Lawful Object and Consideration (Section 23) — Public Policy Doctrine

Section 23 of the Indian Contract Act, 1872 performs a single, decisive function: it imports public morality into private bargains. An agreement that satisfies every other requirement of Section 10 — competent parties, free consent, lawful consideration in the sense of value — may still be void if its object or consideration falls within one of the four heads of Section 23. The four heads are forbidden by law; defeating any law; fraudulent; involving or implying injury to the person or property of another; or in the opinion of the court immoral or opposed to public policy. The first head is narrow and precise. The fourth is wide and judicial. Together they form the boundary between what private parties may bargain for and what the courts will not enforce.

For the candidate, the chapter rewards two skills. The first is doctrinal — knowing the four heads of Section 23 and the way the courts have read each. The second is the orderly application of those heads to a fact-pattern. The same agreement can be both forbidden by law and opposed to public policy; the same consideration can be both fraudulent and injurious. The exam expects the answer to identify each head separately and to attach the appropriate authority to it, rather than to lump everything under a single heading of illegality.

Statutory anchor — Section 23

Section 23 declares the consideration or object of an agreement 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. Every agreement of which the object or consideration is unlawful is void. The drafting matters: the section voids the agreement, not merely the unlawful clause, and the test is alternative — any one of the five disqualifications is enough.

The section sits beside Section 24, which extends the same logic to agreements with both lawful and unlawful objects or considerations. If any part of a single consideration for one or more objects, or any one or part of any one of several considerations for a single object, is unlawful, the agreement is void. The exception to this — severability of the lawful part where the unlawful part can be properly separated — is built into Section 57 and into the line of decisions on ready-forward securities transactions, where the Supreme Court has held that the executed leg may stand even when the forward leg is illegal under the Securities Contracts (Regulation) Act.

Forbidden by law

The first head of Section 23 voids agreements forbidden by law. The expression law here is broad: existing acts, rules, notifications, orders and ordinances. The principle is simple — a contract that requires a party to do what the legislature has prohibited cannot be enforced. The seller of an electric appliance unmarked with a mandatory quality certification cannot sue on the contract; the parties who agree in terms to deal in uncertified bulbs are agreeing to something forbidden by law and the agreement is void from inception.

The doctrinal subtlety lies in the second sub-head — agreements not directly forbidden by law but of such a nature that, if permitted, they would defeat the provisions of any law. Penalties imposed by statute may be either revenue-protective (in which case the agreement is enforceable but the penalty payable) or regulatory (in which case the agreement is void). Penalties imposed for the protection of the public against fraud, or for some other object of public policy, fall in the second category — the thing prohibited, if done, is treated as void, even though the penalty if imposed is not enforceable. The statutory penalty is a marker of legislative intent rather than a measure of remedy.

The doctrine plays out alongside the formation rules in the chapter on offer and proposal — a proposal to do an unlawful act is not a proposal at all in the eye of the law, and Section 23 strikes any agreement that follows from it. An illustration of the defeating-the-law branch is the line of decisions on conditions in waybills and bills of lading that purport to limit the carrier's statutory liability under the Carriers Act, 1865. A condition designed to avoid the liability contemplated under Section 10 of the Carriers Act has been held to be void under Section 23 of the Contract Act, since allowing it would defeat the provisions of the Carriers Act. The court does not need a direct prohibition; it is enough that the agreement, if enforced, would frustrate the legislative scheme. The same logic applies in the chapter on breach of contract, where parties cannot by private bargain reduce the liability that the statute fixes upon them.

Fraudulent and injurious agreements

The third and fourth heads — agreements whose consideration or object is fraudulent, or which involve or imply injury to the person or property of another — are narrower in practice than they appear on paper. Most fraudulent agreements are now caught by some specific legislation; most injurious agreements involve a tort that gives rise to its own remedies. The classical cases under these heads are agreements for the sale of an unborn child or an agreement to commit a tort against a third person — situations the courts have always condemned and which other branches of law have come to address. The boundary with the law of fraud as a vitiating factor is treated in the chapter on the five vitiating factors of consent: a contract obtained by fraud is voidable under Section 19, while a contract whose object or consideration is itself fraudulent is void under Section 23.

