An Exposition of Section 23 of the Indian Contract Act, 1872: Lawful Considerations and Objects

Introduction

Section 23 of the Indian Contract Act, 1872 (hereinafter "the Act") is a cornerstone provision that delineates the boundaries of lawful agreements. It stipulates that for an agreement to be enforceable as a contract, its consideration or object must be lawful. An agreement whose consideration or object is unlawful is deemed void. This section serves as a critical instrument for the judiciary to uphold public order, morality, and the integrity of law by refusing to enforce agreements that are pernicious to societal interests or contravene legal mandates. The interpretation of Section 23, particularly the expansive head of "public policy," has been a subject of extensive judicial scrutiny, reflecting the evolving socio-legal landscape of India. This article seeks to analyze the contours of Section 23, drawing upon key judicial pronouncements that have shaped its application.

The Scope and Text of Section 23 of the Indian Contract Act, 1872

Section 23 of the Act provides a comprehensive, albeit not exhaustive, list of circumstances under which the consideration or object of an agreement is deemed unlawful. The text of the section is as follows:

"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." (As quoted in Kiran Arora v. Ram Prakash Arora, Delhi High Court, 1979)

The section thus lays down five specific heads under which an agreement may be rendered void due to the unlawfulness of its consideration or object. These categories are pivotal in maintaining the sanctity of contractual relations and ensuring they operate within the framework of law and public good.

Judicial Interpretation of Unlawful Considerations and Objects under Section 23

The judiciary has played a significant role in interpreting and applying the various limbs of Section 23. The following analysis explores these interpretations through the lens of the provided reference materials.

1. Forbidden by Law

An agreement is void if its consideration or object is expressly or implicitly forbidden by any statute or legal rule. This limb applies when the law directly prohibits the act or transaction contemplated by the agreement.

In Kuju Collieries Ltd. v. Jharkhand Mines Ltd. And Others (1974 SCC 2 533, Supreme Court Of India, 1974), a mining lease was held void ab initio due to non-compliance with statutory requirements under the Mines and Minerals (Regulation and Development) Act, 1948, and the Mineral Concession Rules, 1949. The plaintiff lacked the requisite certificate of approval, rendering the agreement forbidden by law.

Similarly, in Chandra Sreenivasa Rao v. Korrapati Raja Rama Mohana Rao And Another (Madras High Court, 1951), a promissory note executed for a marriage in contravention of the Child Marriage Restraint Act was examined for unlawfulness under Section 23. The court considered whether the purpose was "forbidden by law."

The Allahabad High Court in Udhoo Dass v. Prem Prakash (Allahabad High Court, 1963) clarified that the term "law" in Section 23(i) (first clause) means "juridical law, that is, law enacted by any competent Legislature," and in Section 23(ii) (second clause) it can include personal or customary law. It was held that disobedience of a mere injunction might not automatically attract Section 23, distinguishing administrative orders authorized by statute from civil court injunctions in this context.

Agreements involving criminal acts are clearly forbidden. In Firm Of Pratapchand Nopaji v. Firm Of Kotrike Venkata Setty & Sons And Others (Supreme Court Of India, 1974), contracts violating a Control Order, where such violation was a criminal offense, were deemed unlawful. The Court noted that a claim for indemnification under Section 222 of the Contract Act is maintainable only if the acts are lawful, and Section 224 expressly excludes agreements to commit criminal acts from indemnity.

The transfer of land or rights in contravention of specific statutes also falls under this head. In Tekumalla Rama Rao v. Durga Suryanarayana And Others (Andhra Pradesh High Court, 1963), an agreement for the transfer of a bus permit contrary to the Motor Vehicles Act, which prohibited such transfers in the public interest, was held unenforceable as its object was forbidden by law or would defeat the provisions of law.

In Kishan Dashrath Naikwade v. Asrabai W/O Babu Naikwade And Others (Bombay High Court, 1990), the court examined whether a lease of inam land without the Collector's sanction was void under Section 23 because it was forbidden by the Hyderabad Abolition of Inams and Cash Grants Act, 1954. The court distinguished this from prohibitions like those in Section 50B of the Hyderabad Tenancy and Agricultural Lands Act, which more explicitly forbade leases without sanction, thereby highlighting the need to carefully examine the specific statutory prohibition.

2. Defeating the Provisions of Any Law

This category covers agreements that, though not directly forbidden, would, if permitted, nullify or circumvent the provisions of any law. It aims to prevent indirect violations of legal statutes.

