Online gaming can be reasonably considered as one of the major growing sectors in the media and entertainment industry of India. As per recent statistics, India has been known to possess 507 million gamers and more than 900 companies involved with the gaming sector. Further, it has been estimated that the Indian gaming market shall tentatively achieve four-fold in the gaming sector by the year 2027.[i]
The gaming sector has major contribution towards the growth of India’s economy in the recent years. However, there are also certain consequences pertaining to such growth, for suppose, increase in financial fraud through online gaming apps, cyber-crimes, gaming addiction among the masses etc. The major reason behind such consequence delves into fact that there were no stringent laws dealing with online gaming in India. Taking the present situation into consideration, a need was felt by the Ministry of Electronics and Information Technology to amend the IT Rules, 2021 (as defined below).
The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules 2023 (“IT Rules 2023”) is an amendment to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules 2021 (“IT Rules, 2021”). IT Rules 2023 make stringent provisions relating to the conduct of the intermediaries connected with the online gaming arena and tries to rectify the complications connected with the same. The origin of IT Rules, 2021 can be traced back to section 87 of the Information Technology Act, 2000[ii] wherein it could be understood that The IT Rules, 2021 is a combination of draft Intermediaries Rules, 2018 and the OTT Regulation and Code of Ethics for Digital Media and that the amendment of IT Rules 2021 was imperative in order to deal with the problems associated with the sector. IT rule 2023 provides better means and medium through which fraud, addiction etc can be effectively tackled.
Key Amendments brought in by the IT Rules 2023:
The following are the key amendments brought in by the IT Rules 2023 in order to efficiently regulate online gaming industry in India:
1. Introduction of new definition pertaining to online gaming:
The IT Rules 2023 has introduced definition for “Online Game”, “Online Real Money Games”, “Permissible Online Games”, “Permissible Online Real Money Games” and “Online Gaming Intermediaries”. Some of these key definitions are as follows:
- Rule 2q(a) of the IT Rules,2023 defines ‘online game’ as ‟A game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.” For the purpose of this rule, ‘Internet’ has been explained as “the combination of computer facilities and electromagnetic transmission media, and related equipment and software, comprising the interconnected worldwide network of computer networks that transmits information based on a protocol for controlling such transmission.” The definition of online game under Rule 2q(a) includes, within its ambit, both online real money games and online games which are not real money games. This rule further elucidates the definition of various terms such as internet, deposit, and winnings in order to enhance the ease of understanding these rules.
- Rule 2q(b) defines an ‘Online gaming intermediary’ as “any intermediary that enables the users of its computer resource to access one or more online games”. An online gaming intermediary according to the rules is someone who provides more than one online game to the users of its computer resource.
- Rule 2q(d) defines ‘Online real money game’as “an online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit.” For the purpose of this rule, ‘winnings’ has been defined “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” This definition has been criticized for not including the scope of games which include wagering or betting.
- Rule 2q(e) define “Permissible online game” as “a permissible online real money game or any other online game that is not an online real money game.”
- Rule 2q(f) defines “Permissible online real money game” as “an online real money game verified by an online gaming self-regulatory body under rule 4A”.
Pursuant to aforementioned Rule 2q(e) and Rule 2q(f), it can be observed that permissible online games consist of both online real money games and online games which are not real money games. The permissibility of a game is contingent on the approval by the SRB (as defined below). The definitions provided under Rule 2 of the IT Rules 2023 remove the irregularities that was previously present in the IT Rules,2021 by enhancing the understanding of the terms explained above.
2. Establishment of Self-Regulatory Bodies:
Rule 4A of the IT Rules,2023 mandates towards establishment of the Self-Regulatory Bodies (“SRB”) whose primary purpose shall be to verify the permissibility of an online game, and to keep a check whether any game includes wagering and betting in their ambit. The aforesaid Rule 4A envisages that the Central Government can designate as many online gaming self-regulatory bodies as it may consider fit to verify an online real money game as a permissible online real money game under the Rules.
In order for the SRB to declare an online real money game as a permissible online real money game, the following conditions has been specified under the IT Rules 2023:
- That the online real money game in question does not involve wagering or betting.
- That the game is in compliance with rules 3 and 4 of the IT rules, 2023.
- That the game follows all provisions of the law concerning the eligibility to enter into a contract.
- That both the intermediary and the game follow the guidelines laid down by the SRB.
The SRB must maintain at all times, a roll of all the games that are permissible and update them accordingly. [iii]
Structure for the formation of SRB:
- SRBs must be set up in the form of a non-profit company, under section 8 of the Companies Act,2013.
- The members of the board are the representatives of the gaming industry.
- The board of directors will consist of people who are highly reputable and possess the necessary knowledge required to discharge the duties of the board.
- The board should include people from different sectors such as an educationist, psychologist, child rights, communication technology etc.
- The Articles of Association (AOA) and Memorandum of Association (MOA) of the SRBs should contain detailed provisions regarding it working, functioning, grievance redressal mechanisms and finances. The MOA and AOA can only be amended with prior approval of the IT Ministry. The SRBs must always maintain an updated roll of members.
3. Expansion of the scope of ‘Intermediary
Rule 3(1) of the IT Rules ,2021 has been amended to include the following phrase in its understanding:
“Due diligence by an intermediary: An intermediary, including [social media intermediary, significant social media intermediary and online gaming intermediary….”,
By the aforesaid amendment the IT Rules 2023 has expanded the definition of an intermediary and included social media intermediary, significant social media intermediary and online gaming intermediary within the ambit of its scope. This is a significant development in the gaming sector, considering the fact that the Central Government will now be able to exercise greater control on online gaming intermediaries. The Central Government can now direct the intermediaries to restrict, or completely block the public access to a particular online game, if that game poses any threat to the interest, sovereignty, integrity, defence, and security of India. They can also issue directions to any of the intermediaries mentioned to provide requisite information required by the law enforcement agencies, cyber security professionals for the purpose of investigation.