The injurious-to-property head retains some force in two areas. The first is fraudulent transfers designed to defeat creditors. The second is contracts that contemplate physical harm to a person or to specific property — for example, a contract under which one party agrees to procure the destruction of a third person's property. Both are illustrative; in practice, the cases that turn on these heads are rare, since the same conduct will usually be forbidden by law under the first head.

Immorality — the doctrine and its limits

The fifth head voids agreements whose object or consideration the court regards as immoral. The decisive Indian authority is Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781. The Supreme Court held that the word immoral is comprehensive but that, in the context of Section 23, its operation is confined to sexual immorality. The reasoning is that the section juxtaposes immorality with public policy — an equally illusive concept — and that giving immorality its widest sense would collapse the two heads into each other. The decided cases, both English and Indian, confine immorality to sexual immorality: settlements in consideration of concubinage, contracts of sale or hire of things to be used in a brothel, agreements to pay money for future illicit cohabitation, promises in regard to marriage for consideration, and contracts facilitating divorce.

The contemporary reach of the head is therefore narrow. Wagering agreements are not immoral within Section 23 (Gherulal again). An agreement that is morally questionable but does not involve sexual immorality must usually be challenged under one of the other heads, or under public policy. The doctrine has not been abandoned; it has been calibrated to the rule of stare decisis. The Supreme Court in Gherulal expressly declined to evolve a new head of immorality, observing that the law cannot be based on a fluid concept that defeats its own purpose.

Public policy — the unruly horse

The sixth and most-litigated head of Section 23 is the agreement opposed to public policy. The expression has no statutory definition. The Supreme Court in Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly, AIR 1986 SC 1571, observed that public policy is not the policy of a particular government — it connotes some matter which concerns the public good and the public interest. The concept varies with time. Practices once thought normal become obnoxious; new heads of public policy are recognised; older heads recede. The metaphors are familiar — public policy as untrustworthy guide, variable quality, uncertain one, unruly horse. The doctrine is governed, like every branch of common law, by precedent.

Two heads of public policy — agreements in restraint of marriage and agreements in restraint of trade — became principles in their own right and are codified as Sections 26 and 27 of the Act, treated separately in the chapter on void agreements. The other heads have been trading with the enemy, trafficking in public office, interference with the administration of justice, and unfair or unreasonable dealings. The list is not closed. The Brojo Nath Ganguly Court itself recognised a new application of the doctrine — a clause in a public-sector employment contract permitting termination by three months' notice without reason was held void under Section 23 as opposed to public policy and ultra vires Article 14, on the ground that an absolute, arbitrary and unguided power of termination violated the audi alteram partem rule and offended public good.

The unconscionable-bargain branch of public policy is conceptually the most useful. Where a contract clause is not in violation of any law, but is so unfair and unreasonable that it shocks the conscience of the court, it can be set aside as opposed to public policy. The branch is narrowly applied. The Supreme Court has confined it to contracts affecting large sections of the public — usually employment contracts or contracts of adhesion offered by State entities or by parties with a dominant bargaining position. A purely private bargain between two commercial parties of broadly equal standing will not ordinarily be impugned on the ground that it is unfair.

Wager and Section 23 — the structural distinction

The relation between Sections 30 and 23 is the most-tested doctrinal point in this chapter. Section 30 declares wagering agreements void. The Supreme Court in Gherulal Parakh rejected the argument that, because a wager is void under Section 30, it is also forbidden by law within the meaning of Section 23. Anson's distinction — that the law may either actually forbid an agreement or merely refuse to enforce it; in the former case it is illegal, in the latter only void — is the basis of the Indian position. A wager is void and unenforceable under Section 30 but not forbidden by law under Section 23. The collateral consequence is that a partnership formed to enter into wagering transactions is itself lawful: its object is to carry on transactions which are void but not forbidden, and the partnership therefore stands.

The same case rejected the argument that wagers are immoral or opposed to public policy. There is no settled rule of public policy in England or India invalidating wagers, and the doctrine of immorality is confined to sexual immorality. The combined effect is that wagering agreements are caught only by Section 30 — they are void under that section, but the void status does not radiate into Section 23 to destroy collateral and ancillary contracts. The point is one to commit to memory: wagering agreements are void, not illegal, and the Section 23 / Section 30 distinction is a Gherulal point. The fuller treatment of wagering as a void agreement is in the chapter on void agreements under Sections 26 to 30.

