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Agreements Opposed To Public Policy

Section 2 (g) of the Indian Contract Act 1872 states that "an agreement enforceable by law is a contract." The agreement has to be valid and should have fulfilled certain requirements before it is called a contract. Out of all the essentials one of them is lawful consideration and object. Violation of this essential condition renders the agreement void.

Section 3 mentions the circumstances when the consideration and object of the agreement are unlawful.
The section reads as under:
  • The consideration and object of an agreement is lawful, unless
  • It is forbidden by law; or
  • It 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
  • The court regards it as immoral; or
  • Opposed to the public policy

In each of these cases the, the consideration or object of the agreement is unlawful. Every agreement of which the consideration or object is unlawful is ultimately void.

An agreement is unlawful if the court regards it as opposed to public policy. The term Public Policy in its broadest sense means that sometime the courts will, on considerations of public policy, refuse to enforce a contract. The normal function of the courts is to enforce contracts; but consideration of public interest may require the courts to depart from their primary function and to refuse to enforce a contract. Interpretation of the concept of public policy is the function of the court and not of the executive.

It is not enough that the terms of contract have been brought to the knowledge of the other party by a sufficient notice before the court is entered into, it is also necessary that the terms of the contract themselves should be reasonable. If the terms of the contract are unreasonable and opposed to public policy, they will not be enforced. An act which is injurious to the interest of the society is against the public policy.

This project aims to categorize what is unlawful, specifically in the light of public policy.

The Basis Of Contract

The term contract means, an agreement enforceable by law. Here 'agreement� means 'every promise and every set of promises forming the consideration for each other.� And a promise is defined as, a proposal, when accepted, becomes a promise. This is another way of saying that an agreement is an accepted proposal. The process of definition comes down to this: a contract is an agreement; an agreement is a promise and a promise is an accepted proposal. Thus, every agreement, in its ultimate analysis, is the result of a proposal from one side and its acceptance by others.

A question arises in our mind, what agreements are contract? The answer to this would be agreements which are enforceable by law are qualified to become contracts. Further, we can say that all agreements are contract if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

From above para we can conclude that, to form a contract we require some essential ingredients.

An agreement becomes a contract when the following conditions are satisfied:
  • Agreement (offer and acceptance)
  • Capacity
  • Free consent
  • Consideration and
  • Lawful object.

Out of all essential requirements, one of them is that the parties must contract for a lawful object. An agreement the object of which is opposed to the law of the land maybe either unlawful or simply void, depending upon the provision of the law to which it is opposed. Section 23 states the circumstances when the consideration or object of an agreement is not lawful. The section reads as under;

The consideration or object of an agreement is lawful, unless:
  • It is forbidden by law; or
  • 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 the property of another; or
  • The court regards it is 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.

We are hereby dealing with the fifth head i.e., PUBLIC POLICY,

Public Policy

An agreement is unlawful if the court regards it as opposed to public policy. The term 'public policy� in its broadest sense means that sometimes the courts will, on considerations of public interest, refuse to enforce a contract. The doctrine of public policy is based on the maxim 'ex turpi causa non oritur actio�, which means, an agreement which opposes public policy would be void and no effect.


The agreements which are termed to be void or against the public policies are categorised as under:
  • Trading with enemy
  • Trafficking in public offices
  • Interference with administration of justice
  • Marriage brokerage contracts
  • Unfair or unreasonable dealings�

Trading With Enemy

When there is a war between two countries, it is unlawful and against public policy that a person should trade with the subject of the enemy country. A person from one country cannot trade with the people of other country which is in war with the first country.

Suppose country A is in war with country B, then any person of country A cannot give effect to any trade or vice versa.

The reason for such restriction in the field of trade and commerce is that if such agreements are allowed between countries then it would be taken as if such transactions between or more countries are done to promote economic interest to such country and overlook the interest of individuals

Agreement with an alien state would injure a state in relation with another state.

Trafficking In Public Offices

An agreement by which it is intended to induce a public officer to act corruptly is termed as a contract which is against public policy. For example, in Parkinson v. College of Ambulance an agreement by which a sum of money was provided to a charity for the procurement of knight in return was deemed to be a void agreement. The aforesaid case is a precedent in English case law.

According to Indian case law, in the case of Kuju Collieries Ltd v. Jharkhand Mines Ltd., money paid to a public officer to procure a mining right was not permitted to be recovered. Such law is prevalent in Indian and English laws.

Interference With Administration Of Justice

A contract whose object is interfere with the administration of justice is void in the eyes of law as it is opposed to the public policy. With reference to such administration this heading can be categorised further as:

Interference with the course of justice
Any agreement which obstructs the ordinary process of justice is void. An agreement to delay z money to induce a person false evidence, have been held void.

In N.V. P. Pandian v. M. M. Roy, the respondent paid a sum of Rs. 15,000 to the appellant and the appellant in return promised to use his influence with the selection committee in order to get a seat for the Respondent�s son in Madras Medical College. The respondent�s son could not have the seat and she filed a suit against the appellant claiming back the sum of Rs. 15,000 paid by her. It was held that the agreement tended to injure public service and was against public policy and therefore, the same was void. Hence, she was not entitled to claim the refund.

