AI Drafter 
TaxTMI 
TaxTMI 
2023 (1) TMI 1105
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....lated to games of skill. It uses its software products online on a website and on mobile applications. The target audience is the Indian market. The website is www.rummycircle.com. The mobile applications go by the name my11circle and rummycircle. These games platforms are entirely developed and operated domestically, that is to say in India. The Petitioner has two offices in Bangalore and Mumbai and employs over 500 people. 3. On 30th September 2020, the Petitioner had 96.18% foreign shareholding on a fully diluted basis. Its annual turnover was Rs.1429 crores. For the financial year 2019-2020, the Petitioner paid over Rs. 120 crores towards direct taxes and more than Rs. 260 crores in indirect taxes. Foreign Direct Investment or FDI connotes the subscription by foreign entities in an Indian entity. Typically, a foreign entity will infuse funds into an Indian entity as consideration for taking up a part of the shareholding or a percentage shareholding in the Indian entity. This is a highly regulated area and is controlled inter alia by the provisions of the Foreign Exchange Management Act 1999 ("FEMA") along with the relevant rules, regulations, press notes and policies as issu....
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....lays in the allotment of shares. 9. Not all inward remittances and share issuances were so affected. Some undoubtedly were. These non-compliant contraventions were reported and the 1st Respondent, the Reserve Bank of India ("RBI") said by its letter of 30th July 2012 that the forms could not be accepted as placed because of these contraventions. However, the RBI clearly stated in this communication that the contraventions could be compounded provided an application was made in the appropriate format with the prescribed fees together with supporting documents within 45 days. The Petitioner did so. It filed an application on 30th August 2012 under Section 15 of FEMA read with the Foreign Exchange Management (Compounding Proceedings) Rules 2000. A copy of that application is also annexed. 10. The RBI took on record the forms on a without prejudice basis, i.e., without prejudice to the compounding procedure. 11. On 1st February 2013, the RBI returned the compounding application and directed the Petitioner to approach its Foreign Exchange Department. The Petitioner approached that department on 21st March 2013. In response, the foreign exchange department of the RBI in turn dir....
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..... 16. Having been joined as the 2nd Respondent to this Petition, DPIIT was served. It did not, as we have noted above, reply to the representations. It did file an Affidavit in Reply. This is dated 18^th February 2022.. 17. Mr Apte, learned Senior Counsel for DPIIT, draws our attention to paragraphs 4 and 5 of this Affidavit. These are at pages 471 and 472 of the paper book and at pages 138 and 139 of the compilation. We reproduce these below: "4. I say that Respondent No. 2, upon examination of the issue, observed from the website of the Petitioner Company that besides 'Rummy' it is also engaged in conducting other games namely 'Teen-Patti' (three card game) and 'Call it right' through its website, which fall under the category of Gambling and Betting. Since Gambling and Betting was a Prohibited Sector as per the Consolidated FDI Policy Circular dated 28.07.2017 (FDI Policy 2017) and Petitioner was in violation of the FDI policy, the reference dated 23.03.2018 was forwarded by Respondent No. 2 to Enforcement Directorate (ED) under intimation to RBI (Respondent No. 1) for taking necessary action vide Letter dated 25.05.2018. Hereto annexed and marked Exh. "C" is Para....
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....tore. These casual/social games offered by Company do not have any prize or reward in terms of cash or anything having monetary/tangible value, and these are played by the users for leisure or social purposes. The revenue for the Petitioner from these casual/social games is mainly generated through in-app purchases of virtual goods by the users and in small part through placement of advertisements in these games. These virtual goods like chips, diamonds etc. are common place in such casual/social online games which can be used by the player for only in-game uses like to play a game, make cosmetic changes to game character, upgrade virtual goods in the game or progress in the game but cannot be redeemed for cash or anything having monetary/tangible value. 5. Specifically, pursuant to its business activities, the Petitioner offers the following online games through its Platforms: (i) Online rummy: The Petitioner has been offering the skill-based game of online rummy since 2009 and continues to offer the same as of date. (ii) Fantasy league games: The Petitioner also offers fantasy league games which are based on the skill of user and such fantasy league gam....
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....idely played and offered worldwide through reputed distribution channels like the Google Play Store and Apple AppStore. These casual/social games offered by the Petitioner do not have any prize or reward in terms of cash or anything having monetary/tangible value and these are played by the users for leisure or social purposes. The revenue for the Petitioner from these casual/social games is mainly generated through in-app purchases of virtual goods by the users and also in small part through placement of advertisements in these games. These virtual goods like chips, diamonds etc. are common place in such casual/social online games which can be used by the player for only in-game uses like to play a game, make cosmetic changes to game character, upgrade virtual goods in the game or progress in the game but cannot be redeemed for cash or anything having monetary/tangible value." (Emphasis added) 20. The Rejoinder also says: "25. These virtual chips used in UTP and Call it Right have no utility other than for playing the game on the mobile application or for acquisition of certain virtual in game items or access to additional levels and features within the game itself.....
