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Void Agreements under Chapter II of the Indian Contract Act, 1872

The term void means having no legal effect. While entering into any contract there are some essentials to be fulfilled for it to be legally enforceable.
The essentials are:
  1. At least two parties (offeror and offeree
  2. There must be an offer and an acceptance of the same
  3. An intention to create a legal relationship
  4. Free consent of the parties is necessary
  5. Possibility of performance
  6. Capacity to enter into a contract (party should be major, of sound mind and not be disqualified by law, i.e., cannot be insolvent, a convict, criminal, etc.)
  7. Lawful object (purpose of contract should be lawful
  8. Lawful consideration
  9. There must be the identity of minds between the parties
  10. Legal formalities must be done accordingly
  11. Agreement should not be expressly declared to be void (Sections 24 to 30)

Section 2(g) of the Indian Contract Act, 1872 defines void agreements: “An agreement not enforceable by law is said to be void.”[1]

Section 24 of the Act

This section explains that the contracts where the object and consideration are not lawful in nature are held to be void. Even if a part of the object or consideration is illegal, such an agreement cannot be enforceable and is void.

“If any part of a single consideration for one or more objects, or anyone or any part of any one of several considerations for a single object, is unlawful, the agreement is void.” [2]

To understand this section in an easier way let us see an example. A proposes to B that if B sells 5000 kgs of sugar then as payment A gives B 10 kgs of cocaine, such a contract is void. Why is the contract void? The selling of cocaine (a drug) is illegal, thus such a transaction cannot take place, the object of the contract is not lawful.

In the case of Alice Mary Hill v. William Clarke, ILR (19050 27 All 266, the defendant promised to pay some amount of money to the plaintiff for living in adultery with the defendant and for keeping the house given by him. The former part of this transaction is unlawful thus the whole agreement was held to be void.[3]

In the case of BOI Finance v. Custodian, (1997) 10 SCC 488: AIR 1997 SC 1952, it was held that prohibiting a forward transaction in the securities, a part of which were ready for spot delivery is not applicable. [4]

Section 25 of the Act:

This section explains that agreements without any consideration is void, except:
  1. If the agreement is clearly expressed in writing and registered under any law which is in force at that time for the document’s registration. Such an agreement must be made from natural love and affection between the parties
  2. If it is any promise for compensation for a job voluntarily done by the promisor or any task which the promisor was legally obliged to do so.
  3. If it is any promise in writing that is signed by a person or the agent of the said person, the promise being the payment of a debt (partly or wholly) for which the creditor had enforced payment but barred by the limitation law.
Note:
In the above-mentioned cases the agreements become contracts. Another point that is significant is that in an agreement where there is free consent, but the consideration is not adequate. In such a case the court can take the inadequacy of the consideration for determining whether the consent of the promisor was actual freely given or obtained with unlawful methods (such as fraud, coercion, misrepresentation, etc.).

Let us understand this section with the help of an example. A is a wholesaler who sells cotton and woolen clothes as per season. A has taken a loan from B of Rs. 5000 but fails to repay it and it becomes a debt barred by the limitation act. But to proceed with his business smoothly without any disturbance from B, A pays Rs. 4000 to B and registers in writing the same. This is a contract.

In the case of Rajlukhy Dabee v. Bhoothnath, (1900) 4 Cal WN 488, the defendant was sued for non-performance of the promise. The promise was that he will provide separate residence and amount of maintenance to his wife (plaintiff). The contract was void ab initio and the court stated that there was a lack of love and affection.[5]

Section 26 of the Act:

This section simply states that agreements which restrain any marriage are void. The word restraint means a condition that keeps someone under control. Restraint of marriage means getting a person married to someone with a condition. Such an agreement is not enforceable. Every person has the freedom to marry a person of their choice and no one can put restrictions on the freedom of the person for marriage and such restriction is against public policy and considered void under this section.

For example, A promises B that he will pay her Rs. 15000 if she does not marry C. Such an agreement is void. Another example, A promises B that he will not marry any other person and if he marries someone else, he will pay an amount of 2000 Euros to A.[6]

Section 27 of the Act

This section explains that any agreement which is restraining any person from trading is void. No person shall restraint anyone from exercising a lawful profession, trade, or business.

