Introduction

Section 10 to 23 of the Indian Contract Act deal with the essential elements of a valid contract. These sections outline the criteria for forming a contract, including the offer, acceptance, consideration, and intention to create legal relations. They also address the legality of the object, capacity to contract, and consent. The sections emphasize the importance of free consent. They also highlight the consequences of contracts that involve coercion, undue influence, misrepresentation, or fraud. In essence, they provide the foundation for understanding the enforceability and validity of contracts in India.

Section 10: What agreements are contracts

1. Definition of Contract

• Basic Criteria for a Contract:
  • Free Consent: Both parties must agree without coercion, undue influence, fraud, or mistake.
  • Competency: The parties must be capable of entering into a contract (i.e., not minors, insane, etc.).
  • Lawful Consideration & Object: The contract must involve something of value (consideration) that is legal.
  • Not Void: The contract should not be one that the law explicitly declares void.

2. Freedom of Contract:

• General Rule: Parties can freely decide:
  • Who to contract with.
  • Terms of the contract, including limiting liability or remedies for breach.
• Limitations on Freedom of Contract:
  • Public Policy: Contracts that violate public policy or are considered harmful to society may not be enforceable.
  • Statutory Limitations:
    • Some statutes impose restrictions:
      • Caste Discrimination: Contracts cannot be refused based on caste (Sections 5, 6, Protection of Civil Rights Act, 1955).
      • Racial Discrimination: Discrimination based on race is prohibited in contracts (UK's Race Relations Act, 1976).
      • Gender Discrimination: Gender-based contract discrimination is illegal (UK's Sex Discrimination Act, 1975).
      • Government Control on Commodities: The government may regulate the sale, supply, and pricing of essential goods (Section 3, Essential Commodities Act, 1955).
    • Statutes like the Unfair Contract Terms Act, 1977 in the UK restrict unfair contract terms.

• Compulsory Contracts

  • Certain laws compel contracts:
    • Compulsory Insurance: E.g., Motor Vehicles Act, 1988 mandates insurance for vehicles (Sections 146, 196).

• Case Law:

  • Her Highness Maharani Shantidevi P Gaikwad v Savjibhai Haribhai Patel: Unilateral right of contract termination upheld (AIR 2001 SC 1462).

3. Formalities for Contracts:

• General Rule: The Indian Contract Act, 1872 does not require any specific formality (e.g., writing, registration) for contracts, but other laws may impose formalities.
• Effect of Formalities:
  • If formalities (e.g., registration, attestation, stamp duty) required by law are not followed:
    • Agreement may be unenforceable.
    • Penalties or criminal liability could arise.
    • Case Law:
      • Garware Wall Ropes Ltd v Coastal Marine Constructions & Engg. Ltd (2019): Arbitration clause unenforceable if the document is improperly stamped.
      • Aloka Bose v Parmatma Devi (2009): An agreement was upheld even though it was signed by only one party, as the law didn’t require both to sign.

• Examples of Common Formalities

  :
  • Written Contracts: Some contracts must be in writing (e.g., Apprentices Act, 1961; Arbitration Act, 1996).
  • Attestation: In certain cases, contracts must be witnessed by other people (e.g., mortgages, gifts of immovable property).
  • Registration: Certain contracts involving immovable property (land, buildings) must be registered (Section 17, Indian Registration Act, 1908).
  • Stamp Duty: Many agreements require the payment of stamp duty to be enforceable.
• Case Law on Non-Compliance:
  • Gyanchand v Sushila Bai: An arbitration agreement was held unenforceable because it wasn’t in writing as required by law.

4. Oral Contracts:

• General Rule: Oral contracts are valid and enforceable unless a specific law requires the contract to be in writing.
• Requirement of Evidence:
  • For oral contracts to be enforceable, clear and satisfactory evidence must be provided about the formation and terms of the contract.
• Case Law:
  • Smith v Hughes (1871): Dispute over the subject matter of an oral contract where one party claimed they contracted for “good oats,” while the other interpreted it as “good old oats.

5. Written Contracts:

• Written Contracts Must Be Construed As They Stand:
  • Once a contract is in writing, it should be interpreted according to its terms, even if the result is not what either party intended.
• Modification by Court:
  • A court may modify a contract (rectification) if both parties agree there was a mistake in writing it down.

    Contracts Required to Be in Writing:

• Examples of Contracts Requiring Writing:
  • Apprenticeship Agreements: (Apprentices Act, 1961).
  • Arbitration Agreements: (Arbitration and Conciliation Act, 1996, Section 7).
  • Assignment of Copyright: (Copyright Act, 1957, Section 19).
  • Transfer of Immovable Property: (Transfer of Property Act, 1882, Sections 54, 59).
  • Company Documents: (Companies Act, 1956, Sections 15, 30, 46).

7. Electronic Contracts:

• Electronic Records as Contracts:
  • These records (e.g., emails, digital contracts) are considered valid and equivalent to written contracts under the Information Technology Act, 2000 (Section 4).
  • Exceptions: Some contracts cannot be made electronically, such as:
    • Negotiable instruments (except cheques).
    • Powers of attorney.
    • Wills.
    • Sale of immovable property.

8. Discrepancies Between Printed and Written Terms:

• Written Terms Take Precedence:
  • When a contract is partly printed and partly written, the written terms take precedence over the printed terms if there is any conflict.
  • Case Law:
    • Robertson v French (1803): Established that written terms, being directly chosen by the parties, carry more weight than general printed terms.

9. Registration of Documents:

• Registration Requirements:
  • Certain documents (e.g., sales of immovable property, mortgages) must be registered under the Indian Registration Act, 1908 (Section 17).
• Effect of Non-Registration:
  • If a document that needs to be registered is not, it will not affect immovable property, and it cannot be admitted as evidence of the transaction.
  • However, it may still be used for other purposes (e.g., proving collateral matters).
• Case Law:
  • Nand Singh v Sewa Singh: An unregistered document was allowed as evidence to prove the fact of the transaction, but not its terms.

Section 11: Who are competent to contract

1. Competency to Contract

• General Rule: A person's capacity to enter into a contract is assessed based on their personal capacity. This includes:
  • (a) Disqualification by infancy (minors)
  • (b) Disqualification by insanity
  • (c) Other special disqualifications prescribed by law

2. Infancy

• Common Law vs. Statutory Law:
  • Under Common Law, a minor's contract is voidable at their option and may be binding if it is for their benefit, such as contracts for necessaries.
  • The Indian Contract Act requires a person to be of the age of majority according to their personal law to be competent to contract.
  • Privy Council Ruling: In Mohori Bibee v Dharmodas Ghose (1903), it was declared that a minor's contract is void, aligning with Hindu law rather than English law.

3. Age of Majority

• Regulated by: Indian Majority Act, 1875.
  • General Rule: A person domiciled in India reaches the age of majority at 18 years.
  • Exception: If a minor has a court-appointed guardian or is under the Court of Wards, they attain majority at 21 years.

4. Law Governing Capacity to Contract

• General Principle: Capacity is decided by the law of the minor's domicile, not the law governing the contract.
• Trend: Some authorities prefer the law of the place where the contract is made (lex loci contractus) or the place where the land is situated (lex situs).

5. Minor’s Agreement

• Interpretation:
  • Void vs. Voidable:
    • Void: The contract is not valid, and the minor cannot be sued or sue on it.
    • Voidable: The minor cannot be sued, but can enforce the contract and ratify it upon reaching majority.
  • Judicial Committee Ruling: In Mohori Bibee v Dharmodas Ghose (1903), it was ruled that a minor's contract is void, and the minor cannot be compelled to fulfill it.

