Essentials of “Lawful Object”
Indian Contract Act, 1872 has stipulated following six essential elements to “Valid Contract”:
1. Offer and acceptance
2. Intention to create legal obligation
3. Free consent of parties
4. Competent Parties
5. Consideration and
6. Lawful Object
In the previous articles ESSENTIALS OF VALID CONTRACT- PART I and ESSENTIALS OF VALID CONTRACT- PART II, we have briefly analysed the essentials of five elements of Valid Contract as per Indian Contract Act, 1872. In this article we will analyse essentials of last element i.e. “Lawful Object”.
Section 23 of Indian Contract Act, 1872 specifies that the consideration or object of an agreement is lawful, unless –
1) it is forbidden by law; or
2) is of such 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
3) the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration / object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
In light of the prohibitions specified under Section 23 of Indian Contract Act, 1872 let’s analyse the essentials with the help of illustrations:
1) Agreement forbidden by law: The Agreement which is not permitted by law cannot be considered as Valid Agreement. In other words the Agreement is considered to be valid which is permitted by law.
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.
2) Agreement if permitted would defeat the provisions of any law / fraudulent / involves or implies, injury to the person or property of another : The laws are enacted for various purposes which includes smooth functioning of business in the country, economic development, export promotion, conservation of environment, promotion of exports, derivation of benefit to the society at large etc. The agreement to be valid should not stipulate the terms which will supersede the prevailing law. Therefore the agreement will be considered as invalid agreement if it is meant to cause or implies to cause harm or injury to another person or his/her property.
i. A, B and C enter into an agreement for the division among them of current and future business profit whereas such profit was acquired by fraud. The agreement is void because its object is unlawful.
ii. 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.
3) Agreement which is considered as immoral, or opposed to public policy by Courts: The agreement which are considered by Courts as immoral or opposed to the public policy are considered as void contract.
A, who is B’s senior associate, 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, because it is immoral.
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.
Nutan Kumar v/s Additional District Judge, Banda (1994)
In this matter it was held by Allahabad High Court that an agreement between landowner and tenant which is inconsistent to the provision of Rent control Act shall be void. Such agreements cannot be enforced through court. 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. 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. 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.
Amrit Bansapati Co Ltd. v. State of Punjab (1992)
The notification permitting refund of sales tax was contrary to the statute. 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 violate public policy and void under Section 23 of the Contract Act.
Central Inland Water Transport Corporation Limited and Anr. v. Brojo Nath Ganguly and Anr. (1986)
In this matter it was held that an award, which is prima facie in violation of statutory provisions cannot be said to be in public interest. Such an award is likely to unfavorably affect the administration of justice. The illegality must go to the root of the matter and if the illegality is of a trivial nature, it cannot be held that the award is against the public policy. An award can also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.
Indian Airlines v. Madhuri Chowdhuri (1965)
In this matter it was held that 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.
Rajat Kumar Rath v. Government of India (2000)
In this matter it was held that 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.
It is necessary to demonstrate that the object of the agreement is lawful to make the agreement Valid in the court of law. The scope of Section 23 of Indian Contract Act, 1872 is vast and therefore the applicability of its provisions is subject to vigilant investigation by the courts. No doubt without essential elements any agreement is invalid, it also has few exceptions which we will briefly analyse in next article.
to be continued …
Case laws sources: www.indiankanoon.org
(In case of any inconsistency or clarification/ suggestions, Author can be contacted for further details at firstname.lastname@example.org)