Online gaming, a multibillion-dollar industry globally, offers a multi-billion-dollar opportunity for Indian startups. The ministry of electronics and information technology recently notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023. It was projected as a great move for the industry that will legitimize online games (including peer-to-peer gaming). Also, a watershed moment in efforts to consolidate state-wise rule fragmentation. Commendably, the government took note of industry concerns in the light of its rapid expansion, especially post-covid.
This federal rule-making initiative aims for a light-touch regulatory approach that can spur innovation. By providing a framework for legal online gaming, it also offers the Indian gaming industry hope that it can enter states barred to it by state-level curbs.
The new draft Rules define an online gaming intermediary as a portal/platform that enables users to access one or more online games, and is expected to widen distribution channels for games of skill, encourage new marketing avenues and ease restrictions on digital advertising tools.
In tandem with these Rules, on 6 April the ministry of information and broadcasting issued an advisory on advertisements and surrogate ads for online betting platforms. It reiterated that direct or indirect ads or the promotion of online betting and gambling games would violate Indian laws.
Online gaming is distinct from gambling: The 2023 Rules are amendments to the IT Rules of 2021 that brought social media intermediaries under its ambit, and they focus on ensuring that no wagers or bets are made on the outcome of any online game. The Rules prohibit online gaming intermediaries from hosting or letting users host unverified online games, advertisements or surrogate ads or promotional material for non-permissible online games, or for any intermediary offering such an online game. In effect, the new Rules ban offshore betting ads or any questionable entities that may have sought to advertise themselves. This regulatory squeeze on offshore gambling should attract more business for Indian skill-based gaming operators that are legitimate.
It is pertinent to note that verifications and permissions shall be regulated by the ministry of electronics and information technology. The 2023 amendments also give the ministry the right to force a gaming intermediary to undergo further scrutiny if a game offered by it may result in risking any harm to the sovereignty and integrity of India or security of the state or friendly relations with foreign states, or to public order (which could be on account of addiction caused among children).
What about safe harbour clauses?: The amendments confer responsibility upon online gaming intermediaries to display a demonstrable and visible mark of verification accorded by a self-regulatory body to a real-money online game before accepting any deposits from users. They also mandate user identification and verification via KYC details to ensure that no money laundering is involved. Further, intermediaries are required to clarify their policy on the withdrawal or refund of a user’s deposit, as also the manner of determination and distribution of winnings, fees and other charges payable by users. The amendments also make it mandatory to appoint a grievance officer, who should be an employee of the intermediary and resident of India, and a chief compliance officer, who should be in a managerial position. The Rules will bring into effect three self-regulatory bodies for the gaming industry. Each self-regulatory body (SRB) shall be established subject to prescribed conditions, which are similar to those laid down by the IT (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2022. An SRB should be a non-profit organization with members who are responsible promoters of online games and its board of directors should be individuals of repute without conflicts of interest who possess special knowledge or suitable practical experience. Further, an SRB must always display on its website (and mobile app) a list of current members and permissible online games, in addition to its framework for verifying online games.
Swing and miss?: The states of Tamil Nadu and Chhattisgarh have notified respective laws to tackle the proliferation of online betting and gambling apps. While Chhattisgarh’s law carves out an exception for judicially-recognized games of skill, the Tamil Nadu law has imposed an outright ban. Note that the Rules require all online real-money games to be judged by their legal compliance. These state laws also establish bodies to assess online games. The Tamil Nadu law also requires online gaming entities (including those with casual play-for-free formats) to provide details of every game of skill in their registration applications. However, the Rules require that only online real money games of skill be verified. This takes us back to square one. That is, the duplication of regulatory compliances for online gaming entities. This muddies the regulatory waters that were just starting to clear on this aspect.
To conclude, the abrupt proclamation of these Rules has invited both bouquets and brickbats. In the light of the above analysis, it can be inferred that the Rules impose stringent standards on India’s online gaming market participants. There is a widespread concern about government overreach in its market supervision, but then, we can expect clarity to emerge as the law evolves.
Vinit Goenka & Trisha Shreyashi are, respectively, spokesperson for the Bharatiya Janata Party Delhi and an advocate.