Tag Archives: Indian Contract Act

Plea of —Undue Influence

While considering the aspect of plea of undue influence and onus probandi, in Subhas Chandr Das Mushib v. Ganga Prasad Das Mushib, AIR 1967 SC 878, it was held as under:

       “Under Section 16(1) of the Contract Act a contract is said to be induced by undue influence where the relations subsisting between the parties are such that none 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. This shows that the court trying a case of undue influence must consider two things to start with, namely, (1) are the relations between the donor and the donee such that the donee is in a position to dominate the will of the donor, and (2) has the donee used that position to obtain an unfair advantage over the donor?

       The three stages for consideration of a case of undue influence were expounded in Raghunath Prasad Sahu v. Sarju Prasad Sahu, AIR 1924 PC 60, in the following words:

       “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 substantiated, the second stage has been reached, viz., the issue whether the contract has been induced by undue influence. Upon the determination of this issue a third point emerges, which is that of onus probandi. 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.

       Error is almost sure to arise if the order of these propositions be changed. The unconscionableness of the bargain is not the first thing to be considered. The first thing to be considered is the relations of these parties. Were they such as to put one in a position to dominate the will of the other? Jamila Beguma v. Shami Mohd., (2019) 2 SCC 727.

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Arbitral Award – Extension of Time

Section 29-A of the Arbitration and Conciliation Act, 1996 provides for the award to be made within a period of twelve months from the date the arbitral tribunal enters upon the reference. Sub-section (2) provides for an incentive in the form of fees to the arbitral tribunal if the award is made within a period of six months from the date the arbitral tribunal enters upon the reference. Time for making award as provided under sub-section (1), may be extended with the consent of parties for a further period of not exceeding six months. In the event, award is not made within the period specified under sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the court has, either prior to or after the expiry of the period so specified, extend the period, provided that while extending the period, if the court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five percent for each month of such delay. Thus, while sub-section (2) provides an incentive for disposal of arbitration proceeding within a time bound period, sub-section (4) provides for reduction in fees of the arbitral tribunal in the event award is not made within a period of twelve months or within extended period of six months.

      The power to extend the period is vested in the parties who may extend the period by consent upto six months. The power to extend the period vested in court under sub-section (5), is required to be exercised by the court on application of mind. The period can be extended by court only for sufficient cause and on such terms and conditions as may be imposed by the court. Sub-section (6) further confers power to the court that while extending the period referred to in sub-section (4), it may substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidences and material. The arbitral tribunal so reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal. To discourage the delay in conclusion of the arbitral proceedings, the court has been conferred power under sub-section (8) to impose actual or exemplary costs upon any of the parties. Jairath Constructions v. Triveni Engineering and Industries Ltd., 2018 (5) AWC 4676.

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Doctrine of Severability

Explaining the doctrine of severability contained in Section 57 of the Indian Contract Act, 1872 in B.O.I. Finance Ltd. v. Custodian and Others, (1997) 10 SCC 488, a three Judge Bench of the Court has held that question of severance arises only in the case of a composite agreement consisting of reciprocal promises. In Shin Satellite Public Company Ltd. v. Jain Studios Ltd.m (2006) 2 SCC 628, the court has observed that the proper test for deciding validity or otherwise of an order or agreement is “substantial severability” and not “textual divisibility”. It was further held by the Court that it is the duty of the court to sever and separate trivial and technical parts by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. Elektron Lighting Systems Pvt. Ltd. v. Shah Investments Financial Developments and Consultants Pvt. Ltd., 2016 (1) AWC 671.

 

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Contract of Guarantee vis-à-vis Contract of Indemnity

A contract of guarantee is defined in Section 126 of the Indian Contract Act, 1872 which says that a “contract of guarantee” is a contract to perform the promise or discharge liability of a third person in case of his default. The person who gives the guarantee is called “surety”, person in respect of whose default the guarantee is given is called the “creditor”. A guarantee, therefore, is an accessory. It is essentially a contract of accessory nature being always ancillary and subsidiary to some other contract or liability on which it is founded without support of which it must fail. The distinction between the “contract of guarantee” and “contract of indemnity” comes out from the definitions of the two. The phrase “contract of indemnity” is defined in Section 124 of the Indian Contract Act, 1872 which says that a contract by which one party promises to save the other from loss caused to him by the conduct of the petitioner himself or by the conduct of any other person is called “contract of indemnity”. One of the apparent distinction between the two is that a “contract of guarantee” requires concurrence of three persons, namely, the principal debtor, surety and the creditor, while the “contract of indemnity” is a contract between two parties and promisor enters into such contract with other party. In other words, a person who is party to a contract, if executes a promise to other party to save him from loss on account of promisor’s conduct or by the conduct of any other person, it is a “contract of indemnity”, while for the purpose of “contract of guarantee”, it requires presence of three parties at least. Punjab National Bank v. Ram Dutt Sharma, 2013 (120) RD 507.

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Filed under Civil Law, Contract Law