LEGALITY OF OBJECT. LAST UPDATE: Lecture delivered: A B C Dr. Md. Salim SLS-NOIDA

Transcription

1 LEGALITY OF OBJECT LAST UPDATE: Lecture delivered: A B C Dr. Md. Salim SLS-NOIDA

2 LEGAL PROVISIONS S.23, 2(g), 65, SRA, S.27 LEGAL OBJECT in NUTSHELL IMPORTANT CASES Gherulal Parakh v. Mahadeodas Maiya and Ors AIR 781 Jaffer Meher Ali v. Budge Budge Jute Mills Co., 1906 Ouseph Poulo v. Catholic Union Bank Ltd., 1964 Regazzoni v K. C. Sethia Fender v. St. John Mildmay

3 Legality of Object A contract the object of which is opposed to the law of the land may be either unlawful or simply void, depending upon the provisions of the law to which it is opposed. UNLAWFUL AGREEMENT, S. 23: The section covers the illegality of both the object of the contract and the consideration for it. e.g. money borrowed for a child marriage. Where the object or consideration falls within any of the prohibited categories, the resulting agreement is unlawful. Jaffer Meher Ali v. Budge Budge Jute Mills Co., 1906: A had agreed to sell goods to B, and B while in insolvent circumstances assigned the benefit of the contract to his brother in law C for a consideration of Rs. 100/-, the object of both B and C being to defraud B s creditors. Pyare Mohan v. Narayani, 1982: A gift to a women, the object of which was past cohabitation, was valid as a gift, being a transfer without consideration. Ouseph Poulo v. Catholic Union Bank Ltd., 1964: The plaintiff had pledged certain goods to the defendant bank as security. Kashinath v. Bapurao, 1940: B borrowed a certain amount of money from A in order to bribe a certain officer. After this work was done, B obtained a loan from C in order to pay off A and executed a mortgage in favour of C. the mortgage was not against Public Policy here.

4 Object and Consideration must be legal The section invalidates agreement whose object or consideration is unlawful. It is of three matters; 1. Consideration for the agreement 2. Object of the agreement, and 3. The agreement Therefore three principles arise form the section; 1. An agreement or contract is void, if it s purpose is the commission of an illegal act; 2. An agreement or contract is void, if it is expressly or impliedly prohibited by any law; and 3. An agreement or contract is void, if its performance is not possible without disobedience of any law.

5 1. FORBIDDEN BY LAW: Where the object of an agreement is forbidden by law, the agreement is unlawful. Law means in-force for the time being, including personal & common laws, e.g. sale of liquor without license, sale is void and price is irrecoverable. NDPS Act, 1988 Section-8: Prohibition of certain operations: No person shall- (a) cultivate any coca plant or gather any portion of coca plant; or (b) cultivate the opium poppy or any cannabis plant; or (c) produce, manufacture, posses, sell, purchase, transport, warehouse, use, consume, import inter-state, export inter-state, import into India, export from India or transship any narcotic drug or psychotropic substance, except for medical or scientific purposes and in the manner and to the extend provided by the provisions of this Act or the rules or orders made thereunder and in a case where any such provision, imposes any requirement by way of license, permit or authorisation also in accordance with the terms and conditions of such license, permit or authorisation: Provided that, and subject to the other provisions of this Act and the rules made thereunder, the prohibition against the cultivation of the cannabis plant for the production of ganja or the production, possession, use, consumption, purchase, sale, transport, warehousing, import interstate and export inter-state of ganja for any purpose other than medical and scientific purpose shall take effect only from the date which the Central Government may, by notification in the Official Gazette, specify in this behalf. 1 [Provided further that nothing in this section shall apply to the export of poppy straw for decorative purposes.]

