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Understanding Coercion and Undue Influence under Indian Contract Act

Introduction.

Section 13 of the Indian Contract Act states that two or more persons are said to consent when they agree upon the same thing in the same sense. Meeting the same mind, i.e., Consensus ad idem( mutual agreement on the same thing), is vital for forming a valid contract.

Illustration:

If A has three cars and decides to sell his blue car but B being the buyer believes that the sale is for the red one. Here, there is no meeting of the same mind so no contract can be formed.

Section 14 of the Indian Contract Act, defines ‘free consent” as Consent is said to be free when it is not caused by -

Coercion, as defined in section 15, or
Undue Influence, as defined in section 16, or
Fraud, as defined in section 17, or
Misrepresentation, as defined in section 18, or
Mistake, subject to provision of sections 20,21 and 22.

In this article, we will deal with coercion and undue influence

Coercion

Section 15 of the Indian Contract Act defines "Coercion" as committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

Illustration.

When A threatens B to commit suicide if B doesn’t form a contract with him, then the consent obtained here is coerced and not free.
When A threatens to kill B’s son if B doesn’t sell his house to him, here the consent obtained is by coercion.

Effect of coercion on contract:

When consent is obtained by coercion then the contract becomes voidable. It is at the discretion of the person whose consent has been obtained by coercion to continue with the contract or not.

Definition of the words in the section 15 of the Indian Contract Act.

Act forbidden by IPC:- If a contract becomes voidable by an act forbidden by the Indian Penal Code then it becomes necessary in a civil action for the court to decide whether the alleged act of coercion amounts to an offence.
Ranganayakamma v. Alwar Setti (1889) I.L.R. 13 Mad. 214:- In this case after the death of the husband, relatives of her husband got the consent of the wife to adopt a boy by preventing her from removing the body of the husband from her home. The court ruled that the widow’s consent was not free and that the adoption was not binding on her.
Detention of property: When there is illegal confining of the property or threat to do so to obtain consent for a contract, then that consent is said to be coerced. When someone unlawfully holds or threatens to hold another person’s property to force them into agreeing to a contract, that agreement is made under coercion. This means the consent isn’t given freely but rather due to pressure or fear of losing their property.
Eg-
Imagine a lender unlawfully detains the car of a borrower’s family member, insisting they will only return it if the borrower signs a contract to pay back a loan under unfavourable terms( refers to contract conditions that are unfair or disadvantageous to the borrower, such as a high interest rate, strict repayment schedule, or penalties that the borrower would normally reject. These terms benefit the lender at the borrower’s expense, making the contract unfair. Here, the lender is using the unlawful detention of the family member's property (the car) to pressure the borrower into signing a contract they otherwise would not have agreed to.
Prejudice of any person:- In the context of the Indian Contract Act, "prejudice" means harm, disadvantage, or unfair treatment and prejudice of any person typically refers to any act, influence, or effect that unfairly harms or disadvantages a party in a contract. This term can be applied broadly to situations where one party's legal rights, interests, or ability to make free decisions are negatively impacted by the actions of another party. When a person is forced or threatened into a contract, the prejudice lies in the fear or harm imposed, which leads them to act against their interests.

Important case laws of coercion-

Gobardhandas v. Jai Kishan, ILR 22 All 224:- In this case, Jai Kishan’s son, Gopal Das, aged twenty-two, transferred his share of ancestral property to his cousin, Gobardhandas, through a deed of sale. Later, Gopal Das claimed he had signed under coercion due to threats from Gobardhandas. The court held the case in favour of Gobardhandas as there was no sufficient evidence to establish that coercion had occurred.
Bansraj v. Secretary of State,
In the case of Bansraj Das v. Secretary of State, the dispute arose from the government's actions to recover a fine imposed on Bansraj's son. The government attached the property of Bansraj Das in order to enforce the payment of this fine. Bansraj challenged the legality of this attachment, arguing that it was unjust and violated his rights.
The primary contention was that the attachment of his property without proper legal proceedings constituted coercion, as it forced him to comply with the government's demands under threat of losing his property. Bansraj claimed that such coercive actions were not permissible under the law and sought relief from the court.
The court ruled in favour of Bansraj Das, finding that the attachment of his property was indeed unlawful and amount to coercion.
Chikkam Ammiraju v. Chikkam Seshamma, AIR 1918 Mad 414
The case of Chikkam Ammiraju v. Chikkam Seshamma centers around a dispute involving the execution of a release deed concerning property rights. The plaintiffs, Chikkam Ammiraju and his mother, alleged that they were coerced into signing a release deed that relinquished(to give up) their reversionary rights (Reversionary rights refer to the rights of a person (often the original owner) to regain ownership or control of property or land in the future, usually after the end of a lease, agreement, or the death of the current holder) to certain lands. This coercion was reportedly instigated by Swami, the husband of the first plaintiff, who threatened to commit suicide unless they executed the deed.
The plaintiffs contended that the threat of suicide created an atmosphere of distress and fear, which compromised their ability to give free consent to the contract. They sought to have the release deed set aside on the grounds that it was executed under coercion. The court held the case in favour of the plaintiff.

