Re-Evaluating Undue Influence and Unconscionable Bargains under Indian Contract Law

Re-Evaluating Undue Influence and Unconscionable Bargains under Indian Contract Law

Introduction

Indian contract jurisprudence has long grappled with the twin doctrines of undue influence and the unconscionable bargain. Although both doctrines aim to safeguard voluntariness in contracting, they operate through distinct analytical lenses. The statutory fulcrum remains Section 16 of the Indian Contract Act 1872[1], complemented by the public-policy matrix of Section 23[2]. This article critically analyses the conceptual boundaries and jurisprudential evolution of the doctrines, drawing chiefly upon Raghunath Prasad Sahu v. Sarju Prasad Sahu[3], Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly[4] and other landmark authorities. It argues for a principled synthesis that balances contractual autonomy with substantive fairness, particularly in relationships marked by inequality of bargaining power.

Conceptual Framework

Statutory Anatomy

Section 16 codifies undue influence in three concentric inquiries: (i) existence of a position to dominate the will; (ii) utilisation of that position; (iii) resulting unfair advantage. Sub-section (3) embeds a reverse burden of proof once the first two limbs and an unconscionable transaction are prima facie shown. Section 23, though textually distinct, becomes operative where unconscionability offends public policy, rendering the agreement void rather than voidable.

Analytical Distinction

  • Undue Influence: focuses on relational dominance; remedy is usually rescission at the instance of the weaker party (voidable).
  • Unconscionable Bargain: concentrates on the intrinsic harshness/unfairness of the terms; may be voidable (as undue influence) or void (as opposed to public policy) depending on doctrinal location[4].

Judicial Trajectory

(A) Privy Council Foundations

In Raghunath Prasad Sahu the Privy Council cautioned that “the unconscionableness of the bargain is not the first thing to be considered”[3]. The initial inquiry must interrogate whether relational dynamics enabled domination. Absent such evidence, even exorbitant compound interest at 24% per annum failed to invite judicial interference. The decision thus entrenched a relationship-first test, placing heavy evidentiary demands on the claimant.

(B) Post-Independence Refinements

Subhas Chandra Das Mushib reaffirmed the relationship-first sequencing and emphasised particularised pleadings under Order VI Rule 4 CPC[6]. Subsequent High Court pronouncements (e.g., K.M. Madhavakrishnan[9]; Sathi Sattemma[11]) replicated this template, recognising that unconscionability merely triggers the statutory presumption once dominance is proved.

(C) Doctrinal Expansion through Constitutional Prism

The watershed came with Central Inland Water Transport Corporation. Speaking through Justice D.A. Desai, the Supreme Court infused Section 23 with egalitarian overtones, invalidating a “hire-and-fire” employment clause on grounds both of public policy and unconscionability[4]. The Court held that inequality of bargaining power in standard-form contracts could itself evidence unconscionability, obviating the need for a fiduciary relationship stricto sensu. The decision thus signalled a partial decoupling of unconscionability from Section 16, allowing direct resort to Section 23 in egregious cases.

(D) Fiduciary Relationships and Burden-Shifting

In Krishna Mohan Kul v. Pratima Maity the Supreme Court underscored that where fiduciary relations exist, the onus lies squarely on the beneficiary to establish the transaction’s fairness[5]. The Court read Section 111 of the Indian Evidence Act 1872 in tandem with Section 16(3), thereby easing evidentiary hurdles for vulnerable litigants.

(E) Contemporary Trends

Recent authorities such as Uddar Gagan Properties Ltd. v. Sant Singh[12] and Raja Ram v. Jai Prakash Singh[10] demonstrate judicial willingness to examine economic asymmetry and procedural improvidence even outside classical fiduciary settings. Notably, Uddar Gagan observed that land acquisition threats created “inequality of bargaining power”, rendering subsequent sale agreements unconscionable.

