Case Comment: Ravindra Singh Chaudary vs Union of India

I. Introduction

Citation: 2020 SCC OnLine Raj 2688; (2020) 4 RLW 3322

Bench: INDRAJIT MAHANTY, C.J. AND MAHENDAR KUMAR GOYAL, J.

The craze of Fantasy sports games in India has particularly increased after the entry of apps like Dream-11 and My11Circle. Given the grey market of fantasy sports in India, there are many issues surrounding platforms that offer such services. Dream-11 is a fantasy sports platform in India where the users or participants can make teams by choosing players of different real-life teams and play virtual fantasy sports games like Football, Cricket, Hockey, Basketball and Kabaddi. It offers a platform for Indian Sports fans to showcase their knowledge and skills. But in order to do so, the user is required to put in some money and in return, if they manage to win then they are awarded money. There have been numerous allegations on Dream-11 for allegedly providing a platform for gambling/betting and that the Virtual fantasy sports games are a game of chance. On their website Dream-11 specifically mention and call their service to be game of skill. But the question remains are Fantasy sports games a game of chance or a game of skill.

II. Background and facts of the case

A writ petition was filed in the nature of Public Interest Litigation (PIL) alleging that the platform provided by Dream-11 is nothing else but a way of “betting” on the cricket team. Further, it was alleged that online fantasy sports games are an illegal act of gambling/betting as they are games of chance and that this illegal act has been failed to be prohibited by respondents Nos-1 to 4 namely, Union of India, The State of Rajasthan, Additional Chief Secretary and Additional Commissioner of Central Goods and Service Tax. The petitioner also prayed for action to be taken against respondent No. 5 for evasion of GST under the Central Goods and Service Tax Act, 2017 (‘the CGST Act’). To this respect, it was alleged that respondent No.5 is only paying 18% GST when they should be paying 28% under proper classification. The aforementioned 18% is paid on the amount received from the participant and not on the balance of 80% which is transferred to the winning amount of the game. The petitioner alleges that GST is also payable upon 80% of the amount that is kept in the escrow account and distributed among the winners that too @ 28%.

A counter-affidavit was filed by respondents 2 & 3 opposing the PIL claiming that the petitioner is making unjustified allegations without any substance and facts. Respondents 2 & 3 took the reference of the judgment passed by the Punjab & Haryana High court Varun Gumber v. Union Territory of Chandigarh² and later by Hon’ble Supreme Court while dismissing the petition against the aforesaid judgement. Under this judgement, it was held that the business of Dream 11 is protected under Article 19(1)(g) of the Constitution of India and that their fantasy games were games of mere skill. They further referred to the judgment passed by the Bombay High Court in the case of Gurdeep Singh Sachar vs Union of India³ where a PIL was filed challenging the activities of respondent No.5 alleging it to be gambling and betting as well as contentions regarding GST evasion which was dismissed by the court. An earlier judgement made by this court was also referred by the respondents Chandresh Sankhla v. the State of Rajasthan⁴ where similar allegations were made upon respondent N0.5 about their online fantasy sports games were alleged to be of gambling and betting nature but the allegation was rejected.

Respondent No.5 also filed a counter-affidavit against the PIL. In the affidavit, the respondent has taken the reference of Gurdeep Singh Sachar (Supra), Varun Cumber (Supra), Chandresh Sankhla (Supra) and Dr K.R. Lakshman v. State of Tamil Nadu⁵.

III. Issues raised

1. Are the online fantasy sports games present on the platform Dream 11 “gambling/betting”?

2. Is respondent No.5- Dream 11 violating Rule 31(A)(3) of the GST Rule, 2018 by wrongly classifying its virtual online game under the wrong entry for GST and evading the GST?

IV. Judgements

The court taking references from previous cases noted that the Hon’ble Supreme Court in its numerous judgments has held that gambling and games of skills are differentiable and such games f skills enjoy the protection of Article 19(1)(g) of the Constitution of India. In the case of State of Bombay v. R.M.D. Chamarbaugwala⁶ the Hon’ble Supreme Court held that when substantive skill is involved in competitions then it cannot be considered to be a gambling activity and such a competition is a business activity and shall enjoy the protection of Article 19(1)(g) of the Constitution of India.

The business of respondent No.5 was analyzed in detail by the Punjab & Haryana High Court in the case of Varun Gumber (Supra). The High Court noted and considered the following important aspects of fantasy sports games. The High Court has explained what a fantasy sports game is as a game that plays over a number of rounds that is pre-determined. These rounds may extend from a single match or sporting event to an entire league or series in which the participants i.e. the users build select and act as managers or selectors of their virtual team. The High court further said that such ‘drafting’ of a virtual team requires the participants to have material and considerable skills. These skills are essential for the participants as they must assess the relative worth of each athlete or sportsperson against all of the alternative athletes or sportspeople available for selection. The participant also has to evaluate the athlete’s strengths and weaknesses on the basis of the rules of the games. Moreover, the rules of Dream-11 require the participant to choose their athletes from different real-world teams. The participants are not allowed to choose more than 7 out of 11 athletes in their virtual team that belong to the same real-world team. Therefore, the participant’s virtual team cannot have athletes consisting entirely of a single real-world team. The participants are also required to choose one person from their virtual team as ‘captain and another as ‘vice-captain’. The court held that the respondent’s success in fantasy sports arises out of the participant’s exercise of superior knowledge, judgement and attention to the game. Hence, the result of the fantasy game relies on the participant’s skills and not on chance. The victory or loss of the virtual game is also independent of the outcome of the real-world game. Dream-11, therefore, enjoys the protection of Article 19(1)(g) of the Constitution of India.

