【Exclcusive】Fantasy Sports unicorn Dream11’s legal battles
by Anshuman Gandhi 2020-01-14
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The first gaming based unicorn in India, Dream11 is one of those rare success stories born out of legally challenging and emotionally sensitive industry. Not just product market fix but regularising, legitimizing and legally defining a business line famous for functioning in the grey area of the law, Dream11 has had a long and hard journey to the billion dollar behemoth they have become today.


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From humble beginnings with personal savings and some help from the friends and family fund, Dream11 was started by Harsh Jain and Bhavit Seth in 2008. To keep their necks above water, they pivoted to a digital servicing agency in 2010 which at its peak had most major brands in India among a total of 50 brands as their clients. Dream11 was still a work in progress at that time as the servicing agency business became a source of funding. Selling the agency 2 years later, the founders gained enough money to focus on Dream11 full time. This was followed with a market ready version launched in 2012. 2014 was when they crossed 1 million users and got their first investor a year later in 2015 and new funding rounds and more investors every year thereafter.


Now a 250+ strong organisation, 71 million plus registered users and over 90% of the fantasy sports market in India, Dream11 dominates and defines their industry which already has 70+ start-ups operating in the space. Dream11 is the official fantasy gaming partner of some serious sports events such as the Pro Kabaddi League, International Cricket Council, International Hockey Federation and even NBA apart from a few others.


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A free to play model with an Average transaction size of Rs.42 -45, the revenue growth has been massive for the company. But the real challenge to becoming break-even has been legal. Even though the founders had consulted the best lawyers in the field before going ahead with their business, the fantasy gaming industry largely falls under the grey area of the law. With no significant legal issues running their freemium model for close to 5 years, the legal battles started in 2017.


The legal issues faced so far have been on two major issues


• Preponderance of skill over chance


• Taxation system, specifically GST charges


Varun Gumber’s case in Punjab and Haryana Court in 2017


Varun Gumber had deposited and lost Rs. 50,000 on Dream11 while he was creating his own fantasy team in two separate games. His case was heard at the Bombay High Court.


In his judgement, Justice Amit Rawal had said playing fantasy games required considerable skill, judgement and discretion, and that he held that such games couldn’t be considered gambling.


“The Court adjudged that playing on Dream11 constitutes a ‘game of mere skill’, which makes the Dream11 game exempt from the provisions of the Public Gambling Act, 1867 (PGA).”


The court also ruled that Fantasy sports is not gambling thus affording it the title of a legitimate business activity. This brings Article 19 in effect where under Article19 (1) (g), this guarantees business protection under right to free trade and commerce under the Indian constitution. This does not specifically outline and make the whole business of fantasy games legal in India but gives it credible grounds to operate and deal with future legal challenges.

 

Gurdip Singh Sachar v. Union of India & others

 

An advocate, Gurdip Singh Sachar works for the Department of Revenue, Union of India and State of Maharashtra. He filed a public interest legislation (PIL) against Dream11 Fantasy Pvt Ltd. Challenging a previous Bombay High Court order dated 30th April 2019 on GST fees charged in the game.


It alleged that Dream11 activities amounts to betting and thus the company should pay GST on their complete acknowledgement amount or amount at stake based on the rules for betting/ gambling under GST[Rule 31A(3) of CGST Rules 2018]. The PIL was dismissed by the Bombay High Court proclaiming the contest offered by Dream11 has no connection with the winning or losing in real world games of particular teams. Thus it cannot be seen as betting or gambling and holding Dream11 current way of discharging 18% Good and Services Tax (GST) on the platform fee charged by Dream11 which is 15% to be satisfactory. GST will also not be charged on the pooled money and the prize money distributed thereafter.


A further appeal has been filed in the Supreme Court in the same matter requesting to be allowed to file a review petition. The petition was granted if filed before 4 weeks from 13th Dec 2019.

 

Pooja Rajendra Pandey’s Petition


Pooja Rajendra Pandey had filed a petition alleging that Dream11 was evading taxing by 18% instead of 28% Good and Services Tax (GST) as per Rule 31A of Central GST Rules. This has been pending since 5th April, 2019. 


However, the impact of this petition which is still pending seems limited after Bombay High Court’s ruling on the Public Interest Litigation filed by Gurdip Singh Sachar.


Avinash Mehrotra vs Union of India


Avinash Mehrotra, a Social Activist who had filed a PIL in the Delhi High Court against gambling and betting websites. His PIL also included the issues on recovering unpaid taxes. It also challenged certain provisions in the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 on the basis of “the State Legislature has permitted people to lay waste to their fortune, hard earned money, and possible inheritance, by permitting them to play games of pure chance, under the garb of calling them games of skill”.


The court refused to issue orders to block online gambling, and poker websites but issued notices to Reserve Bank of India (RBI) and the centre for a response.


As per Dream11’s own websites “The Court, in its ruling, stated that playing the Dream11 game involves considerable skill, judgement and discretion and that success on Dream11 arises out of users’ exercise, superior knowledge, judgment and attention”.


Current Legal Scenario on Fantasy Sports


Despite all these battles with the law, Dream11 is still restricted in Assam, Odisha, Telangana and Sikkim because of their own state laws. Users in these states can download the app or access the website but adding real money to game is still illegal under the state law. Because of real money involved, the Dream11 app is not available on the Google Play Store either while the Apple App store policy for Dream11 is if its legal in India, it’s ok with them too.


There have been other petitions filed as well and we can optimistically expect more in the future for fantasy games or any games that come under or are related to gambling and betting and involve real money. The law however as influenced and shaped by various state Governments and judgements from various cases is maturing fast into a regulatory system which promotes legitimate growth of this industry.


The industry at the money is self-regulated through All India Federation of Sports Gaming (AIFSG) formed in 2017 which is seeking recognition by the Indian Government. Harsh Jain chairs the 17 member organisation.


However, after the Supreme Court ruling, the companies dealing in fantasy sports games were very relieved. This legal stability will and should encourage investors and developers both domestically and internationally in the Fantasy Sports market to invest their time and money and take advantage of the massive opportunities India has to offer.