The Legitimacy of Wagering Agreements

What is a Wagering Agreement?

In simple terms we can say that Wagering agreements are futuristic where winning and losing are unforeseen and the event on which it depends is also uncertain.

The literal meaning of the term ‘wager’ is ‘risk something valuable against someone else’s on the outcome of an unseen event’ or simply ‘bet’.

Sir William Anson defines ‘wager’ as ‘a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event.

However, there is no definition of ‘wager’ or ‘wagering agreement’ given in Indian Contract Act, 1872. According to Section 30 of the Indian Contract Act, 1872

“Agreement by way of wager is void, and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made”

Carlil v. Carbolic Smoke Ball Co. ^[1] defines a wagering agreement as:

“A wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that dependent on the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stakes; neither of the parties having any other interest in that contract than the sum or stake he will so win or lose, there is no other consideration for the making of such contract by either of the parties. If either of the parties may win but cannot lose, or may lose but cannot win, it is not a wagering contract”.

I have seen my friends at the time of IPL dealing with each other that one would give some small amount of money or something else if his team loses and the same was promised by the other person as well. At that time the lost party was bound to pay as it was a promise made between both of them and generally, breaking a promise was considered bad. As this was a childhood thing, we didn’t take serious notice of it. But if analyzed logically, the lost party is not bound to pay as the deal they entered into was by way of wager and has no legal force.

From this incident, one thing is clear wagering agreements are always made for something unforeseen.

History of Wagering Contracts

The history of wagering agreements can be traced long back from the times of Mahabharata, where one’s potential was judged not through battle but by the game of dice. And in British India, laws related to wagering were governed by common law in England.

These kinds of activities existed in our country from ancient times and have not been particularly mentioned in the Indian Contract Act, 1872 and Hindu Law and are considered illegal that is why these are not protected under Article 19 and 301 of the Indian Constitution and Section 30 of Indian Contract Act, 1872 also gives no protection to any agreement by way of the wager.

Essentials of Wagering Agreements

• An uncertain event: The first essential to a wagering agreement is that the event on which betting is done should be uncertain and the result must be unknown to both the contracting parties. In Jethmal Mandanlal Jokotia v. Nevatia &

Co. ^[2], it was held that wagering agreements can be made for the future events as well as for the events which have already happened in the past, but the parties must not be aware of the result of both, the future event or the past one.

• Mutual chances of profit and loss: In the wagering agreement the

chances to win or lose the bet stands equal for both the parties. The risk of loss or the chance of gain should be equal for both the contracting parties. In Baba Saheb v. Raja Ram ^[3], it was held that the essence of the wagering agreement lies in the fact that both the parties stand equal to win or lose to the result of an uncertain event. It was held that if an agreement lacks the desired profit or loss then such an agreement cannot be considered a wagering agreement.

In Narayana Ayyangar v. K.V. Ambalam ^[4] Madras High Court holds the view that a chit fund does not come within the scope of a wagering agreement as there is no chance of loss and the mutual possibility of gain and loss is the prerequisite condition for wagering agreement.

• Two Parties Involved: Wagering agreements require two parties to be involved holding contradicting views on an uncertain event.
• Neither Party Should Have Control Over the Event:

Wagering agreements are agreements of luck and chance, therefore neither party should have control over it. Birdwood J in the case of Dayabhai

Tribhovandas v. Lakshmichand ^[5] held that if the event is in the hands of one of the parties, it lacks the basic elements of a wagering agreement.

• No Interest Other Than Gain or Loss: The sole purpose of a wagering agreement is winning or losing in the event on which they have staked their money. So, there must be no other consideration involved in the event.

Indian Law Vis-a-Vis English Law

Section 30 of Indian Contract Act, 1872 is influenced by The Gaming Act, 1845 of England. Under section 18 of The Gaming Act, all the agreements by way of wager are null and void but it exempts certain dealings in investments by way of business from being invalid even though they are wagering contracts. However, under Section 30 of The Indian Contract Act, primary agreements by way of wager are void but agreements collateral to it are valid and enforceable.

Major Questions Related to Wagering Agreements

Are Wagering Agreements and Insurance Contracts the same?

Insurance contracts are slightly different from wagering agreements. Insurance contracts fall under Contract of Indemnity, where the insurer promises to indemnify the policy-holder from any uncertain loss. Whereas in a wagering agreement two people hold opposite views on an uncertain event and intentionally enter into a contract where the chance of winning and losing is mutual. Unlike wagering agreements, insurance contracts are valid and enforceable.

Are Wagering Agreements and Contingent Contracts the Same?

Contingent contracts are defined under section 31 of the Indian Contract Act, it says that “a ‘contingent contract’ is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen”. Contingent contracts have a wider concept and wagering contracts fall under the category of contingent contracts the parties may have other interests in contingent contracts but in wagering contracts, it should only be the profit or loss on the amount they have bet upon. Contingent contracts are valid and enforceable whereas wagering agreements are not.

Is Gambling a Wagering Agreement Or Not?

In the Indian constitution, it is written that states are allowed to formulate their gambling laws. “Gambling and betting” are mentioned in list-II of the seventh schedule of the Constitution, and therefore states are empowered to make laws on it on their own. This means that each state in India has its own “betting and gambling” laws, and hence even the online “betting and gambling” will depend upon those laws. However, Betting or gambling is not illegal or prohibited in India if it involves both skills and chance. but in some states, for example, Maharashtra it is illegal.

Are Wagering Agreements Illegal?

