DOCTRINE OF INEQUAITY OF BARGAINING POWER

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 -Table of Contents-

Table of Contents
INTRODUCTION ....................................................................................................................................... 3
HISTORY .................................................................................................................................................. 4
ABILITY TO DOMINATE ............................................................................................................................ 6
INSTANCES OF UNDUE INFLUENCE ......................................................................................................... 6
Employment contracts ........................................................................................................................ 6
Gifts ..................................................................................................................................................... 7
Pardanashin women ........................................................................................................................... 7
Commercial Transactions.................................................................................................................... 8
RELATIONSHIP OF BLOOD, MARRIAGE, ADOPTION NOT IMPORTANT ................................................... 8
RELATIONS WHICH INVOLVE DOMINATION ........................................................................................... 9
Real or Apparent Authority ................................................................................................................. 9
Fudiciary Relation ............................................................................................................................... 9
Mental distress ................................................................................................................................. 10
Undue influence by a person not party to contract ......................................................................... 10
UNCONSCIONABLE BARGAIN AND INEQUALITY OF BARGAINING POWER .......................................... 10
UNCONCIOUSBILITY .............................................................................................................................. 11
UNCONSCIONABLE BARGAIN: VOID OR VOIDABLE .............................................................................. 12
PRESUMPTION OF UNCONSCIONABLE BARGAIN ................................................................................. 14
AVOIDING AN UNCONSCIOUABLE CONTRACT...................................................................................... 16
DISCRETION OF COURTS ....................................................................................................................... 17
BURDEN OF PROOF ............................................................................................................................... 17
PRESUMPTION OF INEQUALITY OF BARGAINING POWER .................................................................... 18
LABOUR CONTRACTS ............................................................................................................................ 21
EMPLOYMENT CONTRACTS .................................................................................................................. 21
PRIVATE EMPLOYMENT CONTRACTS .................................................................................................... 22
DEVICES OF PROTECTION...................................................................................................................... 23
Notice should be contemporaneous with the contract .................................................................... 24
Fundamental breach of contract ...................................................................................................... 25
Unreasonable terms ......................................................................................................................... 26
STATUTORY PROVISIONS ...................................................................................................................... 26
ROLE OF JUDICIARY ............................................................................................................................... 26
LATEST DEVELOPMENT ......................................................................................................................... 28
CONCLUSION......................................................................................................................................... 29

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 -Introduction-

INTRODUCTION

“The finest opportunity ever given to the world was thrown away because the passion for
equality made vain the hope for freedom.”— LORD ACTON

The doctrine of ‘inequality of bargaining power’, which was put forward, justified the granting
of relief to one who enters into a contract whose terms are unfair, or which transfers property at a
grossly inadequate price, without access to independent legaladvice. The doctrine further did not
require any evidence of wrongdoing on part of the stronger party, but the presence of a motive
guided by self-interest, being unconscious of the distress caused to the other party.1

A more liberal interpretation, which sought to diminish the requirement of undue influence, was
given in Alec Lobb (Garages) Ltd. v. Total Oil (Great Britain) Ltd. 2 The elements considered
necessary for the application of the doctrine were:

1) One party being at a serious disadvantage.

2) Exploitation of such weakness by the stronger party in a morally culpable manner.

3) The resulting transaction must be overreaching or oppressive towards the weaker party.

Where an agreement between the plaintiff and the other party was made in circumstances in
which there was inequality of bargaining powers and the other party had received no independent
legal advice before signing the agreement and the terms of the agreement were manifestly unfair
it followed that there was a presumption that the agreement was invalid. 3 In other words where
one of the parties to a contract is in a position to dominate the will of the other and the contract is
apparently unfair, the law presumes that consent must have been obtained by undue influence.
Here the burden is shifted to the stronger party to prove that he did nothing to overbear the will
of the other.4 The decision of the Courts of Appeal in Lloyds Bank v. Bundy5 is a remarkable
illustration, wherein the court highlighted that the bank exploited the vulnerability of the father,
caused by his desire to help his son, to such an extent that he charged his house to his ruin for a
very short moratorium, which was a highly inadequate consideration.

1
RICHARD STONE & RALPH CUNNIGTON, TEXT, CASES AND MATERIALS ON CONTRACT LAW 795 (2007).
2
Alec Lobb (Garages) Ltd. v. Total Oil (Great Britain) Ltd., [1985] 1 W.L.R. 173.
3
Clifford Davis Management ltd. V. WEA Records Ltd., (1975) 1 All E.R. 237, 240, 241.
4
Wajid Khan v. Rja Ewaz Ali Khan, (1891)18 I.A. 144.
5
Lloyds Bank v. Bundy, [1975] Q.B. 326.

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 In another formulation, bargaining power is expressed as a ratio of a party's ability to influence
the other participant, to the costs of not reaching an agreement to that party.

To fully understand the doctrine of inequality of bargaining power, the sections of 14,15,16,
19A of the Indian Contract Act, 1872 will come into use.

HISTORY

In India the presumption of inequality in bargaining power was raised in the case of Ramnee
Annapuri Nachiar v. Swaminatha Chettiar,6 where a poor Hindu widow, having no means for
maintenance, borrowed, in order to establish her right to maintenance, a sum of money at 100 per
cent of interest, where a person, without having the means of subsistence, in order to prefer an
appeal against a judgement, borrowed Rs. 3700 on a bond promising to pay Rs. 25000 within a
year from recovery of the possession of an estate7 and where a youth of 18 years of age,
spendthrift and a drunkard, borrowed Rs. 900 on a bond bearing compound interest at 2 per cent
with monthly rests. The court regarded this as a perfect example of inequality of bargaining
power with the rate if interest charged being really exorbitant.8

The doctrine will not come into play if free consent of both the parties exists while signing the
party.

Section 14: Section 14 of the Indian Contract Act of 1872 defines Free consent as consent not
caused by (1) coercion, as defined in section 15; (2) undue influence, as defined in section 16;
(3) fraud, as defined in section 17; (4) misrepresentation, as defined in section 18; or (5) mistake,
subject to the provisions of sections 20, 21, and 22. In other words, consent exists when there is
no evidence of coercion, undue influence, fraud, misrepresentation, or mistake.

Section 15: coercion

In Ranganayakamma v. Alwar Setti9 the question before the Madras High Court was regarding
the validity of the adoption of a boy by a widow, aged 13 years. On the death of her husband, the
husband’s dead body was not allowed to be removed from her house for cremation, by the

6
Ramnee Annapuri Nachiar v. Swaminatha Chettiar, I.L.R. (1909-11) 34 Mad. 7.
7
Chunni Kuar v. Rup Singh, I.L.R., (1888-90) 11 All. 57.
8
Kirpa Ram v. Sami-ud-din Ahmad Khan, I.L.R. (1901-03) 25 All 284, Stanley CJ at p.285.
9
Ranganayakamma v. Alwar Setti, I.L.R., (1889) 13 Mad. 214.

