Term wager means something risked, such as a sum of money on an uncertain event in which the parties have no material interest other than mutual chances of “gain or loss”.Thus when two parties enter into an agreement upon the condition that the first party will pay a fixed sum of money to the second party on the happening of an uncertain future event and the second party will pay the first party when the event does not happen, it is called a wagering agreement.

Both parties have an equal chance to win or lose the wager and the chance of gaining or the risk of loss is not one-sided. Therefore the parties have no material interest in the uncertain event other than the mutual chances of winning or losing.

Effects of Wagering Agreements

According to Section 30 of the Indian contract act, 1872, Wagering agreements cannot be enforced in any court of law as they have been expressly declared to be void.

No suit can be filed in the court of law with the intention of recovering anything claimed to be won in any wager or non-compliance of any party to abide by the results of the wager.

In the case of Gherulal Parakh V. Mahadeodas Maiya AIR 1959 SC 781, The managers of two joint families entered into a partnership to carry on wagering contracts with two firms of Hapur upon the agreement that the profit and loss resulting from the transactions would be borne by them in equal shares. Later the appellant denied the liability to bear his share of the loss. The subordinate judge held that the wagering agreement entered into by the partners was void under section 30 of the act. Later on appeal, the high court held that although the agreement entered into by the parties was void yet its object was not unlawful as under section 23 of the same act and, therefore, was subsisting between the parties.

An important conclusion from this case was that while all unlawful agreements are invalid and unenforceable by law, not all void agreements are unethical, immoral, or against the public interest. Therefore, even if all betting agreements are illegal and unenforceable by law, it is crucial to check whether a wagering arrangement also violates Section 23 of the Indian Contract Act in order to assess its legality.

Essentials of a wager

1) It must be dependent on an uncertain event

The subject matter of an agreement must depend on an unknown event in order for it to qualify as a betting agreement.

In the case of Jethmal Madanlal Jokotia V. Nevatia & Co AIR 1962 A.P.350, it was held that although a wager is generally about a future event, it may also be of an event that happened in the past but the parties were not aware of its result or the time of its happening.

2) There is a mutual chance of gain or loss

A wagering agreement must include the requirement that both parties have an equal chance of winning or losing depending on the uncertain outcome. So when one side has a chance of winning but not losing, a chance of losing but not winning, or a chance of neither winning nor losing, it is not a wager.

In the case of Narayana Ayyangar v. Vallachami Ambalam(1927) ILR 50 Mad 696, it was held that a chit fund cannot be called a wager because although some members have a chance to gain, none of them have a chance to lose as the recovery of the amount contributed is assured even if the time period is unknown.

Illustration

A cricket match is about to start in Delhi between India and Australia. If India wins the match, Pallav agrees to pay Nishant Rs. 2000, whereas if Australia wins the match, Nishant agrees to pay Rs. 2000 to Pallav.This is a wagering agreement since both parties have a chance to win or lose.

3) Neither of the parties must have control over the event 

If one of the parties has the power to influence the results of the wager, the agreement will lack an essential ingredient of a wager as said in the case of Dayabhai Tribhovandas V. Lakshmichand(1885) ILR9 Bom 358.

Illustration

Shivani and Munish enter into an agreement that if Shivani resigns from her job, Munish will pay Rs. 20000 to Shivani and Shivani will pay Rs. 20000 to Munish if she does not resign from her job. Here Shivani has control over her resignation and therefore will not constitute a wager.

4) Must have no other interest other than the stake

The stake of gaining or losing on the occurrence of an unpredictable event should be the only interest that any party should have. The transaction will not qualify as a wager if each party has an interest in addition to the sum at risk.

Illustration

Jay insures his car against any damage by taking a car insurance policy and also pays an insurance premium for the same. Here we can say that Jay has an interest in the car and in case of a future uncertain event i.e an accident he will not gain anything. Therefore it is not a wager.

Exceptions to wagers

1) Insurance Contracts

A contract of indemnification known as an insurance policy is designed to protect one party’s interest against loss and also has an insurable interest. Contrarily, a wagering contract is a conditional contract and has no stake in whether an event occurs or not. The purpose of a betting contract is to speculate for money or money’s worth, whereas the purpose of an insurance contract is to protect an interest. As opposed to insurance contracts, gambling agreements are void by nature.

In the case of Northern India General Insurance Co. Ltd. Bombai Vs. Kanwarjit Singh Sobti, The owner of a truck transferred its Benami i.e illegally to another party. Later the truck met with a major accident that injured a young army officer who claimed heavy damages from the owner, the benamidar, and the insurance company. A plea was raised that a benamidar had no insurable interest which is why it was a wager. These pleas were rejected by the court and it was held that insurable interest was present and the benamidar was liable to pay the damages to the young army officer.

2) Competitions involving skill

Skill competitions are not said to be wagers since the winning of such events requires a substantial amount of skill and is not dependent on the probability of an uncertain event.

For example crossword puzzles, sports competitions, etc

But if the competition is based on chance and not skill for example a lottery it would amount to a wager and therefore be void.

In the case of Moore v. Elphick(1945), it was held that wherever skill plays a major part in the result of the competition and the results are awarded according to the merits of the solution, it is not a lottery and therefore not a wager.

3) Horse racing competitions

Some state governments may authorize horse racing and the contribution for the reward of such competitions of amounts more than Rs 500 is not considered unlawful.

In the case of K.R.Lakshmanan V. State of Tamil Nadu 1996 AIR 1153, 1996 SCC (2) 226, the Supreme Court held that horse racing was a game of skill, and playing for stakes in a game of skill was not illegal.

4) Share Market Transactions

The purchase and sale of stocks with the mere intention to give and take delivery of shares do not amount to a wager except if the only intention is to settle the price difference. In that case, it will be called a wager.

Is Rummy a game of skill?

In Indian law, a game of skill is that which predominates the element of chance. In
Andhra Pradesh Vs. Satyanarayana, AIR 1968 825 1968 SCR (2) 387, it was held that rummy is a predominantly skill-based game since the fall of the cards has to be memorized and skill is required in holding and discarding cards. Hence we cannot say that rummy is a game completely based on chance.

However, If the court finds evidence that the game is being played by the owner of the house or club for making a profit, the owner can be brought to court. But if a group of people plays rummy at a Diwali party, it is not an offense. Hence there are websites in India that allow users to play rummy online and use payment gateways for the transfer of money.

Conclusion

 The Indian Contract Act, of 1872 does not define what constitutes a wager. Section 30 only mentions that all wagering agreements shall be void and enforceable leaving its interpretation subject to a lot of ambiguity. Therefore, the term “wager” should be defined differently, and this section’s purview should be expanded. In particular, the subject of betting on other sports that are disregarded by our legal system is raised by the horse race’s exclusivity as the sole sport free from the category of wager agreements. With the exception of the wager, taking cricket as an example of a sport that necessitates a great deal of talent should also be allowed. The ambiguity surrounding wager agreements becomes apparent at this point since, if horse races may be excused from wagers by using the skill set principle, why not other sports