VOID AGREEMENTS

Section 2(g) of the Indian Contract Act defined a void agreement as, "an agreement not
enforceable by law". Some agreements are void-ab-initio which means that they are
unenforceable right from the time they are made. There may, however, be some agreement
which, when made, are enforceable (i.e., they are contracts) but later, due to development of
certain circumstances or change in circumstances, the contracts become unenforceable. When
they become unenforceable, they are called 'void contracts'.
The following types of agreements have expressly been declared void under various sections of
the Indian Contract Act.
1. Agreements by or with persons incompetent to contract (sections 10 & 11).
2. Agreements entered into through a mutual mistake of fact between the parties (section 20).
3. Agreement, the object or consideration of which is unlawful (section 23).
4. Agreement, the consideration or object of which is partly unlawful (section 24).
5. Agreement made without consideration (section 25).
6. Agreements in restraint of marriage (section 26).
7. Agreements in restraint of trade (section 27).
8. Agreements in restraint of legal proceedings (section 29).
9. Wagering agreement (section 30).
10. Impossible agreement (section 56).
11. An agreement to enter into an agreement in the future.

LEGALITY OF OBJECT AND CONSIDERATION

Section 23 - 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 is said to be unlawful. Every
agreement of which the object or consideration is unlawful is void.
Universal Plast Ltd. v. Santosh Kumar
Facts - The plaintiff decided to sell spindles at a price of Rs. 1,02,440.18. The defendant denied
delivery of the spindles and claimed recovery of Rs. 10,000/- paid by way of advance. The
plaintiff confined their claim to Rs. 80,000/- as relief regarding possession of the mines became
unenforceable under the Bihar Land Reforms Act. The Trial Court held that the plaintiff was not
entitled to claim relief under Section 65 of the Act.
Issue - Whether the agreement between the parties is lawful and enforceable?
Judgement - The agreement between the parties is illegal and cannot be enforced. Mr. Dutta
submitted that since there is a complete prohibition in law for the sale of the spindles, the
condition or the object of the agreement in question is not lawful and the agreement is,
therefore, void. The Supreme Court held that provisions of Section 65 of the Act were not
applicable in the present case. The Court found that there was failure to comply with Section 59
of the Motor Vehicles Act before transferring the route permit and as such the partnership in
question was an illegal contract and was void in its entirety. The Supreme Court noted the
contention that at least contracts between the plaintiffs and defendants were not wagering
contracts though each party knew that their object was to indulge in speculation. Applying the
principles enunciated above and the law on the subject it is quite clear that the agreement in
question is illegal and cannot be enforced. The prohibition against acquisition and sale of
spindles is absolute in the absence of any permission from the Textile Commissioner. Their
violation is a criminal offence.
Ramsevak v. Ramcharan - The parties agreed to carry on business in partnership. The agreement
provided that they would conceal some part of their business activity and would not enter certain items in
the books of accounts with a view to evading payment of Income Tax and Sales Tax. It was held that
the agreement was aimed at defeating the provisions of Tax laws, it was opposed to public policy
and therefore, the same was not enforceable.
Bai Vijle v. Nansa Sagar - The plaintiff advanced loan to the defendant, a married woman to
enable her to obtain divorce against her husband and then marry the plaintiff. The object of the
agreement was held to be immoral and the plaintiff was not entitled to recover the loan so
advanced.
The object of the agreement has to be distinguished from consideration. Object is the purpose
or reason of contract and consideration is the price. An agreement made in contravention of the
provision of an Act of the parliament can't be made the subject matter of an action.
Ex turpi causa non oriter action – from an unlawful cause no action arises – an agreement
oppose to public policy is void and has no effect.
Section 24 - Agreements void, if considerations and objects unlawful in part.—If any part of a
single consideration for one or more objects, or any one or any part of any one of several
considerations for a single object, is unlawful, the agreement is void.
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.—An agreement made without consideration is void, unless—
(1) it is expressed in writing and registered under the law for the time being in force for the
registration of 1[documents], and is made on account of natural love and affection between
parties standing in a near relation to each other ; or unless
(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally compellable to do; or
unless;
(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his
agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the
creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.
Explanation 1.—Nothing in this section shall affect the validity, as between the donor and
donee, of any gift actually made.
Explanation 2.—An agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate; but the inadequacy of the consideration may be
taken into account by the Court in determining the question whether the consent of the
promisor was freely given.

