Varsha Sharma
In this essay, I will be analysing Pollock and Mulla’s statement, “Provisions of ss. 15 and 16 as defined in the Contract Act are not flexible to deal with new emerging principles, whether of inequality of bargaining power, economic duress or unconscionability”[i] in the backdrop of case laws.
Scope of Amended Section 16
The aim of amending Section 16 in 1899 was to bring the general principle of unconscionability within it. Section 16(1)[ii] had the potential to absorb unconscionability, as the use of the word ‘unfair advantage’ shows the willingness of the drafters to bring a general principle of unconscionability.
Section 16 of the Indian Contract Act before amendment was not in a position to subsume within it unconscionable bargains. However, the Indian courts invoked this in a number of cases taking cues from English law. The predominant cases in which section 16 was invoked was money-lender transactions involving excessive interest rates. The Privy Council in the case of Kamini Sundar v. Kali Prosunno,[iii] claimed a transaction to be unconscionable irrespective of the fact that it did not involve ‘undue influence’ as per the requirements in Section 16. This was confirmed by the Privy Council in appeals in other cases in 1890 and this was followed by Indian courts. Thus, the relief in these type of cases was awarded on the principle of equity rather than undue influence under Section 16.
Also, in Section 16 (3) of the amended section16 of Indian Contract Act, there was not presumed undue influence of the category of Allcard vs Skinner[iv] which the illustration(c) of Section 16 tells us.Thus, the presumption in s. 16 (3) applied to any case where one party was in a position to dominate the will of the other and the transaction apparently looked unconscionable. The amendment of Section 16 was an attempt by Chalmers to bring in unconscionability into Indian Contract Law and it was similar to attempt of Lord Denning M.R. in Lloyds Bank vs Bundy[v], in which he used the term, ‘inequality of bargaining power’, which was a rubric used for scattered terms ‘unconscionability, duress and undue influence’.
The motive was that the person at stronger position should not take advantage of the one at weaker position. Thus,both Chalmers and Lord Denning’s attempt was to recognise the principle of ‘unconscionable bargains’ but which also included within them the conventional categories of Undue Influence.[vi] Thus, it can clearly see that the use of word ‘unfair advantage’, in amended Section16 (1) has the scope to subsume the principle of unconscionability within it. However, there were two reasons due to which these great attempts of Chalmers were spoiled.
The first is that the Indian Courts required undue influence to be proved in the conventional way in order to get relief. Thus, in the case of Raja Balla Mal vs Adah Shah[vii], privy Council required the claimant to prove undue influence in most conventional sense, and thereby neglected the principle of unconscionability. This interpretation negated the possibility to deal with usurious moneylenders’ cases. An interpretation of this manner frustrated the legislative intent of including the cases of ‘usurious money lenders’ within the doctrine of unconscionability under section 16. Thus, the legislature had to enact Usurious Loans Act in 1918, which allowed for court’s intervention in money lending transactions. This, however, took away the principle of unconscionability from Indian Contract law.
The Reading of Position to Dominate Will as exhaustive under Section 16(2)
The other problem was that the Indian Courts’ read position to dominate will as under Section 16(3) as exhausted by Section 16(2).[viii] In Subhash Prosad Das Mushib vs. Ganga Prasad Das Mushib (1967)[ix] the donor had made the gift deed to his younger sons’ grandson with the exclusion of his elder son and daughter.
Now, a reasonable man could clearly see that there is undue influence by the donee’s father.The Calcutta high Court in fact found this case, to be ‘complete departure from a normal case of inheritance’, and also found that the donee’s father was in a position to dominate the will of the donor and thus invoked the presumption in Section 16(3). The Supreme Court however,reversed the Calcutta High Court’s judgement, their reasoning behind it was that the position to dominate the will was exhausted under Section 16(2) i.e., a position of trust and confidence and special disability.
The Indian court’s interpretation of fiduciary is very narrow.So, since the case did not qualify for 16(2), the Supreme Court did not invoke Section 16(3). In Central Inland Water Transport Corporation vs Brojo Nath Ganguly,[x] the principle of unconscionability could have been regained but it was lost again. Justice Madon J. held that the only state and its instrumentalities are under the obligation to constitutional provisions, whereas private parties are not. The Supreme Court in the case of Binny Ltd. Vs Sadaviam(2005)[xi] held that Brojo Nath Ganguly had no applicability to private bodies, thus limiting the principle of unconscionability to only state and its instrumentalities.
With the coming of Consumer Protection Act, 2019 ‘inequality of bargaining power also applies to consumer contracts, which gives the power to remove an ‘unfair term’ of the contract. Thus, now ‘inequality of bargaining power’ deals in contracts to state and in consumer contracts, but not with contracts to private parties, but the problem of ‘inequality of bargaining power could have been easily solved if it was put under Section 16(1), as in that the case it was possible to apply Section 19(A) of Indian Contract Act[xii] which makes the contract voidable.
Forceful Application of Economic Duress in Section 15
The definition of ‘economic duress’ is forcefully interpreted in the context of section 15 by the courts in India. In the case of Daichi Karkaria vs ONGC,[xiii] there was no threat to detain property or an offence under IPC, thus the definition of coercion was incapable of accommodating this case of economic duress. Also, section 15 cannot accommodate economic duress unless it contingently coincides with the threat to commit an offence or detention of property as was in the case of Universe Tankships of Monrovia v International Transport Workers Federation (The Universe Sentinel).[xiv] However, the principle of economic duress is forcefully applied in section 15 which is narrow to coverall the cases of ‘economic duress”.[xv]
Thus, I would conclude that Pollock and Mulla were wrong in saying that section 16 is incapable of incorporating within its definition the principle of unconscionability, inequality of bargaining power and economic duress, as section16 is broad enough to cover these principles, which is unfortunately not recognised by Indian courts. However, they were right in identifying that the definition of section 15 is narrow and incapable of incorporating these principles, which is however forcefully made to incorporate‘economic duress’ within its ambit by the courts in India.
[i] Pollock and Mulla, The Indian Contract Act, 14th Edition
[ii] Indian Contract Act, 1872
[iii] (1885) I.L.R. 12 Cal. 225 (PC)
[iv] (1887) 36 Ch D 145.
[v] [1975] QB 326
[vi] Shivprasad Swaminathan, “Coercion, Undue Influence and Unconscionability in Indian Contract Law”, pg. 2-8
[vii] (1919) 21 Bom LR 558 (PC)
[viii] Indian Contract Act, 1872
[ix] [1967] 1 SCR 331 at [9] (Mitter J) (Supreme Court of India)
[x] (1986) 3 SCC 156
[xi] Indian Contract Act, 1872
[xii] Indian Contract Act, 1872
[xiii] (1991) 93 BOMLR 183
[xiv] [1982] 2 All ER 67
[xv] Shivprasad Swaminathan, “Coercion, Undue Influence and Unconscionability in Indian Contract Law”, pg. 20-22