In Kiran Arora v. Ram Prakash Arora (Delhi High Court, 1979), a compromise agreement was held to be hit by Section 23 because its object was to deprive other defendants of their rights in immovable property established by a prior partition decree. The court found that such an agreement, by ignoring the decree, would defeat the provisions of law and also cause injury to the property of another.

The Supreme Court in Jayamma v. Maria Bai Dead By Proposed Lrs. And Another (2004 SCC 7 459, Supreme Court Of India, 2004) dealt with a Will bequeathing land in contravention of the Karnataka Land Reforms Act, 1961. The Act imposed restrictions on the transfer of agricultural land, including by assignment, to non-agriculturists or beyond certain limits. The Court held that if a testator could not execute a Will in favour of a person who could not be declared a tenant having occupancy right, such a Will would be void ab initio. It reasoned that when an assignment or transfer is made in contravention of statutory provisions, the consequence is invalidity, and thus, being opposed to public policy, it attracts Section 23. This also touches upon defeating the provisions of the land reform law.

3. Fraudulent

Agreements with a consideration or object that is fraudulent are void. This includes agreements intended to defraud creditors, revenue authorities, or any third party.

The case of S.P Chengalvaraya Naidu (Dead) By Lrs. v. Jagannath (Dead) By Lrs. And Others (1994 SCC 1 1, Supreme Court Of India, 1993), while primarily about "fraud on the court," illustrates the underlying principle. The plaintiff had obtained a preliminary decree for partition by concealing a release deed. The Supreme Court held that non-disclosure of such a critical document constituted fraud on the court, rendering the decree a nullity. An agreement to pursue litigation based on such concealed facts, thereby asserting a false claim, would inherently have a fraudulent object and thus be void under Section 23.

4. Involving or Implying Injury to the Person or Property of Another

If an agreement's consideration or object involves or implies harm to an individual's person or property, it is unlawful.

As seen in Kiran Arora v. Ram Prakash Arora (Delhi High Court, 1979), the compromise agreement was found to be hit by Section 23 not only for defeating a partition decree but also because "the object of the agreement is to deprive defendant No. 4 and wife of defendant No. 3 of their rights in the immovable property under the partition decree and it affects their rights." This directly points to injury to the property of another.

5. Immoral

Agreements are void if the court regards their consideration or object as immoral. The scope of "immoral" has traditionally been construed narrowly by courts, often relating to sexual immorality, but can extend to acts considered reprehensible by prevailing societal standards.

In Gherulal Parakh v. Mahadeodas Maiya And Others (1959 SCC 0 781, Supreme Court Of India, 1959), the Supreme Court, while examining the legality of a wagering partnership, considered whether it was immoral under Section 23. The Court, after reviewing English and Indian precedents, noted that the word "immoral" has been primarily confined to principles of sexual morality. It concluded that wagering contracts, while void under Section 30, were not per se immoral under Section 23.

However, the concept can be broader. For instance, an agreement to pay a bribe, as discussed in T.VIJAYA RAGHAVAN v. DR.SETHU RAMAPANDIYAN (DIED) (Madras High Court, 2022), where money was allegedly paid for securing a medical college seat, was considered to be for an "illegal object or an object opposed to public policy." Such an object could also be argued as immoral, as it undermines merit and promotes corruption.

6. Opposed to Public Policy

This is the most elastic and significant head under Section 23. "Public policy" is not a static concept; it evolves with societal norms and judicial understanding. Courts are generally cautious about creating new heads of public policy but will intervene where an agreement clearly militates against public interest.

6.1. General Principles of Public Policy

The Supreme Court in Gherulal Parakh v. Mahadeodas Maiya And Others (1959) emphasized judicial restraint, stating that courts should not extend the doctrine of public policy beyond established precedents unless faced with clear and indisputable public harm. It noted that "public policy is a very unruly horse, and when once you get astride it you never know where it will carry you."

However, in Central Inland Water Transport Corporation Limited And Another v. Brojo Nath Ganguly And Another (1986 SCC 3 156, Supreme Court Of India, 1986), the Supreme Court took a more expansive view, stating that public policy is not static and can be guided by constitutional principles, including those enshrined in the Preamble and Fundamental Rights. This was reiterated in Supriyo @ Supriya Chakraborty v. Union of India (Supreme Court Of India, 2023), which noted that courts interpret statutory laws like Section 23 through fundamental rights, citing Brojo Nath Ganguly.

