JAMIA MILLIA ISLAMIA

FACULTY OF LAW

CONTRACT PROJECT: -
EXPLAINTION OF SECTION 57 OF
INDIAN CONTRACT ACT, 1872

SUBMITTED TO-
Ms. MONA ARYA
Professor
Faculty Of Law,
Jamia Millia Islamia, New Delhi.

SUBMITTED BY-
USAMA
B.A.LL.B.(HONS.)-1st SEMESTER
(REGULAR)
BATCH: 2022-2027
 TABLE OF CONTENTS

TABLE OF CONTENTS .......................................................................................................................... 1

ACKNOWLEDGEMENT ............................................................................................................................... 2

INTRODUCTION ....................................................................................................................................... 3
RECIPROCAL PROMISE ............................................................................................................................. 3
TYPES OF RECIPROCAL PROMISE ................................................................................................................ 4
WHAT IS BLUE PENCIL RULE?..................................................................................................................... 6
CASE LAWS............................................................................................................................................. 7
CONCLUSION ........................................................................................................................................ 13

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 ACKNOWLEDGEMENT
The outcome of this assignment required a lot of assistance and guidance from many people,
and I am extremely fortunate to have got it all along the completion of my assignment work. I
would like to thank Ms. Mona Arya for giving me this opportunity to do this project. I would
also like to thank my friends who played a major role in giving ideas and assisting me
throughout the project. Last, but not the least I would like to thank the Almighty for having
his many blessings on me.

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INTRODUCTION

In this assignment I tried to explain section 57 of Indian Contract Act, 1872. Which
talks about reciprocal promises to so things legal, and also other things illegal. Where persons
reciprocally promise, firstly, to do certain things which are legal, and, secondly, under
specified circumstances, to do certain other things which are illegal, the first set of promises is
a contract, but the second is a void agreement.

Illustration

A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a
gambling house, he shall pay A 50,000 rupees for it.

The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it,
is a contract.

The second set is for an unlawful object, namely, that B may use the house as a gambling house,
and is a void agreement.1

But first let us understand what reciprocal promise means: -

RECIPROCAL PROMISE
Contracts are the founding stone of various agreements. When we talk about contracts
we talk of one party agreeing to do something and the other party doing an act in return, that
means I give you a banana and you pay for it. But many a times in contracts, parties just agree
to do things or they promise to do certain acts. Unlike an act, promises are not tangible.

The Indian Contract Act of 1872 under section 2 defines what promises are- When
someone expresses his willingness to do or not to do something, he/she is said to make a
proposal. When the other person to whom the proposal is made accepts the proposal, the
proposal becomes a promise. Here, the person who made the proposal is the ‘promisor’, and
the person to whom the proposal is made is called the ‘promisee’. When, at the desire of the
promisor, the promisee does something, does not do something or promises to do something;

1
. The Indian Contracts Act, 1872

3
this act of the promise is called ‘consideration of the promise’. These promises that the
promisee does to form the consideration form an agreement. Such promises that form an
agreement are called reciprocal promises.

For example, A expresses his willingness to pay for some coats to R. R accepts A’s
proposal to pay through the word (Now A has promised to pay). Now A is the promisor and R
is the promisee. Now, due to A’s promise to pay, R promises to supply the coat. (R’s promise
to provide the coat is a consideration). R’s promise to supply sets the agreement in place. R’s
promise to supply is a reciprocal promise.

Section 2. Interpretation-clause.—In this Act the following words and expressions are
used in the following senses, unless a contrary intention appears from the context:—

(f) Promises which form the consideration or part of the consideration for each other
are called reciprocal promises.2

TYPES OF RECIPROCAL PROMISE

1. Mutual and independent: This concept has emerged through jurisprudence. It states that the
two promises of the parties are independent of each other and they do not have to rely on each
other for performance. Suppose there is a contract where D will give chocolates to E and E will
give Pokemon cards to D. D can fulfil his promise even if E does not give him the pokemon
cards i.e; the absence of Pokemon cards does not make the performance of his promise
impossible. The same goes for E. Thus while the acts are binding, they are mutually exclusive
and are thus independent of each other.

