Table of Contents

The Indian Contract Act, 1872 recognises different legal consequences depending upon the nature of the defect affecting an agreement or contract. An agreement may be enforceable at the option of one party, unenforceable from the beginning, or may become unenforceable because of a subsequent event.

The expressions voidable contract, void agreement and void contract therefore denote three distinct legal situations.

1. Voidable Contract

Section 2(i) of the Indian Contract Act, 1872 provides:

“An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.”

A voidable contract is, therefore, a contract which remains enforceable unless and until the party entitled to avoid it exercises that option.

The defect generally lies in the absence of free consent. The parties have entered into an agreement, but the consent of one party has been obtained through coercion, fraud, misrepresentation or undue influence.

Thus, a voidable contract is valid and enforceable until it is avoided by the party entitled to avoid it.

Circumstances in which a Contract Becomes Voidable

The principal circumstances are:

  1. Coercion [Section 15]
  2. Undue influence [Section 16]
  3. Fraud [Section 17]
  4. Misrepresentation [Section 18]

The consequences are principally dealt with by Sections 19 and 19-A.

Coercion, Fraud and Misrepresentation [Section 19]

Section 19 provides that where consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

For example, A threatens B with harm unless B agrees to sell his house to A. B enters into the agreement because of the threat. The agreement is voidable at B’s option.

Similarly, where A, by fraudulent representation, induces B to purchase property, B may avoid the contract if the requirements of Section 19 are satisfied.

Undue Influence [Section 19A]

Section 19A deals with contracts induced by undue influence. Where consent to an agreement has been caused by undue influence, the court may set the contract aside either absolutely or upon such terms and conditions as appear just.

The provision is particularly relevant where one party is in a position to dominate the will of another and uses that position to obtain an unfair advantage.

Consequences of Rescission

Section 64 deals with the consequences of rescinding a voidable contract. When a party rightfully rescinds a voidable contract, the other party need not perform any promise contained in the contract in which he is promisor. The party rescinding the contract must, however, restore any benefit received under the contract so far as required by law. The law thus seeks to prevent unjust enrichment following rescission.

Illustration

A induces B to enter into an agreement for the purchase of property by deliberately making a false statement regarding a material fact. B subsequently discovers the fraud and decides to avoid the agreement. The contract, having been induced by fraud, was voidable at B’s option.

The essential feature is that B had the legal choice whether or not to avoid the contract.

2. Void Agreement

Section 2(g) of the Indian Contract Act, 1872 provides, “An agreement not enforceable by law is said to be void.”

A void agreement is not enforceable by law. It does not create an enforceable contractual obligation.

The expression generally applies to an agreement which is legally defective from the outset. The defect may arise because the law expressly declares the agreement void or because the agreement lacks a necessary legal element or is prohibited by law.

The principal statutory instances are discussed below.

Agreement Made Under Mutual Mistake of Essential Fact [Section 20]

Section 20 provides that where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. The mistake must be a common or mutual mistake concerning an essential fact.

For example, A agrees to sell to B a specific horse. Unknown to both parties, the horse had already died at the time of the agreement. Since both parties were mistaken regarding an essential fact concerning the subject matter, the agreement is void.

A unilateral mistake, however, does not ordinarily make an agreement void under Section 20. Section 22 specifically deals with a contract caused by the mistake of one party as to a matter of fact.

Case: Tarsem Singh v. Sukhminder Singh (1998)

In Tarsem Singh v. Sukhminder Singh, the Supreme Court dealt with a mutual mistake concerning the area and price of land agreed to be sold. The parties were under a common mistake regarding essential matters relating to the subject matter and consideration.

The Court treated the agreement as void from its inception on account of mutual mistake. The decision illustrates the distinction between a mutual mistake concerning an essential fact, which attracts Section 20, and a unilateral mistake, which ordinarily does not.

Unlawful Consideration or Object [Section 23]

Section 23 provides that the consideration or object of an agreement is unlawful where:

  • it is forbidden by law;
  • it would defeat the provisions of any law;
  • it is fraudulent;
  • it involves or implies injury to the person or property of another;
  • the court regards it as immoral; or
  • it is opposed to public policy.

An agreement having an unlawful consideration or object is void.

For example, an agreement to pay money for procuring a public office through illegal influence would not be enforceable because its object is unlawful.

