TMI Blog2023 (1) TMI 1105X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner s website at rummycircle.com and found that there was an offering called Ultimate Teen Patti and another called Call it Right. The Affidavit clearly says that these were noted on the Petitioner s website. The DPIIT asked for no explanation from the Petitioner. It sought no clarification. It sought no explanation as to the nature of these games or offerings. There is nothing to indicate that the DPIIT, in response to the Petitioner s applications, called on the Petitioner to explain when these online games were first offered, how they were conducted, what they involved or any other material particulars. The Affidavit and the letter to the ED from the DPIIT clearly show that the DPIIT proceeded only on the basis of the name, i.e., the label attached to the name; in another manner of speaking, because Teen Patti , therefore gambling. Predominant element of the activity - skill or chance - determines the character of the game. But to constitute gambling , both conditions must be met: (i) it must be predominantly a game of chance, and (ii) it must be played for reward. DPIIT does not show on Affidavit or otherwise that there is any element of reward in either the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby condone it. The Fresh application will be decided by the RBI as expeditiously as possible and preferably in four weeks from the date of application. The only reason for specifying a period is that the compounding pertains to 2006 to 2012 and the Petition itself has been pending before us for much too long. - WRIT PETITION NO. 3047 OF 2022 - - - Dated:- 18-1-2023 - G.S. PATEL S.G. DIGE, JJ. APPEARANCES For the petitioner Mr Janak Dwarkadas, Senior Advocate, with Zal Andhyarujina, Senior Advocate, Shilpi Jain, Hursh Meghani, Vaibhav Kakkar, Sanjeev Sharma, Keshav Pareek, Sahil Arora Abhishek Niharge, i/b Mehul Shah. For the respondent no.1 Mr Prasad Shenoy, with parag Sharma, Aditi Pathak, Kirti Ojha Vijay Salokhe, i/b BLAC Co. For the respondent no. 2 Mr Ram Apte, Senior Advocate, with NR Bubna. ORAL JUDGMENT ( PER GS PATEL J) :- 1. Rule. By consent, rule made returnable forthwith and the Petition is taken up for final disposal. We heard parties at some length yesterday. 2. The Petition turns very narrowly on the facts of this case. There is no larger question of law that falls for determination. The Petitioner is a corporate ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign Exchange Management (Transfer of issue of security by a person resident outside India) Regulations 2017. 6. As is evident from what is set out above, the reporting must be done within the prescribed timelines. There is a proviso in paragraph 8 of Schedule 1 of the 2000 Regulations. This inter alia says that if shares (or convertible debentures, as the case may be) are not issued within 180 days of the inward remittance, the consideration is required to be refunded to the remitter. 7. Broadly, the provisions of the 2000 Regulations have not been materially changed under the 2017 Regulations. The current regime also includes the Foreign Exchange Management (Non-debt Instrument) Rules 2019 and the Foreign Exchange Management (Mode of Payment and reporting of non-debt instruments) Regulations 2019. 8. Paragraph 9(1) of the Petition says that although the Petitioner received foreign remittances at diverse periods between 2006 and 2012 and it issued equity instruments i.e., shares, to certain non-resident investors, the Petitioner had committed certain procedural or technical contraventions under FEMA. These are specified to mean delays in the filings of the prescribed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for amendment by the Petitioner. On 16th December 2021, we directed that DPIIT be joined as a party respondent to the Petition. 14. The short question that falls for consideration is whether, for the relevant period, it can be said that the business activity of the Petitioner was illicit, prohibited by law, or illegal such that it would be disentitled to receive foreign investment at all. If so, there would be no question of compounding. Specifically, the question is whether the online, i.e., website-based and mobile application games constitute gambling as understood in law in this country. 15. To set the stage for the factual conspectus, and since, as we have noted earlier, dates are relevant, we note from a somewhat mischievously captioned convenience compilation tendered by Mr Dwarkadas, that the dates of remittances are between 23rd June 2006 and 1st February 2012. It is the activity of the Petitioner for this period that must be addressed. This is only logical because the errors and the non-compliances by the Petitioner were for this period or during this period. The compounding application or applications by the Petitioner all related to this period and none o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Affidavit in Reply by DPIIT in this way: BACKGROUND OF PETITIONER S BUSINESS ACTIVITIES: 4. The Petitioner is engaged in the business of providing a platform for competitive games of skill and tournaments including rummy and fantasy league sports games for the Indian market on the Internet on its websites www.RummyCircle.com; and www.my11circle.com and mobile applications RummyCircle and My11Circle offered on android and iOS based smartphones and some other casual/social games offered through other mobile applications and distributed to users through reputed platforms like the Google Play Store and Apple AppStore all across the world (websites and mobile applications collectively referred to as Platforms ). The Petitioner undertakes its activities in full compliance with the FDI Policy and none of the activities of the Petitioner amount to gambling / betting as per extant laws. Casual/social games are not considered to be gambling under gaming laws in India and across international jurisdictions as no prizes or rewards of monetary or tangible value are involved and therefore, these are played and offered worldwide through reputed distribution channel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... layers based on the outcome of these games. Further, a very small part of the revenue from UTP is generated through advertisements placed in the games. The Company pays Goods and Services Tax ( GST ) on such in-app purchases and ad revenue. b. Call it right: The game - Call it Right was launched by the Petitioner on July 15, 2013, and it was offered only in western markets outside India. The Petitioner had stopped offering Call it Right since 2017 and at present the Petitioner or the Subsidiary are not offering the game - Call it