Section 23 of the Indian Contract Act, reads as follows:

“The consideration or object of an agreement is lawful, unless, it is forbidden by law, or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.”

Under this section, the object of an agreement, is unlawful if it is forbidden by law or the Court regards it as immoral or opposed to public policy and in such cases the agreement itself is void.

Public Policy

Cheshire and Fifoot in their book on “Law of Contract“, 3rd Edn., observe at page ” 280 thus:

“The public interests which is designed to protect are so comprehensive and heterogeneous, and opinions as to what is injurious must of necessity vary so greatly with the social and moral convictions, and at times even with the political views, of different judges, that it forms a treacherous and unstable ground for legal decision.

These questions have agitated the Courts in the past, but the present state of the law would appear to be reasonably clear. Two observations may be made with some degree of assurance. First, although the rules already established by precedent must be moulded to fit the new conditions of a changing world, it is no longer legitimate for the Courts to invent a new head of public policy. A judge is not free to speculate upon what, in his opinion, is for the good of the community.

He must be content to apply, either directly or by way of analogy, the’ principles laid down in previous decisions. He must expound, not expand, this particular branch of the law.

Secondly, even though the contract is one which prima facie falls under one of the recognized heads of public policy, it will not be held illegal unless its harmful qualities are indisputable. The doctrine, as Lord Atkin remarked in a leading case,

“should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds ………. In popular language … the contract should be given the benefit of the doubt “.”

Anson in his Law of Contract states the same rule thus, at p. 216:

“Jessel, M. R., in 1875, stated a principle which is still valid for the Courts, when he said: ‘-You have this paramount public policy to consider, that you are not lightly to interfere with the freedom of contract ‘; and it is in reconciling freedom of contract with other public interests which are regarded as of not less importance that the difficulty in these cases arises…..

We may say, however, that the policy of the law has, on certain subjects, been worked into a set of tolerably definite rules. The application of these to particular instances necessarily varies with the conditions of the times and the progressive development of public opinion and morality, but, as Lord Wright has said public policy, like any other branch of the Common Law, ought to be, and I think is, governed by the judicial use of precedents. If it is said that rules of public policy have to be moulded to suit new conditions of a changing world, that is true; but the same is true of the principles of the Common Law generally.

In Halsbury’s Laws of England, 3rd Edn., Vol. 8, the doctrine is stated at p. 130 thus:

” Any agreement which tends to be injurious to the public or against the public good is void as being contrary to public policy…………….. It seems, however, that this branch of the law will not be extended. The determination of what is contrary to the so-called policy of the law necessarily varies from time to time.

Many transactions are upheld now which in a former generation would have been avoided as contrary to the supposed policy of the law. The rule remains, but its application varies with the principles which for the time being guide public opinion. “

 A few of the leading cases on the subject reflected in the authoritative statements of law by the various authors may also be useful to demarcate the limits of this illusive concept.

Parke, B., in Egerton v. Brownlow[1], which is a leading judgment on the subject, describes the doctrine of public policy thus at p. 123:

“’Public policy’ is a vague and unsatisfactory term, and calculated to lead to uncertainty and error, when applied to the decision of legal rights; it is capable of being understood in different senses; it may, and does, in its ordinary sense, mean ‘political expedience’, or that which is best for the common good of the community; and in that sense there may be every variety of opinion, according to education, habits, talents, and dispositions of each person, who is to decide whether an act is against public policy or not.

To allow this to be a ground of judicial decision, would lead to the greatest uncertainty and confusion. It is the province of the statesman, and not the lawyer, to discuss, and of the Legislature to determine, what is best for the public good, and to provide for it by proper enactments.

It is the province of the judge to expound the law only; the written from the statutes; the unwritten or common law from the decisions of our predecessors and of our existing Courts, from text writers of acknowledged authority, and upon the principles to be clearly deduced from them by sound reason and just inference; not to speculate upon what is the best, in his opinion, for the advantage of the community.