6 VIOLATION OF LICENCES AND PERMITS It mostly covers the cases of agreements involving breach of laws enacted for the protection or promotion of public interest. Bhikanbhai v. Hiralal Ramdinshet Marwadi, 1900: Sublease of toll not permitted as per the auction rule, if done with, the transaction may be void as against the collector, but between the parties it stands. Section-10 of Bombay Tolls Act, Where an Act or Rules prohibit sale or transfer, the licensee cannot for a partnership to work the license as that also amounts to transfer. Where a stage carriage permit was granted to a State Road Transport Corp. it was not allowed to allot the same to a private operator for working it as nominee. S.C. held that a condition in a contract of carriage against S.10 of Carriers Act, 1865 was void.

7 Carriers Act, 1865, Section-10: Notice of loss or injury to be given within six months. No suit shall be instituted against a common carrier for the loss of, or injury to, goods entrusted to him for carriage, unless notice in writing of the loss or injury has been given to him before the institution of the suit and within six months of the time when the loss or injury first came to the knowledge of the plaintiff. A common carrier in common law countries (corresponding to a public carrier in civil law systems, usually called simply a carrier) is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport.

8 VIOLATION OF ENACTMENTS: DRC Act, 1958 l Section-14: Protection of tenant against eviction. The ground specified by Rent Control Act, for the eviction of a tenant cannot be changed by an agreement or compromise because that would be contrary to the Act. ASSIGNMENT OF COPYRIGHT: CR Act, 1957 l Section 18: Assignment of copyright The Copyright Act, 1957 permits assignment of copyrights in any present or future work. The statutory permission was held to be not violative public policy because there are safeguards for the protection of the owner within the frame-work of the Act itself.

9 Delhi Rent Control Act, 1958 l CONTROL OF EVICTION OF TENANTS: Delhi l Section 14: Protection of tenant against eviction (1) Notwithstanding anything to the contrary contained in any other law or contract, no order or decree for the recovery of possession of any premises shall be made by any curt or Controller in favor of the landlord against a tenant: Provided that the Controller may, on an application made to him in the prescribed manner, make an order for the recovery of possession of the premises on one or more of the following grounds only, namely:- (a) that the tenant has neither paid nor tendered the whole of the arrears of the rent legally recoverable from him within two months of the date on which a notice of demand for the arrears of rent has been served on him by the landlord in the manner provided in section 106 of the Transfer of Property Act, 1882; (b) that the tenant has, on or after the 9th day of June, 1952, sub-let, assigned or otherwise parted with the possession of the whole or any part of the premises without obtaining the consent in writing of the landlord; (c) that the tenant has used the premises for a purpose other than that for which they were let- (i) if the premises have been let on or after the 9th day of June, 1952, without obtaining the consent in writing of the landlord; or (ii) if the premises have been let before the said date without obtaining his consent;

10 Delhi Rent Control Act, 1958 l CONTROL OF EVICTION OF TENANTS: Delhi l Section 14: Protection of tenant against eviction (d) that the premises were let for use as a resident and neither the tenant nor any member of his family has been residing therein for a period of six months immediately before the date of the filling of the application for the recovery of possession thereof; (e) that the premises let for residential purposes are required bona fide by the landlord for occupation as a residence for himself or for any member of his family dependent on him, if he is the owner thereof, or for any person for whose benefit the premises are held and that the landlord or such person has no other reasonably suitable residential accommodation: Explanation.- For the purposes of this clause, "premises let for residential purposes" include any premises which having been let for use as a residence are, without the consent of the landlord, used incidentally for commercial or other purposes; (f) that the premises have become unsafe or unfit for human habitation and are required bona fide by the landlord for carrying out repairs which cannot be carried out without the premises being vacated; (g) that the premises are required bona fide by the landlord for the purpose of building or e-building or making thereto any substantial additions or alterations and that such building or re-building or addition or alteration cannot be carried out without the premises being vacated;