Right. In this game also there were no prizes in cash or anything of monetary/tangible value offered by the Petitioner to the winners. Call it Right was primarily intended for international markets and thus, was distributed through Facebook, Apple App Store, Yahoo games and Google Play Store across the world. It is humbly submitted that, Casual/social games are not considered to be gambling under gaming laws in India and across international jurisdiction as no prizes or rewards of monetary or tangible value are involved. Accordingly, in the absence of the element of reward being absent from Casual / Social Games, these games ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver and is merely conferred an opportunity to play additional games or acquire certain virtual in-game items/additional powers which do not have any monetary or tangible value. The virtual chips can only be used by the players in the game and cannot be transferred between players. The use of these virtual chips is strictly limited to in-game usage. 26. In fact, the aforesaid aspects are also made abundantly clear by the Petitioner to all the users/players through its Terms of Service as applicable for UTP and Call it Right. Specifically, the Terms of Service of UTP (enclosed as Exhibit 4) amongst other aspects clearly provide the following: The Service may include an option to buy virtual goods upon payment of real money. These virtual goods shall not be redeemable for anything of value under any circumstances whatsoever. All purchases are final and are not refundable, transferable or exchangeable, except when specifically permitted by Games24x7 at its sole discretion. Transactions in virtual goods outside of the Service are prohibited and would amount to a violation of the Terms. You understand that the virtual goods in your user Account do not carry any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner to obtain the necessary clarifications. Equally clearly, the RBI could hardly suggest the Petitioner that they should approach a Writ Court. The RBI therefore directed the Petitioner to get the clarification from the only authority empowered under the statute to make such an assessment, viz., the DPIIT. 23. On DPIIT s Affidavit and letter to the Enforcement Directorate, since these are now under challenge, the RBI has nothing whatever to say. It does not contest DPIIT s position. But it equally does not support the Petitioner. Mr Shenoy s instructions are only to say that the final outcome must be the decision of the Court. The RBI will then act accordingly. 24. What is it that the DPIIT Affidavit and its letter require us to gauge? To our mind, two questions arise. One is factual. The other is entirely jurisprudential. 25. The factual aspect in turn has two facets. The first is about the period or the time in question. The second is about the actual nature of the activity. As we have seen the relevant period is 2006 to 2012. What the DPIIT seems to have done is to have visited the Petitioner s website at rummycircle.com and found that there was an offering called Ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Bombay v RMD Chamarbaugwala,). AIR 1957 SC 699. 30. In Laxmanan s case what was in question was a State Act abolishing wagering and betting, another act that sought an acquisition and transfer of the Madras Race Club and, in this, and specifically in context of horse racing, the concept of gambling. This is apparent from paragraph 2 of the judgment at the forefront. The Supreme Court framed three questions. We reproduce these: 2. From the pleadings of the parties and the arguments addressed before us by the learned counsel the following questions arise for our consideration: 1. What is gambling ? 2. What is the meaning of expression mere skill in terms of Section 49-A of the Madras City Police Act, 1888 (The Police Act) and Section 11 of the Madras Gaming Act, 1930 (the Gaming Act)? 3. Whether the running of horse-races by the club is a game of chance or a game of mere skill ? 4. Whether wagering or betting on horseraces is gaming as defined by the Police Act and the Gaming Act? 5. Whether the horse-racing - even if it is a game of mere skill - is still prohibited under Section 49-A of the Police Act and Section 4 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inant element - skill or chance - which determines the character of the game. (Emphasis added) 32. The discussion then took into account the observations in State of Bombay v RMD Chamarbaugwala. It also considered in paragraph 9, the rival contentions in RMD Chamarbaugwala v Union of India. One of the considerations was what should be the approach where the game was not purely of skill or purely of chance but involved a substantial degree of skill. Ultimately, the conclusion in paragraph 20 taking into account the two Chamarbaugwala cases as also the previous decision of the Supreme Court in State of Andhra Pradesh v K Satyanarayana AIR 1968 SC 825., was set out in paragraph 20 thus: 20. The judgments of this Court in the two Chamarbaugwala cases and in the Satyanarayana case clearly lay-down that (i) the competitions where success depends on substantial degree of skill are not gambling and (ii) 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 . We, therefore, hold that the expression mere skill would mean substantial degree or preponderance of skill. (Emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idavit filed before the High Court. 34. Thus, the predominant element of the activity - skill or chance - determines the character of the game. But to constitute gambling , both conditions must be met: (i) it must be predominantly a game of chance, and (ii) it must be played for reward. 35. DPIIT does not show on Affidavit or otherwise that there is any element of reward in either the so-called Ultimate Teen Patti or the Call it Right game. It does not show that it asked for such a clarification at all. The Terms of Service on the Petitioner s website, quoted above, that there was no reward at all. We have therefore a situation where there is a categorical statement made by the Petitioner on its own that none of its activities involved gambling , as understood in Indian jurisprudence, that is a game of chance with no element of skill, for any gain or reward. 36. If we view it like this, and given the material, we do not see any other way to it, the mere positioning of these two games (that too after 2012) on the Petitioner s website cannot render illicit or illegal any activity on the Petitioner s website or mobile platforms, let alone for the earlier repor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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