B.A. LlB./ B.B.A. LlB.

(Integrated Law Degree Course)

Contract Law 1(2nd semester)

RAFFLES UNIVERSITY
PROJECT TOPIC
Project Submission as the
Unlawful Agreements: Immoral & Opposed to Public Poilcy
Submitted To:

Submitted By:

Ms./ Dr.: Ayesha Mukherjee

Rohit Verma

Faculty of Contract Law

1519

Designation: Assistant Professor

Semester- 2nd
Raffles University
School of Law

TABLE OF CONTENTS
Acknowledgement
Case List
Introduction
Unlawful Agreement
Immoral
Public Policy
Opposed to Public Policy
Conclusion

ACKNOWLEDGEMENT
I take this opportunity to express my humble gratitude and personal regards to Ms. Ayesha
Mukherjee for inspiring me and guiding me during the course of this project work and also for
this cooperation and guidance from time to time during the course of this project work an the
topic.

Neemrana

Name of Student

Date of Submission

Rohit Verma

Case List

Rajat Kumar Rath V. Government of India

Gherulal Parekh V. Mahadevdas Maiya
Kedar Nath Motani V. Prahalad Rai
Huseinali V. Dinbai
Kisondas V. Dhondu
State of Rjasthan & Ors. V. Basant Nahata
Madhav V. Raj Kumar
Lowe V. Peerless
Metropolitan Water Board V. Dick Kerr & Company
Ramasastry V. Ambela Karen

INTRODUCTION
The fourth and the last requirement for the formation of a valid contract is that parties must
contract for a lawful object. An agreement the object of which is opposed to the law of the land
may be either unlawful or simply void, depending upon the provision of the law to which it is
opposed.
Section 23 of Indian Contract Act 1872 deals with lawful objects and consideration. Section 23
states What consideration and objects are lawful, and what not.- 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 it 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.
The section covers the illegality of both the object of the contract and consideration for it.
The law does not allow an agreement tainted with immorality to be enforced. Consequently,
every agreement the object of or consideration for which is immoral, is unlawful. What is
immoral depends upon the standards of morality prevailing at a particular time and as
approved by the courts. But certain kinds of acts have been regarded as immoral since times
immemorial and will perhaps always be so regarded.
The concept of public policy has invited a lot of criticism. The reason is that this concept is very
vague. There is a danger of it being misused. It is for this reason it has been remarked by Lord
Halsbury that categories of public policies are closed and a Court cannot invent a new head of
public policy. An agreement is unlawful if the court regards it as opposed to public policy. The
normal function of the courts is 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 that of
the executive.

Unlawful Agreements
Section 231 of the Indian Contract Act, 1872 ("Act"), enumerates of three issues, i.e.
consideration for the agreement, the object the agreement and the agreement per se. Section 23
creates a limitation on the freedom of a person in relation to entering into contracts and subjects
the rights of such person to the overriding considerations of public policy and the others
enunciated under it.2 Section 23 also finds its bearing in the other sections of the Act, namely
section 264, 275, 286 and 307.
The word "object" used in section 23 connotes means "purpose" and does not purport a meaning
in the same sense as "consideration". The word object in Section 23 of the Contract Act was not
used in the same sense as consideration, but was used as distinguished from consideration and
means purpose or design. If then the purpose of the parties was to defeat the provisions of the
Bankruptcy Law, there can be no doubt that transfer would be inoperative under the provisions of
Section6 of the Transfer of Property Act. For this reason, even though the consideration of a
contract may be lawful and real, that will not prevent the contract from being unlawful if the
purpose (object) of the contract is illegal. Section 23 restricts the courts, since the section is not
guided by the motive, to the object of the arrangement or transaction per se and not to the
reasons which lead to the same.
'If the thing stipulated for is in itself contrary to law, the action by which the execution of the
illegal act is stipulated must be held as intrinsically null: pactis privatorum juri publico non
derogatur.3
Illustration, our firm advised the client not to include any such terms in the document to be
executed between the parties which would contravene any law in India. It was advised to the
client that the if the contract is to be enforced by a party to the same, any enforcement in India of
such contract or part thereof will not be possible in case the agreement or its object or the
consideration involved therein is in violation of a statute in India. Further, that despite the
inclusion of disclosures, indemnity, undertaking etc. in the contract and related transactional
1 Section 23 of the Indian Contract Act, 1872 - What considerations and objects are lawful and what not 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 said to be unlawful.
Every agreement of which the object or consideration is unlawful is void.

