CONTRACTS OPPOSING PUBLIC POLICY

In India, a contract is defined as a legally enforceable agreement that grants personal rights and imposes obligations that the law protects and enforces against the parties to the agreement. The general law of contract is founded on the idea that the parties have created legal rights and responsibilities completely personal and can only be enforced by taking action against the defaulting party.


Section 2(h) of the Indian Contract Act, 1872[2] defines a contract as "An agreement enforceable by law". The word 'agreement' has been defined in Section 2(e) of the Act as ‘every promise and every set of promises, forming consideration for each other

One of the most important aspects of a contract is a legitimate consideration, and contracts without it are deemed void under section 23 of the Indian Contract Act. Section 23 prohibits a person from engaging in a contract that is contrary to public policy. Public policy does not last. What is good for the public and the public interest at large are referred to as public policy. Rather than safeguarding the parties to a contract, illegality and violation of public policy defences seek to preserve the general welfare and the integrity of the courts by refusing to enforce certain types of contracts. Courts would not enforce contracts to engage in illegal or immoral behaviour. The meaning of the term “opposed to public policy” has evolved through time in the courts. Certain agreements are referred to as illegal agreements because they violate public policy.



The circumstances in which a contract will be terminated as opposed to public policy is acknowledged in England and the same is followed by India. The current situation of public policy in India is described by the case Gherulal v. Mahadeodas Maiya. In this case, Justice Subba Rao said that the India cases also adopt the same view and explain the position of public policy of India. The doctrine of Public Policy can be summarized as an elusive concept described as an “untrustworthy guide”, “variable quantity” and “Unruly horse” In this case, a partnership agreement was made by the plaintiff and the defendant with the view of entering into a wagering transaction to share some profits and losses of the partnership. The plaintiff filed a case asking for the repayment of the loss of partnership and the defendant argued that the agreement is illegal and enforceable under section 23 of the Indian Contract Act, 1872.



C.Reddy J of Andhra Pradesh Court clarified the scope of public policy and the function of the judge and observed that the twin touchstones of public policy are advancement of the public good and prevention of public mischief and these questions have to be determined by the judges not as men of legal learning but as enlightened and experienced members of the community representing the highest common factor of public sentiment and intelligence. Endorsing this view, the Supreme Court added that going by prevailing social values, an agreement tending to injure public welfare is opposed to public policy.

Some of the contracts which are deemed against public policy in India are Trading with the enemy, Trafficking in Public offices, interference with the administration of justice, marriage brokerage contracts etc.



TRADING WITH THE ENEMY

Based on grounds of Public policy it is well established that contracts with the alien enemy are void because contracts with the alien enemy are likely to help the enemy. Therefore at the time of war, these kinds of contracts are either cancelled or suspended. The contracts however can be restored after the war is over. “The doctrine pertains to all contracts which involve intercourse with the enemy or tend to help the enemy, even though no enemy be a party of the contract”


TRAFFICKING IN POLICE OFFICERS

The contracts which force a public officer to act corruptly are against public policy. For example- X agrees to transfer Y to his post at a government office for 3,000. The contract is void. In the case of Parkinson v College of Ambulance Ltd. an agreement in which a sum of money was given to a charity on the condition that the latter would procure a knighthood for the plaintiff was held void and the money irrevocable.



INTERFERENCE WITH ADMINISTRATION OF JUSTICE

A contract whose aim interferes with the administration of justice is against public policy. No one is permitted to interfere with the administration of justice.


MARRIAGE BROKERAGE CONTRACTS

Every individual has the right to marry whomever they want with their free choice and this free choice should not be reduced by any amount of money as deliberation or by engaging paid brokers to obtain marriage. An agreement to procure the marriage of an individual in the deliberation of a sum of money is called a marriage brokerage contract. These contracts are void. The practice of selling a girl for money is one example. The custom of paying the bride to the parents is very common in India. In numerous cases, judgments given by Punjab, Calcutta and Madras high courts have said that an agreement to pay money to the parent of a minor to provoke him to give minor in marriage is void.



