism.

Registration of online games

Online games can be registered by online gaming intermediaries with any self-regulatory body. Some of the criteria for such registration is as follows:

1. the online game does not contain anything which is contrary to the interests detailed in Section 69A of the IT Act, namely the interest of sovereignty and integrity of India, defence of India, security of the State, friendly relations with foreign States or public order, or incites the commission of any cognizable offence relating to the aforesaid matters (“Section 69A Interests”);
2. is in conformity with laws for the time being in force in India, including any such law that relates to gambling or betting or the age at which an individual is competent to enter into a contract.

The self-regulatory body with which an online game is registered shall allow the online gaming intermediary offering such online game to display a demonstrable and visible mark of registration stating that the online game is registered with the self-regulatory body.

Membership with self-regulatory body

Online gaming intermediaries can become members of self-regulatory bodies. A self-regulatory body may grant membership to an online gaming intermediary, having regard to the following criteria, namely:—

1. the adherence by the online gaming intermediary and all online games offered by it with the criteria for registration of online games with self-regulatory bodies;
2. the adherence by the online gaming intermediary to the due diligence and additional due diligence required under the Draft Online Gaming Rules;
3. track record of such online gaming intermediary in offering online games responsibly while securing the Section 69A Interests.

Compliance by Intermediaries

The Draft Online Gaming Rules propose to amend the Intermediary Guidelines 2021 by inserting a new sub-clause (ma) in Section 3(1) of the Intermediary Guidelines 2021, to require every intermediary, before hosting or publishing or advertising an online game for a consideration, is required to ascertain from the relevant online gaming intermediary and verify from the concerned self-regulatory body, whether such online game has been registered with such body, and shall display on its website, mobile based application or both, the fact of such registration. Though the Draft Online Gaming Rules do not contain a provision which states that it mandatory for online games to be registered with self-regulatory bodies or for that online gaming intermediaries should become members of self-regulatory bodies, the new sub-clause (ma) proposed to be inserted in Section 3(1) of the Intermediary Guidelines 2021 suggests that it would be obligatory for each online game to be registered with a self-regulatory body and for the relevant online gaming intermediary offering such game on the internet to become a member of a self-regulatory body.

Please find a copy of the Draft Online Gaming Rules, here.

This update has been contributed by Vinod Joseph (Partner), Jitendra Soni (Partner), Anushkaa Shekhar (Associate) and Kopal Agarwal (Associate).

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