Draft Online Gaming Rules: An Overview

The Ministry of Electronics and Information Technology has recently proposed amendments in the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (in short, “Intermediary Rules”) to address the need to regulate online gaming(”the draft amendments” or “the proposed rules”). The ministry has invited feedback from the public on these amendments and the final amendments would be notified after considering the public feedback.

The Background

The user base of online gaming has increased substantially in the recent past and is also forecasted to grow significantly in the near future. Despite this, the online gaming industry was, more or less, unregulated. This led to criticism regarding various aspects of certain online games including the targetting of vulnerable population like children. Moreover, certain games promoting gambling were also active due to the unregulated landscape. On account of these issues, various state governments made laws in respect of online games.

State Government’s power to enact laws on betting and gambling

The Entry 34 of the States list of Schedule VII of Constitution includes “betting and gambling” which implies that generally, only state governments can enact laws in relation to betting and gambling. However, the courts have interpreted that the term ”betting” in the Entry 34 can not cover the games of skill.

Game of skill vs Game of chance

There is a thin line difference between “game of skill” and “game of chance”. Generally speaking, a game of skill is the one in which the success depends, in whole or in part, on the skill of the player whereas in a game of chance, the success solely depends on the luck.

Uncertainty in regulatory landscape

The uncertainty in online gaming stemmed from the fact that various state governments have enacted laws in the past to completely ban online gaming. The uncertainty in regulatory landscape is often considered as a detriment to the growth of a particular industry. The proposed rules intends to address the issues relating to the online gaming and most importantly, would grant legitimacy to this industry.

The Draft Amendments

The proposed rules primarily envisages a self-regulatory body to register online games, KYC norms for verification of users and a grievance redressal mechanism.

The draft amendments define “online game” 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. The deposit or winnings can be in cash or kind. An “online gaming intermediary” has been defined as an intermediary that offers one or more than one online game.

Self Regulatory Body

Under the proposed rules, the government can register one or more self regulating bodies. The governing body of such a body should have members from diverse fields like online gaming, psychology, medicine, consumer education, information communication technology, etc. One member has to be nominated by the Central government.

There would be overall supervision of the government over the self regulating body.

Registration of online games

The self regulating body can grant its membership to online gaming intermediaries and can register the online games offered by its members. Other intermediaries can display advertisements of only registered online games.

Due-diligence by online gaming intermediaries

The draft rules propose that online gaming intermediaries would be subject to all the due-diligence imposed on other intermediaries. However, there are some additional due-diligence measures like additional disclosures, KYC verification, appointment of separate Grievance Redressal Officer, compliance officer and nodal officer, etc.

However, the information received for the purpose of verification can not be used for any other purpose without user’s consent.

KYC norms

The proposed rules require online gaming intermediaries to identify the user and verify his identity at the time of commencement of a user account based relationship for an online game. The identification and verification has to be done as per the RBI norms applicable on financial entities.

Power to notify other game as online game

Under the proposed rules, the government can notify any other game (not covered within the definition of online game) as online game on the grounds that such game can create a risk of harm to the sovereignty and integrity of India or security of the State or friendly relations with foreign States or public order, on account of causing addiction or other harm among children.

Observations on the proposed rules

  1. The definition of “online games” doesnot clarify that it covers only the games of skill. Moreover, the definition is not exhaustive as the term “deposit”, “winnings” and “prize” has not been adequately defined in the draft rules. It would be difficult to ascertain with certainty as to whether the following type of games would be covered within the current definition of online games or not -
    1. A game platform showing advertisements to its users for unlocking the different levels of the online game and awarding rewards to unlock the next level without advertisement.
    2. Games of chance like jackpot, etc. where no deposit is accepted from the users but rewards are given on success.
    3. A platform hosting a game of skill like sudoku allowing its users to play one game in one (1) hour without any fee but to play additional game within this duration, it charges some fee only for the purpose of allowing the user to play the game.
  2. The wide definition of “online game intermediary” could possibly cover Google Playstore or other similar platforms which offers various gaming apps on their platform. However, in essence, there appears to be no intention to cover these platforms.
  3. The online games which does not fit within the definition of the online games would face difficulty advertising their games on other intermediaries as the definition of “online games” is not exhaustive and intermediaries would not entertain such non-registered online games due to fear of penal consequences.
  4. Most, self regulatory bodies charge hefty fees for membership and registration. This could create a barrier to the entry for new and relatively smaller companies.
  5. The online games work through a set of algorithms and it would be difficult to ascertain the true nature of the game without scrutiny of the back-end algorithm. This results into a posssibility of a game of chance being promoted under the facade of game of skill.

Concluding Remarks

The introduction of the rules is a positive step in the right direction but a comprehensive legislation with the consultation of states would have been better. The regulatory landscape would remain fragmented as state governments would still be passing laws within their legislative powers, for instance, the state of Chattisgarh passed a law to ban online games other than the games of skill merely two days after the introduction of these rules.

Also, it is important that certain gaps in the proposed rules should be filled so that the regulatory landscape becomes clear and certain.

•Posted on 6 January 2023

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