Mahesh Chandra v. Regional Manager, U.

P Financial Corporation And Others

M/S. P.T Sumber Mitra Jaya v. The National Highways Authority Of India, New Delhi
Itd Cementation India Ltd. v. Reliance Infrastructure Limited
Jagdish Mandal v. State Of Orissa And Others

UNDUE INFLUENCE

Reliance in support of the submissions was placed on Anil

Rishi vs. Gurbaksh Singh, (2006) 5 SCC 558, Jamila Begum (D)
thr. L.Rs. vs. Shami Mohd. (D) thr. L.Rs. and ors., (2019) 2 SCC
727, Bishundeo Narain and Ors. vs. Seogeni Rai and
Jagernath, 1951 SCR 548, Subhas Chandra Das Mushib vs.
Ganga Prosad Das Mushib and Ors., 1967 (1) SCR 331 and
Krishna Mohan Kul alias Nani Charan Kul and anr. vs.
Patima Maity and ors., (2004) 9 SCC 468

SECTION 111 OF INDIAN EVIDENCE ACT

Section 111 of the Indian Evidence Act, 1872, explains good

faith in transactions as follows:
“111. Proof of good faith in transactions where one
party is in relation of active confidence.—Where
there is a question as to the good faith of a
transaction between parties, one of whom stands
to the other in a position of active confidence, the
burden of proving the good faith of the transaction
is on the party who is in a position of active
confidence.”

The onus would shift upon the original

defendants under Section 16 of the Contract Act read with Section
111 of the Evidence Act, as held in Anil Rishi vs. Gurbaksh Singh
(supra), only after the plaintiff would have established a prima facie
case.

economic duress

Justice requires that men, who have negotiated at arm’s length, be held to their
bargains unless it can be shown that their consent was vitiated…”[1] – Lord
Scarman.

Implicit in this statement by Lord Scarman is the axiom that consent is a necessary
element of a contract. Mutual consent of the parties, which necessarily must be
free consent is sine qua non of a valid contract.

Crudely put, economic duress involves a manipulation of the will of a person to do

or not to something adverse to his commercial interests, which vitiates the consent
of a party.[6] It is characterized as ‘an unlawful coercion to perform an act by
threatening financial injury at a time when one cannot exercise free will.’[7] It
turns upon whether the commercial pressure exercised by one party on the other was
such as to vitiate the other party’s consent by coercion of his will.[8] In the
leading case of Pao On v. Lau Yiu Long[9], the Court laid down specific criteria to
constitute economic duress in an attempt to provide an objective definition. The
Court stated that “the commercial pressure alleged to constitute economic duress
must be such that the victim must have entered the contract against his will, must
have had no alternative course open to him, and must have been confronted with
coercive acts by the party exerting the pressure”.[10] Thus, any finding of
economic duress must rest not only on the exclusion of consent but on the
conjunction of pressure and lack of specific choice

In the business world, commercial pressure is often a corollary of unequal

bargaining power between parties. Ordinarily, courts will not venture into
questioning the validity of contracts negotiated as a result of commercial pressure
or businnes complusion.This is because of the trite reality that there can never be
perfect bargaining equality between parties and the mere existence of variances in
bargaining power can never be a valid ground to vitiate an agreement between
parties. This being said, there are instances where inequality in bargaining power
may be thwarted through improper conduct and for ulterior motives so as to vitiate
the animus contrahendi of parties. In such situations, it becomes imperative for
the courts to step in and restore the sanctity of contracts.

illegitimacy of pressure’. The ‘illegitimate pressure’ test postulated that the

real determinant of duress in economic sphere is not commercial pressure, which is
invariably present in commercial dealings, but it is the nature of the pressure.
[17] It does not suffice that the will of the plaintiff be overborne by coercive
action. Rather, the coercive action must be ‘wrongful’ or ‘illegitimate’.[18]
According to this test, commercial pressure would amount to economic duress if
three basic elements are proved; (1) that some illegitimate means of persuasion was
used; (2) that a causal relationship existed between the illegitimate conduct and
the plaintiff’s response; and (3) that the plaintiff’s response was self-conscious
and he acted as he did because he was forced to do so.[19] The import of this
element of illegitimacy is based on the presupposition that “The apparent consent
of the plaintiff was induced by pressure exercised on him by that other party
which the law does not regard as legitimate, with the consequence that the consent
is treated in law as revocable”.[20] Therefore, the very fact that the conduct of
the defendant was improper or illegitimate in the eyes of the law warrants that the
commercial pressure so exerted is one that vitiates the consent of the plaintiff
and thus amounts to economic duress.
However, over a course of judicial developments a new element – ‘absence of an
alternative remedy’ – was embroidered into the test, giving way for greater
objectivity. Also known as the ‘But for Test of Causation’, this test
differentiated commercial pressure from economic duress on the ground that in the
case of the latter, the consent of a victim is obtained almost voluntarily because
he has no other choice or alternative remedy.[21] The claimant submits to the
pressure because has no other practical alternative available but to consent.[22]
The rationale of economic duress is to discourage or prevent an individual in a
stronger position, usually economic, from abusing that power by presenting an
unreasonable choice of alternatives to another person in a weaker or more
vulnerable position, in a bargain situation.[23] The nexus between the absence of
free will and the impropriety of the alternative presented would thus give way for
economic duress.
[1] Pao On v. Lau Yiu Long [1980] AC 614, p. 634.

