Section 23 of the Indian Contract Act has specified certain considerations and objects as unlawful. The consideration or objects of an agreement is lawful, unless- it is forbidden by law; is of such a nature that, if permitted, it would defeat the provision of any law; or is fraudulent, or involves injury to the person or property of another, or the court regards it as immoral or opposed to public policy. In each of the above-mentioned cases, the consideration or object of an agreement is deemed to be unlawful. Every agreement in which the object or consideration is unlawful is void.
One of the main ingredients of a valid contract is that the consideration and the object should be lawful and every agreement of which the object or consideration is unlawful is void. Section 23 of the Indian Contract Act mentions that the circumstances when the consideration or object of an agreement is not lawful. The Section reads as under :
“What consideration and objects are lawful, and whatnot. – The consideration or object of an agreement is lawful, unless-
- it is forbidden by law; or
- is of such a nature that, if permitted, it would defeat the
- provisions of law; or
- is fraudulent, or
- involves or implies injury to the person or property of another;
- 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.”
The followings are the essentials of Section 23. The circumstances under which consideration and object are unlawful:
1. FORBIDDEN BY LAW
When something is forbidden by law, an agreement to that is unlawful. An agreement to do what has been prohibited by the Indian penal code or by some other law cannot be enforced. A contract to pay some money if a crime or a tort is committed is not enforceable. If the contract stipulates indemnifying a person against liability for an intentional wrong like deceit, is unlawful.
An agreement offending a statute or public policy is void from the very beginning and the same cannot become valid even if the parties agree to that effect. Thus, it has been held in Nutan Kumar v. IInd Additional District Judge AIR 1994 All 298, Banda that an agreement of lease between a landlord and tenant without allotment or release order, as required by the law, is void and unenforceable.
An agreement to pay money if a person commits a crime or tort is unlawful, and, therefore, unenforceable. Similarly, if a person transfers his business for the sale of liquor to one, who does not possess the necessary license, it is in contravention of law, and thus void (Fernandes v. Fernandes). Merely because a person does not observe statutory requirements does not mean that the agreement is void. If a statute requires that a dealer in tobacco should hold a license to sell the same and also have his name painted outside the place of his business, such requirement is only for the purpose of revenue. In case a dealer does not observe these statutory requirements, he can still recover the price of the goods sold by him.
Section 23 covers only those cases where the agreement is forbidden by law. Thus, if a sub-lease as such is not forbidden by law, but can be made only with the consent of the landlord, the agreement of sub-lease would not be void under Section 23. The person making the sub-lease without the consent of the landlord will, therefore, be entitled to recover the rent from the tenant. (Banarasi Dass v. Shakuntala).
2. DEFEAT THE PROVISIONS OF ANY LAW
If the object or consideration of any agreement is of such a nature that, if it is permitted, it would defeat the provisions of any law, such an agreement is void. If the natural father pays a sum of Rs. 8,000 to a widow to induce her to adopt his son, the payment is in the nature of bribe and as such, it is illegal according to Hindu law (Sitaram v. Harihar (1910) 12 BOMLR 910). Similarly, if a Mohomedan husband, who wants to have a second wife, executes a document in favour of the first wife contemplating future separation, and payment of maintenance allowance, the agreement is opposed to the public policy, and the first wife cannot recover the allowance after the separation takes place (Bai Fatima v. Ali Mohd. (1912) 14 BOMLR 1178, 17 Ind Cas 946). But an agreement contemporaneous with marriage stipulating payment of customary maintenance allowance by the husband in case of strained relations between husband and wife is not void under any provisions of law (Jamila Khatoon v. Abdul Rashid, In the High Court of Ranchi, I.A. No. 966 of 2015). An agreement to maintain an illegitimate child has been held to be not unlawful.
In Sundara Gownder v. Balachandaran, AFA. No. 8 of 1990, the plaintiff, being in default of the payment of certain dues was not eligible to take any further contract in his own name. To circumvent the law, the plaintiff agreed with the defendant that the defendant will first take some liquor shops in his own name, and then transfer the same to the plaintiff. The plaintiff paid some consideration for the same to the defendant. The defendant having failed to do the needful, the plaintiff sued him to back the consideration paid. It was held that since the agreement aimed at defeating the provisions of law, the plaintiff’s action could not be entertained.
