GAMEPLAN ADVISORS Private and confidential

26 July 2021

Response to questions on esports fantasy

This document captures our response to the questions posed by SAG LLP (“Client”) on the legality of
offering fantasy esports contests to its users through an online platform.
1. Legality involved in Esports Fantasy. Whether Fantasy is a Game of Skill or Game of Chance?
What is the stance of both State and Central Government w.r.t Fantasy? Recent rulings of High
courts and Supreme Court to be provided as well.

Summary: No court has till date analyzed whether esports fantasy is a ‘game of skill’. But the Supreme
Courti and several High Courtsii have certified that fantasy sports is a ‘game of skill’. While the decisions
on fantasy sports are specific to Dream11, the principles apply to all games. A game having predominant
elements of skill is a ‘game of skill’. If the Client is able to demonstrate that its esports fantasy has
predominant skill elements (like knowledge, logical reasoning, time management, etc.), it can be freely
offered in most Indian states. We will prepare a legal memo capturing how the esports fantasy offered
by the Client is a ‘game of skill’.

1.1. ‘Gambling and betting’ is a state subject under the Constitution of India.iii This means that the central
government has no power to govern the subject. And each state can decide how gaming activities will be
regulated in their state. There are 3 (three) types of gaming laws followed by Indian states:
1.1.1. Restricted states: These states do not distinction between ‘games of skill’ and ‘games of chance’.
And ban all gaming activities involving money. Andhra Pradesh, Assam, Odisha, Tamil Nadu, and
Telangana fall in this category (“Restricted States”). The Client cannot offer in these states.
1.1.2. Licensed states: These states license all kind of gaming activities (whether skill or chance-based). A
company cannot offer its service in these states without a license from the state government
concerned. Nagaland, Sikkim, and Meghalaya fall in this category. (“Licensed States”). The Client
cannot offer in these states without a license.
1.1.3. Liberal states: Most states in India distinguish between ‘games of skill’ and ‘games of chance’ under
their state gambling law. In these states, companies can offer a ‘game of skill’ without any
restrictions or licensing requirements. Arunachal Pradesh, Haryana, Himachal Pradesh, Karnataka,
West Bengal, Punjab, Madhya Pradesh, Chhattisgarh, Manipur, Mizoram, Tripura, Uttar Pradesh
and Uttarakhand are some states that fall in this category (“Liberal States”). The Client can offer
in these states if the game is a ‘game of skill’.
1.2. ‘Games of skill’ are games where the outcome of the game is predominantly based on the players’ skill.iv
1.3. The High Courts in Varun Gumber v. UT of Chandigarh & Others (Punjab and Haryana, 2017);v Gurdeep
Singh Sachar v. Union of India (Bombay High Court, 2019);vi and Chandresh Sankla v. State of Rajasthan &
Others (Rajasthan High Court, 2020);vii observed that elements like assessment over a player’s relative worth
over other players, knowledge in studying an applying the fantasy points system, understanding a player’s
strength and weakness make Dream11 a ‘game of skill’.
1.4. Even otherwise, elements like hand-eye coordination, strategic thinking, pattern recognition, knowledge,
logical reasoning, memory, etc. make a game a ‘game of skill’.viii
1.5. If the Client is able to demonstrate that its esports fantasy has predominant elements of skill, it will qualify
as a ‘game of skill’ and can be freely offered in the Liberal States.
1.6. We will advise the Client on what elements will make its game a ‘game of skill’. Each individual element of
the app and our rationale to justify it as a ‘game of skill’ will be captured in a legal memo.

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2. What are the guidelines for holding 3rd Party (Users) money in a company account? Citations to
be provided as per Indian law or any rules of RBI.

Summary: Pooling funds from users for onward settlement to other users is a ‘payment system’ activity.
And all entities running a payment system need an RBI license. However, if the Client is offering only
closed wallets on its app i.e., wallets used to make payments only to the Client, then the Client does not
need RBI’s authorization. But the Client needs to be cautious regarding the use cases for which the wallet
can be used. We will help the Client in structuring the wallets and ensure that RBI license is not needed.