2 In Re: K.L. Gauba (23.04.1954 - BOMHC) [AIR 1954 Bom 478]. Para 11 : "...The freedom of the citizen, as indeed the
freedom of the lawyer, to enter into a contract is always subject to the overriding considerations of public policy as enunciated in
S. 23 of the Indian Contract Act. That freedom is also subject to the other considerations set out in S. 23.

3 Arg., 4 Cl. & F. 241; Broom's Legal Maxims, p. 541

documents will not be of any advantage for the purpose of any action in India, in case the
contract or any part thereof is in violation of any applicable statue, regulations, orders, bye-laws,
guidelines etc. in India. In such case the contract will not be valid for the purposes of any action
in India. Since a party cannot consent to an agreement which is against the law. Moreover, the
benefit of adding the said disclaimer, indemnity and undertaking in the contract will safeguard
the interests of the foreign investee company (our client) only in the place whose law has been
made applicable to the contract. However, in case any Indian law is violated such disclaimer,
indemnity and undertaking will not be a ground for any defense, for any action in India, available
to the party claiming a protection there under.
As per section 23, the difference between agreements that are void and agreements those are
illegal is very thin or small. According to Anson4, "The law may either forbid an agreement to be
made, or it may merely say that if it is made, the courts will not enforce it. In the former case, it
is illegal, in the latter only void, but in as much as illegal contracts are also void, though void
contracts are not necessarily, the distinction is for most purposes not important and even judges
seem to treat the two as inter-changeable".
In Rajat Kumar Rath v. Government of India5, the Orissa High Court has explained the
distinction in the following words:
"... A void contract is one which has no legal effect. An illegal contract through resembling the
void contract in that it also has no legal effect as between the immediate parties, has this further
effect that even transactions collateral to it became tainted with illegality and we, therefore, in
certain circumstances not enforceable. If an agreement is merely collateral to another or
constitutes an aid facilitating the carrying out of the object of the other agreement which though
void is not prohibited by law, it may be enforced as a collateral agreement. If on the other hand,
it is part of a mechanism meant to carry out the law actually prohibited cannot countenance a
claim on the agreement, it being tainted with the illegality of the object sought to be achieved
which is hit by the law. Where a person entering into an illegal contract promises expressly or by
implication that the contract is blameless, such a promise amounts to collateral agreement upon
the other party if in fact innocent of turpitude may sue for damages".
"... the doctrine does not extend only to harmful effects, it has to be applied to harmful
tendencies. Here the ground is less safe and treacherous".

4 Principles of the English Law of Contract, 22nd edn

5 AIR 2000 Ori 32, 34-35

The above principle has been followed by the Hon'ble Supreme Court of India in Gherulal
Parekh v. Mahadevdas Maiya6, wherein Hon'ble Justice Subba Rao, referring the observation of
Lord Atkin observed: "... Public policy or the policy of the law is an illustrative concept. It has
been described as an 'untrustworthy guide', 'variable quality', 'unruly horse', etc.; the primary
duty of a court of law is to enforce a promise which the parties have made and to uphold the
sanctity of contract which forms the basis of society but in certain cases, the court may relieve
them of their duty of a rule founded on what is called the public policy. For want of better
words. Lord Atkin describes that something done contrary to public policy is a harmful thing; but
the doctrine is extended not only to harmful cases; but also to harmful tendencies.... it is
governed by precedents. The principles have crystalised under different heads.... though the
heads are not closed and though the oretically, it may be permissible to evolve a new head under
exceptional circumstances of the changing world, it is advisable in interest of stability of society
not to make attempt to discover new heads in these days".
In Kedar Nath Motani v. Prahlad Rai7, the Hon'ble Court held that "the correct view in
law .... is that what one has to see is whether the illegality goes so much to the root of the matter
that the plaintiff cannot bring his action without relying upon the illegal transaction into which he
had entered. If the illegality be trivial or venial and the plaintiff is not required to rest his case
upon that illegality, then public policy demands that defendant should not be allowed to take
advantage of the position. A strict view, of course, must be taken of the plaintiff's conduct, and
should not be allowed to circumvent the illegality by restoring to some subterfuge or by
misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded
or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was
achieved, then, unless it be of such a gross nature as to outrage the conscience of the court, the
plea of the defendant should not prevail.
Conclusion
On the basis of above discussed, it can be easily understood that the ambit and scope of section
23 is vast and therefore the applicability of its provisions is subject to meticulous scrutiny by the
court of the consideration and object of an agreement and the agreement itself. Therefore, in
order to bring a case within the purview of section 23, it is necessary to show that the object of
the agreement or consideration of the agreement or the agreement itself is unlawful.