[2] GARETH S. VITIATION OF CONTRACTS: INTERNATIONAL CONTRACTUAL PRINCIPLES AND

ENGLISH LAW, p.212, Cambridge University Press (2013).

[3] John P. Dawson, Economic Duress–An Essay in Perspective , 45 MICH. L. REV. 253,
254 (1947).

[4] Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep
293 at 333-334

[5] Gladys L. Schwatka, Restitution and Rescission: Economic Duress and Business
Compulsion in California, 40, 3 Cal. L. REV 1952, pp. 425- 429, (Autumn, 1952).

[6] Supra note 1.

[7] GARNER, Black’s Law Dictionary. St. Paul, MN: Thomson Reuters, 2014.

[8] Justice Lloyd, Syros Shipping S.A. v. Elaghill Trading Co. [1981] 3 All 1.R.
X89, 192

[9] Supra note 1.

[10] Id. at 79.

[11] Central Inland Water Transport Corporation Ltd. v. Brojo Nathm, (1986) IILLJ
171 SC, ¶ 82.

[12] Supra note 3 at 263

[13] Id.

[14] North Ocean Shipping Co. v. Hyundai Constr. Co., The Atlantic Baron, [1978] 3
All E.R. 1170; Occidental Worldwide Investment Corp v Skibs A/S Avanti (The Siboen
and the Sibotre) [1976] 1 Lloyd’s Rep 292; Pao On v Lau Yiu Long [1980] AC 614

[15] Occidental Worldwide Investment Corp v Skibs A/S Avanti (The Siboen and the
Sibotre) [1976] 1 Lloyd’s Rep 292

[16] M. H. Ogilvie, Wrongfulness, Rights and Economic Duress, 16 OTTAWA L. REV. 1

(1984)

[17] Barton v. Armstrong, [1975] 2All E.R. 465 (P.C.)

[18] Syros Shipping Co. v. Elaghill Trading Co., The Proodos C, [1981] 3 All E.R.
189

[19] Barton v. Armstrong, [1975] 2All E.R. 465 (P.C.) at 477.

[20] Lord Diplock, Universe Tankships Inc. of Monrovia v. Int’l Transport Workers’
Fed’n, [ 1982] 2 All E.R. 67

[21] Huyton SA v Peter Cremer GmbH [1999] 1 Lloyd’s Rep 62.

[22] Atlas Express Ltd. v. Kafco (Importers and Distributors) Ltd., (1989) 1 All ER
641.
[23] Terrel v. Duke City Lumber Co., d 88 N.M. 299, 540 P.2d 229 (1974).

[24] Indian Contract Act, 1872, § 14.

[25] 2013 VIII AD (Delhi ) 415

[26] Dai-ichi Karkaria Private Ltd., Bombay vs. Oil and Natural Gas Commission
Bombay and Ors., AIR 1992 Bom 309.

[27] Sara International Limited vs. Rizhao Steel Holding Group Company Limited, 201
(2013) DLT 262

[28] Balaji Pressure Vessels Ltd. vs. Bharat Petroleum Corporation Ltd.
MANU/MH/2127/2014.

[29] Id at ¶ 88.

[30] Supra note 11.

[31] 1988 (2) UJ 367

[32] Supra note 26.

[33] Supra note 11 at ¶ 82.

[34] Shaarc Projects Ltd. v. Indian Oil Corporation Ltd. W.P. LD VC No. 379 of
2020, (Decided on 17.09.2020 – BOMHC)
35 Atlas Express Ltd v Kafco (Importers and Distributors) ltd [1989]: Kafco had
no realistic alternative but to pay extra for a quantity of goods and this amounted
to economic duress

There was an early attempt to create economic duress in Stilk v Myrick in 1809, but
this did not happen

⇒ In Skearte v Beale (1840) it was held that threats to goods can be economic
duress, but the court was still unwilling to create a doctrine of economic duress

⇒ The Siboen & The Sibotre case [1976] developed economic duress

CTN Cash & Carry Ltd v Gallagher Ltd [1994]. Also see is Progress Bulk Carriers v
Tube City [2012]

⇒ Other cases include B&S Contract v Victor Green [1984] and Barton v Armstrong
[1976]