There has been a huge confusion about the legality of wagering agreements among legal professionals. Section 30 of the Indian Contract Act does not declare wagering agreements as illegal rather it renders them void. It only distinguishes the contracts which are void and which have unlawful consideration. An illegal agreement is not allowed by the law or you can say that it is forbidden by the law whereas in the case of a void agreement it may not be forbidden, “the law may merely say that if it is made, the courts will not enforce it”. The reason to treat the wagering agreement as void is that the law discourages people to enter into games of chance and make earnings by trying their luck instead of spending their time, energy, and labor on more fruitful and useful work held in Subhash Kumar Manwani v. State of Madhya Pradesh ^[6].

Are Wagering Agreements Enforceable?

Section 30 of the Indian Contract Act declares the wagering agreement as void ab initio. This means that even though wagering agreements are not illegal, a suit for recovery cannot be filed for any award regarding the agreement. Even section 65 of this act does not apply as the agreement is void.

In the case of Badri Kothari v. Meghraj Kothari ^[7], it was held that although a promissory note was executed to repay the incurred debt due to a wagering agreement, the same is not enforceable in the court. Thus, a winner cannot recover the money won upon wager.

In Gehruala Parakh v. Mahadeodas Maiya ^[8], it was held that although wagering agreements are not unlawful but void under section 23, any transaction collateral to the main transaction is enforceable. So, we can say that wagering agreements are not enforceable but any transaction collateral to the main transaction being lawful is enforceable.

Exceptions To Wagering Agreements

However, Section 30 of the Indian Contract Act declares all agreements by way of wager as void, but there are certain exceptions to this. Thus, the exception to Section 30 read as

“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 rewarded to the winners of any horse race”. In addition to that “nothing in this section shall be deemed to legalize any transaction connected with horse racing, to which the provision of section 294A of the Indian Penal Code applies”.

In the case of K.R. Lakshman v. State of Tamil Nadu ^[9], it was held by the Apex court that the “horse-racing is a game where the winning depends substantially and preponderantly more on skills of the rider and the horse rather than luck”. The Court also said that “horse-racing is a sport which primarily depends on the special ability acquired by training. It is the speed and stamina of the horse, acquired by training, which matters”.

In Moore v. Elphick ^[10], it was held that “if skill plays a substantial part in the result and prizes are awarded according to the merits of the solution, the competition is not a lottery. It is, otherwise, thus literary competitions involve the application of skills and in which an effort is made to select the best and most skillful competitors are not wagers”. So, an agreement that is dependent more on skill rather than luck is exempted from the domain of wagering agreements.

Issues Relating to Section 30 of the Indian Contract Act

Section 30 is ambiguous. Firstly, it does not define ‘wager’ or ‘wagering agreement’ it only declares them as void and unenforceable. It also confuses people regarding the legality of such agreements.

And the most important issue is that most the state governments have prohibited gambling and betting but gambling and betting on horse races are allowed. But the question that arises here is that there is not only horse racing that involves skills but many other games too which are mainly skills-based rather than purely of chance, then why aren’t they exempted from the provision of wagering agreements?

If we refer to State of Andhra Pradesh v. Satyanarayana and Ors.^[11] the

The Supreme court tried to differentiate Rummy from other games based on luck and chance as it was based more on the skills of the player. It was held that “Rummy requires a certain amount of skill because the fall of the cards has to be memorized and the building up of Rummy requires considerable skill in holding and discarding cards. We cannot, therefore, say that the game of Rummy is a game of chance. It is more a game of skill rather than of chance”.

So, all games which are based on skills are under the control of the party who possesses the required skills making high chances of winning the bet if made on that game., and this eliminates the most important feature of wagering agreements that neither party should have control over it. So, such exceptions mentioned under Section 30 should be applied to those games as well. But Section 30 specifically talks about horse racing as an exception leaving behind all the more skill-based games rather than chance. It’s high time that lawmakers of our country should look into this matter and propose an amendment to Section 30 to increase its scope.

We all know that Gambling in India is a matter of state and in many states, it has been prohibited. The reason behind this is that it is against public morality. And despite being prohibited, it’s being practiced in India, and money earned through this goes unnoticed and unaccounted. But if it would get legalized with some restrictions regulated by states at least money earned through it will come into notice and accounts.

Also betting on share markets includes much more skills than luck, it needs deep study and analysis of a company’s work, history, pattern, and background, no one can earn in share markets only on his luck if the person is not skilled. But Section 30 speaks nothing about it. Thus, with changes in time and development in society, it is a need to make changes in Section 30 to increase the scope of wagering agreements

Conclusion

Thus, after having a deep look at Section 30, I have concluded that currently, the ambit of Section 30 is limited. It is quiet on many matters, and it is vague as it does not define what wagering agreements are. Along with the development of society, the law develops and to meet the demands of today’s progressing and growing society, Section 30 of the Indian Contract Act also needs some changes, some amendments.

This article has been contributed by Khyati Jain, a student at NIMT Law College.

References

[1] – 1891-1894 ALL ER Rep 127.

[2]- AIR 1962 AP High Court, see: https://www.casemine.com/

[3]- AIR 1931 Bom 264. [4]- 1927 ILR 50 Mad 696 (FB) [5]- ILR (1885) 9 Bom 358,363.

[6[- AIR 2000 MP 109

[7]- AIR 1967 (https://indiankanoon.org/doc/786123/)

[8]- 1989 AIR 781

[9]- AIR 1996 SC 1153

[10]- (1945) 2 ALL ER 155 (CA)

[11]- 1968 AIR  825, 1968 SCR (2) 387