UNIVERSITY OF PETROLEUM & ENERGY STUDIES

COLLEGE OF LEGAL STUDIES

BA, LL.B. (Hons.) Energy Laws 2017

SEMESTER -I

ACADEMIC YEAR: 2017-2018 SESSION: JULY-DECEMBER

PROJECT
WAGERING CONTRACTS-COMPARISON IN INDIAN AND UK LAW
FOR
Law of Contract - 1
(LLBL101)
Under the Supervision of: Ms. Charu Srivastava

NAME: JATIN SHARMA; KARTIKEYA HUNDET

SAP NO: 500062878; 500061857

ROLL NO: R450217047; R4217050

 INTRODUCTION
An agreement is unlawful if the court regards it as opposed to public policy. The term public
policy in its broadest sense means that sometime the courts will, on considerations of public
policy the wagering contract flow under the public policy, refuse to enforce a contract. The
normal function of court is to enforce contract; but consideration of public interest may require
the courts to depart from their primary function and to refuse to enforce a contract.

It is not enough that the terms of contract have been brought to the knowledge of the other party
by a sufficient notice before the court is entered into, it is also necessary that the terms of the
contract themselves should be reasonable. If the terms of the contract are unreasonable and
opposedthey are void, they will not be enforced merely because they were printed on the reverse
of a bill or receipt or have been expressly or impliedly agreed upon between the parties.

The meaning of 'wagering' is staking something of value upon the result of some future uncertain
event, such as a horse race, or upon the ascertainment of the truth concerning some past or
present event. In UK " All contracts or agreements, whether by parole or in writing, by way of
gaming or wagering ,shall be null and void; and no suit shall be brought or maintained in any
court of law or equity for recovering any sum of money or valuable thing alleged to be won upon
any wager”.

A wager is illegal at common law and in Indian law. All wagering contract are void by statute
and money deposited with stakeholder is recoverable.This section declares wagering agreements
void, and prohibits suits for recovering anything won on a wager or entrusted to a person to abide
by the result of any game or event on which wager is made. It saves certain subscriptions or
contributions in connection with horse-races

Wagering agreements Section 30

Section 30 deal with wagering agreement under Indian Contract Act 1872

 Agreement by Ways 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 event on which any wager is made.

 Exception in Related to Certain Prizes for House Racing

This section means that there shall not be deemed to render unlawful a work or subscription, or
any agreement which means or contribute, made or entered into for any plate, prize or sum of
money, of the amount of five hundred rupees or more, to be grant to the winner of any horse
race.

 What does Section 294-A of the Indian Penal Code says?

Section 294-A says there should be a lottery office or place for the purpose of drawing any
lottery, it means that nothing in this section shall be deemed to legalize any transaction
connected with horse-racing, to which this provisions of Section 294-A of the Indian Penal Code
of 1860 apply.

The Law Relatingto Wagers in India and U.K

This section represents the whole law of wagering contracts now in force in India, supplemented
in 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 of 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.

The nature of gambling is inherently vicious and pernicious. Gambling activities which have
been condemned in India from ancient times, appear to have been equally discouraged and
looked upon with disfavourin England. The Hindu Law relating to gambling has not been
introduced in the law of contract in India.Gambling is not trade and commerce, but res extra
commercium and therefore is not protected within art 19(1) or art 301. Prize competitions or
crossword puzzles have also been held to be of a gambling nature.

The law related to wagers in U.K was developed in 1845 by the name of Gaming Act in 1845
was an act by parliament of the United Kingdom.The Act's principal provision was to deem
a wager unenforceable as a legal contract. The Act received Royal Assent on August 8, 1845.
Sections 17 and 18, though amended, remained in force until 1 September 2007. Under the U.K
common law, wagering agreement were valid contract, untilThe (English) Gaming Act 1845
declared them null and void.

Policy of wagers

The policy of the law is not to prevent or discourage betting. There is no technical objection to
the validity of a wagering contract. It is an agreement by mutual promises, each of them
conditional on the happening or not happening of an unknown event. These promises will
support each other as well as any other reciprocal promises. This Act neither prevents nor
discourages betting, but simply declares it void. The betting industry is said to serve useful
purpose by providing mutually satisfactory gambling facilities to the betting public. Laws
relating to some gaming contracts and lotteries actually authorise wagering subject to certain
conditions. The purpose of making such transactions void, and hence not enforceable, is that the
courts have more important functions than to adjudicate on matters of this kind. Law prefers to
deal with wagers like social engagements or family matters and likewise, settled outside the
courts.

