This article is written by Srishti Chawla, a 5th-year student at Amity Law School, Noida.
In layman language, the term wager means a Bet. The Black’s Law Dictionary meaning of the term wager means something risked, such as a sum of money on an uncertain event in which the parties have no material interest other than mutual chances of “gain or loss”.Thus when two parties enter into an agreement upon the condition that the first party will pay a fixed sum of money to the second party on the happening of an uncertain future event and second party will pay the first party when the event does not happen, it is called a wagering agreement.
Both the parties have an equal chance to win or lose the wager and the chance of gaining or the risk of losing is not one-sided. Therefore the parties have no material interest in the uncertain event other than the mutual chances of winning or losing.
A Teacher and Student agree with each other that if the student clears his Judiciary Exam, The teacher will pay Rs. 10000 to the student and if he is unable to do so, the student will pay the teacher Rs. 5000. Such an agreement is a wagering agreement.
Effects of Wagering Agreements
According to Section 30 of the Indian contract act, 1872, Wagering agreements cannot be enforced in any court of law as they have been expressly declared to be void.
No suit can be filed in the court of law with the intention of recovering anything claimed to be won in any wager or non-compliance of any party to abide by the results of the wager.
In the case of Gherulal Parakh v. Mahadeodas Maiya, The managers of two joint families entered into a partnership to carry on wagering contracts with two firms of Hapur upon the agreement that the profit and loss resulting from the transactions would be borne by them in equal shares. Later the appellant denied the liability to bear his share of the loss. The subordinate judge held that the wagering agreement entered into by the partners was void under section 30 of the act. Later on appeal, the high court held that although the agreement entered into by the parties was void yet its object was not unlawful as under section 23 of the same act and, therefore, was subsisting between the parties.
An interesting interpretation of this case was that although all illegal agreements are void and unenforceable by law, yet all void agreements are not illegal or immoral or as opposed to public policy. Therefore though all wagering agreements are void and unenforceable by law yet in a wagering agreement it is important to determine if such an agreement is also unlawful under Section 23 of the Indian Contract Act in order to test its legality.
Essentials of a wager
1) It must be dependent on an uncertain event
For an agreement to be a wagering agreement, it is necessary that the subject matter of the agreement must be dependent on an uncertain event.
In the case of Jethmal Madanlal Jokotia v. Nevatia & Co(1962), it was held that although a wager is generally about a future event, it may also be of an event that happened in the past but the parties were not aware of its result or the time of its happening.
2) There is a mutual chance of gain or loss
A necessary element in a wagering agreement is that both the parties should have a mutual chance of winning or losing based on the uncertain event. Therefore it is not a wager when one party has a chance or winning but not losing or a chance of losing but not winning or neither winning or losing.
In the case of Narayana Ayyangar v. Vallachami Ambalam(1927), it was held that a chit fund cannot be called a wager because although some members have a chance to gain, yet none of them have a chance to lose as the recovery of the amount contributed is assured even if the time period is unknown.
A cricket match is about to start in Delhi between India and Australia. If India wins the match, Pallav agrees to pay Nishant Rs. 2000, whereas if Australia wins the match, Nishant agrees to pay Rs. 2000 to Pallav.This is a wagering agreement since both parties have a chance to win or lose.
3) Neither of the parties must have control over the event
If one of the parties has the power to influence the results of the wager, the agreement will lack an essential ingredient of a wager as said in the case of Dayabhai Tribhovandas v Lakshmichand(1885).
Shivani and Munish enter into an agreement that if Shivani resigns from her job, Munish will pay Rs. 20000 to Shivani and Shivani will pay Rs. 20000 to Munish if she does not resign from her job. Here Shivani has control over her resignation and therefore will not constitute a wager.
4) Must have no other interest other than the stake
The only interest that both the parties should have is the stake of winning or losing on the happening of the uncertain event. If either of the parties has some other interest other than the amount at stake, it will not constitute a wager.
Jay insures his car against any damage by taking a car insurance policy and also pays an insurance premium for the same. Here we can say that Jay has an interest in the car and in case of the future uncertain event i.e an accident he will not gain anything. Therefore it is not a wager.
Exceptions to wagers
1) Insurance Contracts
An insurance contract is a contract of indemnity which is used to safeguard the interest of one party against damage and also has an insurable interest. A wagering contract, on the other hand, is a conditional contract and has no interest in the happening or non-happening of an event. Unlike Insurance contracts, wagering agreements are void in nature and the object of a wagering contract is to speculate for money or money’s worth, whereas the object of an insurance contract is to protect an interest.
In the case of Northern India General Insurance Co. Ltd. Bombay Vs. Kanwarjit Singh Sobti, The owner of a truck transferred it benami i.e illegally to another party. Later the truck met with a major accident which injured a young army officer who claimed heavy damages from the owner, the benamidar and the insurance company. A plea was raised that a benamidar had no insurable interest which is why it was a wager. These pleas were rejected by the court and it was held that insurable interest was present and the benamidar was liable to pay the damages to the young army officer.
2) Competitions involving skill
Skill competitions are not said to be wagers since they the winning of such events requires a substantial amount of skill and are not dependent on the probability of an uncertain event.
For example crossword puzzles, sports competitions etc
But if the competition is based on chance and not skill for example a lottery it would amount to a wager and therefore be void.
In the case of Moore v. Elphick(1945) it was held that wherever skill plays a major part in the result of the competition and the results are awarded according to the merits of the solution, it is not a lottery and therefore not a wager.
3) Horse racing competitions
Some state governments may authorize horse racing and the contribution for the reward of such competitions of amounts more than Rs 500 is not considered unlawful.
In the case of K. R. Lakshmanan v. State of Tamil Nadu(1996), the Supreme Court had held that horse racing was a game of skill and playing for stakes in a game of skill was not illegal.
4) Share Market Transactions
The purchase and sale of stocks with the mere intention to give and take delivery of shares do not amount to a wager except if the only intention is to settle the price difference. In that case, it will be called a wager.
Is Rummy a game of skill?
In Indian law, a game of skill is that which predominates the element of chance. In Andhra Pradesh v. Satyanarayana, AIR 1968 it was held that rummy is a predominantly skill-based game since the fall of the cards has to be memorized and skill is required in holding and discarding cards. Hence we cannot say that rummy is a game completely bases on chance.
However, If the court finds evidence that the game is being played by the owner of the house or club for making a profit, the owner can be brought to court. But if a group of people plays rummy in a Diwali party, it is not an offense. Hence there are websites in India that allow users to play rummy online and use payment gateways for the transfer of money.
A lot of inconvenience is faced by the judiciary while dealing with what exactly constitutes a wager and what comes within the ambit of wagers since the Indian Contract Act, 1872 does not define what constitutes a wager. Section 30 only mentions that all wagering agreements shall be void and enforceable leaving its interpretation subject to a lot of ambiguity. Therefore the definition of the term wager should be amended and the scope of this section be widened.