AGREEMENTS OPPOSED TO PUBLIC POLICY

Submitted by - Submitted to -
Name: Siddharth Jain Dr. Manpreet Kaur
Roll No.: 18065 RGNUL, Punjab
Group No.: 10

RAJIV GANDHI NATIONAL UNIVERSITY OF LAW

2019
Acknowledgement

I have taken efforts in this project; however, it would not have been possible to complete
this project without the help and supervision of Dr. Manpreet Kaur.
I would like to thank both the teachers and the college for providing me with the required
resources and help.
I am highly indebted to Dr. Manpreet Kaur for providing me with this enriching assignment
which not only helped me doing rigorous research work but also enhanced my literary
knowledge.
I would express my gratitude to both my parents for being constantly supportive and co-
operative, which helped me in completion of this project.
My thanks and appreciation would also extend to all my classmates who willingly helped
me out with their abilities.

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Table of Contents
1. What is Contract ...4

2. What is an agreement …4

3. Difference between contract and agreement …5

4. Essentials of a valid contract …6

5. Legality of object and consideration …6

6. Opposed to public policy …9

7. Agreements to be held opposed to public policy …11

8. Bibliography …14

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What is a Contract?
A contract is basically an agreement between two parties creating a legal obligation for
both of them to perform specific acts. Each party is legally bound to perform the
specified duties such as rendering a payment or delivering goods.

In order for the contract to be enforceable, each party must exchange something of value
(called “consideration”).

A contract may be used for various transactions, including the sale of land or goods, or
the provision of services. They may be either oral or written, though courts prefer that
agreements be put in writing. 1

It is also necessary that the communication of an offer is carried from the offeror to the
offeree, and the acceptance travels from the acceptor to the offeror.2

INDIAN CONTRACT ACT, 1872

The Indian Contract Act, 1872 prescribes the law relating to contracts in India. The Act
is based on the principles of English Common Law. It is applicable to all the states of India
except the state of Jammu and Kashmir. It determines the circumstances in which promises
made by the parties to a contract shall be legally binding. Under Section 2(h), the Indian
Contract Act defines a contract as an agreement which is enforceable by law.

What is an Agreement?
According to Section 2(e) ‘Every promise and every set of promises forming the
consideration for each other is an agreement.’ In Indian Contract Act, 1872 all such
agreements which satisfy the conditions mentioned in Section 10 are contracts.
Agreements are further divided into 2 types:
1. Void agreements
2. Illegal agreements3

1
Contract and specific relief, Avtar Singh, Easter Book Company
2
Contract – I, R.K. Bangia, Allahabad Law Agency
3
Contract – I, R.K. Bangia, Allahabad Law Agency

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 Difference between contract and agreement
S. No. AGREEMENT CONTRACT

An Agreement is each and every promise A Contract is an Agreement which

1. DEFINITION
which is made. is legally enforceable.

Section 2 (e) of the Indian Contract Act, Section 2 (h) of the Indian
2. SECTION(S)
1872. Contracts Act, 1872.

BASIC
3. Every Agreement is not a Contract. Every Contract is an Agreement.
DIFFERENCE

4. FIGURE

ENFORCEA-
5. An Agreement is not enforceable by Law. A contract is enforceable by Law.
BILITY

A Contract has seven ingredients.

1. Agreement
2. Legal Purpose
Agreement is itself an ingredient of a 3. Lawful Consideration
4. Capacity to Contract
6. INGREDIENTS Contract and has no ingredients of its
5. Consent to Contract
own as such. 6. Lawful Object
7. Not expressly declared void;
etc.

7. FORMALITY An Agreement is an informal document. A Contract is a formal document.

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Essentials of a valid contract
In order for an agreement to be binding in a court of law, a contract must contain the
following elements:

 Mutual Assent: Each party must have a shared understanding regarding what the
subject matter of the contract is. For example, for a delivery contract, both parties
must understand that the word “ship” does not refer to a sea vessel, but rather means
“to deliver”.
 Offer and Acceptance: One party must make an offer by clearly communicating
their intent to be bound in a contract. Likewise, the other party must render their
acceptance in unambiguous terms.
 Consideration: This where both parties mutually exchange something of value in
order to make the agreement binding. The consideration may simply be a formality,
such as giving ₹ 10. Sometimes contracts can be enforced in a one-sided promise
where only one party renders consideration.

