The Ministry of Electronics and Information Technology, Government of India (“MEITY”) notified amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediary Guidelines”), issued under the Information Technology Act, 2000 (“IT Act”), on April 06, 2023, to govern the online gaming space in India (“Amendment”).

The gamut of ‘online games’

A game offered on the internet and accessible by a user through a computer resource or an intermediary is an ‘online game’. When an online game involves a user to make a deposit in cash or kind with the expectation of earning winnings on that deposit, it will be classified as an ‘online real money game’. In this context, ‘winnings’ would mean any prize, in cash or kind, that is distributed or intended to be distributed based on the user’s performance and in accordance with the rules. Given the wide definition, scope of what may constitute ‘in kind’ for the purposes of deposits made towards a ‘permissible online real money game’ would need clarity.

Curiosity arises on what are ‘in-kind’ deposits and winnings and what does it include, in context of determining of the online games that may qualify as an ‘online real money game’. The irony lies in introduction of ‘in-kind’ for a definition of an online ‘real money’ game, connoting there should be an inherent monetary value associated with the game. Consequent to the definitions that introduce an ‘in-kind’ ingredient, existing online games will need to be examined to determine if they qualify within the contours of an online real money game.

On the one hand, there are vanilla game constructs where users are required to spend actual ‘real money’ to participate and win ‘real money’, which obviously qualify as online real money games. Whereas on the other hand, some constructs could also include instances where users on successful online purchase or payment transactions receive points which can be used to play slot machine or spin the wheel games, with the expectation to win more points, or other reward vouchers or prizes. It needs to be seen if deposits and winnings ‘in-kind’ could also include offerings such as in-game credit or in-game rewards distributed to players, if such rewards are used to participate in online games with the expectation to earn rewards. This can have significant repercussions and would substantially expand the ambit of online games in respect of which the additional compliances introduced by the Amendment would need to be adhered.

The online gaming industry will need to take a step back and examine each game to analyse if it qualifies as an online real money game and consequently take measures introduced by the Amendment.

Who is an online gaming intermediary?

One of the key new concepts introduced by the Amendment is that of an ‘online gaming intermediary’. An intermediary that enables users of its computer resource to access one or more ‘online games’ would qualify to be an ‘online gaming intermediary’. For greater context, an ‘intermediary’ means with respect to any particular electronic record “any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record“, and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-market places, etc.

Since the concept is widely defined to encompass ‘intermediary’ that enables users to access online games, it remains to be seen how it is interpreted to determine the nature of entities that would qualify as ‘online gaming intermediaries’. A literal reading of the definition could result in a broad interpretation, as the term is capable to include intermediaries (such as cloud service providers, web hosting service providers or internet service providers) as online gaming intermediaries, although such intermediaries may not have any role as far as online games are concerned. For instance, an interface to download mobile applications or a website providing users to access or download games could be considered examples of online gaming intermediaries. Hence, it becomes important for the definitions, such as online gaming intermediary, to be meaningfully interpreted.

Some guidance seems to emerge vis-à-vis the nature of entities that can be considered to be an online gaming intermediary under the additional due diligence measures prescribed specifically for online gaming intermediaries. Accordingly, a view may be possible that intermediaries such as cloud service providers, web hosting service providers, internet service providers would not qualify as online gaming intermediaries due to their inherent inability to ensure that the aforesaid additional due diligence measures are complied with. Illustratively, a cloud service provider or web hosting service provider (providing services to a corporate entity offering certain online games) would have no visibility or interface with the end-users of the online games that would enable such intermediary to undertake acts like making information related to withdrawal and refund policies of deposits made by such end-user available, and implementing KYC procedure for verification of identity of such end-user playing the online game. Towards this end, a formal clarification would help.

Due diligence measures applicable to online gaming intermediaries

The IT Act governs ‘safe harbour’ for intermediaries, i.e., immunity from liability with regard to any third-party data, information or communication link made available or hosted by them. The Intermediary Guidelines contain the due diligence measures to be followed to by intermediaries to claim this ‘safe harbour’ defence.

