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VOID Agreements

CONSTITUTIONAL LAW-I (Amity University)

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CONTRACT LAW NOTES

VOID AGREEMENTS
1. SECTION 24

“ Agreement void, if considerations and objects unlawful in part.”

First of all, it needs to be understood that all agreements are considered as contracts under S.10
of the Contract Act when they are –

A. Instituted by 2 or more people with their own free consent,

B. Instituted by people who are competent to contract (age, soundness of mind, etc.),
C. Instituted for a lawful consideration,
D. With a lawful object,
E. Not expressly declared to be void, by any means.

Therefore, the basic intent of S.24 is to state two things:

- that if the considerations and objects arising out of an agreement are unlawful in
whatever part, then that would make that whole agreement itself void.

Illustration: B promises to supply a tin of chips and a packet of some unnamed illegal
drugs to A and A promises to pay B Rs.100 every month for the supplies. The
consideration for A’s promise and the object of B’s promise are both unlawful to a part.
Both of them can also not be counted as separate transactions. This unlawfulness in part
makes the whole agreement between A and B void.

CASE LAW:
GOPALRAO V. KALLAPPA, (1901) 3 BOM LR 164
Person was allowed the license to sell opium and ganja with the only limitation that he
needs to inform the collector before taking in any partner in the opium-ganja business.
After some time, the person took in another man as his partner because this partner gave
him a fixed sum as his share of capital. Later, this same partner filed a case in the court

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for refund of this money and dissolution of the partnership due to differences that arose
between them, but the court disallowed this petition, declaring the contracts to be
inseparable, and therefore void due to its unlawful nature.

- If it is possible that the unlawful part can be severed from the lawful part, then only the
unlawful part would be void, and the agreement will be valid to the extent of the lawful
part.

llustration: Geeta promises to pay Rs.2000 a month to Beena if she helps Geeta with
trafficking little children and also work as a maid in Geeta’s house. In this case, as the
unlawful part of human – trafficking can be separated from the lawful part of working as
a house help, the agreement would be valid to the extent of Beena working as a maid.

CASE LAW:
BOI FINANCE LTD V. CUSTODIAN (1997) 10 SCC 488
The Supreme Court reiterated the importance of severance of a transaction into two
different and wholesome ones and then judging the voidability of the agreement, in this
case. The Court decided that the banking contract made in this case can be separated into
two – the ready-leg and the forward-leg. The ready-leg transaction was completed before
the notified date and therefore would not be illegal or unlawful, but the forward-leg
transaction was not completed prior to the notified date, and therefore is illegal and void
only to that extent.

2. SECTION 25

“Agreement without consideration, void, unless it is in writing and registered, or is a

promise to compensate for something done, or is a promise to pay a debt barred by
limitation law.”

The following section provides us with the exceptional circumstances in which an agreement
without consideration is accepted and valid. Following are the situations:

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Sub-Clause A: If it is made out of love and affection and is in writing and registered:

The important thing to note in this point is, relationships arising out of ‘love and affection’
need not necessarily be just family. It can be anyone who is in close relation with another,
and it is up to the party to prove the existence of love and affection and the court to
ultimately verify the same.

Illustration: Neetu promises Bana that she will give Bana her car, without consideration.
This is a void agreement. However, if Neetu, out of love and affection, promises to give Bana
her car, and writes the same and registers it, then the agreement is valid even if it is one
without consideration.

CASE LAW:

RAJLUKHY DABEE V. BHOOTNATH MOOKERJEE (1900) 4 CAL WN 488

The husband in this case promised to pay the wife a certain sum almost every month as
maintenance. This was also made in writing and registered. However, the husband and wife
used to quarrel every day and did not have a healthy or happy relationship at all. A case was
filed to recover this promised amount of maintenance money. However, the court decided in
favor of the husband by deciding that there existed no love or affection between the married
couple and hence this agreement would not come under S.25 (1) of the Indian Contract Act.

Sub – Clause B: If it is made to someone as compensation for already providing services to

the promiser in the past:

Following are the pre-requisites under this section –

- Service should have been voluntary and under no request from the promiser.
- There should be a promise by the promiser to compensate for these voluntary services in
the future. If there is no such promise, then there exists no contract.
- The agreement is enforceable only by the person who did the voluntary service, and no
one else.

Illustration: A discovers B’s lost wallet lying on the ground and gave it to B. B promised
that he will give Rs.100 to A for this favor in the future. This amounts to a contract.

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CASE LAW:

BACHHU RAM V. CHUNDER AIR 1916 PAT 80

The defendant had agreed to pay B for teaching the defendant singing and dancing at her own
cost and when it was discovered that it was B’s sister who had actually rendered the service
to the defendant, specific performance was not allowed by the court.

An important mention can also be given to the incredibly famous case Lalman Shukla v.
Gauri Dutt (1913) 11 ALJ 489 which also affirmed the principle that a promise needs to be
given by the promisor for the voluntary service to turn into a contract under S.25 (2) of the
Contract Act.

