OBJECT AND CONSIDERATION
As defined by section 2(h) of the Indian Contract Act, 1872 ‘an agreement enforceable by
law is a contract’ and further according to section 2(e), the consideration forms the basis of
an agreement. Consideration is nothing but a promise or an act in return of a promise.
Consideration is what you give in exchange for what you get from the other party to the
contract.
The “object” and “consideration” may be in some cases be the same thing but usually they
are different. For example, where money is borrowed for the purpose of the marriage of a
minor, the consideration for the contract is the loan and the object, the marriage. The actual
difference came out in a case of Jaffar Meher Ali v. Budge Budge Jute Mills Co. of
Calcutta High Court where a debtor transferred certain property to one of his creditors, the
object being to give him preference over other creditors, the object being to give him
preference over other creditors and SALE J stated that – “The word ‘object’ in Section 23 of
the contract act was not used in the same sense as ‘consideration’, but was used as
distinguished from consideration and means ‘purpose’ or ‘design’. If then the purpose of the
parties was to defeat the provisions of the bankruptcy Law there can be no doubt that the
transfer would be inoperative under the provisions of section 6 of Transfer of Property Act.
UNLAWFUL AGREEMMENTS
The fourth and the last requirement for the formation of a valid contract is that parties must
contract for lawful object. An agreement the object of which is opposed to the law of the land
may be either unlawful or simply void, depending upon the provision of the law to which it is
opposed.
Section 23 renders certain considerations and objects as unlawful.
S.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; 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.
There are certain fixed grounds under which consideration for a contract can be said to be
unlawful or the contract can be declared void. These grounds are as follows:
1. Forbidden by law
Where the object on an agreement is forbidden by law, the agreement is void. “Law” in this
connection means the law for the time being in force in India and therefore includes Hindu
and Mohammedan laws also and also principles of unwritten law.
Violation of licences and permits
Cases on this point have mostly been found in agreements involving breach of laws enacted
for the protection or promotion of public interest. In such a case of Gherulal Parakh v.
Mahadeodas 1of Madras High Court.
The plaintiff was licensed under an Excise act to work a liquor shop. The act forbade the sale,
transfer of sub lease of the licence or the creation of the partnership to run the shop. The
plaintiff took the defendant into partnership.
The partnership was held void as it would defeat the policy of the law if unaprooved persons
could find their way into working liquor shops. An agreement indirectly defeating the
provisions of an act would be equally void2. Much however depends on the object of the
particular statute and the object of the agreement as interpreted by the court. If the intension
of the legislature is to forbid an act in public interest, an agreement to do the forbidden act
will obviously be void. 3but if the intension is merely to regulate an act by prescribing certan
terms and conditions and formalities, a cantract to do the act without fulfilling the satatutory
requirements may not itself be void, even if the parties have to pay penalty for the breach of
the statute.4
1
171 IC 948.
2
Behari Lall Shaha v Jagodish Chunder Shaha, ILR (1904) 31 Cal 798.
3
Pollock, PRINCIPLES OF CONTRACT.
4
Amritsar Reyon & Silk Mills Ltd. V Amin Chand Sajdeh, (1987) 2 PLR 253.
A Bombay High Court case of Bhikanbhai v Hiralal5 illustrates the point :
The plaintiff was the lessee of certain tolls under the Bombay Tolls Act, 1875. One of the
condition of the lease was that the lessee should not sublet the tolls to any other person
without the permission of the collector. A fine of Rs. 200 was payable for the breach of the
condition. The plaintiff contracted with the defendant to sublet the toll to him without
obtaining the necessary permission.
The question was whether sub lease was void. The court held that it was not. The object of
the statute was not to forbid such transactions. It was “an act passed for the benefit of the
revenue and not an act for the protection of public morals.” The transaction may be void as
against the collector, but between the parties it stands.
Violation of enactments
Violation of the provisions of enacted laws at the time of building or concluding the contract
is also regarded to be unlawful. The Allahabad High Court held that a contract to supply
electricity on the condition that the consumer would be liable to replace the transformers if it
is stolen is void, being contrary to the Electricity (Supply) Act, 1948 which provides that the
board must maintain the distribution lines and transformers are parts of it. 6 A solicitor’s
agreement of fee sharing with a person introducing clients has been held to be void being in
violation of rules. The court said that the only alternative remedy of the person who
introduced a client was to sue for reasonable remuneration for services if rendered in
ignorance of the violation.7
Assignment of 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.8
Stay order
5
ILR (1900) 24 Bom 622.
