The Indian Contract Act declares wagering agreement as void under section 30:
“Agreement 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 toward any place, 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 294- A of the Indian Penal Code not affected –
Nothing in this section shall be deemed to legalize any transaction connected with horse racing, to which the provisions of Section 294- A of the Indian Penal code apply.
The contract Act does not define a wagering agreement. Hawkins J has explained the nature of such an agreement in Carlill vs. Carbolic Smoke Ball Co (1892) 2 Q.B 484.
“ 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 upon the determination of that event shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of contracting parties having any other interest in that contract than the sum or stake he will so win or lose , there being no other real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose, whether he will win or lose being dependent on the issue of the event and therefore, remaining uncertain until that issue is known. If either parties may win but cannot lose, or may lose but cannot win, is not a wagering contract.
ESSENTIALS OF WAGERING AGREEMENT
The essentials of wagering agreement are:
- The parties have opposite views regarding an uncertain event.
- There are chances of gain or loss to the parties on the determination of the event one way or the other.
- The parties have no other interest except winning or losing of bet.
- Opposite views regarding an uncertain event an uncertain event
According to definition of wager given by Hawkins, J in Carlill vs. Carbolic Smoke BallCo.., the parties should have opposite views touching the issue of a “future uncertain event”, but that does not appear to be wholly correct. The opposite views could be in respect of a past or a recent fact or event also. The only thing needed is that there should be uncertainty in the minds of the parties about determination of the event one way or the other. Thus, the parties may bet as to what the population of a city is or a particular plane had crashed on a particular date or not. Similarly, the parties may bet “upon the result of an election which is over if the parties do not know in whose favour it has gone”.
- Mutuality of gain or loss
There should be chance of any one party winning and the other loosing, on the determination of the event one way or the other. If either of the parties may win but cannot loose, or may lose but cannot win, it is not wagering contract. In Babasaheb vs. Rajaram, AIR 1931 Bom 264. Two wrestlers A and B, entered into an agreement to wrestle in Poona on a certain day. They agreed that if a party failed to appear on that day, he would forfeit Rs 500 to the other party. They further agreed that the winner will receive the sum of RS 1,125 out of the gate money, B failed to appear and A sued him to recover the sum of RS 500. B pleaded that it was a wagering agreement in so far as the payment of the gate money to the winner depended on the happening of an uncertain event. This plea was rejected andA was held entitled to recover the amount. The agreement was that the winner was to take the whole of the proceeds of the gate money and though the looser was to get nothing, he was not to pay anything out of his pocket in any way.”
The position would have been different if the prize was not to be paid out of the gate money as in the above case, but the payment to the winner was to go out of the pocket of the looser of the game. In Diggle vs. Hige (1877) 2 Ex D 422: 46 L.J 721; each one of the parties in a walking match deposited leera 200 with a stakeholder with the condition that the looser would forfeit the amount of leera 200 paid by him. The agreement was held to be a wagering one.
In Carlill vs. Carbolic Smoke Ball Co.., the defendants manufactures of Carbolic Smoke Ball, a preventive remedy against influenza, agreed to pay 100 lire of a person contracted influenza after using the smoke ball, manufactured by the defendant, for a certain period according to the prescribed manner. The plaintiff used the smoke ball and then contracted influenza. She was held entitled to recover the amount. It was held it was not a wagering agreement because the plaintiff was to lose nothing if she did not contract influenza, and the defendants were not to gain anything from the plaintiff if the ball had the desired effect.
- No other interest in the event except the amount of bet.
In a wagering contract neither of the contracting parties have any other interest in that contract than the sum nor stake he will so win or lose, and there is no other real consideration for the making of such contract by either of the parties. This factor distinguishes a wagering agreement from other valid conditional contracts like contracts of insurance. In an insurance contract, it is necessary that the person affecting insurance must have “insurable interest” in the subject matter insured. Insurable interest means an interest in the existence and preservation of the thing insured, the agreement will be a mere wager and therefore, void. In Braham Dutt Sharma vs. Life Insurance Corporation of India AIR 1966 All 474. The plaintiff Brahm Dutt Sharma, financed an insurance policy taken by one Mukhtar Singh on his life, for Rs35, 000. Mukhtar Singh made the nomination in favour of the plaintiff and not in favour of his own wife and children. On the death of Mukhtar Singh the question arose, whether the plaintiff could recover the sum assured policy on the life of the deceased without having an insurable interest in his life, and as the contract of insurable was in the nature of a wagering contract within the meaning of sec 30 of the contract act and therefore, void, and the plaintiff could not recover anything.
Lottery means a scheme for distribution of prizes by draw of lots or by any other procedure which depends on chance only. The agreement to pay prizes on lottery is an agreement by way of wager and, therefore, void under section 30 of the Contract Act.
In Shekharchand Jain vs. Ramnarayan (1977) 2 M.P.W.N 118 was held that though a state lottery is not illegal, the same is nonetheless in the nature of wager, and therefore, void. Hence a person declared winner of prize money. Similarly in Subhash Kumar Manwani vs.State of M.P. It has been held in this case that an agreement to pay prize money on a lottery ticket is a wagering agreement and therefore, such an agreement is void under Section 30 of the Contract Act. Further, neither the provisions of the state or the Central Act controlling activities relation to lottery would change the nature of such an agreement. Hence, the dismissal of the plaintiff’s claim for recovery of the prize money by the lower courts was held by the M.P High Court to be justified.
Wagering agreements are speculative in nature but every speculation need not necessarily be wager.
One of the forms of wagering contracts is an agreement to pay differences only, rather than actually making or taking the delivery of the goods. Although in a contract, the parties may agree about the sale of goods. Although in contract, the parties may agree about the sale of goods at a stated price at a future date, but their real intention may not be the supply of goods but only the payment of difference in the price by one party to the other depending on the rise or fall of market. Such an agreement is wagering.
When the parties intend the performance of a future contract and such performance is not otherwise impossible, it would be a valid business transactions rather than a wagering contract. Thus, if in a contract for sale of shares, an actual delivery is intended, it cannot be considered to be a wagering contract. In all forward contracts, there is an element of speculation, such a contract is not a wagering contract. Such a contract is not a wagering contract unless both the parties intend not to take delivery in any extent, and whatever happens, only to adjust the difference.
Validity of wagering agreements and collateral transactions
Section 30 declares an agreement by way of wager as void. It further states that “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.” In Badridas Kothari vs. Meghraj Kothari AIR 1967 Cal 25. A and B entered into wagering transactions in shares. B became indebted to A. B then executed a promissory note in favour of A to pay the amount as well as interest thereon. It was held that A could not recover the amount.
Though a wagering agreement is void and unenforceable, it is not forbidden by law and therefore the object of a collateral agreement is not unlawful under section 23 of the Contract Act. Thus agreements collateral to wagering agreement are not void.