What is Wagering Agreements?

What is a wager? Literally the word wager means a a bet.: something to be lost or won on the result of a
doubtful issue and, therefore, wagering agreements are nothing but ordinary bettingagreements. Thus A and
B mutually agree that if it rains today A will pay B Rs 100 it does not rain B will pay A Rs 100 or where C and D
enter into agreement that on tossing up a coin, if it falls head upwards C will pay O and if it falls tail upwards D
will pay C Rs 50; there is, a wagering agreement
A wager can be described as, follows: The agreement of gaming and wagering is that one party is to win and
the other e upon a future every which at the time C the contract is of an a in nature - that is to say, if the event
turns out one way A will lose; I it turns out the other way he will win.
Possibly the most expressive and all-encompassing definition of a was agreement was given by, Hawkins., in
Carlill vs Carboli,c Smoke Ball Co.
A wagering contract is one by which two persons professing to hold opposite views touching the issue of a
future uncertain event mutually agree independent upon the determination of that event, one shall win from
the and the other shall pay or hand over to him, a sum ofmoney or other neither of the contracting parties
having any other interest ill that contract thanthe sum of 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 of the parties may win but
cannot lose, or may lose but cannot win, it is not a wagering contract.
Certain aspects of the above definition require to be emphasised. In me first place, wager is a game of chance
in which the contingency of either gain or loss is wholly dependent on an uncertain event. An event may be
uncertain., not only because it is a future event, but because it is not yet known to the parties. Thus a wager
may be made upon the result of the cricket match which is to take place, next month in Calcutta, or upon the
result of an election which is over, if the parties do not know the result. Secondly, the parties to a wager must
have no interest in the events hap-pening or non-happening except the winning or losing of the bet laid between them. It is here that wagering agreements differ from insurance contracts whichare valid because
parties have an interest to protect the life or property, and have, for that very reason, entered into the contract
of insurance.
Essential features of a wager. The essentials of a wagering agreement may thus be summarised as follows:
(a)

There

must

be

an

promise

to

pay

worth,_
(b)

The promise must be conditional on an events happening or not happening

money

or

moneys

(c)

The event must be an uncertain one. If one of the parties has the event in his own hands, the
transaction is not a wager.

(d)

Each party must stand to win or lose under the terms of agreement. An agreement is not a wager if one
party- may only win and cannot lose, or if he may lose but cannot win, or if he can neither win nor lose.

(e)

No party should have a proprietary interest in the event. The stake must be the only interest which the
parties have in the agreement.

An agreement by way of a wager , void. Section 30 lays down that agreements by way of wager are void; and
no suit shall be brought or 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 if made. Thus, where A and B
enter into an agreement which provides that ifEnglands cricket team wins the test match, A will pay B Rs, 100,
and if it loses B will pay Rs. 100 to A, nothing can be recovered by the winning party under the agreement, it
being a wager. Similarly, where C and D enter into a wagering agreement and each deposits Rs 100 with Z.
instructing him to, pay or give the total sum to the winner, no suit can be brought by thewinner for recovering
the. bet amount from Z, the stake-holder. Further, if I.. had paid the sum to the winner, the loser cannot bring
a suit. for recovering his Rs 100, either against the winneror against Z, the stake-holder, even if Z had paid
after the losers definite instructions not to pay. Of course the loser can recover back, his deposit if he makes
the demand before thestake-holder had paid it ovation the winner (Ratnakalli vs Vochalapu).
But even such a deposit cannot be recovered by a loser. in the States of Maharashtra and Gujarat. where such
an agreement is void and illegal.
The Section makes an exception in favour of certain prizes for horse racing by providing further that This
Section shall not be deemed to render unlawful a subscription, or contribution, or agreement to subscribe or
con-tribute, made or entered into for or toward any plate, prize or sum of money, of the value or amount of
five hundred rupees or upwards, to be awarded tothe winner or winners of any horse race. Thus, a bet on
a horse race carrying a prize of Rs 500 or more to the winners has been made valid under the exception. But
with a view to protecting the poor persons from gambling, a bet on a horse race carrying a prize of less than
Rs 500 remains a wager.
It is important to note that in the States of Maharashtra and Gujarat wagering agreements are, by a local
statute, not only void but also illegal. As a result in these states the collateral transactions to wagering
agreements become tainted with illegality and hence are void.
Special cases. We now turn to certain special cases in order to examine as to whether they are wagers:

