Expressly Void Agreement for CLAT - Practice Questions & MCQ

Definition:

• An expressly void agreement is a type of contract that is void and unenforceable right from its inception due to its inherent illegality, prohibition, or violation of public policy. These contracts are considered null and void ab initio, meaning they have no legal effect and are treated as if they never existed.

Examples of Expressly Void Agreements:

• Agreements Contrary to Public Policy:
  • Contracts that involve actions or objectives against public policy are expressly void. This includes agreements to commit a crime, engage in fraudulent activities, or evade taxes.
  • Example: An agreement between two individuals to smuggle prohibited substances is an expressly void agreement.
• Agreements in Restraint of Marriage:
  • Contracts that restrict a person's right to marry are expressly void. This includes agreements where one party agrees not to marry anyone else.
  • Example: A contract in which a person promises not to marry anyone except a specific individual is void.
• Agreements to Defraud Creditors:
  • Contracts entered into with the intent to defraud creditors by hiding assets or property are expressly void. These agreements are aimed at hindering legitimate creditor claims.
  • Example: If a debtor transfers all their valuable assets to a friend to avoid paying off their creditors, the contract is expressly void.

Legal Consequences of Expressly Void Agreements:

• Expressly void agreements are devoid of legal effect right from the beginning.
• Courts will not enforce such contracts, and parties cannot rely on them to assert legal rights or obligations.
• Any transactions or actions based on these agreements are considered illegal and non-binding.

Indian Case Law and Constitutional References:

• Section 23 of the Indian Contract Act, 1872:
  • Section 23 of the Indian Contract Act deals with agreements declared to be void. It explicitly states that agreements against public policy, restraint of marriage, and agreements to defraud creditors are void.
• Public Policy and Indian Constitution:
  • Contracts that run contrary to public policy or morality are considered void in India.
  • Article 19(1)(a) of the Indian Constitution guarantees the right to freedom of speech and expression. However, this right is subject to reasonable restrictions in the interest of public order and morality, emphasizing the importance of upholding public policy in contracts.

Case Law Example : Harshad Chiman Lal Modi v. D.L.F. Universal Ltd.

• Background
  • Harshad Chiman Lal Modi (the plaintiff) and D.L.F. Universal Ltd. (the defendant) entered into a share purchase agreement.
  • The agreement contained a clause that gave D.L.F. the option to buy back the shares at a future date at a predetermined price.
• Issue
  • The primary issue in this case was whether the buy-back clause in the share purchase agreement was enforceable or whether it was against public policy.
• Court's Decision:
  • The court held that the buy-back clause was against public policy and therefore unenforceable.
  • It found that the clause essentially allowed the defendant to manipulate and control the share market in a manner that was detrimental to public interest and market integrity.
  • The court emphasized that contracts against public policy would not be upheld.
• Rationale
  • The court's decision was based on the principle that contracts that are contrary to public policy or morality are void and unenforceable in India.
  • It recognized that the buy-back clause was designed to stifle market competition and manipulate share prices, which goes against the principles of fair and transparent markets.
• Significance
  • The Harshad Chiman Lal Modi v. D.L.F. Universal Ltd. case is significant for several reasons:
  • It reinforces the principle that agreements against public policy will not be enforced by the courts.
  • The case highlights the importance of upholding legality, ethics, and public interest in contractual agreements, particularly in financial and commercial transactions.
  • It serves as a precedent for cases involving contracts that seek to manipulate market conditions or engage in unfair trade practices.