It is not of dispute that out of every 100/- received by Dream-11 from the participants of the fantasy sports game 80/- are set aside in an escrow account, which is paid after the completion of the fantasy game towards the winners. Since this actionable claim of 80/- is distributed among the winning participants and only the remaining amount is retained with respondent No. 5 as platform fee this actionable claim is therefore enforceable in law and is not part of a wagering contract.

In a PIL filed against Dream-11 before the Bombay High Court in the case of Gurdeep Singh Sachar (Supra) both of the same issues were raised and the court held that the online fantasy sports game offered by Dream-11 is a game of skill and not a game of chance. The court explained that since the fantasy game offered by Dream-11 does not involve playing stakes or risking money on the result of a game or an event, hence, the same cannot amount to gambling/betting. The Bombay High Court held that Dream-11 is correct to classify its service under entry 998439 and is therefore liable to pay 18% GST as they have correctly been doing. They are not liable to pay 28% GST under entry 999692 which is for ‘online gambling services.’ The said actionable claim is not considered as ‘supply of goods’ or ‘supply of services’ as per Schedule III and Sec. 7(2) of the CGST Rules, 2018. So, Rule 31-A (3) of the CGST Rules, 2018 was not applicable and, therefore, the authorities have not taken any steps against Dream-11. SLPs filed against the decision of the Bombay High Court was dismissed.

The court in the present PIL agrees with the submission of respondent No. 5 that the fantasy sports games like Dream-11 are globally recognized as a tool for fan engagement, as they work as a platform for sports lovers to engage with their favourite sports along with their friends and family. It promotes real-world games by contributing to increased viewership and high sports fan engagement. The court was of the view that the PIL was filed without any real public interest, without disclosing relevant facts and without proper research. Therefore, the PIL was dismissed.

V. Analysis

From the submissions of both the petitioner and the respondents, it is clear that the test applied is whether the fantasy sports games services offered by respondent No. 5 is determined merely by chance or accident or on the likelihood of anything occurring or not occurring. The Law Commission of India in its report No. 276 in paragraph 3.13 has opined that fantasy games such as “fantasy Football” fall are distinguished from “betting” and falls within “gaming”. During the proceedings of this case the Commissioner of CGST, Mumbai had issued a show-cause notice to respondent No.5 raising certain protective demand of service tax, which is not a subject matter of the present PIL and would be dealt with by the authorities in accordance with the law.

Respondent No. 5 has submitted before the court that their online fantasy sports game is not being operated in a total regulatory vacuum as they are subject to self-regulation by the “Federation of Indian Fantasy Sports” (FIFS) an industry body founded in 2017. The FIFS is incorporated under the Companies Act, 2013 as a Section 8 Company. It was established for the purpose of self-regulation and promotion of best practices in online fantasy sports services and contests that are offered in India. They have issued Charter for Online Fantasy Sports Platforms like Dream-11 which purposes certain conditions on such platforms. These conditions have been imposed to ensure that the game run by the members of FIFS are ‘games of skill’ and not in any form of gambling or betting. The Ombudsman Rules were also framed by FIFS in order to ensure that any disputes or grievances of the members of the public who participate in online fantasy games are redressed promptly and, in a lair, and transparent manner. The Ombudsman Rules mandates the Ombudsman to be retired Judge of the Hon’ble Supreme Court or of a State High Court. Self-Regulation Guidelines on Advertising Online Gaming has also been issued by the FIFS by adopting IAMAI Guidelines to ensure that no misleading advertisements are put out and the advertisements made are fair and transparent. There is a penalty clause for any advertisement by the members suggesting gambling or betting as such advertisements are prohibited. As respondent No.5 is a member of the FIFS they can only provide an opportunity to the participant that Is that of a real-life selector.

Therefore, the court has rightfully termed the fantasy sports games offered by respondent No.5 as games of skills. The issues raised in the present PIL has been raised in the numerous cases that have been referenced and the court has time and time again dismissed such petitions.

VI. Conclusion

The fantasy sports industry is considered to be the next sunshine industry of our country. The industry is growing exponentially and is already contributing thousands of crores to the Government exchequer. They have implemented safeguards to ensure that no person below 18 years of age is allowed to participate and that the public is not misled or cheated off of their hard-earned money by maintaining transparency in financial matters, prizes, etc.

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