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.
This section shall not be deemed to render unlawful subscription or contribution or agreement to subscribe or contribute, made or entered into for or towards 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. Nothing shall be deemed to legalize any transaction connected with horse-racing, to which the provisions of section of the Indian Penal Code apply.
A wager is an agreement between two parties to the effect that if a given uncertain event happens, one party shall pay a certain sum to the other, and on the contrary event happening, for example, the uncertain event not happening, the other shall pay to the first. It is an agreement by which money is payable by one person to another conditional on the happening or not happening of a future uncertain event. There must be mutual chance of gain and loss, for example, if the event turns out one way, one party shall lose and the other shall gain.
The essence of wager is that one party is to win and the other to lose upon a future event which at the time of contract is of uncertain nature. If either of the parties may win, but cannot lose, or may lose but cannot win, it is not a wagering contract. If an agreement does not involve loss to either party, it is not wager. There is no distinction between the contracts of ‘gaming and wagering’. Betting agreements are wagering agreements.
Event in question may be future event or past event but it should not be known to both the parties. The event in question need not necessarily be unlawful. It may be also a lawful event.
(i) The promise must be conditional on a happening or not happening of an uncertain event. Event may be past, present or future but the parties must not be aware of its results or the time of its results or the time of its happening.
(ii) There must be mutual chance of gain or loss on the determination of an uncertain event. Each side should stand to win or lose according to the result of the uncertain event. The stakes must come out of the pockets of the parties.
(iii) The promise must be to pay money or money’s worth.
(iv) Neither party should have any interest or control in the happening or non-happening of the event.
(v) Neither party should intend to perform the contract itself, but only to pay the differences.
Whether an agreement is a wager or not depends on the substance and not on the words of the agreement. Intention of the parties is the only deciding factor. Intention of the parties is gathered from the circumstances surrounding their agreement.
(i) The first exception is provided in the section itself. An agreement to contribute or subscribe towards any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards to be awarded to the winners of any horse-race is valid agreement and not a wager. However, any transaction connected with horse racing which is declared illegal under the provisions of the Indian Penal Code shall be invalid.
(ii) Speculations do not necessarily involve a wagering contract, unless it is established that there was a common intention to pay differences only. Therefore, any agreement to pay difference between the contract price and the market price of a specified day is a wager.
(iii) Insurance contract: An insurance contract which is essentially a contract of speculation is not a wagering contract. There is an insurable interest in an insurance contract while there is no such interest in a wagering contract.