In Rattan Chand Hira Chand v. Askar Nawaz Jung (Dead) By Lrs And Others (1991 SCC 3 67, Supreme Court Of India, 1991), the Court observed that public policy is dynamic and must adapt to societal values and needs. An agreement deemed to injure public interests by promoting corruption or unethical manipulation of legal processes would be against public policy.

The Bombay High Court in Shrinivasdas Lakshminarayan v. Ramchandra Ramrattandas (1919 SCC ONLINE BOM 103, Bombay High Court, 1919), while acknowledging that Indian courts can hold agreements unlawful as opposed to public policy under Section 23, cautioned against inventing new heads of public policy lightly, echoing Lord Halsbury's concerns but recognizing the statutory empowerment under Section 23.

The Supreme Court in Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003 SCC 5 705, Supreme Court Of India, 2003), in the context of setting aside arbitral awards, interpreted "public policy of India" broadly to include instances where an award is "patently illegal." This implies that an arbitral award upholding an agreement void under Section 23 (e.g., for being against public policy) could itself be set aside as being contrary to the public policy of India.

6.2. Unconscionable Contracts and Unequal Bargaining Power

A significant development under the head of public policy is the invalidation of unconscionable contract terms, particularly in standard form contracts where there is a gross inequality of bargaining power.

The landmark case is Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly (1986). The Supreme Court held that Rule 9(i) of the corporation's service rules, allowing termination of a permanent employee with three months' notice without reason, was unconscionable, arbitrary, and violative of Article 14 of the Constitution. Such a term, imposed by a party with superior bargaining power, was held to be opposed to public policy under Section 23. The Court emphasized that "the State" (including government companies) cannot impose such unfair terms.

This principle was followed in M/S. Classic Motors Ltd. v. Maruti Udyog Ltd. (Delhi High Court, 1996), where a dealership agreement clause allowing termination by either party with 90 days' notice without cause was challenged. The plaintiff argued it was a standard form contract signed under compulsion due to unequal bargaining power, making the clause unconscionable and against public policy under Section 23.

The Supreme Court in VIJAYA BANK v. PRASHANT B NARNAWARE (Supreme Court Of India, 2025 – *as per provided material*) reiterated this, quoting extensively from Brojo Nath Ganguly: "Such contracts which affect a large number of persons or a group or groups of persons, if they are unconscionable, unfair and unreasonable, are injurious to the public interest... Such a contract or such a clause in a contract ought, therefore, to be adjudged void... The only relevant provision in the Indian Contract Act which can apply is Section 23 when it states that [the object of an agreement is unlawful if the court regards it as opposed to public policy]."

6.3. Agreements Interfering with Administration of Justice or Public Service

Agreements that tend to corrupt public officials, interfere with the administration of justice, or involve trafficking in public offices are void as against public policy.

In Rattan Chand Hira Chand v. Askar Nawaz Jung (1991), an agreement to finance litigation for a share of an estate was held void. The agreement was not merely champertous but also involved an expectation of influencing governmental decisions to secure recognition of heirship. The Court found this to be a "carrier" contract seeking private gain through public office influence, undermining the rule of law and public trust, and thus opposed to public policy under Section 23.

The payment of a bribe for securing a medical college seat, as discussed in T.VIJAYA RAGHAVAN v. DR.SETHU RAMAPANDIYAN (DIED) (Madras High Court, 2022), was held to be for an object opposed to public policy. Such agreements clearly undermine public service and fair practices.

6.4. Waiver of Statutory Rights and Public Policy

While individuals can generally waive rights conferred for their private benefit, they cannot waive rights or protections based on public policy considerations.

In Shri Lachoo Mal v. Shri Radhey Shyam (1971 SCC 1 619, Supreme Court Of India, 1971), the Supreme Court discussed the principle cuilibet licet renuntiare juri pro se introducto (anyone may waive a right introduced for his own benefit). However, it clarified that if a statute is intended to have a more extensive operation as a matter of public policy, its benefits cannot be waived by a private agreement if such waiver would be contrary to that public policy. The case concerned waiver of an exemption under a Rent Control Act for newly constructed buildings. The Court examined whether Section 1-A of the U.P. Rent Act was merely for the landlord's benefit or if its waiver would contravene public policy under Section 23 of the Contract Act.

