CASE REVIEW OF WAGERING

CONTRACT

BADRIDAS KOTHARI
V.
MEGHRAJ KOTHARI

SUBJECT TITLE: - LAW OF CONTRACT-I

SUBMITTED TO: - Asst. Prof. Sunny Jindal

SUBMITTED BY: - Ruchi Jain
1st Year (2nd semester)
BBA.LLB.(Hons.)

Mats Law School

Mats University, Raipur

ACKNOWLEDGEMENT

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I express my sincere gratitude to Asst. Prof. Sunny Jindal, MATS Law School, Raipur,
and owe my foremost regards to him for giving me an opportunity to carry out this project
work under his guidance. This work would not have been possible without his invaluable
support and thought provoking comments.
I would also like to thank my batch mates who directly or indirectly helped me in
making this project.
Ruchi Jain
1st year

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TABLE OF CONTENTS
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TOPIC
Introduction
Essentials for Wagering Contract
Effect of Wagering Agreement
Exceptions
Speculative Transactions
Badridas Kothari V. Meghraj Kothari
Issues Raised
Judgment
Conclusion
Bibliography

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INTRODUCTION
A contract is an agreement enforceable by law. It becomes enforceable only when it is
valid contract. Thus there are five essentials mainly for forming a valid contract. These are:

Free consent of parties.

Parties should be competent to contract.
For lawful consideration.
With having lawful object.
And should not be declared void by Indian Contract Act, 1872.

In this project I will be dealing with agreements against public policy which is defined in
section 30 of the Indian Contract Act, 1872. This can be read as:
Section 30. Agreements by way of wager, void- 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 events 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 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 horce-race.
Section 294A of the Indian Penal Code not affected- Nothing in this section shall be
deemed to legalize any transaction connected with horce-racing, to which the provisions of
section 294A of the Indian Penal Code (45 of 1860) apply.
Section 30 only says that agreements by way of wager are void. The section does not define
wager. It can be defined by SUBHA RAO J1:
As a promise to give money or moneys worth upon the determination or ascertainment
event.
But the most illustrative definition of wager is that given by HAWKINS J:
A wagering contract is one by which two persons professing to hold opposite views touching
the issues of a future uncertain event, mutually agree that dependent on the determination of
1 B.A., B.L., Judge, Supreme Court, Since January 31, 1958.

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that event one shall pay or handover to him, a sum of money or other stake; neither of the
contracting parties having any other interest in that contract than the sum or 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
loose, it is not a wagering contract.

ESSENTIALS FOR WAGERING CONTRACT

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Uncertain Event:
Uncertain event is one of the most essential elements for a wagering contract. It
means that the performance of the bargain must depend upon the determination of an
uncertain event. A wager generally contemplates with the future events, but it may
even relate to an event which has happened in past but parties are not aware of its

result or the time of its happening.

Mutual Chances Loss And Gain:
for a contract to be a wagering contract there should be equal and mutual chances of
loss and gain for both the parties. If there are no such chances then it is not considered
as wager. Thus in Babasaheb V. Rajaram2court held that this agreement cannot be
looked upon as one of wagering in eyes of law. Court held that it is the essence of
contract that essence of wager is that either of the side should stand to win or lose. But

in this case neither of the party stands wins or loses.

Neither Parties to have Control over the Events:
Neither parties should have control over the happening of the event in one way or
other. If one of the parties has event in his own hands, the transaction lacks an

essential ingredient of wager.

No other Interest in the Event:
At last, neither of the parties should have any interest in the happening of the event
other than the sum nor stake he will win or lose. This is what marks the difference
between a wagering agreement and contract of insurance. If one of the parties has the
event in his own hands, the transaction lacks essential ingredient of wager.

EFFECTS OF WAGERING AGREEMENT

A wagering agreement is void ab initio, and Section 65 has no application to it.
Money paid directly by a third party to a winner of a bet cannot be recovered from the
loser. 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
2 AIR 1931 bom 264

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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 Das3 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
to the main transaction are enforceable.

