Supreme Court to have its say on legality of Fantasy Sports

Introduction

Online gaming, particularly fantasy sports, has witnessed a surge in the Indian market primarily due to easy internet access and increase in digital usage. The number of fantasy sports operators increased seven-fold between 2016 and 2018, whereas the user base grew over 25 times between June 2016 and February 2019[1].  Investments upto USD 166 million (approx.) were made in fantasy sports operations during 2018 -2019.[2] While no valuation of the industry as a whole is readily available, Dream11, the largest fantasy sports operator in India was estimated to be valued at approximately USD 1-1.5 billion in April 2019.[3]

The growth of fantasy sports has raised questions on its legitimacy and legality in India. Fantasy sports are legally recognised in the United Kingdom, Spain, Italy, Canada, France and in most states in USA. In India, the High Courts of Punjab & Haryana, Rajasthan and Bombay have clarified that fantasy sports are games of “skill” rather than “chance” and, therefore, do not amount to gambling. These decisions have encouraged participation in such sports and led to its growth in India.

On March 6, 2020, the Supreme Court of India passed an interim order in the case of State of Maharashtra v. Gurdeep Singh Sachar & Ors[4] and threw into uncertainty the fantasy sports sector in India. This blogpost analyses the legality governing fantasy sports.

Test for gambling– game of ‘skill’ or ‘chance’

Sections 3, 4 and 5 of the central Public Gambling Act, 1867 (“Central Gambling Act”) prohibit the operation of and visit to gambling houses. Section 12 of the Central Gambling Act exempts the application of the said Sections to “any game of mere skill”. Gambling falls under Entry 34, List-II of the Seventh Schedule to the Constitution of India, 1950 (“Constitution”). Many states in India have adopted the Central Gambling Act, which was enacted prior to the Constitution, whereas other states have enacted their own statutes governing gambling, which have a similar carve-out for games of ‘mere skill’.

The Supreme Court, in the cases of Andhra Pradesh v. K. Satyanarayana[5] (“Satyanarayana”) and Dr. K.R. Lakshmanan v. State of Tamil Nadu[6] (“Lakshmanan”), interpreted the phrase ‘game of mere skill’ to mean “preponderantly a game of skill”.

In the Satyanarayana case, the Supreme Court while intrpreting the said phrase under Section 14 of the Hyderabad Gambling Act (2 of 1305F)[7] (which exempted games of ‘mere skill’ similar to Section 12 of the Central Gambling Act) held that the game of Rummy is not a game entirely of chance because it requires a preponderant amount of skill in memorising the fall of cards, and in holding and discarding the cards. The Court also clarified that the distribution of cards being dependent on the card placement in the shuffled pack does involve an element of chance, but that alone does not make the same a game of chance. Hence, the game of Rummy was held to be “mainly and preponderantly a game of skill”.

Similarly, relying upon the Satyanarayana case, the Supreme Court in the Lakshmanan case declared horse-racing to be a ‘game of mere skill’ within the meaning of Section 11 of the Madras Gaming Act, 1930  (which is pari materia Section 12 of the Central Gambling Act). The Apex Court observed that success in horse-racing depends on a substantial degree of skill. According to the Court, 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.

Fantasy sports- preponderantly a game of skill or chance?

The High Courts of Punjab & Haryana, Bombay and Rajasthan applied the tests laid down by the Supreme Court in the cases of Satyanarayana and Lakshmanan and declared fantasy sports to be games of ‘mere skill’ that do not amount to gambling. Said decisions are briefly discussed hereinbelow.

The High Court of Punjab & Haryana, in the case of Varun Gumber v. U.T., Chandigarh[8] (“Varun Gumber”), found that playing of fantasy sports games involves exercise of considerable skill, judgment and discretion because the participant has to assess the relative worth of each athlete based on their strengths and weaknesses at the time of drafting players. It is this assessment which finally determines the success or failure of fantasy sports games. Hence, the element of skill predominantly affects the outcome of matches. A challenge[9] filed against the said order was dismissed by the Supreme Court on September 15, 2017.

The High Court of Bombay, in the case of Gurdeep Singh Sachar v. Union of India[10] (“Gurdeep Singh”), saw no reason to take a view different from that taken by the High Court of Punjab and Haryana in the Varun Gumber case. The Court also observed that, unlike betting, winning or losing in fantasy sports was not dependent on any team winning or losing in the real world. The Union of India[11], the State of Maharashtra[12], Gurdeep Singh Sachar[13] and Varun Gumber[14] filed proceedings before the Supreme Court against this decision.

The challenge filed by Varun Gumber was dismissed by the Supreme Court[15]. The challenges filed by Gurdeep Singh Sachar and Union of India were also jointly dismissed[16] by the Supreme Court.[17] The High Court of Rajasthan, in the case of Chandresh Sankhla v. State of Rajasthan[18], relied on the decisions of the High Court of Punjab & Haryana and Bombay, as well as, the dismissal of challenges against these decisions by the Supreme Court, to hold that the issue of the legitimacy of fantasy sports is no longer open for debate. No appeal was filed against this decision.