11 Delhi Rent Control Act, 1958 l CONTROL OF EVICTION OF TENANTS: Delhi l Section 14: Protection of tenant against eviction (h) that the tenant has, whether before or after the commencement of this Act, built, acquired vacant possession of, or been allotted, a residence; (i) that the premises were elect to the tenant for use as a residence by reason of his being in the service or employment of the landlord and that the tents has ceased, whether before or after the commencement of this Act, to be in such service or employment; (j) that the tenant has, whether before or after the commencement of this Act, caused or permitted be caused substantial damage to the premised; (k) that the tenant has, notwithstanding pervious notice, used or death the premises in a manner contrary to any condition imposed on the landlord by the Government or the Delhi Development Authority or the Municipal Corporation of Delhi while giving him a lease of the land on which the premises are situate; (l) that the landlord requires the premises in order to carryout and building work at the instance of the Government or that Delhi Development Authority of the Municipal Corporation of Delhi in pursuance of any improvement scheme or development scheme and that such building work cannot be cannot be carried out without the premises being vacated.

12 Copyright Act, 1957 I OWNERSHIP OF COPYRIGHT AND THE RIGHTS OF THE OWNER l Section 18: Assignment of copyright (1) The owner of the copyright in an existing work or the prospective owner of the copyright in a future work may assign to any person the copyright either wholly or partially and either generally or subject to limitations and either for the whole of the copyright or any part thereof: Provided that in the case of the assignment of copyright in any future work, the assignment shall take effect only when the work comes into existence. 1 [Provided further that no such assignment shall be applied to any medium or mode of exploitation of the work which did not exist or was not in commercial use at the time when the assignment was made, unless the assignment specifically referred to such medium or mode of exploitation of the work: Provided also that the author of the literary or musical work included in a cinematograph film shall not assign or waive the right to receive royalties to be shared on an equal basis with the assignee of copyright for the utilisation of such work in any form other than for the communication to the public of the work along with the cinematograph film in a cinema hall, except to the legal heirs of the authors or to a copyright society for collection and distribution and any agreement to contrary shall be void: Provided also that the author of the literary or musical work included in the sound recording but not forming part of any cinematograph film shall not assign or waive the right to receive royalties to be shared on an equal basis with the assignee of copyright for any utilisation of such work except to the legal heirs of the authors or to a collecting society for collection and distribution and any assignment to the contrary shall be void.] (2) Where the assignee of a copyright becomes entitled to any right comprised in the copyright, the assignee as respects the rights so assigned, and the assignor as respects the rights not assigned, shall be treated for the purposes of this Act as the owner of copyright and the provisions of this Act shall have effect accordingly. (3) In this section, the expression "assignee" as respects the assignment of the copyright in any future work includes the legal representatives of the assignee, if the assignee dies before the work comes into existence.

13 2. DEFEAT ANY LAW: Sometimes the object of, or the consideration for, an agreement is such that, though not directly forbidden by law, it would, if permitted, defeat the provisions of some law. Such an agreement is also void. Fateh Singh v Sanwal Singh: Plaintiff an accused pursued the defendant to become surety on payment of Rs. 5000/-, demands repayment afterwards, the contract is void and the money is irrecoverable. Regazzoni v K. C. Sethia: The Indian law prohibited the export of jute to South Africa, defendant promised to deliver it at Genoa for resale to the South African buyers. The defendant could not deliver his promise and sued for breach of promise and both the parties were charged for breach of law. Foster v Driscoll: Agreement to buy whiskey in UK and to smuggle to US, the agreement is illegal.

14 3. FRAUDULENT: An agreement made for fraudulent purpose is void. An agreement to creditors or to give fraudulent preference to a creditor or to defraud revenue authorities, or investors in a company, is illegal. Ramnath Mishra v Rajendernath Sanyal: Two decree holders against the debtor, one plaintiff, had the debtor s property attached and brought to sale, agreed with the defendant (prospective buyer), that the plaintiff would not bid against the defendant and the defendant would pay him off. The property was knocked to the defendant at a very low price. Plaintiff could not recover anything from the defendant. An agreement between two bidders not to bid against each other with an understanding that the successful bidder would give half the property to the other has been held to be not against public policy.