EXCEPTIONS
HORSE RACE:
This section does not render void a subscription or contribution, or an
agreement to subscribe or contribute, toward any plate, prize or sum of money, of the
value or amount of five hundred rupees or upwards to the winner or winners of any
horse race.
CROSSWORD COMPETITIONS AND LOTTERY:
The Supreme Court of India in B.R.Enterprises V. State of U.P4 held that even the
state sponsored lotteries have the same element of chance with no skill involved in it
and it comes under wagering contracts as the very nature of agreement has not
changed and thus be void. If chance does not play a role and victory is completely
3 1959 AIR 781, 1959 Supl. (2) 406
4 (2000) 1 GLR 242, (1999) 9 SCC 700, 2000 120 STC 302 SC

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dependent on skill, the competition is not a lottery. Otherwise it is. The Madhya
Pradesh High Court in Subhash Kumar Manwani V. State of M.P5 has characterised
lotteries as wager and the court held that agreement for payment of prize money on a
lottery ticket was held to be coming within the category of wagering agreement as
contemplated by Section 30.
The principle and purpose behind Section 30 to treat an agreement by way of
wager as void is that, the law discourages people to enter into games of chance and
make earning of trying luck instead of spending their time, energy and labour for
more fruitful and useful work for themselves, their family and society.

SPECULATIVE 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. 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 is 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
5 AIR 2000 MP 109

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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 is a narrow one.

BADRIDAS KOTHARI V. MEGHRAJ KTOHARI6

The plaintiff and the defendant had dealings in the share market and in these fatka
dealings and the defendant became liable to the plaintiff for certain money. This was the
money for which the promissory note was executed. The defendant did not receive any
cash consideration for this note. The plaintiff and the defendant are related. The
defendant's case that he did not receive any cash consideration for this note has been
believed and accepted to be true The promissory note or the hand-note in its material
portion expressly says that the defendant had received from the plaintiff Rupees 775 "in
cash" by both the courts as a fact.

ISSUES RAISED
Whether the money, for which the promissory note was executed, can be recovered or not.

6 AIR 1967 Cal 25

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JUDGMENT
In the case of Kishan lal V. Bhanwar lal7, the Supreme Court on these facts came
to the conclusion that the suit was really not one to enforce any contract relating to
purchase or sale of bullion which came within the prohibition of the notification. The
Supreme Court held that it was suit by an agent claiming indemnity against the
principal for the loss which the agent had suffered in carrying out the directions of the
principal. With the help of this case the court contended that"The fallacy in the reasoning of the learned Judges lies in the fact that the contract
between principal and agent which is entirely collateral to the contract of purchase and
sale, has been held by them as coming within the prohibition of the notification merely
on the ground that payment by the agent to the principal of the profits of the transaction
could be made or demanded at the place where the principal resides. In our opinion the
right to indemnity, which is an incident of the contract of agency, is not hit by the
notification at all and is a metier which is entirely collateral to a forward contract of
purchase and sale of bullion which the notification aims at prohibiting."
In the case of Kong Yee Lone and Co. V. Lowjee Nanjee8, the privy council held
that where the circumstances as to contracts for sale, purchase and delivery of goods
are such as to warrant the legal inference that the parties never intended any actual
transfer, but only to pay or receive differences, the contracts must be deemed to be by
way of wager.
Thus the court held that there must be from the outset a common intention of
both the parties to make and accept no delivery and to deal only in differences. From
the mere fact that the delivery of the goods was not taken, no inference can be drawn
that the contract was a wagering contract.
The court in this case also held that this is not a case of a collateral or a
substituted contract or a partnership agreement or a contract between principal and
agent relating to agency or indemnity between them.
Here the facts are simply this that two persons entered into fatka or wagering
transactions in shares and one became indebted. Thus, the consideration of the
promissory note in the instant case, was a wagering contract and, therefore, void under
section 30. And that is why the court held that the money for which the promissory note
was executed is not recoverable.
7 1954 AIR 500
8 (1900-01) 28 IA 239: ILR (1902) 29 Cal 461

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CONCLUSION
A wagering agreement being void cannot be enforced in any court of law. Section 30
expressly declares that 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. Thus the amount won on a wager cannot be recovered.
In the above mentioned case the note was held to be not enforceable. A subsequent
substituted agreement of the same consideration, namely, the amount won on a wager, is not
enforceable. In other words, a new promise to pay money won upon a wager is equally void.
Similarly, money deposited with a person to enable him to pay to the party winning upon a
wager cannot be recovered. The winner cannot recover the money but before it is paid to him,
the depositor may recover from the stakeholder. But where the money has already been paid
over, it cannot be recovered back.
The above mentioned case is not a case of collateral or a substituted contract or a
partnership agreement or a contract between principal and agent relating to agency or
indemnity between them. Here the facts are simply this that two persons entered into fatka or
wagering transactions in shares and one became indebted. Thus, the consideration of the
promissory note in the instant case, was a wagering contract and, therefore, void under
section 30.

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BIBLIOGRAPHY
1) Avtar Singh; Contract and Specific Relief; Eastern Book Publishing Company; 11th
Edition; 2013.
2) www.judis.nic
3) Ansons Law of Contract, 29th Edition, Oxford