Some of these decisions may have no doubt been founded upon the prevailing and just opinions of the public good; for instance, the illegality of covenants in restraint of marriage or trade. They have become a part of the recognised law, and we are therefore bound by them, but we are not thereby authorised to establish as law everything which we may think for the public good, and prohibit everything which we think otherwise.”

In Janson v. Driefontein Consolidated Mines, Ltd.[2] an action raised against British underwriters in respect of insurance of treasures against capture during its transit from a foreign state to Great Britain was resisted by the underwriters on the ground that the insurance was against public policy. The House of Lords rejected the plea. Earl of Halsbury, L.C., in his speech made weighty observations, which may usefully be extracted. The learned Lord says at page 491:

“In treating of various branches of the law learned persons have analysed the sources of the law, and have sometimes expressed their opinion that such and such a provision is bad because it is contrary to public policy; but I deny that any Court can invent a new head of public policy; so a contract for marriage brokerage, the creation of a perpetuity, a contract in restraint of trade, a gaming or wagering contract, or, what is relevant here, the assisting of the King’s enemies, are all undoubtedly unlawful things; and you may say that it is because they are contrary to public policy they are unlawful; but it is because these things have been either enacted or assumed to be by the common law unlawful, and not because a judge or Court have a right to declare that such and such things are in his or their view contrary to public policy.

Of course, in the application of the principles here insisted on, it is inevitable that the particular case must be decided by a judge; he must find the facts, and he must decide whether the facts so found do or do not come within the principles which I have endeavoured to describe-that is, a principle of public policy, recognised by the law, which the suggested contract is infringing, or is supposed to infringe.”

These observations indicate that the doctrine of public policy is only a branch of common law and unless the principle of public policy is recognised by that law, Court cannot apply it to invalidate a contract.

Lord Lindley in his speech at p. 507 pointed out that public policy is a very unstable and dangerous foundation on which to build until made safe by decision. A promise made by one spouse, after a decree nisi for the dissolution of the marriage has been pronounced, to marry a third person after the decree has been made absolute is not void as being against public policy.[3]

In that case Lord Atkin states the scope of the doctrine thus at p. 12:

“In popular language, following the wise aphorism of Sir George Jessel cited above, the contract should be given the benefit of the doubt. But there is no doubt that the rule exists. In cases where the promise to do something contrary to public policy which for short I will call a harmful thing, or where the consideration for the promise is the doing or the promise to do a harmful thing a judge, though he is on slippery ground, at any rate has a chance of finding a footing…….. But the doctrine does not extend only to harmful acts, it has to be applied to harmful tendencies. Here the ground is still less safe and more treacherous “.

Adverting to the observation of Lord Halsbury in Janson v. Driefontein Consolidated Mines Ltd. Lord Atkin commented thus, at page 11:

“…………… Lord Halsbury indeed appeared to decide that the categories of public policy are closed and that the principle could not be invoked anew unless the case could be brought within some principle of public policy already recognised by the law. I do not find, however, that this view received the express assent of the other members of the House; and it seems to me, with respect, too rigid.

On the other hand, it fortifies the serious warning illustrated by the passages cited above that the doctrine should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds “.

Lord Thankerton summarised his view in the following terms, at p. 23:

” In the first place, there can be little question as to the proper function of the Courts, in questions of public policy. Their duty is to expound, and not to expand, such policy. This does not mean that they are precluded from applying all existing principle of public policy to a new set of circumstances, where such circumstances are clearly within the scope of the policy. Such a case might well arise in the case of safety of the State, for instance.

But no such case is suggested here. Further, the Courts must be watchful not to be influenced by their view of what the principle of public policy, or its limits, should be “.

Lord Wright, at p. 38, explains the two senses in which the words “public policy” are used:

“In one sense every rule of law, either common law or equity, which has been laid down by the Courts, in that course of judicial legislation which has evolved the law of this country, has been based on considerations of public interest or policy.

