A Watershed Moment for Online Real Money Gaming Industry in India

INDIA (April 12, 2023) — In recent years, the online gaming industry has grown significantly, especially in the realm of real-money gaming. While the growth of the industry has been impressive, it has also led to an increased need for regulation and guidelines. On January 2, 2023, the Ministry of Electronics and Information Technology (“MeitY“) had released draft proposed amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules“) to govern the operations of online gaming intermediaries. Details regarding the draft amendments are available in our previously published Article. Pursuant to the same, the MeitY has notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (“2023 Amendment“) to introduce regulations for online real money games, with effect from April 6, 2023. The 2023 Amendment has introduced a co-regulatory framework between the MeitY and registered self-regulatory bodies (“SRBs“) which will be tasked to verify an ‘online real money game’ as a ‘permissible online real money game’ (“PORMG“).

Permissible Games

The 2023 Amendment only allows ‘permissible online games’ to be hosted and offered to users in India. An ‘online game’ is defined as a game that is offered on the internet and is accessible by a user through a computer resource or an intermediary. An ‘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. Winnings mean 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 an online game.

A ‘permissible online game’ has been defined as a PORMG or any other online game that is not an online real money game. A PORMG means an online real money game verified by an SRB. An SRB may after giving the applicant member an opportunity of being heard and for reasons to be communicated in writing, suspend the verification granted to an online real money game, for failure to comply with the 2023 Amendment.

Verification of ‘online real money game’

On application being made by an online gaming intermediary (“OGI“), the registered SRBs are required to verify online real money games as PORMG after being satisfied that the online real money game: (i) does not involve wagering on any outcome; (ii) is in compliance with: (a) the provisions under Rules 3 and Rule 4 of the 2023 Amendment; (b) provisions of law relating to the age at which an individual is competent to enter into a contract; and (c) framework of the SRB; (iii) is not against the sovereignty, integrity, security of India, friendly relations with other states and public order; (iv) protects users against harm, takes measures to safeguard children, and has parental control and age ratings based on the nature and content of the game; (v) provides repeated user warnings based on time spent on the game and provides users with self-exclusion mechanisms; (vi) protects users against addiction, financial loss, and fraud etc.

The SRBs are vested with the discretion to allow the release of online real money games immediately for a period of 3 months based on initial information furnished by applicants, pending a more detailed inquiry. After completion of the inquiry during the 3 months period, the SRB will either declare the online real money game as a PORMG or inform the applicant with reasons in writing that the online games do not meet the criteria under the IT Rules.

OGIs and their Obligations

An OGI means any intermediary that enables the users of its computer resource to access one or more online games. The 2023 Amendment has introduced regulation of OGIs in relation to ‘online games’. Every OGI is required to become a member of a registered SRB. The IT Rules prescribe various due diligence requirements for an intermediary which are now applicable to OGIs as well. Following are some of the important requirements for OGIs:

(i) An OGI is required to publish its terms of use, privacy policy, and other user agreements on its platform. Any change to the terms thereof is required to be intimated to the users within 24 hours;

(ii) An OGI should specifically ensure that users are informed to not use the platform to upload any information that: (a) is an online game, however, is not a ‘permissible online game’; (ii) is an advertisement (including surrogate) that promotes an online game that is not a ‘permissible online game’; (c) violates any law for the time being in force; (iii) The OGIs are required to provide necessary information within 24 hours to government agencies involving cyber security incidents; and (iv) The OGIs are required to appoint and share details of the grievance officer who must be an Indian resident etc. In addition to the above, the OGIs are also required to comply with the due diligence requirements set forth for a significant social media intermediary under the IT Rules, some of which are highlighted below: (i) An OGI is required to publish physical address in India, on its platform; (ii) An OGI is required to publish periodic compliance reports on complaints received from users and actions taken in respect of the same; (iii) OGIs must display demonstrable and visible mark of verification provided by the SRB; (iv) OGIs are required to verify its users at the commencement of an ‘account based relationship’ before any deposits are accepted, in line with the KYC guidelines prescribed by the Reserve Bank of India; (v) OGIs shall also inform users through terms of use about deposit refund and withdrawal of funds and process to determine winners; (vi) OGIs are also required to appoint a chief compliance officer and a nodal contact person, both resident in India, for the purposes set forth in the 2023 Amendment etc.

SRBs under the 2023 Amendment

The MeitY is empowered to designate as many SRBs as it may consider necessary for the purpose of verifying online games as PORMG under the IT Rules. SRBs are required to: (i) be a company registered under Section 8 of the Companies Act, 2013; (ii) have membership representative of the gaming industry; (iii) have members who have been offering and promoting online games in a responsible manner; (iv) have a board of directors comprised of individuals of repute and do not have conflict of interest, and possess special knowledge / practical experience suitable for the performance of functions of the SRB. The MeitY may, for reasons to be recorded in writing, suspend or revoke the designation of the SRB after providing it with an opportunity of being heard.

The SRBs’ charter documents are also required to contain certain provisions: (i) the performance of functions of SRB, including grievance redressal, in a manner free from conflict of interest, and at an arm’s length from its members; (ii) disclosure and reporting by, and accountability of members in relation to online games verified by the SRB; (iii) clear and relevant criteria consistent with the IT Rules for acceptance and continuation of members, and revoking/suspension of members after giving the member an opportunity of being heard; (iv) the requirement that any amendments to the above terms being carried out only with the approval of the MeitY.

Framework of the SRBs

SRBs are also required to publish their 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 games are not against the sovereignty and integrity of India, security of the State, friendly relations with foreign States or public order; (ii) the safeguards against user harm, including self-harm and psychological harm; (iii) 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; (iv) the measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, including repeated warning messages at a higher frequency beyond a reasonable duration for a gaming session and provision to enable users to exclude themselves upon user-defined limits being reached or money spent.

Grievance Redressal Mechanism under the 2023 Amendment

The OGIs and the SRBs are required to appoint a grievance officer, whose details must be published along with the grievance redressal mechanism. While a user or a person aggrieved with the OGI can file a complaint with the OGI’s grievance officer, any applicant OGI aggrieved by the decision of the SRB with respect to verification and revocation may file a complaint with the SRB’s grievance officer. If a complainant is not satisfied with the resolution provided by the OGI’s or the SRB’s grievance officer, as the case may be, or the complaint is not resolved within the prescribed timelines, an appeal can be made to the grievance appellate committee constituted under the IT Rules.

Conclusion

The introduction of self-regulation under the 2023 Amendment is a positive step towards the regulation of online gaming in India, which is believed to witness a sustainable growth of the gaming industry in India. It is evident from the above that online real money games will largely be regulated by the SRBs. Therefore, it is vital for the SRBs to design, implement and enforce their frameworks that must capture the true spirit and essence of the 2023 Amendment.

Author: Ashima Obhan and Akanksha Dua

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SOURCES: Obhan & Associates – Lexology.