In Mrs Saradamani Kandappan vs. Mrs S. Rajalakshmi and Ors3, Sadarmani was paying for a
piece of land to Rajalakshmi in instalments. Before the payment of the last instalment,
Sadarmani wanted to see the title document but there was a failure on the part of Rajalakshmi
to show it and Saradamani thus did not pay the last instalment. Thus, Rajalakshmi terminated
the contract. Sadarmani moved to the court and argued that failure to show the title document
was the reason she could not pay the last installment. The court ruled that these two promises
i.e. promise to show the title document and the promise to pay for the last document were

2
. The ICA, 1872
3
. Saradamani Kandappan v. S. Rajalakshmi, (2011) 12 SCC 18

4
exclusive as Sadarmani could pay the last installment without showing the title document.
Therefore, Sadarmani should have paid the last instalment.

2. Conditional: This is when the performance is dependent upon the prior performance of the
other party. If there is a failure on the part of the first party to perform his promise, then it will
not be possible for the second party to perform his side of the contract. Suppose the contract if
C promises to give money to D if D promises to buy Maggi for C. If C defaults, i.e- he fails to
pay D, then it will not be possible for B to hold up his side of the contract as he won’t be able
to buy the Maggi if C does not pay him. Thus, this type of contract is considered a conditional
contract.

In M/s Shanti Builders vs. CIBA Industrial Workers’ Co-Operative Housing Society Ltd4., the
defendant, CIBA alleged that they suffered losses as Shanti builders did not do their work on
time. On the other hand, Shanti builders contested they were not given plots of land in
accordance with the payment for construction. Since this plot of land was not given to them,
they were not able to complete construction. The court upheld in favour of Shanti Builders and
stated that if the nature of the transaction states that some promises must be performed first
before others, then that order must be followed. They also stated that in respect to conditional
promises, the first party can not ask for the performance of the second party without performing
their act first.

3. Concurrent: In this, parties promise to do acts that have to be performed simultaneously. A

party will be exempted from doing their promise if the other party is not ready or willing to do
their promise. Here ‘readiness’ means financial abilities and ‘ willingness’ is perceived through
the action of the party. For instance, A is supplying coats to B. A will only supply the coats if
B financially can and is willing to, and B will only pay if A is willing to and has the goods.

The Indian Contract Act, 1872 talks about the performance of these reciprocal promises
from section 51-58.

4
. Shanti Builders v. Ciba Industrial Workers' Co-Operative Housing Society Ltd., 2012 SCC OnLine Bom 736

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WHAT IS BLUE PENCIL RULE?

Since we have covered what reciprocal promise is, let us see what section 57 further
says.
“Where persons reciprocally promise, firstly, to do certain things which are legal, and,
secondly, under specified circumstances, to do certain other things which are illegal, the first
set of promises is a contract, but the second is a void agreement.”
Many a times, parties to a contract find, much to their dismay, that some parts of their
contracts are not legal and valid and, therefore, unenforceable. In such a situation, the question
that arises is: whether the taint attaches to the entire contract (and the entire contract falls); or
the bad (illegal) can be severed from the good (legal) and tossed away, while retaining the
remaining contract and giving effect to the intention of the parties. When is the Court to pick
up a scalpel (Blue-Pencil) and amputate the diseased limb (illegal part of the contract), to
heroically save the patient (the contract itself) Cutting straight to the chase: the act of severance,
in contractual law parlance, is known as Blue Pencilling or the application of the Blue Pencil
Rule. The phrase owes its origin to an editor's act of cutting out/editing portions of a text while
proof-reading, by a Blue Pencil. According to Black's Law Dictionary the Doctrine of Blue
Pencil is a Judicial standard for deciding whether to invalidate the whole contract or only the
offending words. Blue-Pencil Rule allows the legally-valid, enforceable provisions of the
contract to stand despite the nullification of the legally-void, unenforceable provisions.
However, the Caveat is that the revised version must represent the original meaning; the rule
may not be invoked, for example, to delete the word “not” and thereby change a negative to a
positive. The general Rule of Law of contracts is that the illegal parts of a contract are illegal
and hence unenforceable. But there are many contract containing one part or a clause as illegal
and rest of the other parts as legal. The court in such cases strikes out the illegal part and
enforces the legal one when the parts are severable. This is known as the concept of
severability. This is done when the rest of the contract effectuate the intention of the parties.
The doctrine of severability created some problem i.e. it does not give power to the court to
modify a restrictive covenant in jurisdiction. Based on the doctrine of severability, a new
concept was evolved in 1843 in the case of [Mallan Vs. May]5, which later came to be known
as Blue Pencil. The Blue Pencil Doctrine is mostly applied in cases where the non-compete
agreement is a matter of dispute. Any contract in restraint of trade is void. But the Courts have