6 AIR 1959 SC 781

7 AIR 1960 SC 213

Immoral
The term Immoral is explained in Section 23 (5) of Indian Contract Act.
Immoral A landlord cannot recover the rent of lodging knowingly let to a prostitute who
carries on her vocation there. Similarly, money lent to a prostitute expressly to enable her to
carry on her trade cannot be recovered. On likely grounds, ornaments lent by a brothel-keeper to
a prostitute for attracting men and encouraging prostitution cannot be recovered back. A
consideration which is immoral at the time, and, therefore, would not support an immediate
promise to pay for it, does not become innocent by being past; and so in Huseinali v. Dinbai,8
and again, in Kisondas v. Dhondu9 it was held that past cohabitation is not a good consideration
for a transfer of property. Bonds and covenants given in consideration of future co-habitation are
void in law. The English view of such cases is that the alleged consideration is bad simply as
being a past consideration. In a Patna case10 a person had agreed tp pay a maintenance allowance
to his discard mistress. That was considered a contract to compensate the women for the social
position that she had lost as the result of being a mans mistress, and contract was considered
valid.
The law does not allow an agreement tainted with immorality to be enforced. Consequently,
every agreement the object of or consideration for which is immoral, in unlawful. What is
immoral depends upon the standards of morality prevailing at a particular time and as
approved by the courts. But certain kinds of acts have been regarded as immoral since times
immemorial and will perhaps always be so regarded.
Interference in Marital Relations
One such act is interference with marital relations. Thus, where a married women was given
money to enable her to obtain divorce from her husband, the lender promising to marry her
subsequently, it was held that the money could not be recovered. Similarly, a promise to marry a
married women after the death of her husband or after she obtains divorce from him is immoral.
In the same way, a promise by a married man to marry a women after the death of his wife or
after obtaining divorce from her is illegal. But if she does not know the man to be married, she
can bring an action for breach.11
8 (1923) 25 BOM LR 252
9 (1920) 44 BOM 542
10 Godfrey Mt. Parbati, (1938) 17 Pat. 308
11 Shaw v. Shaw, (1954) 2 QB 429

Dealings with Prostitutes

Dealing with prostitutes have always been regarded as immoral. If a women takes a house in
order to live in it as the mistress of a man and to use it for the purpose of prostitution, and the
landlord at the time when the lease is executed knows that it is taken for that purpose, the
landlord cannot recover the rent.

Public Policy
The words 'Public policy' or 'opposed to public policy', inter alia, find reference in Section 23of
the Indian Contract Act, Section 7(1)(b)(ii) of Foreign Awards (Recognition and Enforcement)
Act, 1961, Section 3(1) of U.P. (Temporary Control of Rent and Evictions) Act, 1947 and Section
34(2)(b)(ii) of Arbitration and Conciliation Act, 1996.
By reason of the said provisions the judiciary has been conferred with power to determine as to
the factors of public policy which may form the basis for interference with a contract or award.
Despite the words of caution that the court's duty is to expound the law and not expand, new
heads of illegality of contract being opposed to public policy have been found out and in any
event there exists such a possibility. [See Nagle Vs. Feilden, (1966) 2 QB 633 and Newcastle
Diocese (Church Property Trustees Vs. Ebbeck (1960) 34 ALJR 413].
A doctrine which is so vague or uncertain, in our opinion, thus, cannot and does not provide any
guideline whatsoever. Furthermore, the executive while making a subordinate legislation cannot
be permitted to open new heads of public policy in its whims. Towards opposed to public
policy, therefore, do not lay down any guidelines to render it constitutional. Execution of power
of attorney per se is not invalid. On the other hand, it is lawful.
In the case of State of Rajasthan & Ors v. Basant Nahata on 7 September 2005.12 The High
Court in its impugned judgment, inter alia, held that Section 22-A of the Act confers arbitrary
powers on the State Government to determine as regard declaring a particular document
being opposed to public policy. It was opined that the question as to whether a transaction
is opposed to public policy or not can be determined only by the courts and not by the SubRegistrar. The impugned legislation invades the right of a citizen to deal with the property and,
12 Civil Writ Petition No. 3554 of 1999.

