Gaming Law Judgement Summaries

12 September 2023


1. Play Games24x7 Private Limited v. Reserve Bank of India & Anr.

Factual Matrix

  • Play Games24x7 Private Limited (“Petitioner”) is engaged in the business of designing and developing software related to games of skill (“Business”), and offers the games ‘Ultimate Teen Patti’ and ‘Call it Right’ (“Impugned Games”). However, these Impugned Games do not involve any real-money winnings or cash prizes as rewards.
  • During the period 2006-2012, the Petitioner received several foreign remittances, for which the necessary reporting with the Reserve Bank of India (“RBI”) under the Foreign Exchange Management Act, 1999 and the rules made thereunder (“FEMA”) was pending from the Petitioner’s end. In 2012, the RBI, directed the Petitioner to file an application such that all the FEMA contraventions could be compounded together (“Compounding Application”).
  • In early 2013, the foreign exchange department of the RBI returned directed the Petitioner to approach the then Department of Industrial Policy and Promotion (now the Department from Promotion of Industry and Internal Trade (“DPIIT”)), to seek a clarification whether the Petitioner was eligible to legally receive FDI (“DPIIT Clarification”), which the Petitioner had applied for, but to no avail.
  • Thereafter, in March 2020, the Petitioner filed yet another Compounding Application with the RBI, which the RBI returned to Petitioner, citing that the DPIIT Clarification was still not obtained by the Petitioner.
  • Despite multiple communications with the RBI, there was no tangible outcome with regards to the DPIIT Clarification. In light of the same, in May 2021, the Petitioner filed the present petition against the RBI before the Hon’ble Bombay High Court alleging that the Compounding Application was being unreasonably delayed by the RBI.

Contentions and the question in point

Party   Contentions
Petitioner The Impugned Games were casual/ social games which did not involve any real-money winnings or cash prizes as rewards. The Petitioner earned revenue through the Impugned Games only through in-app purchases by players and through in-game advertisements. Since the Impugned Games, although ‘games of skill’, did not have any real-money winnings or rewards, they could not be construed as ‘gambling’ under gaming laws in India.
RBI It was not concerned with the assessment of the Petitioner’s nature of Business and that it just required for its records, the DPIIT to state that the Petitioner’s Business was not illegal in nature. If the DPIIT Clarification would identify the Petitioner’s Business as permissible, the Compounding Application would be processed by the RBI.
DPIIT The Impugned Games, being ‘games of chance’ under Indian laws, fell under the purview of ‘gambling’, which is a prohibited sector under the FDI Policy 2020 (“FDI Policy”).
.

Question in point before the Hon’ble Bombay High Court
Whether the Petitioner’s Business would constitute ‘gambling’ (which is a prohibited sector under the FDI Policy) and thus, disqualify the Petitioner from being entitled to FDI.
.

Judgement and Key Takeaways

JUDGEMENT

  • The Hon’ble Bombay High Court primarily placed reliance on the Hon’ble Supreme Court of India’s decisions in RMD Chamarbaugwala v. Union of India (AIR 1957 SC 628) and Dr. K.R. Laxmanan v. State of Tamil Nadu & Anr. [1996 (2) SCC 226] in order to determine the legality of the Petitioner’s Business and whether the same constitutes ‘gambling’.
  • The Hon’ble Bombay High Court held that in order to be construed as ‘gambling’, the game shall: (i) predominantly be a ‘game of chance; and (ii) be played for a reward. Since there was no real-money reward involved, the Impugned Games could not be brought under the purview of ‘gambling’.
  • The Hon’ble Bombay High Court also directed the RBI consider the Petitioner’s Compounding Application in an expedited manner.

KEY TAKEAWAYS

  • FDI in entities offering games with no real-money rewards is legal and shall not be prohibited under the FDI Policy.
  • For an online game to be considered ‘gambling’, it shall: (i) predominantly be a ‘game of chance’; and (ii) be played for a real-money reward.

2. Gameskraft Technologies Private Limited v. Directorate General of Goods Services Tax Intelligence & Ors.

Factual Matrix

  • Gameskraft Technologies Private Limited (“Petitioner”) is a company engaged in developing skill-based online games such as ‘Rummyculture’.
  • In November 2021, the GST authorities (“Respondents”) having conducted search and seizure operations at the Petitioner’s premises, alleged that the Petitioner had suppressed taxable amounts and passed certain orders (“Attachment Orders”) attaching the Petitioner’s bank accounts (“Attached Accounts”), to which the Petitioner filed several objections in the Hon’ble High Court of Karnataka, but to no avail.