4. Due Diligence by an Intermediary:
Rules 3 (1b) (ix) and (x) have been added to the IT rules 2021 in order to increase the protection of the gamers and prevent financial fraud.[iv] The concerned provision now reads as follows:
(ix) is in the nature of an online game that is not in conformity with any law for the time being in force in India, including any such law relating to gambling or betting or the age at which an individual is competent to enter into a contract.
(x) violates any law for the time being in force”
Pursuant to the addition of the above rules, the gamers would have to be more vigilant about the rules and regulations of the online game. In order to make sure the users do not become victim to any kind of financial fraud, these rules have made it mandatory for online gaming intermediaries to ensure that they do not permit or allow any third-party intermediary to host the same games through their own respective platforms or even through the platform of the intermediary. This way users will be able to identify a real money game from a fraudulent money game.
5. Additional compliances to be followed by the Online Real Money Intermediaries.
Rule 4 of IT Rules, 2023 provides for the following additional requirements that is needed to be followed by the online gaming intermediaries:
- The online real money intermediaries must have a physical contact address in India.
- Rule 4-A states every real money online gaming intermediary must make sure that they have proper mark of registration. This would signify that they are permissible online real money games and verified by an authorised SRB.
- They must distinctly mention in their website about the redressal mechanism and the contact details of the grievance officer.
- The online gaming intermediaries must inform the user about the terms and conditions, user agreement etc, along with the steps that are taken to protect the deposits made by the gamer, policy related to withdrawal of the money, the know your customer (KYC) policy followed by them and the procedure of approval of online real money games.
- The gaming intermediaries must follow the prescribed RBI guidelines in order to verify the user’s identity before accepting deposits from users.
- Rule 4 also prohibits the online gaming intermediaries from financing users to play games on their platforms and to make sure that no third-party finances them to do so.
- With respect to real online non money games rule 4B states that rule 3 and 4 of the IT Rules 2021 will be applicable only after expiry of a period of 3 months.
- Real non-money games may be altered up to the extent the Government deems fit. If the government finds such games to threaten the sovereignty and integrity of the country, or has harmful effect on the users.
Upon perusal of the recent changes brought in by the IT Rules 2023, the following are the major critical analysis over the amendments:
1. Failure towards inclusion of ‘Wagering’ and ‘Betting’: The IT Rules 2023, is undoubtedly a need of the hour. However, these rules have failed to provide a definition of wagering and betting. The IT Rules 2023 states that it is the responsibility of the SRB to check whether a particular game includes wagering of any outcome, however it fails to identify as to what constitute ‘wagering’. The absence of such identification shall create arbitrary and discretionary power for the Central government.
2. Issue Of Foreign investments: The issue of foreign investment and funds which stems from the ambiguities associated with the terms wagering and betting remains. Therefore, accepting foreign investments in this industry could prove to be a fatal flaw at the end of the intermediaries. The reason for the same being that the Foreign Exchange Regulation Rules do not permit foreign investment for games such as betting and wagering. The above reason can prove to be detrimental for growth of the online gaming industry in India.
3. Ambiguity in the definition of online gaming intermediary: The definition of “online gaming intermediary” is ambiguous. The definition does not state whether online gaming intermediaries include platforms which host games by third party publishers or gaming studios. From the definition given in IT Rules,2023 there can be two possible conclusions that can be drawn:
- An intermediary who enables users to have access to any kind of game.
- An intermediary who enables users to access any game published by any third party.
IT Rules,2023 may reasonably provide an impetus to the growth of online gaming. By the introduction of this rules, the Central Government aimed to combat the following issues associated with online gaming which cause deleterious effect on today’s youth:
- To tackle the problem of addiction effectively, by providing the users the liberty to switch out of the game if the time limit or the monetary limit exceeds.[v]
- To ensure that effective steps are taken, so that financial fraud or cyber fraud is not perpetrated through online games, by means of due verification of one’s identity is done before one makes any payments in the apps.
- To make it mandatory for parental consent mechanisms to be installed in the games, in order to prevent children from having access to games that can have an adverse impact on their minds.
- To deal with the psychological harm associated with online gaming.
- To help attract investors in the gaming market.
The gaming industry has played a crucial role in contributing to the economy of our country and the IT Rules 2023 will further help in enhancing the impact caused to this industry. Keeping aside few critics on the rule, the stakeholders associated in this sector have welcomed these changes with the dire hope that it will increase the scope of online gaming in India.
[i] Aryaman Gupta, Indian gaming worth $2.6 bn in FY22, will grow four-fold by 2027: Report, Business Standard, April 29th ,2023.
[ii] Section 87, Information Technology Act,2000.
[iii] Deep Majumdar, Game Over For Betting Games: Govt Passes New IT Rules 2023, Business World, April 29th, 2023.
[iv] Kriti, MeitY introduces provisions on Online Gaming vide IT (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules,2023, SCC Online, April 7th , 2023.
[v] Tech Desk, Breaking down MeiTY’s new online gaming rules: How it will impact the Indian gaming industry,The Indian Express, April 9th , 2023. (https://indianexpress.com/article/technology/gaming/meity-new-online-gaming-rules-explained)
Author: Dippyaman Bhattacharya, Associate (assisted by Anyesha Chakraborty)
Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at firstname.lastname@example.org