Agreements Opposed to Public Policy

Contracts form the backbone of commercial and social interactions in any society. The Indian Contract Act, 1872, provides the framework for recognising and enforcing agreements. However, the law does not enforce every agreement. Some contracts are considered harmful to society or the State and, therefore, void. Such agreements are described as “opposed to public policy.”

What is Public Policy?

Public policy is a broad, somewhat flexible concept used by courts to prevent enforcement of contracts that harm the public interest, morality, or the State’s sovereignty. It represents the collective interest of society and acts as a guideline against contracts that offend societal norms or constitutional values.

The Latin maxim ex turpi causa non oritur actio (“no action arises from a dishonourable cause”) underpins the doctrine. It means a party cannot seek the court’s help to enforce an illegal or immoral contract.

Section 23 of the Indian Contract Act, 1872

Section 23 governs the legality of the object or consideration of an agreement. It provides:

“The consideration or object of an agreement is lawful unless—
(a) it is forbidden by law; or
(b) it is of such nature that, if permitted, it would defeat the provisions of any law; or
(c) it is fraudulent; or
(d) it involves or implies injury to the person or property of another; or
(e) the court regards it as immoral or opposed to public policy.”

Every agreement with an unlawful object or consideration is void.

Thus, public policy is a distinct ground, separate from illegality or immorality, that courts may invoke to refuse to enforce a contract.

Nature and Scope of the Doctrine of Public Policy

The courts have the final say in determining whether an agreement violates public policy. The doctrine is elastic, changing with social and political developments.

However, the judiciary is cautious not to overreach or misuse the doctrine. The courts generally uphold freedom of contract but intervene where contracts:

• Endanger State security or sovereignty.
• Impede the administration of justice.
• Encourage corruption or dishonesty.
• Impose unreasonable restraints on personal liberty.
• Exploit unequal bargaining power unfairly.

Contracts that are merely unfair or commercially unwise do not automatically fall foul of public policy.

Categories of Agreements Opposed to Public Policy

Let us examine the main categories of agreements which courts have held to be against public policy.

Trading with the Enemy

During war or hostilities, contracts with nationals or subjects of enemy states are void. Such “alien enemies” are those citizens of a country at war with India.

Rationale:Permitting such trade benefits the enemy and endangers national security.

Example: If India is at war with country X, any contract between an Indian citizen and a citizen of country X involving the supply of goods or services is void.

Judicial view: Contracts during wartime with enemy nationals without government sanction are illegal on public policy grounds.

Trrafficking in Public Offices

Agreements that involve the buying, selling, or transferring of government posts or official titles are void.

Why?

Such contracts violate the principles of merit, transparency, and equality. They encourage corruption and undermine public trust.

Leading cases:

• Parkinson v. College of Ambulance (English law) held that payments for honorary titles were void.
• Kuju Collieries Ltd. v. Jharkhand Mines Ltd.: Bribery to secure mining rights is against public policy and unenforceable.

Example:

A contract where A pays B to retire from government service so that A can get the vacant post is void.

Interference with the Administration of Justice

Any contract which obstructs or interferes with the judicial process is opposed to public policy.

This includes:

• Agreements to bribe or influence judges, witnesses, or court officials.
• Agreements to suppress or withdraw criminal prosecutions.

Examples:

• Paying a witness to change or withhold testimony.
• Agreement to drop criminal charges for money.

Leading case:

• Veerayya v. Sobhanandri: Agreement to withdraw charges under IPC without court’s permission declared void.
• Ouseph Paulo v. Catholic Union Bank Ltd.: Hypothecation executed to stifle criminal complaint held void.

Such contracts undermine the rule of law and the administration of justice.

Maintenance and Champerty

Maintenance: Providing assistance (financial or otherwise) to a litigant without a direct interest in the case.

Champerty: Maintenance where the assister receives a share of the proceeds if the case is successful.

Position in India:

Unlike England, India treats maintenance and champerty based on facts. If the assister exploits the litigant’s helplessness for profit, the contract is void. But bona fide assistance may be valid.

Example: In Ram Sarup v. Court of Wards, the Privy Council upheld an agreement where a financier bore litigation costs and received a fixed share.

The courts protect the vulnerable from exploitation but also recognise the importance of access to justice.

Marriage Brokerage Contracts

Contracts to procure a marriage for reward are void.

Rationale: Marriage is a personal, solemn relationship based on mutual consent. Brokerage for profit commodifies human relationships and offends public morality.

Illustrative case: Hermann v. Charlesworth (English law): Contract for introducing a bride and groom in return for payment was unenforceable.

Unfair or Unreasonable Dealings

Contracts where there is an unfair imbalance of bargaining power, and one party exploits the other, may be void as against public policy.

Example: Central Inland Water Transport Corps v. Brojo Nath Ganguly: The employer’s power to terminate the employee without cause was held exploitative.

Why?  Such contracts offend the principle of equality and fair dealing.

Restraint of Personal Liberty

Contracts imposing unreasonable restrictions on an individual’s fundamental freedom — such as freedom to change employment, residence, or work — are void.

Examples:

• Sitaram Deokaran v. Baldeo Jairam: Service contract fixing wages at ₹2 per month for over nine years declared void.
• Harwood v. Millers Timber & Trading Co.: Borrower’s agreement to restrict employment and residence held void.

Personal liberty is a constitutional right that cannot be overridden by contract.

Restraint of Parental or Guardianship Rights

Agreements purporting irrevocable transfer or sale of guardianship over minors are void.

Leading cases:

• Re Carroll: Alienation of father’s guardianship rights invalid.
• Giddu Narayansih v. Annie Besant: Valid adoption under Hindu law cannot be rescinded by contract.

Guardianship is a trust relationship focused on child welfare, not a commercial commodity.

What Does Not Fall Under Public Policy?

It is equally important to note what agreements courts do not treat as opposed to public policy:

1. Post-Eviction Tenancy: Allowing a tenant to continue possession after an eviction order does not offend public policy (M.K. Usman Koya v. C.S. Santha).
2. Copyright Assignments: Transfer or licensing of copyrights is lawful and supported by the Copyright Act.
3. Separable Illegal Consideration: If an agreement has lawful and unlawful parts that can be separated, the lawful part may be enforced.

Conclusion

The doctrine of public policy is a crucial safeguard in Indian contract law. While freedom of contract is respected, it is not absolute. The courts balance individual autonomy against the wider interests of society, morality, and justice.

Agreements opposed to public policy are void and unenforceable to protect the common good and the rule of law. Understanding this doctrine helps parties draft legally sound agreements and avoid pitfalls that render contracts void. It also ensures that contracts promote fairness, justice, and respect for fundamental rights in Indian society.