Three Branches of the Section

The first branch declares the agreement of wager void; the second prevents the winner from
bringing an action to recover amount won (even under a substituted contract); and the third
prevents the winner from suing the stakeholder.

What is WAGER?

A wager is a contract by which two or more parties agree that a certain sum of money or other
thing shall be paid or delivered to one of them on the happening of an uncertain event or upon
the ascertainment of a fact which is in dispute between them.

A contract in which the parties stipulate that they shall gain or lose upon the happening of an
uncertain event in which they have no interest, except that arising from the possibility of such
gain or loss.

The above definition excludes events which have occurred. Hence Sir William Anson's
definition, 'a promise to give money or money's worth upon the determination or ascertainment
of an uncertain event ', is nearer and more accurate.

For Example:-

I. A and B bet as to whether it would rain on particular day or not A promising to pay Rs.
500 to B if it rained, and B promising an equal amount to A, if it did not. This agreement
is wager,
II. Rahul and Nishit agree to deal with the differences in prices of a particular commodity.
Such an agreement is a wager.

CHARACTERISTICS:

From the above, we can understand that a wager must have the following characteristics:

a) It is a promise to pay money’s worth.

b) The promise depends upon the happening or not happening of an event.
c) The event upon which the promise is to depend is uncertain, the parties don not know the
occurrence of the event.
d) None of the parties has a control over the happening of the uncertain event.
e) None of the Parties has an interest in the occurrence or non-occurrence of the event.

A wager may have all other requisites of a legal contract. It may have two or more parties’
consideration, subject matter and the identity of minds of the parties. But the peculiarity lies
in its performance. Its performance is in the alternative, i.e., one party has to pay the amount
to the other. Only one party is to gain and the other is to lose.

There is no difference between the expression ‘gaming and wagering’ used in the English
Statue and repealed by Indian Contract Act of 1848, and the expression ‘by way of wager’
used in this section.

Features of a Wagering Agreement

According to the words of Sir William Anson, we can bring the follow fundamentals of a
wagering agreement.
1. Mutual chances of gain and loss- There must be two parties or sides who must have
equal chances of gain and loss. Which means one party will win and the other will lose upon
the resolve of the event. It should not be called a wager where one party can win but can’t
lose, or if may lose but can’t win or if he can neither win nor lose. 

2.TwoParties- There must be two parties of sound mind who are capable of winning or
losing. 

3. Uncertain event- Uncertainty in the minds of the parties about the determination of the
event in one way or other is necessary. A wager generally considers 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 first time of its happening. So the essential part of the wager is that the
performance of the bargain must depend upon the determination of an uncertain event.

4. No interest but stake- Neither party should have any interest of happening of the event
other than the sum or stake him will lose or win. To make up a wager, the parties must study
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 contract.

5. No control over the event- Neither party should have control over the happening of
event one way or the other. If it does not have this quality then it lacks one of the basic
ingredients of wager.
English Law and Wagers under the Section

The expression 'by way of wager' in the section has been interpreted to mean what the expression
'gaming and wagering' under the (English) Gaming Act of 1845 meant.The cases under the
English Act of 1845 and the Act for Avoiding Wagers 1848, have therefore a bearing on the
expression used in those Acts that are still useful in construing the expression 'by way of wager,'
used in the present section.

In Alamai v Positive Government Security Life Assurance Co Ltd , a case of life insurance,

In Hampden v Walsh ,Cockburn CJ defined a wager as a contract by A to pay money to B on the

happening of given event, in consideration of B paying money to him on the event not
happening, and said that since the passing of 8 and 9 Vict c 109 there is no longer, as regards
action, any distinction between one class of wager and another, all wagers being made null and
void at law by the statute. In Thacker v Hardy, Cotton LJ said that the essence of gaming and
wagering was that one party was to win and the other was to lose upon a future event, which at
the time of the contract was of an uncertain nature; but he also pointed out that there were some
transactions in which the parties might lose and gain according to the happening of a future event
which did not fall within the phrase. Such transactions, of course, are common enough, including
the majority of forward purchases and sales.

