Introduction

• This case brings the three steps to determine the concept of undue influence under Section 16 of the Indian Contract Act, 1872 (ICA).
• In this case, the Court talked about the burden of proving will lie on the person who is in the position of the dominate.
• Section 16 of ICA provides that a contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in position to dominate the will of the other and uses the position to obtain an unfair advantage over the other.

Facts

• In this case, the Sarju Prasad (defendant) and Raghunath Prasad, father and plaintiff here, are part of the Joint Hindu Family (JHF).
  • Both the father and son had dispute over the property and father had filed a criminal proceeding against the son.
• To defend himself, the defendant mortgaged his property for the sum Rs 10000 @ 24% compound interest with the plaintiff but during eleven years, the interest was increased by 11 times.
• The defendant contended that the plaintiff has taken the undue advantage of the defendant’ mental condition to increase the interest rate and therefore Section 16 of the ICA should be applied here.

Issues Involved

• Whether the plaintiff would be protected under Section 16(3) of the ICA?
• Whether the contract between the parties is induced by undue influence?

Observation

• The Bombay High Court laid down the three-step process to determine that the contract is induced by undue influence.
  • In the first place, the relations between the parties must be determined as one party is in a position to dominate the other party.
  • In second place, whether the contract is induced by the undue influence or not,
  • The last one is onus probandi, If the transaction appears to be unconscionable (wrong), then the burden of proving that the contract was not induced by undue influence is to lie upon the person who was in a position to dominate the will of the others.

Conclusion

• The Court held that the plaintiff was unable to prove that the defendant dominated his position, and the contract was induced by the undue influenced. Hence, the conditions of the three steps process are not fulfilled.
• The Court allowed the interest rate from the date of the execution.

Note

Section 16 of ICA: Undue influence defined. --

• A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.
• In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another--
  • where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
  • where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.
• Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.
• Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (IEA).