Section 24 further provides that where part of a single consideration or object is unlawful, the agreement may be void to the extent provided by the section.

Agreement Without Consideration [Section 25]

As a general rule, an agreement made without consideration is void. Section 25, however, recognises specific exceptions, including certain promises:

  • made out of natural love and affection and satisfying the statutory requirements;
  • to compensate a person for something voluntarily done;
  • to pay a debt barred by limitation, subject to the statutory requirements.

Therefore, the absence of consideration does not make every promise void; the exceptions contained in Section 25 must also be considered.

Agreement in Restraint of Marriage [Section 26]

Section 26 provides, “Every agreement in restraint of the marriage of any person, other than a minor, is void.”

The law therefore does not ordinarily recognise an agreement which unlawfully restrains an adult from exercising the freedom to marry.

Case: Lowe v. Peers

In Lowe v. Peers, a promise by a man that he would not marry any woman other than the plaintiff, coupled with a monetary consequence if he married another woman, was held to be void as an agreement in restraint of marriage.

Agreement in Restraint of Trade [Section 27]

Section 27 provides that every agreement by which a person is restrained from exercising a lawful profession, trade or business is void to that extent, subject to the statutory exception relating to the sale of goodwill.

The provision is distinctive in Indian law because a restraint may fall within Section 27 even where it is limited in duration or territory, unless it falls within a recognised statutory exception.

Sale of Goodwill

The principal statutory exception permits the seller of the goodwill of a business to agree with the buyer that he will refrain from carrying on a similar business within specified local limits, so long as the buyer or a person deriving title to the goodwill from him carries on a like business there, provided the limits are reasonable having regard to the nature of the business.

Restraint During Employment and Restraint After Employment

A negative covenant operating during the subsistence of employment is treated differently from a post-employment restraint.

A contractual term requiring an employee not to work for another employer while the employment contract continues may, depending upon its terms, be enforceable. A restraint extending beyond the termination of employment, however, ordinarily attracts Section 27.

Case: Superintendence Company of India (P) Ltd. v. Krishan Murgai (1980)

The Supreme Court considered a post-service restrictive covenant preventing an employee from joining a competitor or carrying on a similar business after leaving employment.

The Court held that a post-service restraint of this nature was hit by Section 27 and was not enforceable. The Court emphasised that the statutory rule in Section 27 could not be displaced merely by applying a general test of reasonableness; unless the agreement came within the statutory exception, a restraint of trade was void.

Agreement in Restraint of Legal Proceedings [Section 28]

Section 28 declares certain agreements in restraint of legal proceedings void.

An agreement is void to the extent that it:

  • absolutely restricts a party from enforcing contractual rights through the ordinary legal process;
  • limits the time within which contractual rights may be enforced; or
  • extinguishes rights or discharges liability upon the expiry of a specified period in circumstances covered by the section.

The section contains statutory exceptions, particularly in relation to agreements to refer disputes to arbitration and certain guarantee agreements of banks and financial institutions.

The object of Section 28 is to prevent parties from improperly excluding or restricting legal remedies available for the enforcement of contractual rights.

Agreement by Way of Uncertainty [Section 29]

Section 29 provides, “Agreements, the meaning of which is not certain, or capable of being made certain, are void.”

An agreement must be sufficiently definite to enable the court to determine the rights and obligations of the parties.

Illustration

A agrees to sell B “a hundred tons of oil”. Nothing indicates what kind of oil is intended. The agreement is void for uncertainty.

However, if A is a dealer exclusively in coconut oil, the meaning may be capable of being made certain from the surrounding circumstances. In that case, the agreement need not be void merely because the words used were initially uncertain.

Thus, mere initial uncertainty is not sufficient; the agreement is void only where the meaning is neither certain nor capable of being made certain.

The importance of certainty and completeness of terms under Section 29 is further illustrated in Prentice Hall India Pvt. Ltd. v. Prentice Hall Inc. and Ors. (Delhi HC), where the defendant resisted enforcement of a long-standing licensing agreement on the ground that it was only a general framework, incapable of creating any binding, exclusive right until supplemented by a separate, specific agreement for each individual work. This is a reminder that even a formally executed, long-performed agreement can fail as a binding contract if its own terms leave essential matters to be settled later, rather than being sufficiently certain or capable of being made certain at the time the agreement is entered into.

