Analysis of amendments introduced by MeitY for regulation of online gaming (Part 4)

Gaurav Bhalla , Ashneet Hanspal

April 14, 2023

Analysis of amendments introduced by MeitY for regulation of online gaming (Part 4)

In our previous posts on this subject, we’ve analyzed different aspects of the proposed regulatory mechanism. So far, we’ve scrutinized the statutory definitions (pertaining to ‘online games’ and ‘online gaming intermediaries’) which have been incorporated in the Amendment Rules [under Rules 2(qa) to (qf)] as well as the expansion of due diligence requirements [under rule 3] imposed on intermediaries (including the newly distinguished ‘online gaming intermediaries’). We’ve also analyzed the amendments concerning the functioning of the Grievance Appellate Committee (established pursuant to rule 3A of the IT Rules) and the additional due diligence requirements imposed [under rule 4] thereunder (for certain categories of intermediaries). 

In the instant (and final post) of the series, we’ve examined the prescribed procedures for verification of online real money games (and online gaming self-regulatory bodies’ proposed to be set up in this regard) [under rule 4A] as well as the additional requirements (in relation to online games and online real money games) set out in the Amendment Rules [under Rules 4B and C]. Our observations concerning the relevant provisions are as follows. 

Verification Of Online Real Money Games 

The Amendment Rules provide that MeitY may notify several ‘online gaming self-regulatory bodies’ for verifying an ‘online real money game’ as a ‘permissible online real money game’. 

For reference, the Amendment Rules define an ‘online real money game’ as an ‘…online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit. The term ‘winnings’ (for the purpose of the definition) refers to ‘any prize, in cash or kind, which is distributed or intended to be distributed to a user of an online game based on the performance of the user and in accordance with the rules of such online game…’. To recall (as observed in our first post on the Amendment Rules), the scope of this (quite broad and subjective) definition thus covers any online game in which a user may participate (through payment in cash or kind) with the expectation of winning vouchers or discounts or other similar perks (not just monetary prizes). 

Designation Of ‘Online Gaming Self-Regulatory Bodies’: It is pertinent to note that the role of the ‘online gaming self-regulatory bodies’ proposed to be established by the Indian government would be critical for the gaming industry in the time to come. This is because a ‘permissible online real money game’ (under the Amended Rules) includes only an ‘online real money game’ which is verified by an ‘online gaming self-regulatory body’ proposed to be set up under the Amendment Rules. 

Importantly, under the Amendment Rules, only select entities – necessarily being [private limited] companies registered under [section 8 of] the Indian Companies Act, 2013 – may be designated (upon application) as an ‘online gaming self-regulatory body’, provided such entities meet the following criteria: 

  • The applying entity possesses a membership which ‘…is representative of the gaming industry…’ and further, can evidence that such ‘…members have been offering and promoting online games in a responsible manner…’ 
  • The Board of Directors (‘BOD’) (of the relevant entity) is comprised of …individuals of repute and do not have any conflict of interest and possess special knowledge or practical experience suitable for the performance of the functions of such self-regulatory body…and is composed of all the following categories of individuals: 
    • An individual having …special knowledge of or practical experience in the online gaming industry… 
    • An individual having …experience in promoting the interests of users of online games… 
    • An educationist 
    • An expert in the field of ‘psychology’ or ‘mental health’ or such other relevant field 
    • An individual having …special knowledge of or practical experience in the field of information and communications technology… 
    • An individual who either currently is or previously has been a ‘member or officer of an organization dealing with the protection of child rights… 
    • An individual …having practical experience in the field of public policy or public administration or law enforcement or public finance or other relevant field, to be nominated by the Ministry… and 
    • Other individuals ….as may be appointed with the previous approval of the Ministry… 
  • The memorandum of association (‘MOA’) and articles of association (‘AOA’) of the relevant entity contain provisions suitably relating to: 
    • The performance of functions prescribed under the Amendment Rules including (but not limited to) the redressal of grievances …in a manner free from conflict of interest and at arm’s length from its members… 
    • The disclosure and reporting by and accountability of its members… in relation to any online games verified by the entity (upon designation as an online gaming self-regulatory body). 
    • The ‘…clear and relevant criteria…’ (consistent with the Amendment Rules) for the acceptance and continuation of a person as its member, and for revoking or suspending such membership after giving such person an opportunity of being heard 
    • The requirement that any amendment in the MOA and/or AOA (of the relevant entity) in relation to all the above contents (required to be contained in the MOA and AOA) will be carried out only with the prior government approval. 
    • The relevant entity possesses ‘sufficient capacity’ including the …financial capacity, to perform its functions as an online gaming self-regulatory body…under the Amendment Rules. 

