Introduction
Under Indian contract law, an agreement stands valid only if its consideration (what each party gives or promises) and its object (purpose or goal) are lawful. Section 23 of the Indian Contract Act highlights the conditions for unlawful agreements. Courts interpret these conditions strictly, ensuring contracts don’t facilitate wrongdoing, evade laws, harm others, or offend societal ethics.
What Is Lawful and Unlawful Consideration or Object in an Agreement under Section 23 of Indian Contract Act?
An agreement is valid only if its consideration or object is lawful. The law declares a consideration or object unlawful when it falls under certain conditions. If the law forbids it, it becomes unlawful. If the agreement defeats the purpose of any law, it is also considered unlawful. Fraudulent agreements are invalid. If an agreement causes harm to a person or property, it is unlawful. Agreements are also void if the court finds them immoral or against public policy.
In any of these cases, the consideration or object becomes unlawful. As a result, the agreement itself is void and unenforceable.
Examples of Lawful Consideration
A sells his house to B for ₹10,000. B’s promise to pay and A’s promise to sell are both lawful.
A promises to pay B ₹1,000 if C fails to pay his debt. B agrees to give time to C. Both parties offer valid consideration.
A agrees to compensate B if B’s ship gets wrecked. B pays A for the promise. This is a lawful agreement.
A agrees to maintain B’s child. B agrees to pay ₹1,000 yearly. The exchange of promises is lawful.
Examples of Unlawful Consideration
A, B, and C agree to divide profits earned through fraud. This agreement is void.
A promises to help B get a government job in return for ₹1,000. This deal is unlawful and void.
A, acting as an agent, secretly helps B get land from his principal for money. This agreement involves fraud and is void.
A agrees to drop a criminal case against B in exchange for money or goods. The object here is unlawful.
A is barred by law from repurchasing his auctioned estate. He uses B to buy it on his behalf. This agreement defeats the law and is void.
A, B’s legal representative, agrees to influence B in C’s favor for a bribe. This is immoral and therefore void.
A hires out her daughter to B for concubinage. Though not punishable under criminal law, the agreement is immoral and void.
Ashokbhai Madhubhai Patel v. Madhubhai Jagubhai Patel (July 10, 2024)
In a July 2024 Full Bench decision, the Gujarat High Court reaffirmed the strict application of Section 23. The court emphasized that if a contract’s consideration or object is forbidden by law, then the agreement is automatically void. The bench clarified that words like “invalid,” “forbidden by law,” and “void” in Section 23 must be read in light of the express terms of statutes, not merely based on assumed legislative intent. This aligns with Supreme Court precedent (e.g., Shri Lachoo Mal v. Shri Radhey Shyam, 1971), which holds that an agreement becomes void only when its performance necessarily requires disobedience to law.
Conclusion
A valid agreement must be based on lawful consideration and object. It must not promote fraud, cause harm, go against the law, or offend public morality. If an agreement violates these principles, it becomes void under Indian law. Always ensure that the purpose and consideration of any agreement follow legal and ethical standards.