. (1844) 13 Meeson & Welsby 511.

5

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started taking different approach and validate such contract if reasonable. In case some clause
is overbroad, then the Court can strike down that part by running a Blue Pencil. Under the Blue
Pencil Rule, the first approach is to read out the separable unreasonable clauses of the contract
and then severing the part by running a blue pencil over it. The Courts had widened the scope
of application of Blue Pencil Rule by rewriting the overbroad clauses. The Rule of Blue Pencil
can be applied only if the valid stipulation is not affected by the illegality of the other part then
the valid part remains intact. In Halsbury's Laws of England, it is stated that a contract will
rarely be totally illegal or void and certain parts of it may be entirely lawful in themselves6.
The question, therefore, arises whether the illegal or void parts may be separated or severed
from the contract and the rest of the contract enforced without them. Nearly all the cases arise
in the context of restraint of trade, but the following principles are applicable to contracts in
general. [Beed District Central Co-operative Bank Limited Vs State of Maharashtra & Ors7.
MANU/SC/4348/2006 Para 7]. The Courts have started using the Blue Pencil test in contracts,
whereby, the Court may strike the part of the non-compete covenants in order to make the
covenant reasonable. This was done to make an unenforceable covenant enforceable.8

CASE LAWS
1. BABASAHEB RAHIMSAHEB VS. RAJARAM RAGHUNATH9
The parties are wrestlers and entered into an agreement as follows: firstly they were to
wrestle in Poona on a certain day; secondly, the party failing to appear on that day was to
forfeit Rs. 500 to the opposite party; thirdly, the winner was to receive Rs. 1,125 of the gate
money. The defendant failed to appear in the ring and the plaintiff sued for Rs. 500.

Para 5: In an agreement, if different clauses are separable, the fact that one clause is void does
not necessarily cause the other clauses to fail. In the present case we are not satisfied that Cl.
2, which is now in question, cannot be separated from the last clause, and even on the view put
forward by the petition the claim based on Cl. 2 would appear to be legal.

In this case the Court observed the application of Blue Pencil Doctrine in Indian contracts as
well.

6
. Halsbury “Laws of England” (4th Edn. Vol.9), P.297, Para 430,
7
. Beed District Central Coop. Bank Ltd. v. Election Commn. of India, 1998 SCC OnLine Bom 87
8
“Understanding The Blue-Pencil Rule Of Severability Under Contract Law,” legalserviceindia.comavailable at:
https://www.legalserviceindia.com/legal/article-4214-understanding-the-blue-pencil-rule-of-severability-
under-contract-law.html (last visited November 14, 2022).
9
. Babasaheb Rahimsaheb v. Rajaram Raghunath Alpe, 1930 SCC OnLine Bom 174

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2. IREO (P) LTD. V. VIBHOR HOME DEVELOPERS (P) LTD10
In this case the court discussed the blue pencil rule at length from paragraph 51-55: -

51. Reference in this regard may be made to Sections 57 & 58 of The Indian Contract Act,
1872, which are reproduced as below:

“57. Reciprocal promise to do things legal and also other things illegal.—Where persons
reciprocally promise, firstly to do certain things which are legal, and, secondly, under specified
circumstances to do certain other things which are illegal, the first set of promises is a contract,
but the second is a void agreement.

