In contracts, wherever one comes across portions that are invalid, opposed to the law or public policy etc., the question arises whether this makes the entire contract invalid, illegal and thus unenforceable. The answer to the question is heavily dependent on the extent of such invalidity. Wherever the portion which is illegal and invalid, is such that it can be removed and the rest of the portion saved and made enforceable, the invalid portion in the contract does not render the entire contract unenforceable.
The doctrine of blue pencil relates to striking out the illegal and/or unenforceable and/or unnecessary portion of a contract and retaining the rest of the contract and allowing it to be enforceable and legal. The idea is to strike out with a blue pencil any portion in a contract which is illegal and/or unenforceable and/or unnecessary, while retaining the rest of the portion which still makes sense and is enforceable by law.
The word “blue pencil” itself comes from the use of a blue pencil for editing or even censoring films or manuscripts etc. The practice was to use a blue pencil while making corrections or performing editing work on the necessary portions. The blue pencil doctrine in contract law comes from the case of Mallan v. May (1844) 13 M and W 511. The practice initially started with non-compete agreements and was later given broader application by the courts.
The doctrine gained prominence through the case of Nordenfelt v. Maxim Nordenfelt Guns and Ammunitions Co. Ltd. [1894] A.C. 535, which was also a case related to non-compete. The term itself was used in 1920 in the case of Atwood v. Lamont [1920] 3 K.B. 571. The doctrine works on the principle of severability and is often found in common law jurisdictions.
Blue Pencil Doctrine in India
Section 24 of the Indian Contract Act, 1872 provides that where any part of a consideration in contract is unlawful, then the contract is void. Section 27 provides that any restraint on lawful profession or trade is void to that extent. Blue pencil doctrine was initially used in non-compete agreements and was later given a broader application for other portions of a contract.
The term was first used in colonial era cases, and has since then been continued to be used by courts to give effect to contracts by striking out irrelevant and/or illegal portions of a contract and thus safeguarding the interests of the parties. The application of blue pencil doctrine has since then developed from non-compete and restriction of trade. It has also been applied to arbitration, memorandum of understanding, sale of real estate, contracts against public policy etc.
The case of Shin Satellite Public Co. Ltd. v. Jain Studios Limited, AIR 2006 SC 963, is a significant case in the applicability of the blue pencil doctrine. The court put emphasis on “substantial severability” and not “textual divisibility”. This means to save the main or substantial portion of the contract by striking out the trivial and unnecessary portion. For the doctrine to be applied to a contract, substantial severability is necessary and it is the duty of the court to assess the contract.
Conclusion
The doctrine of blue pencil originated in England and was later developed by the English and American courts. The doctrine allows striking out irrelevant and invalid portions in a contract and retaining the rest in a manner that the residual is legal and enforceable. The doctrine was only applicable to non-compete contracts/clauses or agreements that restricted trade or profession.
The doctrine was brought to India with the rest of the colonial era laws and principles. The Indian courts since then have developed the doctrine and widened its ambit. The doctrine is now applied to a variety of other types of contracts in India and not limited anymore to just non-compete. Indian courts have taken the blue pencil doctrine and applied it to all instances of contracts where it could be used to protect the interests of the parties in furtherance of the interests of justice.