AGREEMENTS IN RESTRAINT OF MARRIAGE

Section 26 - Every agreement in restraint of the marriage of any person, other than a minor, is
void.
The restraint may be general or partial. Thus, the party may be restrained from marrying at all, or
from marrying for a fixed period, or from marrying a particular person, or a class of persons.
For example, A promised to marry none else except B, and in default pay her a sum of Rs. 2,000.
A married someone else and B sued A for recovery of Rs. 2,000. Held, the agreement was in
restraint of marriage and as such void (Lowe v. Peers).
However, a penalty upon remarriage may not be construed as a restraint of marriage. Thus, an
agreement between two co-widows that if one of them remarried she should forfeit her right to
her share in the deceased husband's property, has been upheld (Rao Rani v. Gulab Rani).
Similarly, a provision in Nikah Nama (marriage agreement) by which a Muslim husband
authorises his wife to divorce herself from him in the event of his remarrying a second wife is
not void.
Rao Rani v. Gulab Rani
Facts - The parties involved in this case are the widows of Ram Adhar. Mst. Gulab Rani filed a
suit for profits un-der section 226 of the Agra Tenancy Act, claiming her share of Ram Adhar's
properties from Rao Rani. She also pleaded that her rights in the properties were forfeited upon
her remarriage. The lower court held that the compromise between the widows was a family
arrangement and that Gulab Rani lost her rights upon re-marriage. Rao Rani appeals the order of
remand.
Issues – 1. Whether the compromise between the widows was binding on Gulab Rani.
2. Whether section 249 of the Tenancy Act is inconsistent with section 105 of the Code of Civil
Procedure
Judgement - The compromise did not impose any restraint on either widow from remarrying,
but provided that if either widow chose to remarry, she would be divested of her husband's
property. The compromise was not void and was binding on Gulab Rani. As for the second
issue, section 249 of the Tenancy Act states that no ap-peal shall he from any order passed in
appeal, which may be inconsistent with section 105 of the Code of Civil Procedure.

AGREEMENTS IN RESTRAINT OF TRADE

Section 27 - Every agreement by which any one is restrained from exercising a lawful
profession, trade or business of any kind, is to that extent void.
Exception 1.—Saving of agreement not to carry on business of which good-will is sold.—One
who sells the good-will of a business may agree with the buyer to refrain from carrying on a
similar business, within specified local limits, so long as the buyer, or any person deriving title to
the good-will from him, carries on a like business therein, provided that such limits appear to the
Court reasonable, regard being had to the nature of the business.
Freedom of trade and commerce is a fundamental right protected by Article 19(g) of the
Constitution of India, just as the Legislature cannot take away individual freedom of trade, so
also the individual cannot barter it away by an agreement.
Example - A and B carried on business of braziers in a certain locality in Calcutta. A promised to
stop business in that locality if B paid him Rs. 900 which he had paid to his workmen as advance.
A stopped his business but B did not pay him the promised money. Held, the agreement was
void and, therefore, nothing could he recovered on it. (Madhab v. Raj Coomar).
Madhab v. Raj Coomar
The appellants, entered into an agreement with the respondents, restricting their ability to manufacture beer for
15 years. The appellants challenged the validity of the agreement, claiming it was contrary to public policy and
an unreasonable restraint of trade.
The Privy Council ruled that the agreement was invalid and unenforceable. It held that the restrictions were
excessively broad, preventing the appellants from brewing beer anywhere in the world, which was deemed
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd
unreasonable.

Vancouver Malt & Sake Brewing Co. v. Vancouver Breweries Ltd.

AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS

Section 28 - Every agreement,—
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in
respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits
the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any
liability, under or in respect of any contract on the expiry of a specified period so as to restrict
any party from enforcing his rights, is void to the extent.
Exception 1.—Saving of contract to refer to arbitration dispute that may arise.—This section
shall not render illegal a contract, by which two or more persons agree that any dispute which
may arise between them in respect of any subject or class of subjects shall be referred to
arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect
of the dispute so referred.
Exception 2.—Saving of contract to refer questions that have already arisen.—Nor shall this
section render illegal any contract in writing, by which two or more persons agree to refer to
arbitration any question between them which has already arisen, or affect any provision of any
law in force for the time being as to references to arbitration.
Exception 3.—Saving of a guarantee agreement of a bank or a financial institution.—This
section shall not render illegal a contract in writing by which any bank or financial institution
stipulate a term in a guarantee or any agreement making a provision for guarantee for
extinguishment of the rights or discharge of any party thereto from any liability under or in
respect of such guarantee or agreement on the expiry of a specified period which is not less than
one year from the date of occurring or non-occurring of a specified event for extinguishment or
discharge of such party from the said liability.
Explanation.—(i) In Exception 3, the expression “bank” means a banking company or a
subsidiary bank.
(ii) In Exception 3, the expression “a financial institution” means any public financial institution
within the meaning of section 4A of the Companies Act, 1956(1 of 1956).
Section 28 of the Indian Contract Act regards the following two restraints of legal proceedings as
void.
1. Restriction on Legal Proceedings: An agreement by which a party is restricted absolutely
from enforcing his legal rights under, or in respect of, any contract by the usual legal proceedings
in the ordinary tribunals. For example, a contract contains a stipulation that no action should be
brought upon it in case of breach, such a stipulation would be void because it would restrict both
parties from enforcing their rights under the contract in the ordinary tribunals. But, a contract
whereby it is provided that all disputes arising between the parties should be referred to the
arbitration, whose decision shall be accepted as final and binding on both parties of the contract,
is not invalid. The courts have power, in spite of such a stipulation, to set aside the decision of
the arbitrator on grounds of misconduct on the part of the arbitrator.
A contract may contain a double stipulation that any dispute between the parties should be
settled by arbitration, and neither party should enforce his rights under it in a court of law. Such
stipulation would be valid as regards its first branch. (i.e., all disputes between the parties should
be referred to arbitration, because that stipulation itself would not have the effect of ousting the
jurisdiction of the courts. But the latter branch of the stipulation (i.e., neither party should
enforce his rights under it in a court of law) would be void because by that the jurisdiction of the
court would be necessarily excluded.
Further, it should be noted that the restriction imposed upon the right to sue should be absolute
in the sense that the parties are precluded from pursuing their legal remedies in the ordinary
tribunals. Thus, where there are two courts, both of which have jurisdiction to try a suit, an
agreement between the parties that the suit should be filed in one of those courts alone and not
in the other, does not contravene the provisions of section 28 (Milton & Co. v. Ojha
Automobile Co.).
2. Limitation of Time: Another type of agreement rendered void by section 28 is where an
attempt is made by the parties to restrict the time within which an action may be brought so as
to make it shorter than that prescribed by the law of limitation. For example, according to the
Indian Limitation Act, an action for breach of contract may be brought within three years from
the date of breach. If a clause in an agreement provides that no action should be brought after
two years, the clause is void.
A clause in a policy of life insurance declaring that "no suit to recover under this policy shall be
brought after one year from the death of the assured" was held void. However, cases of the
above sort are distinguished from those which provide for surrender or forfeiture of rights if no
action is brought within the stipulated time. A clause in a policy of life insurance provided "if a
claim be made and rejected and an action or suit be not commenced within three months after
such rejection ..., all benefits under the policy shall be forfeited." This clause was held valid.
Tapash Majumdar v. Pranab Dasgupta - the East Bengal Club authorized the Executive
Committee to take action against the members of the club who challenged the election process
of the Executive Committee in the court. The Calcutta High Court ruled that such a restriction
was against public policy and violated Section 28 of the Indian Contract Act, 1872.
Hakkam Singh v. Gammon India Ltd. - the agreement between the parties stated, "The
Court of law in the City of Bombay alone shall have the jurisdiction to djudicate thereon". A suit
filed in Varanasi was dismissed. The Supreme Court ruled that the agreement did not contravene
Section 28 of the Indian Contract Act, 1872. The agreement would be void if the Bombay Court
did not have the jurisdiction. An agreement cannot confer non-existent jurisdiction on a court.
National Insurance Co. Ltd. v. SG Nayak & Co. - Court ruled an insurance agreement
clause, which released the insurance company of all liability if a loss/damage claim was not filed
within 12 months, not in violation of Section 28 of the Indian Contract Act, 1872. The
agreement did not seek to curtail the period of limitation. An agreement to forfeit/waive rights
before the lapse of a specified time period is not void.
Union of India v. Indusind Bank Ltd. - the Union of India submitted that the bank
guarantees which limited the time period within which they could be invoked would not be
affected by an amendment introduced a year later. The Supreme Court ruled that Section 28 is
substantive law. It operates prospectively and not retrospectively. The court did not delve into
the repercussions of the addition of Section-28(b) on the bank guarantees but stated that the
Parliament addressed the grievances of the banks through the addition of an exception in Section
28.
AMBIGUOUS AND UNCERTAIN AGREEMENTS
Section 29 - Agreements, the meaning of which is not certain, or capable of being made certain,
are void.
An agreement is called an uncertain agreement when the meaning of that agreement is not
certain or capable of being made certain. Such agreements are declared void under section 29.
Example - A agrees to sell to B "one hundred tons of oil". The agreement is void for uncertainty
since there is no clarity in the agreement what kind of oil was intended.
In the case of Guthying v. Lynn, a horse was bought for a certain price coupled with a promise
to give 5 pounds more if the horse proved lucky. The agreement was held void for uncertainty.
The Court had no machinery to determine what luck the horse had brought to the buyer.
Where the price is left to be fixed by a third party, there is no uncertainty and the agreement will
be enforceable. For example, where A agrees to sell to B one thousand kilograms of rice at a
price to be fixed by C, there is no uncertainty as the price is capable of being made certain. The
agreement, therefore, is not rendered void. Similarly, if the agreement is totally silent as to price,
it will be valid, as in that case, section 2 of the Sale of Goods Act will apply and the reasonable
price shall be payable.
Certain illustrations where agreements have been held not to be uncertain:
1. A, who is a dealer in coconut oil only, agrees to sell to B "one hundred tons of oil". The nature
of A's trade indicates the meaning of the words, and A has entered into a contract for the sale of
one hundred tons of coconut oil.
2. A agrees to sell B "all the grain in my granary at Ramnagar". There is no uncertainty here to
make the agreement void.
3. A agrees to sell B one hundred tons of coconut oil at a price to be fixed by C, As the price is
capable of being made certain, there is no uncertainty here to make the agreement void.