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relatives of the adopted boy until she adopted the boy. It was held that the adoption was not
binding on the widow as her consent had been obtained by coercion.

Section 16: undue influence

The scope of the doctrine of undue influence has frequently been misunderstood. In Mutual
Finance Ltd. v. John Wetton & Sons Ltd.,10 Justice Porter after pointing out that the right to avoid
a contract is not at the present time confined to cases of duress, remarks that "it depends on the
much wider relief given on principles originally evolved in the Chancery Courts under the name
of undue influence. He goes on to say that "duress at common law could only be pleaded where
the end arrived at was achieved by the use of something in the nature of unlawful force or the
threat of unlawful force against the person of the other contracting party. Undue influence in the
Chancery Courts might exist where a promise was extracted by a threat to prosecute certain third
persons unless the promises were given.11

How can Undue Influence affect a Contract?

Undue influence makes an agreement voidable. The person unduly influenced can have the
agreement set aside if he acts in good time, and does nothing to show that he has subsequently
affirmed the agreement. Again, the agreement should be avoided before innocent third parties
become affected or involved. When consent to an agreement is caused by undue influence, the
contract is voidable at the option of the party whose consent was so caused.
Burden of Proof:-A contract is presumed to be induced by undue influence if the following two
condition:-
1. A party has the position to dominate the will of the others (Inequality of Bargaining
Power)
2. The transaction is unconscionable (unreasonable)

In such a case dominant party is under the burden to prove that undue influence was not
employed.

Section 19a:

10
Finance Ltd. v. John Wetton & Sons Ltd., (I937) 2 K.B. 389.
11
Ibid.

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According to section 19A of the Act, when consent to an agreement is obtained by undue
influence, the agreement is voidable at the option of the party whose consent was obtained. The
contract may be set aside, either absolutely, or, if the party entitled to void it has received a
benefit, upon such terms and conditions as the court deems just.

Such transaction which include inequality of bargaining power come under the ambit of
unconsciousnable bargains/contracts

Unconscionable contracts: A contract which no man in his senses, not under delusion, would
make, on the one hand, and which no fair and honest man would accept on the
other.12Example:A applies to a banker for a loan at a time when there is stringency in the money
market. The banker declines to make the loan except at an unusually high rate of interest. A
accepts the loan on these terms. This is a transaction in the ordinary course of business, and the
contract is not induced by undue influence.

ABILITY TO DOMINATE

In the case of Raghunath Prasad Sahu v. Sarju Prasad Sahu 13 it was noted by the Privy Council
that undue influence only comes in handy when one of the parties is in a position to dominate the
will of the other. As between the parties on equal footing the mere unconscionablesness of the
bargain does not create the presumption of undue influence. Hence a party should have the
ability to dominate the other party in the contract to be able to fulfil the doctrine of Inequality of
Bargaining power.

INSTANCES OF UNDUE INFLUENCE

1.Employment contracts

Many concepts of law laid down by Lord Denning are being followed in our judicial system. The
doctrine of inequality of bargaining power was the deciding factor of the case by the Hon'ble
Supreme Court in what is popularly known ‘Inland Water Case’14. In Superintendence
Company of India (P) Ltd v. Sh. Krishan Murgai, Hon'ble Supreme Court held"It is well settled

12
Ilume v. U. S., 132.
13
Raghunath Prasad Sahu v. Sarju Prasad Sahu, (1924) 26 BOM.L.R. 595.
14
Central Inland Water v. Brojo Nath Ganguly, 1986 A.I.R. 157.

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that employees covenants should be carefully scrutinized because there is inequality of
bargaining power between the parties; indeed no bargaining power may occur because the
employee is presented with a standard form of contract to accepts or reject. At the time of the
agreement, the employee may have given little thought to the restriction because of his eagerness
for a job; such contracts "tempt improvident persons, for the sake of present gain, to deprive
themselves of the power to make future acquisitions, and expose them to imposition and
oppression."

2.Gifts

Where a person was suffering from a number of ailments which confined him to a nursing home
and from there he made a deed gifting all his property to one of his sons to the exclusion of
others, the Supreme Court held that the presumption of undue influence was proper. 15 In another
case16 of benefits without consideration and which was also before the Privy Council, a woman,
who was described a submissive wife and who at the bidding of her husband, gave security of
her stridhan(personal property), which comprised some land, to secure the growing indebtedness
of her husband. Lord Goddrad expressed that the evidence abundantly justifies a presumption
that she was acting under the influence of her husband for whose benefit the mortgage was being
executed.

3.Pardanashin women

A contract with a Pardanashin women is presumed to have been induced by undue influence. She
can avoid the contract unless the other party can show that it was her “intelligent and voluntary
act”17Once it is shown that a contract is made with a pardanashin woman, the law presumes
undue influence. The burden lies on the other party to show that no undue influence was used,
that the contract was fully explained to her and that she freely consented. The extent of burden
was explained by the privy Council in Moonshe Buzloor Raheem v. Shum,soonisa Begum. 18 A
widow remarried and endorsed and delivered to her new husband certain valuable Government
papers. In an action to recover them back from him she proved that she lived in seclusion and

15
Lakshmi Amma v. Talengalanarayana, (1970) 3 S.C.C. 159.
16
Tungabhai Bhratar Purushottam Shamji Kumbhojkav v. Yeshvant Dinkar, A.I.R. 1945 4 P.C. 8.
17
Bellachi v. Pakeeran, (2009) 12 S.C.C. 95.
18
Moonshe Buzloor Raheem v. Shumsoonisa Begum, (1867) 11 M.I.A. 551.

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that she had given over the papers to him for collection of interest. He contended that he had
given her full consideration for the notes. It was held that the mere fact of endorsement and the
allegation of consideration were not sufficient to lift the presumption of undue influence. He
should prove that the transaction was a bona fide sale and that he gave full consideration for the
paper which he received from his wife.

4.Commercial Transactions

Lord Scarman in the Privy Council case of Pao On v Lau Yiu Long19, where the idea that English
law should adopt a general rule that a contract could be void for public policy on the basis of
unfair use of a dominant bargaining position (as argued by the defendant) was rejected by His
Lordship in no uncertain terms:

“Their Lordships’ conclusion is that where businessmen are negotiating at arm’s

length it is unnecessary for the achievement of justice, and unhelpful in the
development of the law, to invoke such a rule of public policy. It would also create
unacceptable anomaly…

It is unnecessary because justice requires that men, who have negotiated at arm’s
length, be held to their bargains unless it can be shown that their contract was vitiated
by fraud, mistake or duress…

Such a rule of public policy as is now being considered would be unhelpful because it
would render the law uncertain. It would become a question of fact and degree to
determine in each case whether there had been, short of duress, an unfair use of a
strong bargaining position.”

The case concerned arms length commercial dealings between two trading companies.
Although the suppliers were in a monopoly, the common law does not recognise the
doctrine of inequality of bargaining power in commercial dealings.

