Decoding IT Amendment Rules: The Hits and Misses

  • April 18, 2023
  • Padma Sinha
  • Sanjana Sreenath

On April 6, 2023, the Ministry of Electronics & Information Technology (MeitY) notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 to amend the 2021 Rules. In this article, the important changes introduced to the Rules are highlighted.

Introduction

Through the amendment, the Ministry intends to make a few changes to the intermediary eco-system by introducing new due-diligence requirements for intermediaries. It can be broadly summarised under two heads – partial censorship of digital media, and regulation of online gaming intermediaries. 

Partial censorship of digital media

The new amendment requires social media intermediaries, significant social media intermediaries and online gaming intermediaries to follow additional due diligence. It aims to regulate digital media by disallowing the publication of such information related to the business of the Central Government which is identified or declared as fake, false, or misleading by a fact-checking unit set up by the Central Government. This addition to the rules would make it mandatory for the intermediaries to take down (when given a notice by the user) any piece of information that is declared fake or misleading by the fact-checking authority. It is unclear from the amendment if the information checked by the already established fact-checking authority would warrant take-down, but with the available information, it would be reasonable to assume that any information fact-checked and deemed fake by the PIB fact-check mechanism would warrant takedown.

This part of the amendment has been challenged by a political satirist, Mr. Kunal Kamra. He filed a writ petition with the Bombay High Court with the averment that the amendment with respect to establishing a separate unit by the Central government to fact-check digital media is violative of Articles 14, 19(1)(a), and 19(1)(g) of the Indian Constitution and that it is ultra vires Section 79 of the Information Technology Act, 2000. The Bombay High Court has now directed MeitY to file its response within one week on why the IT Amendment Rules, 2023 should not be stayed, and also describe the factual background that necessitated the issuance of the amendments. The affidavit has been ordered to be filed by April 19, 2023, and the matter has been listed on April 21, 2023.

Regulation of online gaming intermediaries

Earlier, a draft of the amendment (pertaining to online gaming) to the 2021 Rules was released in January 2023; though the draft lacked clarity on the kind of online games it intended to regulate (click here to read more). Further, it did not delve into differentiating between games that are in the form of wagering/betting and those which are not. The current amendment attempts to overcome these shortcomings by providing for an ‘online gaming intermediary’ and stipulating the due-diligence requirements for such intermediaries.  

The amendment defines an online gaming intermediary as one that enables users to access one or more online games. It further defines an ‘online real money game’ that is played with real money, where the users are asked to deposit money. The amendment allows the online gaming intermediary to host only those games which are permissible online games and are certified by the online gaming self-regulatory body.

Disallowing online wagering and betting games.

As per the new amendment, social media intermediaries or online gaming intermediaries are not allowed to host an online game which is not verified as a ‘permissible online game’, or any information or content which is in the nature of an advertisement or a surrogate advertisement of such non-permissible online games. It also prohibits the hosting of such games that causes harm to the user.

Permissible online real money game

The amendment further clarifies that for a game to be certified as a permissible online real money game, any member of the online gaming self-regulatory body that enables online real money game can make an application to the online gaming self-regulatory body. The said private body is set up for the sole purpose of acting as an online-gaming self-regulatory body and is notified by the Central Government. It has the power to decide whether an online game is permissible or not. The regulatory body will inquire and ensure that the game does not involve any wagering and that the gaming intermediaries or the online game undertakes all the due diligence laid down in the Rules. Additionally, it shall also ensure that the permitted games are not against the interest of the country. It also has safeguards that protect users against harm, risk of addiction, financial loss, fraud, etc by providing repeated warnings or such. The body is required to adhere to the principles of natural justice. While the self-regulatory body has the power to certify an online game as a permissible one, the Central Government still reserves the right to suspend the certification if it believes that the said game is not in conformity with the Rules.

This is a private body set up for the sole purpose of acting as an online-gaming self-regulatory body and is notified by the Central Government. In brief, they have the power to decide whether an online game is permissible or not.

Due-diligence requirements

Previously, Rules 3 and 4 of the Rules stipulated the due-diligence requirements for social media intermediaries and significant social media intermediaries. With this amendment, such due-diligence requirements in Rules 3 and 4 are extended to online gaming intermediaries too.

Through these amendments, in addition to the existing due diligence requirements under Rules 3 and 4, the online gaming intermediaries that enable permissible real money games have certain additional due-diligence requirements like requiring to display a visible mark of verification, and inform the users about the policy related to the deposit and withdrawal of money, the KYC norms that they follow, the measures taken to protect the deposits made amongst others.  

Online games which are not real-money games do not have to follow the additional due-diligence requirements by default, the Central Government by notification may direct an intermediary to undertake certain due-diligence requirements.

Conclusion

The IT amendment rules are an improvement on the previously proposed amendment to the 2021 Rules. The definitional ambiguity is removed and a step is taken toward regulating online games that are based on wagering. It also makes the self-regulation of online gaming intermediaries more transparent by stipulating for disclosure of decision-making reasons, etc.

Image Credits:

Photo by anyaberkut: https://www.canva.com/photos/MADCr_H7g_U-it-concept-information-technology-diagram/ 

The new amendment requires social media intermediaries, significant social media intermediaries and online gaming intermediaries to follow additional due diligence. It aims to regulate digital media by disallowing the publication of such information related to the business of the Central Government which is identified or declared as fake, false, or misleading by a fact-checking unit set up by the Central Government. This addition to the rules would make it mandatory for the intermediaries to take down (when given a notice by the user) any piece of information that is declared fake or misleading by the fact-checking authority. It is unclear from the amendment if the information checked by the already established fact-checking authority would warrant take-down, but with the available information, it would be reasonable to assume that any information fact-checked and deemed fake by the PIB fact-check mechanism would warrant takedown.