Commercial transactions. Agreements for sale and purchase of any commodity or share market transactions, in
which there is a genuine intention to do legitimate business i. e., to give andtake delivery of goods or shares,
are not wagering agreements. If there is no such genuine intention and parties only want to gamble on the
rise or fall of the market by paying or receiving the differences in prices only, the transaction would be a wagering agreement and therefore void. In order to constitute a wagering contract, neither party should intend
to perform the contract itself, but only to pay the differences
Lotteries. A lottery is a game of chance. Hence the lottery business is a wagering transaction. Such a
transaction is not only void but also illegal because 294-A of the Indian Penal Codedeclares conducting of
lottery a punishable offence. If a lottery is authorized by the Government, the only effect of such permission is
that the persons conducting the lottery (i. e., the persons running the lottery and the buyer of lottery ticket)
will not. be guilty of a criminal offence, but the lottery remains a wager alright (Dorabji Tata vs Lance). .
.
Crossword puzzles. Where prizes depend upon a chance, it is a lottery and therefore a wagering
transaction. Thus a crossword puzzle, in which prizes depend upon correspondence of the competitors
solution with a previously prepared solution, is a wager. But if prizes depend upon skill and intelligence, it
is a valid transaction. Thus prize competitions which are games of skill and in which an effort is made to
select the best competitor e.g., picture puzzles, literary competitions and athletic competi tions are not
wagers. Even in such competitions .the amount of prize should not exceed Rs 1,000, otherwise they shall
be wagers as per the provisions of the Prize Competition Act, 1955.
Insurance contracts. Insurance contracts are valid contracts even though they provide for payment of
money by the insurer ,on the happening of a future uncertain event. Such contracts differ from wagering
agreements mainly in three respects:
(a)

The holder of an insurance policy must have an insurable interest in the event upon which the
insurance money becomes payable. thus con-tracts of insurance are entered into to protect an interest.
In a wagering agreement there is no interest to protect and the parties bet exclusively because they can
thereby make some easy money.

(b)

Contracts of insurance are based on scientific and actuarial calculation whereas wagering agreements are a
gamble without any scientific calculation of risks.

(c)

Contracts of insurance are regarded as beneficial to the public, whereas wagering agreements do
not serve any useful purpose.
Full Definition of WAGERING CONTRACT
: a contract by which a promisor agrees that upon the occurrence of an uncertain event or
condition he or she will render a performance for which there is no agreed consideration
exchanged, and under which the promisee or the beneficiary of the contract is not made

whole for any loss caused by such occurrence (as in options, insurance contracts, trading in
futures, or betting contracts)
Wagering Agreements: The Position Of Law
Literally the word wager means a bet something stated to be lost or won on the result of a
doubtful

issue,

and,

therefore,

wagering

agreements

are

nothing

but

ordinary betting agreements.

Section 30 of the Indian Contract Act talks about wagering agreements, which reads as
agreements by way of wager are void. The section does not define wager. Section 30
states

that,

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 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 any contribution, or
agreement to subscribe or contribute, made or entered into for or toward any plate, 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 294A 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 S.294A of The Indian Penal Code (45 of 1860) apply.
The expression wager has not been defined in the Indian Contract Act. A classic definition
is

however

available

in

the

case

of

Carlill

Carbolic

Smoke

Ball

Co.