RELATIONSHIP OF BLOOD, MARRIAGE, ADOPTION NOT IMPORTANT

What is necessary to be established is that the parties should not be related by blood, marriage or
adoption, but that their relations are, or position towards each other is, such that one is n a

19
Pao On v. Lau Yiu Long, (1980) A.C. 614.

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superior position over another.20 Even where they are related, the presumption may not arise for
the influence may as well be fairly and wisely exercised.21

RELATIONS WHICH INVOLVE DOMINATION

A party is able to dominate the will of the other when there is active trust and confidence
between the parties or the parties are not on equal footing. The principle applies to every case
where influence is acquired and abused, where confidence is reposed and betrayed. It applies to
every relation in which domination may be exercised by one person over another.22 The courts of
equity have developed a body of learning enabling relief to be granted where the law has to treat
the transaction as unimpeachable unless it can be held to have been procured by undue influence.
In Moody v Cox23 it is held that there are certain relations in which a higher duty is imposed
upon the parties and they must not only tell the truth, but they must tell the whole truth so far as
it is material. Those cases are cases where the relation is such that there is confidence reposed by
one party and influence exercised by other. However in sub-section 2 of Section 16 lays down
that a person is deemed to be in a position to dominate the will of another in the following
manner:
a) Where he holds a real or apparent authority over the other, or where he stands in a
fiduciary relation to the other:
b) Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
Real or Apparent Authority

A person in authority is definitely able to dominate the will of the person over whom the
authority is held. The authority may be real or apparent.
Fudiciary Relation

Every relationship of trust and confidence is a fudiciary relation.24 This category includes
solicitor and client, trustee and spiritual advisor and his devotee, doctor and patient, woman and
her confidential managing agent, parent or guardian and child, and creditor and debtor. The

20
Avon Finance Co. v. Bridger, (1985) 2 All E.R. 281 (CA).
21
Mushib v. Ganga Prasad Das Mushib, 1967 A.I.R. 878.
22
Huguenin v. Baslely, (1807) 33 E.R. 526.
23
Moody v. Cox, (1917) 2 Ch. 71.
24
Subhas Chandra Das Mushib v. Ganga Prasad Das Mushib, 1967 A.I.R. 878.

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principle of undue influence applies to every case, where influence is acquired and abused,
where confidence is reposed and betrayed.25
Mental distress

A person is said to be in distress when his mental capacity is temporarily or permanently

affected. It may be due to extreme old age or mental or bodily illness or any other cause. Such a
person is easily persuaded to give consent to a contract which may be unfavorable to him. For
example, before the madras high court, a poor Hindu widow, who was in great need of money to
establish her right to maintenance, was persuaded by a moneylender to agree to pay 100% rate of
interest.26 This is a clear indication of undue influence. Another example is where the father of
the defendant (25 years of age) helped him in establishing his profession but put before him an
unpleasant alternative of marrying a girl of father’s choice and receiving a financial advantage.27
This would serve as a big example of mental distress.
Undue influence by a person not party to contract

This will make the contract voidable. It is not necessary that the person is in a position to
dominate the will of the other party must himself be benefited. It is sufficient if the third person
in whom he is interested is benefited.28

UNCONSCIONABLE BARGAIN AND INEQUALITY OF BARGAINING POWER

Inequality of bargaining power and unconscionability are closely related to each other. The
principle of Inequality of bargaining power is slightly narrower in scope than the broad idea of
idea of Unconscionability. In Llloyds Bank Ltd. v. Bundy29, Lord Denning M.R. stated the
principle of “inequality of bargaing power”:

“By Virtue of it, the English law gives relief to one who, Without independent advice, enters
into a contract upon terms which are very unfair or transfers property for a consideration
which is grossly inadequate, when his bargaining power is grievously impaired by reason of

25
Smith v. Kay, (1859) 7 H.L.C 750 at p.779.
26
Ramnee Annapurni Nachiar v. Swaminatha Chettiar, (1910) 20 M.L.J. 785.
27
Rehana Khatun v. Iqtidar Uddin, A.I.R. 1943 All 184.
28
Chinnamma v. Devega Sangha, AIR 1973 Mys. 338.
29
Llloyds Bank Ltd. v. Bundy, (1975) Q.B. 326.

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 his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences
or pressures brought to bear on him by or for the benefit of the other.”30

Unconscionability does not have a fixed meaning in law, but in contractual context it is generally
used to describe situations in which it is believed that, although no duress or fraud took place,
one contracting party took advantage of the other party’s weakness by extracting an unfair
bargain.

UNCONCIOUSBILITY

Some relevant provisions under law

To fully understand the concept of unconscionability in Indian contract law, one must examine
specific provisions of three different statutes. These include sections 14, 16, and 19A of the
Indian Contract Act of 1872; section 20 of the Specific Relief Act of 1963; and section 111 of
the Indian Evidence Act of 1872.
Section 111 of Indian Evidence Act
Section 111 of the Indian Evidence Act of 1872 states that when a question exists as to the good
faith of a transaction between parties, one of whom stands in a position of active confidence to
the other, the party who is in the position of active confidence has the burden of proving good
faith. The following examples illustrate this good faith requirement: (1) If the issue of good faith
is raised in an attorneyclient transaction, the burden of proving good faith is on the attorney; and
(2) If the issue of good faith is raised against a father by a son who has recently come of age, the
burden of proving good faith is on the father. While section 16(3) of the Indian Contract Act of
1872 applies only to contract actions, section 111 of the Indian Evidence Act of 1872 applies to
all transactions in which one party "stands to the other in a position of active confidence." In
India, where a vast majority of the population is ignorant, illiterate, and blindly follows one
spiritual guru or another, there are innumerable cases of exploitation by spiritual leaders. For
centuries, religious followers have given valuable property in an attempt to achieve "nirvana" or
spiritual benefits in the afterlife. Parties have attacked these facially unconscionable transactions
in courts of law.

30
Langdale v. Danby, The Times, November 24, 1981.

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One early case, Manu Singh v. Umadat Pande,30 was decided by the High Court of Allahabad in
1890. In Manu Singh, the elderly plaintiff deeded his entire estate to the defendant, a Brahmin
who was his spiritual leader and who was highly respected in the community. 3 ' The plaintiff
made this gift to secure benefits for his soul in the afterlife and in response to the defendant's
recitation of the holy book called the Bhagwat Gita.32 Almost immediately, the plaintiff
repudiated the deed and sued for its cancellation.33 The Allahabad High Court held that the
fiduciary relationship between the parties, the improvidence of the gift, the absurd reason for the
gift, and section 111 of the Evidence Act of 1872 required that the burden be placed upon the
defendant to prove that the transaction was made in good faith and without undue influence.3
Absent such proof, the plaintiff was entitled to cancel the deed. 35 One class, Pardanashin
women, is especially exposed to undue influence. Since these women do not appear in public and
are not wise in the ways of the world, courts often come to their rescue. 36 As a result of judicial
decisions, every person dealing with a Pardanashin woman must prove not only that the terms
were fair and just, but that they explained the terms of the contract or transaction and that the
woman understood them.37 The courts impose this burden because Pardanashin women are
"presumed to have an imperfect knowledge of the world, as by the pardah system they are
practically excluded from social intercourse and communion with the outside world."'38 The
special protection accorded to Pardanashin women is based on the two pillars of justice in Indian
law, equity and good conscience.

