11 January 2022
The concept of freedom of contract has two meanings; first is the freedom of a party to enter into a contract on whatever terms it may consider advantageous to its interests, or to choose not to, and second, that there should be no liability without consent being embodied in a valid contract.[1]
Under the Indian Contract Act, 1872 (the Act), a contract entered into between the parties is required to be consensual for it to be valid. The Act further contemplates that even if both parties have consented to the contract, consent of one of them may not be said to be free/ or can be said to be tainted, if the same has been obtained by fraud, misrepresentation, undue influence or coercion. The distinction between the total lack of consent and a tainted one is real. It is only in case of tainted consent that a contract shall be held voidable at the instance of the party claiming it.
While there already exists a plethora of jurisprudence expounding these concepts in respect of their nature and scope, the manner and form in which these allegations are required to be pleaded is not ordinarily discussed. The purpose of this blog is to cover the often-unexplained practical aspects (through an illustrative list of case studies) relating to the specific averments required to clarify the allegedly tainted consents.
PLEADINGS
Order VI Rule 2 of the Civil Procedure Code, 1908 (the Code) mandates that every pleading ought to contain only a statement in concise form of the material facts without the need to include evidence, which is sought to be relied on. However, under Rule 4, any party who inter alia alleges misrepresentation, fraud or undue influence is required to specify necessary particulars in their pleadings. Therefore, a general averment that consent was not freely obtained is not enough, and it is necessary to factually substantiate and particularise the same.
While the Code lays out the general manner in which vitiating elements are to be pleaded, the actual particulars that one ought to consider including in pleadings are set-out as under:
1. Coercion
‘Coercion’ is defined under Section 15 of the Act as “the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860), or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”
Coercion entails a threat of any unlawful act against the person and/or property of an individual, with a view to induce such a person to enter into an agreement. Thus, in order to constitute coercion, the threat must be unlawful, and it must be further demonstrated that the agreement was entered into by strong-arming the other party. The party alleging coercion is required to expressly set out the allegations and particularise all material facts to substantiate such allegations by laying them out in their entirety and with a high degree of precision.
In the case of State of Kerala vs. M. A. Mathai[2], the original plaintiff alleged that it had entered into supplemental agreements with the original defendant due to coercion. The trial court and the High Court held that the supplemental agreements entered into were not binding on the plaintiff owing to the lack of the plaintiff’s free will and free consent. The Supreme Court, however, observed that the findings that the agreements were not obtained by free will and free consent, to say the least, was an inferential conclusion not supported by any evidence. For coming to such conclusion, material had to be placed on record and evidence had to be led. Mere assertion by the plaintiff, without any material to support the same should not have been accepted by the trial court and the High Court.
In the case of Bishundeo Narain vs. Seogini Rai & Anr.[3], it was pleaded that a compromise to a suit was filed under undue influence and coercion. So far as the pleaded case of coercion is concerned, the Plaintiff averred that such compromise was filed due to the fear of death at the behest of the Defendant No. 1’s father. It was further pleaded that the Plaintiff’s father was a man of weak intellect who did not have the wisdom to seek any aid from third parties, and therefore the Plaintiff submitted to the dictates of the Defendant No. 1’s father and filed the compromise. The Court observed that the crux of the allegation lay on the threat of death. In support of this, the pleadings highlighted the ferocious appearance, high handedness and criminal activities of the Defendant No. 1’s father, which could only lend colour to the genuineness of the allegation; but no specific particulars were provided about the threat itself. The pleadings remained silent on the nature of the threat, the date, time and place in which it was administered, the circumstances which prevailed, and even the particulars of the person who administered such threat. The Supreme Court observed that in cases of fraud, undue influence and coercion, parties pleading it must set forth full particulars without deviating from the need to provide evidence. General allegations are insufficient, however strong the language in which they may be couched.
2. Undue Influence
“A contract is said to be induced by “undue 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”.[4]
A party pleading undue influence must demonstrate that the opposite party had some influence over him, which was used to take undue advantage.[5] The party pleading undue influence must set out full particulars of the event where undue influence was exerted, including the nature of the influence so exercised, the manner of exercising such influence and the unfair advantage obtained by the other party.