6. Agreement on Behalf of Minor

• Betrothal Contracts: Generally upheld if based on community custom, but remain non-binding until marriage.
• Contracts by Guardians: Valid if made for legal necessity or benefit. Invalid if there is no necessity or benefit.
• Case Law:
  • Raj Rani v Prem Adib (1949): A contract with a minor’s father was held void if the consideration was the minor’s promise to act.

7. Fraudulent Representation

• Principle: A minor cannot be held liable for contracts obtained through fraudulent misrepresentation of age.
• Case Law:
  • Mohori Bibee v Dharmodas Ghose (1903): The Court may exercise discretion under the Specific Relief Act to award compensation if fraud is involved.
  • R Leslie, Ltd v Sheill (1914): An infant cannot be made liable for a loan obtained by fraud.

8. Estoppel

• Rule: A minor is not estopped from pleading minority, even if they misrepresented their age.
• Case Law:
  • Sadiq Ali Khan v Jai Kishore (1928): Established that a deed executed by a minor is null and cannot be used to support an estoppel plea.

9. Executed Contracts Exception

• General Rule: Contracts that are fully executed by a minor (i.e., where no further obligations are required from the minor) can be enforced.
• Cases:
  • Abdul Ghaffar v Piare Lal (1935): Applied the executed contracts exception where the minor had supplied goods and sought payment.
  • Mathai Mathai v Joseph Mary (2015): The Supreme Court held that a mortgage in favor of a minor, even if fully executed, is void, complicating the exception for executed contracts.

10. Mortgages and Sales in Favor of Minors

• General Rule: Mortgages and sales to minors are typically considered void. However, a minor who has paid consideration may still enforce the transaction.
• Case Law:
  • Raghava Chariar v Srinivasa (1917): Held that a mortgage executed in favor of a minor who had advanced consideration was enforceable.

11. Lease to Minors

• General Rule: Leases involving minors are void, as leases impose obligations such as paying rent.
• Legislation: Section 107 of the Transfer of Property Act, 1882, stipulates that both leases by and to minors are void.

12. Gifts to Minors

• Acceptance: A minor can accept gifts, and implied acceptance is generally deemed sufficient.
• Onerous Gifts: A minor cannot be bound by gifts that come with obligations unless they accept the gift after reaching majority.

13. Partnership and Minors

• General Rule:

• • A partnership agreement admitting a minor as a full-fledged partner is invalid. Minors cannot be partners with full rights and obligations in a partnership.
  • Case: CIT Bombay v Dwarkadas Khetan & Co, AIR 1961 SC 680 – The Supreme Court held that a partnership agreement including a minor as a full-fledged partner is invalid as per the legal provisions.

• Admitting Minors to Benefits:

• • A minor can be admitted to the benefits of a partnership through their guardian if it is supported by necessity or benefit. This means the minor can enjoy profits but is not liable for losses.
  • Case: CIT v Shah Mohandas Sadhuram, AIR 1966 SC 15 – The Supreme Court confirmed that admitting a minor to benefits, while not making them a partner with full rights, is permissible under certain conditions.

14. Insurance Contracts for Minors

• Validity of Insurance Contracts:
  • An insurance contract made by a de facto guardian for a minor’s property is valid if it benefits the minor. The minor has the right to enforce the contract and claim benefits.
  • Case: Great American Insurance Co v Madanlal, 59 Bom 656 – The Bombay High Court upheld the validity of an insurance policy taken by a guardian for a minor’s property, recognizing the minor’s right to sue on it.
  • Case: Vijaykumar v New Zealand Insurance Co, 56 Bom LR 341 – The Bombay High Court ruled similarly, affirming the minor’s entitlement to benefits under such a policy.

15. Surety Bonds

• Enforceability:
  • A surety bond involving a minor is void as to the minor but enforceable against the surety. This means the minor is not legally bound, but the surety remains liable for the bond’s obligations.
  • Case: Kashiba v Shripat, (1894) 19 Bom 697 – The Bombay High Court decided that while a minor cannot be held liable under a surety bond, the surety’s liability remains intact.

16. Joint Documents

• Effect on Jointly Executed Documents:
  • Documents signed jointly by a minor and an adult are void as to the minor but can be enforced against the adult. The adult remains bound by the document, assuming a joint promise to pay.
  • Case: Jamna Bai v Vasanta Rao, (1916) 39 Mad 409 (PC) – The Privy Council held that a joint document is unenforceable against a minor but enforceable against the adult signatory.

17. Ratification of Minor’s Agreements

• Void Agreements:

• • Agreements made by minors are entirely void and cannot be ratified. As such, they cannot serve as consideration for future valid contracts.
  • Case: Indian Cotton Co v Raghunath, 33 Bom LR 111 – The Bombay High Court ruled that a minor’s contract cannot be ratified or used as consideration for a new contract.
  • Case: Bhola Ram v Bhagat Ram, AIR 1927 Lah 24 – The Lahore High Court confirmed that a minor’s agreement is void and not capable of ratification.

• Partnership Business Continuation:

• • Continuing to conduct business as a partner after reaching majority is interpreted as ratification of the partnership agreement.
  • Case: Maganlal v Ramanlal, 45 Bom LR 761 – The Bombay High Court held that a minor’s continuation in the partnership business post-majority constitutes ratification.

18. Payment of Debts Incurred During Minority

• Election to Pay:
  • A person who chooses to pay off a debt incurred during their minority cannot later seek reimbursement, as the contract was void but not unlawful.
  • Case: Anant Rai v Bhagwan Rai, (1939) All LJ 935 – The Allahabad High Court decided that payment of a debt incurred during minority, once made, cannot be reclaimed even though the original contract was void.

19. Specific Performance

• Enforcement of Contracts:
  • Contracts involving minors cannot be specifically enforced. However, contracts made by a guardian or manager on behalf of a minor can be enforced if they are within their competence and beneficial.
  • Case:
    • Babu Ram v Said-un-Nissa—Sale of Property: A contract sanctioned by a court for the sale of a minor’s property can be enforced if beneficial.
    • Mir Sarwarjan v Fakharuddin Mohamed—Purchase of Immovable Property: A guardian cannot validly enter into a contract for the purchase of immovable property for a minor
    • Sitarama Rao v Venkatarama—Reconveyance Agreement: Specific performance can be granted if a minor and an adult agree to reconvey property under certain conditions.

20. Necessaries

• Liability for Necessaries:
  • Minors are liable for necessaries supplied to them, but this liability is limited to their property. Necessaries are defined as essential items required for maintaining their standard of living.
  • Case:
    • Nihal Chand v Dilawar—Luxury and Excessive Cost: Items of luxury or excessive cost, even if useful, are not considered necessaries.

21. Sound Mind

• Competency of Unsound Mind:
  • Under Indian law, a person of unsound mind is considered absolutely incompetent to contract, similar to minors. This contrasts with English law where such contracts are voidable if the other party was aware of the person’s mental condition.
  • Case: Nihal Chand v Dilawar, (1933) 55 All 570 – The Allahabad High Court ruled that a contract with a person of unsound mind is void as they are deemed absolutely incompetent.

22. Persons Disqualified from Contracting

• Statutory Corporations:

• • Contracts by statutory corporations must be within the objects specified for the corporation. Any contract outside these objects is ultra vires and void.
  • Case Reference: Ashbury Rly. Carriage & Iron Co v Riche, (1875) LR 5 HL 653 – The House of Lords held that a contract beyond the corporation’s objects is ultra vires and unenforceable.