thus, is wholly arbitrary and unreasonable. The object of registration of a document is not
achieved by the impugned legislation. The Act deals with the deeds and documents and not
transactions and in that view of the matter non-registration of a document per se cannot be said
to be opposed to public policy. It may not be necessary for us to deal with extensively the case
laws dealing with the relevant provisions of the said statutes but it would not, in our opinion, be
correct to contend that public policy is capable of being given a precise definition. What is
'opposed to public policy' would be a matter depending upon the nature of the transaction. The
pleadings of the parties and the materials brought on record would be relevant so as to enable the
court to judge the concept as to what is for public good or in the public interest or what would be
injurious or harmful to the public good or the public interest at the relevant point of time as
contra-distinguished from the policy of a particular government. A law dealing with the rights of
a citizen is required to be clear and unambiguous. Doctrine of public policy is contained in a
branch of common law, it is governed by precedents.
The principles have been crystallized under different heads and though it may be possible for the
courts to expound and apply them to different situations but it is trite that the said doctrine should
not be taken recourse to in 'clear and incontestable cases of harm to the public though the heads
are not closed and though theoretically it may be permissible to evolve a new head under
exceptional circumstances of a changing world'.13

Opposed to Public Policy

Agreements in Restraint of Trade: The agreements which restrict trade business or profession
are called agreements in restraint of trade. One citizen cannot restrict lawful business of the
other.

A case on this point is Madhav V. Raj Kumar, A and B enters into a contract according
to which B has to close down his business for which he would be paid amount by A. B
closes his business but, A fails to pay B the agreed amount. B sues A for recovery and
court decides that it is an agreement in restraint of trade and hence void.

Agreements in Restraint of Marriage: The agreements which create restriction on marriage are
called agreements in restraint of marriage. One person cannot restrict the other from getting
married.

13 Gherulal Parakh vs. Mahadeodas Maiya and Others [AIR 1959 SC 781 : 1959 (2) SCR 406] In Zoroastrian Cooperative
Housing Society Ltd. and Another vs. District Registrar, Cooperative societies (Urban) and Others [(2005) 5 SCC 632]

A case on this point is Lowe V. Peerless. In this case an agreement gets formed between
A and B according to which A should marry B only, and B should marry A only. If only
one of them breaches the agreement a compensation of $2000/- is to be paid. Court
decides that the language used in the agreement is creating restriction on marriage and
court decides that it is an agreement in restraint of trade and hence void.

Agreements with Alien Enemy: Agreements with aliens are valid so long as there are good
relations between two Countries. When war breaks out between the Countries that Contract
becomes opposed to public policy and hence void.

A case on this point is Metropolitan Water board V. Dick Kerr and Company.
Metropolitan Water wants to construct a dam and enters into a contract with people who
are aliens (other nation engineers). The contract is breached followed by a war in between
the two nations. Metropolitan Water boards files a case up on breach of contract. But, the
case loses its validity since a war broke out in between the two nations.

Agreements based on Bribes: whenever there is involvement of Crime or Corruption, Such

agreement is said to be opposed to public policy.
Agreements not to bid: An agreement between persons not to bid against one another at an
auction sale is not necessarily unlawful.14 Such an agreement is not unlawful if the object is
merely to make a good bargain. But it is unlawful, if the object is to defraud a rival decree
holder. 15
Agreements in Restraint of Personal Freedom: The agreements which restrict Personal
Freedom are opposed to public policy. For example: An agreement to do slavery falls under this
group.

Related case is Ramasastry V. Ambela Karen. In this case a contract of loan gets
formed between A and B and their Contract Specifies that B has to join as slave at As
house till Settlement of debt. Court decides that the contract is void.

14 Hari V. Naro,(1894) 18 Bom 342

15 Ram Lal V. Rajendera Nath (1933) 8 Luck 233 : AIR 1933 oudh 124

Conclusion
The law does not allow an agreement tainted with immorality to be enforced. Consequently,
every agreement the object of or consideration for which is immoral, is unlawful. The term
immoral depends upon the standards of morality prevailing at a particular time and as
approved by the courts. But certain kinds of acts have been regarded as immoral since times
immemorial and will perhaps always be so regarded. Unlawful agreements are those agreement
whose objective is not lawful. Immoral agreements are those agreements those are not lawful and
are considered void in the eyes of the society and law. Every agreement that opposes the law are
Immoral. The term public policy in its broadcast sense means that sometimes the courts will,
on consideration of public interest, refuse to enforce a contract.

Bibliography

Books referred:

Indian Contract Act, by MULLA

Indian Contract Act, by Avtar Singh

Websites referred:

https://indiankanoon.org/doc/1903729
https://theindiancontractact.blogspot.com/
https://preservearticles.org
https://mondaq.com

Acts Reffered

Bare Act- Contract Act 2016