Comparison of Wagering Contract with the English Law

In the world 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 1847. This act is followed by
Australian jurisdictions for example is based on Section 18 of the Gaming Act, which provides
that the contracts by way of wagering and gaming are null and void.

Until the enactment of the Gaming Act, 1845 wagering contract were not prohibited by law in
English. But Section 18 of the Gaming Act, 1845 (UK) declared that all contract or agreement
by way of wager shall be null and void and no suit shall be maintain in ant court of law and
equity for recovering any sum of money or valuable thing alleged to be won upon any wager.
However, certain dealing in investments by way of business are excepted from invalidity under
Section 18 even though they might amount to wagering contracts.

Section 30 of the Indian contract Act 1872 is very similar to the English Gaming Act 1845
Heavily influenced by English decisions, the judges have adopted the essential features of that of
the gaming act However, there is major difference between the English and the Indian laws
related to wagers: under the English Gaming Act, 1847, agreements collateral to the wagering
agreement are also rendered to void, collateral agreement are not necessarily void except in
Bombay, because it is not necessary that the object of such collateral contract are unlawful in
nature. Further the Supreme Court held that, “By law an act might be maintain on a wager if it
was not against the interest or feeling of third person, did not lead to indecent evidence and was
not contrary to public policy.”

As previously mentioned a number of companies when incurring losses in foreign exchange

dealing, construct an argument that derivative transactions are in the nature of wagering
agreement, and hence not enforceable in Indian Courts under Section[111], and hence do not
give rise to any liability or financial obligation 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 transaction with their client for a fairly long time.

InGherulalparakh v. MahadeodasMaiya 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, we formed was held to
involve wagering.

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.

Some cases of Wagering Contract under UK Law

1) Nextia Properties ltd v/s Royal Bank of Scotland

Nextia Properties Limited (Nextia) is a property development company that brought proceedings against
its banks (the Bank) for the alleged mis-sale of an interest rate swap purchased in March 2008 (the Swap).
The Swap had a notional value of £2,000,000, a term of five years and fixed Nextia's interest rate at 5.25
per cent.

From 2007 onwards the Claimant entered into a number of loan agreements with the Bank. Due to the
nature of Nextia's business the loans typically had short maturities – often one year or less.
Nextia sought further lending in early 2008 and its total borrowing with the Bank amounted to
£2,000,000. At this stage Nextia decided to enter into an interest rate management product. The Swap was
traded on 13 March 2008.

In the course of the discussions that led up to the trading of the Swap, the Bank showed a number of
interest rate management products to Nextia, namely a Base Rate swap, a Base Rate collar and a Base
Rate cap. The Bank informed Nextia the collar and the cap would allow it to benefit if Base Rate fell
(unlike the Swap). However, these products, unlike a swap, would require an up-front payment.

After the Swap was traded Nextia continued to acquire property and borrow further sums from the Bank
on a relatively short-term basis. Occasionally the loans were extended or rolled over. The margin over the
Bank's Base Rate had varied between 2008 and 2010 – sometimes it was Base Rate plus 1.75 per cent, on
other loans it was Base Rate plus 3.5 per cent. In September 2010 the Bank asked that Nextia pay a rate of
Base Rate plus 4.5 per cent.

By August 2012, Nextia had repaid all of its loans with the Bank. According to Nextia the repayments
occurred following a demand made by the Bank. The Bank asserted that, in fact, the loans were repaid
because Nextia refused to accept the terms on which the Bank was prepared to lend.

Nextia sold the majority of its portfolio of properties and claimed that its losses were in excess of
£2,000,000 as a result of the sales.

Payments continued to be made under the Swap until they were suspended by agreement in January 2013.

Nextia brought proceedings against the Bank in December 2012. The Bank applied for summary
judgment, alternatively for the claim to be struck out.

Conclusion of Case

Nextia Properties Limited (Nextia) is a property development company that brought proceedings against
its banks (the Bank) for the alleged mis-sale of an interest rate swap purchased in March 2008 (the Swap).
The Swap had a notional value of £2,000,000, a term of five years and fixed Nextia's interest rate at 5.25
per cent.