• Government and Municipal Contracts:

• • Contracts with government entities or municipalities must adhere to specific formalities to be valid; otherwise, they are void.
  • Case:
    • Bhikhraj v UOI—Government Contracts: Article 299 (1) of the Constitution of India requires compliance with formalities for government contracts.
    • Ramaswamy v Municipal Council of Tanjore—Municipal Contracts: Formalities must be met for contracts with municipalities to be valid.

Section 12: What is a sound mind for the purposes of contracting

1. Definition of a Sound Mind for Contracting:

   A person is considered of sound mind for making a contract if they can understand the contract and form a rational judgment about its effects on their interests.

2. Persons of Unsound Mind

• Occasionally Sound
• A person who is generally of unsound mind but occasionally of sound mind can make a contract during those intervals of soundness.
• Example: A patient in a lunatic asylum who is of sound mind during certain intervals can make contracts during those times.
• Generally Sound but Temporarily Unsound
• A person who is usually of sound mind but occasionally of unsound mind cannot make a contract during periods of unsoundness.
• Example: A sane person who is delirious from fever or too drunk to understand the terms of a contract cannot contract while in such states.

3. Test of Soundness of Mind

• Not Necessarily Lunatic
• Unsoundness of mind does not require a person to be a lunatic or entirely devoid of reason. It includes any inability due to defects in perception, memory, or judgment that affects their ability to understand or perform the act in question.
• Case: In Sona Bala Bora v Jyotirindra Bhatacharjee, B exhibited irrational conduct, such as threatening to sell properties and dispossessing his family, indicative of an unsound mind, even without conclusive medical evidence.
• Mere Weakness of Mind: Weakness alone is not considered unsoundness of mind. Similarly, mere loss of memory does not necessarily make a person unfit to manage their affairs.
• Understanding Requirement: The level of understanding required for a contract depends on the nature of the transaction. There is no fixed standard of sanity for all transactions. A person who appears normal but cannot form a rational judgment about their interests is protected by the law.

4. Evidence of Soundness of Mind

• Medical Evidence: Soundness of mind can be established through medical evidence.
• Uncharacteristic Conduct: Uncharacteristic conduct that cannot be reasonably explained can also indicate unsoundness of mind.
• Case: In Sona Bala Bora v Jyotirindra Bhatacharjee, the irrational conduct of B, such as selling property secretly and initiating criminal proceedings against his family, was used to demonstrate unsoundness of mind.

5. Burden of Proof

• Usually of Sound Mind
• If a person is usually of sound mind, the burden of proving that they were of unsound mind at the time of making a contract lies with the party challenging the contract.
• Case: In Tilok Chand v Mahandu, the burden was on the challenger to prove the unsoundness of mind of the contracting party.
• Usually of Unsound Mind: If a person is usually of unsound mind, the burden of proving that they were of sound mind at the time of making a contract lies with the person affirming it.
• Drunkenness or Delirium: The party claiming drunkenness or delirium must prove its existence at the time of the contract.

6. Contracts in Lucid Intervals:

   A person who is usually of unsound mind but is occasionally of sound mind can make a contract during lucid intervals. Example: Even patients in institutions like lunatic asylums can make contracts during lucid intervals, as exemplified in the principle allowing such contracts during periods of soundness.

 

Section 13: “Consent” defined

1. Definition of Consent:

   Two or more individuals are considered to consent when they reach an agreement on the same thing in the same sense.

2. Apparent vs. Real Consent

• Broad Interpretation: The term "thing" in consent should be interpreted broadly to include the entirety of the agreement, whether it involves the delivery of material objects, payment, or other executed acts or promises.
• Legal Interpretation: Parties to a contract are bound by the interpretation a court may place on the language of the agreement, regardless of personal understanding. This principle was established in Stewart v Kennedy (1890) and reiterated in Sunitabala Debi v Manindra Chandra (1930).

3. Ambiguity

• Avoiding Apparent Agreement: An agreement may be voided if a term is ambiguous, leading to a misunderstanding without fault from either side. This is a rare situation, as usually, the terms are sufficiently clear or the proposal was not accepted according to its terms.
• Case Law:
• Thornton v Kempster (1814): Demonstrates that a contract must reflect a mutual understanding of the terms.
• Falck v Williams (1900): Highlights that if a proposal is misread due to ambiguity, no contract is formed.

4. Fundamental Error

• General Principle: A contract may be void if consent was based on a fundamental error about the nature of the transaction, the person involved, or the subject matter.
• Case Laws: Bismillah v Janeshwar Prasad (1990): Established that a fundamental error affecting the nature of the document makes the agreement void ab initio.

5. Non Est Factum (Error as to Nature of Document)

• Doctrine: This doctrine applies when a party signs a document believing it to be of a different nature, making the document void as the true intent was not reflected.
• Case Law:
• Foster v Mackinnon (1869): The court ruled that a signature intended as a guarantee but misrepresented as an endorsement was void.
• Naba Kishore Lal Singh Deo v Panchanan Mahto: The plea of non-est factum is not easily granted, especially if the party did not make reasonable efforts to understand the document.

6. Consent and Estoppel

• Principle: A person cannot deny the consent to actions that they have enabled or allowed through their apparent authority. If a blank signed document is subsequently filled and money is raised, it is presumed that the document reflects the intended agreement.
• Case Law: Wahidunnessa v Surgadass (1879): Reaffirms the principle of estoppel in consent.

7. Error as to the Person

• Requirement for Valid Agreement: A contract requires acceptance by the correct person. A proposal accepted by someone else, or a proposal mistakenly directed to an unintended party, does not constitute a valid agreement.
• Case Laws:
• Cundy v Lindsay (1878): The court held that a contract with a person who impersonated another reputable entity was void due to the lack of actual consent.
• Phillips v Brooks, Ltd (1919): Illustrates that a mistake about a person’s attributes, such as identity fraud, does not necessarily void the contract.

8. Error as to Subject-Matter

• Common Mistake: A common mistake about the subject matter of the agreement, where both parties are mistaken about an essential aspect, does not negate consent if the other conditions for a contract are met.
• Case Laws: Tarsem Singh v Sukhminder Singh (1998): The case dealt with mutual mistakes regarding the property being sold, illustrating how common mistakes can impact the contract's validity.

Section 14: “Free consent” defined

1. Definition of Free Consent:

• Consent is considered free when it is not influenced by:
• Coercion ([s 15]): Defined as a situation where one party is forced or threatened to consent.
• Undue Influence ([s 16]): Occurs when one party exerts pressure over another in a manner that overpowers the latter's will.
• Fraud ([s 17]): Involves deceit or misrepresentation intended to deceive the other party.
• Misrepresentation ([s 18]): Involves false statements or misleading conduct that leads the other party to consent.
• Mistake ([s 20, 21, 22]): Occurs when there is an error regarding the nature or terms of the contract, affecting the consent given.

1. Significance of Free Consent:

• Essential for Validity: Section 10 of the Act requires not just consent but free consent for a contract to be valid.
• Absence of Consent: Without consent or with a vague or uncertain object of consent, no contract is formed.
• Contract Voidable: If consent is present but not free, the contract is generally voidable at the option of the party whose consent was not freely given.
• General Causes of Lack of Free Consent: Section 14 provides an overview of what may exclude freedom of consent, with specific causes explained in the subsequent sections.