UNCONSCIONABLE BARGAIN: VOID OR VOIDABLE

A question arose under which head an unconscionable bargain could fall. If it fell under the head
of undue influence, it would be voidable, but if it fell under the head of being opposed to public
policy, it would be void. The court observed that such contracts would rarely be induced by
undue influence, even though at times they were between parties one of whom held a real or
apparent authority over the other. Very often, they were entered into under pressure of
circumstances, generally economic, resulting in inequality of bargaining power. Such contracts
did not fall within the four corners of the definition of ‘undue influence’ given in s 16(1), and
ought not to be held voidable, because ‘it would compel each person with whom the party with
superior bargaining power had contracted togo to the court to have the contract adjudged
voidable.Such a contract or such a clause in a contract ought, therefore to be adjudged

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void’.31When the bargain is harsh or unconscionable, equity, grounded upon ‘distributive
justice’ curtails the freedom of contract so as to protect the interests of party who entered into
such bargain under distress. Freedom of contract is of little value when parties don’t stand on
equal footing; party with weaker bargaining power enjoys no realistic opportunity to bargain
and party has no alternative between accepting a set of terms proposed by other or doing
without the goods or services offered. These agreements are called as ‘Adhesion Contracts’,
however not every such contract is unconscionable: only when there is gross inequality of
bargaining power compounded with terms unreasonably favourable to stronger party can the
indication that weaker party had no meaningful choice except to consent to the unfair and
unreasonable terms, hold ground.

Therefore Courts will strike down any unfair or unreasonable clause/ agreement entered into by
parties when there is gross inequality in their bargaining power, and the victimized party
had no meaningful choice but to give his assent to the contract, however unreasonable, unfair
and unconscionable a clause in that contract may be.

These adhesion/ standardized contracts are entered into by parties enjoying much superior
bargaining power with a large no. of people, hence, affect people at large and if
unconscionable, unfair and unreasonable are injurious to public interest. These bargains
therefore must be void on account of being opposed to public policy (S.23). Further, if they were
to be merely voidable on account of undue influence (for in many cases, superior party has ‘real
or apparent authority over other party’ and hence, uses that position to obtain unfair advantage
over another as according to S.16) it would compel each victimized party to go to Court to get
the contract adjudged as voidable which would lead to multiplicity of litigations.

In Central Inland Water Transport Corporation v. BrojonathGanguly, plaintiffs had much less
bargaining power as compared to that of Corporation, for they did not have any meaningful
choice while assenting to the terms and conditions of their appointment in the Corporation. If
they would have refused to accept the said rule, it would have led to their termination from

31
PULLOCK AND MULLA INDIAN CONTRACT AND SPECIFIC RELIEF ACTS (12 th Edition).

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service and exposed them to consequentanxiety, harassment and uncertainty of finding
alternative employment.
Rule 9(i) was unreasonable and unfair to the extent of being unconscionable for it gave arbitrary
and absolute power to the Corporation to dismiss its employees without providing any guidelines
to that effect. The rule was also violation of principle of natural justice-audialterampartem-for it
neither provided for any inquiry to take place nor did it provide for any opportunity to accused
employee to be heard.
Therefore it was unconscionable and opposed to public policy for it adversely affected the rights
and interests of the employees and created a sense of insecurity and subservience to unfair and
unreasonable terms of corporation. Hence, it was void according to S.23 of ICA.32

PRESUMPTION OF UNCONSCIONABLE BARGAIN

The test for unconscionability is thus partly procedural and partly substantive (i.e. it looks at
procedural unfairness as well as substantive unfairness). This is because under this doctrine there
are two elements that must be proven. The first element is that the party seeking relief was
vulnerable in some respect or suffering from special disability which is a procedural test usually
thought to be satisfied by proof of cognitive impairment (e.g. suffering from a reduced ability to
understand) or that she had little real choice but to enter into a contract (because she was in ‘a
state of necessity’ or, what arguably amounts to the same thing, because the other party had a
monopoly over an important good or service), and the second element is that the other party
takes advantage of the weaker party’s vulnerability or ‘special disability’, which is a substantive
test, i.e. proof that the contract was substantively unfair.33

The jurisdiction over ‘unconscionable’ contracts has its basis in equity. This doctrine is used to
set asidebargains made by ‘poor or ignorant person’ acting without independent advice which
cannot be shown to be a fair or reasonable transaction.34the understanding of ‘poor and ignorant
person’ in Fry v Lane has been clarified for purposes of the 20th century in the case of Creswell v
Potter[1978] 1 WLR 255 where the word ‘poor’ is now replaced by ‘a member of the lower
income group’ and the word ‘ignorant’ is now replaced by ‘less highly educated’.

32
Idem at
33
ATIYAH'SINTRODUCATION TO THE LAW OF CONTRACT(6th edition 2007).
34
Fry v Lane,(1888) 40 Ch. D 312.

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This principle shows a shift in emphasis whereby it is not so much that there must be poverty and
ignorance but that there must be inequality between the parties (which arises out of such factors
as the poverty and ignorance). Furthermore, for a contract entered into by such persons to be
vitiated as an unconscionable bargain, there must be ‘victimisation’, ‘which can consist of either
of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable
circumstances’35.In other words the court requires more than just an unfair bargain or unfair
terms (the substantive unfairness) but more importantly, the taking advantage of the other’s
weakness is also required.

Therefore, as stated above while discussing Lord Denning’s principle from Lloyd’s Bank v
Bundy, the key element is the link between the unequal position of the parties (the unequal
position being due to the ‘special disability’ of the weaker party, such as being poor or ignorant,
and arguably can be extended to other factors giving rise to a ‘special disability’) and the abuse
of that position.

Lord Brightman in Hart v Connor (above), which explains succinctly the interplay between
procedural unfairness and substantive unfairness:

“If a contract is stigmatized as ‘unfair’, it may be unfair in one of two ways. It may be
unfair by reason of the unfair manner in which it was brought into existence; a contract
induced by undue influence is unfair in this sense. It will be convenient to call this
‘procedural unfairness’. It may also, in some contexts, be described as ‘unfair’ by reason
of the fact that the terms of the contract are more favourable to one party than to the other.
In order to distinguish this ‘unfairness’ from procedural unfairness, it will be convenient to
call it ‘contractual imbalance’. The two concepts may overlap. Contractual imbalance may
be so extreme as to raise a presumption of procedural unfairness, such as undue influence
or some other form of victimization. Equity will relieve a party from a contract which he
has been induced to make as a result of victimization. Equity will not relieve a party from a
contract on the ground only that there is contractual imbalance not amounting to
unconscionable dealing.”

