EXCEPTIONS TO A WAGERING AGREEMENT AND ITS ENFORCEABILITY IN INDIA: AN ANALYSIS

INTRODUCTION

The Indian Contract Act, 1872 defines an agreement as “every promise and every set of promises forming consideration for each other”. And, every agreement that is enforceable by law and is legally binding is a contract. In simple words, wager means to ‘bet’ or ‘gamble’. Wagering agreements are not defined in the Indian Contract Act, 1872. A wagering agreement relies on the happening or non-happening of an uncertain future event. The parties to a wagering agreement bet a sum of money on a future uncertain event and the chances of winning of both the parties are equal. In an agreement by the way of wager, the loss of one party will become another’s profit. To form a wagering agreement, two parties must agree to bet a decided sum of money on a future uncertain event which shall have equal chances of winning and losing for both the parties. The term ‘wager’ is not defined in the Indian Contract Act, 1872 but the landmark case of Carlill v. Carbolic Smoke Ball Co.[i] defines wagering agreements.

Some essentials need to be fulfilled to form a wagering agreement. They are:

  1. Uncertain future event
  2. Equal chance of winning and losing
  3. Lack of control by the parties on the event
  4. No other interest of parties

EXCEPTIONS TO A WAGERING AGREEMENT

There may be certain circumstances when an agreement does not fulfill the essentials of a wagering agreement and thus, cannot be considered as an agreement by the way of a wager. Also, there exist some exceptions to a wagering agreement. They are:

  1. Insurance contracts – The contracts of insurance are not wagering agreements and they are considered as contracts of indemnity[ii]. Indemnity contracts are made to protect or secure some property from loss. The purpose of insurance contracts is also the same. They are entered into for the protection from harm or loss which may occur from some future events. On the other hand, the wagering agreements are made for the sole purpose of winning which is based on the possibility of happening or non-happening of some uncertain event. The aim of insurance contracts is beyond winning and they are made to secure one’s property from probable damages which may occur from future events. The interest of parties in an insurance contract is not vested in winning or losing but in protection from loss.
  2. Games involving skill – The games or competitions that contain an element of skill in them cannot be said as a wagering agreement. The possibility to win, in competitions requiring skills, does not depend on luck or chance. The winning or losing in such an event is majorly based on the skills of the player. In an agreement by the way of wager, the winning of a party is dependent on the probability of a future uncertain event. For example, in a lottery, the chances of winning of an individual are based on luck and chance and it is thus a wager. But in the game of cricket or football, the outcome depends on the skills of the players. Thus, the games and competitions that require skills, cannot be considered as a wagering agreement.
  3. Share market – In the share market, there is a common practice of transferring the shares from one party to another. The share market is not considered a wagering agreement because the giving or taking of shares from one party to another cannot be said to be a wager. But, when the transfer of shares takes place between two parties for the purpose of settling the price difference, it is considered as a wagering agreement. Thus, mere transferring of shares in the share market is not considered as an agreement by the way of a wager.
  4. Competitions of horse racing – Competitions of horse racing are not considered as wagering agreements. Some state governments permit horse racing competitions if the local laws permit.[iii] Horse racing competitions are included in the exception to wagering agreements because it is a game that requires skills and the outcome is not solely based on the probability of an uncertain event. Thus, the competition of horse riding cannot be deemed as betting as it requires skills.
ENFORCEABILITY OF WAGERING AGREEMENTS IN INDIA

The terms ‘wager’ or ‘wagering agreement’ are not defined in the Indian Contract Act, 1872. Any wagering agreement between two parties is deemed to be void in India. The wagering agreement lacks some essentials to form a contract, which renders it unenforceable, and thus, the agreement made by the way of a wager cannot be enforced in a court of law. In India, wagering agreements are void ab initio

but not illegal per se.[iv] And, it is nowhere mentioned in the Indian Contract Act, 1872 that they are forbidden by law. In the case of Gherulal Parekh v. Mahadeo Das Maiya[v], it was held that wagering agreements are void and unenforceable, but not forbidden by law. Section 30 of the Indian Contract Act, 1872 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.” In simple words, the agreements by the way of wager are void and unenforceable. Also, Section 65 of the Indian Contract Act, 1872 states that “When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.”[vi] It deals with the restitution of any advantage received but it is not applicable in the case of a wagering agreement.

Hence wagering agreements are void and unenforceable and no suit shall lie to recover anything won from an uncertain event that is solely based on luck or chance and not on skill.

CONCLUSION

Wager in simple words means to ‘bet’. A wagering agreement is an agreement where two parties decide to bet a certain sum of money and the winning and losing depends on a future uncertain event. There are some exceptions to wagering agreements, for example – insurance contracts, games involving skills, share market, and horse racing competitions. Agreements by the way of wager are void but not illegal. Wagering agreements are not defined in the Indian Contract Act, 1872 which can lead to ambiguity in some circumstances as it can be open to multiple interpretations. Wagering agreements cannot be enforced in a court of law which renders them unenforceable and void.

Author(s) Name: Dhruv Soni (Symbiosis Law School, Noida)

References:

[i] Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256

[ii] Srishti Chawla, ‘Wagering Agreement and Its Essentials’ (Ipleaders, 13 March 2019) <https://blog.ipleaders.in/wagering-agreement-and-its-essentials/> accessed 14 December 2021

[iii] ‘Wagering Agreement | Meaning | Essentials | Exceptions | Effects’ (Account Learning) <https://accountlearning.com/wagering-agreement-meaning-essentials-exceptions-effects/> accessed 14 December 2021.

[iv] ‘Wagering Agreement’ (Indian Legal Solution, 30 March 2020) <https://indianlegalsolution.com/wagering-agreement/> accessed 13 December 2021

[v] Gherulal Parekh v. Mahadeo Das Maiya, AIR 1959 SC 781

[vi] Indian Contract Act 1872, s. 65

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