1. The beginning of 2023 has come with a bang for the Online Gaming and E-Sports industry. Recently the Central Government came up with two notifications pertaining to Online Gaming and E-sports as part of E-Sports Events and the proposed amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”).

CENTRAL GOVERNMENT APPOINTS NODAL MINISTRIES FOR ONLINE GAMING AND E-SPORTS^[1]

2. The Central Government has been consistently taking steps to achieve greater regulation in the growing space of online gaming and e-sports. In furtherance of the same, the Central Government, vide a notification dated December 23, 2022, has 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 and has added ‘E-sports as part of multi-sports events’ within the scope of Department of Sports, Ministry of Youth Affairs and Sports.
3. AOB Rules prescribe which Ministry or Department will be responsible for drafting the law, implementing of law post-enactment, framing rules and formulating the policy for the subject listed against its name. The aforesaid amendment to the AOB Rules indicates the possibility of framing designated rules or bills for regulating the sector of Online Gaming and E-sports by the respective ministries and/or departments.

PROPOSED AMENDMENTS IN THE INFORMATION TECHNOLOGY (INTERMEDIARY GUIDELINES AND DIGITAL MEDIA ETHICS CODE) RULES, 2021 ^[2]

4. Another significant development is the changes to the IT Rules by way of which the Ministry of Electronics and Information Technology has been designated as the nodal ministry for matters relating to online gaming and has released certain draft amendments on January 2, 2023 for consultation from various industry bodies and stakeholders (“Proposed Amendment”) before bringing them into effect. The key highlights of the Proposed Amendment are as follows:

4.1. Defines ‘online game’ under Section 2 (qa) of the IT Rules 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 and further establishes an ‘online game intermediary’ under Section 2(qb) of the IT Rules as ‘an intermediary that offers one or more than one online game’.

4.2. The Proposed Amendment also extends the duty to exercise ‘due diligence’ by an intermediary as prescribed under Rule 3 of the IT Rules to an‘online gaming intermediary’. Moreover, the Proposed Amendment also proposes to amend Rule 3 of the IT Rules to the extent:

4.2.1.  To mandate an‘online gaming intermediary’ to make all reasonable efforts to cause the users not to host, display, upload, modify, publish, transmit, store, update or share any information that is in the nature of an ‘online game’ that is not in conformity with any law for the time being in force in India or violates any law for the time being in force in India, including any such law relating to gambling or betting.

4.2.2.  To mandate that an ‘online gaming intermediary’ shall, before hosting or publishing or advertising any online game for consideration ensure the registration of such ‘online game’ with the concerned self-regulatory organization and whether the fact of its registration is displayed on the website and/or mobile based application of the intermediary.

4.3.  The Proposed Amendment also proposes the inclusion of a new Rule 4A which requires all ‘online gaming intermediaries’ to exercise certain ‘additional due diligence’ which includes the following:

4.3.1.  an online gaming intermediary shall display a demonstrable and visible mark of registration on all online games registered by the concerned self-regulatory body.

4.3.2.  the rules and regulations, user agreements, etc. of the ‘online gaming intermediary’ shall inform the user of,inter alia, the risk of financial loss and addiction associated with the online game, the know-your-customer procedure followed by the ‘online gaming intermediary’ for registration of the account of a user, etc.

4.3.3.  the ‘online gaming intermediary’ shall prominently publish on its website or mobile application, a random number generation certificate and a ‘no-bot certificate’ from a reputed certifying body for each online game offered by it, along with relevant details of the same.

4.3.4.  an ‘online gaming intermediary’ shall have in place a procedure for identification and verification of its users at the time of commencement of an ‘account-based relationship’, which shallmutatis mutandis be similar to the procedure required to be followed by an entity regulated by the Reserve Bank of India under directions issued by it for identification and verification of customers.

4.3.5.  an ‘online gaming intermediary’ shall enable its users to verify their accounts by using any mechanism, including through an active Indian mobile number.

4.3.6.  an ‘online gaming intermediary’ shall appoint a Chief Compliance Officer who shall be responsible for ensuring compliance with the IT Act and the rules made thereunder.

4.3.7. appoint a nodal contact person for 24*7 coordination with the law enforcement agencies and officers to ensure compliance with their orders or requisitions made in accordance with the provisions of law or rules thereunder.

4.3.8. the online gaming intermediary shall have a physical contact address in India published on its website or application for the purposes of receiving any communications addressed to it.

4.3.9.  an ‘online gaming intermediary’ shall implement an appropriate mechanism for the receipt of a complaint under sub-rule (2) of rule 3 of the IT Rules and grievances in relation to the violation of provisions under this rule, which shall enable the complainant to track the status of such complaint or grievance by providing a unique ticket number for every complaint or grievance received by the online gaming intermediary.

4.4. The Proposed Amendment proposes the inclusion of a new Rule 4B in the IT Rules which provides for the creation of a ‘self-regulatory organization’ for the purpose of regulating the online gaming space. The Proposed Amendment provides that such a self-regulatory organization shall, inter alia, ensure:

4.4.1. registration of ‘online games’ and requiring the online gaming intermediary offering the such online game to display a demonstrable and visible mark of registration with the self-regulatory body.

4.4.2. communicate the fact of recognition of every ‘online game’ registered with it to the Central Government along with a report regarding the basis on which it has recognized such ‘online game’.

4.4.3. establish a mechanism for time-bound resolution of such complaints of users that have not been resolved by the grievance redressal mechanism of its member online gaming intermediary.

5. While it is important to acknowledge that the government is taking a proactive approach to filling in the lacunas in the law where there is a grey area or no law altogether, it is interesting that such proposed amendments are only finding their way under the delegated legislatione., the IT Rules rather than the parent act itself i.e., Information Technology Act, 2000.
6. It may also be important to analyse and understand the import that the Appeal under the IT Rules to go to the Grievance Appellate Committee ^[3] and not to the Cyber Appellate Tribunal ^[4] now merged with the Telecom Disputes Settlement and Appellate Tribunal after the passing of the 2017 Finance Bill which fundamentally disbalances the Act vis-a-vis the IT Rules.
7. Another parameter that will also have to be looked into by these proposed amendments is that the State Governing bodies of each state have been dependent on the ability to outline state particular laws on ‘wagering and betting’ and its impact on existing games such as Rummy and Poker including regulating the online variant of these games as well.
8. It will be interesting to understand the impact of the proposed amendments on the aspect of ‘Game of Skill v. Game of Chance’ as most of the state acts the majority of the State Acts provides an exception for “any game of mere skill wherever played” from their state specific laws.Watch this space for further developments.

Endnotes:

[1] https://egazette.nic.in/WriteReadData/2022/241420.pdf
[2]https://www.meity.gov.in/writereaddata/files/IT%20Rules%2C%202021%20with%20proposed%20amended%20texts%20in%20colour.pdf
[3] Section 3A of the IT Rules– Appeal to the Grievance Appellate Committee(s)
[4] Section 57 of the Information Technology Act, 2000