The Indian Contract Act, 1872
16. “Undue influence” defined
1[16.‘Undue influence’ defined.—(1) A contract is said to be induced by “under influence” where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.
(2) In particular and without prejudice to the generally of the foregoing principle, a person is deemed to be in a position to dominate the will of another –
(a) where he hold a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
(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.
(3) 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)
(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.
(b) A, a man enfeebled by disease or age, is induced, by B’s influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services, B employes undue influence.
(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) 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.]
The circumstance that a grandfather made a gift of a portion of his properties to his only grandson a few years before his death is not on the face of it an unconscionable transaction; Subhas Chandra Das Mushib v. Ganga Prasad Das Mushib, AIR 1967 SC 878.
Merely because the parties were nearly related to each other no presumption of undue influence can arise; Subhas Chandra Das Mushib v. Ganga Prasad Das Mushib, AIR 1967 SC 878.
Undue influence and fraud
(i) Undue influence is said to be a subtle species of fraud whereby mastery is obtained over the mind of the victim, by insidious approaches and seductive artifices; Mahboob Khan v. Hakim Abdul Rahim, AIR 1964 Raj 250.
(ii) Where pardanashin and illiterate woman acting under full confidence of the defendant who projected a false impression of the contents of a documents, put this thumb impression on such documents, their comment is a vitiated one; Kharbuja Kuer v. Jangbahadur Rai, AIR 1963 SC 12
What to prove—Burden of proof
If the transaction appears to be unconscionable 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 other; Shrimati v. Sudhakar R. Bhatkar, Air 1998 Bom 122.
1. Subs. by Act 6 of 1899, sec. 2, for section 16.