The Ministry of Electronics and Information Technology (“Ministry”) has on, April 6, 2023, notified the amendments (“Amendment”) to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediary Guidelines”) in relation to online gaming.

Earlier this year, the Ministry had issued a draft of the amendment to the Intermediary Guidelines, inviting public feedback on the draft amendments.  Our analysis of the draft amendments may be accessed here.

Key definitions

The following definitions have been inserted in the Intermediary Guidelines:

1. “online game” means a game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.
2. “online gaming intermediary” means any intermediary that enables the users of its computer resource to access one or more online games.
3. “online real money game” means an online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit. Explanation - In this clause, ‘winnings’ 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.
4.  “permissible online game” means a permissible online real money game or any other online game that is not an online real money game;
5.  “permissible online real money game” means an online real money game verified by an online gaming self-regulatory body under rule 4A.

Argus Comment: As per these definitions, only an online real money game needs to be verified to become a “permissible online game”. All other type of online games are already permissible online games.

Due diligence measures to be observed by all online gaming intermediaries

Rule 3 of the Intermediary Guidelines lays down certain due diligence measures that must be observed by an intermediary. These measures have been specifically made applicable to an online gaming intermediary (“OGI”) as well. Accordingly, an OGI shall not host, display, publish or share an online game that causes user harm (means any effect which is detrimental to a user), or an online game that is not verified as a permissible online game, or any information that is in the nature of advertisement or surrogate advertisement or promotion of an online game that is not a permissible online game, or of any OGI offering such an online game.

Argus Comment: Hence an “online real money game” can be offered by an OGI only if it is a “permissible online real money game”, i.e., if such online real money game has been verified by an online gaming self-regulatory body in accordance with Rule 4A of the Intermediary Guidelines. As such, it shall be illegal for an OGI to offer an online real money game which has not been so verified, from the date the above obligation comes into effect. Please see section E below, for effective date of the above obligations.

Due diligence measures to be observed by an OGI offering access to a permissible online real money game

Further, an OGI who enables the users to access any permissible online real money game shall inform its users of any change in its rules and regulations, privacy policy or user agreement, as soon as possible, but not later than twenty-four hours after the change is effected. Such an OGI must, as soon as possible and not later than 24 hours of the receipt of an order, provide information under its control or possession, or assistance to the Government agency which is lawfully authorised for investigative or protective or cyber security activities.

Rule 4 of the Intermediary Guidelines lays down the additional due diligence to be undertaken by a significant social media intermediary. Some provisions of this rule have now been made applicable to an OGI that enables the users to access any permissible online real money game. As a result, such an OGI shall be required to:

1. appoint (i) a Chief Compliance Officer who shall be responsible for ensuring compliance with the Act; (ii) a nodal contact person for 24x7 coordination with law enforcement agencies; and (iii) a Resident Grievance Officer;
2. publish periodic compliance report every month mentioning the details of complaints received and action taken thereon;
3. have a physical contact address in India published on its website, mobile based application or both, as the case may be, for the purposes of receiving the communication addressed to it;
4. implement an appropriate mechanism for the receipt of complaints under Rule 3 (2) (Grievance redressal mechanism of intermediary) and grievances in relation to the violation of provisions under Rule 4, which shall enable the complainant to track the status of such complaint or grievance by providing a unique ticket number for every complaint or grievance received by such intermediary; and
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, and 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.

Further, Rule 4 has been expanded to include additional obligations which are to be observed only by an OGI who enables access to its users to any permissible online real money game. Accordingly, such an OGI, shall:

1. display a demonstrable and visible mark of verification by an online gaming self-regulatory body on such permissible online real money game;
2. include the following information in respect of every such permissible online real money games, in its rules and regulations, terms of service, user agreements etc. : (i) 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; (ii) the know-your-customer procedure followed by it for verifying the identity of the users of such online game; (iii) the measures taken for protection of deposit made by a user for such online game; and (iv) the framework referred to in Rule 4A, relating to such online game;
3. before accepting any deposit in cash or kind from any user for a permissible online real money game, identify such user and verify his identity. Provided that 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 shall apply, mutatis mutandis, in identification and verification of the users of such online gaming intermediary; and
4. not itself finance by way of credit or enable financing to be offered by third party for the purpose of playing such online game.

Argus Comment: An OGI offering a permissible online real money game is required to verify the identity of a user before accepting any deposit from such user, using the same procedure as is followed by a bank/NBFC for identification of a customer at the commencement of an account-based relationship. Therefore, Chapter VI of the RBI Master Direction – Know your Customer Direction, 2016 (“KYC Master Directions”) shall be applicable. Given the nuances of the KYC Master Directions, we feel it would be more effective if a simplified KYC procedure to be followed by OGIs, is specified in the Intermediary Guidelines itself.

