The Legality Of Fantasy Gaming

KPMG India in its July 2020 report^[2], 'Business of Fantasy Sports' says number of users participating in online fantasy sports in India grew at a compounded annual growth rate of 212 per cent between June 2016 (2 million) and December 2019 (90 million). It says that venue of fantasy sports players grew from Rs 262 crores in Financial Year 18 ("FY') to Rs 924 crores in FY19 and Rs 2,470 crores in FY20. Similarly, the Price Cooper India in its May 2019 Report^[3], noted that the fantasy sports industry has the potential to generate an additional 5000+ direct and 7000+ indirect job in next 2-3 years.

The potential growth in the Indian markets has considerably enlarged the scope of fantasy sports games in India but with them comes several other intricate issues. The legality of fantasy gaming is one of such issues which opens up the Pandora's Box for those platforms that provide online fantasy gaming services.

What are Fantasy Sports Games?

Fantasy sports games are games which involve users drafting fantasy teams based on certain conditions from a list of players scheduled to play live games on a given day. The users pay an entry fee to enter a contest and it is pooled in for distribution among the users ("Entry Pool") after deduction of a service/administrative fee by fantasy sports games providers. The users draft their teams based on their application of knowledge (gathered through systematic research), attention, experience, and dexterousness regarding the relevant sport. The outcome of users depends upon the players they have selected and the points their chosen players have accumulated based on their performance.

In India, liberal approach has been adopted by many of the states on the concept of Fantasy gaming, except in the states of Telangana^[4],Odisha^[5] and Assam^[6], wherein, these states have taken stringent views in relation to gambling & betting. A complete embargo is imposed on gambling and betting by the local statutes of these states.

Recently in September 2020, Andhra Pradesh by following the footsteps of its neighboring state Telangana^[7] has promulgated Andhra Pradesh Gaming (amendment) Ordinance, 2020^[8] and has banned all types of real money games and has bought online gaming activities under its purview.

Legality of Fantasy Gaming in India

Fantasy Gaming has not been recognized as a subject matter under Schedule VII of the Indian Constitution. However the Constitution identifies gambling and betting as matters for legislation and has placed the same under List II, Entry 34 of the Seventh Schedule granting power to the State to legislate over this matter. As a result, different states have their own legislations to govern online fantasy sports gaming.

Public Gambling Act,1867

Prior to the enactment of the Constitution, the provisions relating to gambling were incorporated under the Public Gambling Act 1867^[9]("PGA").

Till date, the provisions relating to gambling in many states are governed under this act. However, post the enactment of Constitution, the betting and gambling exclusively fell under the domain of state legislature and thus many states have their own regimes to put hold to gambling.

Punitive Measures and Penalties under PGA

The provisions relating to imposing of penal sanctions on gambling & betting have been furnished under Section 3 and 4 of the PGA and anyone found in their transgression will be penalized.

As per section 3 of PGA, any person who owns a Gaming House or has the charge of it shall be subject to penal sanctions and shall be liable to pay a fine not exceeding Rs 200 or may face imprisonment up to 3 months. Further, section 4 penalizes the presence of anyone in the gambling house for the purpose of gambling and imposes an imprisonment up to 1 month or a fine not exceeding Rs 100 on anyone found in contravention of the said provision.

Exemption Clause under Public Gambling Act,1867

The Legality of Fantasy Gaming in India delves around the fact that, whether the outcome of the game is based on "Mere skills" or is it based on chance. According to section 12 of PGA, the games which involve application of "mere skills" are exempted from the provisions of the act. The act does not define the games that constitute as the "games of mere skills", However skill games can be defined as those games where the outcomes are derived by applicability of considerable knowledge or skills.

The Indian Judiciary has played a crucial role in the enlarging the scope of this clause by liberally interpreting the word "mere skills" through various judicial pronouncements, thereby enlarging the contours of the clause.

Test of preponderance

The Supreme Court in State of Bombay v R.M.D Chamarbaugwala^[10]("Chamarbaugwala"), judgment applied the test of preponderance to interpret the words "mere skill".

The court opined that the games of skills were games preponderant of skills and even if there is an element of chance, if a game is preponderantly a game of skill, it would nevertheless be a game of mere skills.

The Court excluded gambling or conducting the business of gambling from the purview of Article 19(1)(g) and opined that it cannot be subject to the immunity provide under the fundamental right of carrying trade and business as it encourages reckless propensity for making easy gains which can lead to loss of hard earned money. Further, the court held that the prize competitions being of a gambling nature cannot be regarded as "Trade' under or Commerce and cannot claim any protection under Article 301.

Debate on Skill V Chance

Applying the above interpretation, the Supreme Court in State of Andhra Pradesh v K. Satyanarayana^[11]tried to yield more clarity into the "skill v chance" debate. The Court, while interpreting the Hyderabad Gambling Act (2 of 1305F) held that rummy is not entirely a game of chance like 'three card' and requires certain amount of skills.

Thus it may be concluded that the distribution of cards has a factor of chance clipped with it; however, the final outcome is derived by applying the requisite skills. Thus, the results are skill driven rather than based on chance.

