Malvika's Gpc Project.docx

INTRODUCTION The fourth and the last requirement for the formation of a valid contract is that parties must contract for a 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.

UNLAWFUL AGREEMENTS Section 23 of the Indian Contract Act 1872 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.

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 1000 rupees at the end of six months, if C, who owes the 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, B, and C entre into an agreement of the division among them of gains acquired, or to be acquired, by them by fraud. The agreement is void, as its object is unlawful.

(d) A promises to obtain for B an employment in the public service, and B promises to pay 1000 rupees to A. The agreement is void, as the consideration for it is unlawful. (e) 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. (f) 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 (XLV of 1860).

OBJECT AND CONSIDERATION The section covers the illegality of both the object of the contract and the consideration for it. The “object” and “consideration” may 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. In a case of this kind before the Madras High Court,1 the court found that the marriage in question was hit by the provisions of the Child Marriage Restraint Act of 1929. “The purpose for which the guardian borrowed the money is to celebrate the marriage of a child which is an offence under the Act.” Thus, the object was to defeat the provisions of the Child Marriage estraint Act. The court relied upon the earlier decision of the Calcutta High Court in Jaffar Meher Ali v Budge Budge Jute Mills2 where a debtor transferred certain property to one of his creditors, the object being to give him perference over other creditors and SALE J stated the difference between “object” and “consideration”. 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 the Transfer of Property Act.

FORBIDDEN BY LAW Where the object of 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.3 A simple illustration is the sale of liquor without licence. The sale is void and the price irrevocable.4 1

Chandra Sreenivosa Rao v Kowapatti Raja Rama Mohana Roa, AIR 1952 Mad 579. There is no presumption of illegality. Such a presumption cannot be raised except where it is warranted by rules relating to presumptions. A presumption of legality-not a presumption of illegality is the rule. The mere possibility of transgression of lawis not a ground for saying that the agreement offends S. 23. The agreement must be shown to be ex facie illegal or capable of being performed only through illegal means. Mathai George v Mathew Chacko, (1987) 1 Ker LT 341. 2 (1906)33 Cal 702. 3 Gherulal Parekh v Mahadeo Das, 1959 Supp (2) SCR 406, 417: AIR 1959 SC 781, 786. 4 Boistrub Charan v Wooma Charn, (1889) 16 Cal 436. See also Kateshwar Mittal Kamath v K. Rangappa Baliga & Co, AIR 1959 SC 781: (1959) 2 SCA 342; Ajit Singh v Kakbhir Singh, AIR 1992 P&H 193, a clog on the equity of

A Contract to pay some money if a crime or a tort is committed is not enforceable. If the law prohibits bigamy, a promise by a married man to marry another lady is unlawful. Even if the promise says that a man would marry a woman after his wife’s death, such a promise is not enforceable because such a promise tends to break up marriage, encourages immorality and often leads to commission of crimes. If the agreement does not satisfy the clear and unequivocal requirements of a statute it is void. In Re Mahmoud and Ispahani, (1921) during the war the sale of linseed oil without a license 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 license. Subsequently, when the oil was supplied the defendant refused to accept the same on the ground that he had such a 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 void contract between the parties. Merely because a party does not observe certain statutory requirements does not mean that the agreement is void. The Court has to see the real purpose of the Act. In Smith v Mawhood, a statute required that a dealer in tobacco must hold a licence to sell the same and he should also have his name painted outside the place of his business and the failure to observe this rule attracted a penalty of 200. The plaintiff, who had sold tobacco without observing the abovestated statutory requirements, was held entitled to recover the price of the goods. In this case the real purpose of this Act was to impose a fine on the offending party for the purpose of the purpose of the revenue, rather than to vitiate the contract itself.