  • In December 2021, the Petitioner challenged the Respondent’s orders attaching the Attached Accounts pursuant to which, the Hon’ble High Court of Karnataka issued an order, allowing the Petitioner to operate the Attached Accounts for limited purposes.
  • In August 2022, the Hon’ble High Court of Karnataka directed that no further action be initiated against the Petitioner by the Respondents. However, soon thereafter, in September 2022, the Respondents issued an intimation notice to the Petitioner under the applicable GST provisions, demanding that the Petitioner deposit a sum of approximately INR 21,000 crores along with applicable interest and penalty (“Intimation Notice”).
  • Thereafter, in March 2020, the Petitioner filed yet another Compounding Application with the RBI, which the RBI returned to Petitioner, citing that the DPIIT Clarification was still not obtained by the Petitioner.
  • Despite multiple communications with the RBI, there was no tangible outcome with regards to the DPIIT Clarification. In light of the same, in May 2021, the Petitioner filed the present petition against the RBI before the Hon’ble Bombay High Court alleging that the Compounding Application was being unreasonably delayed by the RBI.

Contentions and the question in point

Party Contentions
Petitioner - The Petitioner merely hosts the ‘rummy’ game and the discretion to play a game and the stake for which it is to be played lies entirely with the players. The Petitioner merely charges 10% of the players’ winnings as ‘platform fees’.
- The Respondents’ contentions under the Impugned Notice were completely false, perverse, malicious and deserved to be disregarded on the following grounds: the game ‘rummy’ is a ‘game of skill’ as per well-established judgements of the Hon’ble Supreme Court of India and thus, the Petitioner cannot be said to have been engaged in betting/ gambling.
- The Respondents had maliciously inflated the ‘buy-in’ amounts for the ‘rummy’ game and had shown the same as revenue derived by the Petitioner, whereby in reality, the ‘buy-in’ amount is not the Petitioner’s property and the same is reimbursed to the winner by the Petitioner, once the game is over.
- The Terms & Conditions mentioned on the Petitioner’s portal, which were not referred to by the Petitioner, clearly mention that the monies deposited by the players are held in ‘trust’ by the Petitioner and that the same completely negated the Respondent’s contention that the entire ‘buy-in’ amount was the Petitioner’s income.
Respondents - The Petitioner’s provision of the platform, which allows users to play online ‘rummy’ and from which the Petitioner derives profits and gains, amounts to ‘betting and gambling’ under the CGST Act, since rummy is a ‘game of chance’.
- The Petitioner’s contention that it charged 10% of the stakes placed by users as ‘platform fees’ was not acceptable, as the same shall be only collected in order to meet expenses and shall not be in the nature of commission.
- In light of the above points, the Petitioner’s contention that ‘rummy’ is a ‘game of skill’ shall be rejected.
.

Question in point before the Hon’ble High Court of Karnataka
Whether games such as ‘rummy’, being predominantly ‘games of skill’, would tantamount to ‘gambling or betting’ as contemplated under the CGST Act.
.

Judgement and Key Takeaways

JUDGEMENT

  • The Hon’ble High Court of Karnataka held that ‘rummy’ would predominantly be a ‘game of skill’ and not a ‘game of chance’.
  • A ‘game of skill’ whether played with or without stakes would not amount to ‘gambling’.
  • The meaning of the terms “lottery, betting and gambling” under the CGST Act shall not include games of skill, and thus the same shall not apply to ‘rummy’, whether played with or without stakes. In light of the same, the game ‘rummy’ on the Petitioner’s platform, shall not be taxable as “betting and gambling” as contended by the Respondents under the Impugned Notice.
  • The Hon’ble High Court of Karnataka, finding the Impugned Notice illegal, arbitrary and without jurisdiction or authority of law, passed orders to quash the same.

KEY TAKEAWAYS

  • A game of skill whether played with or without stakes and whether played online/ offline does not amount to gambling. Thus, ‘rummy’, predominantly being a ‘game of skill’, whether played with or without stakes and whether played offline/ online, is not gambling.

  • A game of chance and played with stakes, is gambling.
  • A game of mixed chance and skill is not gambling, if it is predominantly a game of skill and not of chance.
  • A game of mixed chance and skill is gambling, if it is predominantly a game of chance and not of skill.

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