(Section 23)
it is forbidden by law; or
is of such a nature that, if permitted, it would defeat the provisions of any 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.
Illustrations
(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 consideration.
(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 its object 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.
Section 23 incorporates among other things three well-settled principles. The first is that an agreement or contract is void if its purpose in the commission of an illegal act the second is that an agreement which is expressly or impliedly prohibited by law is similarly void and the third is that an agreement or contract whose performance is not possible without disobedience of law is again void.
Nutan Kumar v. IInd Additional District Judge, Banda, MANU/UP/0052/1994 : AIR 1994 All 298: 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.
Rajat Kumar Rath v. Government of India, MANU/OR/0010/2000 : AIR 2000 Ori 32: If an agreement is merely collateral to another constitutes and 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.
When something is forbidden by law an agreement to do that is unlawful section 23 provides that any agreement, the object or consideration of which is forbidden by law is unlawful and therefore void.
Pearce v. Brooks, (1866) LR 1 EX 213: In this case plaintiff agreed to supply the defendant with a brougham or hire, till the purchase-money was paid by instalment in a period which was not to exceed twelve months. The plaintiff had the knowledge that the defendant was a prostitute and the brougham was to be used by her as a prostitute and to assist her in carrying on her said immoral vocation.
Pollock C.B. observed that any person who contributes to the performance of an illegal act by supplying a thing with the knowledge that it is going to be used for that purpose cannot recover the price of the thing so supplied.
Re Mahmoud and Ispahani, (1921) 2 KB 716: During the war, the sale of linseed oil without a licence from the food controller had been forbidden. The plaintiff agreed to sell linseed oil to the defendant on a false assurance from the defendant that he had such a licence. When the oil was supplied, the defendant refused to accept on the ground that he did not possess the necessary licence. In an action against the defendant for damages for breach of contract it was held that he was not liable as there was no valid contract between the parties.
If the object or consideration of an agreement is of such a nature that, if it is permitted, it would defeat the provisions of any law, such an agreement is void. Certain acts may not be expressly forbidden by law but if they result in circumventing any law, they cannot be encouraged.
Fateh Singh v. Sanswal Singh, ILR (1878) All 751: The accused was asked to furnish a surety of 5000 rupees for good behaviour in accordance with a provision of section 107 of the Criminal Procedure Code. The accused deposited the sum of 5000 rupees with the defendant and was successful in persuading him to become his surely. After the period of surety-ship, the accused claimed the said amount. He filed this suit to recover the amount.
The Allahabad High Court held that the said agreement was void and therefore the amount could not be recovered because it would defeat the provisions of law.
Ram Sewak v. Ram Charan, MANU/UP/0260/1982 : AIR 1982 All 177: The parties agreed to carry on business in partnership. The agreement provided that they would conceal some part of their business activity and would not enter certain items in the books of accounts with a view to evading payment of Income Tax and Sales Tax.
It was held that the agreement was aimed at defeating the provisions of Tax laws, it was opposed to public policy and therefore, the same was not enforceable.
An agreement made for a fraudulent purpose is void. Where the parties agree to impose a fraud on a third person, their agreement is unlawful where a debtor agreed to pay a separate commission or to give preference to a creditor in order to induce his consent to a composition which is proposed with other creditors, the object of the agreement is fraudulent. For example, A, being agent for a land 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.
Sita Ram v. Radha Bai, MANU/SC/0012/1967 : AIR 1968 SC 534: The Supreme Court observed that there are exceptional cases in which a man will be relieved of the consequences of an illegal contract into which he has entered.
An agreement which involves injury to the property of another person is void under section 23 of the Indian Contract Act and cannot be enforced in law. No claim for damages is sustainable for the breach of such an unlawful agreement. For example if A enters into an agreement with B on the condition that if B destroys the property of C by fire. A would pay B Rs. 5000. This contract is void under section 23 as the consideration is not only unlawful but also involves injury to the property of C.