2.1. Receiving or pooling funds from users for onward settlement to the winning users can be seen as operation
of a ‘payment system’. Operating a payment system requires prior authorisation from the Reserve Bank of
India (RBI) under The Payment and Settlement Systems Act 2007.
2.2. A ‘payment system’ (as defined under the PSS Act 2007) is “a system that enables payment to be effected between a
payer and a beneficiary, involving clearing, payment or settlement service or all of them...”.ix The term ‘settlement’ means
settlement of a payment obligation on account of a payment instruction by a payer in favour of a
beneficiary.x
2.3. The RBI Guidelines of Prepaid Instruments 2017 further governs how e-wallets should operate. An e-
wallet or pre-paid instrument (PPI) is a type of a ‘payment system’. There are 3 (three) kinds of e-wallets:
2.3.1. Open wallets: They allow users to make payments and remittances to any merchant. Only banks
can issue open wallets to users.xi
2.3.2. Semi-closed wallets: They allow users to make payments only to a select group of merchants that
the PPI issuer has a contract with. Both banks and non-banks can offer this after receiving
authorization from the RBI under the PSS Act 2007. The Paytm wallet is an example of a semi-
closed wallet.xii
2.3.3. Close wallets: They allow users to make payment only to the PPI issuer. And cannot be used to
make payment to any third-party or merchant. The issuer of a closed wallet need not seek any
authorization from the RBI. Wallets offered by Dream11 and My11Circle are examples of a closed
wallet.xiii
2.4. The Client can avoid being classified as a ‘payment system’ by only offering closed wallets on its app. For
this, the Client must ensure that the users are provided three types of closed wallets: (a) deposit wallet –
where funds deposited by the user are reflected; (b) winnings wallet – where funds won by a user are
reflected; and (c) bonus wallet (optional) – where bonus funds given by the app are reflected.
2.5. The Client must also ensure that no funds received from any user are used to make payments to any
merchant or third-party except the Client. We will help the Client in structuring the wallets and design the
functionalities of the app around it. This will ensure that the Client does not need RBI license.
3. Age restrictions, Addictive warning, Responsible Gaming, Risks associated with playing
tournaments of Money, Complaints procedure, Terms and Conditions all from a User’s
perspective. (provide legal guidelines with Citations).

Summary: Each issue attracts obligations under several ancillary laws and industry practices. The Client
will need to comply with these laws or industry practices by making appropriate additions in the UI/UX
of the app and by adding relevant clauses in the terms and conditions of the app. The legal memo will
also specify how the Client is complying with all these requirements.

3.1. Each of the issues mentioned above do not have a precise law that specifies what the gaming platform
should or should not do. But there are ancillary laws that apply to each issue which the Client has to comply.

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3.2. In addition, there are several industry practices that the Client should also follow. While these industry
practices are not ‘mandatory’ under law, it is advisable to follow them in order to receive a favorable
treatment from law enforcement agencies and courts.
3.3. The laws or industry practices applicable to each issue are:
3.3.1. Age restrictions: As per the Indian Contract Act 1872, a minor cannot enter into a legally
enforceable contract.xiv Since all users of the app need to mandatorily agree to the terms and
conditions, a minor cannot participate on the app. The Client should add appropriate disclaimers
on the app to say this. And also specify in its terms and conditions that the app is not for minors.
If it wants to engage minors, the terms and conditions must specify that any participation by the
minors will be deemed to be in the name of their parents or guardians.
3.3.2. Addictive warning: No law requires a gaming company to provide addictive warnings. But industry
associations like the All India Gaming Federation (AIGF) and the Federation of Indian Fantasy
Sports (FIFS) profess that users should be given such warnings. While this is not mandatory, the
Client can consider adding some responsible gaming, health and safety related clauses in its terms
and conditions.
3.3.3. Responsible gaming: No law requires a gaming company to have any responsible gaming features,
But, most RMG platforms have features like time limits, deposit limits, self-exclusion procedure,
counselling, and other features to help users act responsibly. The Client can also provide such
features on the app and add relevant clauses in the terms and conditions to protect itself.
3.3.4. Risk in playing with money: The Client can add appropriate disclaimers in the UI/UX of the app
to warn users about the risk of playing with money. It should also mention in the terms and
conditions that all users are participating at their own risk. And the platform will not be liable in
case they suffer any loss.
3.3.5. Complaint procedure: The Client is catering to consumers and hence needs to have in place a
complaint procedure to comply with the Consumer Protection Act 2019. The Client is free to
decide what process it wants to adopt. But the procedure should be fair and transparent. The
complaint procedure can be captured in a separate document or integrated in the terms and
conditions of the app.
3.3.6. Terms and condition: The Information Technology Act 2000 requires the Client to mandatorily
have terms and conditions on the app. The terms and conditions will govern the relationship
between the user and the Client.
3.4. All the issues mentioned above will be captured in the terms and conditions of the app. The terms and
conditions is the principal document that governs the Client’s relationship with users. And decides the
manner in which users can use the platform. It will offer protection to the Client for different use-cases
such as payment facilitation, IP infringement, responsible gaming, and customer grievance redressal as well.
Terms and conditions is the most cited document in any dispute involving the platform and hence it’s
important that it is comprehensive and curated as per the platform’s functionality.
4. What are the guidelines for fair use of statistics, logos, Player names, etc. both for Fantasy and
maintaining database.