15 4. INJURIOUS TO PERSON OR PROPERTY: An agreement between two persons to injure the person or property of another is unlawful. An agreement to commit a crime or a civil wrong, to assault or beat a person or to deceive him or to publish a libel against him, all fall under this category. Ram Swarup v. Bansi Mandar: A person borrowed a sum of Rs. 100 and executed a bond promising to work for the plaintiff without pay for a period of two years. In case of default borrower was to pay exorbitant interest and a principal sum at once. The contract is indistinguishable from slavery, involving injury to person, therefore void. Beresford v. Royal Insurance Co.: Life insurance policy contained a clause that if the assured will commit suicide within a year the benefit of the policy would not be there, he did after nine years, his estate not allowed to recover the sum assured, because suicide is an offence of public policy.

16 5. IMMORAL: The law does not allow an agreement tainted with immorality to be enforced. What is immoral depends upon the standards of morality prevailing at a particular time and as approved by the courts. Lending money to obtain divorce or after the death of the husband to marry the divorced/widowed women subsequently is immoral, the money is irrecoverable. Fender v. St. John Mildmay: Defendant promised to marry the plaintiff nurse on his divorce, plaintiff entitled to recover if breach committed by the defendant.

17 Dealings with sex workers: If articles sold or house rented for the sex workers to carry on the profession or keeping a mistress, the amount or rent is irrecoverable. Illegal Cohabitation: Adultery is not merely immoral, but is also illegal. D. Nagratnamba v. K. Ramayya: Certain properties were gifted in consideration of past cohabitation. The properties belonged to the joint families. The gift is void. Dancing girls: Help given or promised to a dancing girl is not tainted with immorality. Wagering agreements could not be regarded as immoral.

18 6. PUBLIC POLICY: An agreement is unlawful if the court regards it as opposed to public policy. Public Policy means Public interest on which courts may regard to refuse to enforce the contract. The twine touchstone of Public Policy is: A. Advancement of Public Good, and B. Prevention of Public mischief. Wife can surrender her right of maintenance in consideration of lump sum payment, but, for claim of revised amount based on the inflation price is immoral.

19 HEADS OF PUBLIC POLICY: 1. TRADING WITH ENEMY: Object of war being as much to cripple the enemy s commerce as to capture his property, a declaration of war imports a prohibition of commercial intercourse and correspondence with the inhabitants of the enemy s country, except with the permission of the heads of the state. 2. TRAFFCKING IN PUBLIC OFFICES: an agreement to induce a public officer to act corruptly is contrary to public policy. Payment to charity to procure knighthood, sale of seats in public institutions, payment to public officer to procure mining rights, attempt to pervert selection by merit etc. are instances of Public Policy.

20 3. INTERFERENCE WITH ADMINISTRATION OF JUSTICE: a contract the object of which is to interfere with the administration of justice is opposed to public policy. A. INTERFERENCE WITH THE COURSE OF JUSTICE: any agreement which obstructs the ordinary process of justice is void. An agreement to delay the execution of a decree, monetary promise for adducing false evidence and to perform Puja to secure success in a litigation, all are void contracts. B. STIFLING PROSECUTION: an agreement to withdraw a pending prosecution is void if the offence is of public nature. Compromise in compoundable offences are allowed. But when a compromise happened before filling a compliant the agreement is valid. C. MAINTENANCE AND CHAMPERTY: Champerty is a bargain whereby one party is to assist the other in recovery of the property, and is to share in the proceeds of the action. But a fair agreement to assist a person in the enforcement of his legal rights may be held valid even if the person providing the assistance may be reimbursed out of the proceeds of the action.

21 4. MARRIAGE BROKERAGE CONTRACTS: is an agreement to procure the marriage of a person in consideration of a sum of money is void agreement. Sale of girl, bride price, dowry etc. are against public policy. 5. UNFAIR OR UNREASONABLE DEALINGS: where the parties are not economically on equal footing and there is a gap in bargaining position, one can exploit and other is vulnerable, and the contract appears to be unfair, it can be regarded as opposed to public policy. Central Inland water v. Brojo Nath Ganguly: Gov t corporation imposing upon a needy employee a term that he can be removed just by three months notice or pay in lieu of notice and with out any grounds is an exploitation, and against public policy.

