This article has been published by Veena Reddy, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
It has been published by Rachit Garg.
Table of Contents
Introduction
Wager in simple terms is to gamble. In a wager, two parties are involved, both of them promising to pay a fixed amount on the happening of an uncertain event in the future. The most essential ingredient is that both parties have an equal opportunity to win or lose. Here, parties enter into a contract only for the sole purpose of gaining or losing and do not have any vested interest in the event itself. Hence, wagering contracts can be regarded as betting or gambling contracts. Such contracts are void and unenforceable in courts of law. This article presents an overview of wagering contracts under Indian law.
Wagering contracts in India
Section 30 of The Indian Contract Act, 1872 deals with wagering contracts, and states that “Agreements by way of wager are void, and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is made.” Thus, the only aspect which Section 30 covers is the voidability of wagering contracts. It does not cover the definition or the essential elements of a wager.
In the landmark judgment of Carlill vs Carbolic Smoke Ball Company, the Court observed that a wagering contract is a contract where two persons hold opposite views regarding a future uncertain event. There is a mutual agreement between the parties that is dependent on the determination of the uncertain event. The agreement stipulates that one shall pay the other a sum of money or other stakes. There is no real consideration in the contract and both parties are interested only in the sum or stake they are going to gain or lose. It is essential in a wagering contract that both parties either win or lose and winning or losing depends on the happening of the event.
To explain the concept of a wagering contract by way of an illustration, let’s say there is an agreement between Mr A and Mr B in a cricket match that if Team Yellow wins against Team Red, Mr A will pay Rs. 5000, and on the other hand if Team Red wins against Team Yellow, Mr B will pay Rs. 5000. Such an agreement amounts to a wager as neither Mr. A nor Mr. B has any other vested interest in the outcome of the match, apart from the agreed-upon bet.
Essentials of wagering contracts
Uncertainty of event
The first essential of a wagering contract is that the happening of an event must be uncertain, and the parties must be unaware as to when the event would occur. A wager mostly is related to a future event, but it may be a past event too. It only requires that the parties are unaware of its result or when the event has taken place.
For instance, X agrees to pay Y a sum of Rs.1000 if it snows on Saturday and Y agrees to pay a sum of Rs.1000 if it does not snow on Saturday. Here, it is uncertain that it would snow on a particular day, for which the parties have agreed to pay a certain sum of money. Such an agreement is a wagering agreement and is null and void.
Equal opportunity to make a profit or loss
The second thing is that each party should have an equal opportunity to make a profit or loss. In absence of the same, there is no wager. In Baba sahib V. Raja ram, AIR 1931 Bom 264, there was an agreement between the parties to wrestle and the reward for the winner was the whole of the proceeds of the sold tickets. The court observed that while the winner in this scenario would benefit monetarily, the loser of the match would not have to pay anything out of his pocket. The loser of the match would just miss the chance to win a prize, which is different from him having to forfeit something of his own. In a wager, the important feature is that both parties must get an equal opportunity to win or lose and the event must also be uncertain. Here, there was no such agreement since no one was to lose according to the result of the wrestling match. Hence, the condition of equal opportunity to make a profit or incur a loss was not fulfilled.
Uncontrollable event
The happening of the event in any case should be out of the control of both parties. If one of the parties can manage the event, the transaction lacks a very important ingredient of a wager. For instance, Nick and Harry enter into an agreement that if Nick finishes his homework in 15 minutes, Harry will pay Rs. 500 to Nick and Nick will pay Rs. 500 to Harry if Nick does not finish his homework within the stipulated time. Here, Nick has control over the task and therefore, it will not constitute a wager.
Interest in the stake or sum
Neither party should have an interest in the happening of the event itself. Both parties should be interested only in the stake or sum they win or lose. To elucidate with an example, let’s say A, a car owner, insures his car with General Insurance Corporation of India. A has to pay an insurance premium of Rs. 100 per month. If any accident takes place and the car is destroyed, General Insurance Corporation of India will pay the actual amount of loss suffered. Here, interest of A is in his car. Moreover, on the happening of the event, that is, the accident, A will gain nothing. Hence, it is not a wagering agreement.
Exceptions to wagering contracts
Horse race
Section 30 of The Indian Contract Act, carves out a statutory exception for subscription or contribution, or an agreement for the same, towards any prize the amount of which is Rs. 500 or more to the winner of a horse race. In the judgment of K.R. Lakshmanan (Dr) v State of Tamil Nadu, 1996 SCC (2) 226 the Supreme Court decided whether horse race comes within the ambit of gaming or not. The Apex Court opined that in the horse race jockeys acquire special abilities by training, and also the horses are trained for speed and stamina. Jockeys are specialised in riding and a better-trained jockey can only touch the winning post, in between two fast-running horses. Based on this, the Supreme Court held that horse racing is a game of “mere skill” within the meaning of Section 49-A of the Madras City Police Act, 1888 and Section 11 of the Madras Gaming Act, 1930.
Insurance transactions
Wager and an insurance transaction are dissimilar in many ways. The contract of insurance is a wagering contract if the insurer has interest only in insurance money and lacks any interest in the insured object. In insurance transactions, the interest formed is on the event which is damaging the interest of the insurer itself. The sole purpose behind any insurance contract is to indemnify for a loss which may take place from some future event. There is no motive to win or lose. Whereas, in wagering contracts, both parties are interested in the sum or stake they win or lose. Thus, insurance transactions are not wagering contracts but are termed as indemnity contracts.
