General

Agreements against Public Policy under Law of Contracts

The article is written by Prasoon Shekhar, from ICFAI Law School, Dehradun.

Introduction

“Public Policy is a high horse to mount, and is difficult when you have mounted it.”[i]

An agreement is not considered as lawful if it is opposed to public policy. The doctrine of public policy is based on maxim ‘ex turpi causa non oritur actio’ which means agreement against public policy would be void without any effect. The term Public Policy does not have an exhaustive definition as its fluctuating in nature and is highly uncertain. The interpretation of public policy is upon the discretion of the court. The terms of a contract cannot be enforced even if it has been agreed by both the parties if the same is in violation of public policy. 

In simple words, Pubic Policy refers to the policies of government for the welfare of society, It can also be said that if any agreement contravenes any developed interest of society or morals of time, it can be said to be as against public policy and the agreement turns to be void. It has been held that an agreement could not be enforced if it was against public good[ii] or in violation with general policy of the law[iii]. In the case of P. Rathinam v. Union of Idnia[iv], the apex court held that the term public policy is open for modification and expansion

In the case of Gherulal Parekh v. Mahadevdas Maiya[v], the apex court observed:

” ‘Public policy’ is a vague and unsatisfactory term, and calculated to lead to uncertainty and error, when applied to the decision of legal rights; it is capable of being understood in different senses; it may, and does, in its ordinary sense, mean ‘political expedience’, or that which is best for the common good of the community; and in that sense there may be every variety of opinion, according to education, habits, talents, and dispositions of each person, who is to decide whether an act is against public policy or not. To allow this to be a ground of judicial decision, would lead to the greatest uncertainty and confusion. It is the province of the statesman, and not the lawyer, to discuss, and of the Legislature to determine, what is best for the public good, and to provide for it by proper enactments. It is the province of the judge to expound the law only; the written from the statutes; the unwritten or common law from the decisions of our predecessors and of our existing Courts, from text writers of acknowledged authority, and upon the principles to be clearly deduced from them by sound reason and just inference; not to speculate upon what is the best, in his opinion, for the advantage of the community. Some of these decisions may have no doubt been founded upon the prevailing and just opinions of the public good; for instance, the illegality of covenants in restraint of marriage or trade. They have become a part of the recognized law, and we are therefore bound by them, but we are not thereby authorised to establish as law everything which we may think for the public good, and prohibit everything which we think otherwise.” 

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Agreements against public policy as declared by Courts

  • Trading with an enemy: If any contract is made with an alien enemy without the government’s permission, it is considered as illegal. An alien enemy is a person who holds the citizenship of a country, having war with India. These kinds of agreements are considered illegal on ground of public policy as their performance will require communication with the enemy and it can confer a benefit.
  • Champerty and Maintenance: Champerty is a type of bargaining in which a third party offers assistance in recovering property, and in return demands a share of the recovered property. Maintenance implies helping a third party in litigation or through financial help, and no benefits are attached. Both Champerty and Maintenace are illegal in the English law but in India, it depends on the facts of the case.

Privy Council in the case of Raja Venkata Subhadrayamma Guru v. Sree Pusapathi Venkapathi Raju[vi], held that court can only refuse to enforce such agreements when the court sees that it is not made with a bonafide object or reward seems to be extortionate and held that champerty and maintenance are not illegal in India.

  • Stifling prosecution: It refers to making money out of crime and it is considered as abuse of law. As per law, a person should be punished for committing an offence, if the charges against him are proved by court of law. An agreement for suppressing criminal charges is illegal and void.

In the case of Veerayya v. Sobhanandri[vii] a person entered into agreement for taking back the charge of S. 420 of Indian Penal Code, 1860 against the accused. It was observed that since the offence was compoundable, permission of court is required and hence the agreement was declared as void. Also, in the case of Ouseph Poulo v. Catholic Union Bank Ltd. [viii], two parties entered into an agreement to discontinue the criminal proceedings on a certain consideration, it was held that these kind of transactions are opposed to public policy.

  • Interference in the course of justice: Interference with course of justice is not allowed. If an agreement is found to do so, it can be declared as void.

Illustration 1: A person ‘A’ is convicted of committing murder. His friend ‘P’ goes to judge to make an agreement to give order in favour of ‘A’. The same agreement is void.

Illustration 2: A person ‘A’ is convicted of murder and ‘B’ is the witness. If an agreement is made with ‘B’ to change his statement/ not to appear in court is unlawful and void. 

