Void and Illegal Agreements Under Sections 23–30 of the Indian Contract Act Explained

This article is for educational and legal awareness purposes only. It does not constitute legal advice or solicitation. Please consult a qualified advocate for advice on specific legal matters.

Overview

A contract requires more than an offer, acceptance, and consideration — the object and consideration behind the agreement must themselves be lawful, and the agreement must not fall into one of the specific categories that the law declares void regardless of what the parties intended. Sections 23 to 30 of the Indian Contract Act, 1872 set out these limits. Section 23 lays down the general rule on unlawful consideration and object; Sections 24 to 30 identify particular categories — agreements without consideration, agreements restraining marriage, trade, or legal proceedings, agreements too uncertain to enforce, and wagering agreements — that are void even where the parties consented freely and consideration otherwise exists.

This article explains each of these provisions, distinguishes a “void” agreement from an “illegal” one, and sets out the leading Supreme Court decisions that have interpreted them.

Void, Voidable, and Illegal — Why the Distinction Matters

The Act uses these terms with precision. Under Section 2(g) of the Indian Contract Act, 1872, “an agreement not enforceable by law is said to be void.” A void agreement confers no rights and creates no obligations on either side from the outset. A voidable agreement, by contrast, is enforceable unless and until the party whose consent was not free chooses to avoid it — voidable agreements are the subject of a different part of the Act (dealing with free consent) and are not addressed here.

“Illegal” is narrower still. An illegal agreement is one forbidden by law — it may also expose the parties to penal consequences and can taint collateral transactions connected with it. Every illegal agreement is void, but as the Supreme Court has clarified, not every void agreement is illegal. This distinction is central to how Section 30 (wagering agreements) has been interpreted, and is discussed below.

Section 23 — What Consideration and Objects Are Lawful

Section 23 of the Indian Contract Act, 1872 provides that the consideration or object of an agreement is lawful unless it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. The section concludes: “Every agreement of which the object or consideration is unlawful is void.” This is the residual, general provision — an agreement can fail under Section 23 even if it does not fit any of the specific categories in Sections 24 to 30.

Section 24 — Agreements Unlawful in Part

Section 24 extends the same principle to agreements with multiple considerations or objects: 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 entire agreement is void. The Act’s own illustration is instructive — an agreement to pay a salary for superintending both a lawful indigo manufacture and an illegal trafficking business is void in its entirety, because the unlawful part cannot be severed from the lawful part of the same consideration.

Section 25 — Agreements Without Consideration

The general rule, elsewhere in the Act, is that an agreement without consideration is void. Section 25 carves out three exceptions where such an agreement is nonetheless a valid contract: first, where it is expressed in writing and registered, and made on account of natural love and affection between parties standing in a near relation to each other; second, where it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor (or something the promisor was legally compellable to do); and third, where it is a promise in writing, signed by the person to be charged, to pay wholly or in part a debt that is otherwise barred by the law of limitation. Explanation 1 to the section clarifies that nothing in it affects the validity of a gift actually made, and Explanation 2 confirms that inadequacy of consideration does not by itself void an agreement, though a Court may consider it when assessing whether consent was freely given.

Section 26 — Restraint of Marriage

Section 26 provides, in a single sentence, that every agreement in restraint of the marriage of any person, other than a minor, is void. The provision reflects a policy against agreements that restrict a person’s freedom to marry, and it is stated without any exception for adults.

Section 27 — Restraint of Trade

Section 27 states that every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is void to that extent. Exception 1 is the sole statutory carve-out: a person who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within specified local limits, for as long as the buyer (or a successor in title to the goodwill) carries on a like business there — provided the limits appear reasonable to the Court, having regard to the nature of the business.

Section 27 is markedly stricter than the English common-law doctrine of restraint of trade, under which a restraint reasonable between the parties and reasonable in the public interest can be upheld. In the line of authority beginning with Madhub Chunder v. Rajcoomar Doss (Calcutta High Court, 1874), Section 27 has been read without any such general reasonableness test — on that view, a restraint is void unless it falls within Exception 1, however narrow or apparently reasonable it may be. This has particular significance for employment contracts, discussed below.

Section 28 — Restraint of Legal Proceedings

Section 28 voids two kinds of agreements: (a) an agreement that absolutely restricts a party from enforcing rights under a contract through the usual legal proceedings, or that limits the time within which the party may do so; and (b) an agreement that extinguishes a party’s rights, or discharges a party from liability, on the expiry of a specified period, so as to restrict the party from enforcing rights.

The section carries three exceptions. Exception 1 saves an agreement to refer a future dispute to arbitration. Exception 2 saves a written agreement to refer an already-arisen dispute to arbitration. Exception 3, added by later amendment, saves a written guarantee contract or agreement by a bank or financial institution that stipulates a period for extinguishment of rights or discharge of liability under the guarantee, provided that period is not less than one year from the date the liability accrues.

