Section 23 of the Indian Contract Act, reads as follows:
“The consideration or object of an agreement is lawful, unless, it is forbidden by law, or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.”
Under this section, the object of an agreement, is unlawful if it is forbidden by law or the Court regards it as immoral or opposed to public policy and in such cases the agreement itself is void.
(i) Forbidden by law:
Under s. 30 of the Indian Contract Act, 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.
Sir William Anson’s definition of “wager ” as a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event accurately brings out the concept of wager declared void by s. 30 of the Contract Act.
As a contract which provides for payment of differences only without any intention on the part of either of the parties to give or take delivery of the goods is admittedly a wager within the meaning of s. 30 of the Contract Act, the argument proceeds, such a transaction, being void under the said section, is also forbidden by law within the meaning of s. 23 of the Contract Act.
Whether what is void can be equated with what is forbidden by law
The question, shortly stated, is whether what is void can be equated with what is forbidden by law. This argument is not a new one, but has been raised in England as well as in India and has uniformly been rejected.
In England the law relating to gaming and wagering contracts is contained in the Gaming Acts of 1845 and 1892. While the Act of 1845 declared all kinds of wagers or games null and void, it only prohibited the recovery of money or valuable thing won upon any wager or deposited with stakeholders.
On the other hand, the Act of 1892 further declared that moneys paid under or in respect of wagering contracts dealt with by the Act of 1845 are not recoverable and no commission or reward in respect of any wager can be claimed in a court of law by agents employed to bet on behalf of their principals.
The law of England till the passing of the Act of 1892 was analogous to that in India. Sir William Anson in his book “On Law of Contracts” succinctly states the legal position thus, at page 205:
“……………. the law may either actually forbid an agreement to be made, or it may merely say that if it is made the Courts will not enforce it. In the former case it is illegal, in the latter only void; but inasmuch as illegal contracts are also void, though void contracts are not necessarily illegal, the distinction is for most purposes not important, and even judges seem sometimes to treat the two terms as inter- changeable.”
The learned author proceeds to apply the said general principles to wagers and observes, at page 212, thus: “Wagers ‘being only void, no taint of illegality attached to a transaction, whereby one man employed another to make bets for him; the ordinary rules which govern the relation of employer and employed applied in such a case.”
Pollock and Mulla in their book on Indian Contract define the phrase, “forbidden by law” in s. 23 thus, at page 158:
“An act or undertaking is equally forbidden by law whether it violates a prohibitory enactment of the Legislature or a principle of unwritten law. But in India, where the criminal law is codified, acts forbidden by law seem practically to consist of acts punishable under the Penal Code and of acts prohibited by special legislation, or by regulations or orders made under authority derived from the Legislature.”
Distinction between a contract which is forbidden by law and that which is void
In Thacker v. Hardy[1], the plaintiff, a broker, who was employed by the defendant to speculate for him upon the stock Exchange, entered into contracts on behalf of the defendant with a third party upon which he (the plaintiff) became personally liable. He sued the defendant for indemnity against the liability incurred by him and for commission as broker. The Court held that the plaintiff was entitled to recover.
Lindley, J., observed at page 687:
“Now, if gaming and wagering were illegal, I should be of opinion that the illegality of the transactions in which the plaintiff and the defendant were engaged would have tainted, as between themselves, whatever the plaintiff had done in furtherance of their illegal designs, and would have precluded him from claiming, in a court of law, any indemnity from the defendant in respect of the liabilities he had incurred.
But it has been held that although gaming and wagering contracts cannot be enforced, they are not illegal. Money paid in discharge of a bet is a good consideration for a bill of exchange and if money be so paid by a plaintiff at the request of a defendant, it can be recovered by action against him and it has been held that a request to pay may be inferred from an authority to bet. Having regard to these decisions, I cannot hold that the statute above referred to precludes the plaintiff from maintaining this action.”
