CHANAKYA NATIONAL LAW UNIVERSITY

The Final Draft for the Fulfilment of the Project Work of Law of Contracts

On

Consideration and object of the agreement which is forbidden by law

and defeating the provision of any law

Submitted To: Mrs. Sushmita Singh Submitted By: -Shreyank Tiwari

Faculty of Law of Contracts Roll No.:- 1564

2nd Semester B.A. L.L.B. (Hons.)

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 Table of Contents
ACKNOWLEDGEMENT.....................................................................................................3
DECLARATION...................................................................................................................4
RESEARCH METHODOLOGY..........................................................................................5
Aims & Objectives............................................................................................................5
Hypothesis.........................................................................................................................5
Research Methodology......................................................................................................5
Review of Literature..........................................................................................................5
1. INTRODUCTION.........................................................................................................6
2. Difference between void and illegal contract.................................................................8
Related case Laws:............................................................................................................9
3. Forbidden by Law........................................................................................................10
Related Case Laws...........................................................................................................10
4. Defeat the Provision of any law...................................................................................11
Related Case Laws:..........................................................................................................12
5. Conclusion...................................................................................................................13
6. Bibliography.................................................................................................................14

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ACKNOWLEDGEMENT

Writing a project is one of the most difficult academic challenges I have ever faced.
Though this project has been presented by me but there are many people who remained in
veil, who gave their support and helped me to complete this project.

First of all I am very grateful to my subject teacher Mrs. Sushmita Singh without the kind
support of whom and help the completion of the project would have been a herculean task
for me. She took out time from h busy schedule to help me to complete this project and
suggested me from where and how to collect data.

I acknowledge my friends who gave their valuable and meticulous advice which was very
useful and could not be ignored in writing the project. I want to convey most sincere
thanks to my faculty for helping me throughout the project.

SHREYANK TIWARI

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 DECLARATION

I hereby declare that the work reported in the BA LL.B (Hons.) Project Report entitled
Consideration and object of the agreement which is forbidden by law and defeating
the provision of any law submitted at Chanakya National Law University, Patna is an
authentic record of my work carried out under the supervision of Mrs. Sushmita Singh. I
have not submitted this work elsewhere for any other degree or diploma. I am fully
responsible for the contents of my Project Report.

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RESEARCH METHODOLOGY

Aims & Objectives

To study and analyse consideration and object of the agreement which is forbidden by law
and defeating the provision of any law.

Hypothesis
1. The judiciary mechanism plays a crucial and significant role in deciding illegality
of consideration or object.
2. Knowledge of fact is an important ingredient in deciding a case related to
agreements having consideration and object forbidden by law or defeating the
provision of any law.

Research Methodology
The researcher has primarily relied on the doctrinal method. The research is based on
comprehensive study of resources like Books, Journals, articles, web sources etc.

Review of Literature
The project entitled Consideration and object of the agreement which is forbidden by law
and defeating the provision of any law provides for the differences between Illegal and
Void Agreement under the various provisions provided for in The Law of the Contracts,
1872.

For various sources of data collection the researcher derived material from the Law of
Contracts-I by Dr. R. K. Bangia, which deals with the important sections of the Indian
Contract Act, 1872. The researcher derived some materials from The Contract and Specific
Relief Acts by Pollock & Mulla and The Law of Contracts by J. I. Clark Hare. These
books proved to be very helpful for the research project.

Most of the research work was carried out with the help of Law of Contracts-I by R.K.
Bangia which provided for the detailed analysis of the sections concerned as well as the
important case laws and illustrations regarding the project topic and the remaining
research was possible with the help of internet resources and e-resources.

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1. INTRODUCTION
Section 231 of the Indian Contract Act, 1872 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". 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.

