Agreement Without Consideration under Section 25 of the Indian Contract Act, 1872 in Practice: Pleading and Proof, the Statutory Presumption of Consideration, Nominal Consideration, and Failure Distinguished from Absence of Consideration

Section 25 is rarely difficult as a matter of doctrine and frequently difficult as a matter of proof. A party who says there was no consideration is asserting a negative, often years after the event, and usually against a document that recites that consideration was paid. This topic takes the section as it operates in litigation: who must plead and prove what, how the statutory presumption in the Negotiable Instruments Act, 1881 alters the position, how a recital of consideration is treated, and the distinction between an agreement that never had consideration and one whose consideration has failed, which is a different question with different consequences. The rule itself and its exceptions are set out in the companion topics.

1. The Rule in Outline

Section 25, Indian Contract Act, 1872, in substance

An agreement made without consideration is void, unless it is in writing and registered and made on account of natural love and affection between parties standing in a near relation to each other; or is a promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do; or is a promise, in writing and signed, to pay a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

Explanation 1. Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.

Explanation 2. An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.

Two consequences of the word void govern everything that follows. The agreement has no legal existence, so no right arises under it at any stage and nothing can be recovered on it. And the defect cannot be cured by ratification or by lapse of time, so a later acknowledgment of the obligation does not revive it unless the later promise is itself supported by fresh consideration or falls within an exception.

2. Pleading and Proof

2.1 Where the burden lies

The party suing on the agreement must show a contract, and consideration is an ingredient of a contract under Section 10. In practice he discharges this by proving the agreement and the consideration recited in or evidenced by it.
The party asserting the absence of consideration must plead it specifically, with particulars, and must prove it. A general denial in the written statement is not enough, and the point cannot be taken for the first time in argument.
Where the document recites receipt of consideration, the recital is an admission by the executant and is evidence against him. It is not conclusive, and he may prove that no consideration in fact passed, but the burden of displacing his own recital is a practical one and is not easily discharged.
Where a statute raises a presumption of consideration, the burden is reversed from the outset, as described below.

2.2 The statutory presumption for negotiable instruments

The most important reversal of the ordinary burden is in Section 118(a) of the Negotiable Instruments Act, 1881, which requires the court to presume, until the contrary is proved, that every negotiable instrument was made or drawn for consideration, and that every such instrument when accepted, endorsed, negotiated or transferred was so accepted, endorsed, negotiated or transferred for consideration.

📖 Bharat Barrel & Drum Manufacturing Co. v. Amin Chand Payrelal, (1999) 3 SCC 35

Facts: A suit was brought on a promissory note. The execution of the note was admitted, but the defendant contended that it had been given without consideration. The question was how the presumption under Section 118(a) operates and what a defendant must do to displace it.

Held: The Supreme Court held that once execution of the promissory note is admitted, the presumption under Section 118(a) arises that it is supported by consideration. The presumption is rebuttable. The defendant may prove the non-existence of consideration by raising a probable defence, either by direct evidence or by establishing a preponderance of probabilities from the circumstances on which he relies. If he discharges that initial onus by showing that the existence of consideration was improbable, doubtful or illegal, the onus shifts back to the plaintiff, who must then prove consideration as a matter of fact, failing which he is not entitled to relief.

Ratio: The presumption of consideration under Section 118(a) is rebuttable by a probable defence and not only by conclusive proof. Once it is rebutted the burden returns to the holder of the instrument.

A parallel presumption operates in dishonour-of-cheque proceedings. Section 139 of the Negotiable Instruments Act, 1881 requires the court to presume that the holder received the cheque in discharge of a debt or other liability. The Supreme Court has explained the standard of rebuttal in Basalingappa v. Mudibasappa, (2019) 5 SCC 418, holding that the accused need not lead direct evidence and may rebut the presumption on a preponderance of probabilities, relying on the materials submitted by the complainant, and that once rebutted the burden shifts to the complainant to prove the existence of the debt.

⚠ The presumption goes to consideration, not to the validity of the underlying agreement

Section 118(a) presumes that the instrument was made for consideration. It does not presume that the consideration was lawful, and it does not cure a defect of capacity, free consent or object. A promissory note executed by a minor, or for a consideration falling within Section 23, is not saved by the presumption. The presumption is a rule about the burden of proof on one issue, and it leaves every other ingredient of a valid contract to be established in the ordinary way.

How the burden of proving consideration moves between the parties

3. Nominal and Inadequate Consideration

Explanation 2 makes adequacy irrelevant, and the practical effect is that a nominal sum will support even a very substantial promise. Two limits should be noted.