1. Case Law: In the case of Kessowji Tulsidas v. Harjivan Mulji (1887), a father’s consent to a settlement regarding a bank’s claim against his son (who had forged his father’s signatures and defrauded the bank) was deemed not to be free. This was despite no direct threat of prosecution being made. The ruling highlighted that free consent was not present due to the fraudulent nature of the son’s actions, affecting the father's ability to give genuine consent to the settlement

Section 15: “Coercion” defined

1. “Coercion” Basics:

• Definition: Coercion involves:
• Committing or threatening to commit any act forbidden by the Indian Penal Code.
• Unlawful detaining or threatening to detain any property to the detriment of any person.
• The intent must be to compel a person to enter into an agreement.
• Explanation: The IPC’s applicability does not depend on whether it is in force at the location where coercion is applied.

2. Extent of “Coercion” Under the Act

• The definition in the Act is broader compared to earlier English authorities.

• Earlier English Law: Coercion was more restricted, requiring direct involvement of a party to the contract or targeting the contract’s parties or their property.
• Current Understanding: Modern English law has expanded the concept of duress beyond the scope of Indian coercion, making the distinction less pronounced.

3. Act Forbidden by the Penal Code

• Requirement: For coercion to invalidate a contract, the act must constitute an offence under the IPC. Example: Threatening to file a false charge is coercive. Mere threats of criminal prosecution, without false charges, do not qualify.
• Case Law:

• Askari Mirza v. Bibi Jai Kishori (1912) 16 IC 334: Here, the court held that mere threats of criminal prosecution are insufficient to constitute coercion unless they involve false accusations.
• Sanaullah v. Kalimullah AIR 1932 Lah 446: This case involved threats of criminal proceedings which did not amount to coercion as the threats did not involve false charges.

4. Unlawful Detaining of Property

• Not Coercion: Bengal Stone Co. Ltd. v. Joseph Hyam (1918) 27 Cal LJ 78: The court found that a mortgagee’s refusal to convey equity of redemption under specific terms did not amount to unlawful detention of property as described in the section.
• Coercion: Muthiah Chettiar v. Karupan Chetti (1927) ILR 50 Mad 786: In this case, the court determined that refusing to hand over account books until receiving a release was coercive, as it involved detaining property to gain an advantage.

5. To the Prejudice of Any Person

• Legal Injury Required: Prejudice must be of a legal nature, not merely sentimental.
• Case Law: Ammiraju v. Seshamma AIR 1918 Mad 414: The court held that a wife’s release of property due to a threat of suicide by her husband constituted prejudice. The potential for emotional and practical harm was sufficient to meet the legal standard.

6. Causing Any Person to Enter into an Agreement: Kanhaya Lal v. National Bank of India 40 IA 56: The Privy Council ruled that coercion in this case was not confined to the definition provided in section 15. It acknowledged that the term “coercion” could have a broader application in different legal contexts.

7. Duress Under English Law

• Types of Duress:
• Physical Violence: Recognized as duress, which includes threats or acts of violence to the person (Barton v. Armstrong [1975] 2 All ER 465).
• Imprisonment: Wrongful imprisonment or threats of such imprisonment (e.g., Cumming v. Ince [1847] 11 QB 112).
• Threats to Property/Economic Interests: Includes threats to seize goods or apply extortionate economic pressures (Universe Tankships of Monrovia v. International Transport Workers Federation).

Section 16: Undue Influence

1. Definition and Scope

• General Definition: Undue influence is an equitable doctrine developed to address insidious forms of spiritual tyranny and fraud. It applies to both gifts and contracts where one party has an unfair advantage over the other.
• Application: This doctrine applies to transactions where one party's influence over other leads to an unfair or unconscionable advantage. It also necessitates modifications to ordinary rules of evidence due to the dominating party's potential to suppress evidence.

2. Essential Ingredients

• Domination: One party must dominate the will or mind of another. This domination can arise from:
  • Real or apparent authority over the other party.
  • Fiduciary relationships such as guardian and ward, trustee and beneficiary, or husband and wife.
  • Dependency due to mental or physical infirmity.
• Unfair Advantage: The dominating party must take an unfair advantage, making the transaction unconscionable.

3. Elements of Undue Influence

• Dominant Position and Unfair Advantage: Undue influence involves a dominant position used to secure an unfair advantage. It does not require the transaction to be obviously unfair but requires that influence has been acquired and abused.
• Judicial Interpretation:
  • Huguenin v Baseley: This case established that undue influence covers all varieties of domination exercised over another person.

4. Forms of Influence

• Authority and Confidential Relationships: Influence may arise from:
  • Authority or confidence committed to the donee.
  • Feebleness in body or mind of the donor.
• Key Relationships:
  • Guardian and Ward, Husband and Wife, Trustee and Beneficiary: These relationships demand heightened scrutiny.
  • Wajid Khan v Ewaz Ali: The Judicial Committee set aside a gift deed from an illiterate woman to her managing agent due to undue influence.

5. Mental Distress and Influence

• State of Fear: Fear alone does not constitute undue influence. There must be evidence of pressure or influence used by the dominant party to gain an unfair advantage.
• Case Law: Lakshmi Amma v T Narayana: The Court invalidated a deed of settlement due to evidence of undue influence, including the executant’s mental distress and the circumstances of the transaction.

6. Proof of Undue Influence

• Key Considerations:
  • Righteousness: Whether the transaction is something a right-minded person would do.
  • Improvidence: Whether the transaction suggests the donor was not in full control of their faculties.
  • Legal Advice: The necessity for legal advice and whether the intention to make the gift originated with the donor.

8. Rule of Evidence

• Burden of Proof: The burden of proving that a transaction was made with free consent lies on the party in a dominant position. The principle is that if a dominant party makes a bargain significantly to their own advantage, it must be justified to avoid the presumption of undue influence.
• Case Law:
  • Anil Rishi Case: Demonstrated that the burden shifts only after a prima facie case of undue influence is established.
  • Gafur Mohomed v Mahomed Sharif: This case involved a situation where a dominant party had imposed terms so oppressive that they shocked the conscience of the court. The Privy Council underscored that the burden of proving free consent in such scenario’s rests on the dominant party.

9.     Unconscionable Bargains: In cases where a borrower, already in debt, enters into a new loan agreement with terms that are evidently exploitative, a presumption arises that their consent was not free. This presumption can be rebutted by the party enforcing the terms. In Lalli v Ram Prasad: The case involved a fresh loan contract made under terms that were evidently harsh. The court presumed the borrower’s consent was not freely given due to the exploitative nature of the terms.

10. Consideration and Relief:

    While inadequacy of consideration alone does not void a contract, it can indicate an unconscionable bargain, especially in equity.

• Case:
• Mothoormohan Ray v Soorendra Narain Deb (1875) 1 Cal 108: The contract involved was found to be exploitative, leading to judicial scrutiny and intervention.
• Kedari Bin Ranu v Atmarambhat (1866) 3 Bom HCAC 11: This case concerned a mortgage contract where terms were found inequitable, leading to judicial intervention to mitigate the effects on the borrower.
• Chedambara Chetty v Renja Krishna Muthu (1874) 13 Beng LR 509: The Judicial Committee set aside a bond due to undue influence exerted by a wealthy banker over a young zamindar, using threats of prolonged litigation.