Manner of Verification of ‘Permissible Online Real Money Games 

An online gaming intermediary – necessarily being a member of an ‘online gaming self-regulatory body’ – may apply (to the relevant body) for the verification of an ‘online real money game’, as a ‘permissible online real money game’ under the Amendment Rules. Thereafter, the relevant body may designate the relevant game as a ‘permissible online real money game’ only if – upon inquiry 

- The relevant body finds that the below-set criteria have been suitably satisfied: 

  • The ‘online real money game’ doesn’t involve betting or wagering ‘on any outcome’ thereof and; 
  • The relevant applicant (and its online real money game) is compliant with the due diligence requirements prescribed under [rule 3 and 4 of] the Amendment Rules (our analysis of the relevant provisions is elaborated in the second and third posts in our series of posts on the Amendment Rules). In addition, the relevant body will also consider whether the relevant applicant is compliant with the ‘…provisions of any law relating to the age at which an individual is competent to enter into a contract…’ (which, for reference, is eighteen years and above for the purpose of the Indian Contract, Act 1872). Further, it will consider whether the relevant online real money game (in respect of which the applicant has approached the relevant body) is compliant with the ‘….framework made by the online gaming self-regulatory body…’ (per the obligations imposed on such bodies under the Amendment Rules, as elaborated hereinbelow) for verification of online real money games. 

Notably, the Amendment Rules provide that an online gaming self-regulatory body may make an initial declaration as regards an ‘online real money game’ qualifying as a ‘permissible online real money game’ in reliance upon only the information furnished by an applicant (for the purpose of verification) – however such declaration can be validly made only ‘…for a period not exceeding three months…’. In this regard, the Amendment Rules further provide that the relevant online gaming self-regulatory body (having made the initial declaration) must ‘… endeavor to complete the inquiry within the said period of three months and, upon its completion, either declare the online real money game as a permissible online real money game or inform the applicant in writing with the reasons thereof that such online game does not meet the requirements…’ under the Amendment Rules. 

As part of obligations prescribed under the Amendment Rules (in relation to verification of online real money games, as elaborated hereunder), upon verification of an online real money game as a permissible online real money game (in the manner mentioned above), the relevant applicant/online gaming intermediary (which ‘…enables access to such online real money game…’) is required to display a ‘…demonstrable and visible mark of such verification stating that the online real money game is verified by the online gaming self-regulatory body as a permissible online real money game…’ under the Amendment Rules. 

Obligations Of ‘Online Gaming Self-Regulatory Bodies’ 

The following obligations are prescribed under the Amendment Rules (in relation to verification of online real money games) specifically for online gaming self-regulatory bodies (as may be designated thereunder). 

Notably, an online gaming self-regulatory body is required to ‘publish and maintain’ the following on its website and/or mobile application (as may be applicable): 

  • An updated list of all permissible online real money games verified by such body (in accordance with the Amendment Rules). This list is required to contain the details of the relevant game(s), the applicant(s), the dates and period of validity of the verification, reasons behind such verification, and if applicable – the details of any suspension or revocation of the verification of any online real money game. 

As mentioned above, under the Amendment Rules, a gaming self-regulatory body holds the right to suspend or revoke the verification of an online real money game verified by it at any time, if it is satisfied that the same is not in compliance with the provisions of the Amendment Rules. As further mentioned above, however, the relevant body is required to communicate its reasons (concerning its decision to revoke or suspend verification) to the relevant online gaming/applicant member in writing as well as grant such member the opportunity of being heard. 

