There are such agreements that are unlawful because they are against the law. These agreements may be to commit a crime or defraud or corrupt someone. The Indian Contract Act, 1872 provides no particular provision that describes which agreements are unlawful; the same can be understood by the judgments.
An unlawful agreement is an agreement that is made up with an unlawful purpose or will conclude in an unlawful act. In general, an unlawful agreement opposes the law of the land and public policy. An unlawful agreement is always a void agreement. And this agreement is not enforceable in a court of law.
Similarities between void and unlawful agreements:
Every unlawful agreement is a void agreement however; every void agreement is not inevitably an unlawful agreement. Both agreements are not enforceable. If the party has made a payment or delivery cannot reclaim that back.
In C.H.T. Ltd v. Ward, it was held that a party cannot recover money if lent for an illegal purpose.
Section 23 of the Indian Contract Act, 1872 describes what objects and considerations are unlawful. When either the objects or consideration is unlawful the agreement is void.
Difference between void and unlawful agreements:
Though there are certain similarities between the void and unlawful agreements, there are also some differences between both.
Pringle v. Jafar Khan, there was nothing illegal in the contract; betting at horse races could not be said to be illegal. This distinction between an agreement that is only void and one in which the consideration is also unlawful is made in the Contract Act. There is no reason why the plaintiff should not recover the sum paid by him.
In Gherulal Parakh v. Mahadeodas Maiya, it was held that agreements that are void are not necessarily unlawful. The law might explicitly restrict a contract from being made, or it might just decline to uphold one.
There are some exceptions laid down by the honorable Supreme Court in the case of Sitaram Agarwal v. Radha Bai.
If the illegal part of the agreement has not come into effect, the recovery of the money or goods paid can be made. If a contract has been made to induce someone to commit a crime, can be recovered before the commission of the same? It depends on the seriousness of the crime.
When the transaction in an unlawful agreement is valid if separated from the unlawful act will remain valid and recognized in BOI Finance Ltd. v. Custodian.
When an agreement is not completely unlawful, only some parts of it, then the court may enforce the legal part of the agreement, held in Budhwanti v. Gulad Chand Prasad. While in the case of Ghulam Ahmed v. Mohd Iqbal, it was observed that in an agreement of partnership made for truck and route permit, the only unlawful part was the permit of the route but this whole agreement is declared unlawful.
Any agreement that is against law of the land or the public policy is unlawful and cannot enforce by a court of law. An unlawful agreement is similar to a void agreement. All the unlawful agreements are void but all void agreements are not unlawful. Payment or delivery made up in an unlawful agreement cannot reclaim however in certain cases.
An unlawful agreement is not enforceable though in such cases only the legal part of the agreement may be enforced by the court.
Indian Contract Act, 1872
Law of Contract and Specific Relief by Avtar Singh; Ninth Edition
Law of Contract Part I by R.K.Bangia; Edition 2006
C.H.T. Ltd v. Ward, 1965 2 QB 63
Pringle v. Jafar Khan, ILR 1883 5 All 443
Gherulal Parakh v. Mahadeodas Maiya, 1959 2 SCA
Sitaram Agarwal v. Radha Bai, AIR 1968 SC
BOI Finance Ltd. v. Custodian, 1997 10 SCC 488, AIR 1997 SC 1952
Budhwanti v. Gulad Chand Prasad, 1987 2 SCC 153: AIR 1987 SC 1484
Ghulam Ahmed v. Mohd Iqbal, AIR 1970 J&K 165
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