11.   Lapse of Time and Limitation

• Delay or acquiescence does not necessarily bar equitable relief for undue influence unless it is shown that the party knew their rights and deliberately chose not to act. Case: Lakshmi Doss v Roop Loll (1907) 30 Mad 169: The court held that mere delay or acquiescence did not bar relief unless there was conduct amounting to confirmation or ratification.
• Relief may be barred if there is conduct that amounts to confirmation or ratification of the transaction. Case: Allcard v Skinner (1887) 36 Ch Div. 145: The case involved a situation where the party’s subsequent acceptance of benefits from the contract was seen as confirmation, thus barring relief.
• A party can plead undue influence as a defense even if the transaction was not set aside within the limitation period. Case: Juggal Kishore v Charoo Chandra (1929) 42 Bom LR 76: The case highlighted that undue influence can still be a valid defense even if the party does not take action to set aside the transaction within the usual limitation period.

Section 17: “Fraud” defined

1. Basics/Includes:

• Suggestion of False Facts: Suggesting something as a fact which is not true, by someone who does not believe it to be true.
• Active Concealment: Concealing a fact by someone who knows or believes in the fact.
• False Promises: Making a promise without any intention of performing it.
• Acts Fitted to Deceive: Any other act intended to deceive.
• Acts Declared Fraudulent by Law: Any act or omission declared fraudulent by law.

2. Fraud in General

• Fraud involves causing another to act on a false belief through a representation one does not believe to be true. Under the Contract Act, the focus is on how fraud affects consent to a contract. In cases where fraud results in a misunderstanding about the nature of the transaction or the other party, the agreement is void for lack of consent.

• In Akhtar Jahan Begum v Hazari Lal (1927), A sold land to B but had previously sold it to C. B was misled about A's title, constituting active concealment amounting to fraud (Motivahoo v Vinayak, (1888) 12 Bom 1).

3. Fraudulent Misrepresentation and Rescission

• Fraud leading to rescission of contracts generally involves fraudulent misrepresentation.
• Fraudulent Misrepresentation: A cause for rescission if it induced the contract.
• Promise Without Intention to Perform: A promise not meant to be kept constitutes fraud.
• Misstatement of Purpose: Fraud can occur when property or funds are obtained under false pretenses, such as claiming lawful purposes for unlawful ones.
• Edgington v Fitzmaurice (1885) illustrates that obtaining a loan by misrepresenting its purpose is fraudulent.
• In Clough v L & NWR Co (1871), buying goods with no intention to pay is fraud entitling the seller to rescind the contract.

4. Acts and Omissions Specially Declared Fraudulent

• Legal Requirement: Non-disclosure of certain facts required by law can be fraudulent.
  • Transfer of Property Act, s 55: Requires disclosure of material defects and interests. Omission due to oversight can still be fraudulent (Akhtar Jahan Begum v Hazari Lal, (1927) 25 All LJ 708).

5. Mere non-disclosure

• No General Duty to Disclose: There’s no general duty to disclose facts equally known to both parties.
• Misleading Statements: Partial disclosure may lead to fraudulent misleading statements.
• Trade Usage: Non-disclosure of defects as per trade usage is treated as fraudulent.
• Coupled Representations: Silence combined with false statements constitutes fraud (Subramanian v Official Assignee, AIR 1931 Mad).
• Peek v Gurney (1873): A statement that is literally true but misleading due to suppression of facts can be fraudulent.

• Jones v Bowden (1813): Non-disclosure of defects in goods can be fraud if trade usage imposes a duty to disclose.

Section 18: “Misrepresentation” defined

1. Definition of Misrepresentation

• The phrase "means and includes" in the statutory language indicates that the definition of misrepresentation is exhaustive.
• There are three types of misrepresentation:
  • Unwarranted positive assertion of what is not true, even if the person believes it to be true.
  • Breach of duty that misleads another party to their prejudice or the prejudice of someone claiming under them.
  • Causing a mistake as to the subject matter of the contract.

2. Principles of English Law on Misrepresentation

• At Common Law, there is a general duty not to make false statements intended to induce action to another’s detriment.
• If the statement is made without belief in its truth, it constitutes fraud or deceit. However, if there is belief, the law does not mandate that the belief be founded on reasonable grounds, though lack of reasonable grounds may indicate lack of belief (Derry v Peek, 1889).
• Innocent misrepresentation of a material fact known only to one party can allow the misled party to avoid the contract.
• Duty of disclosure exists in certain contracts where facts are specially within the knowledge of one party, such as in insurance contracts, family arrangements, or allotment of shares (Laidlaw v Organ, 1817).

3. Positive Assertion

• A positive assertion not warranted by the information available constitutes misrepresentation if the assertion is based on unreliable or second-hand information.
  • Case: In Mohan Lall v Gungaji Cotton Mills Co (1899), A (Behary Lal) represented to B that C (Campbell) would be a director of a company, but this information came from a third party, D (Bhujjan Lal). The court held that A was not "warranted" in making the positive assertion, having only second-hand information.
  • The court also referred to Currie v Rennick (1886), where a letter stating a mare was "thoroughly sound" was deemed a positive assertion but not a warranty, as it was accompanied by a recommendation for the buyer to confirm the mare's condition independently.

4. Constructive Fraud

• This subsection deals with constructive fraud where there may be no intent to deceive, but the circumstances make the benefitting party liable as if there were fraud.

• • Elements Required:
    • The representor owes a duty to the representee.
    • A statement (negligent, fraudulent, or innocent) is made by the representor.
    • The representee is misled to their prejudice.
    • The representor gains an advantage.
  • Case: In Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964), a bank gave a credit reference for a company with the disclaimer "without responsibility." The court held that had the disclaimer not been included, the bank would have owed a duty of care and been liable for negligent misrepresentation.

• Breach of duty is common in certain contracts, such as:

• • Insurance contracts: Full disclosure is required as they are contracts uberrimae fidei.
  • Family arrangements: Full disclosure of material facts is obligatory.
  • Allotment of shares by a company: A duty exists to disclose material facts about the company's business.
  • Sale of immovable property: The vendor must disclose defects in title and latent defects.

5. Mistake as to Subject Matter

• A misrepresentation can lead to avoidance of a contract if it causes a mistake as to the subject matter.
  • Case: In The Oceanic Steam Navigation Co v Soonderdas Dhurumsey (1890), the defendants avoided a contract to charter a ship because the ship’s tonnage was misrepresented.
  • Similarly, in Johnson v Crowe (1874), a contract for the sale of a boiler was voidable when it was discovered that the road to the destination could not bear the boiler’s weight, contrary to the plaintiff's representation.

6. Misrepresentation of Fact or Law

• Historically, English law maintained that misrepresentation must relate to a fact, not law. However, this rule is not absolute.
  • Positive assurances about the law, especially from someone with better knowledge, can be actionable misrepresentation.
  • Case: In Pertab Chunder v Mohendranath Purkhait (1889), a zamindar's agent misrepresented a clause as a mere penalty clause. The court held this as a misrepresentation of law, allowing avoidance of the contract.
  • Innocent misstatements of law do not usually amount to misrepresentation unless they involve an implication of untrue facts (Brikom Investments Ltd v Seaford, 1981).

7. Fraud vs. Misrepresentation

• Fraud requires an intention to deceive, while misrepresentation occurs when a false statement is made with a belief in its truth.
  • Key Difference: Fraud involves a false belief, whereas misrepresentation may involve a mistaken but honest belief.
  • Consequences: Contracts can be avoided in both cases, but if the misrepresentation is not fraudulent and the party misled had the means to discover the truth with ordinary diligence, the contract may not be voidable (Electrical Rengali Hydro Electric Project v Giridhari Sahu, 2019).