However, vide an order dated March 6, 2020, the Supreme Court issued notice to the parties in the proceeding filed by the State of Maharashtra, and stayed the effect of the Bombay High Court’s decision in the Gurdeep Singh case.

Future of fantasy sports in India

One of the major reasons for the increased popularity of online fantasy sports in India is the legal sanction accorded to it by various High Courts; and the Supreme Court’s non-interference in the said decisions[19]. Although, the dismissal of challenges to a High Court’s decision at the threshold by the Supreme Court did not amount to a declaration of the law on legality of fantasy sports in India, the fantasy sports industry had derived a considerable amount of comfort from the restraint adopted by the Supreme Court.  However, the Supreme Court’s order dated March 6, 2020[20] again throws open the debate on the legality of fantasy sports in India. It remains to be seen how the Apex Court will ultimately decide this case and whether it will affirm the legality of this upcoming industry, once and for all.


[1] “The evolving landscape of sports gaming in India” jointly published by KPMG and the Indian Federation of Sports Gaming in March 2019 (“Report”) at page 6.

[2] Report at page 7; See also Business Today’s news article titled, “Dream 11 becomes India’s first gaming unicorn with investment from Steadview Capital”, last updated on its website on 9th April 2020 (httpsa://www.businesstoday.in/current/corporate/dream-11-gaming-unicorn-steadview-capital-dream-11-becomes-indias-first-gaming-unicorn-with-investment-from-steadview-capital/story/335465.html) (“Business Today News Article”)

[3] Business Today News Article

[4] SLP (Crl.) Diary No. 42282 of 2019

[5] AIR  1968 SC 825

[6] (1996) 2 SCC 226

[7] Repealed by the Andhra Pradesh Gaming Act, 1974.

[8] Judgement dated 18th April 2017 in CWP No. 7559 of 2017.

[9] SLP Diary No. 27511 of 2017.

[10] Judgment dated 30th April 2019 in Criminal P.I.L. No. 16 of 2019.

[11] SLP (Crl.) Diary No. 41632 of 2019.

[12] SLP (Crl.) Diary No. 42282 of 2019.

[13]SLP (Crl.) Diary No. 43346 of 2019.

[14] SLP (Crl.) No. 9295 of 2019.

[15] Order dated 4th October 2019 in SLP (Crl.) No. 9295 of 2019.

[16] Common order dated 13th December 2019 in SLP (Crl.) Diary No. 42282 of 2019 and SLP (Crl.) Diary No. 43346 of 2019.

[17] While the appeals were dismissed vis-à-vis the issue of legality of fantasy sports, the Union of India was granted liberty to approach Bombay High Court in review with respect to certain issues on the incidence of GST.

[18] Judgment dated 14th February 2020 in D.B.C.W.P. No. 6653 of 2019.

[19] Report at page 8.

[20]SLP (Crl.) Diary No. 42282 of 2019.

Print:
EmailTweetLikeLinkedIn
Photo of Indranil Deshmukh Indranil Deshmukh

Partner in the Dispute Resolution Practice Area at the Mumbai office of Cyril Amarchand Mangaldas. Indranil has extensive experience in a wide range of disputes, both of a general commercial litigation nature as well as public and regulatory disputes. His experience is diversified…

Partner in the Dispute Resolution Practice Area at the Mumbai office of Cyril Amarchand Mangaldas. Indranil has extensive experience in a wide range of disputes, both of a general commercial litigation nature as well as public and regulatory disputes. His experience is diversified across numerous sectors including financial regulation, health, sports, local government, planning and environment and public sector projects. Indranil also routinely advises the Board of Control for Cricket in India (BCCI) in relation to their contracts and tenders. He can be reached at indranil.deshmukh@cyrilshroff.com

Photo of Gathi Prakash Gathi Prakash

Principal Associate in the Dispute Resolution Practice at the Mumbai office of Cyril Amarchand Mangaldas. Gathi focuses on arbitration and corporate, commercial and regulatory litigation involving media rights, promoter/shareholder disputes, FEMA violations, offshore construction projects, healthcare and banking. She can be reached at…

Principal Associate in the Dispute Resolution Practice at the Mumbai office of Cyril Amarchand Mangaldas. Gathi focuses on arbitration and corporate, commercial and regulatory litigation involving media rights, promoter/shareholder disputes, FEMA violations, offshore construction projects, healthcare and banking. She can be reached at gathi.prakash@cyrilshroff.com.

Photo of Kartik Prasad Kartik Prasad

Associate in the Dispute Resolution Practice at the Mumbai office of Cyril Amarchand Mangaldas. Kartik focuses on arbitration and commercial and regulatory litigation involving FEMA violations, fantasy sports, offshore construction projects, real estate and tenders. He can be reached at kartik.prasad@cyrilshroff.com