AGREEMENTS BY WAY OF WAGER

Section 30 - Agreements by way of wager are void; and no suit shall be brought for recovering
anything alleged to be won on any wager, or entrusted to any person to abide the result of any
game or other uncertain event on which any wager is made.
Exception in favour of certain prizes for horse-racing.—This section shall not be deemed to
render unlawful a subscription or contribution, or agreement to subscribe or contribute, made or
entered into for or toward any plate, prize or sum of money, of the value or amount of five
hundred rupees or upwards, to be awarded to the winner or winners of any horse-race.
Section 294A of the Indian Penal Code not affected.—Nothing in this section shall be deemed
to legalize any transaction connected with horse-racing, to which the provisions of section 294A
of the Indian Penal Code (45 of 1860) apply.
The Indian Contract Act does not define a wager. A wagering agreement, according to Sir
William Anson, is a promise to give money or money's worth upon the determination or
ascertainment of an uncertain event. Thus, a wagering agreement is an agreement under which
money or money's worth is payable, by one person to another on the happening or non-
happening of a future uncertain event. For example, A and B bet as to whether it would rain on
a particular day or not - A promising to pay Rs. 100 to B if it rained, and B promising an equal
amount to A, if it did not. This agreement is a wager.
Essentials of a Wagering Agreement:
1. Uncertain event: The first thing essential to wager is that the performance of the bargain must
depend upon the determination of an uncertain event. An event may be uncertain either because
it is yet to take place or it might have already happened but the parties are not aware of its result.
2. Mutual chances of gain or loss: The second essential feature is that upon the determination of
the contemplated event each party should stand to win or lose. If either of the parties may win
but cannot lose, it is not a wagering agreement.
3. Neither party to have control over the event: Neither party should have control over the
happening of the event one way or the other. If one of the parties has the event in his own
hands, the transaction lacks an essential ingredient of a wager.
4. No other interest in the event: Further, neither party should have interest in the happening of
the event other than the sum or stake he will win or lose.
5. Promise to pay money or money's worth: Lastly, to constitute wager, the promise should be to
pay money or money's worth only.
A borrows Rs. 500 from B to pay to C, to whom A has lost a bet. Agreement between A and B
is valid. It should be noted that in Maharashtra and Gujarat they have been declared illegal.
In the case of Universal Mutual Aid and Poor Houses Association v. Thoppa Naidu
monthly subscriptions were collected to raise a donation fund to carry out charitable objects. A
substantial portion of the interest accruing on the fund so raised was utilised in granting loans
free of interest and cash bonuses to certain subscribers, the names and amounts to be
determined by means of drawings. The court held that the business carried on by the company
was a lottery and, therefore, illegal though there was a charitable or philanthropic purpose
annexed to the lottery. The company was, therefore, ordered to be wound up.
A cycle and gramophone dealer started a chit with 100 subscribers, each subscribing Rs.3 per
month, for a period of 20 months. There was to be a monthly draw in which the subscriber
whose number or name drawn was given a cycle or a gramophone at his option and relieved
from further liability to pay subscriptions. In the 21st month each of the subscribers who did not
draw at any of the previous drawings were given a cycle or gramophone, it was held that the
transaction amounted to a lottery and was, therefore, illegal (Public Prosecutor v. M. Naidu).
The court held that the permission granted by the Government will not have the effect of
overriding section 30 of the Indian Contract Act and making such a lottery legal. Its only effect
was that the person responsible for running the lottery would not be punishable under the
Indian Penal Code.
Exceptions to Wagering Agreements -
1. Transactions for the sale and of stocks and shares or for the sale and delivery of goods, with a
clear intention to give and take delivery of shares or goods, as the case may be.
2. Prize competitions which are games of skill, e.g., picture puzzles, athletic competitions, etc.
3. An agreement to contribute to a plate or prize of the value of above Rs. 500 to be awarded to
the winner of a horse race. (section 30).
4. Contracts of insurance are not wagering agreements even though the payment of money by
the insurer may depend upon a future uncertain event.