6
UPSEB v Lakshmi Devi Sehgal, AIR 1977 All 499.
7
Mohamed v Alaga & Co, (2000) 1 WLR 1815 (CA).
8
Prentice Hall India (P) Ltd. Prentice Hall Inc. AIR 2003 Del 236
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 object. It may
be that a construction under disputed circumstances may not find buyers, yet the contractor
cannot get rid under the doctrine of illegality or impossibility.
[Link] of law
Sometimes the object of, or the consideration for, an agreement is such that though not
directly forbidden by law, it would, if permitted, defeat the provisions of any law. Such an
agreement is also void. Easy illustrations are to be found in agreements relating to bail bonds.
The debt of an agricultural borrower in respect of his agricultural land became discharged by
virtue of certain statutory provisions. Subsequent to that, the same land was sold wherein the
discharged debt was also treated as a part of the consideration. The transaction was held to be
unlawful as it would have defeated the policy of revealing agriculture borrowers from debt
burdens. The fact that only a part of the consideration had the effect of defeating law was not
considered to be material because the transaction because the transaction was for one
inseparable consideration.9
A person, who was elected as a sarpanch for a period of five years, made an agreement with
another member that the latter would be given two year term and the elected one, the
remaining three years. The agreement was held to be void as it would have defeated the
purpose and provisions of the Punjab Pachayat Raj Act, 1994.10
Law of friendly country
An agreement which defeats the law of the friendly country would be equally void. As in
Ragazzoni v K.C. Sethia11 where the government of india had, by regulations made under
the Sea Customs Act, 1878, prohibited the export of goods to South Africa. The plaintiff and
the defendant, being aware of the prohibition and in a bid to overcome the embargo, agreed
thet a larger quantity of jute bags would be shipped from india and made available in Genoa
for resale to south African buyers. The defendant failed to deliver the goods and the plaintiff
sued for damages.
9
Kommineni Seetharamaiah v K. Punnaiah, 1996 AIHC 4384 (AP)
10
Mohinder Singh v State of Punjab. AIR 2009 NOC 434 (P&H)
11
(1956) 2 QB 490
The court of appeal held that while the English courts will not enforce foreign revenue or
penal laws, they will not entertain an action based on a transaction which is knowingly
intended to involve a breach of such laws. D ENNING LJ said : “… if two people knowingly
agree together to breach the laws of a friendly country or to procure someone else to break
them or to assist in doing of it, then they cannot ask this court to give its aid to the
enforcement of their agreement.”
Innocent violation
Where the violation of a home or foreign law would not be an affront to public conscience,
enforcement may be allowed. Such a possibility was recognised by court of appeal in
Howard v Shilstar Container Transport Ltd. 12 where the court said that although the court
would not normally enforce a contract which would enable a plaintiff to benefit from his
criminal conduct since to do so would be an affront to the public conscience, there are
circumstances where it would be wrong to disqualify a plaintiff from recovering, even though
his claim was derived from the conduct which constituted a statutory offence.
Money and property involved in transactions defeating law
The supreme court considered this part of section 23 in Surasaibalini Debi v Phanindra
Mohan Mazumdar13 where AYYANGAR J found that the law undoubtedly was that where a
benami transaction is entered into for the evasion of taxes, the law would not give its help to
either party and would leave them where they are. In such cases recovery is possible only if
either the illegal purpose has not been carried out or the plaintiff has not to rely upon the
illegal transaction.
Agreement to evade taxes
An agreement between the partners of a firm to conceal income in certain respect so as to
evade income tax has been held to be unlawfull.14
Undercutting of statutory privileges
12
(1990) 1 KB 470 (CA)
13
14
Ram Sevak v Ram Charan, AIR 1962 All 177.
A term in a contract of carriage requiring that notice of loss must be given within 30 days of
the arrival of the goods has been held by the Supreme Court to be contrary to and defeating
Section 10 of the Carriers Act, 1865, which prescribes a period of six months for the purpose.
2. FRAUDULENT
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 for example 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.15
“Intension to deceive” seems to be necessary for an agreement to fall in this category. A
decision of the English court of appeal, however, shows that the same result may follow
where one of the parties had no such intension, but made himself an innocent instrument of
fraud at the suggestion of the other party. 16 MORRIS LJ stated the effect of the agreement thus:
If you make a false representation that the goods have been received in good order when you
know that they are not so and which will deceive endorsees of the bill, we will not indemnify
you against the consequences.