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Online Games Involving Money Now Banned in Karnataka

In a major setback to the Online Gaming platforms and all other gaming entities in Karnataka falling under the category of wagering or betting, the Karnataka Government on 5th October 2021 notified the Karnataka Police (Amendment) Act, 2021, (“Act”/”Amendment”) which prohibited all forms of online gaming involving a transfer of money.

The controversial legislation comes in the backdrop of the upcoming T20 World Cup involving a huge stake for online gaming companies, including MPL, Dream11, to name a few. Further, it is said to damage Bangalore/Karnataka’s position as the country’s start-up capital which houses about 92 gaming companies and employs over 4,000 persons. 

Key Amendments Made Through the Karnataka Police (Amendment) Act, 2021

The Amendment widened the scope of certain definitions under Section 2 of the Act. Some of the key amendments are:  

The definition of the term “Gaming” under Section 2(7) has been revised to include online games that involve “all forms of wagering or betting, including in the form of tokens valued in terms of money paid before or after issue of it, or electronic means and virtual currency, electronic transfer of funds in connection with any game of chance“.

Similarly, Section 2(11) that defines “Instruments of gaming” has been substantially expanded and now includes “any article used or intended to be used as a subject or means of gaming, including computers, computer system, mobile app or internet or cyberspace, virtual platform, computer network, computer resource, any communication device, electronic applications, software and accessory or means of online gaming, any document, register or record or evidence of any gaming in electronic or digital form, the proceeds of any online gaming as or any winning or prizes in money or otherwise distributed or intended to be distrusted in respect of any gaming“.

The Amendment has also introduced a new Section 12(A) that defines “online gaming” as “games as defined in clause (7) played online by means of instruments of gaming, computer, computer resource, computer network, computer system or by mobile app or internet or any communication device, electronic application, software or on any virtual platform;“

Further, Section 78 has been amended to criminalize activities related to opening certain forms of gaming centres and penalize anyone who opens, keeps or uses cyber cafes, computer resources, mobile apps, the internet, or any communication device as defined in the IT Act for online gaming. Offences under Section 78 have been made cognizable and bailable.

The Amendment has also increased the nature of, and scope of punishments for various offences. Offences under Section 78 and Section 87 of the Act that deals with gaming in public streets are punishable with imprisonment of up to six months or a fine of up to ten thousand rupees. 

Punishments under Section 79, which criminalizes keeping common gaming house, and Section 80, which criminalizes gaming in common gaming-house, have been increased to imprisonment of up to three years and a fine of up to one lakh rupees. 

Previously, Sections 79 and Section 80 did not apply to wager in games of pure skill. The Amendment removed this exception, bringing games of skill as well under the purview of the ban.

Judicial Stand on Similar Bans Placed on Online Gaming

Recently in the case of Junglee Games v. State of Tamil Nadu[1], the Madras High Court struck down the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021, which was similar to the Amendment in Karnataka, holding that such a blanket ban was excessive and disproportionate and that it was violative of Article 19(1)(g) of the Constitution.

The Rajasthan High Court in Saahil Nalwaya v. State of Rajasthan and Ors. [2] held that online fantasy sports, which functions under the Charter for Online Fantasy Sports Platforms of the Federation of Indian Fantasy Sports, the self-regulatory body in the online fantasy gaming industry which we have discussed before, are protected under Article 19(1)(g) of the Constitution.

The Supreme Court in Avinash Mehrotra v. The State of Rajasthan[3], dismissed an SLP from a decision of the High Court of Rajasthan, thereby upholding the judgements of the Rajasthan High Court, the Punjab and Haryana High Court, and the Bombay High Court, that games such as Dream11 do not involve any commission of the offence of gambling and betting.

Considering these judicial stands, the constitutional and legal validity of the Amendment is also in question, and the Amendment will likely be challenged in Court.

 

Effects of the Amendment Banning Online Gaming in Karnataka

Immediately after the Amendment Act was notified, Online platforms started geotagging and blocking access to their apps for users in Karnataka. While MPL and PayTM First seem to have blocked access to their users in Karnataka, some other online fantasy sports apps are still trying to interpret and adhere to the new legislation.

Industry experts predict that the ban will impact over 10% of online transactions in the country and will cause around 7-12% loss of revenue to the online gaming industry other than damaging the investor-friendly tag of Karnataka. 

 

The Way Forward

This move is the latest of the numerous attempts by legislatures in different States of the Country to ban online gaming. Such actions are criticized for showcasing the misplaced concern of the legislature for online games, and critics advocate for regulation instead of an outright ban. While clarity is needed and perhaps the rules which are yet to be framed may help clear the air, the Gaming industry may not wait until then from moving to Court challenging the blanket ban.

References

[1] (2021) SCC OnLine Mad 2762.

[2] D.B. Civil Writ Petition No. 2026/2021.

[3] SLP (Civil) Diary No. 18478/2020.

 

Image Credits: Photo by Aidan Howe on Unsplash

The order of the Mumbai Tribunal has, indeed, widened the scope of ‘onus’ placed on the assessee to prove the genuineness of a particular transaction. Such ‘onus’ will not be deemed to be discharged by merely filing the documents before the tax authorities, but the assessee would have to go one step further to justify the rationale of such transactions in order to prove that the transaction has not been entered as a colorable device to defraud the Revenue.

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