Bombay HC: Dream 11 does not amount to gambling, not a game of chance

In the case of Gurdeep Singh Sachar v. Union of India & Ors, the Bombay High Court (“Court”) held that Dream 11 Fantasy Pvt. Ltd (“Dream 11”), the online fantasy sports game, is a game that requires skill and is not a game based on chance. Therefore, the Court dismissed the Public Interest Litigation (“PIL”) against Dream 11 that sought to initiate criminal proceedings.

Gurdeep Singh Sachar contended that the promoters of the online fantasy game were not paying taxes and were in fact, endorsing gambling. Moreover, the game was just a means to induce people to spend their money by taking chances, causing a lot of people to end up losing their earnings.

Dream 11’s primary contention was that since the game required the participants to make carefully deliberated decisions while choosing players for their team, there was no betting or gambling involved.

The Court mainly dealt with two issues:

(i) Whether the activities of Dream 11 amounted to Betting/Gambling?

(ii) Whether there was tax evasion on part of Dream 11?

Firstly, the Court stated that since the result of the fantasy game contest did not depend upon the victory or defeat of any team in the real world game, there was no question of betting or gambling even arising in fantasy games. Consequently, there was no tax evasion on part of Dream 11 as they were not involved in betting or gambling.

Thereby, the Court ruled in line with the decision taken by the Punjab & Haryana High Court in a similar plea which was upheld by the Supreme Court in 2017.

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The online fantasy game has been banned in over 5 states and is considered a form of gambling in several countries. Though it is legal in India, it is in an unquestionably grey area because of its strong resemblance to gambling.

Though the Supreme Court dismissed a challenge against Dream 11, it did not go into the merits of the case, which indicates the order is not absolutely binding for High Courts under the laws of the country.

 

MCA: LLP Act may be amended to keep check on shell companies

The Ministry of Corporate Affairs (“MCA”) is reportedly planning on tightening regulations on companies that attempt to change their status into limited liability partnership (“LLP”) by amending the Limited Liability Partnership Act (“Act”) in order to keep a check on shell companies that are formed via these acts.

The MCA plans to set up a committee to bring about changes in the Act as the number of companies that have ultimately converted into LLPs has more than doubled as soon as the government had stepped up a crackdown on shell companies.  Moreover, measures are being suggested that would only allow small firms to convert into LLPs.

It is reported that the Revenue Secretary had emphasized on the need to weed out shell companies, shell partnership and shell proprietorships from the system. Shell companies essentially hoard illegal money and convert their companies into LLPs to escape the law. Moreover, they are subject to suspicious claims related to integrated goods and services tax and input tax credit by the Revenue Department.

If followed through by the MCA, this move has the potential to largely eliminate shell companies.

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A shell company is one that transacts no tangible business. They are usually put in place to divert money for tax evasion or to make financial transactions without any economic activity. They are established in tax havens and are businesses only on paper.

Therefore, the move taken by the MCA would essentially curb money laundering and ‘ease of doing business’ while simultaneously protecting the investor’s interest and increasing the tax net.