58. Alternative promise, one branch being illegal.— In the case of an alternative promise, one
branch of which is legal and the other illegal, the legal branch alone can be enforced.”

52. Reference may be made to the judgment in the case of Beed District Central Coop. Bank
Ltd. v. State of Maharashtra, (2006) 8 SCC 514, wherein it has been held as follows:

“10. The “doctrine of blue pencil” was evolved by the English and American courts. In
Halsbury's Laws of England, (4th Edn., Vol. 9), p. 297, para 430, it is stated:

“430. Severance of illegal and void provisions.—A contract will rarely be totally illegal or
void and certain parts of it may be entirely lawful in themselves. The question therefore arises
whether the illegal or void parts may be separated or ‘severed’ from the contract and the rest
of the contract enforced without them. Nearly all the cases arise in the context of restraint of
trade, but the following principles are applicable to contracts in general.”

11. In P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edn. 2005, Vol. 1, pp. 553-54, it is
stated:

“Blue pencil doctrine (test).—A judicial standard for deciding whether to invalidate the whole
contract or only the offending words. Under this standard, only the offending words are
invalidated if it would be possible to delete them simply by running a blue pencil through them,
as opposed to changing, adding, or rearranging words. (Black, 7th Edn., 1999)

This doctrine holds that if courts can render an unreasonable restraint reasonable by
scratching out the offensive portions of the covenant, they should do so and then enforce the
remainder. Traditionally, the doctrine is applicable only if the covenant in question is

10
. IREO (P) Ltd. v. Vibhor Home Developers (P) Ltd., 2022 SCC OnLine Del 2203

8
applicable, so that the unreasonable portions may be separated. E.P.I. of Cleveland, Inc. v.
Basler [12 Ohio App 2d 16 : 230 NE 2d 552, 556].

Blue pencil rule/test.—Legal theory that permits a judge to limit unreasonable aspects of a
covenant not to compete.

Severance of contract; ‘severance can be effected when the part severed can be removed by
running a blue pencil through it without affording the remaining part’. Attwood v. Lamont
[[1920] 3 K.B. 571 : 1920 All ER 55 (CA)]. (Banking)

A rule in contracts a court may strike parts of a covenant not to compete in order to make the
covenant reasonable. (Merriam Webster)

Phrase referring to severance (q.v.) of contract. ‘Severance can be effected when the part
severed can be removed by running a blue pencil through it’ without affording the remaining
part. Attwood v. Lamont [[1920] 3 K.B. 571 : 1920 All ER 55 (CA)]. (Banking)”

53. It would also be fruitful to refer to the judgment in the case of Canara Bank v. K.L.
Rajgarhia, 2009 SCC OnLine Del 310, wherein it has been held as follows:

“55. The senior Counsel for the defendant, at the outset, argued that since Clause 6 of the
agreement was that the plaintiff was interested in purchasing flats to be constructed along with
the land and not in the rights in the land alone Section 12 was not applicable. After some
thought it was argued that for Section 12 to become applicable there has to be first a contract;
if there was no enforceable contract owing to the illegality aforesaid and/or the agreement was
void, the question of application of Section 12 would not arise. A question was posed to the
Senior Counsel for the plaintiff, whether “inability to perform the whole of his part of the
contract” within the meaning of Section 12 could not be inability owing to illegality of the
contract? If that was so, whether inability to perform part only of the contract owing to
illegality, would not under Section 12 permit Specific Performance of part which was legal.
He of course answered in favour of his client; but no precedent has been cited to show that
“inability” under Section 12 has to be for reasons other than of illegality. I do not find any
justification for so restricting the wide and simple language and scope of Section 12. It is
significant that Sections 23 and 24 of the Contract Act also do not prohibit enforcement of valid
portion of transfer of property, if it is severable from the invalid portion (see BOI Finance Ltd.
v. Custodian, (1997) 10 SCC 488). The English Courts call it the Blue Pencil Rule i.e.
severance can be effected when the part severed can be removed by running a blue pencil

9
through it. So in my view, even if contract for sale of property with eight flats is illegal and
void being contrary to building regulations and master plan, the agreement for sale of property
with lesser number of flats, if permitted under Section 12, is enforceable.”