Legality of object & consideration

For a contract to be a valid contract two things are absolutely essential – lawful object and
lawful consideration. So, the Indian Contract Act gives us the parameters that make up such
lawful consideration and objects of a contract. Let us take a look at the legality of object and
consideration of a contract.

Section 23 of the Indian Contract Act clearly states that the consideration and/or object of a
contract are considered lawful consideration and/or object unless they are

 specifically forbidden by law

 of such a nature that they would defeat the purpose of the law

 are fraudulent

 involve injury to any other person or property

 the courts regard them as immoral

 are opposed to public policy.

So lawful consideration and/or lawful object cannot contain any of the above. Let us take a
more in detail look at each of them.

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1] Forbidden by Law

When the object of a contract or the consideration of a contract is prohibited by law, then they
are not lawful consideration or object anymore. They then become unlawful in nature. And
so, such a contract cannot be valid anymore.

Unlawful consideration of object includes acts that are specifically punishable by the law.
This also includes those that the appropriate authorities prohibit via rules and regulations. But
if the rules made by such authorities are not in tandem with the law than these will not apply.

Let us see an example. A received a license from the Forest Department to cut the grass of a
certain area. The authorities at the department told him he cannot pass on such interest to
another person. But the Forest Act has no such statute. So, A sold his interest to B and the
contract was held as valid.

2] Consideration or Object Defeats the Provision of the Law

This means if the contract is trying to defeat the intention of the law. If the courts find that the
real intention of the parties to the agreement is to defeat the provisions of the law, it will put
aside the said contract. Say for example A and B enter into an agreement, where A is the
debtor, that B will not plead limitation. This, however, is done to defeat the intention of the
Limitation Act, and so the courts can rule the contract as void due to unlawful object.

3] Fraudulent Consideration or Object

Lawful consideration or object can never be fraudulent. Agreements entered into containing
unlawful fraudulent consideration or object are void by nature. Say for example A decides to
sell goods to B and smuggle them outside the country. This is a fraudulent transaction as so it
is void. Now B cannot recover the money under the law if A does not deliver on his promise.

4] Defeats any Rules in Effect

If the consideration or the object is against any rules in effect in the country for the time being,
then they will not be lawful consideration or objects. And so, the contract thus formed will
not be valid.

5] When they involve Injury to another Person or Property

In legal terms, an injury means to a criminal and harmful wrong done to another person. So,
if the object or the consideration of the contract does harm to another person or property, this
will amount to unlawful consideration. Say for example a contract to publish a book that is a
violation of another person’s copyright would be void. This is because the consideration here
is unlawful and injures another person’s property, i.e. his copyright.

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6] When Consideration is Immoral

If the object or the consideration are regarded by the court as immoral, then such object and
consideration are immoral. Say for example A lent money to B to obtain a divorce from her
husband C. It was agreed one B obtains the divorce A would marry her. But the courts held
A cannot recover money from B since the contract is void on account of unlawful
consideration.

7] Consideration is Opposed to Public Policy

For the good of the community, we restrict certain contracts in the name of public policy. But
we do not use public policy in a wide sense in this matter. If that was the case it would curtail
individual freedom of people to enter into contracts. So, for the purpose of lawful
consideration and object public policy is used in a limited scope. We only focus on public
policy under the law.

So, let us look at some agreements that are opposed to public policy,

1. Trading with the Enemy: Entering into an agreement with a person from a country with
whom India is at war, void be a void agreement. For example, a trader entering into a
contract with a Pakistani national during the Kargil war.

2. Stifling Prosecution: This is a pervasion of the natural course of law, and such contracts
are void. For example, A agrees to sell land to B if he does not participate in the criminal
proceedings against him.

3. Maintenance and Champerty: Maintenance agreement is when a person promises to

maintain a suit in which he has no real interest. And champerty is when a person agrees
to assist another party in litigation for a portion of the damages or proceeds.

4. An Agreement to Traffic in Public Offices

5. Agreements to create Monopolies

6. An agreement to brokerage marriage for rewards

7. Interfering with the Courts: An agreement whose object is to induce a judicial or state
officials to act corruptly and interfere with legal proceedings

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Opposed to public policy
It is trite law that one who knowingly enters into a contract with improper object cannot
enforce his rights in relation to such contract. Notably, the Act does not anywhere define
the expressions "public policy" or "opposed to public policy" or "contrary to public policy".
However, one may note that the term "public policy" could plainly mean issues concerning
the public or public benefit and the interest of public at large. 'Public Policy' is ".... a vague
unsatisfactory term calculated to lead to uncertainty and error when applied to the decision
of legal rights; it is capable of being understood in different senses; it may and does in
ordinary sense means political expediency or that which is best for common good of the
community; and in that sense there may be every variety of opinion; according to
education, habits, talents and dispositions of each person who is to decide whether an act
is against public policy or not..." According to Lord Atkin18,

"... 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".

