INTRODUCTION

Despite the rise of the online gaming sector in the past few years, the sector has been subjected to a ‘regulatory maze’ of state legislations as ‘Betting and Gambling’ find place under the ‘State List’ contained in the Seventh Schedule of the Constitution of India, 1950 (“Constitution”), these state-specific legislations have been in effect since decades but are time-worn and ill-equipped to regulate the impact caused due to the Internet and gaming in the online space.

Given the regulatory lacunae governing this space, the Central Government felt the need to tighten the knot over online gaming companies and has been consistently taking steps to achieve greater regulation in the online gaming space. The Central Government, vide a notification dated December 23, 2022, had amended the Government of India (Allocation of Business) Rules, 1961 (“AOB Rules”) whereby it has added ‘Matters relating to Online Gaming’ within the scope of the Ministry of Electronics and Information Technology (“Meity”) and appointed it as the nodal ministry for online gaming.

This was soon followed by the release of draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”) on January 2, 2023 by Meity for consultation from various industry bodies and stakeholders. The said draft has led to the enactment of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (“2023 Amendment”) on April 6, 2023, under the Information Technology Act, 2000 (“IT Act”).

KEY CHANGES INTRODUCED BY THE 2023 AMENDMENT

The 2023 Amendment broadens the horizon of the IT Rules and brings within its fold online games offered by online gaming companies. In fact, they have separately carved out a category for ‘online real money game’ as well. These amendments introduces sub-rule (qa) and (qd) to Rule 2 of the IT Rules which defines an ‘online game’ and ‘online real money game’ respectively. Interestingly, the 2023 Amendment also introduce an Explanation to the said sub-rule to broaden the scope of ‘online real money game’ to include games wherein winnings are not in the form of cash but other forms of tokens, passes, etc. in order to avoid the adoption of any ‘surrogate’ means to evade the IT Rules.

The 2023 Amendment mandates all online gaming platforms or ‘intermediaries’ – as termed under the statute – to exercise due-diligence in a manner similar to that required to be exercised by other ‘intermediaries’ operating in the spheres of e-commerce or social media under Rule 3 and Rule 4 of the IT Rules, with certain necessary additions specific to the digital gaming world. Some of these additional due-diligence requirements are as follows:

• Rule 4(10) i.e., the requirement to display a demonstrable and visible mark of verification of their online game by an ‘online gaming self-regulatory body’ on such permissible online real money game.
• Rule 4(11) which mandates that privacy policy, terms of service and user agreements for online gaming platforms must include information pertaining to a) 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; b) the know-your-customer (KYC) procedure followed by it; c) the measures taken for protection of deposit made by a user; and d) the framework referred to in Rule 4A, relating to the online games offered on the platform.
• Rule 4(12) provides that online gaming companies shall mandatorily adopt a mechanism for identification and verification of users in a manner which is similar to that followed by an entity regulated by Reserve Bank of India.
• Rule 4(13) provides that online gaming companies to not finance or enable financing to be offered by third parties for its users.

The 2023 Amendment also applies the grievance redressal mechanism set out in Rule 3(2) of the IT Rules to all ‘online gaming intermediaries’ including that of the Grievance Appellate Committee constituted under Rule 3A of the IT Rules. A proviso to Rule 3(1)(f) has been inserted which mandates online gaming platforms/ intermediaries who enables the users to access any ‘permissible online real money game’ to inform its users of such change as soon as possible, but not later than 24 hours after the change is affected.

The 2023 Amendment also provides for the constitution of ‘online gaming self-regulatory body’ to regulate the online gaming space and specifically defines the same under sub-rule (qc) to Rule 2 and further allows the Central Government under Rule 4A to constitute as many ‘online gaming self-regulatory bodies’ / (“SRBs”) as it may consider necessary for the purposes of verifying an ‘online real money game’ as a ‘permissible online real money game’ under the IT Rules. The 2023 Amendments also explains the process of inquiry and further directs certain set of information to be maintained by the SRBs and also publish the framework for redressal of grievances.

ANALYSIS

The 2023 Amendment aims to augment its scope to better regulate online gaming companies. However, such amendments have caused confusion and ambiguity and in fact raises more questions than answers. In fact, the 2023 Amendment may also be open to challenge on various counts, some of which we have tried to pen down as follows:

A.)   THE RULES LACKS FOUNDATION UNDER THE PARENT LEGISLATION

The 2023 Amendment is a ‘delegated legislation’ and as such ought to be confined to the boundaries set by its parent legislation should be within the scope of the parent legislation. However, the changes introduced by the 2023 Amendment, particularly the ones introduced to regulate the online gaming sector, clearly lack foundation under the IT Act itself. Curiously, even the appeals from ‘Grievance Officers’ under the IT Rules are entertained by the Grievance Appellate Committee and not by the Cyber Appellate Tribunal (which now stands merged with the TDSAT) which is established under the IT Act.

Hence, there is a high likelihood that the IT Rules may invite a challenge to its vires as they seem to be operating in a territory of its own and independent of the IT Act which is impermissible in law. It is also pertinent to note that much before the enactment of the 2023 Amendment, the High Courts of Bombay, Madras and Kerala have passed interim orders staying the applicability of Rule III of the IT Rules which specifically pertain to Code of Ethics to be observed by online publishers.

B.)   CENTRE AND STATE CONUNDRUM

While the Centre has enacted the 2023 Amendment with a view to better regulate the online gaming sector in a uniform manner, the issue around the Centre’s competence may come to the fore since ‘Betting and Gambling’ are included in the ‘State List’ rather than the ‘Central List’ under the Constitution given the similarities of Games that may be offered by various Companies.

The said issue has also been discussed at length in judgments passed by certain High Courts where such state legislations/amendments/ordinances enacted to regulate the online gaming sector within their respective state boundaries. In some of these judgments, the High Courts have invalidated the state legislations which prohibited the operation of gaming platforms in the digital space which have left room for ambiguity and have to conclusively be adjudicated by the Supreme Court which is currently seized of such appeals.

CONCLUSION

The 2023 Amendment to the IT Rules evidences a pro-active approach by the Centre in filling the lacunas in the regulatory regime for online-gaming. However, the Centre’s decision to regulate the online gaming sector through amendments to IT Rules without introducing similar or corresponding changes to the IT Act and despite existing challenges before various High Courts as well as transfer petitions filed before the Supreme Court remaining pending may not be prudent. The coming days would be ‘Agni Pariksha’ of these amendments to pass judicial muster.