Consideration is what one party gives in exchange for the other's promise. Without consideration, the promise is gratuitous, and gratuitous promises are not enforceable in Indian contract law. The Contract Act addresses consideration in sections 2(d), 23, 24 and 25. The framework is broadly similar to English common law from which it is derived, with one significant Indian-law modification that this module focuses on.
The definition
Section 2(d) defines consideration: "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."
Unpack this definition slowly. It contains four important rules.
First, consideration must move at the desire of the promisor. Something done without the promisor's request, even if it benefits the promisor, is not consideration. If you save a stranger's life and they then promise you a reward, your earlier act is not consideration for their promise because it was not at their request.
Second, consideration can be an act, an abstinence, or a promise. Paying money is consideration. Promising to pay money is consideration. Promising not to sue someone is consideration. Refraining from doing something the promisee would otherwise have done is consideration.
Third, consideration can flow from the promisee or from any other person. This is the rule that distinguishes Indian consideration doctrine from English common law and is the headline point of this module.
Fourth, consideration can be past, present, or future. Indian law accepts all three. English common law, by contrast, generally does not accept past consideration. This is the second important difference and is covered later in the module.
The Indian rule: consideration from a stranger
The Contract Act allows consideration to move from "the promisee or any other person." This means that the consideration for a promise need not come from the person who receives the promise. A third party can provide the consideration, and the contract is still enforceable by the promisee against the promisor.
This is a meaningful departure from English contract law, which insists that consideration must move from the promisee. Under English law, a contract is enforceable only by the party who provided the consideration. Under Indian law, the promisee can enforce a contract for which the consideration was provided by someone else.
The classic example, found in nearly every Indian textbook, is the case of Chinnaya v Ramayya from 1882. A mother gifted property to her daughter on the condition that the daughter pay an annuity to the mother's sister. The daughter promised to pay. The aunt sued the daughter when the payment was not made. The daughter's defence was that no consideration had moved from the aunt to her, and therefore the aunt could not sue. The Madras High Court rejected the defence: the consideration had moved from the mother, who was the original party desiring the daughter's promise. The aunt could enforce the promise, even though she was not the source of the consideration.
This rule has commercial significance. In modern transactions, it is common for one party to make a promise to a counterparty in consideration of something provided by a third party. Group company guarantees, parent company indemnities for subsidiary obligations, and back-to-back contractual structures are common examples. Under Indian consideration doctrine, the structure works without artificial workarounds.
Past consideration
The second Indian-specific feature is that past consideration is valid. If I do something for you at your request and you then promise to pay me for what I have already done, my past act is good consideration for your subsequent promise. Under English common law, this would not be enforceable — past consideration is generally no consideration. Under Indian law, it is.
The classic example: a lawyer provides legal advice in March. The client, satisfied with the outcome, promises in June to pay Rs. 50,000 for the March advice. Under Indian law, the lawyer's past services are good consideration for the June promise. The client is bound to pay.
For this rule to apply, the past act must have been done at the request of the promisor. An unsolicited service for which the recipient later promises payment is not protected by the past consideration rule, because the act was not at the promisor's desire. The desire of the promisor at the time of the act remains the critical element; the timing of the promise is what is relaxed in Indian law.
Adequacy versus existence of consideration
Section 25, Explanation 2 makes a fundamental point: "An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate." Courts will not refuse to enforce a contract on the ground that the consideration was a bad bargain, provided some consideration existed.
This rule has both protective and exploitative consequences. On the one hand, it allows commercial parties to strike their own bargains without judicial second-guessing. A house sold for Rs. 1 by a parent to a child is enforceable; a software licence at a heavily-discounted rate to a strategic customer is enforceable; a multi-year supply contract at below-market prices is enforceable. On the other hand, it means a party who agreed to a lopsided bargain in haste cannot easily escape by arguing the consideration was insufficient.
However — and this is important — inadequacy of consideration is evidence that consent was not freely given. If a contract shows a wildly disproportionate exchange, courts may look harder at whether the consent was obtained by undue influence, coercion, or fraud. Inadequacy of consideration alone does not void the contract, but it raises the question of whether one of the other elements (free consent, covered in module 4) was actually present.
Contracts without consideration — Section 25 exceptions
The general rule is that an agreement without consideration is void. Section 25 sets out specific exceptions where Indian law accepts a contract even when no consideration has been given.
The three exceptions in Section 25 itself are:
- Agreements in writing and registered, made on account of natural love and affection between parties in a near relation. A father can gift property to a son with no consideration; the gift is enforceable if executed in writing and registered. The "natural love and affection" element distinguishes this from a commercial gift, which still requires consideration.
- Promises to compensate for past voluntary services. If someone has voluntarily done something for the promisor without expecting payment, and the promisor later promises to pay, this is enforceable even without fresh consideration. The earlier "at the desire of the promisor" requirement is relaxed here.
- Promises to pay a time-barred debt. If a debt has become unenforceable because the limitation period has expired, but the debtor signs a written acknowledgment promising to pay it, the new promise is enforceable.
Beyond Section 25, certain instruments and transactions are enforceable without consideration under other statutes — most importantly, gifts made in writing of immovable property under the Transfer of Property Act, contracts of agency (which can be created without consideration to the agent under Section 185 of the Contract Act), and bailments. These special rules apply only within their specific contexts.
Common misconceptions about consideration
"A token amount is not real consideration." Wrong. As long as some consideration exists, even Rs. 1 is sufficient. Inadequacy does not void.
"Consideration must be money." Wrong. Anything of value can be consideration — goods, services, promises, refraining from doing something.
"If both parties already had a duty to do something, doing it cannot be consideration for a new promise." Correct, with nuances. The doctrine here is called pre-existing obligation. If you are already legally bound to do X (whether by an existing contract or by statute), doing X cannot be consideration for someone's new promise to pay you for it. There must be something more than what you were already obliged to do.
"Consideration moves only when value moves." Wrong. Refraining from doing something — for example, refraining from suing — is good consideration even though no value visibly changes hands.
Quiz coming up
You have now completed the first three modules. The mid-course quiz follows. It tests the fundamentals covered in modules 1 to 3: the structure of the Contract Act, offer and acceptance, and consideration. Pass it at 70% and you can move on to module 4. Even if you do not pass on the first attempt, you can retake it. The quiz is designed to reinforce, not to gatekeep.
After the quiz, module 4 covers capacity and free consent — the third and fourth elements of a valid contract.