The above principle has been followed by the Hon'ble Supreme Court of India in Gherulal
Parekh v. Mahadevdas Maiya19, 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 crystalized 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
Rai20 , 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."

The Hon'ble Supreme Court of India has dealt with certain cases under section 23 holding
that some actions of entering into contract are void. In the matter titled "ONGC Ltd. v. Saw
Pipes Ltd."21 while interpreting the meaning of 'public policy' in this case, the Hon'ble

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Court observed that it has been repeatedly stated by various authorities that the expression
'public policy' does not admit of precise definition and may vary from generation to
generation and from time to time. Hence, the concept 'public policy' is considered to be
vague, susceptible to narrow or wider meaning depending upon the context in which it is
used. Therefore, it was held that the term 'public policy' ought to be given a wider meaning.
The Hon'ble Court placing reliance on "Central Inland Water Transport Corporation
Limited and Anr. v. Brojo Nath Ganguly and Anr." [(1986) IILLJ 171 SC] held that what
is good for the public or in public interest or what would be harmful or injurious to the
public good or interest varies from time to time. However, an award, which is on the face
of it, patently in violation of statutory provisions cannot be said to be in public interest.
Such an award is likely to adversely affect the administration of justice. Hence, the award
should be set aside if it is contrary to (i) fundamental policy of Indian Law; (ii) the interest
of India; (iii) justice or morality; (iv) in addition, if it is patently illegal. The illegality must
go to the root of the matter and if the illegality is of a trivial nature, it cannot be held that
the award is against the public policy. An award can also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court.

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.

EX TURPI CAUSA NON ORITUR ACTIO

This maxim means, “an agreement opposed to public policy is based on immoral law and
would be void and of no effect.”

The Latin maxim ex turpi causa non oritur actio refers to the fact that no action may be
founded on illegal or immoral conduct. This maxim applies not only to tort law but also
to contract, restitution, property and trusts. Where the maxim of ex turpi causa is
successfully applied it acts as a complete bar on recovery. It is often referred to as
the illegality defence, although it extends beyond illegal conduct to immoral conduct:
The ex turpi causa principle is very much based on public policy and no clear legal
principles emerge.4

Example - Gray v Thames Trains [2009] 3 WLR 167

4
Ex Turpi Causa Non Oritur Action, 24 Dec. 1998, e-lawresources.co.uk/Ex-turpi-causa.

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Agreements that have been held opposed to public
policy

The Courts ought to be very cautious in deciding a question of public policy. The doctrine
must be applied with necessary variation. Each case has to be decided on its own facts.
Some of the agreements which are opposed to public policy are briefly explained below
with examples. 5

1. Trading with Enemies

All trade with enemies is against public policy. Thus, it is unlawful and is void. However,
if a contract is made during peace times and later on war breaks out, one of the two things
may result, Either the contract is suspended or it stands dissolved depending upon the
intention of the parties to contract.

2. Traffic in Public Offices

Agreements entered into for using corrupt influence in procuring Government jobs, titles
or honors are unlawful and therefore are not enforceable. This is because, if such
agreements are valid, corruption will increase and lead to inefficiency in public services.

3. Stifling Prosecution
An agreement in which one party agrees to drop criminal proceedings pending in a court
in consideration of some amount of money, is unlawful. Therefore, such an agreement
cannot be enforced except where crime is compoundable.

However, if a compromise agreement is made before any complaint is filed, it would not
amount to stifling prosecution even if it is implemented after the filing of a complaint which
is then withdrawn.

4. Maintenance and Champerty

Maintenance and champerty agreements are against public policy. So, they are void.
Maintenance agreements are those agreements whereby a person promises to maintain a
suit in which he has no interest. Champerty agreement is one whereby a person agrees to
share the results of litigation.

The difference between maintenance and champerty agreements lies in their object. The
object of maintenance agreement is to encourage or foment litigation, whereas the same in
Champerty agreement is sharing the proceeds of the litigation.

In England, both of these agreements are illegal and unenforceable. However, in India,
only those agreements which appear to be made for purposes for gambling in litigation and

5
“Agreements Opposed to Public Policy.” Agreements Opposed to Public Policy,
www.lawsofbusiness.com/2012/03/agreements-opposed-to-public-policy.html.