Section 19: Voidability of agreements without free consent

1. Scope:

• Voidability of contracts: Section 19 of the Act deals with contracts procured by coercion, fraud, or misrepresentation, rendering them voidable at the option of the aggrieved party.
• The previous sections only define these terms, while Section 19 lays out their legal effects.
• Deletion of undue influence: Originally, undue influence was included in Section 19 but was removed by Act VI of 1899. It is now covered under Section 19A, which grants the court the power to set aside contracts induced by undue influence.
• Affirmation of contracts: A party entitled to void a contract may choose to affirm it, requiring full performance by the other party. If the contract is affirmed and performance is refused, the aggrieved party may seek damages or specific performance (Specific Relief Act, 1963, Sections 20 and 21).

2. Other Remedies:

• Apart from Section 19, the aggrieved party can rescind the contract under Section 27 of the Specific Relief Act, 1963 or defend against a suit for specific performance or compensation (Rangnath v Govind, (1940) 28 Bom 639).

3. Burden of Proof:

• A party seeking to avoid a contract on the grounds of coercion, fraud, or misrepresentation carries the burden of proving these allegations (Alva Aluminium Ltd v Gabriel India Ltd, (2011) 1 SCC 167).

4. Exception: Means of Discovering Truth:

• English Law Principle: In English law, a person who makes a representation must ensure it is relied upon. If the purchaser makes their own inquiries or relies on their judgment, they cannot later claim they were misled (Dyer v Hargrave, (1805) 10 Ves 505).
• Party reliance: The real question is whether the misled party relied on the representation or on their own knowledge. If they relied on their own information, the misrepresentation did not cause their consent (Redgrave v Hurd, (1881) 20 Ch Div 1).
• Limitations of the exception: The exception to Section 19 specifies that the contract is not voidable if the aggrieved party had the means to discover the truth with ordinary diligence, except in cases of deliberate fraud. Courts have interpreted that the word “fraudulent” applies only to silence amounting to fraud under Section 17 and not to misrepresentation under Section 18 (Niaz Ahmed Khan v Parshottam Chandra, AIR 1931 All 154).

5. Judicial Interpretations of the Exception:

• Discoverability of fraud: The courts have consistently held that a party's ability to discover the truth with ordinary diligence varies by circumstance. However, ordinary diligence does not apply to deliberate fraud or misrepresentation involving fraudulent intent.
  • In John Minas Apcar v Louis Caird Malchus, AIR 1939 Cal 473, fictitious offers to induce a higher price were deemed fraudulent, invalidating the exception to Section 19.
  • In Venkataratnam v Sivaramudy, AIR 1940 Mad 560, failure to disclose a lease on land being sold, coupled with false promises of immediate possession, amounted to fraud.
  • Niranjan Samal v Tirilochan, AIR 1956 Ori 81, High Court in this case found that assurances given to settle cases without the intent to fulfill them constituted fraud.

6. Loss of Right to Rescind:

• A party may lose the right to rescind a contract if:
  • Restitution is impossible.
  • A third party has acquired possessory title.
  • It is inequitable to rescind due to the delay or acts of the aggrieved party.
• Courts have ruled that acceptance of defective goods or delay in raising objections can result in the loss of this right (Long v Lloyd, (1958) 1 WLR 753; Ganga Retreat & Towers Ltd v State of Rajasthan, (2003) 12 SCC 91).

7. Explanation: "Causing Consent":

• Inducement as a key factor: For a misrepresentation or fraud to invalidate a contract, it must have caused the aggrieved party’s consent. If the party did not rely on the false representation, they cannot claim they were misled (Smith v Chadwick, (1884) 9 App Ca 187).
• The representation must form a material inducement to enter into the contract (Gordon v Street, (1899) 2 QB 641).

8. Rescission of Voidable Contracts:

• Refer to Section 64 of the Indian Contract Act, 1872, for the consequences of rescinding voidable contracts. Upon rescission, any benefits received under the contract must be returned.

Section 19A: Power to set aside contract induced by undue influence

1. Voidable Nature of Contracts Induced by Undue Influence:

   Under Section 19A, when consent to a contract is obtained through undue influence, the contract is voidable at the discretion of the party who was influenced. This gives the aggrieved party the right to either affirm the contract or avoid it entirely.

2. Judicial Discretion in Setting Aside Contracts:

• Courts have discretion when determining how to set aside contracts affected by undue influence. The court may rescind the contract entirely or enforce it on terms that ensure fairness. For instance, if a benefit has been received under the contract, the court may impose conditions, such as repayment of the sum received with reasonable interest.

• This discretion was emphasized in Sunder Rai v. Suraj Bali Rai (1925), where the refusal of terms suggested by the court allowed judicial flexibility in granting relief.

3. Influence of English and Indian Judicial Practices:

• Section 19A reflects both Indian and English courts' longstanding practice of providing relief to borrowers trapped by oppressive contracts, especially in money-lending cases. Borrowers are typically required to repay the amount actually advanced, but at a reasonable rate of interest, even if the original terms were excessive.

• In Raja Mohkam Singh v. Raja Rup Singh (1893), 20% interest was deemed reasonable in certain circumstances. Similarly, Poma Dongra v. William Gillespie (1907) and Rannee Annapurni v. Swaminatha (1910) upheld interest rates as high as 24% depending on the region and case specifics.
• Variations in reasonable interest rates have been observed: Bengal courts have allowed between 6% and 12%, whereas courts in Bombay, Madras, and Uttar Pradesh have permitted up to 24%.

4. Rescission and Restitution Principles:

   The second paragraph of Section 19A aligns with Sections 35 and 38 of the Specific Relief Act, under which voidable contracts can be rescinded. Courts, however, may require compensation to be made to the party who would otherwise lose out due to the rescission. Section 64 further supports restitution, leaving little discretion for courts regarding this aspect. Notably, the section does not require contracts to be in writing to be voidable.

5. Doctrine of Election:

• Once a party elects to either affirm or avoid a contract influenced by undue influence, this decision is final. The right to elect is a one-time opportunity, meaning once the contract is affirmed, it cannot later be avoided, and vice versa.

• This principle was affirmed in Kunja Lal v. Hara Lal (1943), where the court clarified that once the decision to affirm or avoid a contract is made, it cannot be retracted for self-serving reasons.

6. Who Can Raise the Plea of Undue Influence:

• The plea of undue influence can only be raised by a party to the contract. Third parties do not have the standing to challenge the contract on this ground.
• In Kotumal v. Dur Mahomed (1931), it was held that only the contracting party affected by undue influence can make this plea.
• Similarly, in Trimbak v. Shanker Shamrav (Bombay) and Venkatasubbiah v. Subbamma (1956), it was established that only the donor in a gift deed can challenge it on the grounds of undue influence, and third parties are excluded from raising such claims.

7. Role of Heirs and Legal Representatives:

• The heirs and legal representatives of a deceased party to a contract have the right to challenge a contract influenced by undue influence. The burden and benefit of promises under a contract devolve onto the legal representatives, as indicated by Sections 37, 42, and 45 of the Indian Contract Act.
• In Shravan Goba v. Kashiram Devji (1927) and Mahboobkhan v. Hakim Abdul (1964), the courts recognized the right of heirs to challenge contracts (such as sale deeds) executed by a deceased relative if undue influence was involved.

Section 20: Agreement void where both parties are under mistake as to matter of fact.

1. Void Agreements Under Mistake of Fact:

• When both parties to an agreement are under a mistake regarding an essential fact, the contract is deemed void. The law differentiates between a mistake of fact and a mere erroneous opinion regarding the value of the subject matter. For example:

• In Couturier v Hastie (1856), both parties were unaware that the ship carrying the goods had been lost. The contract was declared void as the goods did not exist at the time of the contract.
• In Strickland v Turner (1852), both parties believed that a horse being sold was alive, but it had died prior to the agreement. The contract was voided as the subject of the agreement did not exist.

