LEGALITY OF OBJECT – UNLAWFUL AGREEMENTS

This article was written by Aishwarya Singh a studnet of Jindal Global Law School.

One of the most important element for a valid contract is that the parties must contract for a lawful object. An agreement whose object is opposed to the law of the land may be either unlawful or simply void, depending upon the provisions of the law to which it is opposed.[1] Section 23 of the The Indian Contract Act, 1872 renders certain considerations and objects as unlawful. “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 any law; or fraudulent; or involves or implies injury to the personof another; or the Court regards it as immoral, or opposed to the public policy.”

In this section, the word expression used are ‘void’, ‘object’ and ‘consideration’. There may not be a ‘void object’ as such, but one can consider it as void contract having unlawful object which cen be declared void object.[2] Similarly, there may not be ‘void consideration’ as such, but one can consider it as void contract having unlawful/illegal consideration which can be declared void consideration.[3] This section deals with the illegality of both – the object of the contract and the consideration for it.[4] For example: Where a money was borrowed for thr purpose of the marriage of the minor, the consideration for the contract is the loan and the object is the marriage, the Madras High Court[5] observed that the purpose defeats the provisions of the Child Marriage Restraint Act. The word “object” in Section 23 is not used in the same sense as “consideration”, but was used as distinguished from consideration and means “purpose” or “design”.[6] The Section invalidates agreement whose objects or considerations is unlawful. It is of three matters, viz. (1) consideration for the agreement, (2) object of the agreement and (3) the agreement. When a contract is invalid, every part of it, including the clauses as to arbritration conatined therein, must also be considered to be invalid.

The three main principles which arise from this section are:

1. An agreement or contract is void, if its purpose is the commission of an illegal act.
2. An agreement or contract is void, if it is expressely or impliedly prohibited by any law.
3. An agreement or contract is void, if its performance is not possible without the disobedience of any law.[7]

The general rule is that the facts shoiwng illegality must be pleaded, and if one of the contracting parties challenges an agreement as being unenforceable, e.g. as being opposed to public policy, it is for him to set out and prove those special circumstances which will invalidate the contract.[8] This section of the Contract Act, speaks of void agreement but one must remember that there is a very thin line of distinction between illegal and void contracts.

An illegal contract will never be enforced if it be executory, but if it be executed in despite of a statute or a rule of oublic policy prohibiting it, relief will often be granted not only by setting aside the agreement but by ordering a repayment of money paid under it. On the same principle, an agreement to sell goods in belack market in exchange for black money can be enforced in a court of law.[9]

The expression “forbidden by law” is not synonymous with the word “void” and hence it is not necessary that whatever is void is also forbidden by law.[10] Forbidden by law means an act forbidden by Indian Penal Code or by special legislative enactments, regulations and orders.[11] The expression “public policy” means and includes a wide range of topics such as trading with the enemies in times of war, stifling prosecutions, champerty and maintenance and various other topics which include certain recognized matters.[12]

The term “public policy” does not admit of any definition. The existing heads of policy are: (1) By tending to the prejudice of the state.[13] It may be further divided into following two sub-heads: (a) Trading with enemy (b) Sale of public offices and appointments. (2) By tending to the perversion of or interference with the administration of justice. It may also be divided into the following heads: (a) Perversion or interference in justice - (i) Maintenance; (ii) Champerty; (b) Agreement to stifle prosecution. (3) Violation of public decency.[14] It is equivalent to the policy of the law.[15]

When the legality of the object is forbidden by the law:  Law is in connection means the law for the time being in force in India, and therefore, includes Hindu and Mohammaden laws also and also principles of unwritten law.[16] A simple illustration is the slae of liquor without license and the sale was was considered to be void and the price irrevocable.[17]

1. Assignment of the copyright

The Copyright Act, 1957 permits assignment of copyright in any present or future work. The statutory permission was held to be not violative of public policy because there are safeguards for the protection of the owner within the framework of the Act itself.[18]

2. Stay Order

A stay order on construction which was obtained otherwise than under the allegation that the object of the contract was unlawful was held as not amounting to illegality of the object, if the construction under disputed circumstances may not find buyers, yet the contractor cannot get rid under the doctrine of illegality or impossibility.[19]

Conclusion

For the cases coming under Section 23, one has to examine or see whether the section invalidates agreement on the ground of the objects or consideration is being unlawful. The three matters, as referred to above, viz. (i) consideration for the agreement, (ii) object of the agreement and (iii) the agreement are also required to be kept in mind, and the three principles, arising from the Section – which are: (i) an agreement or contract is void, if its purpose is the commission of an illegal act; (ii) if it is expressly or impliedly prohibited by any law, and (iii) if its performance is not possible without disobedience of any law.

[1] Singh, Avtar, Contract &Specific Relief, 10^th Edition. Eastern Book Company Page 256.

[2] Sarma, B.V.R., Lawful objects and considerations under Section 23 of the Indian Contract Act 1872 – An Analysis, Page 3.

[3] Ibid

[4] Singh, Avtar, Contract &Specific Relief, 10^th Edition. Eastern Book Company Page 257.

[5] Chandra Sreenivosa Rao v. Kowapatti Raja Rama Mohana Rao, AIR 1952 Mad 572

[6] Jaffar Meher Ali v. Budge Budge Jute Mills, (1906) 33 Cal 702.

[7] Supra Note 3

[8] Sarma, B.V.R., Lawful objects and considerations under Section 23 of the Indian Contract Act 1872 – An Analysis, Page 5

[9] Singh, Avtar, Contract &Specific Relief, 10^th Edition. Eastern Book Company Page 263.

[10] Sarma, B.V.R., Lawful objects and considerations under Section 23 of the Indian Contract Act 1872– An Analysis, Page 4

[11] Ibid

[12] Supra Note 8

[13] Supra Note 11

[14] Sarma, B.V.R., Lawful objects and considerations under Section 23 of the Indian Contract Act 1872– An Analysis, Page 8

[15] Sarma, B.V.R., Lawful objects and considerations under Section 23 of the Indian Contract Act 1872– An Analysis, Page 11

[16] Gherulal Parekh v. Mahadeo Das, 1959 Supp (2) SCR 406

[17] Boistrub Charan v. Wooma Charn, (1889) 16 Cal 436.

[18] Prentice Hall India (P) Ltd v. Prentice Hall Inc. (2003) 1 CLT 576 (Del)

[19] Tenet Homes & Resorts (P) Ltd v. Ernakulam, AIR 2001 Ker 279