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for injuring or oppressing others, by encouraging unholy litigation, will not be enforced
but not all maintenance and champerty agreements.

5. Agreements Creating Interest Against Duty

If an agreement is entered into by a person whereby, he is bound to do something which is
against his public duty, the agreement is void on the ground of public policy. For e.g., an
agreement by an agent to get secret profits shall be void as it is opposed to public policy.
Similarly, an agreement by a Government servant for the purchase of land situated within
his circle is illegal as opposed to public policy.

6. Marriage Brocage or Brokerage Agreements

It is an agreement, in which, one or other parties to it or third parties, receive a certain
money, in consideration of marriage. Such agreements being opposed to public policy are
void.

Similarly, an agreement to pay money to the parent/guardian of a minor in consideration

of his or her acceptance to give the minor in marriage is void, as it is opposed to public
policy.

Example: A, a father of a girl promised to give a certain sum of money to B, a father of a

minor boy and B agreed to marry his minor son with A’s daughter. Here the agreement is
void, as it is opposed to public policy.
It is to be noted here that though an agreement to procure the marriage is void, the marriage
will be a valid marriage.

7. Agreements Tending to Create Monopolies

Agreements tending to create monopolies are against public policy and hence are void.
However, in matter like vegetables, monopoly rights can be given to one person excluding
others.

8. Agreement to Commit a Crime

If in an agreement, the consideration is committing a crime, the agreement is opposed to
public policy and is void. Similarly, an agreement to indemnify a person against
consequences of his criminal act is unenforceable being opposed to public policy.

9. Agreements in Restraint of Legal Proceedings

Two kinds of agreements are dealt with under this head. They are-

1) Agreements Restricting Enforcement of Rights

These are the agreements which prohibits wholly or partly any party to the agreement to
enforce his rights in respect of any contract is void to that extent.

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2) Agreements Curtailing Period of Limitation
If an agreement curtails the period of limitation which is prescribed by the law of limitation
is void. This is so because, its object is to defeat the provisions of law.

10. Agreements in Restraint of Parental Rights6

For minor children, their father is the legal guardian and, in his absence, their mother will
be the legal guardian. A father by law is entitled to the custody of his minor child and so
cannot enter into an agreement which is not consistent with his duties arising out of such
custody. If such an agreement is made, it shall be void as it is against the public policy.

11. Agreements Restricting Personal Liberty

Agreements restricting personal liberty of the parties to it are void as being opposed to
public policy.

12. Agreements in Restraint of Marriage

An agreement in restraint of the marriage of any person, other than a minor is void. Law
does not make it compulsory for every person to marry. But if any person agrees not to
marry at all it is opposed to public policy and is therefore void. Further, an agreement in
which a person agrees not to marry a particular person is also void as it is against the public
policy

To sum up, in India, the rule is that any restraint of marriage, whether partial or total is
absolutely void except, of course, restraint on the marriage of a minor.

13. Agreements Interfering with Marital Duties

Agreements interfering with marital duties are against the public policy and are void.

14. Agreement to Defraud Creditors

An agreement which is made with an intention to defraud the creditors or revenue
authorities is not enforceable as it is opposed to public policy.

15. Agreement in Restraint of Trade

By law, every agreement by which anyone is restrained from exercising a lawful
profession, trade or business of any kind, is void to that extent.

6
Shishya, and Guru. “What Are the Essential Elements for a Contract to Be Valid?” Owlgen, 11 Oct. 2017,
www.owlgen.com/question/what-are-the-essential-elements-for-a-contract-to-be-valid.

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Bibliography
1. Indian Contracts Act, 1872

2. Contract – I, R.K. Bangia, Allahabad Law Agency

3. Contracts and Specific Relief, Avtar Singh, Eastern Book Company

4. Shishya, and Guru. “What Are the Essential Elements for a Contract to Be
Valid?” Owlgen, 11 Oct. 2017, www.owlgen.com/question/what-are-the-
essential-elements-for-a-contract-to-be-valid.

5. www.lawctpus.com

6. www.lawteacher.com
7. “Agreements Opposed to Public Policy.” Agreements Opposed to Public Policy,
www.lawsofbusiness.com/2012/03/agreements-opposed-to-public-policy.html.

8. Ex Turpi Causa Non Oritur Actio, 24 Dec. 1998, e-lawresources.co.uk/Ex-turpi-

causa.

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