Article 19 (1) (g):
Freedom to practice any profession. This article says that every citizen of Indian has the right to practice any profession or any occupation, trade, or business. However, this right is subject to reasonable restrictions in the interest of the public.[7]

Exceptions to the Section
Statutory Exceptions:
  1. Sale of Goodwill:
    Saving of agreement not to carry on the business of which goodwill is sold.[8] It means that any person who has sold the goodwill of his business can come into an agreement with the buyer of his goodwill that he will refrain from carrying on the same or similar type of business within the limits of the pace where the buyer is planning to open the business or has already established one.

    In the case of Madhub Chander v. Raj Coomar, (1874) 14 Beng LR 76, the plaintiff and defendant had a similar business in the same locality in Calcutta. The defendant agreed with the plaintiff that he will pay a certain amount to him if he shuts down the business in that locality. The plaintiff closed his business in that locality, but the defendant later refused to pay the amount. The plaintiff sued him. Court held that the agreement between both is void and not enforceable as it is a case of complete restraint of trade.[9]
     
  2. Partnership Act:
    In the partnership act four provisions make it valid where agreements restrain trade.[10]
    dsfs
    • Section 11 (2) of the Indian Partnership Act, 1932 says that notwithstanding anything under Section 27 of the Indian Contract Act, 1872, no partner of a partnership firm can run any other business while he is a partner of the firm
       
    • Section 36 of the Indian Partnership Act, 1932 says that other partners can restrain a partner who retires from the firm to carry on a similar business for a specified period or within the specified local limits.
       
    • Another one is that when the partnership business comes to an end i.e., dissolution of partnership firm, the partners may impose restraint on each partner from carrying on a business similar in nature to that of the firm.
       
    • Under Section 54 (3) of the Indian Partnership Act, 1932 it is necessary to specify the local limits or the period until when such restraint is imposed, and the restraint must be of reasonable nature.

Under Judicial Interpretation
  1. Trade Combinations:
    Carrying out trade in an organized manner has become universally acceptable and most of the traders do so. There are varied combinations, and such association does not restrain trade but regulate business in a wider way. Such type of a trade is desired by many traders and done for the promotion of public interest. Trade combinations help in standardization of products, provides a fixed price, and helps in removing catastrophic competition.

    In the case of Vaithelinga v. Saminada, ILR (1872) 2 Mad 44, there was an agreement that business will be carried on only with those members of a certain caste. Such an agreement was held to be void as this is against public policy and clear case of restraint of trade for other people.[11]
     
  2. Solus or Exclusive Dealing Agreements:
    This exception says that if any producer or manufacturer of any product wants to sell his produce only to a particular person and the latter also agrees that he shall not buy the same type of goods form anyone else but the said producer, then such an agreement is a valid one. For example, A sells colored pencils to B and B does not buy it from anyone else but only A, then such a contract is not void.

    In the case of Subha Naidu v. Haji Badsha Sahib, ILR (1902) 26 Mad 168, there was an agreement between the plaintiff and the defendant that Mica (a mineral) produced by the defendant will be sold to the plaintiff only and will not be sent to any other firm and no stock will be left with the defendant. This is a valid contract.[12]
     
  3. Restraints Upon Employees:
    This exception says that an employee of an organization cannot work in any other organization during the period of current employment. For example, if A is working in an organization XYZ, then during his employment period or until the expiry of his employment period in XYZ, he cannot work for or be a part of any other organization.

    Agreements which include non-disclosure of confidential information and other trade secrets are not one-sided or unfair. If any employee of an organization fails to follow this clause of the contract about keeping confidential information safe, then the employee can also be treated as on who breached the contract and liable for misconduct.[13]

    A agrees to become B’s assistant for 3 years. B was a physician and surgeon in Zanzibar. After one year A leaves the service and started practicing on his own account but he was imposed with a restriction for a period of 3 years. [14]

Section 28 of the Act:
This section states that “Agreements in restraint of legal proceedings, void”. It explains that in every agreement where any party who is restricted from exercising their general rights for usual legal proceedings with respect to any contract in any ordinary court of justice or imposing time restrictions on any party of a contract regarding legal proceedings, such an agreement is void. Any agreement which ends the rights of any party or removes any party from the liability with respect to any contract when the period expires and such agreement is entered into so far as to impose restrictions on the other party from enforcing their right, then such an agreement is void.