Summary: The use of statistics, team logos, player names and images by gaming platforms is a grey area
under law. Typically, teams and players can claim publicity right over such use by a company. But there
are ways to avoid this. If a company can show that statistics, team logos, player names and images are
only used for informational purposes and there is no direct profiteering from it, the Client can use them.

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4.1. The Copyright Act 1957 protects the use of original literary,xv artistic,xvi musical,xvii and dramatic works;xviii
cinematographic films;xix and sound recordings. Statistics, team logos, player names and images are
protected by copyright.
4.2. Infringement of a copyright attracts penalties under the Copyright Act 1957. But there are certain pre-
conditions before a copyright can be deemed as ‘infringed’.
4.3. Copyright is infringed when a person:xx (a) performs actions that only the copyright owner is entitled to;xxi
(b) allows showing of a copyrighted work to the public for profit;xxii (c) sells or rents copies of the work;xxiii
or (d) Imports the work into India.xxiv
4.4. Copyright is not infringed when the use of the work is for ‘fair dealing’, private use, research, review, and
others.xxv
4.5. Gaming platforms use team names, player names and images only for the purpose of identifying the players
and teams. Whereas the use of statistics is a necessary consequence of such usage of facts.xxvi It is arguable
that the use of names and images by gaming platforms does not qualify as commercial use, or endorsement
by players, or possibly damage the value of their identity.xxvii
4.6. Hence, the Client will have to design the UI/UX of the app such that it does not demonstrate that players
are endorsing the app. The Client will also need appropriate clauses in the terms and conditions and
disclaimers on the app to protect any possible liability. We will help the Client to build all these protections.
5. What are the Government rules for KYC in Real Money Games platforms? What are the RBI
guidelines to prevent money laundering? What are the RBI guidelines to withdraw money in
different users account? Can we store personal data like Aadhar Details, etc. and what are the legal
guidelines associated with it?

Summary: KYC guidelines are issued by RBI and need to be complied only by ‘regulated entities’. The
Client is not a regulated entity and hence need not comply. The Client cannot use Aadhaar details for
user verification since the practice is prohibited by the Supreme Court. It can use other official
documents like driving license or voter-ID. The Client need not comply with the money laundering
guidelines since those apply only to a ‘reporting entity’ which the Client is not. But the gaming industry
follows some voluntary guidelines on KYC, anti-money laundering (AML), etc. which the Client can
adopt to showcase good governance.

5.1. Know Your Customer (KYC)

5.1.1. The RBI Master Direction on KYC 2016 specify the requirement to conduct user KYC. These
guidelines apply only to ‘regulated entities’ under the purview of the RBI.xxviii
5.1.2. A ‘regulated entity’ includes a bank, an All India Financial Institution, NBFCs, payment system
operators, etc.xxix
5.1.3. Since the Client is not a ‘regulated entity’ – there is no compulsory requirement to comply with the
RBI Master Directions on KYC.
5.1.4. However, many platforms still undertake KYC to validate the identity of their users, ensure they
are not minors, identify their residential state, and enable them to upload and withdraw funds. The
Client is free to have any KYC procedure on its platform to achieve this in the absence of law.
5.2. Use of Aadhaar
5.2.1. No private company can ask for Aadhar details of users, even if the users want to voluntarily submit
Aadhar details to the company. This practice was prohibited after the Supreme Court’s verdict in
Justice KS Puttaswamy v. Union of India.xxx