DEFEAT THE PROVISIONS OF ANY LAW redemption (95 yrs) violates Transfer of Property Act and is, therefore, unlawful under S. 23; Denzyl Winston Ferries v Abdul Jaleel, AIR 1992 AP 246: (1992) 2 Andh LT 144, sale of excess land without obtaining permission of competent authority under Urdan Land (Ceiling and Regulation) Act, 1976, held unlawful, to the same effect. Raj Kumar Tajendra Singh v Dr Sital Raj Mehta, (1988) 1 Raj LR 523; Denzyl Winston Ferries v Abdul Jaleel, (1992) 2 Andh LT 144. Gopal Lal v Babu Lal, (2004) 4 CLT 161 (Raj DB), a kind of compromise which is barred by Order 23, Rules 3, 3- Aand S. 96(1), CPC, not allowed to be enforced.

If the object or considersation 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. In Sitaram v Harihur, (1911) the natural father paid a sum of ₹ 8,000/- to a widow to induce her to adopt his son. It was held that this payment was in the nature of a bride and as such was illegal according to Hindu Law. In Abdul Pirojkhan Nabab v Hussenbi (1904), the Plaintiff and the defendant who married under the Mahomedan law, agreed before marriage that the defendant (wife) would be allowed to live with her parents after the marriage. The wife went to her parents and refused to come back to her husband (plaintiff). He filed a suit for restitution of conjugal rights. Her defence was that she was permitted by the agreement made before the marriage, to live apart, and also that the husband has not paid her dower amounting to ₹1,000/-. It was held that the agreement made before marriage permitting the wife to live separately was void in law. The Plaintiff was granted the decree for restitution of conjugal rights conditional upon payment by him of the stipulated dower of ₹1,000/-. An agreement for the future separation between a Mahomedan husband and wife is also void because the same is opposed to public policy. However, an agreement to do a thing not contrary to any provision of law or contrary to public policy, is not unlawful. In Sukla v Ninni, it has been held that although according to Mahomedan Law a man, who has begotten an illegitimate child, does not have a duty to maintain him but an agreement to maintain an illegitimate child is not unlawful, and is therefore not void. Maintenance of illegitimate children, it was further observed, is in consonance with public policy in India. Another illustration is Foster v Driscoll.5 Here the agreement was to buy whisky in Great Britain and to smuggle it into the United States against the law of that country. The Court of Appeal held the agreement to be illegal. It involved the commisson of an offense in a foreign and friendly country and so a breach of international comity. It did not matter that the parties had not succeeded in their attempt and they could have lawfully taken their goods to another country. 5

(1928) All ER Rep 130: (1920) 1 KB 470 CA.

FRAUDULENT An agreement made for a fraudulent purpose is void. Where the parties agree to impose a fraud on the 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 creditor, the object of the agreement is fraudulent.6 In another case, there were two decree-holders against the debtor and one of them, the plaintiff, had the debtor’s property attached and brought to sale. The plaintiff agreed with the defendant, a prospective buyer, that he would not bid against the defendant and that the defendant would pay him off. The property was thus knocked down to the defendant for a very small price. It was held that the whole object of the arrangement was fraudulent as it deprived the other decree-holder of what he would have got if the sale had been competitive. Accordingly, the plaintiff could not recover anything from the defendant.7 Similarly, an agreement to defraud creditors, or to give fraudulent preference to a creditor8 or to defraud revenue authorities,9 or investors in a company,10 are illegal. A compromise decree obtained by practising fraud on the court was held to be void.11 In Jai Ram v Kahna Ram, AIR 1963, H.P., the forest department of Himachal Pradesh invited tenders for timber. A and B entered into an agreement according to which both of them were to submit tenders, A’s tender to be for a higher amount than B. In consideration for A non-competing with B, B gave a postdated cheque to A for ₹ 15,000/-. It was agreed that if B’s tender was accepted A will get the cheque cashed, otherwise he will return the cheque to B. B’s tender was accepted, but he gave instructions to his bank to stop the payment of the cheque to A. A filed 6