[Link] to person or property
An agreement between two persons to injure the person or property of another is unlawful. In
the same way, if the object of an agreement is such that it involves or implies injury to the
person or property of another, the agreement is unlawful and void.
Fruit of Crime
Law does not help a person to recover anything under his own crime. The fruit of a crime are
irrecoverable. No person is allowed to benefit from his own crime. It is on this principle that
a person is not permiteed to participate in a succession which he has brought about the
murder.17
[Link]
15
Atamal Ramoomal v Deepechand Kesurmal, AIR 1939 Sind 33.
16
Brown Jenkinson & Co. v Percy Dalton Ltd, (1957) 2 QB 621.
17
Giles v Giles 1972 Ch 544.
The law does not allow an agreement tainted with immorality to be enforced. Consequently,
every agreement the object of or consideration for which is immoral, is unlawful. What is
“immoral” depends upon the standards of morality prevailing at a particular time and as
approved by the courts. But certain kinds of acts have been regarded as immoral since times
immemorial and will perhaps always be so regarded.
Interference in marital relations
One such act is interference with marital relations. Thus where a married woman was given
money to enable her to obtain divorce from her husband, the lender promising to marry her
subsequently, it was held that the money could not be recovered.18
Dealings with prostitutes
Dealing with prostitutes have always been regarded as immoral. “if articles are sold or
something is hired to a prostitute for the purpose of enabling her to carry on her profession,
neither the price of the article sold nor the rent of the thing hired can be recovered.19
Illegal cohabitation
A promise to pay for future cohabitation is unenforceable. A promise to pay for past
cohabitation for the purpose of securing the continuance of the cohabitation is also
unenforceable. Where a promise was given past cohabitation “with a view tat she may
continue in my service” it was held to be opposed to public policy.20
“Immorality” to be limited to sex outside marriage
The scope of the word “immoral” has been explained by the Supreme Court in Gherulal
Parakh v Mahadeodas21 SUBBA RAO J said : the case law both in England and India
confines the operation of the doctrine of sexual immorality. To cite only some instances:
settlements in consideration of concubinage, contracts of sale or hire of things to be used in a
brothel or by a prostitute for purpose incidental to her proffesion, agreements to pay money
for future illicit cohabitations, promises in regard to marriage for consideration or contracts
facilitating divorce are held to be void on the ground that the object is immoral.
18
Baivijli v Nansa Nagar, ILR (1885) 10 Bom 152.
19
Pearce V Brooks, (1866) LR 1 Exch 213
20
Alice Mary Hill v William Clarke, ILR (1905) 27 All 266
21
AIR 1959 SC 781
The learned judge pointed out that the word “immoral” being a very comprehensive one,
must be given restricted meaning and it has been restricted to mean sexual immorality.
Accordingly the court held that a wagering agreement could not be regarded as immoral.
[Link] Policy
An agreement is unlawful if the court regards it as opposed to public policy. The term
“public policy” in its broadest sense means that sometimes the courts will, on considerations
of public interest, refuse to enforce a contract.22
Observation in English Law about public policy
Lord ATKIN, “the doctrine should only be invoked in clear cases in which the harm to the
public is substantially incontestable, and does not depend upon the idiosyncratic inference of
a few judicial minds.”23
Indian cases adopting English view
“The Indian cases also adopt the same view.” The following words of SUBBA RAO J in
Gherulal Parakh v Mahadeodas24 enshrine the present position of the doctrine of public
policy in India. “The doctrine of public policy may be summarised thus: 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 which
forms the basis of the society, but in certain cases, the court may relieve them of their duty on
a rule founded on what is called public policy; for want of better words Lord ATKIN describes
that something done contrary to public policy is harmful thing: but the doctrine is extended
not only to harmful cases but also to harmful rendencies, this doctrine of public policy is only
a branch of common law, and just like any other branch of common law, it is governed by
precedents; the principles have been crystallised under different heads and though it is
permissible for courts to expound and apply them to different situations, it should only be
invoked in clear and incontestable cases of harm to the public; though the heads are not
closed and though theoretically it may be permissible to evolve a new head under exceptional
22
Thomson- CSF v National Airport Authority of India.
