Lawful Object- Part I

 

The legality of Object and Consideration is the last essential of a contract that we need to discuss. This requirement is provided by sections 23 and 24 of the Indian Contract Act, 1872. The sections are reproduced below for your reference.

23. What consideration 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.

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.

Consideration and Object are often used interchangeably but they are actually two different elements of an agreement. They can be same in certain cases. The Calcutta High Court highlighted the difference between consideration and object in a case (Jaffer Meher Ali v. Budge Budge Jute Mills Co (1906) 33 Cal 702) by defining object—

“The word 'object' in Section 23 of the Contract Act was not used in the same sense as 'consideration', but was used as distinguished from consideration and means 'purpose' or 'design'.”

Section 10 mentions that an agreement is enforceable only if the consideration and object of the agreement are lawful. From section 23 we can gather that an object/consideration is lawful except in the following five cases-

1.     It is forbidden by law

2.     It defeats the provisions of any law

3.     It is fraudulent

4.     It involves injury to a person or property

5.     It is immoral or opposed to public policy

We will be dealing with all of these five cases one by one.

I.                Forbidden by law-

The object of an agreement is unlawful if it is forbidden by law. The term ‘law’ here refers to the following-

i.                 The provisions of statutes in force at the time being of the agreement

ii.               The provisions of personal laws

iii.             Regulations/ orders by the legislature

iv.             Orders by the courts

v.               Any uncodified laws

An illustration of this is a contract for the marriage of a girl of fifteen years of age. According to the Prohibition of Child Marriage Act 2006 the uniform age of being qualified for marriage is 18 years. Take the facts of the case of Tweddle v. Atkinson with some changes. The father of a minor girl enters into a contract with a boy for her marriage. The terms of the agreement state that if the boy marries the girl her father will pay him 1 Crore rupees. Here, the object of the agreement i. e. the marriage of a minor girl is forbidden by law; hence the agreement is void. Another example; agreements relating to Benami transactions are also unlawful as they are prohibited under the Benami Transactions Act, 1988 with some exceptions. 

The effect of a provision forbidding something on an agreement regarding the same depends on the intention of the legislature while forbidding it. If the intention is to forbid the act for public interest then the contract regarding such an act is void. However, if the intention is to simply regulate the act then the contract regarding such act not fulfilling the conditions prescribed by the statute may not by itself be void. This principle can be illustrated by Bhikanbhai v. Hiralal, ILR (1900) 24 Bom 622. In this case, the Bombay Tolls Act, 1875 was the statute concerned. The plaintiff was a lessee of some tolls under the said act. The lease was subject to certain terms and conditions. One of them was that the lessee was not to sublet the toll to someone else without the permission of the collector. The plaintiff did not follow this condition and sublet the toll to another person.  The validity of the sub-lease was challenged in the court. The Bombay High Court upheld its validity and said that the “Act was passed for the benefit of the revenue and not an Act for the protection of public morals”. Hence, the intention of the legislature was not to forbid such transactions but to regulate them. The sub-lease contract will be thus valid even if the transaction with the collector may be void.

II.              Defeats the provisions of law

The scope of the term ‘law’ is similar to the one mentioned before. In some cases, the object/consideration of a contract is not forbidden by law directly, however, if allowed, it would defeat the provisions of law. Defeating the provisions of law means defeating the intention that the legislature has expressed or is implied by the provision. The case of Fateh Singh v. Sanwal Singh, (1875) ILR 1 All 751 is an example of this type. In this case, the appellant requested the respondent to become surety for a bail bond. The respondent agreed on the condition that the appellant paid the money required with him. The appellant and the respondent paid the amount together. The suretyship expired and the appellant claimed the money paid by him from the respondent. His action was rejected by the lower appellate court on the ground that the consideration for the agreement between the appellant and respondent was unlawful as it defeated the object of the law. The Allahabad High Court affirmed the judgment of the lower appellate court and further held that “The Criminal Procedure Code, ch. xxxviii, empowers the Magistrate to require a person of notoriously bad livelihood to procure sureties who shall be responsible for his good conduct in the amounts required from them. If the amount for which a surety is responsible is deposited with him by, or on behalf of, the person for whose conduct he undertakes responsibility, it is obvious that he is responsible only in name. No Magistrate with a knowledge of the facts would be justified in accepting the surety under this chapter. The object of the law would be defeated.”

Another example, a farmer has a debt of 1,00,000 rupees on his land. The government has enforced a new statute according to which any loan of farmers below 2,00,000 rupees is discharged. Consequently, the farmer sells his land to the person to whom he owed the debt. The consideration paid to him deducted the remaining debt amount. Such a transaction will be unlawful as it will defeat the object of the legislature to relieve farmers from debt burdens. (Kommineni Seetharamaiah v. K. Punnaiah, 1996 APHC 4384 (AP)

An agreement to conceal income to evade income tax also defeats the provisions of the Income Tax law in India. (Ram Sewak v. Ram Charan, AIR 1962 All 177.)

An agreement to let go of certain statutory privileges provided to protect a certain class of persons is also unlawful. For example, agreement to not take maternity leave, agreement waiving tenancy rights (Madan Mohan v. Ram Chander Rao AIR 1935 All 619), etc.

III.            Fraudulent

An agreement which has a fraudulent object/consideration is void. An agreement to defraud creditors, an agreement to between bidders to win an auction (Gurmukh Singh v. Amar Singh (1991) 3 SCC 79; Ram Lal Misra v. Rajendra Nath Sanyal A.I.R. (1933) Oudh p. 124), transfer of property to avoid insolvency, etc are all agreements with a fraudulent purpose i.e. fraudulent object and thus void.

BY

LAWVASTUTAH