35
Hart v Connor, (1985) A.C. 1000.

[15]
Lord Millet in the case Alec Lobb (Garages) Ltd V Total Oil Ltd36clearly propounded thatthe
court may in a proper case infer the presence of impropriety from the terms of the transaction
itself, which demonstrates a broader understanding of unconscionability as a wider principle of
utility in dealing with unfair contracts and unfair contractual terms.

Lord Millet had identified three necessary elements before the court would relieve an
unconscientious bargain namely:

(1) One party must have been at a serious disadvantage to the other party;
(2) This weakness must be exploited by the other party in a morally culpable manner; and
(3) The resulting transaction must be overreaching and oppressive.

On the other hand, in the case of Boustany v Pigott(1993) 63 P & CR 298,the Privy Councilset
out four requirements for the doctrine to operate, namely:

(1) The objectionable terms had been imposed in a morally reprehensible manner;
(2) The stronger party behaved with some moral culpability or impropriety, with the
presence of unconscientious and extortionate abuse of power;
(3) Equity will not provide relief merely for “unfair” terms in the absence of ‘unconscionable
conduct’; and
(4) The Plaintiff has to establish that unconscientious advantage had been taken of his
disabling condition.

Having said all that however, it remains a fact under English law that the broader doctrine of
unconscionability has not traditionally been recognized as a generaldefence to a claim for breach
of contract.

AVOIDING AN UNCONSCIOUABLE CONTRACT

A party who is induced by undue influence to enter into a contract may avoid the contract
pursuant to section 19A of the Indian Contract Act of 1872. The party asserting
unconscionability need not produce direct evidence of actual undue influence. Rather, the court
presumes undue influence under the assumption that the stronger, more influential party used his

36
Alec Lobb (Garages) Ltd v. Total Oil Ltd., (1983) 1 All E.R. 944.

[16]
or her superior bargaining position to obtain an advantage over the weaker party. Once a suit is
filed seeking to avoid an unconscionable contract, and the plaintiff has discharged his or her
initial burden, the defendant must prove by cogent and convincing evidence that the bargain was
fair, just, and reasonable. Mere inadequacy of consideration, without more, is insufficient to
make the bargain unconscionable, 40 though the court may take it into account in determining
whether the consent was given freely. In this respect, the Bombay High Court has held that
"inadequacy of consideration in conjunction with the circumstances of indebtedness and
ignorance were facts from which it would have been... permissible... to infer use of undue
influence. '4 1 If a contract shocks the judicial conscience, the defendant will find it difficult to
prove that the contract should be upheld. This does not mean, however, that the defendant
automatically loses. For example, in loan cases, the lender invariably is in a position to dominate
the will of the borrower and all such transactions can be termed unconscionable. The mere fact
that the rate of interest is exorbitant is not enough, by itself, to cancel a contract, unless the
plaintiff also establishes that the lender was in a position to dominate his or her will. The fact
that the borrower was in urgent need of money does not place the lender in a position to
dominate the will of the borrower. Thus, such a loan will not be set aside by a court even if it
may seem to be unconscionable.

DISCRETION OF COURTS

Section 20(2) grants wide discretion to the court to decline specific performance of a contract
that is otherwise valid and enforceable, solely on the ground that it is unconscionable or works
an unfair advantage to the plaintiff over the defendant. Thus, although mere inadequacy of price
is not a sufficient hardship so as to refuse the plaintiff specific performance, 42 a court may look
at the particular facts of a case to determine whether the transaction is unconscionable and
whether it should be specifically enforced. It is impossible to enumerate the illustrations in which
specific performance should not be granted. Thus, the legislature properly left this decision to the
court's discretion in accordance with sound judicial principles.

BURDEN OF PROOF

When the terms of the contract shows a “contractual imbalance” (which is “so extreme’ in the
words of Lord Brightman above), a presumption of unconscionable conduct is then raised

[17]
against the party in superior position, and the burden of proof is then shifted to that stronger
party to prove that there was in fact no unconscionable conduct or conduct that goes against
conscience in securing the term(s) of the contract that has now been proven to be unfair.

In English law a high degree of transactional or contractual imbalance must be shown, where
‘the complainant must show that the terms of the transaction were “harsh or oppressive” or
“overreaching and oppressive”.This can be seen from the words of Millet LJ in the Court of
Appeal case of Credit Lyonnais Bank Nederland NV v Burch37, where Millet LJ was of the view
that the transaction was not merely manifestly disadvantageous to the defendant, but was also
one that ‘shocks the conscience of the court’.

The doctrine of unconscionability by its nature looks at the conduct of the stronger party, there
must be some impropriety (dishonesty)on the part of the stronger party, and as the issue of how
much moral wrongdoing must be demonstrated by the stronger party’s conduct is one of the
recurring questions surrounding this doctrine, the least that must be shown is that the stronger
party knew of the disadvantage of the weaker party, and the test is one of constructive
knowledge and not of actual knowledge.38To put it another way, the impropriety consists in
making (or accepting) a substantively unfair offer in the knowledge that one is thereby taking
advantage of the other party’s weakness or vulnerability which means that unconscionability
requires proof that the claimant’s actions were such as to ‘affect his conscience’.

PRESUMPTION OF INEQUALITY OF BARGAINING POWER

Presumption of Inequality of bargaining power rises when the parties are presented with a ‘take
it or leave it’ conditions of dealing, even in purely commercial disputes.

The relative bargaining strength between the commercial parties to a contract is a factor to be
considered if the issue of validity of the exemption clause were to be raised in court. Lord
Wilberforce in Photo Production Ltd v Securicor Transport Ltd.39 had decided that parties in
commercial matters generally are free to apportion the risks as they think fit (and where risks are
normally borne by insurance), and therefore the courts are to respect the decisions of the
commercial parties as to the apportionment of risks. However in contrast, the House of Lords in

37
Credit Lyonnais Bank Nederland NV v. Burch, (1997) 1 All E.R. 144.
38
Multiservice Bookbinding Ltd. v. Marden, (1978) 2 All E.R. 489.
39
Photo Production Ltd v Securicor Transport Ltd., (1980) A.C. 827.

[18]
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd.40 seemed to regard as appropriate a
case-by-case approach where although it might generally be true that commercial parties to a
contract deal on a roughly equal footing, the point of the statutory guidance is to check the
bargaining position in each particular case. Indeed support can be found in the evolving
jurisprudence of the “reasonableness test” , where if parties are presented with a ‘take it or leave
it’ conditions of dealing, even in purely commercial disputes, then the inequality of bargaining
strength is likely to be a factor which would weigh against the validity of the conditions.