In many of the landmark judgments, Indian Courts have adopted the "Dominant Factor Test" in bifurcating between the "Game of skills" and "Game of chance". This test was first adopted in the case of Dr K.R Lakshmanan v State of Tamil Nadu^[12] ("K.R Lakshmanan"). In this case the meaning of "mere skills" was construed to determine whether Horse racing came under the expression of "mere skill" in terms of Madras Police Act, 1888 and Madras Gaming Act, 1930. It was held that, the outcome of horse racing was derived out of considerable knowledge of each horse as to its ancestry or pedigree and history of its performance in the previous races. Thus, the dominating factor in the sport was considered be that of skill than chance.

Dominant Factor Test

This test is also known as Dominant Theory Test or Dominant Element Theory and is a principle used in most of the U.S Jurisdictions to categorically distinguish whether the outcome of the game is determined by the skill of the participants or by the a random chance. If the outcome of the game is gained by the way of applying skills, they will be considered as not violating the gambling law whereas the outcomes which are totally dependent upon the element of chance will be said to conclude acts of gambling and thus will be considered as gambling^[13].

Licensing regime of Online Fantasy Sports Gaming in India

1. Nagaland Prohibition of Gambling and Promotion and Regularization of Online Games of Skill Act, 2015

Nagaland Fantasy Sports for the first time were given legislative recognition and were considered under the head of "game of skills" after the introduction of Nagaland Prohibition of Gambling and Promotion and Regularization of Online Games of Skill Act, 2015 ("Nagaland Act"). Prior to this, Fantasy Sports were not held to be "game of skills" in any Indian legislation or judgment. Further, a procedure for licensing had been encompassed in the legislation so as to make it a licensed regime in Nagaland. Section 7 of the Nagaland Act provides the procedure for obtaining a license under the Nagaland Act and it mandates procurement of license upon payment of fees as fixed under the statute.

2. Sikkim Online Gaming (Regulation) Act, 2008

The Sikkim Online Gaming (Regulation) Act, 2008 regulates the operation of online games by granting license to applicants with prescribed rules and regulations.

Changing Landscape of Fantasy Sports in Recent Times

The scope of online fantasy sports gaming been modified and enlarged time and again through various legislative enactments and judicial pronouncements. The judiciary has played an imperative role in interpreting the essence of the fantasy sports in consonance with the principles embarked in the PGA.

The debate between game of skill and game of chance has always plagued the operation of fantasy sports gaming in India. In 2017, this issue was finally settled by Punjab & Haryana High Court in the case of Varun Gumber v U.T of Chandigarh^[14] ("Varun Gumber"). The petitioner in this case had filed a Civil Writ Petition had been filed by the Petitioner in High Court and contended that the services offered by the online gaming platform by the name of "Dream 11" came under the purview of Public Gambling Act, 1867 as the games were not based on skills rather were completely based on chance. However the Court while placing concurrence with the judgment in K.R Lakshmanan case,Inter Alia, heldthat the success in Dream 11 arises out of user's exercise, superior knowledge, judgment and attention.

After the Varun Gumber Case, a petition in the nature of criminal public interest litigation was filed in the case of Gurdeep Singh Sachar v Union of India& Ors^[15].The Petitioner in this case was a Mumbai based Advocate. He alleged that Dream 11 was conducting illegal operations of gambling/ betting and wagering in the guise of Online Fantasy sports gaming. He further contended that they were acting in contravention of the provisions of Central Goods and Service Tax Act, 2017. The Bombay High Court while in affirmation with the ratio laid down in K.R Lakshmanan case held that Dream 11 was a game of skills and not a game of chance.

The Legality of Dream 11 platform was again brought into question in Chandresh Sankhla v State of Rajasthan^[16]. The High Court while placing concurrence with the earlier judgments in Varun Gumber Case and Gurdeep Singh Sachar Case held that,the issue of treating the game "Dream 11" as having any element of betting/gambling is no more res integra (i. e, a point of law that is undecided or without a precedent).

The growth in the fantasy sports industry is witnessed by all of us. This growth will potentially affect the country's revenue generation and employment opportunity in this sector.

Though, the fantasy sports industry is flourishing, still there is lack of certainty due to different legislation. This uncertainty acts as a hindrance in smooth functioning of business in this industry. To combat this issue there should be some set policies and procedures which need to be followed. Also, the licensing and registration of the companies entering the industry should be regulated.

NITI Ayog, a policy think-tank of the government of India has published a paper ("Discussion Paper") with draft guiding principles for the online fantasy gaming sector. In this paper growth of the industry in recent years with its potential to attract foreign investment is discussed. In India, there is lack of Uniformity on Online Fantasy sports platforms ("OFSPSs") which obstruct the industry growth. For this NITI Ayog has proposed certain guidelines for clear regulation in the online gaming industry. They proposed for a self-regulatory body which signals the start of a more uniform laws on digital fantasy sports.

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Also read: Fantasy Sports And Online Casinos - Are They Legal In India ?