India: Fantasy League Games And The Spectre Of Gambling

Last Updated: 26 September 2019
Article by AZB & Partners
Most Read Contributor in India, September 2019

Gambling Laws in India

Under the Constitution of India, State Legislatures have the power to frame laws on 'betting and gambling'. The Public Gambling Act, 1867 is a central enactment on the subject, which has been adopted by certain Indian states. Other states have enacted separate legislations to regulate and govern gambling within the territory of such states ("State Acts").

Gambling is defined by most State Acts to mean "the act of wagering or betting" for money or money's worth. However, the State Acts (other than in Telangana, Orissa and Assam ("Prohibited States") exclude the application of such laws to games of "mere skill," which do not fall under the ambit of gambling. Courts have interpreted the term gambling to consist of games in which chance is the controlling factor.

What are Games of Skill?

The Supreme Court of India has interpreted games of "mere skill" to include those games which are preponderantly based on skill and have laid down that (i) competitions where success depends on a substantial degree of skill will not fall into category of "gambling"; and (ii) despite there being an element of chance, if a game is preponderantly a game of skill, it would nevertheless be a game of "mere skill". Whether a game is one of chance or skill is a question of fact, to be evaluated on a case by case basis.

The principles in relation to games of mere skill, as laid down by the Supreme Court, have also been reiterated by various high courts. Relying on these principles, various High Courts have held that games, such as rummy, chess and carrom, are games of skill.

Separately, certain State Legislation, such as West Bengal Gambling and Prize Competitions Act, 1957 and Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016, also specifically identify certain games, such as rummy, poker, bridge and nap, as games of skill.

Fantasy Leagues – Game of Skill?

The High Court of Punjab & Haryana in the case of Varun Gumber v. Union Territory of Chandigarh (2017 Cri LJ 3827), specifically examined online fantasy cricket league formats and held these to be games of skill. The court ruled that playing fantasy sports online on the Dream 11 website does not amount to gambling and involves a substantial degree of skill. The court observed that:

(a) Participating in a fantasy league involves the user building a virtual team, which would certainly require considerable skill, judgment and discretion;

(b) The participant has to assess the relative worth of each athlete/sportsperson against that of all other athlete/sports-persons available for selection; and

(c) The participant is required to study the rules and regulations and analyze the strengths/weaknesses of the athlete/player.

The factors indicated above would affect the results of the game, thus making it a game of skill and excluding it from the ambit of gambling. Further, the Supreme Court dismissed the special leave petition filed by the petitioner against the Punjab & Haryana High Court's order without any adverse remarks.

This decision was also upheld by the Bombay High Court in the matter of Gurdeep Singh Sachar v. Union of India (Criminal Public Interest Litigation Stamp No. 22 of 2019), on April 30, 2019, where the court observed that:

(a) Only if the result of the game/contest is determined merely by chance or accident, any money put on stake with consciousness of risk and hope to gain, would amount to "gambling" or "betting". This does not hold true in the case of fantasy games/contests;

(b) The result of the fantasy game contest on the Dream 11 platform is not at all dependent on winning or losing of any particular team in the real world game. Thus, no betting or gambling is involved in their fantasy games; and

(c) There is no plausible reason to take a view contrary to the judgment of the Hon’ble Punjab and Haryana High court, which has already been upheld by the Hon’ble Supreme Court.

Another issue currently being debated is the taxability of such formats. The issue was touched upon by the Bombay High Court in Gurdeep Singh Sachar v. Union of India (Criminal Public Interest Litigation Stamp No. 22 of 2019), where it was observed that:

(a) Under Section 7(2) read with Schedule III of the Central Goods and Services Tax Act, 2017, ("CGST Act") "actionable claims, other than lottery, betting and gambling," cannot be considered a supply of goods or services and are therefore not taxable as such. Since online fantasy sports do not amount to "gambling" or "betting", there is no scope to infer the possibility of GST evasion;

(b) Amounts pooled in the escrow account maintained by the operator would amount to an actionable claim as the same is to be distributed amongst the winners of the game. However, since fantasy leagues do not amount to "gambling" or "betting", the said actionable claim would not fall under Section 7(2) read with Schedule III of the CGST Act; and

(c) Actionable claim referred to in Rule 31A of CGST Rules, 2018 is only limited to "lottery" or "betting” or "gambling" or "horse racing in a race club", and thus has no application in this case.

The court therefore clarified that amounts pooled by operators were not subject to GST, relying on the conclusion that fantasy leagues do not amount to "gambling" or "betting".

The above decisions of Indian courts have clarified that online fantasy games would fall within the ambit of game of skill and would not be considered betting or gambling. However, given that the analysis of courts was fact specific, each format will have to be evaluated independently, in order to determine if it will meet the test laid down by the Supreme Court and the High Courts. Notwithstanding, other States could also pass legislation which remove the exceptions for games of skill, as has been done in the States of Assam, Orissa and Telangana. In this case, operators would have to consider restricting their offerings in such States.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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