A relevant point for enquiry that has emerged in the discussions relating to
economic duress is whether the concept can be invoked as a means of unconscionable
bargain under Section 16(3) of the Indian Contract Act. In the case of Puri
Construction P. Ltd. and Ors. v. Larsen and Toubro Ltd. and Ors. the Court answered
this in the affirmative. It noted that even though economic duress is a recognized
head answering the description of “coercion”, economic coercion arising from a
situation where the relation subsisting between the parties is such that one of
them is in a position to dominate the will of the other and uses that position to
obtain an unfair advantage over the other, will fall within the meaning of Section
16 of the Indian Contract Act.[29] However, an invocation of Section 16 to support
a claim of economic duress is based on certain pre-conditions. A claim of economic
duress under Section 16(3) of the Act will sustain provided one party is proved to
dominate the will of the other. As unconscionable bargain is evident where one
party is in a comparatively advantageous position than his counterpart, the
existence of a real and apparent authority of one party over the other is
imperative.[30] Therefore, although economic duress may be regarded as a means of
unconscionable bargaining, it can only be restricted to cases where the parties are
unequally situated.

Notably, the Indian Courts have taken the liberty to stretch this doctrine of
economic duress by including it within the sweep of the ‘public policy’ exception.
In the case of Jaipal v. State of Haryana,[31] the learned Single Judge quite
distinguishingly pointed that “transactions, which are unfair and unconscionable
and caused by economic duress, cannot bind the petitioners, even if they were not
under undue influence or coercion. The Courts have to strike down such terms on the
ground of public policy.” Of much importance in the observation of the Court is the
fact that economic duress is not contemplated as a factor vitiating consent but
that which affects public policy under Section 23 of the Act. This implied that
even though the contract stands undefeated for want of animus contrahendi, its
validity may be affected on the touch stone of public policy. This goes to show
that economic duress is a broad concept that need not be restricted to an inquiry
into consent of parties.

This being stated, as a substantive doctrine, economic duress is fraught with many
shortcomings. Principally, the indeterminacy of its objective application invokes
vagueness and excessive discretion. In some cases, the concept has been interpreted
as an extension of the doctrine of coercion, whereas in others, an extension of
fraud.[34] This invokes uncertainty in the predictability of cases. The lack of
strictly objective criteria in differentiating ‘commercial pressure’ from ‘economic
duress’ also leaves it afflicted with uncertainty at a conceptual as well as
jurisprudential level. With specific reference to the Indian legal framework, many
questions are left unanswered. For one, the comparative infancy of the doctrine
gives rise to imprecision of its scope. For instance, the plethora of cases that
summarily discuss this concept does not clearly lay down whether the element of
‘illegitimacy’, which is the key to identifying economic duress, must corelate to
only the conduct of the party, the means of imposing pressure/coercive action or
the result of the pressure. Secondly, the array of cases does not clarify whether
economic pressure must be illegal or merely unlawful by virtue of moral turpitude.
Clarity in this regard would not only infuse a higher level of objectivity in
determining cases but will also ensure contracts are negotiated on contractual
integrity.

extraaaaaa gyaaan

The general rule adopted in this interpretation is that commercial pressure or

business compulsion would amount to economic pressure if two key ingredients are
fulfilled i.e. (1) pressure amounting to compulsion of the will of the victim; and
(2) the illegitimacy of the pressure exerted.[26] The litany of cases that
interpret economic duress akin to coercion postulate that economic duress
encompasses the basic elements of coercion i.e the combination of illegitimate
pressure and absence of practical choice.[27] It is ultimately coercion of his will
so as to vitiate consent, albeit for commercial or economic advantage.[28]
Therefore, a plea of economic duress is nothing but an expansion of the exceptional
vitiating factor of coercion under Section 15 of the Indian Contract Act.
unconsciousbility not defined as such under unduan law but can be infer in section
16,19,23 of ica

Procedural Unconscionability can be understood by examining how each term became a

part of the contract and the actual bargaining process at the time of making the
contract. This arises due to difference in the bargaining position of the parties,
absence of meaningful choice, unfair surprise. In Weaver v. Am. Oil Co, the Court
explained various factors that can be considered while evaluating procedural
unconscionability such as real and voluntary meeting of the minds of the
contracting parties, age, educational qualifications, intelligence, relative
bargaining power, who drafted the contract, whether the terms were explained to the
weaker party, the deceptive appearance or language to the contract.

Substantial Unconscionability can be understood by referring to the contract or few

unfair terms of the contract such as unfair price of the contract, the limitations
of remedies and disclaimers of warranties, which make the contract very harsh,
oppressive, unworkable or one sided.

103 &199 law commsion report ----It proposed that courts should be vested with sou
moto power to enquire into substantive unfairness even if it is not pleaded by the
parties and provide reliefs to the parties if the contract is proved to be unfair
and unconscionable