Registrations required for Skill Based gaming

Registrations required to operate a Skill Based Gaming Platform like Dream11 in India

How can I start a skill based gaming platform in India?

Our legal team has gone through all the State Gambling laws and it is found that, except the State of Orissa and Assam, most of the States have excluded ‘games of skill’ from applicability of its respective gaming/gambling laws. This means the skill based online games like Dream 11 do not require any specific license and will be treated as normal business. You can get in touch with us to verify if your app can be classified as skill-based game or not.

How do you differentiate  in Game of Skill v. Game of Chance:

There has been a substantial debate and discussion by Supreme Court and High Court on what constitutes a ‘game of skill’ and a ‘game of chance’. On analysis of the Judgements it can be assumed that a game where there is preponderance of skill over chance is a ‘game of skill’ and vice-versa.

Below are the key points from an Indian High Court’s judgement specifically regarding Dream11’s game. A challenge to this judgement was also dismissed by the Supreme Court of India:

·      The Court, in its ruling, stated that playing the Dream11 game involves considerable skill, judgement and discretion and that success on Dream11 arises out of users’ exercise, superior knowledge, judgment and attention. The judges held that the result of the contest offered by Dream11 is not at all dependent on winning or losing of any particular team in the real world game.

·     The Court also held that ‘the element of skill’ had a predominant influence on the outcome of the Dream11 game, which follows the following format:

o     Participants have to choose a team consisting of at least the same no. of players as playing in a real-life sports team (e.g. 5 in basketball, 7 in kabaddi and 11 in cricket/football)

o   All contests are run for at least the duration of one full sports match

o No team changes are allowed by participants after the start of the sports match

On this basis, the Court adjudged that playing on Dream11 constitutes a ‘game of mere skill’, which makes the Dream11 game exempt from the provisions of the Public Gambling Act, 1867 (PGA).Finally, the Court held that the Dream11 is a legitimate business activity protected under Article 19(1)(g) of the Constitution of India.

If as per the above case laws my game is a Skill based game what registrations do I need

For skill-based games there are no specific registrations required. All the registrations that are applicable to any other company will be applicable to the skill-based gaming platform.

How does a skilled based platform operate:

All amounts collected from the User are to be held in a separate non-interest earning bank Accounts. From these bank accounts, the payouts can be made to (a) Users (towards their withdrawals), (b) Your Company (towards its Platform Fees) and to (c) Government (towards TDS on Winnings Amount). Your company can only receive its share of the pre determined platform Fees through the said Escrow Agent.

Taxes applicable to the Skill Based Gaming platform:

TDS:

All prizes shall be subject to deduction of tax (“TDS”) as per the Income Tax Act 1961. As of April 1, 2018, the TDS rate prescribed by the Government of India with respect to any prize money amount that is in excess of Rs. 10,000/- is 31.2% of the total prize money amount.

GST:

GST of 18% is applicable on the platform fees collected by your company.

Steps to start a Skill Based Gaming Platform in India:

Following are the steps to start a Skill based gaming platform in India:

1)  Register a Private Limited Company and take all other registrations like GST, PT, Shop act

2)  Open a escrow account to collect all the money collected from users

3)  Prepare the terms and conditions and Privacy policy for your website and your platform

4)  Design the contests in such a way that the outcome is not based on any public event

5)  You can collect only the platform fees that should be pre-determined and intimated o the users

6)  Only Indian users can use your platform

7)  While distributing the winnings all the KYC documents like PAN and Aadhar should be verified and TDS should be deducted.

What are Prize based games and how are they different from Skill Based Games

Contests and games like crossword puzzle prize competitions, missing-word prize competitions, picture prize competitions, etc., in which monetary or other prizes are offered for the solving of any puzzle based upon the building up, arrangement, combination or permutation, of letters, words, or figures are all classified as Prize Based games.

These competitions are regulated under the various prize competition laws in India including the Prize Competition Act, 1955 (“Prize Competition Act”) which is a central enactment. In the case of RMD Chamarbaugwala & Anr.v Union of India & Anr.,30 the Supreme Court of India held that the Prize Competitions Act only applies to games of chance/ games which were of a gambling character. However, due to the types of games covered under the Prize Competitions Act (i.e., crossword prize competitions, etc.), there is an anomaly in the scope of this Act, read with the Gaming Legislations, and the nature of games for which a licence is required under the PCA.

The Prize Competition Act regulates prize competition(s) in which the total value of the prize or prizes (whether in cash or otherwise) offered in any month exceeds INR 1,000 (approximately between USD 15 to 20), and prize competition(s) where the value of entries exceeds INR 2,000 (approximately between USD 30 to 35). Any person intending on conducting such prize competitions has to obtain a license to engage in such activities, and the details for obtaining such licenses are provided in the rules framed thereunder.

“Prize competition” has been defined by the Prize Competition Act as any competition in which “prizes are offered for the solution of any puzzle based upon the building up, arrangement, combination or permutation, of letters, words, or figures.”

In the case of Bimalendu De v. Union of India & Ors., 32 the legality of the popular show Kaun Banega Crorepati (“KBC”) was in issue. A public interest litigation was filed before the Calcutta High Court requesting that the game shows KBC (a game show based on the format of popular British show ‘Who wants to be a Millionaire’) and Jackpot Jeeto be prohibited from being telecast on television on the grounds that the same amounted to gambling, and were hence prohibited under the laws. The court reviewed the provisions of the West Bengal Gambling and Prize Competition Act, 1957 (which has an analogous provision to the Prize Competitions Act) and held that game show did not fit within the definition of a ‘prize competition.’ Similarly, the Bombay High Court33 has also held that the Prize Competition has a limited meaning and does not include games of skill and competitions such as KBC. As such, the Prize Competition Act only regulates a competition when prizes are offered for the solution of any numerical or alphabetical puzzle. While the prize competitions are regulated under the Prize Competition Act and the state specific prize competition laws, depending on the facts and circumstances of each case, the Gambling Legislations may also get attracted while considering such competitions.

Television India Ltd. and Others v. Ashok D. Waghmare and Another; 2006 (2) MhLj431 34. “Prize Schemes” has been defined as follows: “prize scheme means any scheme by whatever name called whereby any prize or gift (whether by way of money or by way of movable or immovable property) is offered, or is proposed to be given or delive red to one or more persons to be determined by lot, draw or in any other manner from among persons who purchase or have purchased goods or other articles from shops, centers or any other place whatsoever specified by the sponsors of the scheme or on any event or contingency relative or applicable to the drawing of any ticket, lot, number or figure in relation to such purchasers.” Though the Prize Competition Act does not expressly cull out an exception for skill based games, the Supreme Court in the case of R. M. D. Chamarbaugwalla v. Union of India35 laid down the principle that skill based or preponderantly skill based competitions were not sought to be regulated under the Prize Competition Act. The Supreme Court looked at, inter alia, the intention of the legislators, the mischief that they sought to address under the legislation, and the history before the legislation was brought into force