Designation of online gaming self-regulatory bodies and verification of online real money games

A new rule, Rule 4A, has been inserted in the Intermediary Guidelines, sub-rule (1) of which provides that the Ministry may, by a notification in the Official Gazette, designate as many “online gaming self-regulatory bodies” (“OGSRB”) as it may consider necessary for the purposes of verifying an online real money game as a permissible online real money game under the Intermediary Guidelines. Rule 4A(2) provides the criteria to be fulfilled  by an entity to be eligible to be designated as an “online gaming self-regulatory body”. A few other salient features of Rule 4A are as follows:

1. Rule 4A(3) provides that an OGSRB may declare an online real money game as permissible online real money game, if after making necessary inquiries, it is satisfied that (i) the online real money game does not involve wagering on any outcome; and (ii) the online gaming intermediary and such online game is in compliance with the provisions of Rules 3 and 4 of the Intermediary Guidelines, the provisions of any law relating to the age at which an individual is competent to enter into a contract, and the framework made by the SRB under Rule 4A(8) (which relates to framework for verifying an online real money game).
   
   Argus Comment: In effect, the government has banned any online real money game that involves wagering on any outcome. However, the Amendment fails to give a precise definition of ‘wagering’. Further, it appears that if an online real money game involves any wagering, it shall not be eligible to be verified as a permissible game, even if the game if predominantly a game of skill. This approach would be contrary to the verdict given by the Madras High Court in Junglee Games v. State of Tamil Nadu and the Kerala High Court in Head Digital Works Private Limited v. State of Kerala, wherein the courts have distinguished between games of skill and games of chance and have held any prohibition on the former to be ultra vires the Constitution. A similar judgment was delivered by the Karnataka High Court in All India Gaming Federation v. State of Karnataka (Writ Petition Nos. 18703, 18729, 18732, 18733, 18738, 18803, 18942, 19241, 19271 19322, 19450 and 22371/2021 (GM-POLICE)), wherein the Karnataka HC, referring to the difference between a game of chance and a game of skill, held as follows: “The distinction lies in the amount of skill involved in the games. There may not be a game of chance which does not involve a scintilla of skill and similarly, there is no game of skill which does not involve some elements of chance. Whether a game is, a 'game of chance' or a 'game of skill', is to be adjudged by applying the Predominance Test: a game involving substantial degree of skill, is not a game of chance, but is only a game of skill and that it does not cease to be one even when played with stakes.”
   
   There has been much litigation on this aspect in the last few years and it was hoped that any regulation on online gaming would settle this issue; however, this Amendment appears to have missed that opportunity. We have covered these judgments in detail in our earlier updates, which may be found here and here.
2. The OGSRB shall publish and maintain on its website, mobile based application or both, at all times, an updated list of all permissible online real money games verified under Rule 4A(3), along with the details of such online games including the details of the applicant, the dates and period of validity of the verification, the reasons of such verification and the details of the suspension or revocation, if any, of verification of any online real money game.
3. The OGSRB may, at any time, after giving the applicant member an opportunity of being heard and for reasons to be communicated in writing, suspend or revoke the verification, if it is satisfied that the online real money game verified by it is not in compliance with the provisions of the Intermediary Guidelines.
4. The OGSRB shall prominently publish on its website, mobile based application or both, as the case may be, a framework for verifying an online real money game, which, among other things, includes the following:

(i) the measures to ensure that such online real money game is not against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order;

(ii) the safeguards against user harm, including self-harm and psychological harm;

(iii) the measures to safeguard children, including measures for parental or access control and classifying online games through age-rating mechanism, based on the nature and type of content; and

(iv) the measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, including repeated warning messages at higher frequency beyond a reasonable duration for a gaming session and provision to enable a user to exclude himself upon user-defined limits being reached for time or money spent.

5. Every OGSRB shall prominently publish a framework for redressal of grievances and the contact details of its Grievance Officer.

Effective date for application of Rules 3 and 4 in relation to online games

Rule 4B provides that the obligations under Rules 3 and 4 of the Intermediary Guidelines shall not apply in relation to online games until the expiry of a period of three months from the date on which at least three OGSRBs have been designated under Rule 4A. However, the Central government, may at any time before the expiry of the said three months, by a notification, direct that the obligations under Rules 3 and 4 shall apply in relation to an online game from a specified date.

The other Rules introduced by the Amendment shall come into effect from the date of publication of the Amendment, i.e., April 6, 2023.

Power of the Central Government to notify other online games

Rule 4C empowers the central government to direct an online gaming intermediary to comply with certain specified obligations (under Rule 3 and Rule 4) with respect to an online game offered by it, as if the online game is a permissible online real money game and specify the period within which all such obligations must be complied with by the online gaming intermediary. Such notification may be done by the central government if it considers it necessary to do so in the interest of sovereignty or integrity of India or friendly relations between states, public order, or preventing user harm. If an online game is notified under Rule 4C, the provisions of rule 4A shall apply to such game as they apply to a permissible online real money game.

Overall, introduction of the Amendment is a welcome move and is expected to go a long way in efficiently regulating the Indian online gaming industry and protecting the interests of the users.

This update has been contributed by Vinod Joseph (Partner) and Smriti Tripathi (Senior Associate).

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