According to Section 2(g) of Indian Contract Act 1872, Void Agreement is one which is not enforceable by law from the beginning. It has no legal effect, it means parties involved cannot seek legal remedies in case of breach.
Whereas, when an agreement which is enforceable by law, it becomes a valid contract as per the Section 2(h) of Contract Act.
Grounds of Void Agreement
Sections 24 to 30 of the Indian Contract Act majorly lay about void agreements and the various ground which make an agreement void. There are other provisions as well which have been covered hereunder:
Mistake of Fact
Section 20 of the Act lays about void agreement when both the parties are under mistake of a fact. It clarifies that such factual aspect should be an essential to the agreement for it to be declared void.
Unlawful consideration or Unlawful Object
Section 24 states about void agreement in Indian Contract Act when any part of an agreement is having one or more unlawful consideration or unlawful object. In such case, those agreements will be void agreement. Section 23 states the grounds on which a consideration will be unlawful, which are as below:
a. Is forbidden by law;
b. Is of such nature if permitted, would defeat the provision of any law;
c. Is fraudulent;
d. It involves or implies injury to a person or another person’s property;
e. If Court regards it immoral or, opposed to public policy.
e.g.: Ritu and Rohit came into an agreement where Ritu will provide car to Rohit and Rohit promises to give her gold and Opium. In this scenario providing gold is a legal part whereas providing Opium is an unlawful part i.e., forbidden by law so this agreement will be a void agreement under the Contract Act, 1872.
Agreement without consideration is Void agreement
Section 25 of Indian contract Act lays about the agreements where there is no consideration, being a void agreement. However, there are three exceptions where agreements are valid even without consideration.
Exceptions:
a. Promise Made Out of Natural Love and Affection: If a written and registered agreement is made between close relatives based on love and affection, it is valid without consideration.
b. Promise to Compensate for Past Voluntary Services: If someone voluntarily provides a service to another person, and later the recipient promises to compensate them, the agreement is valid.
Example: A helps B retrieve his stolen car without being asked. Later, B promises to pay A ₹10,000 for the help. This promise is enforceable.
c. Promise to Pay a Time-Barred Debt: If a debtor promises in writing to pay a debt that cannot be legally recovered due to the expiration of the limitation period, the promise is valid.
Example: A owes B ₹50,000, but B cannot sue A because the time limit for recovery has passed. If A signs a written promise to pay ₹30,000, this promise is enforceable.
Explore: Grasping the Intricacies of Contracts with Adv. Kartikay Sharma
Agreements in Restraint of Marriage Are Void
Section 26 of Indian Contract Act says that the every agreement that restricts the marriage of any person, except a minor, is considered to be a void agreement. In other words, if two people make an agreement to never get their children married, in return of anything, be it service or any valuable, this restricts marriage of their children even if they have attained the age of marriage, and thus void.
Exceptions
Minors Excluded: Agreements in restraint of marriage of minors are not void
Example:
Suppose A and B enter into an agreement where A promises not to marry anyone for the next five years in exchange for B giving A a large sum of money. This agreement would likely be void under Section 26 because it restricts A’s right to marry during that period.
Court Interpretations:
· In cases like Rao Rani v. Gulab Rani (1942), courts have clarified that indirect restraints on marriage might not always be void, depending on the specific circumstances.
· The law aims to protect individuals’ freedom to choose their marriage partners, ensuring that contractual agreements do not interfere with this personal right
Agreement in restraint of trade is void
Section 27 of Contract Act states that every agreement by which anyone is restrained from doing any lawful profession, trade or business of any kind, it is a void agreement.
Example: Suppose Aayushi and Cheshta are competitors in the textile business. Aayushi enters into an agreement with Cheshta that Cheshta will stop running her textile shop in exchange for ₹2 lakhs. This agreement is void under Indian Contract Act Section 27, because it restrains Cheshta from engaging in lawful trade.
Exception: The only exception allows an agreement related to the sale of goodwill:
- When a person sells the goodwill of their business, they may agree not to carry on a similar business within specified local limits and for a reasonable time. This restriction is valid if it is fair and necessary to protect the buyer’s interests. Non-compete clause or agreement could be another example in similar facts.
Example of Exception:
Swapnil sells his bakery business, including its goodwill, to Meet. Swapnil agrees not to open another bakery in the same city for five years. This agreement is valid as it protects the goodwill purchased by Meet.
