1. INTRODUCTION
The Central Government on April 06, 2023 provided the much awaited and needed regulatory clarity to the online gaming industry by amending the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 ("IT Rules 2021") to add provisions for online gaming. These amendments ("Online Gaming Rules") are a culmination of events that started with the Central Government realising that the burgeoning online gaming industry needs a uniform, contemporary and clear law, not only for the benefit of the industry but also to safeguard consumer interests.
Throughout 2022, it was apparent from the Central Government's responses to questions raised in Parliament, that they were approaching the regulation of online gaming platforms as intermediaries under the IT Rules 2021. In December 2022, the Central Government amended the Government of India (Allocation of Business) Rules 1961 to make the Union Ministry of Electronics and Information Technology ("MeitY") the nodal ministry for 'matters relating to online gaming'. On January 02, 2023, MeitY released a draft of the proposed amendments to the IT Rules 2021 for online gaming, for public consultation. Pursuant to these, MeitY finally notified the Online Gaming Rules on April 06, 2023, which comes as a huge relief to the online real money gaming industry in India.
2. HIGHLIGHTS FROM THE ONLINE GAMING RULES
- Online real money games offered by intermediaries will be regulated through MeitY-recognised self- regulatory bodies ("SRB"). While free-to-play games are outside the ambit, MeitY may in certain instances notify a free-to-play-game to be treated at par with an 'online real money game'.
- An 'online gaming intermediary' ("OGI") is defined as "any intermediary that enables the users of its computer resource to access one or more online games".
- An entity desirous of being recognised as an SRB by MeitY is required to fulfil the prescribed criteria in relation to its composition, by-laws, and functioning, among others.
- The responsibility of 'verifying' an online real money game will be that of the SRB in relation to its member OGI. The minimum requirements for such verification and of an OGI's membership of the SRB have been outlined by the Online Gaming Rules.
- A 'permissible online game' is one that is either free-to-play or an online real money game verified by the SRB in accordance with the Online Gaming Rules. The compliance requirements under this law apply to online real money games or any other online game specifically notified.
- If one qualifies as an OGI, they must adhere to the general as well as additional due diligence obligations prescribed for intermediaries under the Online Gaming Rules.
- An SRB may suspend or revoke the 'verification' given to an online real money game, for non- compliance with the Online Gaming Rules.
3. WHAT STAKEHOLDERS SHOULD EXPECT
The Online Gaming Rules have put in place a 'co-regulation' framework for online games. We have
captured the essential ingredients of the framework in the Annexures herein.
- For understanding the compliances for an 'online gaming intermediary', refer to Annexure A.
- For an overview of the grievance redressal mechanism, refer to Annexure B.
- For understanding the verification process which will make an 'online real money game' a 'permissible online real money game', refer to Annexure C.
- For an overview of how an SRB will be recognised by MeitY, refer to Annexure D.
4. KEY THEMES, IMPLICATIONS AND ANALYSIS
4.1. Nature of games permitted under the Online Gaming Rules
The Online Gaming Rules only allow 'permissible online games' to be hosted and offered to users in India. The due diligence obligation to ensure this has been put on the 'OGI' as per Rule 3 (1) (b). An online game can become 'permissible' in 2 (two) scenarios. First, if it is not an 'online real money game' i.e., it is a free-to-play game. Second, if it is an 'online real money game' but is verified by a recognised SRB under the Online Gaming Rules.
The Online Gaming Rules do not delve extensively on the criteria and method for the SRB to verify an 'online real money game' and it appears that the process is left to the SRB's discretion. However, Rule 4A (3) and (8) provide certain baseline checks that each SRB must adhere to during verification. Among these, the requirement for an SRB to ensure that 'the online real money game does not involve wagering on any outcome' is in particular vague and exposes certain game formats to the risk of non-approval. A purposive reading might suggest that 'wagering on any outcome' is limited to 'games of chance', and the SRB's job in the first instance is to evaluate whether the 'online real money game' is a 'game of skill'. But a clarification from MeitY would certainly help in avoiding confusion and dilemma of the industry.
It is also interesting to note that the while the draft version of the Online Gaming Rules had expressly mandated 'No Bot' and 'Random Number Generator' (RNG) certificates to be obtained by an OGI, the requirement is no longer present in the notified Online Gaming Rules. However, it remains to be seen whether for effective compliance with the overall objective of the law, the SRBs continue to require these from the OGIs to demonstrate compliance, specially to demonstrate no system manipulation.
