Raghunath Prasad vs Sarju Prasad case is one of the landmark cases of the Indian Contract Act, 1872, which explains the consent of Undue Influence and Free Consent, which is defined under Section 14 & 16, respectively. In the case of Undue influence, the contract is voidable, as consent given by the party is not free and the party has the power to avoid the contract. Free Consent is said to be free when it’s not caused by coercion, undue influence, fraud, misrepresentation, and mistake which are defined under sections 15, 16, 17, 18, 20, 21, and 22 respectively.
Shaw, Carson, J Edge, A Ali, L Jenkins
Indian Contract Act: Section 14 & 16:
- Section 14 states the definition of ‘Free Consent’ under the Indian Contract Act, 1872.
- Section 16 states the definition of ‘Undue Influence’ under the Indian Contract Act, 1872.
- Son Sarju Prasad as the defendant and His father Raghunath Prasad as plaintiff are part of the joint undivided family.
- Both father and son have a dispute over the property due to which the father filed a criminal suit against his own son.
- To defend himself defendant mortgaged his property for the sum of Rs. 10,000 @ 24% compound interest with the plaintiff but during eleven years the interest was increased by 11 times.
- Defendant contended that the plaintiff has taken advantage of his mental condition to increase the interest rate and therefore section 16 of the Indian Contract Act, 1872 should be applied here.
- Whether the appellant, in the circumstances proved in the case, fell within the protective provisions of Section 16(3) of the Indian Contract Act?
Section 16(3) of Indian Contract Act: Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall be upon the person in a position to dominate the will of the other. Nothing in the sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).
Illustration: (a) A having advanced money to his son, B, during his minority, upon B’s coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. ‘A’ employs undue influence.
- The Privy Council laid down a 3-step process to determine if any case of Undue influence falls in Section 16(3) of the Indian Contract Act:
- In the first place, the relations between the parties to each other must be such that one is in a position to dominate the will of the other.
- Once that position is established the second stage has been reached – namely, the issue of whether the contract has been induced by undue influence or not.
- After this determination, a third point emerges, which is that of the onus probandi. If the transaction appears to be unconscionable (wrong), then 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 others.
- Error is almost sure to arise if the order of these 3-steps be changed.
- The court held that the borrower failed to prove that lender was in a position to dominate his will, therefore the Section 16(3) conditions are not fulfilled so it will not be applied. The first stage of the 3-step test did not arrive, i.e. the relation between the parties is such that one is in a position to dominate the will of the other, so there was no question of whether the undue influence was there or not.
- The Court allowed compound interest on the principal at the rate of 2 percent from the date of execution of the bond until September 25, 1917, and thereafter simple interest at the rate of 6 percent per annum up to the date of realization.
The Court in Raghunath Prasad vs Sarju Prasad case was diligent enough to lay down a 3-step for determination of any case to fall under Section 16(3) of Indian Contract Act by which the confusion regarding the relation between the parties to dominate the will other, undue influence and onus probandi was cleared.