Atamal Ramoomal v Deepchand Kessurmal, AIR 1939 Sind 33; Mallalien v Hodgson, (1891) 16 QB 629. Indian Hostels Co Ltd v Bhaskar Moreshwar Karve, (1993) Cri LJ 3370 Bom, sale of a company’s property at a throwaway price may be of fraudulent nature and, therefore, against public policy. Munesh v Anasuyamma, AIR 2001 Kant 355, a document containing compromise of martial proceedings on which the wife’s signature was forged was against law and, therefore, could not be the basis of any matrimonial remedy. Laxman Lahanuji Lende v Harichand Domaji Kulharkar, (2006) 3 Bom CR 864 (Nag Bench), deed of the family partition, alleged to be fraudulent, Karta is a necessary party, other coparceners desirable but not necessary 7 Ram Nath Misra v Rajendranath Sanyal, 142 IC 525: (1933) 8 Luck 233. See also Manika Moopanar v Periya, 164 IC 31: AIR 1936 Mad 541; Kedar Nath Motani v Prahlad Rai, (1960) 1 SCR 439, 447: AIR 1960 SC 213, 216. 8 Note 1 above and see Ramlal Misra v Rajendra Nath Sanyal, AIR 1933 Oudh 124. 9 Alexander v Rayson, (1936) 1KB 169. 10 Beghie v Phosphate Sewage Co Ltd, (1876) 1 QBD 679. 11 Ashis Kumar Ghosh v Gopal Chandra Ghosh, (2004) 3 CHIN 146 (Cal), the plaintiffs alleged that they were never parties to the suit which ended in the compromise.

a suit against B to recover the amount of the cheque. One of the defences pleaded by B was that the agreement between them was fraudulent and opposed to public policy and as such void. It was held that in this case the dominant object of the aforesaid agreement was that the contract by the Forest Department be given to B, and the object could be said to be aimed at defrauding the Forest Department. The agreement between the parties was held to be valid and binding. it was also found that the Forest Department has a discretion even to reject the lowest tender and, therefore, procuring the acceptance of the tender by submitting lowest rate could not be considered to be fraudulent abject.it was held that the agreement between the parties was not void under Section 23 of the Indian Contract Act.

INJURIOUS TO PERSON OR PROPERTY An agreement between two persons to injured 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 the property of another,12 the agreement is unlawful and void. A person borrowed a sum of hundred rupees and executed a bond promising to work for the plaintiff without pay for a period of two years. In case of default, the borrower was to pay an exorbitant interest and the principal sum at once. The court held that the contract contained in the bond was indistinguishable from the slavery, which involves injury to the person and was, therefore, void.13 Similarly, a bond to pay an exorbitantly high rate of interest, in case, the borrower left the lender’s service, has been held to be void.14 An agreement to commit a crime or a civil wrong, for example, to assaults or beat a person15 or to deceive him16 or to publish a libel against him,17 all fall in this category.

12

An agreement to construct a railway line on a land to be acquired for the purpose does not involve injury to person or property. Union of India v Philips Construction, (1980) 1 Ker LT 42 Case No. 78. Narayanan v Rajamany, (1995) 2 Ker LT 351, it is not necessary that the intention to cause injury should be expressly mentioned in the agreement. It is enough that the object can be discerned from the agreement or from other materials even if by implication. 13 Ram Sarup v Bansi Mandar, (1915) 42 Cal 742. 14 Ibid. See also Satish Chandra v Kashi Sahu, (1918) 3 Pat LJ 412: 46 IC 418: cf. Kanakal v Pambayan, AIR 1927 Mad 531: 101 IC 39. 15 Allen v Rescous, (1677) 2 Lev 174: 1 Freem KB 433. 16 Brown Jenkinson and Co Ltd v Percy Dalton (London) Ltd, (1957) 2 QB 621. 17 Clay v Yates, (1856)1 H & N 73: 25 LJ Ex 237.

IMMORAL If the consideration of object of an agreement is regarded by the court to be immoral or opposed to public policy, the agreement is unlawful and void. A landlord letting his house knowing that the same was to be used for the purpose of running a brothel cannot recover the rent of the same. In Bai Vijli v Nansa Nagar, the Plaintiff advanced a loan to the defendant, a married woman, to enable her to obtain divorce against her husband and then marry the plaintiff. The object of an agreement was held to be immoral and the Plaintiff was not entitled to recover the loan so advanced.

