ELEMENTS AND VALIDITY OF WAGERING AGREEMENT

According to Section 2(e) of the Indian Contract Act, 1872, "Every promise and every set of promises forming the consideration for each other is an agreement".

When two parties agree on something, it is called an agreement.

“When the person to whom the proposal is made signifies his assent thereto,the proposal is said to be accepted. A proposal when accepted becomes a promise” An agreement therefore comes into existence when only one party makes a proposal or offer to the other party and that other party signifies the assent i.e. gives his acceptance.

In short an agreement is sum total of offer and acceptance

The following characteristics of an agreement becomes evident

⮚ Plurality of Persons:- There must be two or more persons to make an agreement because one person cannot enter into the agreement with himself

⮚ Consensus-ad-idem:- Both the parties to an agreement must agree about the subject-matter of the agreement in the same sense and at the same time.



Wagering Agreement

A wagering contract is one in which the first party offers to pay a certain sum of money to the second party if a specific event occurs in the future, and the second party agrees to compensate the first party if that particular event does not occur. The presence of two parties who are of sound mind to gain profit or loss is the main fundamental of a wagering arrangement.

In common language, a wager is a bet or a gamble. Wagering is the most fundamental definition of the term.

Section 30 of the Indian Contract Act particularly mentions wagering agreements as void.

Agreements made on the basis of a wager are void, and no action may be launched to recover anything allegedly gained on a wager, or entrusted to any person to abide by the outcome of any game or other uncertain event on which a wager is made.



The Black’s Law Dictionary meaning of the 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 second party will pay the first party when the event does not happen, it is called a wagering agreement.

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

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



Essentials of Wagers

⮚ For an agreement to be a wager agreement it is necessary that the subject matter should be dependent on uncertain events.

The event may take place in the past, present, or future, but the participants must be unaware of its future, as well as the moment when it will occur. For example:- On the 30th of June 2016, a football match between team A and team B will begin in Mumbai. C and D agree that if team A wins, C will pay Rs. 500 to D, and if team B wins, D will pay Rs. 500 to C. This is a wagering contract that is null and invalid.


⮚ The Essence of wagering agreement is that both the parties should have a mutual chance of gain or lose. For example:- A cricket match between India and South Africa is about to begin in Hyderabad. A agrees to pay B Rs. 500 if India wins the match, whereas B agrees to pay A Rs. 500 if South Africa wins the match. This is a betting contract. Each party has a chance to win or lose in this case. In this case, one party's gain is the other's loss, and vice versa.



⮚ For a wager agreement neither of the parties must have control over the event. For example:- A and B agree that if A resigns his job, B will pay Rs. 500 to A, and if A does not resign his job, A will pay Rs. 500 to B. Here, A is in command of the situation. As a result, it's not a bet.


⮚ For an essential wager agreement the only interest of both the parties should be only stake and no other intentions. For example:- A, a homeowner, insures his home with GIC against fire. As per the terms of the contract, A must pay a monthly insurance payment of Rs. 50. If the house is damaged by fire, GIC will compensate him for the full amount of his loss. A is interested in his home in this case. A will not gain anything if the event, namely the fire, occurs. As a result, it is not a bet.



Case study

In the case of Gherulal Parakh versus Mahadeodas Maiya, the term "forbidden by law" was defined under section 23 of the Indian Contract Act. It states that the term "forbidden by law" is not synonymous with the term "void," therefore anything that is void is not necessarily forbidden by law. Every wagering arrangement is void under Section 30 of the Indian Contract Act of 1872. Wager is a term that refers to a sum of money gambled on an uncertain event or item on which a bet is placed. In simple terms, it is gambling.


FACTS

The Appellant and Respondent entered into a partnership arrangement for the sale and purchase of wheat with other enterprises on the condition that the Respondent would engage into a contract on behalf of the partnership and that profit and loss would be split equally.



The transaction resulted in a loss, which the respondent paid in full to the third parties.

Respondent requested that appellant share blame, but appellant declined.

The respondent filed a lawsuit against the appellant in order to reclaim the money that the appellant had refused to pay.


ISSUE

Whether the partnership agreement of entering wagering agreement was illegal within the section 23 of the Indian Contract Act, 1872?


JUDGMENT

Although the wagers are void under section 30 of the Indian Contract Act, 1872, the court concluded that the individual entering a wagering contract cannot be prohibited by law under section 23 of the Indian Contract Act. As a result, the wagering arrangement cannot be ruled void because it is prohibited by law under section 23.