Wagering Agreement [Section 30]

Section 30 provides that agreements by way of wager are void.

A wagering agreement is generally an agreement under which the parties have no interest in the uncertain event other than the possibility of winning or losing the stake depending upon the result of that event.

Essential Characteristics of a Wager

The following characteristics are generally associated with a wagering agreement:

  1. There must be an uncertain event.
  2. The parties must stand to win or lose depending upon the result of that event.
  3. The parties must have no real interest in the event apart from the stake.
  4. The parties must contemplate the determination of the uncertain event as the basis for their respective gains and losses.

Illustration

A agrees to pay B ₹50,000 if it rains on a particular day, while B agrees to pay A ₹50,000 if it does not rain. Neither party has any interest in the occurrence of rain except the stake. The agreement is a wagering agreement and is void under Section 30.

Wagers and Games of Skill

The distinction between a wager and a genuine competition involving substantial skill is important. In State of Bombay v. R.M.D. Chamarbaugwala, the Supreme Court considered prize competitions and recognised that a competition in which success depends to a substantial degree upon skill is distinguishable from gambling competitions of a wagering nature.

Statutory Exception Relating to Horse-Racing

Section 30 contains an exception relating to subscriptions or contributions towards a plate, prize or sum of money of the value or amount of ₹500 or upwards to be awarded to the winner or winners of a horse-race. The statutory exception should not, however, be understood as legalising every transaction connected with horse-racing.

3. Void Contract

Section 2(j) provides, “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.” A void contract is therefore different from a void agreement.

A void contract begins as a valid and enforceable contract. Subsequently, because of a supervening event or change in circumstances recognised by law, it ceases to be enforceable.

The most important statutory provision in this regard is Section 56.

Supervening Impossibility or Unlawfulness [Section 56]

Section 56 deals with both:

  • agreements to do acts impossible in themselves; and
  • contracts which subsequently become impossible or unlawful.

An agreement to do an act which is impossible in itself is void from the beginning. For example, an agreement to discover treasure by magic is void because the promised act is impossible in itself.

The position is different where the contract was valid when made but performance subsequently becomes impossible or unlawful because of an event beyond the control of the parties. In such a case, the contract becomes void when the act becomes impossible or unlawful.

Illustration

A agrees to supply certain goods to B on a specified date. After the contract is made, a supervening event occurs which makes performance of the contract unlawful. The contract becomes void from the point at which performance becomes unlawful.

Doctrine of Frustration

The principle embodied in the second part of Section 56 is commonly described as the doctrine of frustration.

Frustration occurs when a supervening event fundamentally affects the basis of a contract and makes its performance impossible or unlawful within the meaning of Section 56.

The expression “impossible” does not necessarily mean physical or literal impossibility. In an appropriate case, a fundamental change in circumstances may make performance legally or practically impossible in the sense contemplated by Section 56.

Case: Satyabrata Ghose v. Mugneeram Bangur & Co. (1953)

In Satyabrata Ghose v. Mugneeram Bangur & Co., the Supreme Court examined the scope of Section 56 and the doctrine of frustration.

The Court explained that the word “impossible” in Section 56 is not confined to literal or physical impossibility. Where a supervening event fundamentally affects the basis of the contract, performance may, in appropriate circumstances, be regarded as impossible within the meaning of the section.

The case is therefore an important authority for understanding the distinction between an agreement that is impossible from the outset and a contract that becomes impossible because of a subsequent event.

The effect of frustration is automatic. Once the requirements of Section 56 are satisfied, the contract becomes void by operation of law; it is not necessary for either party to exercise an option of rescission in the manner applicable to a voidable contract.

Restoration of Benefits [Section 65]

Section 65 provides for the obligation to restore an advantage received under:

  • an agreement which is discovered to be void; or
  • a contract which becomes void.

Where a person has received an advantage under such an agreement or contract, the law may require that advantage to be restored or compensation to be made for it.

The provision is therefore important in understanding the consequences of void agreements and contracts which subsequently become void.

Distinction between Voidable Contract, Void Agreement, and Void Contract

Basis

Voidable Contract

Void Agreement

Void Contract

Meaning

An agreement which is enforceable by law at the option of one or more parties, but not at the option of the other party/parties. Section 2(i).

