PROGA refund rule omission leaves user funds in limbo, raises legal risks for gaming firms

The Centre’s decision to drop a draft provision that would have allowed real money gaming companies 180 days to return user balances, after the ban on online money games, may have created one of the biggest unresolved consumer risks in India’s new gaming law, according to legal experts, with potentially lakhs of users left in uncertainty over money parked in gaming wallets.

The omission of the proposed Rule 24 from the finally notified Promotion and Regulation of Online Gaming Act (PROGA), has emerged as a major faultline in the new regime, shifting the burden of recovering stuck balances from platforms to users and creating what lawyers describe as a regulatory “no man’s land” over pre-ban deposits.

Under the October 2025 draft rules, gaming companies, banks and financial institutions would have been allowed a 180-day window from the law’s enforcement to repay user funds without those transactions being treated as facilitating prohibited money gaming. However, the provision has been dropped from the final rules notified ahead of the May 1 implementation.

The omission assumes significance as the Online Gaming Authority of India can, upon determining a platform to be an online money game, trigger immediate restrictions on financial transactions involving that operator through payment intermediaries and banks. Industry executives and legal experts say that could effectively freeze user balances sitting in wallets, escrow accounts or nodal accounts, while offering no dedicated statutory route for refunds.

“The removal of the express 180-day refund provision marks a material dilution of consumer safeguards around stranded user funds,” said Vaibhav Kakkar, Senior Partner at Saraf & Partners. “While users do not lose their underlying entitlement to deposits or winnings, the absence of a statutory timeline creates ambiguity, increasing the risk of delays or disputes.”

Legal experts say the problem has exposed a paradox for operators. Returning money after May 1 could, in some interpretations, risk being viewed as facilitating a prohibited money gaming transaction under the law, which carries penalties including imprisonment of up to three years and fines up to Rs 1 crore. Yet retaining those balances could expose platforms to allegations of wrongful retention or even scrutiny under anti-money laundering laws.

“This leaves RMG platforms in a fix,” said Naqeeb Ahmed Kazia, Partner at CMS INDUSLAW. “Remitting funds post May 1 might be construed as facilitating online money gaming, while continuing to hold such funds may invite PMLA scrutiny.”

Jay Sayta, technology and gaming lawyer, said the absence of an equivalent to draft Rule 24 in the notified framework could lead banks and financial institutions to adopt an extremely conservative approach on remittances.

“Arguably after May 1, users may not be able to get refund of any funds lying with online money gaming platforms as banks and financial institutions may worry about potential liability for even remitting back players’ funds,” Sayta said, while adding that a plain reading of Section 7 suggests payments “for” money gaming services are barred, which may not necessarily prohibit returning user money.

He called for immediate clarification from the Ministry of Electronics and Information Technology on refund treatment and the handling of unclaimed balances, including possible transfer into a player welfare fund or another designated mechanism.

The issue is not merely theoretical. Industry executives estimate hundreds of thousands of users may still have unclaimed balances on platforms that halted real-money operations after the legislation received Presidential assent in August 2025. In the absence of a structured refund pathway, concerns are rising over whether dormant balances could remain indefinitely trapped.

Under the notified framework, users may still seek relief through grievance mechanisms established by platforms and escalate unresolved complaints to OGAI, which can issue corrective or remedial directions. But experts say that route is reactive and complaint driven, unlike the proactive platform-led refund obligation envisioned in the draft.

Vidushpat Singhania, Managing Partner at Krida Legal, said OGAI may potentially issue targeted directions, including temporary unfreezing of accounts for settlement of dues, but much would depend on how the Authority interprets its powers once operational.

He also flagged broader enforcement risks. “The Enforcement Directorate's actions against prominent platforms are instructive here,” Singhania said, adding that regulators could test whether retained balances constitute proceeds of crime, a stance he said courts would eventually have to examine.

Legal experts said the missing refund safe harbour has left both consumers and companies exposed, even though user balances should continue to retain the character of funds held in trust-like custody rather than become platform revenue.

Several experts said the government may need to issue a notification, code of practice or ministerial clarification carving out refunds of pre-ban balances from penal exposure.

Until then, lawyers warn, user money could remain frozen in a legal grey zone, turning what was framed as consumer protection legislation into a test of whether the law can safeguard the very users it set out to protect.