No Consideration, No Contract under Section 25 of the Indian Contract Act, 1872: The Three Statutory Exceptions and the Other Cases Where a Promise Binds Without Consideration

Section 25 states the rule and its exceptions in a single sentence: an agreement made without consideration is void, unless it falls within one of three described cases. The maxim ex nudo pacto non oritur actio, no action arises from a bare promise, is the principle behind it. The three exceptions are narrow and each is hedged with conditions that are strictly applied, and a number of further cases lie outside Section 25 altogether. This topic sets out the rule, works through each exception and the conditions attached to it, and collects the provisions elsewhere in the Act and in other statutes where a promise binds without anything moving in return.

The rule, the three exceptions with all their conditions, and the two Explanations

1. The Rule

Section 25, Indian Contract Act, 1872

An agreement made without consideration is void, unless:

(1) it is expressed in writing and registered under the law for the time being in force for the registration of documents, and is made on account of natural love and affection between parties standing in a near relation to each other; or unless

(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless

(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

In any of these cases, such an agreement is a contract.

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.

The consequence of falling outside the rule and outside the exceptions is severe: the agreement is void, not merely unenforceable, so no right arises under it at any stage and nothing can be recovered on it. The closing words of the section are equally important in the other direction: where an agreement falls within an exception, it is a contract, with all the ordinary consequences.

2. Exception (1): Natural Love and Affection

The first exception has four conditions, and all of them must be satisfied. The agreement must be in writing; it must be registered; the parties must stand in a near relation to each other; and it must be made on account of natural love and affection. The fourth condition is the one that defeats most claims, because near relation and natural love and affection are separate requirements: the relation establishes the class, and the love and affection must then be shown to have existed in fact.

📖 Rajlukhy Dabee v. Bhootnath Mookerjee, (1900) 4 CWN 488

Facts: A husband, by a registered document, promised to pay his wife a fixed sum monthly for her separate residence and maintenance. The document recited quarrels and disagreements between them as the reason for the arrangement. The wife sued to enforce the promise, relying on the first exception to Section 25.

Held: The Calcutta High Court held the agreement void. Although the document was in writing and registered and the parties stood in a near relation, it was not made on account of natural love and affection. The recitals showed that the arrangement had been brought about by quarrels and ill-feeling, which is the opposite of the state of mind the exception requires. The exception therefore did not apply and, there being no consideration, the agreement was void.

Ratio: Near relation is not by itself enough. The exception requires that the promise be made on account of natural love and affection in fact, and where the document itself shows that it proceeded from discord, the exception is not attracted.

📖 Bhiwa v. Shivaram, (1899) 1 Bom LR 495

Facts: Two brothers had litigated over property, and one had lost the suit. Afterwards, by a registered document, the successful brother agreed to give the other a share of the property, the agreement reciting that it was made so that both might live in peace as brothers should. The promise was later resisted on the ground that there was no consideration.

Held: The Bombay High Court enforced the agreement. Notwithstanding the preceding litigation, the document had been executed with the object of restoring peace between brothers and out of the natural love and affection subsisting between them. The requirements of the first exception being met, the agreement was a contract.

Ratio: Prior litigation does not by itself negative natural love and affection. The question is what in fact moved the promisor at the time of the promise, and an agreement made to restore goodwill between near relations may satisfy the exception.

⚠ The two decisions are reconciled by looking at what moved the promisor

Rajlukhy and Bhiwa are often set against each other as though they conflicted. They do not. In the first, the recitals showed that the arrangement was the product of continuing discord, and the promise was made because the parties could not live together. In the second, the recitals showed that the promise was made in order to end the discord and restore the relationship. The presence of a past quarrel is therefore not decisive; what matters is whether affection was, on the material before the court, the reason for the promise.

3. Exception (2): Compensation for a Past Voluntary Act

The second exception makes enforceable a promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do. It covers the case that Section 2(d) cannot reach, because the act was not done at the promisor's desire and so is not past consideration at all.

The act must already have been done at the time of the promise. A promise to compensate for something to be done in future is an ordinary promise and requires ordinary consideration.
It must have been done voluntarily, that is without any request by the promisor. If it was done at his desire, Section 2(d) applies directly and the exception is unnecessary.
It must have been done for the promisor, or must be something the promisor was legally compellable to do. Support given to a person the promisor was bound to maintain falls within the second branch.
The promisor must have been in existence and competent to contract when the act was done. A promise by a company to pay for services rendered before its incorporation is not within the exception, because there was no promisor for whom the act could have been done.
The intention must have been to be compensated. An act done with the intention of conferring a gratuitous benefit is not within the exception.