The judgment of the House of Lords in the case of Schroeder Music Publishing Co Ltd v
Macaulay41which is a case involving a contractual term in restraint of trade contained in a
standard form contract between a music publishing house and a young songwriter, where Lord
Reid himself said that whilst there might be good reason for respecting contracts ‘made freely by
parties bargaining on equal terms’ or ‘moulded under the pressure of negotiation’, there was no
evidence in the instant case that the contract fitted such description. In pursuing this theme, Lord
Diplock drew a distinction between those standard forms that have been negotiated for use in a
particular trade by parties ‘whose bargaining power is fairly matched’ and those standard form
that have been negotiated in a one-sided way where ‘they have been dictated by that party whose
bargaining power, either exercised alone or in conjunction with others providing similar goods
and services, enables him to say: ‘if you want these goods or services at all, these are the only
terms on which they are obtainable. Take it or leave it.’’ The force of this distinction is that
where contracts are the outcome of negotiations that are not manifestly one-sided, they are in
favour of treating the terms as fair and reasonable, but where on the other hand contracts are
dictated in a one-sided way, there will be no such presumption.

This was taken further by Lord Denning in his famous judgment in the case of Lloyds Bank Ltd.
v Bundy42, where his Lordship attempted to deduce an underlying general concept of inequality
of bargaining power in cases relating to ‘unconscionable bargains’ as well as cases of duress and
undue influence. The case involves a guarantee and charge over property by a father in favour of
the bank in order to secure his son’s overdraft. Lord Denning began his analysis by saying that in
the vast majority of cases involving bank guarantee or charge, even if the terms of the transaction

40
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd., (1983) 2 A.C. 803.
41
Schroeder Music Publishing Co Ltd v Macaulay, (1974) 1 W.L.R. 1308
42
Lloyds Bank Ltd. v Bundy, (1975) Q.B. 326

[19]
are harsh, the general rule is that the transaction stands, as ‘no bargain will be upset which is the
result of the ordinary interplay of forces’. However there are exceptions to this rule ‘in which the
courts will set aside a contract, or a transfer of property, where the parties have not met on equal
terms- when the one is so strong in bargaining power and the other so weak- that as a matter of
common fairness, it is not right that the strong shouldbe allowed to push the weak to the wall’.

Lord Denning said that there needs to be an unfairness in the bargain and an impairment of
bargaining power of the weaker party, ‘coupled with undue influences or pressures brought to
bear on him’ in order to get the relief under the principle of Inequality of Bargaining Power. It
has also been argued by Lord Scarman, viewing the principle stated by Lord Denning, that the
key element is actually the link between the unequal position of the parties and the bargain i.e.
the abuse of that position of inequality is required.

Not only the consumers but small business contractors are also equally vulnerable when dealing
with larger, more powerful commercial contractors. A precedent can be seen in the case of
L’Estrange v Graucob Ltd.43 where an unskilled business contractor was caught out by the small
print employed by a standard form dealer.

Also when situations where there is a gap between the time of formation and the time of
performance, the balance of bargaining power might alter and the initial inequality might be
reversed, as evident in cases which had highlighted that pressure to renegotiate in commercial
contracts can take place at the point of performance in a setting of extreme inequality of
bargaining poweras evident in cases which had highlighted that pressure to renegotiate in
commercial contracts can take place at the point of performance in a setting of extreme
inequality of bargaining power, as seen in B&S Contracts and Design Ltd v Victor Green
Publications Ltd.44Furthermore, the case of D&C Builders v Rees Ltd.45 illustrates a situation
where the party applying the pressure can, at worst, engineer the change of circumstances in
order to demand renegotiation at precisely the time that the other party is most vulnerable.

43
L’Estrange v. Graucob Ltd., (1934) 2 K.B. 394.
44
B&S Contracts and Design Ltd. v.. Victor Green Publications Ltd., (1984) I.C.R. 419.
45
D&C Builders v. Rees Ltd., (1966) 2 Q.B. 617.

[20]
LABOUR CONTRACTS

Since industrialization the idea of employer-labour relation has taken many twist and turn. Many
protective methods were introduced, many privileges were granted. Because of the communist
and socialist influence, even India introduced many pro-labour laws. Thereafter various classes
of employees are given certain amount of protection according to their nature of subordination.
On one side, there are industrial labour laws for the labourers working in the industries and on
the other side there are Service Conduct Rules and Constitutional mandates for the Government
Employees. However, employees who are neither government employees nor workers under the
industrial law are left unprotected. The reason behind such neglect is the assumption that they
can negotiate for themselves and no amount of interference is required from the state in their
private bargain. Though time and again it has been proved that freedom of contract is just a
mirage and it is not possible to achieve a fair contract till one looks it through the lens of
freedom of choice. In India, the doctrine of unconscionable bargain in case of government
employment has been successfully established in Central Inland Water Transport case, but the
utility of this doctrine in case of private employment contracts is yet to be judged. Keeping this
framework in mind, the paper would seek to answer whether the doctrine of unconscionable
bargain can be used in case of private employment contracts where the employee is devoid of
any labour law protection? When a company falls under the definition of ‘state’ of Article 12,
whether this volatile shield enough for private corporations to act fairly with the employees?
Ultimately, whether it is essential to introduce a more explicit clause for such class of employees
where proving such a contract to be unconscionable would be easier and also convenient for the
courts to arrive at a conclusion?

EMPLOYMENT CONTRACTS

In the context of employment contracts, issues relating to unequal bargaining power and socio-
economic pressure on employees are very much inherent. Hence the shortcomings in the law of
contract as discussed in the above section are equally evident in the employment contracts as
well. ‘In certain circumstances contracts which are made under pressure could be easily
invalidated.’ ‘The rules providing for invalidation in such cases are termed as duress, undue
influence, coercion and also the common law doctrine of unconscionable bargain. According to
Black's Law Dictionary, the word “unconscionable” suggests of a transaction showing no regard

[21]
for conscience; affronting the sense of justice, decency, or reasonableness. ‘However there is a
difference between the doctrine of unconscionable bargain and others. Courts would declare the
contract to be void in case of doctrine of unconscionable bargain whereas, in case of others
courts would just declare it to be voidable.’Unconscionable Doctrine in Indian context also has a
firm footing in public policy because of the involvement of the aspect of morality. So what we
see in such cases is a sense of blurred objectivity.

PRIVATE EMPLOYMENT CONTRACTS

The following cases were only with regard to government employees and industrial labourers. In
case, of industrial labourers, the legislation has believed that there exists an inherent unequal
bargaining power between the employer and the employee. Thus, legislative protection 46 has
been given to them. And cases where the employer is an instrumentality of the state, the
argument of arbitrariness could be asserted in the court of law as a matter of fundamental right.
This status raised a question on the applicability of the same doctrine in case of private
employment. In India, private employees (not governed under the industrial labour laws of India)
are governed by the contract clauses to which they have agreed to This is because of the
assumption that they possess the power to bargain their share in any agreement or contract. But
even if it is assumed that they are capable of bargaining their own share but there are certain
factors like subordination in the employment relationship and socio-economic circumstances
which may tend to make them vulnerable. Unfortunately, they neither have the protection under
Articles 309-311 nor are they covered under the industrial and labour law. But, does that mean
that their employers or the company in which they are working do not owe them a fair bargain?
To this, the LIC v. Consumer Education & Research Center47 may indirectly serve the answer,
where though the issue was not related to employment contract but here the court said that “if it
is shown that the exercise of the power is arbitrary, unjust and unfair, it should be no answer for
the State, its instrumentality, public authority or person whose acts have the insignia of public
element, to say that their actions are in the field of private law and they are free to prescribe any
conditions or limitations in their actions. They must be based on some rational and relevant
principles. It must not be guided by irrational or irrelevant considerations”. Thus, the court may

46
Ministry of Labour and Employment, Government of India, List of various Central Labour Acts, available at
http://labour.nic.in/act/welcome.html (last visited on 15.2.11).
47
L.I.C. of Indian v. Consumer Education Research, (1995) 5 S.C.C. 482.