Section 29 — Agreements Void for Uncertainty

Section 29 provides that agreements the meaning of which is not certain, or is not capable of being made certain, are void. The Act’s illustrations show the line clearly: an agreement to sell “a hundred tons of oil” with nothing to show which kind of oil is void for uncertainty, but the same agreement is enforceable if the seller deals only in one kind of oil (since the nature of the trade supplies the missing detail), or if the oil is described by a known commercial specification, or if the price is left to be fixed by a named third party. An agreement to sell a horse “for rupees five hundred or rupees one thousand,” with nothing to indicate which figure applies, is void.

Section 30 — Wagering Agreements

Section 30 declares agreements by way of wager void, and bars any suit to recover money alleged to be won on a wager, or money entrusted to a stakeholder to abide the result of a game or other uncertain event. The section carries an exception in favour of a subscription or contribution of five hundred rupees or more toward a prize for horse-racing, but it expressly does not affect the operation of the provision in the Indian Penal Code dealing with public gambling houses in relation to horse-racing.

Key Case Law

Restraint of Trade — Employment Covenants

In Superintendence Company of India (P) Ltd. v. Krishan Murgai (Supreme Court of India, decided 9 May 1980), the employer sought to enforce a covenant restraining a former employee from competing after his employment ended. The majority (Tulzapurkar, J., with Untwalia, J.) expressly declined to decide whether the covenant was void under Section 27, stating that it would “proceed on the assumption that the negative covenant contained in cl. (10) of the service agreement is valid and not hit by s. 27 of the Contract Act”, and dismissed the appeal on the narrower ground that the covenant, on its terms, applied only if the employee left voluntarily. In a separate concurring opinion, Sen, J. addressed the Section 27 question directly, observing that Section 27 “is general in terms, and declares all agreements in restraint void pro tanto” unless a contract can be distinctly brought within Exception 1, and relying on Madhub Chunder v. Rajcoomar Doss for that reading. Sen, J.’s opinion is therefore frequently cited on post-employment restraints, but it is not the reasoning on which the majority decided the appeal.

By contrast, in Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. Ltd. (Supreme Court of India, decided 17 January 1967), the Court held that a negative covenant restraining an employee from taking similar employment elsewhere during the subsisting term of the employment contract is not a restraint of trade under Section 27 “unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one-sided.” Read together with the Madhub Chunder line of authority and Sen, J.’s opinion in Superintendence Company, the general position is that restrictive covenants operative during employment are ordinarily upheld subject to that qualification, while covenants operating after employment ends are exposed to challenge under Section 27 unless they fall within Exception 1.

Void but Not Illegal — Wagering Agreements

In Gherulal Parakh v. Mahadeodas Maiya (Supreme Court of India, decided 26 March 1959), the Court considered whether a partnership formed for the purpose of entering into wagering transactions was unlawful under Section 23. The Court held that although a wagering contract is void and unenforceable under Section 30, it is not “forbidden by law,” and an agreement collateral to a wager — such as a partnership to carry on wagering transactions — is not thereby rendered unlawful under Section 23. The decision is the leading authority for the proposition that a void agreement is not automatically an illegal one, and that the consequences of voidness under Section 30 do not extend to independent, collateral arrangements.

Practical Points

Outside employment-term covenants, a restraint of trade clause is assessed on whether it falls within Exception 1 to Section 27 (sale of goodwill), not simply on whether it appears “reasonable” as it might be under English law. A covenant operating during the term of employment may, however, still fail if it is unconscionable, excessively harsh, unreasonable or one-sided (Niranjan Shankar Golikari).
A restrictive covenant that operates only during the term of employment is treated differently from one intended to bind an employee after the employment ends; the latter is at serious risk of being void under Section 27.
An arbitration clause in a contract is protected by the exceptions to Section 28 and does not, by itself, unlawfully oust the jurisdiction of courts.
Agreements should state their terms, quantities, and price mechanisms with enough precision (or an ascertainable method of fixing them) to avoid being void for uncertainty under Section 29.
A transaction that is void is not automatically illegal; the two consequences follow from different provisions and can produce different results for connected or collateral agreements.

Takeaway

Sections 23 to 30 of the Indian Contract Act, 1872 operate independently of whether the parties freely agreed to their bargain. An agreement can satisfy every other requirement of a valid contract and still be void because its consideration or object is unlawful (Section 23), because it is void in part (Section 24), because it lacks consideration outside the Section 25 exceptions, or because it falls within one of the specific categories in Sections 26 to 30 — restraint of marriage, restraint of trade, restraint of legal proceedings, uncertainty, or wager. The Supreme Court’s decisions on restraint of trade and on the void-illegal distinction remain the primary guide to how these provisions are applied.

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