Undue Influence.

Section 16 of the Indian Contract Act defines undue influence as ‘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’.

A contract is influenced by "undue influence" when one party has power over the other due to their relationship and misuses that power to gain an unfair benefit.

When a person is said to dominate the will of another person:

When there is real or apparent authority over the other person or there is a fiduciary relation (relationship of trust and confidence) to the other.
When the contract is formed with the person whose mental capacity is temporarily or permanently affected because of age, illness, or bodily distress.

The burden of proof.

When a person who is in a position to dominate the will of the other person enters into a contract with him and the transaction appears on the face of it to be unconscionable (one-sided), then the burden of proof lies on the person who is in a position to dominate the will of another person that the contract is free from undue influence.

Illustrations-:

A man enfeebled (weakened) by disease or age is induced, by B’s influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services; B employs undue influence.

What is a fiduciary relationship?

A fiduciary relationship in contract law refers to a relationship of trust and confidence where one party places significant reliance on another to act in their best interest. In such relationships, the fiduciary party has a duty to act with loyalty, fairness, and integrity toward the other party, often in situations involving financial or personal decisions.

Examples of fiduciary relationships include:

Master and servant;
Guardian and ward;
Parent and child;
Trustee and trust;
Solicitor and client;
Spiritual adviser and devotee.

Important case related to undue influence.

Raghunath Prasad v. Sarju Prasad (1924).

This is a landmark case of undue influence in which it establishes a three-step procedure to determine if a contract has been affected by undue influence or not.

Facts of the case:

The case of Raghunath Prasad v. Sarju Prasad involves a dispute between a father (Raghunath Prasad) and his son (Sarju Prasad). The conflict arose when Raghunath initiated criminal proceedings against Sarju over property disputes. To defend himself, Sarju mortgaged his property to his father for ₹10,000 at a compound interest rate of 24%. Over the course of eleven years, the accumulated interest increased dramatically.

Sarju contended that he was under undue influence when he entered into this agreement, claiming that his father had taken advantage of his mental distress and the familial relationship to impose an exorbitant (unreasonable) interest rate. He argued that this constituted undue influence.

Judgment.

The Privy Council ruled in favour of Raghunath Prasad, finding that Sarju did not adequately prove that undue influence was exerted over him. As Sarju was not able to proof that mere having family relationship with lender and the borrower doesn’t establish undue influence, you have to show that there was the existence of the pressure which Sarju failed to proof.

The court emphasised several key points:

Three-Step Process: The court laid down a three-step process to determine whether undue influence was present:

Establish the relationship between the parties to see if one party could dominate the will of the other.
Determine whether the contract was induced by undue influence.
If the transaction appears unconscionable, the burden of proof shifts to the dominant party to show that undue influence was not present i.e. If the deal seems unfair, the dominant party must prove that they did not use undue influence.

Conclusion

In conclusion, coercion and undue influence under the Indian Contract Act are important to safeguards to form a valid contract. Coercion involves using threats or unlawful acts to get consent, making the contract voidable at the discretion of the affected party. Undue influence arises when a dominant party misuses their position to gain an unfair advantage, with the burden of proof on them if the transaction seems that it has been given due to the fiduciary relationship. These provisions uphold the integrity of contracts by protecting individuals from exploitation and fostering equitable practices in agreements, ensuring the validity of the contract so that the affected party can get justice.

Frequently Asked Questions. (FAQs).

1. How does undue influence differ from coercion?

While coercion involves direct threats or force, undue influence (as per Section 16) refers to manipulating someone’s decisions by taking advantage of a relationship of trust, authority, or dependency. Coercion is generally physical, whereas undue influence relies on psychological manipulation.

2. How does one prove undue influence?

Proving undue influence often requires showing that a party was in a position of power or trust over the other and used this influence unfairly. Evidence of dependency, a significant imbalance in the relationship, or an unfair outcome can support claims of undue influence.

3. What are some real-life examples of undue influence?

Examples include a parent pressuring an adult child to make financial commitments, a doctor influencing a patient’s financial decisions, or a caregiver manipulating an elderly person to alter their will. These scenarios exploit trust for personal gain.

4. When can a contract be considered void due to coercion?

A contract can be voidable if it was signed under coercion. If proven, the coerced party has the right to cancel the contract and may seek restitution or relief through the court to return to their original position before the contract.