Restitution and the rights of the parties

An agreement void under Section 23 is void from inception. Section 65 of the Act normally provides that when an agreement is discovered to be void, any person who has received any advantage under it is bound to restore it or to make compensation for it. But Section 65 is qualified for Section 23 cases by the maxim in pari delicto potior est conditio defendentis — where both parties are equally at fault, the position of the defendant is the stronger. Where the parties knew or ought to have known that the agreement was forbidden, neither can sue for restitution; the court will leave the loss where it falls.

The Supreme Court has refined the in pari delicto rule. In Kedar Nath Motani v. Prahlad Rai, (1960) 1 SCR 861, the Court held that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction. If the illegality is trivial or venial, and the plaintiff is not required to rest his case upon the illegality, public policy does not demand that the defendant be allowed to take advantage of the position. The plaintiff's conduct must be strictly scrutinised, but the doctrine is not a blanket bar. The case turned on a benami transaction; the appellants succeeded in restoring possession because the illegality was incidental to their cause of action and not its foundation.

Severability — the rescue of the lawful part

Where an agreement contains both lawful and unlawful parts, the question is whether the lawful part can be severed and enforced. Section 24 closes the door where the consideration is single and partly unlawful. Section 57 keeps it open where the reciprocal promises are distinct: a party promises a lawful thing first and then promises an unlawful thing, the second set is void but the first stands. The line is drawn around mutuality and dependence. If the lawful part rests on the unlawful part for its consideration, it falls; if the two are independent, the lawful part survives.

The Supreme Court applied severability to a ready-forward securities transaction. The ready leg — purchase or sale at a stated price executed on the spot — is fully executed on payment and delivery. The forward leg — repurchase at a later date — is the part declared illegal under the Securities Contracts (Regulation) Act. The Court held that the ready leg constitutes a binding contract and the forward leg is the void part; the forward leg may have provided the motive for the transaction, but motive does not affect severability. The severability rule is therefore alive in the Section 23 context, but its operation is exceptional and depends on the factual independence of the two limbs.

Distinctions from cognate provisions

Section 23 sits in a larger architecture. The reader should keep three boundaries clear. First, Section 23 deals with the unlawfulness of the object or consideration of an agreement. The consent of the parties is not in issue under this section — that is the domain of Sections 13 to 22 and the chapter on free consent. A contract may be perfectly lawful in object yet void for want of consent; another may be the product of free consent yet void for unlawful object.

Second, Section 23 is concerned with substantive unlawfulness, not formal defects. An agreement whose terms are vague is void for uncertainty under Section 29; an agreement to do an impossible act is void under Section 56 and is examined further under the doctrine of frustration; an agreement without consideration is void under Section 25, treated in the chapter on consideration and stranger to contract. Each of these is a distinct head. The exam often combines two — an agreement to sell smuggled goods at a vague price is void under both Section 23 (forbidden by law) and Section 29 (uncertainty). Identify each, do not collapse them.

Third, Section 23 voids the agreement; it does not always render it criminal. A wager is void but not punishable under most penal statutes. A contract for the sale of a banned substance is both void under Section 23 and an offence under the relevant penal law, but the two consequences are distinct — the contract being void does not by itself attract penal liability, and penal liability does not by itself render every collateral contract void unless the structure of the statute so requires. The candidate should resist the slide from void to illegal and back; the categories are different.

Exam angle

The most common errors in answers on Section 23 are these. First, treating wagering as illegal. After Gherulal, wagering is void under Section 30, not unlawful under Section 23. Second, defining immorality broadly. Section 23 immorality is confined by Gherulal to sexual immorality; a morally repugnant but non-sexual transaction must be challenged under public policy or some other head. Third, treating public policy as a single doctrine. Public policy has multiple heads — restraint of marriage, restraint of trade, restraint of legal proceedings, trading with the enemy, trafficking in public office, interference with administration of justice, unconscionable contracts. Identify the head before applying the rule. Fourth, forgetting the in pari delicto rule. A plaintiff's right to restitution under Section 65 is qualified by his own complicity. Fifth, missing severability. Section 24 closes the door for single-consideration cases; Section 57 opens it where the reciprocal promises are independent.