The legal position in India is not different. Before the Act for Avoiding Wagers, 1848, the law relating to wagers that was in force in British India was the common law of England. The Judicial Committee in Ramloll Thackoorseydass v. Soojumnull Dhondmull[2] expressly ruled that the common law of England was in force in India and under that law an action might be maintained on a wager. The wager dealt with in that case was upon the average price which opium would fetch at the next Government sale at Calcutta. Lord Campbell in rejecting the plea that the wager was illegal observed at page 349:
“The Statute, 8 & 9 Viet. c. 109, does not extend to India’ and although both parties on the record are Hindoos, no peculiar Hindoo law is alleged to exist upon the subject; therefore this case, must be decided by the common law of England “.
Again the Privy Council considered a similar question in Doolubdass Pettamberdass v. Ramloll Thackoorseydass and others. There again the wager was upon the price that the Patna opium would fetch at the next Government sale at Calcutta. There the plaintiff instituted a suit in the Supreme Court of Bombay in January, 1847, to recover the money won on a wager.
After the suit was filed, Act 21 of 1848 was passed by the Indian Legislature where under all agreements whether made in speaking, writing, or otherwise, by way of gaming or wagering, would be null and void and no suit would be allowed in any Court of Law or Equity for recovering any sum of money or valuable thing alleged to be won on any wager.
Their Lordships held that the contract was not void and the Act 21 of 1848 would not invalidate the contracts entered into before the Act came into force. Adverting to the next argument that under Hindu Law such contracts were void, they restated their view expressed in Ramloll Thackoorserdas v. Soojumnull Dhondmull thus at page 127:
“Their Lordships have already said that they are not satisfied from the authorities referred to, that such is the law among the Hindoos… . “
The Judicial Committee again restated the law in similar terms in Raghoonauth Sahoi Chotayloll v. Manickchund and Kaisreechund[3]. There the Judicial Committee held that a wagering contract in India upon the average price opium would fetch at a future Government sale, was legal and enforceable before the passing of the Legislative Act, No. 21 of 1848.
The aforesaid three decisions of the Privy Council clearly establish the legal position in India before the enactment of the Act 21 of 1848, namely, that wagering contracts were governed by the common law of England and were not void and therefore enforceable in Courts. They also held that the Hindu Law did not prohibit any such wagers. The same view was expressed by the Indian Courts in cases decided after the enactment of the Contract Act.
An agent who paid the amount of betting lost by him was allowed to recover the same from his principal in Pringle v. Jafar Khan[4]. The reason for that decision is given at page 445:
“There was nothing illegal in the contract; betting at horse-races could not be said to be illegal in the sense of tainting any transaction connected with it. This distinction between an agreement which is only void and one in which the consideration is also unlawful is made in the Contract Act. Section 23 points out in what cases the consideration of an agreement is unlawful, and in such cases the agreement is also void, that is, not enforceable at law. Section 30 refers to cases in which the agreement is only void, though the consideration is not necessarily unlawful. There is no reason why the plaintiff should not recover the sum paid by him…… .”
In Shibho Mal v. Lachman Das[5] an agent who paid the losses on the wagering transactions was allowed to recover the amounts he paid from his principal.
In Beni Madho Das v. Kaunsal Kishor Dhusar[6] the plaintiff who lent money to the defendant to enable him to pay off a gambling debt was given a decree to recover the same from the defendant.
Where two partners entered into a contract of wager with a third party and one partner had satisfied his own and his co- partner’s liability under the contract, the Nagpur High Court, in Md. Gulam Mustafakhan v. Padamsi[7] held that the partner who paid the amount could legally claim the other partner’s share of the loss. The learned Judge reiterated the same principle accepted in the decisions cited supra, when he said at page 49: ” Section 30 of the Indian Contract Act does not affect agreements or transactions collateral to wagers……… .”
Reference
Gherulal Parakh vs Mahadeodas Maiya: 1959 AIR 781, 1959 SCR Supl. (2) 406
[1] (1878) L.R. 4 Q.B. 685
[2] (1848) 4 M.I.A. 339
[3] (1856) 6 M.I.A. 251
[4] (1883) I.L.R. 5 All. 443
[5] (1901) I.L.R. 23 All. 165
[6] (1900) I.L.R. 22 All. 452
[7] A.I.R. (1923) Nag. 48