54. Reference may also be made to the judgment in the case of Forbes Gokak Ltd. v. Central
Warehousing Corporation, reported as 2010 SCC OnLine Del 369, wherein it has been held as
follows:

“11. I have referred to Sections 57 & 58 because Mr. Adarsh Dial, Sr. Advocate on behalf of
the respondent relies upon the “blue pencil” rule, whereby, when certain terms of the contract
are struck off by ‘blue penciling’ the same. On so doing, the contract has to be read as if the
terms which are struck off, did not exist at all, however, the validity and finality of contract is
not affected by striking off of one severable clause. In my opinion, Sections 57 & 58 lay down
the same principle statutorily. A conjoint reading of Sections 57 & 58 show where there are
two sets of promises one of which is legal and other is illegal, the illegal portion can be severed
from the legal part of the contract, and so far as those reciprocal promises which are a legal
set of promises, the same create a binding contract between the parties and can be enforced
between the parties.

12. Applying the ‘blue pencil” rule does not amount to re-writing the contract by the Court.
This “blue pencil” principle has recently been enunciated by the Supreme court in Shin
Satellite Public Co. Ltd. v. Jain Studios Ltd., (2006) 2 SCC 628 and the relevant paras of the
said judgment read as under:

“Partial invalidity in contract will not ipso facto make the whole contract void or
unenforceable. Wherever a contract contains legal as well as illegal parts and objectionable
parts can be severed, effect has been given to legal and valid parts striking out the offending
pars. (Para 17) A court of law will read the agreement as it is and cannot rewrite nor create a
new one. The contract must be read as a whole and it is not open to dissect it by taking out a
part treating it to be contrary to law and by ordering enforcement of the rest if otherwise it is
not permissible. But if the contract is in several parts, some of which are legal and enforceable
and some are enforceable, lawful parts can be enforced provided they are severable. But it
could be done only in those cases where the part so enforceable is clearly severable and not
where it could not be severed. By such process, main purport and substance of the clause
cannot be ignored or overlooked. Thus, a covenant “not to carry on business in Birmingham
or within 100 miles” may be severed so as to reduce the area to Birmingham, but a covenant

10
“not to carry on business within 100 miles of Birmingham” will not be severed so as to read
“will not carry on business in Birmingham” The distinction may appear to be artificial, but is
well settled. (Paras 15 and 19). The proper test for deciding validity or otherwise of an
agreement or order is “substantial severability” and not “textual divisibility” It is the duty of
the court to sever and separate trivial or technical parts by retaining the main or substantial
part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. In such
cases, the court must consider the question whether the parties could have agreed on the valid
terms of the agreement had they known that the other terms were invalid or unlawful. If the
answer to the said question is in the affirmative, the doctrine of severability would apply and
the valid terms of the agreement could be enforced, ignoring invalid terms. To hold otherwise
would be to expose the covenanter to the almost inevitable risk of litigation which in nine cases
out of ten he is very ill-able to afford, should he venture to act upon his own opinion as to how
far the restraint upon him would be held by the court to be reasonable, while it may give the
covenantee the full benefit of unreasonable provisions if the covenanter is unable to face
litigation. (Para 27) In the present case, clause 23 relates to arbitration. It is in various parts.
The first part mandates that, if there is a dispute between the parties, it shall be referred to and
finally resolved by arbitration. It clarifies that the Rules of UNCITRAL would apply to such
arbitration. It then directs that the arbitration shall be held in Delhi and will be in English
language. It stipulates that the costs of arbitration shall be shared by the parties equally. The
offending and objectionable part, no doubt, expressly makes the arbitrator's determination
“final and binding between the parties” and declares that the parties have waived the rights
of appeal or objection “in any jurisdiction” The said objectionable part is clearly severable as
it is independent of the dispute being referred to and resolved by an arbitrator. Hence, even in
the absence of any other clause, the part as to referring the dispute to an arbitrator can be
given effect to and enforced. By implementing that part, it cannot be said that the Court is
doing something which is not contemplated by the parties or by “interpretative process” the
Court is rewriting the contract which is in the nature of “novatio” The intention of the parties
is explicitly clear and they have agreed that the dispute, if any, would be referred to an
arbitrator. To that extent, therefore, the agreement is legal, lawful and the offending part as to
the finality and restraint in approaching a court of law can be separated and severed by using
a “blue pencil” (Para 26) “underlined”.

