Doctrine of Public Policy: Contracts Opposed to Public Interest

In Indian contract law, the doctrine of public policy serves as a safeguard against agreements that could harm societal interests. Contracts deemed contrary to public policy are considered void and unenforceable under Section 23 of the Indian Contract Act, 1872. This doctrine ensures that private agreements do not undermine the public good or contravene established societal norms.

MEANING AND EXPLANATION

Public policy refers to the principles and standards regarded by the legislature or judiciary as being of fundamental concern to the state and society as a whole. In the context of contract law, an agreement is said to be opposed to public policy if its formation or performance would be injurious to the public or against the public good. The Indian Contract Act, 1872, under Section 23, states that the consideration or object of an agreement is unlawful if:

  • It is forbidden by law;
  • It is of such a nature that, if permitted, it would defeat the provisions of any law;
  • It is fraudulent;
  • It involves or implies injury to the person or property of another;
  • The court regards it as immoral or opposed to public policy.

HISTORICAL BACKGROUND

The doctrine of public policy in Indian contract law has its roots in English common law. Over time, Indian courts have adapted and expanded the concept to align with the country’s unique social and moral fabric. The flexibility inherent in the doctrine allows the judiciary to address evolving societal values and norms, ensuring that contracts detrimental to public welfare are not enforced.

LEGAL PROVISIONS

Section 23 of the Indian Contract Act, 1872, is pivotal in determining the legality of agreements. It outlines the parameters within which the object or consideration of a contract must operate to be deemed lawful. Any agreement that contravenes these parameters is considered void.

The section emphasizes that the object or consideration of an agreement is unlawful if it:

  • Is forbidden by law;
  • Is of such a nature that, if permitted, it would defeat the provisions of any law;
  • Is fraudulent;
  • Involves or implies injury to the person or property of another;
  • Is immoral or opposed to public policy.

This provision ensures that contracts uphold the legal and moral standards of society.

TYPES OF AGREEMENTS OPPOSED TO PUBLIC POLICY

Certain types of agreements have been consistently held by courts to be opposed to public policy, including:

  1. Agreements in Restraint of Trade: Contracts that restrict an individual’s freedom to engage in a lawful profession, trade, or business are generally void. Section 27 of the Indian Contract Act declares such agreements void, with limited exceptions. For instance, a clause preventing an employee from working with competitors after leaving a company may be considered void if it imposes an unreasonable restraint.

  2. Agreements in Restraint of Legal Proceedings: Any agreement that restricts a party from enforcing their legal rights through usual legal proceedings or limits the time within which they may do so is void. Such agreements are seen as obstructing the administration of justice.

  3. Agreements for Stifling Prosecution: Contracts that seek to prevent the prosecution of a criminal offense in exchange for monetary consideration are void. For example, accepting money to not report a crime to the authorities is against public policy.

  4. Agreements Involving Immorality: Contracts with considerations or objects that are immoral are void. For instance, agreements facilitating prostitution or other activities deemed immoral by society fall into this category.

  5. Agreements in Restraint of Marriage: Any contract that interferes with an individual’s right to marry is void. For example, a contract that prohibits a person from marrying or offers monetary inducement to remain unmarried is against public policy.

  6. Agreements for Trafficking in Public Offices: Contracts that involve the sale or transfer of public offices or titles, or agreements to procure public recognition for monetary consideration, are unlawful. Such agreements are seen as corrupt and detrimental to public welfare.

  7. Agreements Interfering with Parental Duties: Contracts that interfere with parental duties or rights, such as agreements to transfer custody of a child in exchange for money, are void as they are against public policy.

CASE LAWS ILLUSTRATING THE DOCTRINE

  1. Gherulal Parakh v. Mahadeodas Maiya (1959): The Supreme Court held that an agreement to share the profits of a business intended to carry on wagering transactions was not opposed to public policy, as wagering contracts were not illegal, though void.

  2. Rattan Chand Hira Chand v. Askar Nawaz Jung (1991): The Supreme Court held that an agreement to purchase property in a public auction and thereafter convey it to another was opposed to public policy, as it was intended to knock out the public property from being sold in a fair manner.

  3. Newar Marble Industries Pvt. Ltd. v. Rajasthan State Electricity Board (1993): The Rajasthan High Court held that an agreement, the object or consideration of which was opposed to public policy, was unlawful and void. In this case, the agreement involved abstention by the board from criminally prosecuting the petitioner-company for an offense under Section 39 of the Act, converting the crime into a source of profit or benefit to itself. This was deemed clearly opposed to public policy.

LEGAL MAXIMS AND PRINCIPLES

  • Ex turpi causa non oritur actio: This Latin maxim means “no action arises from a dishonorable cause.” It implies that a plaintiff cannot pursue legal remedy if it arises in connection with their own illegal act. This principle underpins the doctrine of public policy.

 

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