In that, sense Sir George Jessel, M. R., referred to the paramount public policy that people should fulfil their contracts. But public policy in the narrower sense means that there are considerations of public interest which require the Courts to depart from their primary function of enforcing contracts, and exceptionally to refuse to enforce them. Public policy in this sense is disabling.

Then the noble Lord proceeds to lay down the following principles on which a judge should exercise this peculiar and exceptional jurisdiction:

(1) It is clear that public policy is not a branch of law to be extended;

(2) it is the province of the judge to expound the law only;

(3) public policy, like any other branch of the common law, is governed by the judicial use of precedents ; and

(4) Courts apply some recognised principles to the new conditions, proceeding by way of analogy and according to logic and convenience, just as Courts deal with any other rule of the common law.

The learned Lord on the basis of the discussion of case law on the subject observes at p. 40:

“It is true that it has been observed that certain rules of public policy have to be moulded to suit new conditions of a changing world: but that is true of the principles of common law generally. I find it difficult to conceive that in these days any new head of public policy could be discovered “.

The observations of the aforesaid Law Lords define the concept of public policy and lay down the limits of its application in the modern times. In short, they state that the rules of public policy are well-settled and the function of the Courts is only to expound them and apply them to varying situations.

While Lord Atkin does not accept Lord Halsbury’s dictum that the categories of public policy are closed, he gives a warning that the doctrine should be invoked only in clear cases in which the harm to the public is substantially incontestable, Lord Thankerton and Lord Wright seem to suggest that the categories of public – policy are well-settled and what the Courts at best can do is only to apply the same to new set of circumstances.

Neither of them excludes the possibility of evolving a new bead of public policy in a changing world, but they could not conceive that under the existing circumstances any such head could be discovered.

Asquith, L. J., in Monkland v. Jack Barclay Ltd.[4] restated the law crisply at p. 723:

“The Courts have again and again said, that where a contract does not fit into one or other of these pigeon-holes but lies outside this charmed circle, the courts should use extreme reserve in holding a contract to be void as against public policy, and should only do so when the contract is incontestably and on any view inimical to the public interest “.

The Indian cases also adopt the same view. A division bench of the Bombay High Court in Shrinivas Das Lakshminarayan v. Ram Chandra Ramrattandas observed at p. 20:

“It is no doubt open to the Court to hold that the consideration or object of an agreement is unlawful on the ground that it is opposed to what the Court regards as public policy. This is laid down in section 23 of the Indian Contract Act and in India therefore it cannot be affirmed as a matter of law as was affirmed by Lord Halsbury in Janson v. Driefontein Consolidated Mines, Limited (1902 A. C. 484 at p. 491) that no Court can invent a new head of public policy, but the dictum of Lord Davey in the same case that “public policy is always an unsafe and treacherous ground for legal decision” may be accepted as a sound cautionary maxim in considering the reasons assigned by the learned Judge for his decision “.

The doctrine of public policy may be summarized thus: Public policy or the policy of the law is an illusive concept; it has been described as ” untrustworthy guide “, ” variable quality “, ” uncertain one “, ” unruly horse “, etc. ; the primary duty of a Court of Law is to enforce a promise which the parties have made and to uphold the sanctity of contracts which form the basis of society, but in certain cases, the Court may relieve them of their duty on a rule founded on what is called the public policy;

for want of better words Lord Atkin describes that something done contrary to public policy is a harmful thing, but the doctrine is extended not only to harmful cases but also to harmful tendencies; this doctrine of public policy is only a branch of common law, and, just like any other branch of common law, it is governed by precedents; the principles have been crystallized under different heads and though it is permissible for Courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public; though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads in these days.

Reference

Gherulal Parakh vs Mahadeodas Maiya And Others: 1959 AIR 781, 1959 SCR Supl. (2) 406


[1] 4 H.L.C. 1, 123; 10 E.R. 359,408

[2] (1902) A.C. 484

[3] See Fender v. St. John-Mildmay .

[4] I.L.R. (1920) 44 Bom. 6