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5.2.2. The Client can ask users to submit driving license, voter-ID, or any other government issued ID
to verify identity. Additionally, PAN card should be asked in order to deduct TDS.
5.3. Money laundering
5.3.1. The Prevention of Money Laundering Act 2002 (PMLA) governs instances of money laundering
in the country.
5.3.2. Obligations under the PMLA are imposed only on ‘reporting entities.’xxxi
5.3.3. A ‘reporting entity’ includes banking company, financial institution, intermediary or a person
carrying on a designated business or profession.xxxii
5.3.4. The Client is not a ‘reporting entity’ and hence need not comply with the PMLA.
5.3.5. However, the Indian gaming industry follows several voluntary policies on KYC, AML, CFT, etc.
which the Client can adopt to showcase good governance and build credibility. We can help the
Client to build these practices based on practices adopted by leading Indian companies and
proposed by gaming federations.
6. How much user winnings are taxable? Can an RMG app deduct TDS from the users winning?

Summary: All winnings of a user are taxable at 30% (plus cess). The Client needs to deduct 30% (plus
cess) as TDS if the winnings of a user exceed INR 10,000.

6.1. Any winnings earned by a user by participating in a real money game is taxed as ‘income from other sources’
under the Income Tax Act 1961.xxxiii An income tax of 30% (including cess) is payable by the user on all
winnings from participating in a game of skill.xxxiv
6.2. On TDS applicable on the winnings earned by a user – All winnings earned by a user are not subject to
TDS. The Client only needs to deduct TDS when a user wins more than INR 10,000 in a particular contest.
The TDS rate applicable will be 30% (including cess) on the winning amount.xxxv
6.3. Information regarding the tax payable by a user and the circumstances in which the Client will deduct TDS
needs to be communicated to all users through the app’s terms and conditions.
7. What is the max commission that we can charge in a particular contest?

Summary: Client can charge any commission on a contest as long as it is not “extravagant”. Generally,
most gaming platforms charge 10-15% commission which seems compliant with law.

7.1. There is no precise law to govern the commission charged by the Client in a particular contest.
7.2. Courts have held that if an operator charges an “extravagant” amount from users for organizing a game of
skill, such a practice may amount to gambling.xxxvi If a game is deemed as ‘gambling’ it cannot be offered in
the Liberal States or the Restricted States. And also, in the Licensed States without a license (para 1.1 above).
7.3. On average, most gaming apps in India charge 10-15% platform fee from users for each contest. Such a
practice seems compliant with the law.
7.4. The Client should clarify that the fee it charges is not “extravagant” under the app’s terms and conditions.
8. Can we allow users from other countries to join our tournaments for a fee? Citations to be provided.

Summary: Remittances from foreign players to participate in RMG is classified as a ‘current account
transaction’ under FEMA. The central government has imposed restrictions on some types of current
account transactions which includes remittance for purchase of sweepstakes, lottery tickets, pools, etc.

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8.1. The Foreign Exchange Management Act 1999 (FEMA) governs the inflow and outflow of foreign currency.
8.2. Collection of a participation fee from foreign players is classified as a ‘current account transaction’. The
central government, in consultation with the RBI, can however impose a ban on certain types of current
account transactions.
8.3. The Foreign Exchange Management (Current Account Transactions) Rules 2000 mentions the transactions
that are prohibited. Schedule I of these rules state that remittances for: (a) lottery winnings; (b) income
from racing or any other hobby; and (c) purchase of lottery tickets, pools, sweepstakes, etc. are banned.xxxvii
8.4. The Client can hence not take any participation fee from foreign users. It can, however, offer them the free
games on the app.
9. Our product has features for both minors and Adults. How can we legally put a control on minors
so that they use only Minor friendly features?

Summary: The app’s UI/UX should have appropriate disclaimers disallowing minor users to participate
in RMG. The terms and conditions of the app should also have relevant provisions that make the
parents/guardians of the minor responsible. And protect the Client from any liability.