PUBLIC POLICY If the court regards an agreement as opposed to public policy, the agreement is void. Public policy is not capable of any precise definition. Public policy means the policy of the law at a stated time. An act which is injurious to the interest of the society is against public policy. If an agreement is prejudicial to social or economic interest of the community, it will be against public policy to enforce such an agreement. On the one hand a persons right of contractual freedom should be maintained, on the other hand if the contract is against public policy the law must not allow that to be enforced.

The following agreements have been held to be opposed to public policy (1) Agreement to stifle prosecution An agreement to stifle prosecution has been regarded as opposed to public policy. The purpose of criminal law is to punish a guilty person and a compromise with a view to save a guilty person from liability would frustrate this object. If A promises B tor 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 objects is unlawful.

(2) Agreement to maintenance and champerty Maintenance consists in aiding a party in civil proceedings by providing financial or other assistance without lawful justification. When a person intermeddles in the litigation between others by providing assistance to one of the parties, and he has no interest of his own in the litigation, such intermeddling is unlawful.

(3) Trading agreement with an enemy When there is a war between two countries it is unlawful and against public policy that a person should trade with a subject of the enemy country. During the war it is unlawful either to enter into a contract, or to perform a contract entered into before the war broke out.

(4) Marriage brokage contract Marriage brokage contracts means such contracts under which a person agrees to procure a marriage between two persons on some consideration. Such agreements are opposed to public policy and are void.

(5) Agreement tending to injure the public service An agreement to buy, sell or procure a public office is against public policy. When there is a sale of public office, or assignment of the salary of an office, it is unlawful. Such agreements tend to corrupt public life as they are likely to interfere in the selection of properly qualified persons for an office, and are, therefore, void.

VOID AGREEMENTS According to Section 2(g) of the Indian Contract Act 1872.

An agreement not enforceable by law is said to be void. The following types of agreement are declared to be void: (1) Agreements of which consideration and objects are unlawful in part [S.24] If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.

Illustration A promise to superintend, on behalf of B, a legal manufacturer of Indigo, and an illegal traffic in other articles. B promises to pay A, a salary of 10,000 rupees a year. The agreement is void, the object of A’s promise, and the consideration for B’s promise, being in part unlawful.

(2) Agreements without consideration [S.25] Section 25 declares that an agreement without consideration is void. This is of course, subject to a few exceptions, which have already been considered along with “consideration”.

(3) Agreement in Restraint of marriage [S.26] Every agreement in restraint of the marriage of any person, other than a minor, is void. It is the policy of law to discourage agreements which restrain freedom of marriage. The restraint may be general or partial, that is to say, the party may be restrained from marrying at all, or from marrying for a fixed period, or from marrying a particular person, or a class of persons, the agreement is void. The only exception is in favour of a minor.18 18

Lowe v Peers, (1768) 4 Burr 2225; Moharrum Ali v Aysha Khatum, (1915) 19 CWN 1226, where a condition in a marriage arrangement that if the husband married another woman, the first wife would divorce him was upheld; Jamila Khatun v Abdul Rashid, AIR 1939 Lah 165; Latafatunnissa v Shaharbanu Begam, AIR 1932 Oudh 108.

A penalty upon remarriage may not be construed as a restraint of marriage. Thus, an agreement between two co-widows that if any of them remarried, she should forfeit her right to her share in the deceased husband’s property has been upheld, the court pointing out that no restraint was imposed upon either of the two widows for remarriage. “All that was provided was that if a widow elected to remarry, she would be deprived of her rights.”19 Similarly, agreements that upon remarriage, the widow would lose the right to maintenance20 and upon the husband marrying a second wife, the first would get the right to divorce him, have been upheld.21

(4) Agreement in Restraint of trade [S.27] Every agreement by which any one is restrained from excercising a lawful profession, trade or business of any kind, is to that extend void.

