Wagering Agreements

Introduction

• Wagering is an agreement between at least two parties where one party makes a prediction and loses or wins money based on predictions. Wagering is, to put it simply, taking a financial risk by speculating on the outcome of something.
• This kind of agreement is common in many areas of life, from sports to games of chance. However, it’s important to know that wagering agreements are often illegal, and there can be serious consequences for breaking the law. Therefore it is necessary that wagering agreements are regulated by laws.

Definition and Meaning

• The definition of “wager” according to Black’s Law Dictionary is “something risked” such as a sum of money on an unpredictable event in which the parties’ only material interest is in their respective prospects of “gain or loss.”
• In the layman language, the wager simply means bet, and the wagering agreement means when two people wager on an uncertain event.
• For instance, a parent and child have an agreement whereby the parent will reward the child with Rs. 10,000 if the child passes his or her judiciary exam, and the child will give the parent Rs. 5,000 if he/she is unable to pass the exam.
• The Indian Contract Act, 1872 does not define “wager”. Section 30 of the Indian Contract Act, specifically determine about the 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.”

Essentials of Wagering Agreements

1. It must depend on uncertain event

• An unpredictable occurrence must be the basis of a wagering arrangement.
• The parties concerned should not know the result or date of the occurrence, whether it is past, present, or future.
• For example, two people can be in a wagering agreement if they wager on the result of a football game.
• Further, in the 1962 case of Jethmal MadanlalJokotia v. Nevatia& Co.[1], it was decided that while a wager is typically made on an event that will occur in the future, it can also be made on an event that has already occurred but the parties were unaware of its outcome or timing.

2.     There is a mutual chance of gain or loss

• A wagering agreement must contain a requirement that both parties have an equal chance of winning or losing depending on the uncertain outcome.
• Consequently, when one party has a chance of winning but not losing, a chance of losing but not winning, or neither winning nor losing, it is not considered a gamble.
• Let’s understand this with a chit fund, which cannot be referred to as a wager in the case of Narayana Ayyangar v. Vallachami Ambalam (1927)[2], as all members have an equal chance of winning and losing, with the repayment of the contributed amount guaranteed, even if the exact timing is uncertain.

3. Lack of control by the parties on the event

• The event’s outcome shouldn’t be under the control of either party. There must be a great deal of uncertainty, and neither party should know the outcome in advance.
• Furthermore, if one of the parties’ controls the event, then a necessary component of a wager is absent from the transaction. As stated in the DayabhaiTribhovandas v. Lakshmichand (1885)[3] case, the agreement will lack a necessary component of a wager if one of the parties has the ability to affect the outcome of the wager.

4. No other interest of parties exists

• It is crucial that, in the event of uncertainty, the parties have no other interests other than receiving payment.
• This guarantees that the transaction is solely dependent on chance and risk.
• It might not be considered a legitimate wagering arrangement if there are any other interests or factors involved.

Exceptions to Wagering Agreements

There are certain situations in which a wagering agreement does not meet all of the conditions needed to be regarded as a wagering agreement. Thus there exist some exceptions to a wagering agreement, they are:

1. Insurance Contract

An insurance contract is a compensation agreement that has an insurable interest and is used to protect one party’s interest against harm. In contrast, a wagering contract is conditional and does not have an interest in an event occurring or not. In contrast to insurance contracts, which have as their purpose the protection of an interest, wagering agreements are null and invalid and aim to speculate for money or money’s worth.

2. Competitions of horse racing

If local laws allow it, state governments may approve the horse racing competition. In certain circumstances, it shall not be illegal to subscribe for or make a donation of at least Rs. 500 toward any reward or amount of moneythat will be given to the winner of a horse race. To put it another way, commitments to subscribe for or contribute to such a reward or amount of money are equally legitimate and enforceable.

3. Game involving skill

The ability to solve some competitions successfully depends heavily on skill. For instance, crossword contests, puzzles, and pictures, chess etc. In this case, the rewards are given based on how well the solution worked. These contests aren’t bets. On the other hand, it is a lottery and consequently a bet if the prizes are determined by chance. Furthermore, prize tournaments incorporating skill games are not wagers according to legislation. However, they will be viewed as void and gambling if the prize surpasses a set sum.

4. Share Market

Purchases and sales of stocks and shares with the goal of receiving and delivering shares are not considered bets. On the other hand, the transaction is null and void as a wager if the sole goal is to settle the price difference.

Enforceability of Wagering Agreements in India

• In India, under Section 30 of the Indian Contract Act, wagering agreements are declared void. As a result, they are unenforceable in any legal tribunal.
• The court defined “void” and “forbidden by law” in relation to the Indian Contract Act in the Gherulal Parakh v. Mahadeodas Maiya[4] case. The court ruled that “void” does not mean “forbidden by law.” Not everything that is declared invalid is legally prohibited. Further, the court decided that although wagers are illegal under Section 23 but void under Section 30. It is not sufficient to deem the wagering agreement void only because it contains a wager. The court stressed that in order for an agreement to be deemed null and void; there must be a bilateral error of fact.
• Since the wagering arrangements are not illegal, they are not void with regard to collateral transactions. They are therefore enforceable. For instance, a private lender may be eligible to recoup funds they provided to a special person in order to help them settle a debt related to gambling.

Note: It is important to remember that the states of Gujarat and Maharashtra have ruled that wagering agreements are illegal.

Conclusion

There is no definition for the word Wager. Since the law’s inception, the Indian legislature has never amended this provision to provide definitions for such terms, and as of right now, the section remains quiet on numerous issues that demand explicit definitions. Since the Indian Contract Act, 1872 does not specify what constitutes a wager; the judge encounters significant difficulties when attempting to determine what precisely qualifies as a wager and what falls under the purview of wagers. Prior to creating the wager agreement, we must first clarify the terminology involved and update the laws to reflect the evolving society. We must work together and make deep efforts to improve it, if our true intentions are to establish legitimate order and peace in society.

[1] AIR 1962 AP 350.

[2] ILR 50 Mad 696 (FB).

[3] (1885) ILR 9 BOM 358.

[4] AIR 1959 SC 781.