Agreement in restrain of legal proceedings is void
Indian Contract Act Section 28 provides that any agreement which restricts a party from enforcing their contractual rights through legal proceedings or limits the time to enforce such rights (below the period prescribed by law) is void. The section ensures that individuals cannot be deprived of their legal remedies or access to courts.
Exceptions: There are three exceptions where agreements are valid:
a. Agreements requiring disputes to be resolved through arbitration instead of courts are valid.
Example: A and B agree that any dispute arising from their contract will be referred to arbitration. This clause is valid under Exception 1.
b. A bank or financial institution can include clauses extinguishing liability if claims are not made within a specified period (greater than one year). This protects banks from indefinite liability.
Example: A bank issues a guarantee stating that claims must be made within two years of a specific event. Such an agreement is valid.
c. Agreements referring disputes (arising before the clause was introduced) to arbitration are also valid.
Agreements void for uncertainty
Section 29 says that any agreement which is uncertain, ambiguous, or vague and cannot be clarified will be a void agreement as per Indian Contract Act.
Example: A agrees to sell “a ton of oil” to B without specifying the type or quality of oil. This agreement is void because it is unclear what kind of oil is being referred to and cannot be clarified.
Agreement by way of wager is void
As per Section 30 of the Contract Act, agreements entered into by way of wager are void. The provision restricts any legal suit for recovering anything allegedly won on a wager. The provision further makes an exception for certain prizes for horse-racting.
Agreement to do an impossible act is void
Section 56 of Contract Act states that when the act to do something mentioned in the agreement becomes impossible to do, then such agreement becomes a void agreement.
Example: Meet and Harshit came into a contract where Meet will give a horse named Rinku to Harshit. But after 3 days of contract, Riku died due to some illness. The contract becomes impossible to fulfil, and therefore void.
Consequences of void contract
According to Section 65 of Indian Contract Act, when an agreement is found to be void, then any person who has received any advantage from such contract is bound to restore or make compensation to the person from whom it was received.
But according to section 68 of the Act, in the case of minor agreement or a person incapable of entering a contract, if necessaries have been supplied to a minor or incapable person or anyone whom he is legally bound to support is supplied by another person is entitled to be reimbursed from the property of such incapable person. But if it is not supplied for necessities, then cannot be claimed from the property of the incapable person.
Example: Adnan provided some money for the education of a minor. That is why Adnan is entitled and can claim from the property of minor. However, if he had given money for minor’s marriage, it is not a necessity. Therefore he cannot claim from the property of that minor.
Case laws on Void Agreements
Mohori Bibee v. Dhurmodas Ghose (1903)
In Mohori Bibee v. Dhurmodas Ghosethe Privy Council ruled that contracts entered into by minors are void under Section 11 of the Indian Contract Act. Dharmodas Ghose, a minor, had executed a mortgage in favor of moneylender Brahmo Dutt, but later sought its cancellation. Despite Dharmodas falsely declaring himself of full age, the court held that estoppel (Section 115 of the Indian Evidence Act) did not apply, as Brahmo Dutt’s agent, Kedar Nath, was aware of his minority. The court imputed Kedar Nath’s knowledge to Brahmo Dutt, making the latter accountable. But Dharmodas had to return the benefits which he get from the contract.
Gherulal Parakh v. Mahadeodas Maiya
Facts:
- Gherulal Parakh and Mahadeodas Maiya, as managers of their respective joint families, formed a partnership to engage in wagering contracts with two merchants from Hapur.
- The profits and losses were to be shared equally, but after incurring losses, Mahadeodas Maiya paid the merchants and sought reimbursement from Gherulal Parakh.
- A suit was filed, followed by arbitration and an initial decree. A second suit was later filed for additional amounts.
- The appellant (Gherulal Parakh) challenged the suit, arguing that the partnership was unlawful, unregistered, and barred by procedural rules.
Judgment
The Court held that though the agreement between the two is a void agreement because wagering contract is a void contract but also held that the partnership between the two is a valid partnership so Gherulal Parakh liable for his loss to be paid.
The concept of void agreement in Indian Contract Act has been decoded by our intern, Mr. Shubham Chandrakar. He joined the team to assist and bring informational legal blogs.