Exception 1- Saving of agreement not to carry on business of which goodwill is sold. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyers, or any person deriving title to the goodwill from him, carries on a like business therein: Provided that such limits appear to the Court reasonable, regard being had to the nature of the business.

(5) Agreements in Restraint of legal proceedings [S.28] It is a well-known rule of English law that “an agreement purporting to oust the jurisdiction of the courts is illegal and void on grounds of public policy”. 22 Thus, any clause in an agreement providing that neither party shall have the right to enforce the agreement by legal proceedings is void.23 An arrangement may, however, stipulate that there is no intention to contract, or that it is only a gentleman’s agreement. In such a case, no action is possible under the agreement.24

19

Rao Rani v Gulab Rani, ILR 1942 All 810; relying upon Mohd Hasan v Navi Jeham, (1921) 10 All LJ 185. Latafatunnissa v Shaharbanu Begam, AIR 1932 Oudh 108. 21 Babu v Badarnessa, (1919) 29 CLJ 230. 22 HALSBURY’S LAWS OF ENGLAND, Vol 9, 352. 23 See Baker v Jones, (1954) 1 WLR 1005. 24 Rose & Frank v J.R. Crompton Bros, (1925) AC 445. 20

Section 28 of the Indian Contract Act renders void two kinds of agreement, namely (1) An agreement by which a party is restricted absolutely from enforcing his legal rights arising under a contract, by the usual legal proceedings in the ordinary tribunals. (2) An agreement which limits the time within which the contract rights may be enforced.

(6) Uncertain Agreements [S.29] Agreements, the meaning of which is not certain, or capable being made certain, are void.

Illustrations (a) A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty (b) A agrees to sell to B one hundred tons of oil of a specified description, known as an article of commerce. There is no uncertainty here to make the agreement void. (c)A, who is dealer in coconut oil only, agrees to sell to B “one hundred tons of oil”. The nature of A’s trade affords an indication of the meaning of the words, and A has entered into a contract for sale of one hundred tons of coconut oil. (d) A agrees to sell to B “all the grain in my granary at Ramnagar”. There is no uncertainty here to make the agreement void. (e) A agrees to sell to B “one thousand maunds of rice at a price to be fixed by C’. As the price is capable of being made certain, there is no uncertainity here to make the agreement void. (f) A agrees to sell B” a white horse for rupees five hundred or rupees one thousand. There is nothing to show which of the two prices was to be given. The agreement is void.25

Another Illustration 25

See Dhanrajmal Gobindram v Shamji Kalidas & Co, AIR 1961 SC 1285: (1961) 3 SCR 1320, 1035.

Guthyng v Lynn.26 A horse was bought for a certain price coupled with a promise to give 5 more if the horse proved lucky. The agreement was held to be void for uncertainty. The court has no machinery to determine what luck, bad or good, the horse had brought to the buyer. Such cases have generally arisen in connection with sale of goods, there being uncertainty as to the price. For example, where goods are sold, the price being payable subject to “hire purchase terms27 or clause”28 or at such price as should be agreed upon between the parties, the agreement in each case was held to be void for uncertainty as to price. Where the price is left to be fixed by a third party, there is no uncertainty and the agreement will be enforceable. Similarly, if the agreement is totally silent as to price, it will be valid, for, in that case, Section 9 of the Sale of Goods Act, 1930 will apply and reasonable price shall be payable.

(7) Wagering Agreements [S.30] Section 30 deals with wagering agreements. Agreements by way of wager, void. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is made.

Exceptions (1) Horse race [S.30] This section shall not be deemed to render unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into for or towards any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse race.