With an online gaming intermediary regarded as an intermediary, the due diligence measures applicable to intermediaries in general under the Intermediary Guidelines, would also be extended to an online gaming intermediary, which include:

• compliance with the grievance redressal requirements provided under the Intermediary Guidelines;
• informing users of any change in the rules, regulations, or policies; and
• take-down of online game content on receipt of notice or instructions to do so.

The Amendment incrementally requires an online gaming intermediary to make reasonable efforts to ensure that neither it (by itself) nor its users upload, host or transmit any information in the nature of either an online game that causes harm or is detrimental to a user or child or is not verified as a ‘permissible online game’; or an advertisement, surrogate advertisement or promotion of an online game not a permissible online game or of an online gaming intermediary offering it. Towards this, the Amendment creates an additional category ‘permissible online game’ which includes permissible online real money game or any other online game.

Additionally, the Amendment has prescribed due diligence measures specific to an online gaming intermediary, which requires them to:

• have a physical contact address in India;
• appoint Indian residents as nodal contact person, chief compliance officer and grievance officer;
• implement mechanism for receipt of grievances and tracking of status;
• display a demonstrable visible verification mark for permissible online real money games;
• publish withdrawal or refund policy for deposit made by users, manner of determination and distribution of winnings, etc.;
• identify a user and verify user’s identity, before accepting any deposit;
• publish information regarding measures taken for protection of the users’ deposits; and
• not finance (by way of credit) for playing online games, by itself or by enabling third-parties to offer.

Under one of the measures, online gaming intermediaries have been asked to undertake KYC procedures followed by regulated entities (under the purview of the Reserve Bank of India) at commencement of an account-based relationship. The current regulatory regime permits KYC through various mechanisms, such as Aadhaar based eKYC, digital KYC and offline verification or collection of official documents, etc. The gaming intermediaries may require clarity on the form or mechanism of KYC that may be permitted for them. Also, the requirement to allow use of actual Aadhaar number for verification may need to be re-assessed.

Online gaming self-regulatory body and verification of an online real money game

The MEITY is empowered to designate online gaming self-regulatory body (“SRB”) for verification of online real money games. A ‘permissible online real money game’ is one that is verified by an SRB.

An entity may apply to MEITY for designation and recognition as an SRB. Such an entity must comprise of the members or representatives of the gaming industry. MEITY is empowered to suspend or revoke the designation of an SRB if it is satisfied that it is necessary to do so. SRBs must publish a framework for verification of an online real money game, which must include measures to ensure the game is not against interests of sovereignty, integrity, security, friendly relations and public order of India and safeguards against user harm and children, through parental or access control measures or implementation of age-rating mechanism. In its determination, the SRBs must also consider measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, which include repeated warning messages at higher frequency beyond a reasonable duration for a gaming session and enabling users to exclude itself upon reaching self-defined limits for time or money spent.

In declaration of an online real money game as permissible, SRBs are required to consider that the online game must not involve wagering on an outcome, and the online gaming intermediary and such online game are in compliance with due diligence measures and SRB’s framework. SRBs are required to publish a list of all permissible online real money games verified by it on its website and mobile application, which will include details of the applicant and period of validity of the verification.

Since a number of SRBs are contemplated, the interplay between activities and approval decisions is a sensitive issue, for instance, evaluation of an online game by an SRB after its rejection by a different SRB. Also, considering the SRBs will comprise of representatives from the gaming industry itself, it will be important to lay down the rules of functioning of SRBs to alleviate possibilities of favouritism, bias and prejudice in assessment of the games, and to ensure transparency in the process.

Takeaways

The regulatory step of distinguishing online games from gambling is a significant forward-looking step. The gaming industry has appreciated the Government’s trust in implementing the self-regulatory mechanism for the online gaming space.

All gaming companies and online gaming intermediaries will need to revisit and examine the games they operate or list, basis which steps can be taken to ensure that access to the games can be enabled by online gaming intermediaries.

With some obligations being operationally burdensome and significantly onerous, such as having a physical contact address in India and restricting availability of finance by third parties, only time will tell if the Amendment means GAME OVER for gaming players or online gaming intermediaries; or the step of regulation through the Amendment was GAME ON, ushering in a dawn for the gaming industry.