4.2. Ease in governance through self-regulation instead of setting up a government regulatory body
The self-regulatory mechanism, first introduced in February 2021 in the IT Rules 2021 for online publishers, is a novel approach to regulate tech industries. The sector is fast-evolving and requires flexible and agile regulations; something which traditional law-making may not provide. The Online Gaming Rules have put in place a framework whereby self-regulatory bodies will drive the regulation for online gaming. MeitY has proposed a minimum of 3 (three) SRBs, each subject to certain eligibility criteria. A recognized SRB has the power to verify an 'online real money game' as a 'permissible online real money game'.
This is a welcome change for the industry in terms of approvals for 'games of skill'. Till date, having a court decision approving a game as a 'game of skill' was the only conclusive way for an operator to offer its game legitimately. This is not a feasible way to sustain the growth of an industry which thrives on innovation and has a need for speed. The self-regulatory mechanism will mark a shift from this approach, lessen the burden on the judiciary, and promote ease of doing business.
Whether the SRB mechanism will truly be industry-led will depend on the functioning of the SRBs and their relationship with MeitY. As per the text of the Online Gaming Rules, there are certainly elements of co-regulation in place. For instance, the government has prescribed certain base line principles that SRBs need to check before verifying an 'online real money game' but have left the process and method of evaluation to the SRB's discretion. Rule 4A (2) allows an SRB to constitute its own board of directors ("BoD") but ensure that a MeitY appointed person is one of the members. MeitY further can ask for any information from the SRB and rectify the verification process. These provisions indicate a fine balance between government oversight and industry-led self-regulation that will aid industry innovations.
4.3. Applicability of the law to evolving business models for the online gaming industry
The definition of 'online gaming intermediaries' does not make it amply clear whether it applies to 'intermediaries' or also covers publishers, albeit MeitY's intent has been amply clear throughout the consultative process that the law will apply equally to all kinds of online real money gaming platforms.
The definition of an 'intermediary' under the Information Technology Act 2000 ("IT Act") is quite broad and may arguably be given multiple interpretations. Today, business models of online gaming platforms are not just restricted to offering third-party games, but also publishing their own games as well as curating the content disseminated on their platform. There are arguments on both sides to defend or question whether all business models can still fall under the ambit of 'intermediaries'. However, like the IT Rules 2021, the Online Gaming Rules are a great step forward to take cognizance of the current issues posed by online gaming and for institutionalizing a process to address the same.
From a long-term perspective, we believe it would be a more holistic approach if the proposed Digital India Act seeks to regulate online gaming operators for what they provide as opposed to what they are classified as. Many online gaming operators are likely to be multi-functional in the future and therefore a narrow approach can have the ability of stifling innovation as well.
4.4. State government's power on the subject
Entry 34 of the State List under the Indian Constitution gives every state government the power to regulate 'betting and gambling'. For years, Indian courts have interpreted this entry to be limited to 'games of chance' albeit some state governments have explored ways to include and regulate 'games of skill' under their state enactments.
However, Entry 31 of the Union List read with the recent amendments to the Allocation of Business Rules 1961, gives MeitY the power to regulate 'matters relating to online gaming'. Through the Online Gaming Rules, the Central Government has tried regulating online games and has addressed most of the issues that state governments were facing on the subject. Thus, now, there should ideally be no need for states to come out with regulations for online games, since the central law seeks to achieve the same. If a state tries to do so, it will lead to multiplicity of conflicting laws which will lead to unnecessary litigation and instability in policy making. In our view, the Online Gaming Rules are wholesome to address any state- specific nuances that may exist, as well.
4.5. How do the Online Gaming Rules help online gaming operators
For the longest time, online gaming operators in India were required to ensure compliance with multiple, complex, and inconsistent gaming laws notified by various states in India. There was also a significant amount of hesitance from both investors and service providers to onboard or service a gaming operator given lack of clarity in the law.
The Online Gaming Rules help allay some of these concerns for the online gaming industry in India. It acknowledges the legitimacy of the industry and provides a mark of approval to 'permissible online game' through an SRB-led industry regulation having government oversight.
The recent development on Tamil Nadu's Governor giving assent to the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Bill 2022 does muddle the waters and creates a potential overlap. The rationale of why a separate law is required at the state government level is not very clear and is likely to lead to confusion, given that the Online Gaming Rules address the concerns that most states had on the subject.
While the interplay of state laws with the Online Gaming Rules will still be debated over the coming months, operators will have a stronger case to present before their investors, provide better comfort to financial service intermediaries and marketeers, and instill greater consumer confidence.
5. CONCLUSION
The Online Gaming Rules are a positive step towards consolidating the regulation of online gaming in India. The Indian government, through MeitY, has acknowledged the need for agile regulations for tech- focused sectors and accordingly adopted principles of co-regulation through these amendments. With the notification of the Online Gaming Rules, online gaming becomes one of the few sectors in India to have 'self-regulation' model in place, which may act as a guiding precedent for other fast-evolving industries to follow.
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