Illegality

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  Megha Walia April 9, 2026 at 6:02 pm

  A contract is considered an “illegal contract” when the subject matter of the agreement relates to an illegal purpose that violates the law.
  Basically, contracts are illegal if the formation or performance of the agreement will cause the parties to participate in illegal activities. The illegality must relate directly to the contents of the contract and not some other intervening force.
  Technically, a contract or agreement that is deemed illegal will not be considered a contract at all and thus, a court will not enforce it. Instead, illegal contracts are said to be void or unenforceable, meaning it will be as if the contract never existed. Therefore, if either party breaches the contract, then they will not be entitled to any remedies.
  when a contract is deemed illegal, then the contract will become void (unenforceable) and it will be as if it was never formed. The court will normally leave the parties in the same condition as they were at the time of the breach. Neither party will be able to recover losses because again, the court is essentially stating, “No contract exists here.”
  There is a difference between illegal and unlawful agreements. Illegal agreements are those consideration or object of which is not legal as well as punishable in nature for example, agreement to murder someone. On the other hand, unlawful agreement are those which are not enforceable by the law i.e performance of the agreement can be done but there is no legal recourse in the eye of law.

  According the section 23, The Indian Contract Act 1872, the consideration or the object of an agreement is unlawful in the following cases.
  1. If it is forbidden by law.
  2. If it defeats the provision of any law.
  3. If it is fraudulent.
  4. If it implies or involves injury to any person or property of another.
  5. If court regards it as immoral or opposed to public policy. According to section 24, if one of the several considerations or objects of an agreement is unlawful, the agreement is a void agreement.

  Illegal agreements are those agreements which are:
  1. void.
  2. punishable by criminal law of the country or by any special legislation/regulation.

  EFFECTS OF ILLEGAL AGREEMENTS:
  1. The collateral transactions to an illegal agreement also becomes illegal and hence cannot be enforced.
  2. No action can be taken for the recovery of the money or property transferred under an illegal agreement.

  Some importnant judgments

  1. In Gherulal Parekh v Mahadeo Lal, it was held that ‘immoral’ under section 23 has to be given only a restrictive meaning and it will include only sexual immorality
  2. As regards ‘Public Policy’, it has been defined as an “unruly horse” by Borrough Justice in Richardson v Mellish as there cannot be a rigid definition of ublic Policy and therefore withtin the meaning of Public Policy anything and everything can be included. Therefore, it can also be misused by courts.
  3. In Swarna Singh v Balwant Singh 2004SC, it was held that no new category of Public Policy will be evolved.
  In England, if the consideration or object is punishable, the agreement is called as illegal agreement. But in India, there is no concept of illegal agreement rather the agreement is void.

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