illegal-vs-unlawful-agreement

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The Indian Contract Act, 1872, deals with many kinds of agreements. Two terms often cause confusion: “unlawful agreements” and “illegal agreements.” People often discuss their differences. It is true: “Every illegal agreement is unlawful, but not every unlawful agreement is illegal.” These terms sound alike. Yet, they mean different things. They also have different results. Illegal agreements always break the law. So, they are unlawful. But some unlawful agreements are not illegal. They might go against public policy or good behaviour. They are not necessarily crimes. Let’s explore Illegal vs Unlawful Agreement

What is an Agreement?

In simple terms, an agreement is a meeting of minds. It happens when two or more people understand and accept the same idea or plan.

Under the Indian Contract Act, 1872, an agreement is defined as:

“Every promise and every set of promises, forming the consideration for each other, is an agreement.” (Section 2(e))

This means an agreement has two main parts:

Offer: One person proposes something to another.
Acceptance: The other person agrees to that proposal.

When an offer is accepted, it becomes a promise. When promises are exchanged, with something of value (consideration) on both sides, it forms an agreement

What is an Illegal Agreement?

An illegal agreement is more than just unlawful. It is an agreement that goes deeply against the law. These agreements are strongly forbidden by legal provisions. They often involve criminal acts or actions that harm the public good.

What makes an agreement unlawful?

Forbidden by Law:

Involves acts specifically banned by law.
Example: Agreement to sell illegal drugs.

Defeats Provisions of Law:

Undermines the purpose of any law.
Example: Agreement to transfer property to avoid taxes.

Fraudulent:

Made to deceive or cheat someone.
Example: Agreement to defraud a third person.

Involves Injury to Person or Property:

Aims to cause harm to a person or their belongings.
Example: Agreement to physically hurt someone.

Immoral or Against Public Policy:

Goes against good morals or society’s welfare.
Example: Agreement for human trafficking.

What is an Unlawful Agreement?

An unlawful agreement is one that a court will not enforce. Its object or consideration is not lawful under the Indian Contract Act, 1872, specifically Section 23. While they are not necessarily criminal, they violate public policy or ethical standards.

What Makes an Agreement Unlawful?

Forbidden by Law: The law stops certain actions; an agreement to do them is unlawful. (Example: Selling liquor without a license.)

Defeats Provisions of Law: The agreement goes against the main goal of an existing law. (Example: Transferring property to avoid paying creditors.)

Fraudulent: The agreement aims to cheat someone.

Involves Injury to Person or Property: It causes harm or damage to another person or their belongings.

Immoral: The agreement goes against good morals or accepted ethical principles. (Example: Renting a house for immoral activities.)

Opposed to Public Policy: The agreement is harmful to the public good or general welfare. (Example: Agreements that restrict trade or marriage.)

Also Read: Reservation System in India 2025

Illegal Agreement vs Unlawful Agreement

Here’s a concise comparison between illegal vs unlawful agreements under Indian Contract Law:

Aspect	Illegal Agreement	Unlawful Agreement
Definition	Violates criminal law or public policy.	Contravenes Section 23 of the Indian Contract Act, 1872.
Legal Status	Void and criminally punishable.	Void but not necessarily criminal.
Collateral Effects	Renders related agreements void.	It may not affect related agreements.
Enforceability	Not enforceable in court.	Not enforceable in court.
Examples	Contract to commit a crime.	Agreement with unlawful consideration.
Scope	Narrow; pertains to illegal acts.	Broad; includes immoral or fraudulent purposes.
Consequences	Parties may face legal penalties.	Parties may not face legal penalties.
Impact on Third Parties	Affects third-party agreements.	Does not necessarily affect third-party agreements.