Wagering agreements are defined under section 30 of the Indian Contract Act, 1872, as “agreements by way of the 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 another uncertain event on which any wager is made.”
Basically, wager means to risk or bet something valuable (like money) on an uncertain event that would yield only loss or gain with equal chances on both sides of the party.
The main essence of the wagering agreement is that one party promises the other to pay a sum of money for the happening of an event and another party to pay for the non-happening of an event.
For example, a teacher agrees to pay Rs. 5000 to a student if he qualifies for CLAT, and if he does not, the student must pay Rs. 5000 to that teacher. Such agreements are called wagering agreements.
Essentials of Wagering Agreement
The essential ingredients required for an agreement to be wagering are:
1. Uncertain Event
An agreement should depend upon some uncertain event for its fulfilment. Just like we saw in the previous example, whether that student will be able to qualify for CLAT is an uncertain event.
In this condition, if the event has occurred in the past, but the parties were not aware of it, it would still be considered a wagering and void agreement.
2. Equal Chances of Loss or Gain for Both the Parties
There should be equal chances of losing or winning for both parties. If there is a chance of only winning or only losing for either party, then it will not be a wager.
3. Uncontrollable Event
Along with the uncertainty of the event, it should be uncontrollable as well. Neither of the parties should be able to manipulate or influence the outcome.
4. No Interest Other Than the Stake
The objective of an agreement between both parties should be betting and should not be involved in interests other than that.
Exceptions of Wagering Agreement
There are some exceptions to wagering agreements which are as follows:
1. Insurance Contract
As earlier stated, there should be no interest other than the stake. But in insurance contracts, the object is to protect and provide safeguards to the party against damage. That is why insurance contracts are also called contracts of indemnity.
2. Skilled Competition
Skilled competitions are not included under wager agreements because they involve the skill needed to win a competition and are dependent upon uncertain events. For example, sports competitions.
The lottery is an exception to this criterion because chance is involved in winning instead of skill.
3. Horse Racing
A horse racing competition organised by the state government and a prize amount of Rs. 500 or more is not considered unlawful. Even the Supreme Court, in the case of Dr K.R. Lakshmanan v State of Tamil Nadu (1996), held horse racing as a game of skill and playing for the stake in a game of skill is not illegal.
4. Share Market Transaction
Mere give and take or buying and selling of shares from one party to another is not called a wager. But if the transfer of shares is to be done to change the market price for personal benefit, then it would be considered a wager.
Gaming Prevalence
Countries like India, Scotland, the USA, and Australia have banned gambling, but under English Law, England, Wales, and Scotland have legalised gambling as per the Gambling Act of 2005.
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