Competitions involving skills
Skill plays a very major role in success in any competition. Where the prizes are awarded as per the merits, that is, it is based on the skill of a particular person and not upon a chance, such competitions are not wagers. However, if prizes depend upon a chance, then it is a wager. For instance, winning a lottery ticket is a matter of chance and no skill is involved in it, which makes the lottery a wager. However, some games, for instance, rummy which even though has an element of chance, is considered to be a game of skill as winning or losing can be predominantly attributed to the skills of the players, as held by the Supreme Court in State of Andhra Pradesh v. K. Satyanarayana and Ors. Therefore, it is not a wager. Also, sports competitions such as badminton, lawn tennis, table tennis, basketball, football, cricket etc. are decided by skill and are not games of chance, hence they are not wagers.
Share Market
Trading and investing in the share market by itself does not constitute a wager. This is because by investing in the shares of a company, the investor is essentially buying a part of the company’s ownership, entitling him to a part of the company’s profits and losses. Further, to make money through share market investments, it is imperative to have a working knowledge of the technicalities involved, such as stock charts, company metrics etc. This brings in the necessary element of skill into the transaction. Further, in Chimanlal Purshottamdas Shah vs Nyamatrai Madhavlal, the Bombay High Court observed that speculative transactions do not fall into the category of wager. This means that the law allows trading in goods, land, stock etc. with the intention of making a profit by the rise and fall of their market value.
Gambling and betting where expressly allowed by law
The Public Gambling Act of 1867 has been adopted by some states of India which prohibits establishing and operating a public gambling house. Goa, Daman and Sikkim are the only three Indian states to allow casinos. In Goa and Daman, the Goa, Daman and Diu Public Gambling Act, 1976 allows for establishment of casinos in only 5-star hotels and offshore vessels. That, too, is subject to obtaining prior permission of the state government.
State lottery
In a lottery, parties have equal opportunity to win or lose based on the occurrence of an uncertain event, but neither party has control over the happening of the event. Moreover, the parties have no other interest except the sum or price money involved. Thus, the lottery falls under the category of wager and is void. People cannot get redressal in the courts of law, so even if they are deceived by a lottery ticket seller, there is no legal recourse to claim prize money. In Jyothish Chandran vs Zee Tele Films Pvt. Ltd., where a consumer complaint was filed against the nine opposite parties complaining of deficiency in service and unfair trade practice on the part of the opposite parties on the premise that opposite parties did not pay the lottery prize money of Rs. 1 crore won by the complainant. The Court opined that a lottery transaction is void and unenforceable in a civil court, the question arises whether the position would be in any way different in the consumer law. The basic consumer right flow from the contracts of sale and purchase of goods or hiring or availing of services for consideration. If the contract itself is void in view of Section 30 of the Indian Contract Act the party to the wagering contract agreement inevitably would have no right flowing from the void contract even in consumer law jurisdiction.
Section 294A of the Indian Penal Code makes keeping a lottery office or using any place for the purposes of conducting a lottery, an offence punishable with imprisonment or fine, or with both. However, this provision carves out an exception for lotteries authorised or conducted by the state governments. Lotteries authorised or conducted by the state governments are subject to the Lottery (Regulation) Act, 1998, and currently there are only thirteen Indian states which organize a state lottery.
Enforceability of wagering contracts
As per Section 30 of The Indian Contract Act, no suit is maintainable in any court of law for recovery of any sum or stake alleged to be won by way of the wager. Even if a person diligently wins in a game of gamble, he cannot move to the Court asking for the prize money won in such a wager, as Section 30 renders these wagering agreements to be void.
Enforceability of collateral contracts
In Gherulal Parakh v. Mahadeodas Maiya, the question which came up for determination was whether it was illegal to form a partnership for entering into wagering transactions. The Supreme Court held that “an agreement collateral to such a [wagering] contract was not unlawful within the meaning of Section 23 of the Contract Act.” Therefore, a partnership formed with the intention of entering into wagering contracts is legal and enforceable. A partner who had paid the losses incurred in wagering contracts was entitled to recover proportionate indemnity from his co-partners. Here, the court applied the doctrine of collateral contracts, which provides that even when a main transaction is not enforceable by law, it does it vitiate the enforceability of a transaction collateral to it.
In Badridas Kothari vs Meghraj Kothari, the defendant allegedly owed the plaintiff a sum of money on account of some share speculation business dealings, called fatka. The defendant had executed a promissory note in the favour of the plaintiff for the sum of money which was to be invested in the fatka dealing. The note stated that the money was paid to the defendant in cash, but the defendant argued otherwise. More importantly, fatka dealings amounted to a wager under Section 30 of the Indian Contract Act, and hence, the defendant argued that a promissory note executed to repay the debt incurred due to a fatka transaction gone wrong, could not be enforced by a court of law. The court accepted the argument advanced by the defendant, thereby holding that the promissory note executed in this case is a wagering agreement, and differentiated it from a collateral contract.
Conclusion
Wagering agreements are not defined in Indian Contract Act leading to ambiguity in many cases and paving room for multiple interpretations. Wagering Agreements are not illegal as Section 30 of the Indian Contract Act is silent over the aspect, rather it renders it a void agreement. So, here Contract Act just distinguishes between an agreement which is void and one whose object or consideration is unlawful. The section is mute on multiple aspects, thus narrowing down the scope of the section. Due to this, the judiciary has been facing problems. As Section 30 lacks clarity regarding the wagering agreement, it needs to be amended to clarify the picture as to what constitutes a wager and the range of this clause should be extended, thereby removing the vagueness which is prevailing and the inconvenience faced by the jurists.
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