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, dependant on the
determination of that event, one shall win from the other, and that other shall pay or hand
over to him, a sum of money or other stake; neither of the parties having any other interest

in that contract than the sum or stake he will so win or lose, there being no other
consideration for making of such contract by either of the parties. If either of the parties
may win but cannot lose, or may lose but cannot win, it is not a wagering contract.
The above definition excludes event which have occurred. Hence Sir William Ansons
definition, a promise to give money or moneys worth upon the determination and
ascertainment of an uncertain event, is nearer and more accurate.[ii] This seems to reduce
the

following

Essentials

essentials:

of

Mutual

Section

chances

of

30:

gain

and

loss

There must be two parties, or two sides, and mutual chances of gain and loss,[iii] i.e., one
party is to win and the other to lose upon the determination of the event. It is not a wager
where one party may win but cannot lose, or if may lose but cannot win, or if he can neither
win nor lose, if one of the parties has the event in his own hands, the transaction lacks an
essential ingredient of wager.[iv] It is of the essence of the wager that each side should
stand to win or lose according to the uncertain or unascertained event in reference to which
the chance or risk is taken.[v]

There

Two
must

be

two

persons,

either

of

parties
whom

is

capable

of

winning

or

losing.

.you cannot have two parties or more than two sides to bet. You may have a multi partite
agreement to contribute to a sweepstake(which may be illegal as a lottery if the winner is
determined by skill), but you cannot have a multipartite agreement for a bet unless the
numerous parties are divided in to two sides, of which one wins or the others loses,
according

to

whether

an

uncertain

event

does

Uncertain

not

happen.[vi]
Event

Uncertainty in the minds of the parties about the determination of the event in one way or
other is necessary. A wager generally contemplates a future event; but it may even relate to
an event which has already happened in the past, but the parties are not aware of its result
or

the

time

of

its

happening

The first thing essential to wager is that the performance of the bargain must depend upon
the determination of an uncertain event. A wager generally contemplates future events; but
it may even relate to an event which has already happened in the past, but it may even

relate to an event which has already happened in the past, but the parties are not aware of
its result or the time of its happening. [vii]

No

interest

other

than

stake

Neither party should have any interest in the happening of the event other than the sum or
stake he will win or lose. To constitute a wager, the parties must contemplate the
determination of the uncertain event as the sole condition of their contract. The stake must
be the only interest which the parties have in the contract.[viii]

Neither

party

to

have

control

over

the

event

Lastly, neither party should have control over the happening of the event one way or the
other. If one of the parties has the event in his own hands, the transaction lacks an
essential

ingredient

Effects

of

of

wager.

Wagering

[ix]
Agreement

A wagering agreement is void ab initio, and S. 65 has no application to it.[x] Money paid
directly by a third party to a winner of a bet cannot be recovered from the loser.[xi] Even if a
loser makes a new promise to pay for his losses in consideration of his not being posted, the
promise cannot be enforced; but if he gives a cheque in discharge of his liability, the cheque
may not be tainted with illegality because of the winners promise not to have the name
posted. The cheques will not be enforceable by the original payee, but may be enforced by a
third party holder of the cheque, even if he knew of the facts leading up to giving of the
cheque.
It has been laid down by the Supreme Court, in Gherulal Parekh v.Mahadeo Das[xii] that
though a wager is void and unenforceable it is not forbidden by law .Hence a wagering
agreement is not unlawful under section 23 of the Contract Act and therefore the
transactions

collateral

Laws

to

the

main

transaction

Related

are

enforceable.

To

Wager

This section represents the whole law of wagering now in force in India, supplemented by
the Bombay state by the act for avoiding wagers (amendments) act 1865, which amended
the act for avoiding wagers 1848. Before the act of 1848 the law relating to wagers in force
in British India was the common law in England. By that law an action might be maintained
on a wager, if it was not against the interest or feelings of third persons, did not lead to
indecent

evidence,

and

was

not

contrary

to

public

policy.