2. Key Criteria for Mistake of Fact:

   To declare a contract void due to a mistake of fact, three conditions must be met:

• Both parties must be under the same mistake.
• The mistake must be factual, not legal.
• The mistake must concern an essential fact related to the agreement.

3. Common vs. Mutual Mistake

• A common mistake occurs when both parties share the same mistaken belief about a vital fact, nullifying consent. An example of this is Bell v Lever Bros Ltd (1932), where both parties entered into a contract under a shared mistake about a crucial fact, rendering the agreement void.
• A mutual mistake happens when the parties misunderstand each other regarding what they are contracting for. This leads to an absence of true agreement, as illustrated in ITC Ltd v George Joseph Fernandes (1989), where the court discussed mutual mistakes where parties contract about different things, negating the meeting of minds (ad idem).

4. Mistake of Law vs. Mistake of Fact:

   A mistake of law does not render an agreement void, but a mistake of fact can. For example:

• In Kalyanpur Lime Works v State of Bihar (1954), a mistake about the law governing registration did not void the contract.
• However, in Cooper v Phibbs (1867), where a party mistakenly agreed to lease a fishery that he already owned, the contract was set aside for a mutual mistake of fact.

5. Mistake Essential to the Agreement:

   A contract is void if the subject matter or an essential fact does not exist at the time of the agreement. For instance:

• In Nursing Dass v Chuttoo Lall (1923), a property that was under a government acquisition notice was sold, and the contract was voided as neither party was aware of the notice. The fact was deemed essential to the agreement.
• Similarly, in Sheikh Brothers Ltd v Ochsner (1957), the contract was void as the land in question could not produce the agreed-upon quantity of sisal, a fact essential to the contract.

6. Specific Performance and Rectification

• A party may resist specific performance of a contract based on a mistake, as highlighted in the Specific Relief Act, 1963. In cases like Hickman v Berens (1895), contracts affected by mutual mistakes could not be enforced.
• Rectification of contracts occurs when the written instrument does not reflect the parties' true agreement. Courts will rectify such documents if a prior concluded agreement existed but was inaccurately recorded, as discussed in Dagdu v Bhana (1904).

7. Compensation:

   Section 65 of the Indian Contract Act provides that when an agreement is void due to a discovered mistake, any benefits received must be returned or compensated. However, certain types of deficiencies, such as those in quantity, can be resolved through compensation without voiding the contract, as observed in U Pan v Maung Pa Tu (1927).

Section 21: Effect of mistakes as to law

1. General Rule Regarding Mistake of Law

• A contract cannot be avoided merely due to a mistake concerning any law in force in India. This principle underscores that citizens are presumed to be aware of the law, and ignorance of the law is generally not an excuse to void a contract.
• The rationale behind this is to prevent fraudulent claims where individuals might deliberately feign ignorance of the law to escape contractual obligations. Allowing such an excuse could open the door to widespread fraud and litigation.
• However, if the mistake relates to a foreign law, it is treated as a matter of fact, not law, and the mistake has the same effect as a mistake of fact.

2. Wilful Misrepresentation of Law

• Section 21 does not preclude a party from avoiding a contract on the grounds of misrepresentation, particularly if the misrepresentation is willful. Under sections 17 (fraud) and 18 (misrepresentation), a contract can be avoided if a party was induced to enter into it through a fraudulent or deliberate misrepresentation, even if the misrepresentation relates to a point of law.

3. Case Laws

• In Seth Gokul Dass v Murli (1878) 3 Cal 602, the Judicial Committee held that an erroneous belief about the legal obligation to pay interest on a decretal amount, where no such interest was decreed, is a mistake of law. As per Section 21, such a contract grounded on this belief is not voidable because it is a mistake regarding the law in force in India.
• Similarly, in Jowand Singh v Sawan Singh, it was held that if a mortgagee advances money under the mistaken belief that a prior unregistered mortgage would not have precedence over his mortgage, such an erroneous belief constitutes a mistake of law, not fact, and the mortgage transaction cannot be avoided.
• Another case, Ghanshyam v Girijashanker, dealt with an erroneous belief that a tribunal under the Debt Conciliation Act had jurisdiction over non-agriculturists. The court ruled that this was a mistake of law, which does not provide grounds to void the contract.

4. Foreign Law as a Matter of Fact

• Under Indian jurisprudence, foreign law is treated as a matter of fact. As such, any mistake concerning foreign law is akin to a mistake of fact, and it may affect the validity of a contract.
• The Indian Evidence Act, section 38, affirms this position, requiring foreign law to be proved or admitted as a fact in legal proceedings. While this rule aligns with the Common Law tradition, its strictness has been somewhat relaxed to accommodate practical considerations.

Section 23: What considerations and objects are lawful, and what not

1. Lawfulness of Consideration and Object:

• Section 23 of the Indian Contract Act specifies that the consideration or object of an agreement must be lawful.
• Consideration or object is considered unlawful if it is:
• Forbidden by law,
• Defeats the provisions of any law,
• Fraudulent,
• Causes injury to the person or property of another,
• Immoral or opposed to public policy.
• If any of these conditions are met, the agreement is void.

2. Meaning of "Object":

• The term "object" in this section refers to the purpose or design of the agreement and is distinct from “consideration.”

3. Forbidden by Law:

• An act or agreement is forbidden by law if it violates any legislative enactment or any principle of unwritten law.
• Acts punishable under the Penal Code, or any specific legislation or regulatory order, are considered forbidden.
• For instance, in BOI Finance Ltd v Custodian, a buy-back agreement was deemed illegal because it was prohibited by the RBI, yet the transfer of securities was upheld under the doctrine of in pari delicto.
• Agreements that contravene public interest cannot be legitimized by merely paying a penalty.

4. Examples of Agreements Forbidden by Law:

• Agreements in breach of statutory requirements, like those imposed under the Excise Acts, are void if the Legislature intended to protect public safety or order (Nathubhai v Dhanbai).
• Sub-letting of licences granted under the Abkari Act and Opium Act without permission is illegal (Nandlal Sohanlal v Sarup Singh).

5. Administrative Breaches:

• Agreements violating administrative conditions do not automatically become unlawful unless the breach concerns public policy or safety. For instance, agreements to sub-let tolls under the Bombay Tolls Act, 1875 or licences to cut grass under the Forest Act, 1878 were upheld because they were breaches of administrative regulations aimed at revenue protection, not public welfare (Narandas Rajaram v Batliwala).

6. Defeat the Provisions of Any Law:

• An agreement is void if it tends to defeat the provisions of any legislative enactment or rule of law in force.
• Agreements to pay cesses declared illegal are void, as seen in cases like the Bombay Town Duties Act.
• For example, an agreement that contravenes rent control laws, such as demanding excess rent under the Bihar Buildings (Lease, Rent and Eviction) Control Act, was held unenforceable in Budhwanti v Gulab Chand.
• However, the Supreme Court distinguished between voluntary agreements and those made under duress or inequality, allowing exceptions in cases where one party is forced into an agreement ( Salimuddin v Mistrilal).

7. Partnership and Wagering Agreements:

• Partnerships formed for wagering transactions are void but not considered forbidden by law. Therefore, they are not illegal under section 23 (Chandulal v Mansukhlal).