Public Policy and Arbitration

The main objective of arbitration is to make a cost-effective and expeditious solution of disputes and further prevent multiplicity of litigation by giving finality to an arbitral award.” India’s public policy plays a major role in the enforcement of these awards, especially foreign awards. As mentioned earlier public policy does not have a definition in the arbitration and conciliation act or Indian contract act, 1872. Public policy is considered a “Policy of Law” and contracts opposing this are considered void. In the case of Renusagar Power Co. Ltd v. General Electric Co, the Apex Court has held that the Expression ‘Public Policy’ has a wider meaning in the context of a domestic award as distinguished from a foreign award.



Misconduct of Arbitral Tribunal" or the "proceedings before an arbitral tribunal" and "error of law on the face of an arbitral tribunal award" are not considered grounds for recourse against the arbitral award under Section 34 of the arbitration and conciliation act. To comprehend the theory of public policy in India in broader view courts can intervene by authorizing actions against an arbitral award if the court thinks that this is causing or might cause damage to the justice. The extreme cases allow courts to interfere following section 34 of the act. After the case of Natural Gas Corporation Ltd. v/s Saw Pipes Ltd. 2003 the award to be proclaimed as void must be contrary to Fundamental Policy of Indian law or The Interest of India or Justice or morality or Patently illegal. It is ascertained that the public policy of India is averse to awards, if the award is given under fraud “Induced by fraud" will amount that the arbitral tribunal was influenced to give the award will mean securing an award by violating the arbitral tribunal. The court has the power to reject these types of awards that are given in effect of fraud or corruption.



A foreign arbitral award means an arbitral award regarding differences between individuals arising from a legal relationship that is considered a commercial relationship under the laws in force in India, with or without a contract. If the enforcement of a foreign arbitral award is found to be in breach of the Exchange Rules Act of 1973, it is considered a breach of public policy under Article 48 (2) of the Arbitration Mediation Act.


A party applying to enforce a foreign arbitral award must:

1. Submit the original arbitral award,

2. The original arbitration agreement or its officially proven copy,

3. Evidence that may be needed to prove that the ruling is foreign [[Hitesh, Scope of Public Policy Under Arbitration Law: Must Be Narrowed Up, Public Policy Under Arbitration Law ,. Article 48 of the Arbitration Mediation Act deals with the conditions under which the enforcement of an arbitral award may be denied. These conditions are, for example, an invalid contract or the contract is offensive to India's public order and morals. However, if the court finds the contract enforceable, the contract will be enforced accordingly.



As per Section 2(7) of the Arbitration and Conciliation Act, 199622 an arbitral award made under Part I of the Act is called a ‘domestic award’. The arbitral award shall be considered to be explicit and compelling to the claimants to the arbitration. In addition, the arbitral award shall be implemented in consonance with the Code of Civil Procedure in the same way as if it were a court order in which the time for questioning the award has elapsed (90 days). Before the 2015 modification, the challenge to an award essentially meant to stay on the enforceability of the award but now the challenge to award does not mean a direct stay on enforceability until the court consents to it.


CONCLUSION

According to Section 23 of the Indian Contract Act, 1872, an agreement becomes void if the consideration or its object of consideration is, in the opinion of the court, contrary to public policy. Any citizen has the right to enter into a contract if he so desires, but if the contract violates any public policy terms, it will be void. For the sake of national security, these contracts are declared void. As previously stated, the contract must have a legal object and a legal consideration. The Bombay High Court stated that because the concept of public policy is not very clear and rather imprecise, courts should not create new grounds of public policy. To conclude, even the concept is vague but under section 23 of Indian Contract Act, 1872 any agreement against the public policy will be considered to be void ab initio.



This article is written by Ganesh Arora of Amity Law School, Lucknow.

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