[22]
interfere in the employment contract between the employees and the private corporation whose
work is related to public interest. Also, a very important question arose during R.D.
Shetty v. International Airport Authority of India (1979)48regarding when such private
corporation can be said to be an instrumentality or agency of Government. Ultimately to tap the
complexities of public interest in such corporation, a test was laid down. It has been clearly spelt
in the judgment that it is no more the case where the government tag is important in measuring
the public interest but, it is the nature of the activity which is the primary condition to adjudge
the onus. However, ‘later on the Apex Court concluded that the tests evolved by it are neither
conclusive nor clinching, but they are merely indicative indicia which have to be used with care
and caution.’49 Thus, the facts and circumstances of each case would decide the fate of such
contracts. But to see the positive side of this judgment is that now many corporations which
earlier would have escaped through the private contract route could now be made answerable on
the alleged reason of public interest depending upon the activity of the corporation. In fact,
in M.C. Mehta v. Union of India50, the court expanded the ambit of Article 12 definition of State,
“primarily due to the social consequence of our corporate structure”. The court also in its obiter
urged that the territory of Article 12 needs to be enlarged so as to bring private companies also
under the discipline of fundamental rights. However, the following case involved high level of
public interest thus; it would be hard to conclude that the private companies could be restrained
so easily.

DEVICES OF PROTECTION

In the Contract of Adhesion, the individual has no choice “but to accept”; he doesn’t negotiate,
but merely adheres. Therefore individual deserves to be protected against the possibility of
exploitation inherent in such contracts. Some of the modes of protection which has been
developed by the courts are as follows:

Reasonable notice

48
R.D. Shetty v. International Airport Authority of India, (1979) 3 S.C.C. 489.
49
Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 S.C.C. 722.
50
M.C. Mehta v. Union of India, (1987) 1 S.C.R. 819.

[23]
It is the duty of the person who is delivering a document to give adequate notice to the offeree of
the printed terms and conditions. Where it is not done, the acceptor will not be bound by the
terms.

In Henderson v. Stevenson51, the plaintiff bought a steamer ticket on the face of which was these
words only: “Dublin to Whitehaven”; on the back were printed certain conditions one of which
excluded the liability of the company for loss, injury or delay to the passenger or his luggage.
The plaintiff did not see the back of the ticket, nor was there any indication on the face about the
conditions on the back. The plaintiff’s luggage was lost in the shipwreck caused by the fault of
the company’s servants. This was laid down by the House of Lords that the plaintiff is entitled to
recover the loss which he suffered from the company in spite of the exemption clauses.

In Parker v. South Eastern Rail Company52, the plaintiff deposited his bag at the cloakroom at a
railway station and received a ticket. On the face of the ticket it was printed: “See back”; and on
the back there was a notice “the company will not be responsible for any package exceeding the
value of ₤ 10”. A notice to the same effect was also hung up in the cloakroom. The plaintiff’s
bag was lost and he claimed the full value of his bag which was more than ₤ 10. The company
relied upon the exemption clause. The plaintiff contended that although he knew there was some
writing on the ticket, he did not see what it was as he thought that the ticket was a mere receipt of
the money he paid.

In M/s Prakash Road Lines (P) Ltd v. HMT Bearing Ltd53, it has been held that the carrier is
bound to deliver the goods consigned at the appointed destination or else he will be liable to pay
compensation for the same. Merely printing on the lorry receipt that the goods are transported at
the owner’s risk will not absolve the transporter from his duty unless it is proved that such terms
were brought to the notice of the plaintiff. Mere printing on the lorry receipt cannot be deemed to
be the term of contract unless the plaintiff’s knowledge and the consent about the same.

Notice should be contemporaneous with the contract

If a party to the contract wants to have exemption from liability he must give notice about the
exemption while the contract is being entered into and not thereafter. If the contract has been

51
Henderson v. Stevenson, (1875) 32 L.T. 709.
52
Parker v. South Eastern Rail Company, (1877) 2 C.P.D. 416.
53
M/s Prakash Road Lines (P) Ltd v. HMT Bearing Ltd., 1998 (5) A.L.D. 198.

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entered into without any exemption clause then subsequent notice regarding the exemption from
liability will be in effective.

In Olley v. Marlborough Court Ltd.54, plaintiff and her husband hired a room in the defendant’s
hotel for one week’s boarding and lodging in advance. When they went to occupy the room they
found a notice displayed there stating “proprietors will not hold themselves responsible for
articles lost or stolen, unless handed to the management for safe custody.” Due to the negligence
on the part of the hotel staff, plaintiff’s property was stolen from the room.

In an action against the defendant to recover the compensation for the loss, they sought
exemption from liability on the basis of the notice displayed in the room. It was held that
noticein the room was not forming the part of contract and therefore the defendants were liable to
pay compensation.

Fundamental breach of contract

Another device which has been adopted to protect the interest of the weaker of the parties to the
contract when they have an unequal bargaining position is to see that enforcing the terms of
contract does not result in the fundamental breach of contract. In a standard form of contract it is
likely that the party having a stronger bargaining power may insert such exemption clause in the
contract that his duty to perform the main contractual obligation is thereby negative.

In the case Hunter Engineering Company Inc. v. Syncrude Canada Ltd.55, plaintiff contracted
with defendant for the supply of thirty-two mining gearboxes for use at Plaintiff's oil sands
project.The gearboxes acquired from defendant were put into service in July 1978. In September
1979, more than a year later, a gearbox failure occurred. Plaintiff was forced to undertake its
own repairs to the gearboxes when defendant refused warranty coverage. Plaintiff claimed
damages from defendant for the cost of repairing and rebuilding the gearboxes, contending that
the gearboxes were inherently defective, unsafe and unfit for the purposes for which they were
intended and were not of merchantable quality. The defendants conceded that the gear boxes
failed because they were too weak for the service, but they denied liability. The court held that
where a machine has been delivered which has such a defect, or “such a congeries of defects” as

54
Olley v. Marlborough Court Ltd., (1949) 1 K.B. 532.
55
Hunter Engineering Company Inc. v. Syncrude Canada Ltd., (1989) 1 S.C.R. 426.

[25]
to destroy the workable character of the machine, there is said to be a fundamental breach of
contract by the seller.

Unreasonable terms

Another mode of protection is to exclude unreasonable terms from the contract. A term is
unreasonable if it would defeat the very purpose of the contract or if it is repugnant to the public
policy. In M Siddalingappa v. T Nataraj56, where a condition that only eight per cent of the cost
of garment would be payable in case of loss was held to be unreasonable.