8. Contracts Contrary to Statutory Regulations:

• Contracts that breach provisions of specific laws or regulations governing land, tenancy, or licensing are void:
• Agreements in contravention of rent control acts ( Radhakrishnan v Thomas),
• Sale of land contrary to schemes under the Sick Industrial Companies Act (SICA), 1985,
• Contracts entered into in violation of licensing requirements under the Opium Act, 1878 and Madras Abkari Act, 1886 (Nandlal Sohanlal v Sarup Singh).

9. Waiver of Statutory Rights:

• Parties may waive statutory rights if no public policy is violated. In Lachoo Mal v Radhey Shyam, the Supreme Court upheld an agreement where the tenant waived the protection provided by the U.P. Rent Control Act.
• However, the Court will not enforce a waiver if public policy or statutory protections are infringed.

10. Illegality at Inception:

    An agreement that is illegal at its inception, such as one forbidden by a Government regulation, remains void even after the expiry of the regulation (Budhwanti v Gulab Chand).

11. Ex turpi causa and In Pari Delicto:

• Under the principle of ex turpi causa non oritur actio, no person can claim a cause of action based on their own illegal act. However, rights already acquired under an unlawful agreement, if executed, are valid under in pari delicto (Budhwanti v Gulab Chand).
• For instance, the Supreme Court upheld a tenant’s right to adjust loan amounts against rent, recognizing unequal bargaining power between parties ( Salimuddin v Mistrilal).

12. Defeating Religious Law:

• Agreements that defeat provisions of Hindu or Mohammedan law are also void. For example:
• A contract giving a son in adoption in exchange for an annual allowance is void (Nagappa v Ramachandra).
• A pre-marital contract allowing a Mohammedan wife to live with her parents post-marriage was held void (Abdul Kadir v Salima).

13. Contracts and Insolvency:

    Agreements defeating the provisions of the Insolvent Debtors Act are void. An insolvent’s promise to pay a creditor in full for not opposing his discharge is an example (Ram Narain v Sukru).

14. Fraudulent Agreement:

• When two parties (A and B) enter into an agreement with the object of securing a contract from a government department (such as the Commissariat Department) by committing fraud on the department, the agreement is deemed void due to its fraudulent nature. For example, if A and B’s agreement was solely to deceive the department for a mutual benefit, it would be invalid under law.
• However, an agreement between two parties not to bid against each other in an auction sale, such as a joint purchase arrangement between A and B, is considered lawful, as there is no intent to defraud a third party.

15. Injury to Person or Property:

• "Injury" in legal terms refers to wrongful or criminal harm. Merely competing in a business and indirectly causing harm to competitors is not considered wrongful or unlawful.
• Certain coercive agreements that harm individuals or are excessively punitive may be deemed unlawful. For instance, a bond that imposes daily manual labor and overwhelming interest penalties for default is regarded as akin to slavery and is unenforceable. Courts have stated that such conditions oppose public policy (as seen in case law involving penal interest).
• An agreement that restricts a company from employing individuals previously employed by a competitor is also void for being overly restrictive and unlawful.

16. Immoral Contracts:

• A landlord cannot recover rent from a tenant when the lodgings are knowingly let to a prostitute who uses the premises for her profession. Similarly, money lent to a prostitute to further her trade cannot be recovered.
• Contracts made for immoral purposes, such as an agreement where a brothel-keeper lends ornaments to a prostitute for attracting clients, are void. This also extends to assignments of property or mortgages for immoral considerations, such as cohabitation or inducement of divorce.
• In Husseinali v Dinbai and Kisondas v Dhondu, past immoral acts, such as prior cohabitation, were held not to be valid consideration for contracts. This was affirmed in cases where a person sought to recover funds or property transferred for immoral considerations.
• There are, however, exceptions where contracts are made for compensatory reasons, such as maintenance payments to a former mistress, which were upheld in the Patna case.

17. Public Policy and Agreements:

• Public policy is a broad concept, encompassing agreements that may harm the state during war, pervert justice, or impose unreasonable restrictions on personal freedom, particularly in marriage or trade.
• This policy is fluid and can evolve over time. While courts will not invent new heads of public policy, they will apply established principles to new circumstances, as seen in the case of Gherulal Parakh v Mahadeodas Maiya.
• Courts in India may enforce contracts involving foreign elements cautiously, but generally refrain from invoking public policy in cases where the harm is not clear-cut or incontestable.

18. Trading with the Enemy:

• All trade with enemy nations is illegal without the appropriate government license. Any agreement made during peacetime that becomes unlawful due to war is either suspended or dissolved depending on the parties' ability to perform the contract post-war.
• Contracts of insurance made before the outbreak of war are not invalidated if a loss occurs before hostilities begin.

19. Stifling Prosecution:

• Agreements that aim to stifle criminal prosecutions are illegal, as they pervert the course of justice. Courts will not enforce contracts based on such agreements. In R’s case, an arbitration agreement was invalidated by the Supreme Court because it was an attempt to stifle a non-compoundable criminal prosecution.
• However, agreements relating to compoundable offences may be enforceable if allowed by law. For instance, an agreement between two parties to settle a simple assault case (which is compoundable) was upheld as it was not against public policy.
• The principle that non-compoundable offences cannot be settled through private agreements was reiterated in several cases, and any agreement attempting to stifle such a prosecution is void.

20. Champerty and Maintenance:

• Maintenance and champerty refer to supporting litigation in which one has no legitimate interest, particularly for a share of the proceeds. While these practices are illegal under English law, in India they are only void if contrary to public policy.
• In GF Fischer v Kamala Naicker and Bhagwat Dayal Singh v Debi Dayal Sahu, it was held that such agreements are not inherently void unless they are found to be extortionate or inequitable.
• Contracts that assist a party in litigation for improper purposes, such as delaying the execution of a decree or oppressing another party, are void. However, reasonable agreements to fund litigation, especially when the financier is at risk, may be allowed.

21. Interference with the Course of Justice:

• Agreements to improperly influence the judicial process are void. This includes attempts to bribe judges or officials.
• Courts have held that even agreements that contravene statutory provisions are unenforceable, such as contracts that allow the attachment of funds in violation of section 60 of the Civil Procedure Code.

22. Marriage Procurement Contracts:

• Contracts aimed at procuring marriages for financial gain are void. In Indian High Courts rulings, agreements to pay money to a parent or guardian to marry off a minor are considered against public policy.
• Similarly, agreements that impose penalties for failing to marry off a child are void, as are contracts with third parties to arrange marriages for a fee.

23. Agreements Tending to Create Conflicts of Interest:

• Agreements that create a conflict of interest, particularly those involving public servants, are void. For example, an agreement requiring a public servant to act in a manner inconsistent with their duties is unenforceable.
• Distinctions are made between violations of statutory prohibitions and contraventions of conduct rules for government servants. The former renders a contract void, while the latter may not.

24. Sale of Public Offices:

• Any agreement involving the sale of a public office is void, as it interferes with the selection of qualified individuals and prejudices the public service. Religious offices, such as sebait and mutwali, are not transferrable either, and their sale is void.
• An agreement for a public servant to retire to make way for someone else in exchange for payment is void under this section, as is a contract to influence public appointments.

25. Agreements Tending to Create Monopolies:

    These Agreements are designed to create monopolies are void as they are opposed to public policy and restrict free trade.

26. Agreements Not to Bid:

    An agreement between parties not to bid against one another at an auction is lawful if its purpose is to secure a favorable bargain. However, if the agreement is intended to defraud other bidders or rivals, it becomes unlawful.