Dream11 Parent’s Insolvency Plea Decision Reversed by NCLAT

In its ruling, the Appellate Tribunal pointed out that the National Company Law Tribunal (NCLT), when accepting the insolvency petition, overlooked the exemption period from March 27, 2020 to March 26, 2021 under the Insolvency and Bankruptcy Code, 2016, as highlighted by Moneycontrol.

Reward Solutions filed for insolvency in February. The company stated that in 2019, they had entered into a five-year lease and license agreement with Sporta Technologies for two units in a tower located in a business park in Mumbai. The agreement included a monthly license fee of INR 49.8 lakh for the first three years, and INR 57.3 lakh for the remaining two years.

Reward Solutions sent a demand notice to Dream11’s parent company in April 2021, alleging non-compliance with the agreement and citing outstanding license fees totaling INR 7.61 Cr for the period between March 27, 2020, and April 2021 under Section 10A of the Insolvency and Bankruptcy Code, 2016.

Related: Dream11’s Harsh Jain Asserts there are Ample Opportunities within India

The insolvency plea was admitted by the National Company Law Tribunal’s (NCLT) Mumbai bench on February 13, 2024. According to reports, the NCLAT stopped the insolvency proceedings against Sporta Technologies on February 14, following an urgent petition filed by Dream11 co-founder and COO Bhavit Sheth. This development is significant as Indian online gaming startups, including Dream11, are facing challenges due to the 28% GST imposed on the sector. Additionally, Dream11 has also received a GST notice of INR 28,000 Cr from the Directorate General of Goods and Services Tax Intelligence (DGGI), Mumbai Zone.

Last year, it was reported that Dream11 closed its corporate venture capital arm, Dream Capital. Despite these challenges, the unicorn successfully acquired 5.5 million new users for its platform in 2023, bringing its total user base to 21 million. Furthermore, its net profit increased by 32% year-on-year to INR 187.83 Crore in the financial year 2022-2023 (FY23), and operating revenue surged by 66% to INR 6,384.5 Crore.

In a significant turn, the NCLAT overturned insolvency proceedings against Sporta Technologies due to an alleged rent default, citing the NCLT’s oversight of the exemption period. Reward Solutions’ insolvency filing against Sporta escalated into a legal dispute over outstanding license fees. The urgent intervention of Dream11’s COO led to the halting of insolvency proceedings. Additionally, Indian online gaming firms, including Dream11, face challenges from the 28% GST and a substantial GST notice. Despite these issues, Dream11 experienced substantial user base growth and impressive financial performance, marking the company’s resilience amid legal and financial headwinds.