[xiii]

The nature of gambling is inherently vicious and pernicious.[xiv] Gambling activities which

have been condemned in India since ancient times appear to have been equally discouraged
and looked upon with disfavour in England, Scotland, the United States of America and
Australia. The Hindu law relating to gambling has not been introduced in the law of contract
in India.[xv] Gambling is not trade and commerce, but res extra commercium and therefore
not

protected

Comparison

under
with

art

19(1)
the

or

art

English

301.[xvi]
Law

Many countries have laws which render gaming or wagering contracts void. It is important to
point out at the outset that these laws do not render gambling illegal. All they do is prevent
the gaming and wagering contracts. The great majority of common law jurisdictions have
adopted gaming laws based on the UK Gaming Act 1845. Legislation in all Australian
jurisdictions for example is based on S. 18 of the Gaming Act, which provides that the
contracts by way of wagering and gaming are null and void.[xvii] The Gaming and Wagering
laws of Malaysia, Singapore, Hong Kong and New Zealand are also modeled after the UK
Gaming

Act.

Until the enactment of the Gaming Act, 1845, wagering contracts were not prohibited by law
in England. But Section 18 of the Gaming Act, 1845 (UK) declared that all contracts or
agreements by way of wager shall be null and void and that no suit shall be brought or
maintained in any Court of law and equity for recovering any sum of money or valuable
thing alleged to be won upon any wager. However, certain dealings in investments by way of
business are excepted from invalidity under Section 18 even though they might amount to
wagering contracts. For example, contracts for differences or bets on stock market indices.
[xviii]
Section 30 of the Indian Contract Act 1872 is influenced by the English Gaming Act 1845.
Heavily influenced by the English decisions, the judges have adopted the essential features
of that of the gaming act. However, there is a major difference between the English and the
Indian laws relating to wagers: under the English Gaming Act, 1845, agreements Collateral
to the wagering agreement are also rendered to be void,38 whereas in India, collateral
agreements are not necessarily void except in Bombay,[xix] because The object of such a
collateral contract may not necessarily be unlawful. Further the Apex Court held that, By
law an act might be maintained on a wager if it was not against the interest or feelings of a
third person, did not lead to indecent evidence and was not contrary to public policy.[xx]
As previously mentioned, a number of Indian companies when incurring losses in foreign
exchange dealings, construct an argument that derivative transactions are in the nature of

wagering agreements, and are hence not enforceable in Indian Courts under Section [xxi],
and hence do not give rise to any liability or financial obligations in respect of repayment of
loan to the bank. As a result of this, many conservative Indian banks such as the State Bank
of India refrained from entering into any sort of derivative transactions with their clients for
a

fairly

long

time.

In Gherulal Parakh v. Mahadeodas Maiya,[xxii] a question arose as to whether a partnership

formed for the purpose of entering into forward contracts for the purchase and sale of wheat
so as to speculate in rise and fall of price of wheat in future, was a wager and whether it was
hit by Section 30 of the Contract Act. But the Supreme Court held that such a partnership
was not illegal, although the business for which the partnership was formed, was held to
involve

wagering.

It

was

held

therein

as

follows:

After the enactment of the Gaming Act, 1845, a wager is made void but not illegal in the
sense of being forbidden by law, and thereafter a primary agreement of wager is void but a
collateral

agreement

is

enforceable;

There was a conflict on the question whether the second part of Section 18 of the Gaming
Act, 1845, would cover a case for the recovery of money or valuable thing alleged to be won
upon any wager under a substituted contract between the same parties: the House of Lords
in Hill's case[xxiii] had finally resolved the conflict by holding that such a claim was not
sustainable whether it was made under the original contract of wager between the parties
or

under

substituted

agreement

between

them;

So under the Gaming Act, 1892, in view of its wide and comprehensive phraseology, even
collateral

contracts,

including

partnership

agreements,

are

not

enforceable;

As Section 30 of the Indian Contract Act is based upon the provisions of Section 18 of the
Gaming Act, 1845, and though a wager 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; and partnership being an agreement within the meaning of Section 23 of the
Indian Contract Act, it is not unlawful, though its object is to carry on wagering transactions.
Variation
Wagers

Distinguished
Contract

From
Of

Insurance

A transaction of insurance resembles a wager. Every contract of insurance is a wager if the

insurer has no insurable interest in the event upon which insurance money is payable. The
insurance interest lies normally in that the event is one which is prime facia adverse to the
interest of the insurer.[xxiv] If a insures cargo which he has loaded on a vessel , his contract
is not a wager because his property is at risk during the voyage; but if has no cargo on
board, the contract is a wager; because if the vessel is not lost, he loses the amount of
premium.
Section 6 of the Marine Insurance Act 1963, provides that every contract of marine
insurance by way of wager is void; and that a contract of marine insurance is deemed to be
a wagering contract where the assured has not an insurable interest. The (English) marine
insurance act 1906, also provides that a contract or Marine Insurance is deemed to be a
gaming

or

wagering

contract

if

the

insured

has

no

interest

in

the

adventure.

