NCLAT DIRECTS DREAM11 IRP TO MAINTAIN COMPANY AS GOING CONCERN

On April 3, 2024, the National Company Law Appellate Tribunal (NCLAT) issued an important direction in the ongoing legal battle involving Sporta Technologies, the parent company of the popular fantasy sports platform Dream11. The NCLAT directed the interim resolution professional (IRP) overseeing the insolvency proceedings of Sporta Technologies to refrain from taking any actions that would jeopardize the company’s operations and to maintain the company as a going concern.

This ruling was made while hearing the appeal filed by Bhavit Sheth, the co-founder and COO of Dream11, who had challenged the February 2024 order by the National Company Law Tribunal (NCLT) that had initiated insolvency proceedings against Sporta Technologies. The NCLAT's decision to maintain the company’s status as a going concern ensures that Dream11’s operations will continue while the legal proceedings unfold.

BACKGROUND OF THE CASE

The dispute stems from a lease and license agreement executed in 2019 between Reward Business Solutions and Sporta Technologies for the lease of commercial premises in Mumbai. According to the agreement, Sporta Technologies was required to make payments for the premises over a defined period. However, Dream11 failed to meet the payment terms, and by April 20, 2021, a demand for ₹7.61 crore was raised for unpaid dues from March 2020 to April 2021.

This led Reward Solutions to initiate insolvency proceedings against Sporta Technologies in February 2024. Reward Solutions itself is currently undergoing its own insolvency resolution process, and the insolvency petition against Dream11 was filed by its resolution professional.

NCLAT RULING

The NCLAT ruling clarified that the IRP handling the insolvency process for Dream11 should not take steps that could disrupt the company’s operations. While the IRP remains in charge, it is required to ensure that Dream11 operates normally without any significant disruption. The tribunal’s order emphasized that the company must be maintained as a going concern, meaning its regular business activities should continue while the legal dispute progresses.

This ruling follows an earlier order by the NCLAT on February 14, 2024, which had stayed the NCLT’s decision to initiate the corporate insolvency resolution process (CIRP) against Sporta Technologies, after an urgent petition was filed by Bhavit Sheth. The tribunal had suspended the NCLT’s order, allowing the company to continue its operations while the matter was under appeal.

IMPLICATIONS OF THE NCLAT ORDER

The NCLAT’s direction is a significant relief for Dream11 and its parent company, Sporta Technologies, as it ensures that the company can continue its business without the immediate threat of insolvency proceedings that could have led to major financial and operational disruptions. The ruling is also important for the wider online gaming and fantasy sports industry in India, which has seen substantial growth in recent years.

The ongoing legal battle highlights the challenges faced by large companies in the country’s complex regulatory and legal landscape. For Dream11, the ruling offers time to resolve the payment dispute with Reward Solutions while continuing to serve its millions of users.

The next hearing is scheduled for April 5, 2024, and the outcome will likely shape the future of both Dream11 and the broader online gaming industry in India.

LOOKING FORWARD

As the case progresses, the legal implications for Dream11 and its future operations will be closely watched. The company must now navigate the intricacies of its ongoing insolvency proceedings while continuing to uphold its position as a leader in the Indian fantasy sports market. The NCLAT’s decision to maintain Dream11 as a going concern provides the company with some breathing space to resolve the issues surrounding the lease payment dispute while protecting its ongoing operations. —register today