The Indian Contract Act, 1872
23. What consideration and objects are lawful, and what not
The consideration or object of an agreement is lawful, unless -It is forbidden by law; oris of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; ofinvolves or implies, injury to the person or property of another; orthe 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.
(a) A agrees to sell his house to B for 10,000 rupees. Here, B’s promise to pay the sum of 10,000 rupees is the consideration for A’s promise to sell the house and A’s promise to sell the house is the consideration for B’s promise to pay the 10,000 rupees. These are lawful considerations.
(b) A promises to pay B 1,000 rupees at the end of six months, if C, who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here, the promise of each party is the consideration for the promise of the other party, and they are lawful considerations.
(c) A promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is wrecked on a certain voyage. Here, A’s promise is the consideration for B’s payment, and B’s payment is the consideration for A’s promise, and these are lawful considerations.
(d) A promises to maintain B’s child, and B promises to pay A 1,000 rupees yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party. They are lawful considerations.
(e) 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 its object is unlawful.
(f) A promises to obtain for B an employment in the public service and B promises to pay 1,000 rupees to A. The agreement is void, as the consideration for it is unlawful.
(g) A, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as it implies a fraud by concealment, by A, on his principal.
(h) A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.
(i) A’s estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A, becomes the purchaser, and agrees to convey the estate to A upon receiving from him the price which B has paid. The agreement is void, as it renders the transaction, in effect, a purchase by the defaulter and would so defeat the object of the law.
(j) A, who is B’s mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, becuase it is immoral.
(k) 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 (45 of 1860).
The notification permitting refund of sales tax was contrary to the statut
e. The tax paid is not an amount spent by the appellant but realised on sale by it. The constitutional requirements of levy of tax being for the welfare of the society and not for a specific individual the agreement or promise made by the Government was in contravention of public purpose thus violative of public policy and void under section 23 of the Contract Act; Amrit Bansapati Co Ltd. v. State of Punjab, AIR 1992 SC 1076.
Illegal and void agreements
The distinction between illegal and void contracts is very thin but it is there. The law may either 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; Nutan Kumar v. IInd Additional District Judge, Banda, AIR 1994 All 298.
Object of agreement is valid thereof
The exemption clause containing that the carrier shall be under no liability for any damages to passengers, is valid and it legally excludes all liability for negligence and such clause cannot be held bad under section 23 of Act; Indian Airlines v. Madhuri Chowdhuri, AIR 1965 Cal 252.
If an agreement is merely collateral to another or constitutes an aid facilitating the carrying out of the object of the other agreement which though void, is not prohibited by law it may be enforced as a collateral agreement. Where a person entering into an illegal contract promises expressly or by implication that the contract is blameless such a promise amount to collateral agreement upon which the other party if in fact innocent of turpitude may sue for damages; Rajat Kumar Rath v. Government of India, AIR 2000 Ori 32.
The appellation ‘void’ in relation to a juristic act, means without legal force, effect or consequence, not binding, invalid, null, worthless, cipher, useless and ineffectual etc.; Nutan Kumar v. IInd Additional District Judge, Banda, AIR 1994 All 298.
An agreement offending a statute or public policy or forbidden by law is not merely void but it is invalid from nativity. It cannot become valid even if the parties thereto agree to it; Nutan Kumar v. IInd Additional District Judge, Banda, AIR 1994 All 298.
While the term ‘object’ unlike the term ‘consideration’ has not been defined in section 2 of the Act, but has been held to mean as ‘purpose’ or ‘design’ of the contract. If the object is opposed to public policy or tends to defeat any provision of law, it becomes unlawful and thereby it is void under section 23 of the Act; Nutan Kumar v. IInd Additional District Judge, Banda, AIR 1994 All 298.
The term ‘law’ in section 23 of the Act must be understood in the sense of the term explained in the Article 13(3) of the Constitution; Nutan Kumar v. IInd Additional District Judge, Banda, AIR 1994 All 298.
1. See sections 26, 27, 28 and 30, infra.