  • Sale/transfer of public offices and titles: Agreements for trafficking by means of selling or transfer of seats in appointment to public officers hampers the rights of deserving candidates and is unlawful in the eyes of law. Same applies to titles. Titles represent excellence in any field and by means of selling it, its whole purpose and object is destroyed.  In the case of Sushil Kumar Yadunath Jha v. Union of India[ix], a person agreed to transfer his post in government office in lieu of Rs. Five thousnad. The agreement was declared as void.
  • Agreement creating corrupt public life: An agreement inducing corruption in public offices is against public policy. If such kind of agreements is permitted, undoubtedly, the level of corruption will increase and the employees will become inefficient. An agreement which leads to personal interest other than duty is unlawful. In the case of Rattan Chand Hira Chand v. Askar Nawaz Jung [x], two parties entered into an agreement in which one party has to use his influence the minister, it was held to be void as it tried to corrupt the decision making machinery. It was also observed that the nature of an act can be against public policy based on consideration or acts to be performed.
  • Restraint of personal liberty: Personal liberty is guaranteed under Indian Constitution. Any agreement causing restraint to the right of personal liberty is not lawful in the eyes of law. In the case of Sitaram Deokaran v. Baldeo Jairam[xi], an agreement in which a party agreed to serve at Rs. two per month for a period of one hundred twelve months was declared as void. Also, in the case of Harwood v. Millers Timber & Trading Co.[xii], an agreement between borrower and  money lender and in which he could not change his employment, residence or accept reduction in salary without his permission was declared as void.
  • Restraint of parental rights: As per law, right of guardianship vests in father till a child is minor and it transfers to mother as soon as the child turns major. Any agreement for sale or transfer of guardianship rights is declared as void. In Re Caroll Case[xiii], it was held that an agreement purporting alienation of father’s right irrevocably is void. In the case of Giddu Narayansih v. Annie Besant[xiv], a father-son agreed to pass the guardianship of his two minor sons to Mrs Annie. Later he went to court take back the custody of children, but it was said that if the adoption as per Hindu Adoption and Maintenance Act, 1956 is valid then children can’t be taken back.

What is Not Opposed to Public Policy?

  1. Validity of agreement of lease between landlord and tenant: After a petition of eviction has been filed against the tenants by the landlord and the landlord gets order in its favour, if no efforts are made to throw out the tenants, allowing the tenants to continue living can’t be considered as against public policy or illegal. There is no such law which prohibits keeping of tenants against whom an order of eviction is there. The said principle was held in the case of M.K. Usman Koya v. C.S. Santha[xv].
  2. Copyright Agreement: In an agreement where a party assigns certain copyrights in the favour of other, there is no obligation to public and it can’t be said as unlawful as assigning copyrights is allowed under the Copyright Act[xvi].
  3. Consideration and Objects unlawful in Part: In the agreements when there are two/ more sets of distinct promises in which void part can be separated from the rest, the other part becomes valid. In the case of Alice Mary Hill v. William Clarke[xvii], a woman agreed to live with a man in adultery in lieu of a monthly consideration of Rs. fifty. The agreement was declared as void as the lawful part can’t be separated from the unlawful one.

Conclusion

It is clear that the ambit and interpretation of public policy is vast and applicability of this is upon the discretion of the court itself on the grounds of agreement and object. If an agreement is declared to be opposed to public policy then the same turns to be invalid under Section 23 of the Indian Contract Act, 1872. If any agreement is declared invalid as opposed to public policy, he can’t challenge the order on the ground of freedom of citizen to enter into contract. All the agreements affecting or obstructing the administration of justice will be considered invalid under Section 23 of the Indian Contract Act, 1872. The courts must look carefully in the matter before application of doctrine of public policy due to reasons of development of public opinion and morality.

References

  1. A. L. Smith, M. R., The Driefontein Consolidated Mines Ltd. v. Janson (1901), Times L.R., Vol. XVII., 605.
  2. Collins v. Blentern (1767) 2 Wils KB 341.
  3. Lowe v. Pars (1768) 4 Burr 225.
  4. AIR 1994 SC 1844.
  5. AIR 1959 SC 781.
  6. 48 Mad. 230 (P.C.).
  7. (1937) 1 MLJ 489.
  8. AIR 1965 SC 166.
  9. AIR 1986 SC 1636.
  10. AIR 1976 AP 112.
  11. AIR 1958 MP 367.
  12. (1917) 1 KB 305.
  13. (1931) 1 K.B. 307.
  14. (1915) 38 Mad. (P.C.).
  15. AIR 2003  Ker 191.
  16. Prentice Hall India Pvt. Ltd. v. Prentice Hall Inc., AIR 2003 Del 236.

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