STATUTORY PROVISIONS

In UK, one would find guidance given under statutes as to what could be an unfair contract
whereas in India it is largely at the discretion of the courts to figure out. In UK there is a
legislation called Unfair Trade Practices Act, 1977 which deals with a similar issue however, this
is different from the India's legislation as the former is regarding consumer and business
contracts whereas the latter have adhesion contracts in mind. To avoid such subjectivity, it was
suggested by the 103rd Law Commission Report57 (1984) that a separate chapter called Chapter
IVA with a single section-67A be introduced in Indian Contract Act, 1872. Section-67A (1)
generally speaks about “unconscionability” and section 67A (2) refers to two situations where
the party refuses the liability for willful breach of the contract and refuses his liability due to any
negligence caused by him. After 1984, the following recommendations were again put forward
in 199th Law Commission Report (2006) where Chapter III of the Report said that for unfair
contracts of any specific type, the ultimate outcome should be to it get struck down under the
section-67A. However, till date, it is the judiciary who applies its own discretion to do the
needful. Hence, a time has come where the legislation should give a thought on these
recommendations.

ROLE OF JUDICIARY

Understanding undue influence, dissecting it, defining it, and understanding the term, has proven
elusive in social service and legal settings. Some people have said, “I know it when I see it,”
making the term a matter of personal interpretation. Some state probate laws reference the term,
56
M. Siddalingappa v. T. Nataraj, A.I.R. 1970 Kant. 154.
57
Law Commission of India, 103rd Report, Unfair Terms in Contract.

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and a few states have definitions that can be summarized as: Undue influence occurs when a
fiduciary or confidential relationship exists in which one person substitutes his own will for that
of the influenced person’s will. Other states have definitions in criminal or other codes. Of
course, judicial decisions on individual cases exist but they are usually known only in legal
circles.58

Most undue influence cases are seen in probate courts with petitions for guardianships,
conservatorships, and with disputed wills and trusts. Undue influence situations are also seen in
contract law with documents such as deeds, powers of attorney, and contracts. It may also be
present in some criminal cases. In all those situations, courts consider evidence indicating that
undue influence may or may not have already happened.

With the emergence of elder abuse and mandatory reporting of elder abuse over the last three
decades, community practitioners such as Adult Protective Services staff, hospital discharge
planners, physicians, and public health nurses who work directly with elders have identified
situations where it seems that undue influence is currently taking place. Community
professionals encounter circumstances where they believe it is happening, where families feel
helpless to intervene, and where elders are left penniless by scams, sometimes by lottery scams
initiated in other countries.

The issue is particularly important because the number of people over 65 is increasing
nationwide.

Definitions of undue influence have been difficult to legislate for many reasons. Undue influence
usually takes place behind closed doors and there are no witnesses. And, adults are legally able
to make decisions about their affairs unless a court has appointed a guardian or conservator. For
instance, an elder who is unduly influenced has the legal right to spend his money on
telemarketers even though it may jeopardize his assets. Complicating the matter is that undue
influence is often linked to impaired cognitive capacity even though it frequently occurs when
the elder clearly has capacity.

58
CHITTY ON CONTRACTS (29th ed 2004).

[27]
Complicating the matter even further, undue influence is present in many other circumstances
such as hostage situations, families, telemarketers, domestic violence, prisoners of war, cults, and
white collar crime. It could even apply to totalitarian regimes that act to control populations since
the elements are similar. Such a variety of complex circumstances with varying levels of
intensity have made it difficult to formulate an overarching definition of undue influence.

LATEST DEVELOPMENT

For instance, the above principle will apply where the inequality of bargaining power is the result
of the great disparity in the economic strength of the contracting parties. It will apply where the
inequality is the result of circumstances, whether of the creation of the parties or not. It will
apply to situations in which the weaker party is in a position in which he can obtain goods or
services or means of livelihood only upon the terms imposed by the stronger party or go without
them. It will also apply where a man has no choice, or rather no meaningful choice, but to give
his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a
set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in
that contract or form or rules may be. This principle, however, will not apply where the
bargaining power of the contracting parties is equal or almost equal. This principle may not
apply where both parties are businessmen and the contract is a commercial transaction. In today's
complex world of giant corporations with their vast infrastructural organisations and with the
State through its instrumentalities and agencies entering into almost every branch of industry and
commerce, there can be myriad situations which result in unfair and unreasonable bargains
between parties possessing wholly disproportionate and unequal bargaining power. These cases
can neither be enumerated nor fully illustrated. The court must judge each case on its own facts
and circumstances.59 The same principle has been laid in Balmer Lawrie & Co.
Ltd. v. ParthaSarathi Sen Roy60 and Ranbaxy Laboratories Ltd. v. State of W.B 61

59
Indian Oil Corpn. Ltd. v. Nilofer Siddiqui,(2015) 16 S.C.C. 125 .
60
Balmer Lawrie & Co. Ltd. v. ParthaSarathi Sen Roy,(2013) 8 S.C.C. 345.
61
Ranbaxy Laboratories Ltd. v. State of W.B.,(2012) 3 C.H.N. 269 (Cal.).

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CONCLUSION

Though Indian Contract Act, 1872 is the base of every employment contract but there is an
implied understanding that not all employees need the same kind of protection by law. For
example, for industrial labourers there are several labour legislations and many privileges like
collective bargaining. For government employees, the state is under a constitutional duty to
protect the individual's fundamental rights and also Articles-309-311 safeguards are given along
with the limitations imposed by Indian Contract law. It could be noticed that for state and its
instrumentalities, Article 14 can be used against unreasonable, unfair and arbitrary terms of
contract. However, it is only the private employee of a private establishment who is devoid of
any fundamental right and labour legislation protection. They have a contractual obligation to
fulfill and they are at a liberty to limit their freedom at a consideration. However, there may be
cases where external circumstances may force the employee to sign the contract at dotted lines.
Generally, it is the nature of the employer and the class of employee which determines the level
of protection. And this unstable level may call for a protection even in cases of private
employment contracts. The court is precluded to enter into this private arrangement. But isn't it
similar to the classical period of bargaining theory where the fairness of a contract was never
adjudged? But if the circumstances prove the unconscionability of such an arrangement, then
court should ignore the nature of the employer.

A contract that is unconscionable or results in an unfair advantage to one of the parties will not
be upheld or enforced by a court of law in India. Considering the special social conditions
prevailing in the country, especially the high degree of illiteracy and the practice of spiritualism,
courts are inclined to protect the party whose will could be dominated or prevailed upon by
another solely to gain an unfair advantage. The principles of justice, equity, and good conscience
devised by courts of equity in England may not completely prevail in view of legislative
enactments like the Indian Contract Act of 1872 and the Specific Relief Act of 1963. The courts,
however, are still influenced by English principles and will apply them whenever a statutory
provision is silent or inapplicable.

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