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3. NORDENFELT V. THE MAXIM NORDENFELT GUNS AND AMMUNITION CO., LTD. 11

This was one of the earliest case in this regard.

A patentee and manufacturer of guns and ammunition entered into a written contract that read

“The said Thorsten Nordenfelt shall not, during the term of twenty-five years from the date of
the incorporation of the company if the company shall so long continue to carry on business,
engage except on behalf of the company either directly or indirectly in the trade or business of
a manufacturer of guns gun mountings or carriages, gunpowder explosives or ammunition, or
in any business competing or liable to compete in any way with that for the time being carried
on by the company, provided that such restriction shall not apply to explosives other than
gunpowder or to subaqueous or submarine boats or torpedoes or castings or forgings of steel
or iron or alloys of iron or of copper. Provided also that the said Thorsten Nordenfelt shall not
be released from this restriction by the company ceasing to carry on business merely for the
purposes of re-constitution or-with a view to the transfer of the business thereof to another
company so long as such other company taking a transfer thereof shall continue to carry on
the same.”

The Court held that that the covenant is valid so far as it relates to the trade or business
of a manufacturer of guns, gun mountings or carriages, gunpowder explosives or ammunition
but was wide in its application for 25 years. Thus, the Court struck down the part by running a
Blue Pencil over it.

4. SHIN SATELLITE PUBLIC CO. LTD. V. JAIN STUDIOS LIMITED12

The Supreme Court of India in this case provides that "the proper test for deciding validity or
otherwise of an agreement or order is 'substantial severability' and not 'textual divisibility'. It is
the duty of the court to severe and separate trivial or technical parts by retaining the main or
substantial part and by giving effect to the latter if it is legal, lawful, and otherwise enforceable.
In such cases, the Court must consider the question of whether the parties could have agreed
on the valid terms of the agreement had they known that the other terms were invalid or

11
. House of Lords [1894] A.C. 535

12
. Shin Satellite Public Co. Ltd. v. Jain Studios Ltd., (2006) 2 SCC 628

12
unlawful. If the answer to the said question is in the affirmative, the doctrine of severability
would apply and the valid terms of the agreement could be enforced, ignoring invalid terms.

CONCLUSION

Basis the statutory provisions under ICA and various judicial pronouncements, a
conclusion could be drawn that doctrine of severability or Blue pencil rule shall be rendered
applicable where any valid part of a contractual provision can be enforced independently of
any other part of such contractual part that is invalid and non-enforceable. The presence of an
express severability clause aids in the elimination of any doubts with respect to the
enforceability of any valid part, however, in the absence of the same, the principles and tests
laid down under judicial pronouncements shall be resorted to.

Evidently, section 57 and section 58 of the ICA renders only the illegal part of an
agreement void and non-enforceable while accepts the validity and enforceability of the legal
part of such agreement. Nowhere section 57 or 58, owing to a specific illegal portion, renders
the complete agreement void. However, section 57 and 58 is applicable on reciprocal promises
and alternative promises respectively, that is to say, Severability applies only where the
agreement can stay operative even after rendering void a specified illegal part, however, if
voiding any specified part renders the agreement inoperative, the entire agreement shall stand
void and thus, not enforceable.

13