The Ministry of Electronics and Information Technology notifies the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 to regulate online gaming

29.04.2023
By Aarya Pachisia

Saikrishna & Associates

Earlier this year, on 2nd January 2023, the Ministry of Electronics & Information Technology (“MeitY”) released the draft amendments in relation to online gaming (“Draft Rules”) to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”) for public consultation and stakeholder comments. Later, while extending the date for stakeholders’ comments to the Draft Rules, MeitY also proposed an amendment to Rule 3(1)(b)(v) of the IT Rules with respect to due diligence obligations of social media and other intermediaries in relation to fact checking misinformation by Government to prevent sharing false, untrue or misleading information. Thereafter, on 6th April 2023, the MeitY notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (“Notified Rules”) to regulate online gaming and to establish a fact checking unit which will be notified by the Central Government in the Official Gazette.

The key features of the Notified Rules are as follows:

Key Definitions: The Notified Rules introduce the following definitions:
- Online game is defined as “a game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary”.
- Online gaming intermediary (“OGI”) includes “any intermediary that enables the users of its computer resource to access one or more online games”.
- Online gaming self-regulatory body (“SRB”) are defined as entities that are designated under Rule 4A of the Notified Rules.
- Online real money game (“online RMG”) is referred to as “an online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit”. Additionally, the Explanation further defines “winning” as “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”.
- Permissible online game is defined as “a permissible online real money game or any other online game that is not an online real money game”.
- Permissible online real money game (“permissible online RMG”) refers to “a permissible online real money game or any other online game that is not a real money online game”.
Amendments to the due-diligence requirements: The due-diligence requirements post the Notified Rules are as follows:
- The Notified Rules amend Rule 3(1)(b) to require all intermediaries (including OGIs) to make ‘reasonable efforts’ by itself and cause their users to not “host, display, upload, modify, publish, transmit, store, update or share any information. The list of information has been further amended to include information that:
  - causes user harm (i.e any effect which is detrimental to a user or child),
  - is an online game that is not verified as a permissible online game,
  - is an advertisement or surrogate advertisement or promotion of an online game that is not a permissible online game, or of any online gaming intermediary offering such an online game,
  - violates any law for the time being in force,
  - in relation of any business of the Central Government, is identified as fake or false or misleading by such fact check unit of the Central Government that the Ministry will notify in the Official Gazette.
- Further, the OGI will be required to inform users of any change to rules, privacy policy, or user agreement to the users as soon as possible and within 24 hours, in English or any language specified in the Eighth Schedule to the Constitution, in the language of the users’ choice.
- Additionally, users can make complaint to its Grievance Officer (“GO”) against violation of due diligence obligations under Rule 3. Users can also file a complaint with the GO if the OGI fails to provide information which inter alia include (in respect of every such permissible online RMG) withdrawal/refund policy pertaining to the deposit made, policy pertaining to the manner of determination and distribution of winnings, etc, and if the OGIs undertake (by way of credit)/enable (by way of third parties) financing for the purposes of playing online RMGs
- Further the IT Rules mandated intermediaries to prominently publish the contact details of the GO on the intermediary’s website/mobile-based application. The Notified Rules clarify that “prominently publish” refers to “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”.
- Amendment to Rule 3A: The Notified Rules provide users who are aggrieved by the decision of the GO, the right to prefer an appeal to the Grievance Appellate Committee (“GAC”) if, inter alia, a complaint against violation of the provisions of the IT Rules are not acknowledged by the GO within 24 hours and resolved within 15 days of the receipt of the complaint, an intermediary fails to take reasonable and practicable measures to remove or disable access to any content which is prima facie in the nature of any material which exposes the private area of such individual, shows individual in partial or full nudity, or depicts individuals in a sexual act, or is in the nature of impersonation, within 24 hours of receipt of the complaint, etc.
Additional due-diligence requirement by OGI: The Notified Rules require OGIs to comply with additional compliance requirements which include:
- Appointment of Chief Compliance Officer, Nodal contact person, and Resident Grievance Officer who are resident in India.
- Enabling access to any permissible online RMG are mandated to have a physical contact address in India published on its website, mobile applications, or both for the purposes of receiving communications addressed to it.