22 Gherulal Parakh v. Mahadeodas Maiya and Ors AIR 781 FACTS: Plaintiff and defendant entered into Partnership agreement with object of entering into wagering transactions with obligation to bear equal loss or profit arising out of such partnership. When plaintiff asked for reimbursement of half of money paid by him to discharge losses of partnership, defendant alleged that the agreement made between them was illegal and unenforceable on account of S.23 ISSUE: Whether the alleged Partnership agreement was either forbidden by law, or opposed to public policy or immoral so as to render it void ab initio? HELD: (i) Void agreements cannot be equated with illegal agreements. The law may actually forbid an agreement to be made or it may merely refuse to enforce an agreement. In former case, it is illegal in latter it is merely void, in as much as all illegal agreements are void but not all void agreements are illegal or forbidden by law. S.30 of ICA is based on provisions of Gaming Act, 1845 in England which rendered both primary agreements of wagering and any substituted agreement for recovery of money alleged to be won on any wager as void but, secondary agreements in respect thereof enforceable. Therefore any wagering agreement though is void and unenforceable but is not forbidden by law, therefore the object of any collateral agreement upon wagering isn t unlawful within the ambit of S.23 of ICA, hence is valid and subsisting between the parties. In present case, parties had no interest to take delivery of the goods rather were only dealing with difference in prices such that they mutually intended the transaction to be of the nature of wager. Though wagers are void u/s 30 of ICA but cannot be considered as forbidden by law u/s 23 for a person entering into wagering transactions does no legal wrong but only fails to get protection of law in enforcing those transactions. Hence any collateral agreement with the object of wagering cannot be declared to be void due to object forbidden by law u/s 23, and is subsisting between the parties.

23 Gherulal Parakh v. Mahadeodas Maiya and Ors AIR 781 (ii) Any agreement which tends to be injurious to/against interest or conscience of public at large is said to be opposed to public policy. It is a branch of common law and unless a particular principle of public policy is recognized by that law, Courts cannot invent a new head of public policy. The ordinary function of Court is to rely on the well settled heads of public policy and to apply them to varying situations unless harm to public interest is substantially incontestable. The policy of law in India is to sustain the legality of wagers, as in common law, though rendering them void and unenforceable. Not even in a single case, SC said, had Courts in India pr in England struck down any wagering contract as opposed to public policy. Indeed some of the gambling transactions are a perennial source of income to the state. Hence, it cannot be said that wagering is opposed to public policy and therefore, partnership agreement formed with object of wagering was not unlawful for its object being opposed to public policy u/s 23. SC further remarked, Even if it is permissible for Courts to evolve a new head of public policy under extraordinary circumstances giving rise to incontestable harm to society, wager isn t one of such instance of exceptional gravity for it has been tolerated by public and state alike.

24 Gherulal Parakh v. Mahadeodas Maiya and Ors AIR 781 (iii) Immorality u/s 23 should be confined to cases of sexual immorality like agreements for concubinage, sale or hire of things to be used in a brothel, marriage for consideration; agreements facilitating divorce, etc. are all immoral in nature. This limitation on meaning of word immoral as in S.23 is because of reasons: Firstly, its juxtaposition with equally wide concept of public policy in S.23 highlights legislative intent to give it a narrow meaning otherwise it will lead to overlapping of two concepts; secondly, the phrase Courts regard it as immoral as in S.23 highlights immorality is also a branch of common law and must be confined to principles recognized and settled by Courts; Thirdly, case law in England and in India confines its operation to sexual immorality. Since present case revolves around wagering which cannot be regarded as sexually immoral, hence, it is not under realm of immorality as given u/s 23 of ICA. Therefore partnership agreement formed with the object of entering into wagering transactions is enforceable, valid and subsisting for its object of wagering isn t unlawful u/s 23 because it is neither forbidden by law, nor opposed to public policy, and nor immoral.

25 THANK YOU next VOID CONTRACT