Stifling prosecution
An agreement to stifle prosecution has been regarded as opposed to public policy. Under criminal law it is been termed as no compoundable offence. In other words, by accepting some consideration to make a compromise in a criminal case, one is deemed to have accepted bribe, i.e., a crime under I. P. C.A case is been discussed so as to explain this category as per Indian law

In case of Ouseph Paulo v. Catholic Union Bank, some goods had been pledged with the respondent bank as a security for a loan. On an inspection it was found that there was a deficiency in the quantity of good with the consideration of the goods. It was thought that either the goods were fraudulently removed from the place or there was no pledge taken to deliver such goods. As a result there was a complaint lodged with the police about the said deficiency of the goods.

As promised by the appellant before the complaint was lodged they now executed two hypothecation deeds in favour of the bank. As a result the complaint was withdrawal by the appellant. Then the appellant sought the cancellation of the hypothecation deeds on the ground that the same was done to stifle criminal prosecution. It was held that such hypothecation was valid as such wascontemplated before the complaint was lodged. In this case SC said

"It is well settled that agreements which are made for stifling prosecution are opposed to public policy and as such, they cannot been forced. The basis for this position is that the consideration which supports such agreement is itself opposed to public policy."

Agreements of maintenance and champerty
Maintenance as per law is, aiding a party in civil proceeding by providing financial or other assistance without lawful justification. In other words, of a person intermediates in the proceedings of a case of any two parties without having any interest is termed to be an unlawful interference by the third party.

Champerty is a kind of maintenance in which the person assisting in the proceedings is to receive a share in the gain made in the proceedings is to receive a share in a gain made in proceedings maintained by him. In the country of England, the offences of maintenance and champerty were considered to be obsolete and were abolished by the Criminal Law Act, 1967.The English law or the common law have no application in the Indian laws because of the peculiarity in the Indian system.

As per Indian laws, the Indian courts tend to see whether the party which provided with the assistance took the advantage of the helplessness of the other party to enter into the case with such assistance, if the party had taken any such advantage then such type of assistance is termed as champerty. If the party which has intervened in any such proceedings have no such selfish interest then such type of agreements are valid in the eyes of law. For example, in the case of Ram Sarup v. Court of Wards the decision was that

"if the agreement stipulates that the financier is to bear all the expenses of litigation, and in return he is to get 3 anna(3/16) share of the property recovered if the suit terminates at the High Court level, and 4 anna(4/16) share if the case goes up to the Privy Council, such an agreement has been held to be valid, by the Privy Council."

Marriage Brokerage Contract

Marriage brokerage contracts mean such contracts under which a person agrees to procure a marriage between two persons on some consideration. Such agreements are opposed to public policy and are void. As per Indian laws marriages are those scarce ceremonies which should be commenced by both the parties independently agreeing to form such relation rather than by involving intermediaries who try to procure such marriages for their own selfish motives.

The common law governing the English law forms precedent for the Indian law as well under this rule. A popular in English law forms precedent in Indian law. The case is Hermann v. Charlesworth, in this case Charlesworth promised to introduce young men to Miss Hermann and in return she was to pay 52 pounds in advance and 250 pounds on the day of marriage. He was unsuccessful to procure the marriage, so Miss Hermann who had paid the advance, brought an action against Charlesworth to recover back the money which she paid in advance, and she was successful.

Unfair Or Unreasonable Dealings

When the parties are not economically on equal footing with respect to the bargaining power of the two parties and one party is in a position to exploitthe other party and the other party is vulnerable in such respect then the agreement is termed to be as opposed to the public policy and may be termed to be void in the eyes of law. In the case of

Central Inland Water Transport Corps v. Brojo Nath Ganguly, the decision was that, a Government Corporation imposing upon a needy employee a term that he can be removed just by three months� notice or pay in lieu of notice and without any grounds is an exploitation and such ruthless exploitation is against public policy. While on the other hand if the bargaining power of the two parties are fairly matched then and al the clauses has been duly signed then the law will presume such contract to be fair.

The research paper made on the topic "agreements against public policy with respect to Indian and English laws" contains the categories under which this law is distributed and the cases which have formed milestones in the development of this law. My contribution to this research paper is that I tried to elaborate this law under all the headings and tried to discuss all the milestone cases which have formed the precedents in the recent past.

I have gone through the books written by great authorslike Mr. R. K. Bangia and Avtar Singh and tried to bring out, where possible thecommon law which has formed precedents in the Indian law. I tried to discuss the cases of the common law and cases of the Indian law separately and tried to draw out how they formed the counterparts of each other by discussing the decision passed by the court.

  • Stephen A. Smith, Atiyah�s Introduction to the law of contract, sixth edition.
  • Indian Contract Act, 1872
  • Jill Poole, Textbook on Contract Law, Seventh edition.
  • Nilima Bhadbade, Mulla Indian Contract and Specific Relief Acts, Twelfth edition.

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