An agreement which is not enforceable by law. Section 2(g).

A contract which ceases to be enforceable by law becomes void. Section 2(j).

Legal Status at the Beginning

Valid and enforceable unless and until the aggrieved party chooses to avoid it.

Unenforceable from the beginning (generally void ab initio).

Initially valid and enforceable, but subsequently becomes unenforceable.

Nature of Defect 

Usually a defect affecting free consent. E.g., coercion, fraud, misrepresentation or undue influence. Sections 19 and 19-A.

The agreement suffers from a fundamental legal defect, e.g. unlawful object/consideration, bilateral mistake of essential fact, restraint of marriage/trade, uncertainty, etc.

A valid contract becomes unenforceable because of a subsequent event, such as supervening impossibility or illegality under Section 56.

Who can avoid it?

Only the aggrieved party whose consent was affected can ordinarily exercise the option.

Neither party can enforce it because the law does not recognise it as enforceable.

Neither party can enforce it once it has ceased to be enforceable.

Whether it can be enforced before avoidance?

Yes. It remains legally enforceable until the entitled party rescinds/avoids it.

No. It cannot be enforced from the outset.

No, once it has become void.

Effect of Avoidance / Becoming Void

Once validly rescinded, the contract ceases to bind the aggrieved party.

It has no enforceable contractual obligation from the outset.

The contractual obligations come to an end when the contract becomes void.

Typical Sections

Sections 19 and 19-A; also Sections 15–18 dealing with coercion, undue influence, fraud and misrepresentation.

Sections 20–30, among others; particularly Sections 20, 23–30.

Section 56 is the classic example of a contract becoming void because of subsequent impossibility/illegality.

Examples

A signs a contract because B threatens him (coercion); or A is induced by B’s fraud to purchase property. The contract is voidable at A’s option. Section 19 expressly provides this.

Both parties agree to sell/buy specific goods which, unknown to both, had already perished. Under Section 20, the agreement is void.

A valid contract is made, but performance subsequently becomes impossible or unlawful. Under Section 56, the contract becomes void when performance becomes impossible or unlawful.

Remedy

The aggrieved party may rescind the contract; in cases of fraud, Section 19 also permits insisting upon performance in the manner specified by the section.

Generally, there is no action for specific enforcement because there is no enforceable agreement. Restitution may nevertheless arise under Section 65 where its conditions are satisfied.

Rights and obligations cease according to the event making the contract void; Section 65 may require restoration of advantages received where applicable.

Third-Party Rights

A third party may potentially acquire rights before the voidable contract is avoided, subject to the applicable rules.

Since the agreement is void, it generally cannot confer contractual rights capable of enforcement.

Once the contract has become void, it cannot thereafter be enforced as a subsisting contract.

Consent

There is consent, but it is not free consent because it was caused by coercion, fraud or misrepresentation, etc.

There may be apparent consent, but the agreement is legally unenforceable for some fundamental reason. In a bilateral mistake under Section 20, the parties are mistaken about an essential fact.

The original consent and contract were valid; a subsequent event makes the contract unenforceable.

Key Expression to Remember

“Valid until avoided.”

“Void from the beginning.”

“Valid initially, becomes void later.”

In Short,

  • Voidable Contract – Valid, but one party can cancel it.
  • Void Agreement - Never enforceable in law.
  • Void Contract - Was valid, but later ceased to be enforceable.

Conclusion

The Indian Contract Act, 1872 draws a clear distinction between agreements and contracts according to their enforceability.

  • A voidable contract is one which is enforceable at the option of one or more parties but not at the option of the others. It commonly arises where consent has been obtained through coercion, undue influence, fraud or misrepresentation.
  • A void agreement is an agreement which is not enforceable by law. Agreements affected by mutual mistake of an essential fact, unlawful consideration or object, restraint of marriage, restraint of trade, restraint of legal proceedings, uncertainty and wagering are important examples.
  • A void contract is different because it was valid and enforceable when made but subsequently ceases to be enforceable, as in cases of supervening impossibility or unlawfulness under Section 56.

Thus, the fundamental distinction is that a voidable contract remains enforceable until avoided, a void agreement is unenforceable from the beginning, and a void contract becomes unenforceable subsequently.