The object or consideration of an agreement must be lawful, in order to make the

agreement a valid contract, for, Section 10 lays down that all agreements are contracts if
made for lawful consideration and with a lawful object. Section 23 declares what kinds of
considerations and objects are not lawful. If the object or consideration is unlawful for one
or the other of the reasons mentioned in Section 23, the agreement is illegal and therefore
void. The use of the word illegal is somewhat misnomering here. It usually connotes a
punishable offence, but the parties to a so called illegal agreement, unless it is expressly
punishable by law or amounts to a criminal conspiracy, are not liable to punishment. They
have committed no offence. They have merely concluded a transaction that will be
spurned by the courts.3

1 https://indiankanoon.org/doc/1625889/ Retrieved 25th April 2017

2 https://indiankanoon.org/doc/1496468/ Retrieved 25th April 2017
3 Adapted from Chesire & Fifoot, The Law of Contract, IV Ed., p. 272.

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The words object and consideration used in Section 23 are not synonymous. The word
object here means purpose or design. Thus, where a person, while in insolvent
circumstances, transferred his property to one of his creditors with the object of defrauding
his other creditors, it was held that the agreement was void and the transfer was
inoperative (Jaffar Meher Ali vs Budge Budge Jute Mills Co. 4) The court observed that
although the consideration of the contract was lawful but the object was unlawful because
the purpose of the parties was to defeat the provisions of the Insolvency Law.

An agreement, the consideration or the object of which is not lawful, cannot be enforced
by law. This is because courts will not allow polluted hands to touch the pure fountains of
justice. According to Sec. 23, The consideration or object of an agreement is lawful
unless:-

(a) It is forbidden by law; or

(b) Is of such a nature that, if permitted, it would defeat the provisions of any law; or

(c) Is fraudulent; or

(d) Involves or implies injury to the person or property of another; of

(e) The court regards it as 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.

4 (1906), 33 Cal. 702.

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2. Difference between void and illegal contract
The Indian Contract Act, 1872 has made it clear that there is a thin line of difference
between void and illegal agreement. A void agreement is one which may not be prohibited
under law, while an illegal agreement is strictly prohibited by law and the parties to the
agreement can be penalized for entering into such an agreement. By learning the
distinction between the two types of agreement, you will be able to understand that which
one is void and which is unlawful i.e. illegal. So, take a read of the given article carefully.

The term void means no legal binding and agreement means consensus between parties
regarding a course of action. To simply, put a void agreement is an agreement which is not
legally binding, i.e. an agreement which lacks enforceability by law is void. A void
agreement loses its legal binding nature when declared void. Such agreement does not
create any rights and obligation for the parties, as well as the parties, do not get any legal
status. The transactions associated with the void transaction would be valid. Certain
agreements are void ab initio as per Indian Contract Act, which are Agreement in
restraint of marriage, agreement in restraint of trade, agreement in restraint of legal
proceeding, agreement with minor, agreement whose object or consideration is unlawful,
wagering agreement, etc.

An agreement that violates any law or whose nature is criminal or is opposed to any public
policy or immoral is an illegal agreement. These agreements are void ab initio, and so the
agreements collateral to the original agreement are also void. Here collateral agreement
refers to the transaction associated or incidental to the main agreement. The law strictly
prohibits such agreements, hence entering into an illegal agreement is called a punishable
offence in the eyes of law. Therefore, the parties are penalised for the same, under Indian
Penal Code. Some examples of an illegal agreement are like an agreement whose terms are
not certain, or an agreement to kill someone, etc.

It is quite clear that the void and illegal agreement are very different. One of the factors
that make an agreement void is the illegality of the contract, such as contract whose object
or consideration is unlawful. Moreover, in both the two agreements loses its enforceability
by law.

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Related case Laws:
Rajat Kumar Rath And Anr. vs Government Of India And Ors. on 15 September, 19995

Abdul Jabbar vs Abdul Muthaliff And Ors. on 11 March, 1981 6

5 AIR 2000 Ori 32, https://indiankanoon.org/doc/317261/ Retrieved 25th April 2017

6 AIR 1982 Mad 12 https://indiankanoon.org/doc/1677869/ Retrieved 25th April 2017

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3. Forbidden by Law
This clause refers to agreements which are declared illegal by Law. If the consideration or
object for a promise is such as is forbidden by law, the agreement is void. An act or an
undertaking is forbidden by law:

(a) When it is punishable by the criminal law of the country, or

(b) When it is prohibited by special legislation or regulations made by a competent

authority under powers derived from the legislature.7

The word "forbidden by law" is not synonymous with the word 'void' and hence it is not
necessary that whatever is void is also "forbidden by law".