Sub-Clause C: If it is a promise to pay a time-barred debt:

A time-barred debt is usually money that someone borrowed and did not repay but which is
no longer legally collectable because a certain number of years have passed within which the
lender could have asked for repayment. To invoke S.25 (3), the following are required –

- Presence of a written promise that is either signed by the promiser or his/her agent.
- A promise is necessary, either to pay the whole debt or part of it.
- The debt must have been enforced by the creditor/promisee for the limitation period.
- The promiser himself has to be liable for the debt, and not the debts of any third-party.
- Intention of the parties must be clearly expressed.
- The debt must be paid by the debtor themselves.

Illustration: If a widow repays the debt of her deceased husband in her personal capacity,
then it shall not be valid under S.25 (3).

CASE LAW:

M. SHANTILAL & CO V. ABBAJI MARUTI JADHAV AND ANOTHER (2019) SCC

ONLINE BOM 4356

The Supreme Court, in this case, had held in the affirmative that issuance of a cheque in
repayment of a time barred debt amounts to a written promise to pay the said debt within the

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meaning of Section 25(3) of the Indian Contract Act, 1872, and therefore becomes an
exception to the general rule that an ‘agreement without consideration is void’.

This section also states that nothing in this section shall affect the validity of a gift made between
a donor and a donee.

Explanation 2 also states that an agreement to which the consent of the promisor is freely given
is not void merely because the consideration is inadequate, but this inadequacy can be taken into
account by the Court to ascertain whether the consent of the promiser was freely given or not.

3. SECTION 26

“Agreement in restraint of marriage, void”

The main objective behind establishing this section is to ensure that individuals do not lose their
right to marry people of their own choice, which is an integral part of a civil society and has both
personal and social significance, just because of some contractual obligation. As Section 26 does
not provide any clue as to the degree of restraint that would be void, it is assumed that both
partial and complete restraint would come under this category of being declared void.

An important exception to this section is that it does not hold void any agreement that is in
restraint of marriage of a minor, because marrying a minor is against the public policy of our
country.

Illustration: 25 years old Guntu’s father promises to Mohan that he will not marry off Guntu to
anyone but Mohan if Mohan pays an amount of Rs.6000 per month until their wedding to
Guntu’s father. The following agreement would be void as it is restraining the marriage of a
person of age.

CASE LAW:

LOWE V. PEERS, (1768) 4 BURR. 2225

This is the landmark European judgment that set a precedent for S.26. In this case, the defendant
promised that if he married any other person except the plaintiff, he would pay the plaintiff 1000
pounds within 3 months of the marriage. The court declared such an agreement void.

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SHRAWAN KUMAR V. NIRMALA 2012 SCC ONLINE ALL 4011 : (2013) 96 ALR 904 :
(2013) 3 ALL LJ 651

In this fairly recent case, the plaintiff filed a case to the Allahabad High Court for injunction of
marriage of the defendant to another person contending that the defendant had promised to marry
him but had went on and married another. The court dismissed the petition by declaring the
agreement void by citing S.26 of the Contract Act.

4. SECTION 27

“Agreement in restraint of trade, void”

The section basically states that, any agreement which restrains a person from carrying out their
business or trade lawfully for some consideration is void. However, there are two exceptions to
this section that can be found in the Sale of goodwill and Partnership Act. They are the
following-

- Sale of Goodwill: Once goodwill, which is an intangible asset, is sold to a buyer, then the
buyer acquires certain rights which would be to use the name and represent the firm of
the seller by the buyer. In addition to this, the buyer can also restrain the seller from
carrying out a similar business within the local limits of the buyer as that would clearly
be not good for the buyer’s new business. However, even such a restraint needs to be
logical when specifying the local limits within which the seller cannot operate.
- The Partnership Act of 1932 also provides three exceptions to this section where restraint
on trade is allowed:
 An agreement with the firm that neither of the partners will carry out their own
businesses as long as they are partners in the firm is valid according to S.11 of the
Act.
 An agreement that the partners will not carry out on similar business to the firm
within specified local limits and time limits is also valid according to S.36 of the Act.
 At the time of dissolution of the firm, the partners are allowed to come into an
agreement restraining carrying out similar business within specified local limits and
time limits as long as these limits are reasonable.

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Illustration: Janaki has a stationary store in the Zee locality. Meena is planning to open a similar
business in the same locality. Fearing for a market competition, Janaki enters into an agreement
with Meena to not open her store for at least 15 years in Zee locality. Janaki also promises to pay
Rs.10,000 as consideration within a week. However, she fails to do so. Now, Meena cannot take
this up to the court under S.27 because it is a void agreement, and hence not enforceable.

Similar facts and ratio occurred in the case of MADHUB CHUNDER V. RAJCOOMAR DOSS,
(1874) 14 BENG. L.R. 76.

CASE LAW:

CHANDRA KANTA DAS VS PARASULLAH MULLICK, (1922) 24 BOMLR 602

In this case, the plaintiff was the owner of a fleet of buses that used to operate between Pune and
Mahabaleshwar. The defendant also had a similar business around the same area. Fearing
competition, the plaintiff bought the business of the defendant, along with his goodwill, and by
contract, made him agree to not continue similar business in that area for 3 years. The defendant,
however, did not listen and continued his bus business in that area. A case was filed, and the
court held that such a restraint was valid as it fell under the exception of S.27 of the Contract
Act.

