Section 23 in The Indian Contract Act, 1872: What consideration and objects are lawful, and what not.—The consideration or object of an agreement is lawful, unless— —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.
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- It is forbidden by law – law would also include the rules regulations, notifications etc. under or issued under the authority given by a statute.
Ex.:- A sold liquor without license to B. The sale is unlawful as the sale of liquor without license is forbidden by the law, i.e., The Excise Act. Hence, A cannot recover the price.
Ex.:- a Hindu already married and his wife alive entered into a marriage agreement with Y an unmarried girl. The agreement is void because the second marriage is forbidden by Hindu Law.
- If it defeats the Provisions of any Law.
- not directly prohibited by any Law.
Ex.:- A’s estate is sold for arrears of revenue under the provision defaulter is prohibited from purchasing the state 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.
- not directly prohibited by any Law.
- If it is Fraudulent
Ex.: Object or consideration of an agreement is fraudulent. An agreement with such an object or consideration is unlawful and void.
- If it involves or Implies injury to a person or property of another.
Ex. :- Where it create injury to a person or to the property of another. An agreement with such an object or consideration is unlawful and void.
- If the court regards it as immoral.
Ex. X gave Rs. 10,000 to Y a married woman to obtain a divorce from her husband. X agrees to marry when divorce taken. X would not recover the amt.
- Partially unlawful Object or consideration [Sec. 24]: An Agreement is void if –
- any part of a single consideration for one or more objects is unlawful; or
- any one or any part of one of several consideration for a single object, is unlawful.
Example: B is a licensed manufactured of permitted chemicals. A promise B to supervise B’s business and combine it with the production of some contraband items together with the permitted items. B promises to pay A, Salary of Rs.10,000 p.m. Agreement is void, object of A’s promise and consideration for B’s promise being partially unlawful.
- Lawful Consideration enforceable: When there are several distinct promises made for one and the same consideration and one or more of them are of such nature that law will not enforce it, only such of the promises as are unlawful cannot be enforced. Other which are lawful, can be enforced.
- Test of Severability:
- If illegal part cannot be severed from legal part of a covenant, contract is altogether void.
- If it is possible to severe them, whether the illegality be due to Statute or Common Law, bad part alone may be rejected and good retained.
In case of pre – existing civil liability, the dropping of criminal proceedings need not necessarily be a consideration for the agreement to satisfy that liability. Union Carbide Corpn. v. UOI.
Illegal agreement – Void – ab – intio
- Punishable by the criminal Law of the country or by any special legislation regulation effect of illegal agreement.
- Collateral transactions – illegal
- No action can be taken for the recovery of money paid or property transferred.
- If illegal part can’t be separated from the legal part. Whole agreement is altogether illegal. [Sec.57]
- If separated
- Legal part – enforces
- illegal part – reject.
- Reciprocal promises – In respect of reciprocal promises the agreement as to illegal promise is void.
Agreement opposed to public policy:-
Alternative promises: where in alternative promises one part is illegal, only the legal pent can be enforced. [Sec. 58]