NFTs and virtual digital assets
Under the Foreign Exchange Management Act 1999 and rules and regulations made thereunder (“FEMA”) read with the Foreign Exchange Management (Current Account Transaction) Rules (“Current Account Rules”), remittance of income from racing/ riding, etc., or any other hobby, is prohibited. While the term ‘hobby’ has not been defined, it may be construed to include gaming activities. Accordingly, remittance for the purpose of games, which could include cross-border payments made by players for VDAs, may be prohibited under the FEMA read with the Current Account Rules. Other laws Depending on the sales model adopted by the NFT platform, it may become necessary to assess whether Indian Consumer Protection (E-Commerce) Rules, 2020 (“Rules”) will be applicable to the game operator. If so, relevant obligations and compliances under the Rules may be identified on the basis of whether the platform is an “inventory e-commerce entity” 8 or a “marketplace e-commerce entity” 9 . This will depend on whether the platform owns and sells the NFTs directly to the users or whether its role is limited to providing a digital or electronic platform to facilitate trading of NFTs between buyers and sellers. An NFT marketplace may qualify as an ‘intermediary’ under Section 79 of the
Information Technology Act, 2000 (“IT Act”) 10 . If so, the platform has to comply with the Information Technology (Intermediaries Guidelines) Rules, 2021 (“IT Rules”) which, inter alia, impose due diligence requirements such as prominently displaying the user policies, warning users against the use of illegal or obscene content, maintaining a robust grievance redressal mechanism for complaints on or against the intermediary NFT marketplace, etc. It is pertinent to note that, as per the IT Act, in order to avail safe harbor exemption, intermediaries must, inter alia, comply with the aforesaid IT Rules. Conclusion Despite the regulatory uncertainty surrounding legality of cryptocurrencies in India, the gaming industry seems to be bullish on the prospects of India taking leadership in the VDA integrated gaming space. The high crypto userbase coupled with an increasing number of gamers and NFT purchasers has made India an attractive market for all stakeholders in the gaming ecosystem. This is aided by positive announcements from the central government such as the proposed animation, visual-effects, gaming and comic (AVGC) taskforce to promote, recommend and build domestic capacity in the AVGC sector 11 as well as the possibility of a central nation-wide law for online gaming to unify regulations and ensure consistency in the sector 12 .
Ranjana Adhikari is is a Partner with the TMT Practice at IndusLaw who leads the Media & Entertainment and Gaming law practice at the firm She can be contacted at +91 11 4782 1000 ranjana.adhikari@induslaw.com
Nirali Sanghavi iis a Senior Associate in the TMT and Gaming law practice group at IndusLaw. She can be contacted at nirali.sangahvi@induslaw.com
8 Rule 2(f) of the Consumer Protection (E-Commerce) Rules, 2020 stipulates that ‘inventory e-commerce entity means an e-commerce entity which owns the inventory of goods or services and sells such goods or services directly to the consumers and shall include single brand retailers and multi-channel single brand retailers.” 9 Rule 3(1) of the Consumer Protection (E-Commerce) Rules, 2020 defines a “marketplace e-commerce entity” as “an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers”. 10 Section 2(w) of the Information Technology Act, 2000 stipulates that “intermediary with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes.” 11 Press Release: Ministry of Information and Broadcasting, ‘MIB Constitutes Animation, Visual Effects, Gaming and Comics Taskforce’, 8th April 2022, available at: https://pib.gov.in/PressReleseDetailm.aspx?PRID=1814698 12 www.medianama.com/2021/08/223-rti-government-online-gambling-regulation/?utm_source=feedburner&utm_
Arjun Khanna is an Associate in the TMT and Gaming law practice group at IndusLaw. He can be contacted at arjun.khanna@induslaw.com
54 • IMGL Magazine • April 2022
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