A truck owned by a was transferred benami to b who got it insured in his own name. The
truck was involved in an accident and it seriously injured a young army officer who claimed
heavy damages from the owner, driver and the benamidar and the insurance company. It
raised the plea that an ostensible owner (a benamidar) had no insurable interest and that it
was a wager for that reason. But these pleas were negatived by the high court. [xxv]

Contract

Of

Gaming

A gaming contract consist of the mutual promises which the players of the game necessarily
make, express or by implication, in paying for a stake as to its transfer upon the result of the
game.

Such

contract

may

be

wager

if

the

parties

are

two.

[xxvi]

In K.R. Lakshmanan (Dr) v State of Tamil Nadu [xxvii], the Supreme Court had an occasion to
decide whether horse racing amounts to gaming as defined under the Madras City Police Act
1888,

and

the

madras

gaming

act.

It

stated:

Gambling in a nutshell is a payment of a price for a chance to win a prize. Games may be of
chance or of skill and chance combined. A game of chance is determined entirely or in part
by lot or mere luck. A game of skill- although the element of chance necessarily cannot be
entirely eliminated- is one in which success depends principally upon the superior
knowledge,

training,

attention,

experience

Speculative

and

adroitness

of

the

player.

Transactions

A speculative contract is not necessarily a wagering contract, and must be distinguished

from agreements by way of wager. This distinction comes into prominence in a class of
cases where the contracts are entered into through brokers. The modus operandi of the

defendant in this class of cases is, when he enters into a contract of sale, to purchase the
same quantity before the vaida day; and when he enters into a contract of sale, to purchase
the same quantity before the vaida day. This mode of dealing, when the sale and purchase
are to and from the same person, has the effect, of course, of cancelling the contracts,
leaving only differences to be paid. When they are different persons, it puts the defendant in
the position vicariously to perform his contracts. This is, no doubt, a highly speculative mode
of transacting business; but the contracts are not wagering contracts, unless it be the
intention of both contracting parties at the time of entering into the contracts, neither to call
for nor give delivery from or to each other. There is no law against speculation as there is
against gambling. A fortiori, dealings between stockbrokers, whose regular course of
business is periodical settlement of differences, are not presumed to be wagering
agreements. It may well be that the defendant is a speculator who never intended to give
delivery, and even that the plaintiffs did not expect him to deliver; but that does not convert
a contract, otherwise innocent, into a wager. Speculation does not necessarily involve a
contract by way of wager, and to constitute such a contract a common intention to wager is
essential. It is in cases of above description that there is a danger of confounding
speculation, or that which is properly described as gambling, with agreements by way of
wager; but the distinction in the legal result is vital. Every forward contract is to some
extent speculative, but is not a wager or gamble on that account. The distinction between
the

two

Agreements

is
Collateral

a
to

narrow
Wagering

one.
Agreements

Contract collateral to a wagering agreement is not necessarily unenforceable.[xxviii] Section

30 of the Contract Act is based upon the provisions of S. 18 of the (English) Gaming Act
1845, and though a wager is void and unenforceable, it is not forbidden by law. Therefore
the object of a collateral agreement is not unlawful under s 23 of the contract act.[xxix] But
it is otherwise under the (English) Gaming acts of 1845 and 1892, the acts being wider and
more comprehensive in phraseology, because they expressly render void even collateral
transactions. As a result, though an agreement by way of wager is void, contract collateral
to it or in respect of a wagering agreement is not void except in Bombay state. There is
nothing illegal in the strict sense in making bets. They are merely void and there would be
no illegality in paying them or giving a cheque, but payment cannot be compelled.[xxx] But
an arbitration clause in a wagering contract is a part of the contract and not collateral to it
and
A

cannot
collateral

agreement

therefore
is

not

unlawful

be
under

23

enforced.[xxxi]
of

the

contract

act.

