Introduction: India’s Gaming Sector and Regulatory Uncertainty

Despite having grown to $1.2 billion in revenues in 2021, India’s gaming sector (and in particular, its real money gaming sector) has languished in regulatory uncertainty, with the absence of any central legislation addressing the same. Further, in the case of real money gaming, the sector is governed by conflicting state legislations, given that “betting” and “wagering” are under the purview of State governments.

MEITY’s Role in Online Gaming Regulation

The sector has been primed to receive regulatory certainty since December 23, 2022, when the Central Government designated the Ministry of Electronics and Information Technology (“MEITY”) as the nodal ministry for online gaming. Thereafter, on January 2, 2023, MEITY had released a draft amendments proposed to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediaries Rules”) in connection with the regulation of online gaming and entities engaging in the same (“Draft Rules”).

After the conclusion of the public consultation process (which involved receipt by MEITY of public comments through their portal, and discussions between industry stakeholders and MEITY), MEITY, on April 6, 2023, released the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (“Gaming Amendment”) which amend the Intermediaries Rules in order to provide for the regulation of “online gaming intermediaries”.

Overview of the Gaming Amendment and Its Implications

The Gaming Amendment expands the reach of the Intermediaries Rules to cover online gaming intermediaries, which are defined as intermediaries that enable users to access online games. Consequently, a company that provides online games to users would not be held responsible for any third-party information, data, or communications that are available or hosted by them, as long as they meet two requirements: first, they comply with the Intermediaries Rules (as modified by the Gaming Amendment), and second, they comply with Section 79 of the Information Technology Act (specifically, subsections (2) and (3) thereof). The extension of this safe harbour (subject to fulfilment of the aforesaid conditions) is likely to address questions about a gaming company’s liability for any user-generated content, including any defamatory or infringing content.

Classification of Online Real Money Games (RMGs)

Under the Gaming Amendment, any online game where a user deposits cash or kind with the expectation of winning prizes is classified as an “online real money game” (“RMG”). The definition of winnings is comprehensive, including any prize, whether in cash or kind, that is intended or distributed to a user based on their performance in an online game, in accordance with the rules thereof. This broad definition implies that even online games that use “battle passes” as a monetization strategy could be classified as RMGs, given their popularity and the extensive definition of winnings.

Conversely, all other online games that do not require the deposit of money or other valuable consideration are classified as permissible from the start. However, to be designated as permissible RMGs, they must be verified by a self-regulatory body (“SRO”) to be in compliance with the Gaming Amendment. As explained in greater detail below, the Gaming Amendment offers recognition to the efforts of the industry in the creation of SROs for self-regulation.

Self-Regulatory Bodies for Online Gaming

In line with the current movement towards legally acknowledging self-regulatory bodies for emerging technologies, the Gaming Amendment includes a definition for “online self-regulatory bodies,” which pertains to a designated organization under the oversight of the Ministry of Electronics and Information Technology (MEITY). The purpose of this designation is for such SROs to be responsible for the assessment as to whether a RMG platform meets regulatory standards. The Gaming Amendment allows for MEITY to designate as many online SROs as necessary and outlines the criteria for eligibility. These designated online SROs must keep an up-to-date list of verified RMGs, ensuring that the platforms comply with all necessary regulations.

Framework for the Verification of RMGs

An online SRO is required to set in place a framework for the verification of a RMG, and such framework is required to include (i) the measures ensuring that the RMG is not against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order; (ii) safeguards against user harm (including both self-harm and psychological harm); (iii) safeguards for the benefit of children such as access controls and age-rating mechanisms; (iv) safeguards to protect users against the risk of gaming addiction, financial loss and financial fraud, including the display of frequent warning messages by a game in the event that a user is exceeding reasonable durations for a gaming session and the provision of an exclusion mechanism basis user designated monetary and time limits.

Under the current guidelines, an online SRO can initially classify an RMG as permissible for up to three months. After this period, the SRO may either confirm the RMG’s permissibility or inform the online gaming intermediary that the RMG does not meet the criteria to be classified as permissible. If necessary, online SROs may cancel the pre-existing verification of an RMG but are required to provide written reasons for doing so.

The Gaming Amendment does not permit online self-regulatory bodies (SROs) to classify any real-money game (RMG) involving wagering on any outcome as permissible. However, the Gaming Amendment does not provide a clear definition for “wager,” which contributes to regulatory ambiguity concerning permissible games of skill. Based on legal precedents, we believe that for a game to be classified as a permissible RMG, it should involve elements of skill, judgment, and discretion that distinguish a user’s participation from mere betting. Betting involves outcomes that are entirely determined by third parties not under the user’s control, while a game of skill involves some measure of control or agency on the user’s part.

Due Diligence Requirements for Online Gaming Intermediaries

The Gaming Amendment extends the applicability of due diligence requirements which were earlier applicable to other intermediaries to online gaming intermediaries as well. Further, online gaming intermediaries are also required to prevent the hosting, sharing, uploading by itself or any of its users of any information in connection to an online game which has not been verified as a permissible online game, including advertisements thereof.

If an online gaming intermediary is responsible for providing access to a real-money game (RMG), it must comply with additional obligations outlined in the Gaming Amendment. These include notifying users of any changes in the rules, regulations, user agreement, or privacy policy within 24 hours of any updates. The intermediary must also display a verification mark for its RMGs, as provided by the relevant self-regulatory body (SRO) and verify the identity of users before accepting any deposits for permissible RMGs in accordance with the Reserve Bank of India’s procedures, i.e., implement the same KYC measures implemented by entities regulated by the Reserve Bank of India prior to accepting any deposits by user for a permissible RMG.

Furthermore, the Gaming Amendment requires online gaming intermediaries to clearly set out their policies for the withdrawal or refund of deposits, the determination and distribution of winnings, fees and charges levied, know-your-customer procedures adopted, and the protection of user deposits. The amendment also forbids online gaming intermediaries offering permissible RMGs from financing or providing credit to users to facilitate their online gaming activities.

Implementation Timeline for Due Diligence and Verification Obligations

Please note that the due diligence and verification obligations applicable to online game intermediaries shall not be applicable till the expiry of three months from the date on which at least three online SROs are designated by MEITY.

Conclusion: Challenges and Opportunities in India’s Gaming Sector

In conclusion, the Gaming Amendment is a positive development for India’s gaming sector, offering a path towards regulatory certainty. However, challenges related to implementation and clarity must be addressed to fully realize the benefits of the amendment.

One significant challenge is the lack of clarity regarding the regulatory regimes applicable to RMGs across states. While the Gaming Amendment requires self-regulatory bodies (SROs) to conduct due diligence to verify whether an RMG is permissible in the state of its operation, states such as Tamil Nadu have proposed a complete ban on online gambling, including RMGs, notwithstanding the Gaming Amendment.

Additionally, the Gaming Amendment has certain implementation hurdles that must be overcome. For example, the lack of a clear definition for “wager” could create ambiguity in determining which games are permissible.

Despite these challenges, the Gaming Amendment represents a significant step forward for India’s gaming sector. By establishing a framework for regulation and oversight, the amendment can help promote responsible gaming practices while protecting users from potential harm. We anticipate that further action may be necessary in the short term to address these issues and fully realize the benefits of the amendment.