Critical Appraisal of Key Themes

1. Sequencing: Relationship First or Terms First?

The Privy Council’s sequencing doctrine prevents automatic invalidation of disadvantageous contracts. However, critics argue that modern commerce features impersonal standard-form contracts where dominance emanates less from personal relationships and more from structural power disparities. The constitutionalisation of contract in CIWTC tempers the rigid sequencing by permitting direct scrutiny of terms under Article 14 and Section 23 when bargaining power is demonstrably unequal.

2. Evidentiary Presumptions and Standard of Proof

While Section 16(3) places the burden on the dominant party after a prima facie case, courts have oscillated on what quantum of evidence suffices to shift the onus. Krishna Mohan Kul adopted a liberal approach, whereas Raghunath Prasad Sahu represents a stringent standard. A harmonised approach would calibrate the threshold to the contextual vulnerability of the weaker party, endorsing a sliding-scale model.

3. Interface with Usurious Loans Legislation

Early cases like Abdul Majid v. Ksherode Chandra Pal[7] linked excessive interest to presumed undue influence. Post-1920 statutory amendments and judicial dicta (e.g., Nabin Chandra Saha Poddar) moderated this presumption, insisting on relational dominance. Nonetheless, the Usurious Loans Act 1918 continues to provide supplementary relief, particularly where the loan rate itself evidences exploitation independent of Section 16.

4. Commercial Contracts and Equality of Bargaining Power

The Andhra Pradesh High Court in L. Venkateswara Rao[8] warned against indiscriminate application of inequality principles to arm’s-length commercial dealings between businesspersons. This accords with comparative jurisprudence (e.g., English case Lloyds Bank v. Bundy) that restricts intervention to situations of manifest imbalance or lack of independent advice.

Policy Considerations

  • Autonomy versus Protection: Excessive paternalism could chill legitimate commercial risk-taking. Courts must therefore distinguish “hard bargains” from “oppressive bargains”.
  • Constitutionalisation of Private Law: Post-CIWTC, Article 14 principles are increasingly invoked to police private contractual conduct of State instrumentalities, blurring public-private divides.
  • Codification Prospects: The Law Commission has periodically mooted explicit statutory guidelines on unconscionable terms (akin to the U.K. Consumer Rights Act 2015). Such codification could reduce doctrinal uncertainty while preserving judicial discretion.

Conclusion

The Indian law of undue influence and unconscionable bargains is at an inflection point. Traditional relationship-centric tests, while pivotal, require supplementation by a robust analysis of structural inequalities and substantive unfairness. The Supreme Court’s constitutional turn in CIWTC, reinforced by later decisions, offers a template for a more holistic fairness review. Moving forward, courts should adopt a calibrated dual enquiry: (i) whether relational or structural factors impair genuine consent; and (ii) whether the terms themselves shock judicial conscience. Such an approach would reconcile contractual freedom with distributive justice, thus realising the egalitarian ethos of the Constitution within the private law domain.

Footnotes

  1. Indian Contract Act 1872, s. 16.
  2. Ibid., s. 23.
  3. Raghunath Prasad Sahu v. Sarju Prasad Sahu, AIR 1924 PC 60.
  4. Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156.
  5. Krishna Mohan Kul v. Pratima Maity, (2004) 9 SCC 468.
  6. Subhas Chandra Das Mushib v. Ganga Prasad Das Mushib, AIR 1967 SC 878.
  7. Abdul Majid v. Ksherode Chandra Pal, AIR 1915 Cal 383.
  8. L. Venkateswara Rao v. Singareni Collieries Co. Ltd., 1993 (2) ALT 239 (AP).
  9. K.M. Madhavakrishnan v. S.R. Sami, (1980) 1 MLJ 280 (Mad).
  10. Raja Ram v. Jai Prakash Singh, (2019) 8 SCC 425.
  11. Sathi Sattemma v. Sathi Subbi Reddy, AIR 1962 AP 150.
  12. Uddar Gagan Properties Ltd. v. Sant Singh, (2016) 11 SCC 378.
  13. Hardwar v. Kulwanta, 2013 (4) AWC 3767 (All).
  14. Buragada Venkata Rao v. Godavarti Venkataratnam, AIR 1951 Mad 316.
  15. Gopal Singh v. Massa Singh, (1997) 11 SCC 429.