  • An updated list of all (existing as well as former) members along with ‘...the dates of their acceptance as a member, their corporate or business-related identity number and other details, and the details of suspension or revocation of membership of any member… 

An online gaming self-regulatory body is further required to ‘prominently publish’ the following on its website and/or mobile application (as may be applicable). [For reference, the term ‘prominently publish’ has been defined under the Amendment Rules as ‘…publishing in a clearly visible manner on the home page of the website or the home screen of the mobile-based application, or both, as the case may be, or on a web page or an app screen directly accessible from the home page or home screen…’]. 

  • The framework for verification of an online real money game, which, inter-alia includes: ‘…measures to ensure that such online real money game is not against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order…the safeguards against user harm, including self-harm and psychological harm…the measures to safeguard children, including measures for parental or access control and classifying online games through age- rating mechanism, based on the nature and type of content…and…the measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, including repeated warning messages at a higher frequency beyond a reasonable duration for a gaming session and provision to enable a user to exclude himself upon user-defined limits being reached for time or money spent…’ 
  • The framework for ‘…redressal of grievances and the contact details of the Grievance Officer to which an applicant aggrieved by a decision of such body with respect to verification may make a complaint in respect of any matter related to such online real money game or verification….’ 

Administration and Enforcement of the Amendment Rules 

The Amendment Rules provide the Indian government discretional powers to direct an online gaming self-regulatory body to furnish to the government, or to disclose on its online platform, any information as the government may specify in its direction. 

While it is provided that MeitY will take into consideration any reasons and other details published by the online gaming self-regulatory body (on its online platform) in respect of its verification of any permissible online real money game, before issuing any directions in accordance with the

Amendment Rules, however, if the government is ‘…of the view that any verification of a permissible online real money game by an online gaming self-regulatory body is not in conformity with these rules, it may, after giving such body an opportunity of being heard, communicate, in writing, the fact of such non-conformity to that body and direct it to take measures to rectify the same…’. 

The government may further ‘…if it is satisfied that it is necessary so to do, after giving the online gaming self-regulatory body an opportunity of being heard, by order, for reasons to be recorded in writing, suspend or revoke the designation of such body…’ and may in the ‘…interest of the users of any online game that was verified by such body at the same time or at any subsequent time…’ further pass such interim directions ‘…as it may deem necessary to any intermediary or class of intermediaries regarding enabling its users to access such online game…’. 

It seems that MeitY has (somewhat) attempted to ease the burden of compliance imposed under the Amendment Rules by allowing intermediaries time to comply with certain new obligations incorporated thereunder [in relation to ‘online games’ under rule 3 and 4 specifically, as elaborated in the second and third posts in our post series]. The Amendment Rules provide that such obligations ‘…shall not apply in relation to online games until the expiry of a period of three months from the date on which at least three online gaming self-regulatory bodies have been designated…’ by the government. 

Notably, however, the government nevertheless holds the power (at its discretion) to pass a notification directing for the application of such obligations in relation to online games ‘…at any time before the expiry of the said period of three months…’. Further, the Amendment Rules provide that the government ‘…in the interest of the sovereignty and integrity of India or security of the State or friendly relations with foreign States or public order, or preventing user harm [i.e., any ‘effect which is detrimental to users…’].…’ may pass a notification (by giving reasons in writing) directing an intermediary to observe (in respect of an online game) – similar obligations as are contained under the Amendment Rules in respect of permissible online real money games; and further may ‘…specify the period within which the online gaming intermediary which enables access to such online game…’ must observe such obligations. It is clarified that where an online game is so notified, the provisions of the Amendment Rules applicable to permissible online real money games, will also apply in respect of such an online game. 

In light of our analysis of the Amendment Rules (in the instant post as well as our preceding posts), it is quite clear that the Amendment Rules have imposed stringent requirements and standards upon online gaming and concerned intermediaries (and for all intermediaries as a whole) and also that such requirements significantly differ from the prior draft amendment previously circulated for public consultation by MeitY (back in January 2023). 

The sudden release of the Amendment Rules has led to divergent feedback from the public – and invited both laudation and widespread concern concerning the over-reaching nature of the provisions therein (such as the high involvement of government supervision including in relation to the aspect of fact-checking proposed therein) and in fact, the constitutionality of the Amendment Rules is already under challenge by various stakeholders. Our detailed insights in this regard as well as our comprehensive analysis of the Amendment Rules will be documented in our detailed consolidated article on the matter, which we’ll release shortly. 

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