From 2007 onwards the Claimant entered into a number of loan agreements with the Bank. Due to the
nature of Nextia's business the loans typically had short maturities – often one year or less.

Nextia sought further lending in early 2008 and its total borrowing with the Bank amounted to
£2,000,000. At this stage Nextia decided to enter into an interest rate management product. The Swap was
traded on 13 March 2008.

In the course of the discussions that led up to the trading of the Swap, the Bank showed a number of
interest rate management products to Nextia, namely a Base Rate swap, a Base Rate collar and a Base
Rate cap. The Bank informed Nextia the collar and the cap would allow it to benefit if Base Rate fell
(unlike the Swap). However, these products, unlike a swap, would require an up-front payment.
After the Swap was traded Nextia continued to acquire property and borrow further sums from the Bank
on a relatively short-term basis. Occasionally the loans were extended or rolled over. The margin over the
Bank's Base Rate had varied between 2008 and 2010 – sometimes it was Base Rate plus 1.75 per cent, on
other loans it was Base Rate plus 3.5 per cent. In September 2010 the Bank asked that Nextia pay a rate of
Base Rate plus 4.5 per cent.

By August 2012, Nextia had repaid all of its loans with the Bank. According to Nextia the repayments
occurred following a demand made by the Bank. The Bank asserted that, in fact, the loans were repaid
because Nextia refused to accept the terms on which the Bank was prepared to lend.

Nextia sold the majority of its portfolio of properties and claimed that its losses were in excess of
£2,000,000 as a result of the sales.

Payments continued to be made under the Swap until they were suspended by agreement in January 2013.

Nextia brought proceedings against the Bank in December 2012. The Bank applied for summary
judgment, alternatively for the claim to be struck out.

2) Morgan Grenfell V/s Welwyn Hatfield DC

In June 1987 Welwyn Hatfield District Council had entered into a 10-year interest rate swap agreement
with Morgan Grenfell based upon a notional principal amount of £25 million. The swap made the usual
provisions for netting, with only the balance due being payable by either party on the payment dates.

Welwyn Hatfield DC had also entered into a back-to-back swap with Islington London Borough Council,
and Islington LBC was joined to the proceedings as an interested third party. Accordingly, in commercial
terms Hatfield Welwyn DC was just acting as an intermediary (for which it effectively received the sum
of £210,000) and the net payments would flow through to either Morgan Grenfell or Islington LBC
depending upon the movement of interest rates.

In 1989 pursuant to the decision at first instance in Hazell v Hammersmith and Fulham LBC [1990] QB
697

it was held that interest rate swaps were not permitted under the Local Government Act 1972, and
therefore were ultra vires with respect to the powers of local authorities in the United Kingdom, and were
therefore all void. Thereafter all payments under the swap contract stopped. Morgan Grenfell then
commenced proceedings against the District Council to claim back the payments which they had
previously made under the void swap contract.
The court ordered than three issues be determined as preliminary issues.

Firstly, whether the swaps should be characterised as wagering contracts within section 18 of the Gaming
Act 1845 or section 1 of the Gaming Act 1892.

Secondly, whether section 63 and paragraph 12 of schedule 1 to the Financial Services Act 1986
affected that conclusion.

Thirdly, whether any right to restitution arose if the contracts were held to be a wagering contract.

Judgement

giving the judgment of the Court, held that an interest rate swap contract had, at least potentially,
a speculative character, and was therefore capable of being entered into by two parties for the
purposes of wagering on future interest rates. However, he further held that in the context of
interest rate swaps entered into by parties or institutions involved in the capital markets and/or
the making and receiving of loans, the normal inference was that such contracts were not
wagering or gaming, and in the absence of some other consideration, would be given full
recognition and effect. The inference would only be rebutted if the purpose and interest of both
parties to the transaction was to wager, in which case the contracts would be legally invalid and
unenforceable.[6]

The Court followed the decision of Lord Hanworth MR in Earl Ellesmere v Wallace [1929] 2 Ch
1 at 25 where he held that a contract is void as wagering or gaming contract if it is entered into
by the parties for no purpose other than wagering or gaming. He also noted that decision of
Leggatt LJ in City Index Ltd v Leslie [1992] QB 98 where the Court of Appeal had previously
held that "before the 1986 Act came into force, contracts for differences were void, [but] other
contracts which were superficially similar were not. These were contracts entered into for a
commercial purpose, such as hedging. Such contracts may result in no more than the payment of
a difference. But because they were made for a commercial purpose, they are not void as
wagering contracts.