(2) Crossword competitions and lottery “If skill plays a substantial part in the result and prizes are awarded according to the merits of the solution, the competition is not a lottery. Otherwise it is.”29 Thus, 26

(1831) 2 B Ad 232. Scammel v Ousten, (1941) AC 251 28 Bishop & Baxter v Anglo-Eastern Trading Co, (1944) KB 12; British Electrical & Associated Industries v Matley Pressing Ltd, (1953) 1 WLR 280. 29 Lord HEWARD CJ in Cole v Odhams Press, (1936) 1 KB 416 27

literary competitions which involve the application of skill and in which an effort is made to select the best and most skilful competitor, are not wagers.30 But where prizes depend upon a chance, that is a lottery.31 The Madhya Pradesh High Court has characterised lotteries as wager. An agreement for payment of prize money on a lottery ticket came within the category of wagering agreement as contemplated by Section 30. The court further said that the provisions of neither a Central Act nor that of a State Act controlling the activities relating to lottery would change the basic nature of the transaction. A suit for recovery of the prize money was not allowed. The lottery in question was organised by the Raffle Committees, Indore, for raising funds for a Table Tennis Trust with due permission from the State Government.

30 31

Moore v Elphick, (1945) 2 All ER 155. Boucher v Rowsell, (1947) 1 All ER 155

ILLEGAL AND VOID AGREEMENTS The Contract Act draws a distinction between an agreement which is only void and the one in which the consideration or object is also unlawful. “Section 23 points out in what cases the consideration of an agreement is unlawful, and in such cases the agreement is also void, that is, not enforceable at law.” Section 25 to 30 refers to cases in which the agreement is only void, though the consideration is not necessarily unlawful. An illegal agreement is one which is actually forbidden by the law; but a void agreement may not be forbidden, “the law may merely say that if it is made, the courts will not enforce it.” Thus, every illegal contract is also void, but void contract is not necessarily illegal. However, the distinction is not always clear.

Exceptions32 (1) Where the Contract is still Executory Where the contract is still executory, in the sense that no part of the illegal purpose has been carried into effect, the money paid or goods delivered under it may be recovered. “But if he waits till the illegal purpose is carried out, or if he seeks to enforce the illegal transaction, in neither case can he maintain an action.”33 In that case, a debtor executed a transfer to deceive his creditors, but before any creditor could be deceived, he repented and sought to recover back the property, which he was allowed to do. It seems that the repentance of the debtor was due to the failure of his design. After executing the transfer he had summoned a meeting of his creditors to effect a compromise, but the creditors did not turn up. In this principle of locus poenitentiae has been confined to cases where the repentance is not due to the failure of the illegal object, but occurs much before any attempt is made to carry out the illegality.

(2) Parties not ‘in pari delicto’

32

The three exceptions to the principle as established by cases as stated by the Supreme Court in Sitaram Agarwal v Radha Bai, AIR 1968 SC 533, 537: (1968) 1 SCR 805, 810. 33 MELLISH LJ in Taylor v Bowers, (1876)

It is settled law that where the parties are not in pari delicto the less guilty may be able to recover money paid, or property transferred, under the contract. This possibility may arise in three situations: Firstly, the contract may be of a kind made illegal by a statue in the interest of a particular class of persons of whom the plaintiff is one. Secondly, the plaintiff must have been induced to enter into the contract by fraud or strong pressure. Thirdly, there is some authority for the view that a person who is under a fiduciary duty to the plaintiff will not be allowed to retain property, or to refuse to account for money received, on the grounds of an illegal transaction.34

(3) Where recovery possible without relying on illegal contract Transactions arising out of an agreement to do an illegal act, if they are such that when taken separately from the illegal act, they would be valid, they would remain valid and enforceable notwithstanding the illegality of the agreement. In Mistry Amar Singh v Kulubya35 where the action was to recover possession of property leased out in violation of a statue, their Lordship of the Privy Council observed: He would have presented his claim without being under any necessity of setting up the unlawful agreements in his plaint. He required no aid from the illegal transaction in order to establish his case. It was sufficient for him to show that he was the registered proprietor of the plots of land and that the defendant was in occupation, and, accordingly, the defendant had no right to occupy.

