Abhishek Anand is a Student at National Law Institute University Bhopal
Introduction:
On January 3, 2023, the Ministry of Electronics and Information Technology (“MeiTY”) released the draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 in relation to online gaming (“Draft IT Rules”). These amendments have been proposed with the intent to ensure that games are offered in conformity with Indian laws and that the users of such games be safeguarded against potential harm. Online game providers are defined as online game intermediaries (“OGIs”) and have been provided with certain compliance requirements. These amendments provide legitimacy and stability to this fast-paced and rapidly upcoming industry.
Online Gaming Intermediaries and Online Games:
The draft defined “online game as 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.”[1] Online gaming has increased as technology has advanced in recent years, it will be fascinating to watch how games that are typically free but charge a fee to enter tournaments or games with someone or two players pay-to-play features but are primarily free to play are treated as they have not to get prize money on winning. The MEITY has also been granted a discretionary power to notify any game as an ‘online game’ (even if such game is playable without a deposit), “it must ensure that the registered game does not have anything which is not in 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.”[2]
Existing Law:
Section 30 of the Indian Contract Act, 1872 states that agreements made through gambling or wagering are considered null and void. This means that any legal action taken to recover any supposed winnings from a wager would be prohibited by law. 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, the regulation of gaming is governed by Chapter VII of the Karnataka Police Act, 1963 (KPA). According to Section 2(7) of the KPA, the term ‘gaming’ does not include a lottery, but it encompasses all types of betting or wagering related to any game of chance, except for betting or wagering on a horse race that occurs on a racecourse within or outside Karnataka, provided that specific conditions are met. ‘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 states that sections 79 and 80 of the KPA do not apply to games of skill or to wagering by individuals participating in such games 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.
Self-Regulating Bodies:
In India, online games are required to register with a self-regulatory body. Only those online games that have been approved by such self-regulatory bodies (SRBs) are allowed to operate legally in the country. The Self-Regulatory Body referred to must be either a society registered under the Societies Registration Act, 1860 or a company operating under Section 8 of the Companies Act, 2013. The Self-Regulatory Body is required to have a board of directors comprising five members from diverse fields including online gaming, information technology, public policy, medicine, and psychology. It is possible for there to be multiple self-regulatory bodies, and each of them is obliged to inform the Centre about the online games that they have registered. In addition to that, they are required to provide a report that highlights the prerequisites for registering a specific game.
Key Compliances:
The key compliances proposed by the Draft Rules include: (a) carrying out a user KYC prior to the commencement of an account-based relationship at par with the process prescribed by the Reserve Bank of India for regulated entities. Principally, this requirement will help mitigate the risks of money laundering, however, this may impact the economics of certain business models, where success depends on a much wider retail participation of small tickets. (b) publishing a random number generation certificate and a no bot certificate from a reputed certifying body for each online game.[3] (c) having a physical contact address in India[4]; and appointing a resident grievance officer[5], chief compliance officer[6] and a nodal officer[7] basis the stipulated requirements. (d) Self-Regulating Bodies must develop frameworks to verify, register and monitor online games to protect public interests and the laws of India. (e) having detailed policies prescribing withdrawal and refund rules, the manner of distribution of winnings, fees charged, and risk of financial loss and addiction (f) There are also compliance obligations on intermediaries that distribute or host online games who have to make reasonable efforts to cause users not to host, display or transmit online games that “are not in conformity with any law”, including those relating to “the age at which an individual is competent to contract”, i.e., an individual below 18 years. (g) Also, , SRBs are also mandated to establish a mechanism for resolving disputes within a specific timeframe for complaints that are not resolved by the member Online Gaming Operators (OGIs).[8] Appeals from this will go to the appellate committee. (h) Self-Regulatory Bodies are required to create frameworks to authenticate, enroll and supervise online games in order to safeguard the welfare of the public and ensure compliance with Indian laws.