3. FRAUDULENT PURPOSE
If the consideration or object of an agreement is to commit fraud, the agreement is void. If A, B, and C enter into an agreement for the division among them of gains acquired, or to be acquired by them by fraud, the agreement is void as the object is unlawful. If two persons agree not to compete with each other, and one of them in consideration for the other person not competing in the submission of tenders agrees to pay a certain sum of money, the agreement does not aim at defrauding anybody, and the same is enforceable (Jai Ram v. Kahna Ram AIR 1963 HP 3). Thus, an agreement to avoid competition with one another cannot be considered to be either fraudulent or opposed to public policy.
If the object of an agreement is to manage to procure a contract for one party which would otherwise be refused, the object is fraudulent within the meaning of Section 23. In Manni Ram v. Purshottam Lal AIR 1930 All 732, A knew that the railway company would not grant him a contract. He entered into a contract with B that B should put forward an application for the contract and after the contract as granted, A shall serve as the real contractor. A brought an auction to put his claim as the real contractor. It was held that the object of the agreement was to commit fraud upon the Railway Company and, therefore, the agreement was void.
4. AGREEMENT INJURIOUS TO THE PERSON OR PROPERTY OF ANOTHER
If the consideration or the object of an agreement is to cause an injury to the person or property of another, the agreement is unlawful, and, therefore, void. For example, if the borrower of money is made to execute a bond to do manual labour until repayment, and in default agrees to pay an exorbitant rate of interest, the agreement contained in the bond virtually amounts to slavery, it is opposed to public policy, and thus void. Similarly, if the buyer of some property is aware that the seller does not have a good title, and he persuades the seller to transfer the property with the object of giving trouble to the true owner, an action by the buyer against the seller to claim indemnity from him for the loss of the buyer in the litigation of that property is not maintainable. In this case, “The validity of the contract itself is questionable as opposed to Section 23 of the Contract Act as the object of the agreement itself is a fraudulent practice involving injury to the person or property of another. In the circumstances, it has to be held that the plaintiff cannot recover the expenses incurred by him.
If the real object of the agreement between the parties is to promote their own interests rather than to cause harm to another, the agreement is lawful. Also, an agreement to jointly carry on the trade is not unlawful and does not amount to conspiracy against the rival shipping company.
Immorality depends on the norms accepted by society at a particular point of time. Generally, the concept of immorality has been given a restricted meaning and it has been confined only to sexual immorality. If the consideration or object of an agreement is regarded by the Court to be immoral or opposed to public policy, the agreement is unlawful and void. What is immoral depends on the norms accepted by the society at any particular point of time. For instance, A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral though the letting may not be punishable under the Indian Penal Code. A landlord letting the house with the knowledge that the same is to be used for a brothel, cannot recover the rent of the same. Similarly, if the object or consideration for an agreement is future illicit cohabitation between a man and a woman, the agreement is unlawful.
6. OPPOSED TO PUBLIC POLICY
If the Court regards an agreement as opposed to the public policy, the agreement is void. Public Policy means the policy of the law at a stated time. Public policy is not capable of any precise definition. An act which is injurious to the society is against public policy. An agreement to exclude certain area out of the Municipal limits is against the public policy. By such an agreement, the residents of the locality are deprived of their right to be governed by a local body (A.C.C. Ltd. v. The State of Rajasthan AIR 1981 Raj 133).
In Central Inland Water Transport Corporation v. Brojo Nath 1986 AIR 1571,, it has been held by the Supreme Court that a clause in a service contract that the services of a permanent employee could be terminated either by giving him a three months’ notice or paying him salary for the like period was opposed to the public policy, and, therefore, void. The position of a Government Law Officer has been held to be different from the above, by the Kerala High Court in P.K.K. Nair v. State of Kerala 1961 AIR 552. Thus, in this case, the termination of service of an Additional Government Pleader by giving him one months’ notice, was held to be lawful.
If two courts have jurisdiction in a case, an agreement of maintenance and champerty, trading agreement with an enemy, marriage brokerage contract, and agreement tending to injure the public service, are amongst the agreements opposed to the public policy.
By- Ritika Chaturvedi
(Faculty of Law, University of Delhi)
- Indian Contract Act, 1872 (Bare Act).
- Indian Contract Act, Dr R.K. Bangia
- MULLA The Indian Contract Act, 13th Edition 2011
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