Void Agreements under Sections 24 to 30 of the Indian Contract Act, 1872: The Seven Classes Expressly Declared Void, and How They Differ from Agreements Void for Want of an Essential

The last limb of Section 10 excludes agreements that the Act expressly declares to be void. Sections 24 to 30 contain that list. They are of a different character from the other grounds of invalidity: an agreement void under Section 11 or Section 20 fails because an essential is missing, while an agreement void under Sections 26 to 30 may have every essential and still fail, because the legislature has decided that agreements of that class shall not be enforced. No inquiry into the fairness or the merits of the particular bargain is permitted. This topic maps the seven classes and takes the two that have no separate topic of their own.

1. The Seven Classes

The seven classes, and why voidness by declaration shuts out reasonableness

2. How This Class of Voidness Differs

Two routes to voidness must be kept apart, because they behave differently in litigation.

• Voidness for want of an essential. Incapacity under Section 11, bilateral mistake of fact under Section 20, unlawful object or consideration under Section 23, and initial impossibility under the first paragraph of Section 56. Here the court must examine the facts of the particular transaction to see whether the essential was present.
• Voidness by express declaration. Sections 26 to 30. Here the court asks only whether the agreement falls within the described class. If it does, the agreement is void whatever the circumstances, and evidence that the particular restraint was reasonable, or that the particular wager was fairly conducted, is irrelevant.

The practical consequence is that arguments about reasonableness that succeed in English law fail in India. Section 27 declares every agreement in restraint of trade void, and the Supreme Court held in Superintendence Company of India (P) Ltd. v. Krishan Murgai, (1981) 2 SCC 246 that the English test of reasonableness has no application to a post-employment restraint here.

3. Sections 24, 25, 26 and 27 in Outline

Four of the seven classes are developed at length in their own topics, and only their essentials are set out here.

1. Section 24 voids the whole agreement where any part of a single consideration, or any one of several considerations for a single object, is unlawful. Severance is confined to cases where the considerations are distinct and separable.
2. Section 25 voids an agreement made without consideration, subject to the three exceptions of natural love and affection in a registered writing, compensation for a past voluntary act, and a written signed promise to pay a time-barred debt.
3. Section 26 voids an agreement in restraint of the marriage of any person other than a minor. The restraint may be total or partial, and the section admits no exception.
4. Section 27 voids an agreement by which a person is restrained from exercising a lawful profession, trade or business, subject only to the exception for a seller of goodwill who agrees to refrain from carrying on a similar business within specified local limits, so long as the buyer carries on a like business there and the limits are reasonable.

4. Section 28: Restraint of Legal Proceedings

Clause (b) is the product of the Indian Contract (Amendment) Act, 1996, which followed the 97th Report of the Law Commission. Before that amendment, drafters avoided the section by framing a clause to extinguish the right rather than to limit the time for suit, on the footing that the section struck only at the remedy. The amendment closed that route.

4.1 What Section 28 does not prohibit

• Arbitration agreements are expressly saved by the two Exceptions, and are governed by the Arbitration and Conciliation Act, 1996.
• A clause shortening the period for giving notice of a claim, as distinct from the period for suit, has been treated as outside the section where it merely regulates the manner of making a claim.
• Statutes of limitation are not affected, since the section strikes at agreements and not at the general law.

5. Section 29: Uncertainty

Section 29 provides that agreements the meaning of which is not certain, or capable of being made certain, are void. The qualification matters as much as the rule. An agreement is not void merely because a term is unsettled at the moment of contracting, provided the agreement itself supplies a mechanism by which the term can be ascertained, such as a market rate on a stated date, a valuation by a named person, a formula, or an established trade usage.

Three points recur in practice. An agreement to agree in future on an essential term is void, because it leaves the matter to further negotiation rather than to a mechanism. A provision that is merely difficult to construe is not uncertain, and the court will strive to give effect to what the parties plainly intended. And an uncertain term that is severable and not essential may be struck out, leaving the rest of the agreement standing.

6. Section 30: Wagering Agreements

Section 30 provides that agreements by way of wager are void, and that no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made. The essentials of a wager are these.

1. Two parties holding opposite views on the outcome of an uncertain event, each standing to win or lose according to the result.
2. Mutual chances of gain or loss. If one party can only win and the other only lose, the transaction is not a wager.
3. Neither party has any interest in the event other than the stake. This is what distinguishes a wager from a contract of insurance, in which the assured must have an insurable interest.
4. No control over the event by either party.

The section preserves an exception for a subscription or contribution towards any plate, prize or sum of money of the value of five hundred rupees or upwards to be awarded to the winner of a horse race, and it does not legalise anything made unlawful by the law relating to horse racing. A wager is void but not unlawful, so collateral transactions are generally enforceable, as Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781 holds. The exception is territorial: in the States to which the Bombay Wagers (Amendment) Act, 1865 extends, that is Gujarat and Maharashtra, wagers are unlawful and collateral transactions are tainted.

7. The Position Stated Shortly

1. Sections 24 to 30 contain the classes of agreement the Act expressly declares void, which is the last limb of Section 10.
2. Voidness here requires only that the agreement fall within the described class; the fairness of the particular bargain is irrelevant.
3. Section 24 voids the whole agreement where part of a single consideration is unlawful, and severance requires distinct and separable considerations.
4. Section 27 is stricter than English law, and reasonableness is not a saving test, per Superintendence Company v. Krishan Murgai.
5. Section 28 strikes at absolute restrictions on enforcement, at clauses limiting the time for suit, and since 1996 at clauses extinguishing rights on the expiry of a period.
6. Hakam Singh: a clause selecting one of several competent courts is valid, while a clause conferring jurisdiction on a court that has none is ineffective.
7. Section 29 voids an agreement whose meaning is not certain or capable of being made certain, per Gunthing v. Lynn; an agreement to agree is void, a difficult term is not.
8. Section 30 voids wagers and bars any suit for winnings, subject to the horse-racing exception.
9. A wager is void but not unlawful, so collateral transactions survive, except in Gujarat and Maharashtra.
10. A forward contract is not a wager where delivery was contemplated, whatever the parties' speculative motive.

8. Related Topics and Provisions