23
In Fender v john Mildmay, 1938 AC 1, 723 (HL).
24
AIR 1959 SC 781
circumstances of a changing world, it is advisable in the interest of stability of society not to
make any attempt to discover new heads in these days.”
Surrender of rights
A wife who is entitles to maintenance can give up her right in consideration of a lump sum
payment, but the surrender of the right to claim revision of the amount in the context of rising
prices would be opposed to public policy.
Marriage of minor girl
Where the consideration for a contract of sale was the expenses of the marriage of a minor
girl, the arrangement was held to be oppose to public policy, being in violation of the child
Marriage Restraint Act.
Grabbing of privilege by extraneous influences
A sale seats in a public institute, e.g., a medical college, is equally opposed to public policy.
The Supreme Court has held that charging of capitation fee in consideration of admission to
educational institutions is illegal and impermissible as in amounts to denial of citizen’s right
to education and is arbitrary and violative of article 14 of the constitution.25
Alienation of land by member of depressed class
A portion of land was assighned by the government to a depressed class member in fulfilment
of its constitutional obligation under Article 39(b). The grant was subject to the specific
condition that the land would not be alienated. Because of the violation of this condition and
because of the public policy implication, the alienation of the land was held to be of no
effect.26
HEADS OF PUBLIC POLICY
[Link] WITH ENEMY
It is now fully established that the presumed object of war being as much to cripple the
enemy’s commerce as to capture his property, a declaration of war imparts a prohibition of
25
Mohini Jain v State of Karnataka, (1992) 3 SCC 666.
26
Papaiah v State of Karnataka, (1996) 10 SCC 533.
commercial intercourse and correspondence with the inhabitants of the enemy’s country, and
that such intercourse, except with the licence of Crown, is illegal.27
[Link] IN PUBLIC OFFICES
An agreement by which it is intended to induce a public officer to act corruptly to public
policy. An agreement for example by which a sum of money was provided to a charity on the
condition that latter would procure a knighthood for the plaintiff was held to be void and the
money irrecoverable.28
[Link] WITH ADMINISTRATION OF JUSTICE
A contract the object of which is to interfere with the administration of justice, is obviously
opposed to public policy. It may take any of following forms:
(a)Interference with the course of justice- Any agreement which obstructs the ordinary
process of justice is void.29
(b)Stifling prosecution- It is in public interest that criminals should be prosecuted and
punished. Hence, an agreement not to prosecute an offender withdraw a pending prosecution
is void if the offence is of public nature.
An illustration is to be found in the decision of the Supreme Court in Narasimharaju v
Gurumurthy Raju30 In the dissolution and settlement of accounts of a partnership firm, one
of the partners filed a criminal complaints against his co-partners alleging forgery in and
manipulation of accounts by taking in a fake partner. Subsequently, the partners entered into
an agreement to refer the matter to arbitration in pursuance of which the complainant did not
offer any evidence and his complaint was accordingly rejected. When the question of the
enforcement of arbitrators award arose, it was alleged that the reference to arbitration was the
result of an agreement to stifle prosecution.
GAJENDRAGADKARJ (afterwards CJ) held the agreement to be opposed to public policy .
He said “If a person sets the machinery of criminal law into action on the allegation that the
opponent has committed a non-compoundable offence and by the use of the coercive criminal
27
Espostio v Bowden, 110 RR 822.
28
Parkinson v College of Ambulance ltd, (1925) 2 KB 1.
29
Windhill Local Board of health v Vint, (1890) LR 45 Ch D 351.
30
AIR 9163 SC 07
process, he compels the opponent to enter into an agreement, that agreement would be treated
as invalid for the reason that its consideration is opposed to public policy”.
(c) Maintenance and champerty- “Champerty” in its essence means “a bargain whereby one
party is to assist the other in recovering property , an is to share in the proceeds of the
action.” In Hiralal Nathlal Talalti v Bhailal Pranlal Shah31 where a person has agreed to
give half share of property to the financier valued at Rs 30000 from such property as he
might get whether by a suit or by private settlement or in any other manner from his father’s
estate. The court held that the agreement was extortionate and unconscionable and opposed to
public policy.
[Link] BROKER CONTRACTS
An agreement to procure the marriage of a person in consideration of a sum of money is
called marriage brokage contract. Such agreement are void. A typical illustration would be an
agreement for the sale of a girl.
31
AIR 1940 Bom 143