Apart from Bombay enactment,[xxxii] there is no statute declaring void agreements

collateral to wagering contract. Nor is there anything in the present section[xxxiii] to render
such agreements void. The policy of law in India has been to sustain the legality of wagers
and not to hit at collateral contracts.[xxxiv] It has accordingly been held that a broker or an
agent may successfully maintain a suit against his principal to recover his brokerage,[xxxv]
commission, or the losses sustained by him, even though contracts in respect of which the
claim is made are contracts by way of wager.[xxxvi]
The Supreme Court has held that if agreement collateral to another or of aid in facilitating
the carrying out of the object of the other agreement, which though void, is not in itself
prohibited within the meaning of s 23 of the contract act, may be enforced as collateral
agreement. If on the other hand it is part of a mechanism to defeat what the law has
actually prohibited, courts will not countenance a claim based upon the agreement because
it will be tainted with an illegality of the object sought to be achieved, which is hit by s 23 of
the contract act. An agreement cannot be said to be forbidden or unlawful merely because it
results in a void contract. a void agreement when coupled with other facts may become part
of a transaction which creates legal rights but this is not so if the object is prohibited or mala
in
se.
In England also, agreements collateral to wagering contracts were not void before the
enactment of the gaming act 1892. Thus in Read v Anderson[xxxvii] a betting agent, at the
request of the defendant, made bets in his own name on behalf of the defendant. After the
bets were made and lost, the defendant revoked the authority to pay conferred upon the
betting agent. Notwithstanding the revocation, the agent paid the bets, and sued the
defendant having empowered the agent to bet in his name, the authority was irrevocable,
and that the agent was entitled to judgment. The statute of 1892, passed in consequence of
this decision, is almost to the same effect as the Bombay act. It is interesting to note that
the statute was not passed until 27 years after the Bombay act. It is hoped that in future,
the revision of the contract act will corporate provisions of the Bombay act in the present
section, so as to render the law uniform on this subject in the whole of India.
The act for Avoiding Wagers (amendment) act 1865 (Bombay act 3 of 1865)
The law is however, different in the state of Bombay. In that state, contracts collateral to or
in respect of wagering transactions are prevented from supporting a suit by the special
provisions of the act for avoiding wagers (amendment) act 1865 (Bombay act 3 of 1865). It
was
observed:
That act was passed to..to close the doors of the courts of justice in the presidency to suits
upon contracts collateral to wagering transactions where such collateral contracts have
been entered into or have arisen since the act came into force, a purpose which it has
effectually
answered.
Derivatives
The
position
of
derivatives
under
the
common
law
Two English decisions have caused concern among market participants that certain
derivatives transactions may fall foul of the gaming and wagering laws. In Universal Stock

Exchange v. Strachan[xxxviii], the court held that wagering contracts included contracts for
differences.
Halsbury
defines
contracts
for
differences
as;
Agreements between those who are only ostensible buyers and sellers of stock and shares
where the common interest of the parties is to pay or receive the differences between their
prices
on
one
day
and
their
prices
on
another
day.
[xxxix]
In the second decision, City Index Limited v. Leslie[xl], the court declared that contracts akin
to cash-settled derivatives were contracts for differences. The combined effect of both
decisions is that cash-settled derivatives are wagering contracts and therefore
unenforceable,
unless
exempted
by
legislation.
The common law position in Australia has been modified by statute. Section 1141 of the
Australian corporations law protects the following categories of derivative contracts from
the
gaming
and
wagering
laws:
Those made on the futures market of the futures exchange, or a recognised futures
market,