Some cases of Wagering Contract under Indian Law

1) GherulalParakh vs MahadeodasMaiya and Ors.

FACTS:

Plaintiff and defendant entered into Partnership agreement with object of entering into wagering
transactions with obligation to bear equal loss or profit arising out of such partnership. When
plaintiff asked for reimbursement of half of money paid by him to discharge losses of
partnership, defendant alleged that the agreement made between them was illegal and
unenforceable on account of S.23

ISSUE: Whether the alleged Partnership agreement was either forbidden by law, or opposed to
public policy or immoral so as to render it void ab initio?

Case;
(i) Void agreements cannot be equated with illegal agreements. The law may actually forbid an
agreement to be made or it may merely refuse to enforce an agreement. In former case, it is
illegal in latter it is merely void, in as much as all illegal agreements are void but not all void
agreements are illegal or forbidden by law.

S.30 of ICA is based on provisions of Gaming Act, 1845 in England which rendered both
primary agreements of wagering and any substituted agreement for recovery of money alleged to
be won on any wager as void but, secondary agreements in respect thereof enforceable.
Therefore any wagering agreement though is void and unenforceable but is not forbidden by law,
therefore the object of any collateral agreement upon wagering isn’t unlawful within the ambit of
S.23 of ICA, hence is valid and subsisting between the parties.

In present case, parties had no interest to take delivery of the goods rather were only dealing with
difference in prices such that they mutually intended the transaction to be of the nature of wager.
Though wagers are void u/s 30 of ICA but cannot be considered as forbidden by law u/s 23 for a
person entering into wagering transactions does no legal wrong but only fails to get protection of
law in enforcing those transactions. Hence any collateral agreement with the object of wagering
cannot be declared to be void due to ‘object forbidden by law’ u/s 23, and is subsisting between
the parties.
(ii) Any agreement which tends to be injurious to/against interest or conscience of public at large
is said to be opposed to public policy. It is a branch of common law and unless a particular
principle of public policy is recognized by that law, Courts cannot invent a new head of public
policy. The ordinary function of Court is to rely on the well settled heads of public policy and to
apply them to varying situations unless harm to public interest is substantially incontestable.

The policy of law in India is to sustain the legality of wagers, as in common law, though
rendering them void and unenforceable. Not even in a single case, SC said, had Courts in India
pr in England struck down any wagering contract as ‘opposed to public policy’. Indeed some of
the gambling transactions are a perennial source of income to the state. Hence, it cannot be said
that wagering is opposed to public policy and therefore, partnership agreement formed with
object of wagering was not unlawful for its object being opposed to public policy u/s 23.

SC further remarked, “Even if it is permissible for Courts to evolve a new head of public policy
under extraordinary circumstances giving rise to incontestable harm to society, wager isn’t one
of such instance of exceptional gravity for it has been tolerated by public and state alike.”

(iii) Immorality u/s 23 should be confined to cases of sexual immorality like agreements for
concubinage, sale or hire of things to be used in a brothel, marriage for consideration;
agreements facilitating divorce, etc. are all immoral in nature. This limitation on meaning of
word ‘immoral’ as in S.23 is because of reasons: Firstly, its juxtaposition with equally wide
concept of ‘public policy’ in S.23 highlights legislative intent to give it a narrow meaning
otherwise it will lead to overlapping of two concepts; secondly, the phrase “Courts regard it as
immoral” as in S.23 highlights immorality is also a branch of common law and must be confined
to principles recognized and settled by Courts; Thirdly, case law in England and in India
confines its operation to sexual immorality.

Since present case revolves around wagering which cannot be regarded as sexually immoral,
hence, it is not under realm of immorality as given u/s 23 of ICA.

Therefore partnership agreement formed with the object of entering into wagering transactions is
enforceable, valid and subsisting for its object of wagering isn’t unlawful u/s 23 because it is
neither forbidden by law, nor opposed to public policy, and nor immoral.