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....unded for any reason whatsoever." • "There shall be no cash refund for any reason whatsoever in the event of the termination of your Account." While the Call it Right game is no longer offered by the Petitioner, the applicable Terms of Service for Call it Right when the same are also offered contained similar terms and conditions. The Terms of Service for Call it Right are enclosed as Exhibit 5. Therefore, the users / players playing UTP and Call it Right are aware of these aspects including the fact that there is no possibility of winning or redeeming anything of monetary or tangible value (even in case such user wins the game or series of games). The other Social Games that are offered by the Petitioner are also offered in a similar manner and all the aspects articulated herein and below in the context of UTP and Call it Right are applicable and relevant for other Social Games as well." (Emphasis added) 21. In light of the rival pleadings, is the DPIIT's stand tenable? Are any of the gaming offerings of the Petitioner 'gambling'? 22. Before proceeding, we note the far more neutral stand taken by Mr Shenoy for RBI. He correctly points out that the RB....
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.... 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. 26. It is in this context that the answer in the Rejoinder, extracted above is important. First, as to the period. Ultimate Teen Patti was not in fact introduced until February 2015. Call It Right was launched in July 2013. Both are beyond the reporting period for which compounding is to be sought. It is difficult to see, therefore, how a subsequent activity of 2013 and 2015 could have rendered illegal or illicit previous activities for the period 2006 to 2012. ....
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....ras Race Club (Acquisition and Transfer of Undertaking) Act 1986 (the 1986 Act) gives effect to the policy under Article 39(b) and (c) of the Constitution of India (the Constitution) and as such is protected under Article 31-C of the Constitution. If not, whether the 1986 Act is liable to be struck down as violative of Articles 14 and 19(1) (g) of the Constitution." (Emphasis added) 31. Then in paragraph 3, the Supreme Court looked at, first, a common definition of 'gambling' from the New Encyclopaedia Britannica and then considered the definition in Black's Law Dictionary. Paragraph 3 of the decision reads thus: "3. The New Encyclopaedia Britannica defines gambling as "The betting or staking of something of value, with consciousness of risk and hope of gain on the outcome of a game, a contest, or an uncertain event the result of which may be determined by chance or accident or have an unexpected result by reason of the better's miscalculations". According to Black's Law Dictionary (Sixth Edition) "gambling involves, not only chance, but a hope of gaining something beyond the amount played. Gambling consists of consideration, an element of chance and a reward"...... ....
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....rse racing, because of the distinction between mere skill and pure chance, the observations of the Supreme Court in paragraph 21 in Laxmanan's case are most relevant. They read thus: "21. The crucial question to be determined is whether a horse-race run on the turf of the club is a game of 'chance' or a game of "mere skill". The relevant pleadings before the High Court in the writ petition were as under: "Racing is really a test of equine speed and stamina. The horses are trained to run and their form is constantly watched by experts.... As stated earlier, racing is not a game of chance. Experts on racing throughout the world would bear testimony to the fact, and indeed it has been so recognised, by decisions, that the result of a horse race on which bets are placed is not based on pure chance. A considerable degree of skill does into the operation. It starts from the breeding and training of the race horse on which much talent, time and money are expended by trained persons, jockeys have also to be specially trained and equipped. The horses themselves are not necessarily consistent in fitness, which is the reason why horses are exercised openly and watch....
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....is is the factual and legal position as it emerges from the record before us. We must clarify that whether it is for a past period or for an ongoing or future period, it is undoubtedly necessary that the Petitioner must remain clear of any illicit or prohibited gambling activity, whatever the platform. If this is illegal in India, it does not become legitimate merely because it is online or because foreign investors have put money into it. We have the statement made across the Bar and which we will of course have to accept as an undertaking to the Court that at no point will the Petitioner's activities involve gambling, so long as it is prohibited by our law. The mere fact that there is a game of chance on the website does not in itself make the activity gambling unless there is an accompanying reward or promise of a reward. 38. It is also clear that for any further foreign investments or FDI equity allotments that the Petitioner makes, it will necessarily have to comply with all applicable statutes. It may indeed have to be subjected to scrutiny yet again. We do not exempt the Petitioner from any of these requirements. 39. The result of this brief discussion, and we do not b....