Artificial Intelligence-based Chatbots are becoming increasingly popular as pocket counsellors across the globe after the adoption of Generative AI technologies to ensure mental well-being. This article aims to understand the impact of conversational AI Chatbots in mental health therapy through empirical data. The paper explores the pros of using AI chatbots, such as accessibility, affordability and a free environment for promoting mental health. It also examines the cons of over-dependence on technology, loss of emotional connection to humans, and problems arising from incorrect assistance in edge cases. It examines laws and regulations from different jurisdictions, including the U.S., the U.K., India, China and the European Union to understand the rules for Rule-based chatbots and Generative AI Chatbots, which are used as “medical devices” and “well-being devices”. This paper highlights the need for a clear and efficient regulatory framework to address various ethical, social and psychological challenges AI Chatbots pose. The paper argues that AI chatbots should supplement psychotherapy but operate autonomously by replacing human therapists.