Nominal consideration must actually move. A recital that a rupee was paid, where nothing was in fact paid and nothing was intended to be paid, is not consideration; it is a pretence, and the agreement is without consideration.
Inadequacy is evidence on free consent. The second half of Explanation 2 permits the court to take inadequacy into account in deciding whether the promisor's consent was freely given, and gross inadequacy is the commonest indicator of an unconscionable transaction under Section 16(3), where it shifts the burden onto the dominant party.

4. Absence of Consideration and Failure of Consideration

The two expressions are used loosely and mean different things. Absence of consideration means that nothing ever moved at the promisor's desire, so no contract came into existence. Failure of consideration means that a contract was validly formed, with consideration promised on both sides, and the consideration afterwards failed to materialise. The distinction governs the remedy.

	Absence of consideration	Failure of consideration
When it occurs	At formation. Nothing moved at the promisor's desire	After formation. The agreed consideration was not rendered, or has ceased to be available
Status of the agreement	Void under Section 25 unless an exception applies	A valid contract, which has been broken or has become void
Who may complain	Either party, and the court may notice it	The party who has not received what he bargained for
Remedy	None on the agreement. Restitution of any advantage under Section 65	Damages for breach under Section 73, or rescission, or restitution under Section 65 where the contract has become void under Section 56
Partial operation	Not applicable. There is either consideration or none	Failure may be total or partial. Total failure permits recovery of the whole; partial failure ordinarily sounds in damages rather than in restitution
Effect on money paid	Recoverable, the agreement being void	Recoverable where the failure is total; otherwise the claim lies in damages

The practical importance is in framing the claim. A buyer who has paid in advance and received nothing at all may recover the price as money paid on a consideration that has wholly failed, which is a liquidated claim requiring no proof of loss. A buyer who has received defective or partial performance must ordinarily sue for damages under Section 73 and prove his loss, because the consideration has not wholly failed.

5. Where Consideration Is Not Required at All

Three groups of provisions dispense with consideration, and a party who cannot prove consideration should consider whether any of them applies before conceding that the agreement is void.

The three exceptions in Section 25 and Explanation 1, covering natural love and affection in a registered writing, compensation for a past voluntary act, a written signed promise to pay a time-barred debt, and a completed gift.
Provisions elsewhere in the Act. Section 185, under which no consideration is necessary to create an agency; Section 127, under which anything done for the benefit of the principal debtor is sufficient consideration for the surety's promise; and Section 63, under which a promisee may remit or dispense with performance or accept any satisfaction he thinks fit, without consideration.
Obligations arising outside contract. Sections 68 to 72 impose liability without any agreement, and a claim framed under Section 70 or Section 72 does not require consideration to be proved at all.

6. The Position Stated Shortly

An agreement without consideration is void under Section 25, and the defect cannot be cured by ratification or lapse of time.
The party asserting absence of consideration must plead it specifically with particulars and prove it.
A recital of receipt of consideration is an admission and is evidence against the executant, though not conclusive.
Section 118(a) of the Negotiable Instruments Act, 1881 presumes consideration for a negotiable instrument, and Section 139 presumes a cheque was received in discharge of a liability.
Bharat Barrel: the presumption is rebuttable by a probable defence on a preponderance of probabilities, after which the burden returns to the holder.
The presumption goes to consideration alone and does not cure a defect of capacity, consent or lawfulness.
Explanation 2 makes adequacy irrelevant, but nominal consideration must actually move, and inadequacy is evidence bearing on free consent and on Section 16(3).
Absence of consideration prevents a contract from forming; failure of consideration presupposes a valid contract and produces a claim in damages or, where total, in restitution.
Sections 63, 127, 185 and Explanation 1 to Section 25 dispense with consideration, and Sections 68 to 72 impose obligations without any agreement.

7. Related Topics and Provisions

Topic or provision	Connection
No Consideration, No Contract under Section 25	The rule and the three exceptions
Exceptions to the Rule of No Consideration	The six situations in which a promise binds without consideration
Consideration under the Indian Contract Act	Section 2(d) and the essentials
Void Agreements under Sections 24 to 30	Section 25 within the class of void agreements
Section 25, Indian Contract Act	The rule, the exceptions and the Explanations
Section 16(3), Indian Contract Act	Unconscionable transactions and the shifting of the burden
Section 65, Indian Contract Act	Restoration where an agreement is discovered to be void
Section 73, Indian Contract Act	Damages where the consideration has partially failed
Sections 118 and 139, Negotiable Instruments Act, 1881	The statutory presumptions