1. Introduction:
Section 24 of the Indian Contract Act, 1872 defines the unlawful agreement. As per this section, unlawful agreement is an agreement where parties entered into an agreement but the consideration or the object of the agreement is unlawful then the agreement is void. But if a valid consideration or object of the agreement can be served from the invalid part then the performance of such valid part shall be enforceable. Unlawful agreement is made by force or fraudulent reasons. The agreement has content which causes one party or all the parties involved in to perform illegal activities which is a violation of the law. Unlawful agreement leads to a party getting injured or personal property being damaged. This agreement is immoral and against the public policies. The Indian Penal Code prohibits such kind of agreements.
For e.g., Mr. Raj offers to purchase a lawful plot of land and unlawful parking space from Mr. Arjun for Rs. 50,00,000/-. In this agreement, lawful plot and unlawful parking space are the objects of the agreement. The agreement is void as one of the object is illegal.
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Case Law: Bank of India Finance Ltd. v. Custodian:[1]
In this case, the Bank of India Finance Ltd. entered into an agreement with its customers where it was found that the certain guidelines which are issued by the Reserve Bank of India are violated. The question before the court was the validity of the contracts which have already been executed. The court held that the validity of such agreements are invalid and where the transactions arising out of the agreement is invalid, such transactions shall remain valid.
Case Law: Saregama India Ltd. v. Suresh Jindal and Ors.:[2]
In this case, it was held that in future work the owner of the copyright can withdraw the copyright of any person in whole or in part for the copyright or any part thereof or once the assignment of copyright has been made. The act is treated like a proprietor of the copyright.
2. Unlawful Object:
Unlawful object in a contract is not the purpose for which the parties enter into the contract. When the unlawful object is there in an agreement then it does not lead to the transfer of the consideration agreed from one party to the other. Basically, unlawful object is against the public policy.
3. Unlawful Consideration:
Unlawful consideration is prohibited by law, or is of such a nature that, if allowed, it would defeat the provisions of law; or is fraudulent; or involves or inferred 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 of an agreement is said to be unlawful.
4. The consideration and objects which are unlawful are given as follows:
1) It is forbidden by law:
When something is forbidden by law, an agreement to do that is unlawful. An agreement to do what has been forbidden by the Indian Penal Code or by some other law cannot be enforced. A contract to pay some money if a crime or tort is committed is not enforceable. If the contract specifically indemnifying a person against liability for an intentional wrong like deceit, it is unlawful. For e.g., Mr. X get a licence to cut the trees of certain areas from the Forest Department. The forest department officials tells to Mr. X that he or she could not pass on such interest to any other person. But no such provision is in the Forest Act. Mr. X sold the interest to Mr. Y and the contract was consider as valid.
2) Consideration and Object defeats law provision:
If the object or consideration 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. For e.g., Mr. Suraj and Mr. Raj enters into an agreement, where Mr. Suraj is the debtor and Mr. Raj will not accept any limitation. To defeat the intention of Limitation Act the court can consider the contract is void due to unlawful object.
3) Immoral Consideration:
If the consideration or object an agreement is regarded by the court to be immoral or opposed to public policy, the agreement is unlawful and the same has also been declared void. For e.g., Mr. Akhil lent money to Mrs. Rajshree to get divorced from her husband Mr. Raj and there was an agreement between Mr. Akhil and Mrs. Rajshree, that if Mrs. Rajshree get divorced then Mr. Akhil will get married to Mrs. Rajshree. But the court held that Mr. Akhil cannot recover money from Mrs. Rajshree as the contract is void due to unlawful consideration.
4) It causes injury to the person or property of another person:
If the consideration or the object of an agreement is to cause an injury to the person or property of another person, then the agreement is unlawful and hence it is void. Injury here means unlawful harm, for example, an agreement to commit fraud or a tort. If the borrower of money is made to execute a bond requiring him to do manual labour until repayment, and forces a heavy penalty on default in the form of exorbitant rate of interest, agreement contained in the bond virtually amounts to slavery therefore, such an agreement is opposed to public policy and so it is void. For e.g., The contract to publish a book which breaks another person’s copyright will be void. This is because the consideration here is unlawful and injures another person’s property that is its copyright.
5) Consideration opposed to Public Policy:
For the improvement of the society, we forbid certain contracts in the name of public policy. But in this case, we do not use public policy in the wide sense. If that were the case, it would have motivated the individual’s personal freedom to enter into contracts. Therefore, public policy is used in a limited scope for consideration and object of the law.
- Some agreements that are against public policy:
I. Trade with the Foreign Enemy:
Entering into a contract with the person of a country with which India is at war is a void agreement. For example, a businessman who was contracting with a Pakistani citizen during the Kargil War then the agreement is void.
II. Supress Prosecution:
This is universal that the natural course of law and such contracts are void. For e.g., Mr. Raj agrees to sell land to Mr. Basit only if he does not participate in criminal proceedings against him.
III. Maintenance and Champerty:
Maintenance agreement is when a person promises to maintain a suit in which he or she has no real interest and when a person agrees to assist another party in litigation for damages or a portion of the proceeds, then the Champerty occurs.
An agreement for brokerage marriage for the rewards.
IV. Intervention with the Courts:
An agreement which is considered to convince any judicial or state officials to do corrupt work and interfere in legal proceedings.
5. References:
1. https://www.upcounsel.com/illegal-agreement-example
2. https://indiankanoon.org/doc/171398/
3. https://indiankanoon.org/doc/1649313/
4. https://www.nobroker.in/forum/what-is-unlawful-agreement/
5. https://pt.slideshare.net/shivi2022/unlawful-agreement
[1] https://indiankanoon.org/doc/1588871/
[2] https://indiankanoon.org/doc/627673/
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