Report No. 276
(i) What is public policy?
4.32 Public policy is a Common Law Doctrine, that is invoked whenever an action affects/offends the public interests or where harmful result of permitting the contract in terms of injury to the public at large, is evident80. Thus, Public policy varies from generation to generation and even within the generation, and therefore it does not remain static81. Social circumstances and societal needs change with time and so changes the public policy of a society82.
4.33 The Apex Court in Central Inland Water Transport Corporation Limited & Anr. v. Brojo Nath Ganguly & Anr.83, while considering the scope of the essentials of Section 23 opined: the Indian Contract Act does not define the expression "public policy" or "opposed to public policy". From the very nature of things, the expressions "public policy", "opposed to public policy" or "contrary to public policy" are incapable of precise definition. Public policy, however, is not the policy of a particular government.
It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time.
4.34 Thus, there lies a distinction between public policy and policy of law84; and they are not co-extensive.
4.35 The Supreme Court in the case of Gherulal Parakh v. Mahadeodas Maiya & Ors.85 while examining the scope of Section 23 held:
The word 'immoral' is very comprehensive word. Ordinarily it takes in every aspect of personal conduct deviating from the standard norms of life It may also be said that what is repugnant to good conscience is immoral. Its varying content depends upon time, place and the stage of civilization of a particular society. In short, no universal standard can be laid down and any law based on such fluid concept defeats its own purpose.
The provisions of Section 23 of the Contract Act indicate the legislative intention to give it a restricted meaning. Its juxtaposition with an equally illusive concept, public policy, indicates that it is used in a restricted sense; otherwise there would be overlapping of the two concepts. In its wide sense what is immoral may be against public policy covers political, social and economic ground of objection. Decided cases and authoritative text-books writers, therefore, confined it, with every justification, only to sexual immorality.
The other limitation imposed on the word by the statue, namely, "courts consider immoral" brings out the idea that it is also a branch of the common law like the doctrine of public policy, and, therefore, should be confined to the principles recognized and settled by Courts. Precedents confine the said concept only to sexual immorality and no case has been brought to our notice where it has been applied to any head other than sexual immorality. In the circumstances, we cannot involve a new head so as to bring in wagers within its fold.
4.36 The Courts in India have been unwilling to extend the scope of "immorality" under section 23 of the Contract Act. However, in Union of India v. M/s N.K. Garg & Co.86, the Delhi High Court held that any agreement by which a party is deprived of interest (any legitimate claim) would be rendered void for being immoral and violative of public policy.
The Delhi High Court in North Delhi Municipal Corporation v. Prem Chand Gupta87, examined the third part of section 23 of the Contract Act to determine as to whether the clause of the contract between the parties that prohibited the payment of interest can be said to be immoral or against the public policy. The Court observed:
Therefore, in today's date and age to say that moneys can be retained for years and years and decades is clearly immoral and has to be held against public policy otherwise there will be gross injustice to the existence of the commercial world which cannot survive without payment of moneys in time.
4.37 Therefore, it can be seen that though gambling and betting might be considered morally questionable, the framers of the Constitution were cognizant of the fact that it would be nearly impossible to completely prohibit these activities. This difficulty has increased manifold with the advent of Internet Technology. Thus the decision to put gambling and betting under the State List, empowering the States to regulate these activities as per the socio economic conditions of that particular State has proven to be a right decision.