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In India, the law which governs the field of agreements and contracts is the Indian Contract Act, 1872. Among the numerous aspects of legality which surrounds a contract, the Indian Contract Act also codifies the law relating to the enforceability and validity of agreements and classifies them on this basis into the following categories:
The Indian Contract Act lays down all the essential ingredients which make a contract valid and enforceable in law and an agreement which has all these essential elements is termed as a valid contract. These essential elements are:
While a valid contract is recognised by and enforceable in law, illegal agreements on the other hand lack the enforceability of a valid contract. Although void and illegal agreements are often misunderstood to be the same, there is a fine distinction between these two classes of agreements under the Indian Contract Act.
Void agreements are defined under Section 2 (g) of the Indian Contract Act as those agreements, which are not enforceable by law. Thus, a void agreement fails to bind its signatories to the terms mentioned therein and in essence is a meaningless document in the eyes of law with no legal force. The Indian Contract Act specifically enlists the following agreements which are considered void in law:
1. Agreements where both parties are under some mistake as to a matter of fact. For example, an agreement for the sale of a horse which was dead at the time of making such agreement, though neither party was aware of such fact, would be void (Section 20).
2. Agreements where a part of the consideration and/or object is unlawful (Section 24). As per the Indian Contract Act, the consideration and/or object of an agreement is said to be lawful, unless:
3. Agreements which are made without any consideration (Section 25)
4. Agreements in restraint of marriage (Section26)
5. Agreements in restraint of trade (Section27)
6. Agreements in restraint of legal proceedings (Section28)
7. Agreements, the meaning of which is uncertain (Section 29)
8. Agreements by way of wager (Section 30)
9. Agreements to do an impossible act (Section 56)
Illegal Agreements are not defined in the Indian Contract Act but can essentially be understood as agreements which are entered upon in furtherance of an illegal purpose and the execution of which violates the existing laws of the land. The very object of an illegal agreement being unlawful renders them illegal in character. Therefore, the object of an agreement needs to be understood to categorise an agreement as illegal. The object of the agreement can be understood as the very purpose of the agreement and to classify an agreement as illegal, it needs to be ascertained whether the parties are carrying out an activity which is contrary to law by executing and/or performing such agreement.
As per Section 23, the consideration and/or object of an agreement is said to be unlawful when:
Therefore, an agreement, the purpose of which is wholly unlawful is essentially an illegal agreement as per the Indian Contract Act.
A void agreement is essentially an agreement which cannot be enforced in a court of law and is not legally binding on the parties. Void agreements therefore do not bind the parties under any of the rights and obligations stated therein. As opposed to illegal agreements which are considered unlawful and unenforceable from their very inception, void agreements can be either void ab initio i.e., since the beginning or may become void in due course upon becoming unenforceable due to any development during its term.
The ambit of void agreements is much wider in scope than illegal agreements, since all illegal agreements are void, however it may not be the case that all void agreements are illegal in nature. Further, an important aspect of distinction is the fact that performance of illegal agreements may render the parties liable to penal action, however this is not the case with void agreements, which are merely unenforceable.
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