(4) Collateral transactions The only material difference between an illegal and void agreement relates to their effect upon the collateral transactions. A collateral transaction means a transaction subsidiary to the main transaction. For example, where money is given to a person to enable him to pay a wagering debt, the wager is the main transaction and loan is subsidiary to it. If the main transaction is illegal, for example, smuggling, a collateral transaction like money given to enable a person to smuggle, will also be

34 35

Fakir Chand Seth v Dambarudhar Bania, AIR 1987 Ori 50. (1963) 3 All ER 499.

tainted with the same illegality and the money will be irrecoverable. But if the main transaction is only void, its collateral transaction will remain enforceable.

(5) Severance Where an agreement is only partly illegal, the court will enforce the part which is not illegal provided that it is severable from the rest of the agreement. Where a partnership was created in a truck along with a route permit which amounted to a part sale of both, the court held that the whole agreement was vitiated, although it was only the sale of permit which was illegal but that was not severable from the rest of the agreement. A contract to provide money to a person to enable him to establish his share in an estate in return for a promise to pay back the money, and also a share in the amount that would be recovered from the estate, has been hed by the Supreme Court to be a composite contract for one consideration making the two types of payment not severable.36 In another case,37 the husband promised to his wife separate maintenance, she agreeing on her part not to sue him as long as he paid, nor to sue for divorce even if he lived in adultery. The husband defaulted with the payments and contended, as against the wife’s action, that, owing to the exoneration for adultery, the whole agreement was unlawful. The court allowed the wife’s action saying that only that clause of the agreement was unlawful by which the husband had bought his freedom from the consequences of adultery.38

36

Rattan Chand Hira Chand v Askar Nawaz Jung, (1991) 3 SCC 67. Goodinson v Goodinson, (1954) 2 QB 48: (1954) 2 WLR 1121:(1954) 2 All ER 255. 38 Bennet v Bennet, (1952) 1 QB 249; (1952 1 All ER 413,CA. 37

CONCLUSION On the basis of the above discussed, it can be easily understood that the ambit and scope of Section 23 is vast and therefore the applicability of its provisions is subject to meticulous scrutiny by the court of the consideration and object of an agreement and the agreement itself. Therefore, in order to bring a case within the purview of Section 23, it is necessary to show that the object of the agreement or consideration of the agreement or the agreement itself is unlawful. 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. 1. Consideration for the agreement 2. Object of the agreement 3. The agreement is also required to be kept in mind.

Therefore,

 The three principles, arising from the Section- which are: 1. An agreement or contract is void, if its purpose is the commission of an illegal act 2. If it is expressly or impliedly prohibited by the law 3. If its performance is not possible without disobedience of any law.

BIBLIOGRAPHY  Singh Avtar, Law of Contract and Specific Relief (10th edn, Eastern Book Company 1973)  Vardhan R. Yashod / Narayan Chitra, The Indian Contract & Specific Relief Acts (15th edn Lexis Nexis 2011)  Rai Dr. Kailash, Contract- I General Principles of Contract (Section 1-75) and Spectific Relief Act (3rd edn Central Law Publications 2011)  Beatson J. / Burrows A. / Cartwright J., Anson's Law of Contract, (29th edn Oxford 1879).

CONTENTS  INTRODUCTION o UNLAWFUL AGREEMENTS 1. Forbidden by Law 2. Defeat any law 3. Fraudulent 4. Injurious to person or property 5. Immoral 6. Public Policy

o VOID AGREEMENTS 1. Agreements in which a part of consideration or object is unlawful [S.24] 2. Agreements without consideration [S.25] 3. Agreements in restraint of marriage [S.26] 4. Agreements in restraint of trade [S.27] 5. Agreements in restraint of legal proceedings [S.28] 6. Uncertain Agreements [S.29] 7. Wagering Agreements [S.30]

o ILLEGAL AND VOID AGREEMENTS EXCEPTIONS 1. Where the Contract is still Executory 2. Parties not ‘in pari delicto’ 3. Where recovery possible without relying on illegal contract 4. Collateral transactions 5. Severance

 CONCLUSION  BIBLOGRAPHY

ABBREVIATIONS &- And Ors- orissa