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2023 (1) TMI 1105 - HC - FEMAForeign investment in India - certain procedural or technical contraventions under FEMA - Compounding of offense - Online i.e., website-based and mobile application games constitute gambling as understood in law in this country - delays in the filings of the prescribed forms and reporting of the inward remittances and also delays in the allotment of shares - 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 - 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? - HELD THAT - 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 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 so-called Ultimate Teen Patti or the Call it Right game. It does not show that it asked for such a clarification at all. 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. 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 reporting period in question. This 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. 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. We also make direct the RBI in view of our judgment today to consider the application by the Petitioner for compounding the non-compliances for the period 2006 to 2012 noted above. At this stage, Mr Shenoy states that a fresh application will be required. The Petitioner will submit that within two weeks. We proceed on the basis that this application will not be confronted with a problem of delay in filing. If there is any such delay, we hereby 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.
Issues Involved:
1. Legitimacy of the Petitioner's business activities under Indian law. 2. Compliance with Foreign Exchange Management Act (FEMA) regulations. 3. Determination of whether the Petitioner's games constitute gambling. 4. Compounding of procedural contraventions under FEMA. Issue-wise Detailed Analysis: 1. Legitimacy of the Petitioner's Business Activities: The primary issue was whether the Petitioner's business activities were illicit, prohibited by law, or illegal, particularly if the online games constituted 'gambling' as understood in Indian law. The court acknowledged that the Petitioner's activities, which included offering games like Rummy and fantasy cricket, were skill-based and did not constitute gambling. The Petitioner's defense highlighted that their games did not offer monetary or tangible rewards, thus not qualifying as gambling under Indian jurisprudence. 2. Compliance with Foreign Exchange Management Act (FEMA) Regulations: The Petitioner faced procedural contraventions under FEMA, including delays in reporting foreign remittances and allotting shares to non-residents. The relevant regulations required timely reporting and issuance of shares within 180 days of inward remittance. The court noted that the Petitioner had made efforts to comply by filing applications for compounding these contraventions, although these applications were initially returned by the RBI due to the need for clarifications from the DPIIT. 3. Determination of Whether the Petitioner's Games Constitute Gambling: The DPIIT's affidavit suggested that certain games offered by the Petitioner, like 'Teen-Patti' and 'Call it Right,' fell under gambling and betting activities. However, the court found that these games were introduced after the relevant period (2006-2012) and did not involve monetary rewards, thus not constituting gambling. The court relied on precedents from the Supreme Court, which defined gambling as involving a game of chance with a reward. The Petitioner's games, predominantly based on skill and without rewards, did not meet this definition. 4. Compounding of Procedural Contraventions Under FEMA: The court directed the RBI to consider the Petitioner's application for compounding the procedural contraventions for the period 2006-2012. The RBI's role was limited to ensuring that the business activity was not illegal before processing the compounding application. The court emphasized that the Petitioner's activities must remain free of any illicit gambling to comply with Indian law and future foreign investments. Conclusion: The court ruled in favor of the Petitioner, directing the RBI to consider the compounding application for the specified period. The Petitioner was required to submit a fresh application, which the RBI was to process expeditiously. The court clarified that the Petitioner's activities did not constitute gambling and were not illegal, provided they continued to comply with applicable laws. The Petition was disposed of without costs.
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