Exceptions to the Section
  1. Saving of contract to refer to arbitration dispute that may arise. This exception is applicable in those contracts where the parties agree that there will be no legal action against each other and any dispute arising shall be referred to arbitration and only the expenses spent for such arbitration will be recoverable.
     
  2. Saving of contract to refer questions that have already arisen. This exception explains that a contract where the parties agree to refer to the arbitration for any question which has already arisen between them is a valid one. Such a contract now will be dealt through arbitration.
     
  3. Saving of a guarantee agreement of a bank or a financial institution. A contract where any bank or a financial institution demands a guarantee or any other agreement for the provision of guarantee for the cancellation of a debt or to discharge any party from such liability in respect of such guarantee or any other agreement when the specified period expires, and such period not being less than one year from the date of occurrence or non-occurrence of such event for the cancellation od debt or discharge of party from the liability. [15]

Section 29 of the Act
This section says that those agreements are void where the meaning is not certain or is not capable of being made certain. Certainty is significant for an agreement to be enforceable by the law so that it has a binding effect. The terms and conditions of any agreement should be unquestionable so that they are clear and are definite enough that it can be made clear to others.
Let us understand this with an example. A agrees to sell a laptop to B but did not specify any features of the laptop. It is uncertain as to what type of laptop A is intended to sell to B, thus, such an agreement is void.

Section 30 of the Act
This section says that wagering agreements are void. Wager means in simple terms a bet; it is a sum or money or money’s worth someone agrees to bet against another for the occurrence or non-occurrence of an event. For example, A and B enter into an agreement that A will pay Rs. 500 to B is a particular team of B’s choice wins in the Indian Premier League cricket match. Such an agreement is void as the winning probability of that team is 1:1.

Exception to the Section:
  1. Exception in favor of certain prizes for horse-racing. This exception says that any bet on a horse race will be a valid contract if it carries any certain amount as prize money which is more than Rs. 500 which will be awarded to the winner.[16]
In the Gherulal Parakh v. Mahadeodas, AIR 1959 2 SCR 406, case, SUBBA RAO J (afterwards CJ) said: “Sir William Anson’s definition of “wager” As a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event, brings out the concept of wager declared void by Section 30 of the Contract Act”. [17]

Conclusion
There are few agreements which cannot be enforced legally and thus are declared to be void under the Indian Contract Act, 1872. Exceptions are bound to occur everywhere, so do they occur in the case of void agreements as well. Any type of agreement (other than exceptions) who fall under the sections 24 to 30 of the Indian Contract Act, 1872 are thereby held void.

End-Notes:
  1. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 2, EBC Publication
  2. https://indiankanoon.org/doc/1649313/#:~:text=Section%2024%20in%20The%20Indian%20Contract%20Act%2C%201872&text=24.,unlawful%2C%20the%20agreement%20is%20void.
  3. https://www.casemine.com/judgement/in/56e0f1ca607dba38965f90ab
  4. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 290, EBC Publication
  5. https://blog.ipleaders.in/examining-section-25-indian-contract-act/
  6. See case law Lowe v. Peers (1768), 4 Burr. 2225
  7. Hema Raman, Student’s Handbook on Legal Aptitude & Constitution of India (Vol. 2), Page 90. A. J. Publications
  8. https://www.indiacode.nic.in/bitstream/123456789/2187/1/A1872-9.pdf
  9. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 291 and 292, EBC Publication
  10. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 300, EBC Publication
  11. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 301, EBC Publication
  12. http://www.legalservicesindia.com/article/1753/Exceptions-of-agreement-in-restraints-of-trade-with-reference-to-Indian-and-English-case-laws.html
  13. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 307, EBC Publication
  14. See case law India Charlesworth v. Mac Donald, ILR (1899) 34 Bom 103
  15. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 315, EBC Publication
  16. http://thelawstudies.blogspot.com/2016/08/what-is-void-agreement.html
  17. Avtar Singh, Contract & Specific Relief, Twelfth Edition, Page No. 336, EBC Publication
Award Winning Article Is Written By: Ms.Sandhya Prabhakaran - (BBA LL.B. (H), Amity Law School, Noida)
Awarded certificate of Excellence
Authentication No: AP111667012051-26-0421


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