Those

made

on

an

exempt

futures

market,

Those permitted by the business rules of a futures association, a futures exchange, or a

recognised
futures
exchange.
The risk that a contract may not be enforceable on the grounds of illegality is one that
needs to be addressed. Generally, there is little risk of exchange traded derivatives falling
foul of the gaming and Wagering laws in either the UK or other common law jurisdictions.
Regardless of the interest of the counterparties, there is no justification for treating
derivative contracts as wagering or gaming contracts. They are no different from other
commercial contracts entered into by parties on the daily basis. It is true they are more risky
than other commercial contracts and some parties are attracted to derivatives by the
prospects of windfall gains. But these factors do not make them wagering or gaming
contracts any more than contracts to undertake some highly speculative business. Apart
from the need to remove the existing uncertainties, regulators should also address the
broader question of whether it is appropriate for gaming and wagering legislation to be
applicable
in
the
realm
of
financial
transactions.
However, Indian contract law is indeed woefully deficient with regard to provisions That
clarifies the legality of derivative contracts. The problematic question whether Derivative
contracts are in the nature of wagering agreements is not answered by the Act till date and
no Amendment to that effect has been passed either. Under Indian Exchange control laws,
an Indian corporate, being a person resident in India, can Enter into a foreign currency
derivative contract only to hedge an exposure to foreign exchange risk and not for
speculating
and
yielding
profits.[xli]
In the case of Rajshree Sugars &Chemicals Limited v Axis Bank Limited.[xlii] Since March
2008, Axis Bank and Rajshree Sugars have been fighting a legal battle over the foreign
exchange derivatives contract, sold by the Bank to the company, thereby resulting in huge

losses for the company estimated to be around Rs. 46-50 crores. The company had refused
to make any loan repayment to the bank contending that the contract was a wagering deal,
and hence untenable on such grounds. The court answered this issue in the negative. Based
on the elucidations of various landmark judgments on wagers, the court evolved a threefold
test to determine whether the contract is a wager - First, there must be two persons Holding
opposite views touching a future uncertain event; second, one of those parties is to win and
the other is to lose upon the determination of the event; third, both the parties have no
actual interest in the occurrence or non-occurrence of the event, but have an interest only
on the stake. The case in question fulfilled the first criteria, but the second was not satisfied
because in the light of the facts of the case, the plaintiff did not always stand to lose. Citing
Indian case law,[xliii] the judges make an interesting observation, that though every
wagering contract is speculative in nature, every speculation need not necessarily be a
wager. Further, a common intention to wager is essential, and an element of mutuality has
to be present in the sense that the gain of one party would be the loss of the other on the
happening of the uncertain event which is the subject matter of wager. In the light of
abovementioned points and also adhering to the Supreme Court judgment in Gherulal
Parakh v. Mahadeodas Maiya,[xliv] the Judges in this case concluded that the sequence of
events in the present case reflected that the nature of the transaction was not in the form of
a wager. Even though the plaintiff was susceptible to incurring huge losses yet that by itself
could
not
deem
the
contract
to
be
a
wager.
Suggestions
and
Conclusion
As section 30 of the Indian Contract Act 1872 reads about agreements by way of wager,
void.
Further The Contract Act does not define what constitutes a wager or a wagering
agreement. It only mentions that such agreements will be void and unenforceable and no
action can lie to either recover anything that is due under a wager or for performance of a
contract that is in the nature of a wager. A wager is in the nature of a contingent contract
but
is
prevented
from
being
enforceable
by
Section
30.
Therefore, the Contract Act should provide an express definition that would clarify as to
what constitutes a wager, thereby removing any ambiguity with regard to legality of
derivative
contracts
which
are
in
the
nature
of
wagering
agreements.
Also through the, in depth analysis of various cases, books and views of the learned scholars
in this project it can be said that Section 30 of Indian Contract Act, 1872 needs to be
reviewed
critically.
Hence Section 30 should be amended to define the word wager. Since a lot of inconvenience
and ambiguity have been faced by the judiciary while dealing with the issue of wagers,
specifically as to what all constitute wagers and what all comes under the ambit of wagers.
As different jurists and in different judgments the ambit of wagers is defined in different
ways. In other words the scope of section 30 needs to be widened.
--------------------------------------------------------------------------------