9.1. The Client can offer free-to-play games to minors. But users below the age of 18 should not participate in
real money games. Such users cannot enter into a legally enforceable contractxxxviii (i.e., they cannot accept
the terms and conditions of the app) and hence should not participate in the RMG offered by the Client.
9.2. Still, several minors participate on RMG platforms using the bank accounts of their parents or guardians.
And any harm to such minors may impose liability on the Client.
9.3. But the Client can protect itself by putting appropriate disclaimers and other responsible gaming practices
on the app. For eg: the app’s UI/UX should mention that users below the age of 18 should not participate
in real money games. The terms and conditions of the app should also state that in case a minor access the
app, it will be deemed that he/she is accessing the app under the guidance and responsibility of the parent
or the guardian.
9.4. We will draft the terms and conditions of the app in a manner that provides all these disclaimers. And
safeguards the Client from any legal liability.
--x--

i SLP (Cri.) 35191/2019; https://main.sci.gov.in/supremecourt/2019/35191/35191_2019_5_37_17290_Order_04-

Oct-2019.pdf.
ii Varun Gumber v. UT of Chandigarh & Others (Punjab and Haryana, 2017); Gurdeep Singh Sachar v. Union of

India (Bombay High Court, 2019); and Chandresh Sankla v. State of Rajasthan & Others (Rajasthan High Court, 2020)
iii Entry 34 in the List II (State List) in the Seventh Schedule to the Constitution of India.
iv Dr. KR Lakshmanan v. State of Tamil Nadu and Ors., AIR 1996 SC 1153.
v CWP No. 7559 of 2017.
vi Crl. PIL No. 22/2019.
vii D.B. Civil Writ Petition No.6653/2019.
viii Director, Inspector General of Police v. Mahalakshmi Cultural Association, (2012) 3 Mad LJ 561; Director General

of Police v. S. Dilibabu W.A.No.296 of 2013; Ramachandran K v The Circle Inspector of Police, WP(C) No.
35535/2018.
ix Refer Section 2(i) of the PSS Act 2007.
x Section 2(n) of the PSS Act 2007 defines ‘settlement’ as “settlement of payment instructions and includes the settlement of

securities, foreign exchange or derivatives or other transactions which involve payment obligations”
xi Para 2.6 of the Master PPI Guidelines 2017.
xii Para 2.5 of the Master PPI Guidelines 2017.

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xiii Para 2.5 of the Master PPI Guidelines 2017.

xiv Section 10 of the Indian Contract Act 1872.
xv Includes written works such as computer programmes, compilations and even databases. Section 2(o), the Copyright

Act, 1957.
xvi Include paintings, sculptures, drawings, and photographs. Section 2(c), the Copyright Act, 1957.
xvii Includes music tracks used in a game such as those in Mario, where music composer Koji Kando created separate

tracks for each level of the game. Section 2(p), the Copyright Act, 1957.
xviii Includes acting, writing and arrangement for the purpose of entertainment. Section 2(h), the Copyright Act, 1957.
xix Includes any work of audio-visual recording, including any work by “a process analogous to cinematography”.

Section 2(f), the Copyright Act, 1957.

xx Section 51, the Copyright Act.
xxi Sectiom 51(a)(i), the Copyright Act.
xxii Section 51(a)(ii), the Copyright Act.
xxiii Section 51(b)(i), the Copyright Act.
xxiv Section 51(b)(iii), the Copyright Act.
xxv Section 52, the Copyright Act, 1957.
xxvi http://www.sportslaw.in/reports/FantasySportsPublication-Web.pdf
xxvii Gionfriddo v. Major League Baseball, 94 Cal. App.4th 400 (2001).
xxviii Rule 2(a) of the RBI Master Directions 2016.
xxix Rule 3(b)(xiii) of the RBI Master Directions 2016.
xxx WRIT PETITION (CIVIL) NO. 494 OF 2012.
xxxi Section 12 and Section 15 of the Prevention of Money laundering Act 2002.
xxxii Section 2(1)(wa) of the Prevention of Money laundering Act 2002.
xxxiii Section 2(24)(ix) covers “any winnings from lotteries, crossword puzzles, races including horse races, card games

and other games of any sort or from gambling or betting of any form or nature whatsoever” under the definition of
income. Explanation (ii) to Section 2(24)(ix) defines the term ‘card games and other games of any sort’ to include “any
game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or
any other similar game”.
xxxiv Section 56(2)(ib) of the Income Tax Act 1961.
xxxv Section 194B of the Income Tax Act 1961.
xxxvi State of Andhra Pradesh v. K. Satyanarayana and others, AIR 1968 SC 825 (Supreme Court of India).
xxxvii Rule 3 of the FEMA (Current Account Transaction) Rules 2000, read with Schedule 1.
xxxviii The Indian Contract Act 1872.

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