Illustrations.

(a) Agreements for sale or purchase above the standard price fixed by the relevant law
(e.g., Essential Commodities Act. 1955) with regard to a controlled article are illegal and
hence void (Sita Ram vs Kunj Lal8).

(b) An agreement to pay consideration to a tenant to induce him to vacate premises

governed by the Rent Restriction Act is illegal and cannot be enforced because such an act
is forbidden by the said Act (Mohanchana vs Manindra9).

The word "law" in section 23(1) means judicial law, that is, the law enacted by
government and it is not permissible to a party to a contract to claim on the basis of a
contract which is prohibited by a law. The question, whether a particular transaction is
forbidden by an Act or tends to defeat its provisions is always one of construction of the
Act, the rule for which is that it should be construed according to the intention of the
persons passing it and such intention should be gathered from what they have said in the
Act.10

Related Case Laws

Universal Plast Ltd v. Santosh Kumar11

7 Cf. Pollock and Mulla, Indian Contract Act, p. 138

8 A.I.R. (1963), All, 206.
9 A.I.R. (1955), Cal. 442.
10 http://www.mondaq.com/india/x/447438/Contract+Law/Section+23 Retrieved 25th April 2017
11 A.I.R. 1985 Delhi 383.

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Brij Mohan v. M.P.S.R.T.C Corportion12

Re Mahmoud v. Ishpami13

4. Defeat the Provision of any law

It would defeat the provisions of law" mentioned in section 23 ought to be understood as

referring to performance of an agreement which necessarily entails the transgression of the
provisions of any law. The general rule of law as followed by the courts is based on
exception to the maxim modus et conventio vincunt legem. Meaning thereby, in case the
express provision(s) of any law is violated by a contract, the interests of the parties or of
third parties, would be injuriously affected by its fulfillment. The parties to a contract are
permitted to regulate their rights and liabilities themselves, and the court will only give
effect to the intention of the parties as expressed in the contract in accordance with the
applicable laws of the land.

In short three principles arise from the section:

i. An agreement or contract is void, if its purpose is the commission of an illegal act;

ii. An agreement or contract is void, if it is expressly or impliedly prohibited by any

law;

iii. An agreement or contract is void, if its performance is not possible without

disobedience of any law.

As per section 23, the difference between agreements that are void and agreements those
are illegal is very thin or small. According to Anson13, "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".14

12 A.I.R. 1987 S.C. 29.

13 (1921) 2 K.B. 716,
14 Supra note 12

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In Rajat Kumar Rath v. Government of India14 , 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".

Illustrations:

(a) A, promises to pay Rs 200 to B, if B would commit fraud on C. B agrees. Bs agreeing

to defraud is unlawful consideration for As promise to pay. Hence the agreement is illegal
and void.

(b) A, B and C enter into an agreement for the division among them of gains acquired, or
to be acquired, by them by fraud. The agreement is void, as its object is unlawful.

Related Case Laws:

Sundara Gowdner v. Balacharan15

Ram Sevak v. Ram Charan16

15 A.I.R. 1990 Ker. 324.

16 A.I.R. 1982 All. 177.

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5. Conclusion
Consideration and object of agreement which is forbidden by law and defeating the
provision of any law basically means that if in any agreement the consideration
mode/method or the object involved in the agreement is unlawful or have been declared
illegal should not be a valid contract. In fact, such agreements at first place can never even
qualify to be a contract as it does not fulfill the basic criteria of any agreement between
two parties fulfilling all the legal aspects of it to qualify as a contract.

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.

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6. Bibliography
Books:

Dr. R.K. Bangia, Contract-I, 2016

Frederick Pollock and Dinshah Fardunji Mulla, Indian Contract Act, 1872

Website:

manupatra.in

http://www.legalservicesindia.com

http://www.mondaq.com

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