5. SECTION 28

“Agreement in restraint of legal proceedings, is void”

This section, renders invalid three kinds of agreements –

- If the agreement is one which renders it invalid for a person to approach a relevant court
or tribunal if the person’s rights have been violated. However, if there is more than one
court to choose from, and the parties have agreed to approach a particular court A instead
of B, then that is valid.
- If the agreement is one which limits the time period within which that person can
approach the relevant court.
- If the agreement extinguishes or discharges the liability of any person on the expiry of a
particular time period so as to stop the person from enforcing his/her rights under the
contract (this had been brought about by the 1997 amendment).

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There are also certain exceptions to this section –

- If the agreement states that a future dispute or past dispute can be referred to arbitration,
then that agreement is valid
- If the agreement provides the time-limit with regards to the Limitation Act of 1963, it is
valid.
- If it is a guarantee agreement of a bank or financial institution that has stipulated in its
provision for extinguishment of rights/discharge of liability of any person on the expiry
of a time period of not less than 1 year from the date of the occurring or non-occurring
event that brought about the extinguishment or discharge.

Illustration: A and B enter into an agreement. It is given under a clause that in the event of any
disagreements, B is not allowed to go to court for redressal and that A and B will sort out the
differences between themselves. This is a void agreement.

CASE LAW:

FOOD CORP. OF INDIA V. NEW INDIA ASSURANCE CO. LTD (1994) 3 SCC 324

It was held that the terms of an agreement should not be so construed as to bar the other party
from seeking the remedy of the suit.

RAJASTHAN HOUSING BOARD V ENGINEERING PROJECTS (INDIA) LTD. (1999) SCC

ONLINE RAJ 72

The court held that a clause providing for arbitration and declaring that the Arbitration Act would
not apply was held to be void. The arbitration clause was held to be valid. The part which
excluded the application of the Arbitration Act being severable from the rest of the agreement
was alone struck down.

6. SECTION 29

“Agreements void for uncertainty”

An agreement which is uncertain may be either because it is ambiguous or vague, or because it is

incomplete. This section makes void all such agreements where in the intention of the parties is
not clearly understandable.

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Illustration: A agrees to sell to B some tons of oil. Here, there is nothing in the agreement to
show the quantity and type of oil that is going to be sold, and therefore, the agreement is void
under this section.

CASE LAW:

KOVURU KALAPPA DEVARA VS KUMAR KRISHNA MITTER AND ANR. AIR 1945 MAD
10

The meaning of an agreement should be clear on the face of it. Merely difficulty in interpretation
will not be considered as vague. There should be proper unclarity of the intention of the parties
to enforce this section.

BAHADUR SINGH VS FULESHWAR SINGH AND ORS. AIR 1969 PAT 114

This section cannot be enforceable if the agreement is capable of being made certain.Mere
vagueness that can be cleared with proper interpretation will not render an agreement void under
this section.

LANI MIA VS MUHAMMAD EASIN MIA AND ORS. 33 IND CAS 448

A document for renewal for lease that did not specify the period or rent must be presumed to be
of the same period and rent as the original lease, and hence is not void for uncertainty.

7. SECTION 30

“Agreements by way of wager, void”

As given under the famous case of Carlill v. Carbolic Smoke Ball Co. 1 Q.B. 256 (Court of
Appeal 1893), “it is essential to a wagering contract that each party may under it either win or
fail, whether he will win or fail remaining dependent on the issue of the event and therefore
being unknown till that issue is known.”

The following are the essentials of a wagering contract:

1. An uncertain event
2. Equal chances of gain/loss to the parties
3. No control of event by parties

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However, there is an exception under this section. At times, when there are state sanctioned horse
racing competitions, the people participating might contribute an amount of Rs.500 or more to
the horse – race winner. This is taken to be a valid agreement. However, this section, also,
paradoxically states that nothing in this section shall be recognized to sanction horse-races in the
country, to which S.294A of the IPC may be affected.

Illustration: A wagers that his dog Bruno will win the dog running competition, and if he
doesn’t, then A will pay Rs.300 to B. Bruno loses the competition, but A doesn’t give the money
to B. B cannot go to court stating that A violated the agreement because it is void under S.30.

CASE LAW:

BADRIDAS KOTHARI V. MEGHARAJ KOTHARI 1966 SCC ONLINE CAL 30 : AIR 1967
CAL 25

The court held that although a promissory note was executed for the payment of the debt caused
through wagering transaction, the note was held not to be enforceable.

B.R ENTERPRISES V. STATE OF UP (1999) 9 SCC 700: AIR 1999 SCC 1867

The court held that state – sponsored lotteries have the same element of luck involved with
absolutely no play of skills, and therefore, comes under the concept of a wager. Hence S.30 of
the Contract Act would apply to lotteries also.

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