The chapter is also a frequent source of statement-based MCQs in judicial services examinations and CLAT PG. The drafting of these questions tends to test the difference between motive and consideration, the boundary between Section 23 and Section 30, and the operation of severability under Section 24 and Section 57. A clean answer identifies the specific head of Section 23, then attaches the doctrine to a leading authority — Gherulal Parakh for the wager-versus-illegality point, Brojo Nath Ganguly for the unconscionable-bargain point, Kedar Nath Motani for in pari delicto, and the Carriers Act line for the defeating-the-law point. The same case-citation discipline carries through to the chapter on remedies for breach, where the question whether a contract is enforceable at all comes before the question of damages. Citing the case is not ornamental; it shows that the candidate knows where the head of doctrine lives and how it has been applied. The classic question pattern is to give a short fact-pattern and ask which provision applies — Section 23, Section 24, Section 57, or none. The answer typically depends on whether the unlawful element is the consideration, the object, or merely the motive. Motive is not consideration and does not by itself void an agreement under Section 23; the unlawful purpose must be the substance of the bargain, not merely a peripheral incident. The chapter also pairs with the rules on discharge of contract when an agreement that started lawful becomes unlawful by supervening legislation, and with the chapter on doctrine of frustration under Section 56 when supervening illegality renders performance impossible. Both belong in the answer where the facts cross those boundaries.

Frequently asked questions

Is a wagering agreement illegal under Section 23 of the Indian Contract Act?

No. The Supreme Court in Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781, held that a wagering agreement is void under Section 30 but is not forbidden by law within the meaning of Section 23. The distinction matters: a void agreement is one that the law refuses to enforce, while an illegal agreement is one that the law positively forbids. A wager is the former, not the latter. The collateral consequence in Gherulal was that a partnership formed to carry on wagering transactions remained lawful, since its object was to carry on transactions that were void but not forbidden by law.

What is the meaning of immorality under Section 23?

The Supreme Court in Gherulal Parakh confined the operation of immorality under Section 23 to sexual immorality. The decided cases give the standard examples — settlements in consideration of concubinage, contracts of sale or hire of things to be used in a brothel, agreements to pay money for future illicit cohabitation, and contracts facilitating divorce. The reasoning was that the section juxtaposes immorality with public policy — itself an illusive concept — and that giving immorality its widest meaning would collapse the two categories. A morally questionable transaction outside the sexual immorality category must be challenged under public policy or some other head of Section 23.

Does public policy under Section 23 cover unconscionable contracts?

Yes, in narrow circumstances. The Supreme Court in Central Inland Water Transport Corporation v. Brojo Nath Ganguly, AIR 1986 SC 1571, held that a clause permitting termination of a permanent employee's services by three months' notice without reason was void under Section 23 as opposed to public policy. The Court held that contract terms which are so unfair and unreasonable that they shock the conscience of the court can be set aside on this ground. The doctrine is confined to contracts affecting large sections of the public — usually adhesion contracts offered by the State or by parties with a dominant bargaining position. Purely private bargains between commercial parties of comparable standing are rarely impugned on this ground.

Can a contract with a partly unlawful consideration be enforced in part?

Section 24 says no for single-consideration cases — if any part of a single consideration for one or more objects is unlawful, the whole agreement is void. Section 57 takes a different position for distinct reciprocal promises. Where a party promises a lawful thing first and an unlawful thing separately, the second set of promises is void but the first stands, provided the two can be properly separated. The Supreme Court applied this reasoning to ready-forward securities transactions: the ready leg, fully executed on payment and delivery, was held to be a binding contract, while the forward leg, declared illegal under the Securities Contracts (Regulation) Act, was void.

When can a party recover money paid under a void contract under Section 65?

Section 65 normally provides that any person who has received any advantage under an agreement discovered to be void is bound to restore it. Where the agreement is void under Section 23 because both parties knew it was unlawful, the section is qualified by the in pari delicto rule. The Supreme Court in Kedar Nath Motani v. Prahlad Rai, (1960) 1 SCR 861, held that recovery is permissible if the illegality is trivial or if the plaintiff is not required to rest his case on the illegal transaction. The plaintiff's conduct will be strictly scrutinised, but the doctrine is not an absolute bar. Where the illegality goes to the root of the matter and the plaintiff cannot sue without relying on it, the court will leave the loss where it falls.