- Implementation of an appropriate mechanism for the receipt of complaints and grievances, enabling the complainant to track the status of the complaint or grievance.
- Enabling users registering for their services from India/using services in India, to voluntarily verify their accounts and provide such users with a demonstrable and visible mark of verification, which shall be visible to all users of the service.
- Displaying a demonstrable & visible mark of verification on permissible online RMG’s by SRBs
- Providing users with the following information while informing them of its rules and regulations, privacy policy and user agreements which inter alia include (in respect of every such permissible online RMG) withdrawal/refund policy pertaining to the deposit made, policy pertaining to the manner of determination and distribution of winnings, fees and other charges payable by a user, the KYC policy followed for verifying the identity of users of such online game, etc. [Rule 4(11)]
- Identifying users and verify their identity in line with the procedure required to be followed by an RBI regulated entity for undertaking similar identification and verification of its customers.
- The OGIs are prohibited from undertaking (by way of credit)/enabling (by way of third parties) of financing for the purposes of playing online RMGs.
Verification of online RMG – As per the Notified Rules, MeitY has the power to designate as many Self-Regulatory Bodies (“SRB”) as considered necessary for the purposes of verifying an online RMG as a permissible online RMG. Online RMG to verify themselves as permissible online RMG are required to make an application to the SRB. Upon receiving such an application and after conducting such inquiry, the SRB shall verify an online RMG as a permissible online RMG if it is satisfied that:
- the online RMG does not involve wagering on any outcome; and
- the OGI and such online game are in compliance with Rules 3 and 4 (as discussed above), the provisions of any law relating to the age at which am individual is competent to enter into a contract, and the framework made by an online SRB under Rule 4A (8) [as discussed below].
Obligations of SRBs: The SRBSs are required to publish and maintain on their website, mobile based application, or both, certain information which inter alia include an updated list of verified permissible online RMGs, details of such online games which includes the details of the applicant, the date and period of validity, etc. Additionally, a verified online RMG and the OGI that enables access to such online games are required to display a demonstrable and visible mark of verification. Further, Rule 4A (8) mandates SRBs to prominently publish the following on its website, mobile based application or both, as the case may be:
- a framework for verifying an online RMG, including inter alia, measures to ensure that such online RMG is not against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order, safeguards against user harm, measures to safeguard children and users,
- the framework for redressal of grievances and the contact details of the Grievance Officer.
Obligations in relation to online game other than online real money game: The Notified Rules empowers the Central Government to direct an intermediary to observe the specific obligations in respect of an online game which is not an online RMG and specify the period within which these obligations will have to be observed. These obligations inter alia include:
- make reasonable efforts by itself, and to cause the users of its computer resource to, inter alia, not host, upload, share any information that:
  - is in the nature of an online game and is not verified as a permissible online game; and
  - in the nature of advertisement or surrogate advertisement or promotion of an online game that is not a permissible online game, or of any online gaming intermediary offering such an online game.
- appoint Chief Compliance Officer, a nodal contact person, Resident Grievance Officer and publish periodic compliance reports every month.
- have a physical contact address in India published on its website, mobile applications, or both, for receiving communications addressed to it.
- implement appropriate mechanisms to receive complaints and enable complaints to track the status of such grievances by providing a unique ticket number for each complaint in respect of such notified online games.
- allow users registering for/using services in India of the online game to voluntarily verify themselves by using any appropriate mechanism including active mobile phone numbers of such users.
- display a demonstrable and visible mark of verification by an SRB on the online game.
- inform users of the framework referred to in Rule 4A (as discussed above) in relation to the online game.
Where an online game is notified under this sub-rule, the provisions of rule 4A vis-à-vis verification of online RMG shall apply as they apply to a permissible online real money game.
Applicability of certain obligations after notification of the SRBs – The Notified Rules state that the due diligence obligations as specified under Rules 3 & 4 will apply to online gaming intermediaries after the expiry of three months from the date of designating at least three SRBs by MeitY. However, it also clarified that the Central Government has the power to issue a notification directing an online game to implement the above-mentioned obligations before this above-stated period.

