In Bombay High Court
(1924) 26 BOMLR 595
Date of Judgement
18 December, 1923
Shaw, Carson, J Edge, A Ali, L Jenkins
Background of the Case
This case is one of the landmark cases when it comes to ‘free consent.’ Undue influence is one such instance where a consent is not said to be free and the party whose consent was so obtained, has the option to avoid the contract. Hence, in the case of Undue influence the contract is voidable in nature In case of undue influence. To prove undue influence the plaintiff has to prove that the relations between him and the defendant was such that the latter is in the position to dominate the will of the former by reason of –
1. Real or apparent authority.
2. Fiduciary relationship.
3. Mental capacity is affected by reasons of age, illness or mental or bodily distress of the plaintiff.
Facts of the Case
The case is an appeal from a decree, dated November 9, 1920, of the High Court of Judicature at Patna, which varied a decree, dated September 25, 1917, of the Subordinate Judge of Arrah.
The defendant, Sarju Prasad Sahu and his father who was the plaintiff in this case, Mr. Raghunath Prasad Sahu were equal owners of a massive joint family property. They quarrelled and had fights over this property. Due to the same, the father initiated criminal proceedings against his son. The defendant mortgaged his properties to the plaintiff to defend himself and borrowed from the plaintiff about ten thousand rupees at a compound interest of 24 per cent. In the course of eleven years, the rate of interest on the amount borrowed magnified more than elevenfold, viz., Rs/-1,12,885. The defendant’s contention was that the lender had taken unconscionable advantage of his mental distress by exacting high rates of interest and therefore, there should be presumption of undue influence i.e. Section 16 of the Indian Contract Act, 1872.
The Lordships observed that no presumption of undue influence could be brought out from this case. Lord Shaw referred to sub-section (3) of Section 16 and observed as follows –
“In the first place the relations between the parties to each other must he such that one is in a position to dominate the will of the other. Once that position is substantiated the second stage has been reached, viz., the issue whether the contract has been induced by undue influence. Upon the determination of this issue a third point emerges, which is that of the onus probandi. 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 other. Error is almost sure to arise if the order of these propositions be changed. The unconscionableness of the bargain is not the first thing to be considered. The first thing to be considered is the relations of these parties. Were they such as to put one in a position to dominate the will of the other? Having this distinction and order in view the authorities appear to their Lordships to be easily properly interpreted.”
The borrower, in this case failed to prove that the lender was in a position to dominate his will. The only relation that was proved was that of the lender and the borrower. So, it was not proved whether lender was in a position to ‘dominate the will’ of the borrower and therefore, the borrower got no relief. The first requirement of Section 16 was not fulfilled.
The Lordships also relied on various precedents, mentioned below –
1. Lord Davey in Dhanipal Das v. Raja Maneshar Bakhsh Singh.
2. Dhanipal Das v. Raja Maneshar Bakhsh Singh
3. Maneshar Bakhsh Singh v. Shadi Lal
4. Sundar Koer v. Sham Krishen
5. Abdul Majeed v. Khirode Chandra Pal (The Lordships dissented from this case while pronouncing the judgement).
The verdict of the court was as follows –
“Their Lordships are of opinion that the decree of the High Court should be varied by allowing compound interest on the principal at the rate of two per cent, per mensem from the date of the execution of the bond until September 25, 1917, and thereafter simple interest at the rate of six per cent, per annum up to the date of realization, and that in other respects the decree of the High Court should be affirmed, and they will humbly advise His Majesty accordingly.”
- Upheld the decree of the high court by allowing compound interest on the principal at 2% per mensen from the date of the execution of bond till September 25, 1917
- After September 25, 1917 a simple interest on the principal at a rate of six percent per annum up to the date of realization.
Edited by Chiranjeeb Prateek Mohanty
Approved & Published – Sakshi Raje