Exceptions to the wager

⮚ Insurance contracts:-

Insurance contracts are not wagering agreements, rather they are regarded as compensation contracts. Indemnity contracts are used to protect or secure certain types of property against loss. The goal of insurance contracts is the same as well. They are entered into to protect against harm or loss that may arise as a result of future occurrences. Wagering agreements, on the other hand, are made only for the aim of winning and are predicated on the chance of some uncertain event occurring or not occurring.


⮚ Games with a skill component:-

Games or contests with a skill component cannot be considered wagering agreements. In skill-based tournaments, the chance of winning is not determined by luck or chance. Winning or losing in such an event is mostly determined by the player's abilities. The winning of a party in a wager agreement is determined by the probability of a future uncertain event.



⮚ Share market:-

It is normal practice in the share market to transfer shares from one party to another. Because the granting or taking of shares from one party to another cannot be stated to represent a wager, the stock market is not regarded as a wagering agreement.


⮚ Horse racing competition:-

Not considered as a wagering agreement because the competition requires skill.


Validity of Wagering Agreement

According to section 30 of Indian Contract Act, 1872, “Agreement by way of wager are void; and no suit shall be brought for recovering anything alleged to be won for 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.

Wagering agreements are expressly ruled void in India under Section 30 of the Contracts Act.



As a result, it cannot be enforced in any court of law.

Even if a wagering arrangement is unlawful and unenforceable, it is not illegal. The wagering arrangements, however, have been declared unlawful in the states of Gujarat and Maharashtra. Because the wagering agreements are void but not illegal, they are not void in terms of collateral transactions.

As a result, they are enforceable. For example, if a private lender lends money to a special person to help him pay off a gambling obligation, the lender may be able to retrieve the money.

A wagering agreement isn't always unenforceable. Though a wager is void and unenforceable, it is not prohibited by law, according to Section 30 of the Contract Act, which is based on the requirements of Section 18 of the (English) Gaming Act 1845. As a result, a collateral agreement's goal is not illegal under section 23 of the contract statute. However, under the (English) Gaming Acts of 1845 and 1892, the legislation specifically deem void even ancillary transactions, the acts being wider and more extensive in phraseology. As a result, while a wagering agreement is void, a contract ancillary to it or in respect of a wagering agreement is not, except in the state of Bombay.



Case study

Rajshree Sugars & Chemicals Limited v Axis Bank Limited is an example of this. Axis Bank and Rajshree Sugars have been in a court struggle since March 2008 over a foreign exchange derivatives contract that the bank marketed to the company, resulting in enormous losses for the company estimated to be in the range of Rs. 46-50 crores. The corporation had refused to repay any loan to the bank, claiming that the contract was a wagering agreement and so unsustainable on those grounds. This question was addressed in the negative by the court. The court developed a three-part test to evaluate whether a transaction constitutes a wager based on the explanation of different major wagering decisions –



Firstly, there must be two parties with opposing viewpoints on a future uncertain event;

Secondly, one of those parties must win and the other must lose on the event's determination;

Thirdly, neither party has a genuine interest in the event's occurrence or non-occurrence, but only in the stake.

The first conditions were met in this instance, but the second was not met since, given the facts of the case, the plaintiff did not always stand to lose.

In light of the foregoing considerations, and in accordance with the Supreme Court's decision in Gherulal Parakh v. Mahadeodas Maiya the Judges in this case decided that the nature of the transaction in this instance was not in the form of a wager. Even though the plaintiff stood to lose a lot of money, the contract could not be considered a bet on its own.



Cases and sites referred:-

  1. The State of Bombay v. R.M.D. Chamarbaugwala

  2. Bhagwant Genuji Girme v. Gangabisan Ramgopal

  3. Gopi Tihadi v. Gokhei Panda

  4. Beni Madho Das v. Kaunsal Kishor Dhusar

  5. Narayana Ayangar v.Vallachami Ambalam (1927)

  6. Jethmal Mandanlal Jokotia v.Nevatia co.(1962)

  7. Dayabhai Tribhovandas v. Lakshmichand (1885)

  8. Northern India General Insurance co. Ltd. Bombay v.Kanwarjit singh

  9. blog.ipleaders.in

  10. legalservicesindia.com



This article is written by Priya Sharma of The Maharaja Sayajirao University of Baroda.

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