The exception has an obvious relationship with Section 70, under which a person who lawfully does something for another, not intending to do so gratuitously, is entitled to compensation where the other enjoys the benefit. The difference is that Section 70 imposes an obligation without any promise, whereas Exception (2) validates a promise that has actually been made. Where both apply the claimant may rely on either.

4. Exception (3): Promise to Pay a Time-Barred Debt

The third exception makes enforceable a promise to pay, wholly or in part, a debt the creditor could have enforced but for the law of limitation. Its rationale is the same as the rule that limitation bars the remedy and not the right: the debt subsists, and the promise revives the remedy. The conditions are strict.

The debt must be one the creditor might have enforced but for limitation. A debt that was never legally due, or that has been discharged, is not within the exception.
The promise must be in writing. An oral promise to pay a time-barred debt is not saved.
It must be signed by the person to be charged, or by his agent generally or specially authorised in that behalf.
It must be a promise to pay, and not a bare acknowledgment of the debt. An acknowledgment made before the period expires extends limitation under Section 18 of the Limitation Act, 1963; a promise made after it has expired creates a fresh enforceable obligation under Exception (3). The two provisions operate at different times and produce different results.
The promise may be partial, and the creditor's claim is then limited to the amount promised.

5. Other Cases Where Consideration Is Not Required

Section 25 is not the whole list. Several provisions elsewhere dispense with consideration or deem it to exist.

Provision	Effect
Explanation 1 to Section 25	A gift actually made is valid as between donor and donee, and cannot be impeached for want of consideration. The exception applies to completed gifts, not to a promise to make one
Section 127	Anything done, or any promise made, for the benefit of the principal debtor is sufficient consideration for the surety's promise in a contract of guarantee
Section 185	No consideration is necessary to create an agency
Section 63	A promisee may remit or dispense with performance, wholly or in part, or accept any satisfaction he thinks fit, and no consideration is needed for the remission
Section 8, Specific Relief Act, 1963, and the law of trusts	Obligations arising independently of bargain, where the question of consideration does not arise
Negotiable Instruments Act, 1881, Section 118(a)	A presumption that every negotiable instrument was made or drawn for consideration, which shifts the burden rather than dispensing with the requirement

5.1 Section 63 and the absence of consideration for remission

Section 63 deserves particular notice because it is the clearest Indian departure from the English rule in Pinnel's Case that payment of a lesser sum cannot discharge a larger debt without fresh consideration. In India a promisee may dispense with or remit performance wholly or in part, or accept any satisfaction he thinks fit, and the remission binds him without any consideration moving from the promisor. A creditor who accepts a reduced sum in full settlement cannot afterwards sue for the balance.

6. The Rule and Its Exceptions Summarised

The general rule in Section 25 is that an agreement without consideration is void, not merely unenforceable.
Exception (1) requires writing, registration, near relation and natural love and affection in fact; all four must be present.
Rajlukhy Dabee: an agreement proceeding from quarrels is not made on account of natural love and affection, even between spouses.
Bhiwa v. Shivaram: prior litigation does not negative affection where the promise was made to restore peace between brothers.
Exception (2) validates a promise to compensate for a past act done voluntarily for the promisor, or for something he was legally compellable to do.
Exception (3) validates a written and signed promise to pay a time-barred debt, and is distinct from an acknowledgment under Section 18 of the Limitation Act, 1963.
Explanation 1 saves a completed gift; Explanation 2 makes adequacy irrelevant while allowing inadequacy to bear on free consent.
Consideration is also dispensed with by Section 127 for guarantees, Section 185 for agency and Section 63 for remission.
Section 63 displaces the rule in Pinnel's Case, so acceptance of a lesser sum in full settlement binds the creditor in India.

7. Related Topics and Provisions

Topic or provision	Connection
Consideration under the Indian Contract Act	Section 2(d) and the essentials of consideration
Doctrine of Privity of Consideration	Who may furnish the consideration, and who may sue
Void vs Unenforceable Agreement	Why a time-barred debt is unenforceable rather than void, and can be revived
Intention to Create Legal Relations	Domestic and family promises, and when they bind
Section 2(d), Indian Contract Act	Definition of consideration
Section 25, Indian Contract Act	The rule, the three exceptions and the two Explanations
Section 63, Indian Contract Act	Remission without consideration
Sections 127 and 185, Indian Contract Act	Guarantee and agency
Sections 68 to 72, Indian Contract Act	Obligations arising without any promise
Section 18, Limitation Act, 1963	Acknowledgment, distinguished from a promise under Exception (3)