Statistics about India Online Gaming Industry:
According to Rajeev Chandrasekhar, Minister of State for Electronics and IT, “about 40 to 45 percent of the gamers in India are women, making it all the more important to keep the gaming ecosystem safe.” He also suggested that in the future, the government may regulate the content of online gaming to “ensure that the games do not have violent, addictive, or sexual content.” This framework will support the domestic legal online gaming market and ensure greater investor confidence, consumer protection, and transparency. Online gaming is a crucial component of the startup ecosystem and contributes to the goal of a $1 trillion economy. In 2025, it is anticipated that the Indian mobile gaming market would generate $5 billion in sales. Between 2017 and 2020, the industry expanded at a compound annual growth rate (CAGR) of 38% in India, compared to 8% in China and 10% in the US. According to a survey by venture capital firm Sequoia and management consulting firm BCG, it is predicted to expand at a CAGR of 15% to reach Rs 153 billion in sales by 2024. The proposed regulations are a positive step, as it is urgently necessary to control online gaming given socioeconomic factors and the widespread popularity of these games.
Impact of drafted amendment:
The proposed regulations have the potential to increase the opportunities for the online gaming industry to develop and expand in India. Currently, a significant portion of Indian players engage in online gaming on unregulated or offshore websites, which can be unreliable and pose a risk. By legalizing and regulating the industry, reputable and trustworthy online gaming sites can be established in India, which will be subject to government oversight and regulation. This could boost player confidence in the safety and security of these sites, leading to an increase in the number of players participating in online gaming activities. The legalization and regulation of online gaming can offer a possible advantage of improved protection for consumers. At present, individuals who engage in unregulated or offshore online gaming websites have limited options if they encounter problems such as scams or conflicts with the site concerning their deposits or withdrawals. To address this, the draft regulations suggest the adoption of specific guidelines and criteria for the functioning of online gaming websites and the establishment of mechanisms for resolving disputes and handling player grievances. Furthermore, the expansion of the internet-based gaming sector has the potential to generate fresh employment opportunities and open up new business avenues, which can fuel the digital economy’s overall expansion. Supervising online gaming could also aid in boosting government income through taxes and licensing fees while luring more participants to the arena. The earnings obtained can then be utilized to support different initiatives and schemes aimed at promoting the digital economy’s growth, including investments in infrastructure, education, and research and development.
Suggestion and Conclusion:
The Draft rules are a positive start toward giving the online gaming sector a clear regulatory framework, however, some areas of the Draft Rules might need more clarification like it is unclear whether OGIs will have access to the Central KYC Registry and be able to outsource the user KYC and whether State Governments will be allowed to legislate on online games and OGIs as they have in the past is another issue that has to be clarified. The draft amendment requires careful review and comment in order to be more comprehensive and to eliminate any potential ambiguity and flaws in the regulations. The Law Commission has advised senior information technology (IT) ministry officials to delay the policy on online gaming until it has produced a “comprehensive” study on the subject. The commission believes that different laws being brought by several states might complicate the matter, the situation of the draft law is ambiguous, which is causing a lot of confusion. The issue will inevitably become more complicated as more as state legislatures prepare to enact similar laws. Although certain elements of the Draft Rules may need further clarification, the rules represent a positive move towards establishing a comprehensive regulatory framework for the online gaming industry.
[1]The Information Technology Rules, 2021, G.S.R. 794(E) r 2 (qa)
[2]The Information Technology Rules, 2021, G.S.R. 794(E) r 4B (5) (b)
[3] The Information Technology Rules, 2021, G.S.R. 794(E) r 4A (1) (c)
[4]The Information Technology Rules, 2021, G.S.R. 794(E) r 4A (1) (i)
[5]The Information Technology Rules, 2021, G.S.R. 794(E) r 4A (1) (f)
[6]The Information Technology Rules, 2021, G.S.R. 794(E) r 4A (1) (g).
[7]The Information Technology Rules, 2021, G.S.R. 794(E) r 4A (1) (h).
[8] The Information Technology Rules, 2021, G.S.R. 794(E) r 4B (8).