Ram Swaroop v. Bansi Mandar, ILR (1915) 42 Cal 742: A person executed a bond for rendering manual labour and going to the creditor's house daily until the money borrowed by him was paid in the particular month. The bond also included a stipulation that if the money was not paid by the said month exorbitant interest as penalty was to be paid. The court held if as an agreement opposed to public policy and could not be enforced.
Under section 23 contracts opposed to public policy and immoral would be really void and not illegal, and in that respect Indian law seems to deviate from English law. Immorality depends on the terms accepted by the 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.
Bai Vijle v. Nansa Sagar, (1885) 10 Bom 152: The plaintiff advanced loan to the defendant, a married woman to enable her to obtain divorce against her husband and then marry the plaintiff. The object of the agreement was held to be immoral and the plaintiff was not entitled to recover the loan so advanced.
Illustrations
(1) A, who is B's Mukhtar, promises to exercise his influence, as such with B in favour of C and C promises to pay 1000 rupees to A. The agreement is void, because it is immoral.
(2) A agrees to let her daughter on hire to B for concubinage. The agreement is void because it is immoral though the letting may not be punishable under I.P.C.
Gherulal Parekh v. Mahadeodas Maiya, MANU/SC/0024/1959 : AIR 1959 SC 781: (1959) 2 SCR (Supp) 406: Settlement of consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreements to marriage for consideration or contract facilitating divorce are held to be void on the ground that the object is immoral.
Pyare Mohan v. Smt. Narayani, MANU/RH/0007/1972 : AIR 1972 Raj 25: In this case gift was passed with the motive of recompensating the plaintiff Smt. Narayani Devi for past cohabitation as well as other services rendered by her as a mistress.
The Rajasthan High Court held that consequently it cannot be said in the present case that the object of the donor was immoral or unlawful. It would have been so if the purpose or design for which the gift was made was future cohabitation between the donor and the donee.
Netyam Venkataramma v. Mahankali Narasimhan, MANU/AP/0045/1994 : AIR 1994 AP 244: If the legislation did not prohibit purchase of land by surplus holder and the only consequence of such purchase would be surrender of surplus land on Redetermination, the transaction is not to oppose to public policy as violate of section 23, Indian Contract Act. Specific performance of such a contract cannot be refused.
Richardson v. Meleish, (1831) Bing 229: Public policy is a very unruly horse and once you get astride it, you never know where will carry you.
Gherulal v. Mahadeodas, MANU/SC/0024/1959 : AIR 1959 SC 781: Subba Rao J. of the Supreme Court observed that public policy or the policy of the law is an illusive concept it has been described as an untrustworthy guide, 'variable quality', 'unruly horse etc., the primary duty of a court of law is to enforce a promise which the parties have made and to uphold the sanctity of contract which forms the basis of society.
Zoroastrian Co-operative Housing Society Ltd. v. District Registrar Co-operative Societies (Urban), MANU/SC/0290/2005 : AIR 2005 SC 2306: The concept of public policy in the context of the Co-operative Societies Act has to be looked for under the four corners of that Act and in the absence of any prohibition contained therein against the forming of a society for persons of Parsi origin, it could not be held that the confining of membership was opposed to public policy.
B.A. Kanakadevi v. C.S.I.D, Kerela Maha Idavaka, MANU/KE/0556/2007 : AIR 2008 Ker 38: The sale deed expressly mandated that if the assignee failed to construct the college for which the property was purchased, the property would be reconveyed to the assignor.
Renusagar Power Co. Ltd. v. General Electric Co., MANU/SC/0001/1984 : (1984) 4 SCC 679: AIR 1985 SC 1156: The Supreme Court held that it is the fundamental principle of law that orders of the courts must be complied with for any action which involves disregard for such orders would advrsely affect the administration of justice and would be distinctive of the rule of law and would be contrary to the public policy.
1. By tending to the prejudice of the State
(a) Trading with enemy
(b) Sale of public offices and appointments
2. Interference with the administration of justice
(a) maintenance
(b) champerty
(c) agreement to stifle prosecution
(d) interference with the cause of justice.
3. Violation of public Decency
(a) marriage brokage agreement
(b) agreement against marital relation.
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