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A Shot in the Arm for the Online Gaming Community: Bombay High Court Rules in favour of Dream 11

July 10, 2019

[Dibya Behera is an Editor at the Indian Review of Corporate and Commercial Laws.]

 

The Bombay High Court (Court) recently had an opportunity to decide whether the online fantasy sport game Dream 11 is a game of skill or a form of gambling/betting. Notably, Dream 11 is an online fantasy sport game that allows people to play various sports. Based in India, it attained the status of being the most famous online fantasy sports app during the Indian Premier League in 2019. Under the rules of the app, a person who wants to play is required to pay a certain amount to join the contest. Thereafter, he is supposed to select the players from the teams who have their upcoming matches. Subsequently, the players earn points on the basis of performance of the selected players in real matches. The players, in turn, win real cash credited to their account in accordance with the points earned.

 

The petitioner in the case of Gurdeep Singh Sachar v. Union of India alleged that such fantasy games are nothing but a ploy to lure people to spend their hard earned money on quick earning by taking a chance, in which they end up losing more and earning less.  The fact that it becomes a matter of luck for the player on a particular day to earn money makes it a form of gambling which is prohibited in India. The respondent contended that the participants do not bet on the outcome of the match and merely play a role akin to that of selectors in selecting the team. Moreover, the points are scored over the entire duration of the match and not any part of the match. The players get to choose the team on the basis of recent performances of the concerned player. At this juncture, the element of skill gets involved. Players do not contend against the run of match, rather they compete against such virtual teams created on the platform by other players. Such factors have the potential to make the online fantasy sports a “game of skill” and not a “game of chance”.

 

Analysis

 

The Court while deciding on this issue, relied on the judgement of the Punjab and Haryana High Court wherein it categorically ruled that the success in Dream 11’s fantasy sports arises out of the user exercising superior knowledge, judgment and attention commensurable with their level of skill.  Such factors exempt the fantasy sports app from the application of any sort of penal provisions in the background of Section 18 of the Public Gambling Act, 1867. Moreover, it afforded them the protection of Article 19 (1)(g) of the Constitution of India (Constitution). Per the Court, the petitioner also failed to take notice of the judgement rendered in the case of K. R. Lakshmanan v. State of Tamil Nadu [AIR 1996 SC 1153] (K R Lakshmanan Case), which held that “horse racing” is not gambling but a game of skill.

 

The Court observed that only if the result of the game/contest is determined merely by chance or accident, any money put on stake with the consciousness of risk and hope to gain would amount to gambling. Further, the Court noted that the petitioner failed to take note of the fact that the chances of winning the contest is never dependent on the team winning or losing in a real scenario.

 

Moreover, the Court relied on the K R Lakshamanan case, wherein it was held that the competitions which involve substantial skill are not gambling activities. Such competitions generally form a part of business activities, thereby falling within the protection under Article 19(1)(g) of the Constitution. It was in this context that horse-racing was considered a game involving substantial skill. The Court drew similarities to the case of rummy, which was considered a game involving substantial skill. Pertinently, the game of rummy is intrinsically different from the ‘three card game’, which is purely a game of chance. Rummy requires a certain amount of skill because the fall of the cards need to be memorized and the building up of rummy requires considerable skill in holding and discarding cards. Therefore, it becomes preponderantly and mainly a game of skill. Relying on the conclusions therein, the Court ruled in favour of the respondents in the instant matter.

 

Secondly, with regard to the claims of evasion of GST by the online fantasy sports app, the Court held that only if it was considered gambling could there have been a scope to infer  a possibility of any tax evasion. Interestingly, the scope of the definition of ‘consideration’ extends only in relation to the “the supply of goods or services or both”. Moreover, considering that the activity of amounts being pooled in the escrow account acquires the nature of ‘actionable claim’ (as the same is to be distributed amongst the winning participating members as per the outcome of a game), it can be considered neither a supply of goods nor a supply of services, and therefore, the same is clearly out of the purview of the expression ‘consideration’. Refuting the contentions of the petitioner that the respondent is liable to pay GST @ 28%, the Court held that the respondent has been rightfully claiming the sum received by him as platform fees, which aptly falls under the entry 998439. The explanatory notes to such entry makes it evidently clear that the host of online games - which are intended to be played on the internet and involve payment by subscription, membership fee, pay-per-play or pay-per view - is to be subjected to GST @ 18%. The Court dismissed the petition as untenable, misconceived and without any merit and ruled that Dream 11’s fantasy sport is undoubtedly a game of skill and shall, therefore, require the host to pay GST @ 18% and not 28%, as was contended by the Petitioner.

 

The case is of immense significance for the online sports community. It would provide them with an impetus to their ever-increasing business. Interestingly, the case might also act as a reference point for the state legislatures of Assam, Odisha, Telangana and Sikkim whose residents have been prohibited to indulge in any form of pay-to-play format of online sports game. This can end up opening more markets for the online sports community, which of late has become a rage among the youth. Having said that, the state legislatures and their never-ending amendments to the gambling laws make sure that the business of such industry takes a beating. Given that the gambling laws still find place in Entry 34 of the State List, the hurdles might be far from being over.

 

India should take a leaf out of the framework in the USA. The USA has in force the Unlawful Internet Gambling Enforcement Act of 2006, which specifically exempts online horse racing and fantasy leagues from its ambit. Although it has specific conditions to be complied with to avail the exemption, the statute provides much clarity in that respect. Notably, under the provisions thereof, the winning outcomes must reflect the knowledge and skill of the participants and should be determined by accumulated statistical results of the performance of individuals in real-world sporting events. Additionally, it mandates that no winning outcome shall be based on the score or any performance of any single real world team or any combination of such teams nor solely on any single performance of an individual athlete in the real world.

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