Similarly, in Mahesh Chandra v. Kishan Prakash Gupta (Allahabad High Court, 1981), the court considered waiver of benefits under the U.P. Temporary Control of Rent and Eviction Act. It held that protections for tenants, being based on a public policy of protecting a weaker section for the community's general interest, could not be waived if such waiver contravened this underlying public policy.

6.5. Other Agreements Contravening Public Policy

The category of "opposed to public policy" can encompass various other situations.

In Gurmukh Singh v. Amar Singh (Supreme Court Of India, 1991), an agreement between bidders at an auction was challenged as being opposed to public policy (e.g., for stifling competition). The Court, finding no intention to peg down prices or defraud the government, held the specific agreement was not opposed to public policy. However, it acknowledged that "a contract tending to injure public interest or public welfare or fraudulent to defeat the rights of the third parties is void under Section 23." It also noted that public policy is variable with changing times.

The Bombay High Court in Union Of India Through Executive Engineer v. M/S. Sarathi Enterprises (2015 SCC ONLINE BOM 1511, Bombay High Court, 2015) dealt with an arbitral award where the arbitrator had found a contract clause to be in violation of Section 23 of the Contract Act and Section 3 of the Competition Act, 2002. This indicates that agreements or clauses seen as anti-competitive could potentially be challenged under Section 23 as opposed to public policy, although the court in this instance was reviewing the arbitrator's reasoning.

As established in Jayamma v. Maria Bai (2004), a transfer of land contravening statutory provisions designed to implement land reforms (a matter of public policy) can render the transfer invalid as being opposed to public policy under Section 23.

Consequences of Unlawful Agreements and Related Doctrines

An agreement whose consideration or object is unlawful under Section 23 is void ab initio. This has implications for the remedies available to the parties.

Restitution under Section 65

Section 65 of the Act provides for restitution when an agreement is discovered to be void, or when a contract becomes void. It obligates any person who has received any advantage under such agreement or contract to restore it, or to make compensation for it, to the person from whom he received it.

However, the applicability of Section 65 to agreements void for illegality under Section 23, especially where the illegality was known to the parties, is limited. In Kuju Collieries Ltd. v. Jharkhand Mines Ltd. (1974), the Supreme Court held that Section 65 was inapplicable because the plaintiff was fully aware of the lease's illegality (being void ab initio for non-compliance with statutory mining regulations) at the time of entering into the agreement. The Court emphasized that Section 65 applies when an agreement is "discovered" to be void, not when it was known to be void from inception due to illegality.

The Doctrine of In Pari Delicto

The principle of in pari delicto potior est conditio defendentis (where both parties are equally at fault, the position of the defendant is stronger) often applies to agreements void under Section 23. Courts may refuse to assist a party who was involved in the illegality.

In Kuju Collieries Ltd., the Court alluded to this doctrine, stating that when both parties are equally at fault, the judiciary refrains from granting relief. This was also the stance in Firm Of Pratapchand Nopaji v. Firm Of Kotrike Venkata Setty & Sons (1974), where, finding both sides to unlawful agreements to be in pari delicto, the Supreme Court directed parties to bear their own costs throughout, while dismissing the appeals on merits.

The Madras High Court in T.VIJAYA RAGHAVAN v. DR.SETHU RAMAPANDIYAN (DIED) (2022) explicitly invoked the in pari delicto maxim where money was allegedly paid as a bribe, stating that if the payment was for an illegal object or one opposed to public policy, the plaintiff ought to have realized this, and the court would not assist in its recovery if both were equally at fault.

Conclusion

Section 23 of the Indian Contract Act, 1872, stands as a crucial guardian of legality and public interest in contractual dealings. Its various limbs – "forbidden by law," "defeating provisions of law," "fraudulent," "injury to person or property," "immoral," and "opposed to public policy" – provide a framework for courts to assess the validity of agreements. The judicial interpretation of these terms, particularly "public policy," has been dynamic, adapting to evolving societal norms, constitutional mandates, and the complexities of modern commerce. Cases like Brojo Nath Ganguly have significantly expanded the scope of public policy to address issues like unconscionable contracts and unequal bargaining power, thereby infusing contractual law with principles of fairness and equity. While courts exercise caution in applying the doctrine of public policy, its flexible nature ensures that the law remains responsive to the needs of justice. The consequence of an agreement being void under Section 23, coupled with doctrines like in pari delicto and the nuanced application of restitution under Section 65, underscores the judiciary's commitment to discouraging unlawful agreements and upholding the integrity of the legal system.