WAGERING AGREEMENT

INTRODUCTION

As per the basic terminology, a wager can be described as a bet. A wagering agreement is one in which two parties bet on an uncertain event, in which both parties have an equal chance of winning and losing and none of the parties can create an impact on the result. 

Illustration: An agreement between A and B that in elections if a certain party wins, B will pay A Rs.1000 and if the other party wins, A will pay B Rs.1000.

SECTION 30 OF THE INDIAN CONTRACT ACT, 1872

“Agreements by way of wager void:  

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. 

Exception in favour of certain prizes for horse-racing: This section shall not be deemed to render unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse-race.  

Section 294A of the Indian Penal Code[1] not affected: Nothing in this section shall be deemed to legalize any transaction connected with horse racing, to which the provisions of section 294A of the Indian Penal Code (45 of 1860) apply.”[2]

In the case of Jethmal Mandanlal Jokotia v. Nevatia & Co.,[3] the court held that the uncertain event need not only be the future event in order to become a wagering agreement, sometimes a past event whose result is not known by the parties at the time of agreement also come under the uncertain event specified under wagering agreement.

CONDITIONS THAT HAVE TO BE SATISFIED FOR A WAGERING AGREEMENT[4]
  • There should be two parties who went into an agreement
  • The agreement should rely on the occurrence or non-occurrence of an uncertain event
  • Both parties of the agreement should have equal chances to succeed or
  • None of the parties can create an impact on the result of that unpredictable event
  • The existence of a promise between the parties to pay money or any equivalent
  • Except for the amount he will benefit or lose, neither of the parties should have an interest in the event’s occurrence or non-occurrence.

To understand these essentials in a better way, let’s have a look at the below illustration 

Illustration: A agrees to pay B Rs.150 if it rains on Sunday and B agrees to pay A Rs.150 if it does not rain on Sunday 

  • In the above illustration, there are two parties A and B
  • Raining on a particular day is uncertain
  • There are equal possibilities/ chances for occurrence or non-occurrence of the event raining
  • None of the parties can have control over the event raining
  • Between A and B, there is a promise to pay Rs.150
  • Neither A nor B have any interest in the occurrence or non-occurrence of the event other than the money he will gain or lose

EXCEPTIONS OF A WAGERING AGREEMENT

  1. Insurance agreements

Insurance contracts are entered into to protect the interests of one of the contracting parties. These types of contracts do not fall under the category of wager contracts contract because of the presence of insurable interest on the part of the insurer. 

Difference between insurance agreement and wagering agreement: 

INSURANCE AGREEMENT

WAGERING AGREEMENT

The event may or may not happen

The event is bound to happen

The person pays the premium

The parties do not pay anything in before

existence of insurable interest

Non-existence of insurable interest

Risk or loss happens naturally

The risk of loss is created by the parties themselves

Provides protection, if any risk happens

Risk their money and check their luck

Good faith plays a crucial role

Good faith is not considered

These agreements are enforceable by law

These agreements are not enforceable by law

  1. Skill-based competitions

Skill plays an important role in the successful completion of various events such as crossword puzzles and other similar activities. The awards are presented out based on the qualities of the answer. These types of competitions are not considered as wagering agreements. However, if the awards are determined by lottery, it comes under the category of the wager. 

For example, chess competitions do not come under wager agreements, because the win depends on the skill. 

  1. Horse racing competitions

Horse racing competitions can be permitted by the state governments, taking the local laws into the consideration. Any amount of money which is Rs.500 or above, offered as a reward to the winner of horse racing competitions shall not be unlawful. And an agreement to pay such reward is enforceable by law

  1. Share market transactions

Transactions related to the sale and purchase of shares and stocks with the purpose to distribute shares are not considered a wager. However, if the only purpose of the transactions is to settle a price difference, such transactions will be considered a wager and will be void.

ENFORCEABILITY OF A WAGERING AGREEMENT

In accordance with Section 30 of the Indian Contract Act, wagering agreements are void and not enforceable by the courts. In a wagering agreement, one cannot claim damages from the other for non-performance of the said promise to pay certain money or money worth. In the eyes of law, these agreements are void from the beginning itself.  

The Supreme Court in Gherulal Parekh v. Mahadeo Das Maiya[5] ruled that the wager is not forbidden by law, even though it is void ab initio and not enforceable by law. Thus, as per section 23[6] of the Contract Act, a wagering agreement is not illegal, and the transactions that are collateral to the primary transaction are legal.

CONCLUSION

Section 30 of the Indian Contract Act says that Agreements by means of wager are void. Furthermore, the Contract Act fails to explain what constitutes a wager and a wagering arrangement. It merely states that such agreements are void and unenforceable and that no action may be taken to recover any money owed under a wager or to execute a contract in the nature of a wager.  

So, there is a need to amend Section 30 in order to add the definition of the Wager and Wagering agreement because the judiciary has been facing a lot of trouble and confusion dealing with the matter of wagers, especially what constitutes wagers and what falls under the purview of the wager. The scope of wagering is defined differently by various jurists and in different judgments. In other words, section 30’s ambit has to be expanded. 

Author(s) Name: Kethana Tamminaina (Student, Damodaram Sanjivayya National Law University, Visakhapatnam)

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References:

[1] Indian Penal Code 1860, s 294A

[2] Indian Contract Act 1872, s. 30

[3] Jethmal Madanlal Jokotia v Nevatia & Co. AIR 1962 AP 350

[4] Dr Avthar Singh, Law of Contract and Specific Relief (12th edn, Eastern Book Company 2017)

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

[6] Indian Contract Act 1872, s. 23

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