Our Take

Given the lack of regulations at the central level, the notification of the Notified Rules has been welcomed by industry stakeholders. However, confusion pertaining to several issues continue to persist. It was reported that the industry players met with Hon’ble Minister of State of MeitY, Mr. Rajeev Chandrasekhar and sought clarifications/guidance on the Notified Rules a few days after its notification. Therefore, the issuance of guidance with respect to the Notified will provide clarity on its implementation.

Some concerns regarding the Notified Rules are below:

The Notified Rules do not distinguish between games of chance and games of skills. Additionally, “gambling” and betting” (which requires analysis of whether such games are game of chance/game of skill) are State subjects as per the constitution which gives States the power to regulate online gaming to that extent within their territorial boundary. Recently, the Tamil Nadu government passed the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act which bans online gambling in the state. Therefore, it is likely that in light of the broad definition of online RMG, there may be potential jurisdictional overlaps between state legislation and the Notified Rules. Although the Hon’ble Minister of State of MeitY, Mr. Rajeev Chandrasekhar made a statement that indicated that the Notified Rules do not deal with games of skill and games of chance, the confusion will probably continue to persist. This is because while verifying permissible online RMG, SRBs are required to assess whether these such online games pertain to gambling or not. Hence, it is likely that permissible online RMGs which are duly assessed by SRBs are challenged before Courts due to the continued legislative ambiguity regarding the contours of whether a specific online game will be considered as a game of chance or a game of skill.
Additionally, like the Draft Rules, the definition of OGI continues to include within its scope intermediaries that only offer a platform to host such online games despite such intermediaries not being actual publishers/developers/owners of such online games, thereby, imposing excessive compliances on such intermediaries.
Further, except for a few exclusions, the Notified Rules retain most compliance requirements (as proposed under the Draft Rules) to be adhered to by OGIs. For instance, unlike the Draft Rules, the Notified Rules do not require OGIs d to obtain “Not Bot” and “Random Number Generator” certificates. However, other compliance requirements as proposed under the Draft Rules have been retained which inter alia include appointment of Chief Compliance Officer, Resident Grievance Officers, Nodal contact person, displaying a demonstrable & visible mark of verification on permissible online RMG’s by SRBs, etc.
Additionally, the Notified Rules require OGIs to inform users of any change in privacy policy, user agreement, etc., as soon as possible and not later than 24 hours, in English or any language specified in the Eighth Schedule to the Constitution, in the language of the user’s choice which considerably increases the compliance burden on such OGIs.
Furthermore, the due-diligence mandate that requires intermediaries (including OGIs) to make reasonable efforts by itself to not host, upload, etc., prohibited content contravenes intermediary safe harbour principle as envisaged under Section 79 of the IT Act which does not require this level of content moderation by its very nature. It is settled law [as has been upheld in multiple case laws such as Indian Young Lawyers’ Association v Union of India (2019) 11 SCC 1] that executive notification/rules cannot contradict statutory provisions enacted by the Parliament.

Additionally, the Notified Rules retain the provision which provides the Central Government the power to set up a fact check unit by way of notification in the Official Gazette. The notified fact check unit will be responsible for identifying fake, false, or misleading information in respect of any business of the Central Government. However, this provision has been challenged before the Bombay High Court. MeitY has been directed by the High Court to file its response stating the justification for not imposing a stay on the operations of Rule 3(1)(b)(v) of the Notified Rules. Additionally, MeitY has been directed to provide the factual background that necessitated such a rule in the first place.

Given the lack of regulations at the central level, the notification of the Notified Rules has been welcomed by industry stakeholders. However, confusions pertaining to the game of skill and the game of chance continue to persist. It was reported that the industry players met with Hon’ble Minister of State of MeitY, Mr. Rajeev Chandrasekhar and sought clarifications/guidance on the Notified Rules a few days after its notification. Therefore, the issuance of guidance with respect to the Notified will provide clarity on its implementation.

This article was first published on Saikrishna & Associates

The Ministry of Electronics and Information Technology notifies the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 to regulate online gaming

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