All Illegal Agreements are Void; but All Void Agreements are Not Illegal

Taken from – “Void, Voidable, Ab Initio Void, and Sham Transactions

Jojy George Koduvath, Saji Koduvath Associates

All Illegal Agreements are Void, But the Reverse is Not True

J.B. Pardiwala, J., in Hasvantbhai Chhanubhai Dalal v. Adesinh Mansinh Raval, 2019-2 GujLH 357, observed as under:

  • “DIFFERENCE BETWEEN “VOID” AND “ILLEGAL” AGREEMENT:
  • 58. The Indian Contract Act, 1872 has made it clear that there is a thin line of difference between void and illegal agreement.
    • A void agreement is one which may not be prohibited under law, while –
      • an illegal agreement is strictly prohibited by law and the parties to the agreement can be penalized for entering into such an agreement.
    • A void agreement has no legal consequences, because it is null from the very beginning.
    • Conversely, the illegal agreement is devoid of any legal effect, since it is started.
    • All illegal agreements are void, but the reverse is not true.
    • If an agreement is illegal, other agreements related to it are said to be void.
    • An agreement that violates any law or whose nature is criminal or is opposed to any public policy or immoral is an illegal agreement.
  • These agreements are void ab initio, and so the agreements collateral to the original agreement are also void. Here the collateral agreement refers to the transaction associated or incidental to the main agreement. The difference between void and illegal agreement can be drawn clearly on the following grounds:
  • [1] An agreement which loses its legal status is a void agreement. An illegal agreement is one which is not permissible under law.
  • [2] Certain void agreements are void ab initio while some agreements become void when it loses its legal binding. On the other hand, an Illegal agreement is void since the very beginning. A void agreement is not prohibited by Indian Penal Code (IPC), but IPC strictly prohibits an illegal agreement.
  • [3] The scope of a void contract is comparatively wider than an illegal contract as all agreements which are void may not necessarily be illegal, but all illegal agreements are void from its inception.
  • [4] A void agreement is not punishable under law whereas an illegal agreement is considered as an offence, hence the parties to it are punishable and penalised under Indian Penal Code (IPC).
  • [5] Collateral agreements of a void agreement may or may not be void i.e. they may be valid also. Conversely, collateral agreements of an illegal agreement cannot be enforceable by law as they are void ab initio.
  • It is quite clear that the void and illegal agreement are very different. One of the factors that make an agreement void is the illegality of the contract, such as contract whose object or consideration is unlawful. Moreover, in both the two agreements loses its enforceability by law.”

Also Read:

What is Illegal and What is Void

In Kantilal Manilal Parekh v. Ranchhoddas K.  Bhatt, AIR 1953 Bom 98, it is said as under:

  • “Now, it must be observed that the words “illegal” and “void” are often loosely used as synonymous terms even by lawyers, jurists and sometimes Judges. None the less, for the purposes of the present discussion it is essential to distinguish between what is illegal and what is merely void. All unlawful or illegal agreements are void; but all void agreements are not necessarily illegal. It is often difficult to determine whether an agreement which is void is or is not also illegal. But a long line of cases in England enables one to deduce certain principles for the purpose of determining whether a contract or agreement in merely void or is illegal.
  • Sir Fredrick Pollock in his Principles of Contract (13th edn.) after reviewing a number of cases lays down the following propositions (p.276) :
    • ‘When conditions are prescribed by statute for the conduct of any particular business or profession, and such conditions are not observed, agreements made in the course of such business or profession – …
    • (e) are void if it appears by the context that the object of the legislature in imposing the condition was the maintenance of public order or safety or the protection of the persons dealing with those on whom the condition is imposed :
    • (f) are valid if no specific penalty is attached to the specific transaction, and if it appears that the condition was imposed for merely administrative purposes … :
    • (h) Where no penalty is imposed, and the intention of the legislature appears to be simply that the agreement is not to be enforced, there neither the agreement itself nor the performance of it is to be treated as unlawful for any purpose’.”

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2 Comments

  1. ranaji's avatar ranajig says:

    If a Sale Deed is executed jointly by two persons, out of which only one was the owner on the date of execution and registration, as the other owner had relinquished her share in the property a few months before by a registered relinquishment deed, is the sale deed void or illegal?.

    Like

  2. sajikoduvath's avatar sajikoduvath says:

    Answer to the above question:

    It will be a valid deed.

    Like

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