Raghunath Prasad vs. Sarju Prasad||Case Summary|| AIR 1924 PC 60|| Undue Influence in contract

Undue Influence in Contract

FACTS

In Raghunath Prasad vs. Sarju Prasad Sarju Prasad Sahu, the defendant and his father, the plaintiff, Mr. Ragunath Prasad Sahu are the owners of a substantial family property on the basis of which disputes arose between them, leading the father to initiate criminal proceedings against his son. In response to the legal arguments, the defendant mortgaged his properties to the plaintiff and took about ten thousand rupees from the plaintiff on compound interest at the rate of 24 percent. In the eleven years, interest mounted compounded-wise to the sum of Rs.1,12,885. The basis of the defence lies in asserting that the lender exercised unconscionable advantage of his mental distress by charging exorbitant interest. Therefore, the defendant claims the existence of undue influence, citing Section 16 of the Indian Contract Act, 1872.

ISSUES

1. Whether the plaintiff would be covered by Section 16(3) of the ICA.

2. Whether the contract between the parties is caused due to undue influence.

RELEVANT LAWS

Section 16(3) of the Indian Contract Act: A contract is held to be induced by 'undue influence' where the relationship between the parties stands such that one of the parties is in a position to control the will of the other and does so in order to secure an unfair benefit over the other. Whether the relationship is such that the dominating party holds authority over the other or if the contract is made with a person of affected mental capacity due to various reasons. The burden of proving the contract was not induced by undue influence lies on the dominant party.

JUDGEMENT

The court, in determining the question of undue influence, emphasised that the parties' relationship should be such that one has a power over the will of the other. Lord Shaw, citing sub-section (3) of Section 16, set out the step-by-step process: creating the dominating relationship, considering whether the contract had been affected by undue influence, and dealing with the burden of proof. The onus of establishing that the contract was not induced by undue influence is upon the party in a position to control the other's will. The court in Raghunath Prasad v Sarju Prasad emphasized the necessity of identifying the relationship prior to determining the unconscionableness of the agreement. The borrower was unable to show that the lender had control over his will. The exclusive relationship found was the relationship of lender and borrower, which was not enough to establish domination of will.

Vinita Pathak