The Supreme Court, in the case of Ladli Parshad Jaiswal vs. The Karnal Distillery Co. Ltd.[6], has held that a plea saying that a transaction is vitiated because of undue influence of the other party merely indicates that some form of influence was brought to bear upon the party pleading undue influence, and by exercising such influence, an unfair advantage was obtained over him by the other. The object of a pleading is to bring the parties to trial by drawing their attention to the matter in dispute, so as to narrow the controversy to precise issues and to give notice to the parties of the nature of testimony required on either side in support of their respective cases. The Supreme Court has further opined that a vague or general plea can never serve this purpose. The party pleading must, therefore, plead the precise nature of the influence exercised, the manner of use of the influence, and the unfair advantage obtained by the other. This rule has been evolved with a view to narrow the issue and protect the party charged with improper conduct, from being taken by surprise. The plea of undue influence must, to serve that dual purpose, be precise and embody all necessary particulars in its support. If the particulars stated in the pleading are not sufficient and specific, the Court should, before proceeding with the trial of the suit, insist upon the particulars, which give adequate notice to the other side of the case intended to be set up.[7]
Section 16(3) of the Act stipulates that the burden of proving that the contract was not executed under undue influence will be on the party in a position to dominate the will of the other, if the transaction appears on the face of it or on the evidence adduced, to be unconscionable. The doctrine of undue influence always attempted to be separated from the doctrine of unconscionability of contract; nevertheless, in the statutory realm of the Act, it may be said that unconscionability is a species of genus undue influence. An unconscionable transaction arises in contract law where there is an overwhelming imbalance in the power relationship between the parties.[8] The vital difference between the two sub Sections (1) and (3) is that if the two ingredients of sub Section (3) are established, the burden of proof shifts on the party in a position to dominate the will of the other. This presumption is absent under sub Section (1).
It is important to note that undue influence may not always be substantiated by direct proof and must depend on conclusions drawn from the nature of the transaction and the circumstances in which it had its origin. It is quintessential to meticulously study all the circumstances of the case.[9]
3. Fraud
Per Section 17 of the Act, “Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:
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the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
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the active concealment of a fact by one having knowledge or belief of the fact;
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a promise made without any intention of performing it;
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any other act fitted to deceive;
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any such act or omission as the law specially declares to be fraudulent.
The Supreme Court, in the case of Shanti Budhiya Vesta Patel vs. Nirmala Jayprakash Tiwari, has observed that, it is a plain and basic rule of pleadings that in order to make out a case of fraud or coercion, there must be (a) an express allegation of coercion or fraud, and (b) all the material facts in support of such allegations must be laid out in full and with a high degree of precision. If coercion or fraud is alleged, it must be set out with full particulars.[10]
In Rengali Hydro Electric Project vs. Giridhari Sahu[11], the Supreme Court was faced with the situation where workmen alleged that they had inadvertently signed some papers for the purpose of regularisation. It so turned out that the papers signed were applications claiming benefits of a Voluntary Separation Scheme. It was the case of the worker’s union claiming they were defrauded by their own leaders. The Court, while holding that the provisions of the Code would apply even to labour court pleadings, ultimately ruled in favour of the company, and held that the manner in which the alleged fraud was perpetuated, the exact nature of such fraud and the details of the persons who alleged the same were missing from the pleadings. The Court further observed that though it was a possibility that one of the opposite parties could have committed fraud, there were no specific pleadings as to the persons who committed the act of fraud, and proceeded to reject the workers’ claims.
In order to successfully prove the existence of fraud, requisite particulars have to be pleaded, which can be further substantiated by evidence. In B.C. Ravindra and Anr vs. Deviramma[12], the Plaintiff had in clear terms pleaded that she was an old, illiterate lady, and the Defendants had misused their position to commit fraud against her. In support of this, she further demonstrated that she had no intention of executing the contract, by way of pleadings. Lastly, indicating her helplessness, she also averred that she was told that since the contract was registered, it was binding and there was nothing she could do about it. These averments were substantiated through evidence led by her, which resulted in the trial court holding that the Defendants had indeed committed fraud.
It is open to the court to permit parties to amend their pleadings and allow them to further elucidate their claims, with full particulars, if the plaint contains insufficient particulars alleging fraud. In the case of Sukhdei vs. Bairo & Ors.[13], the Court permitted the Defendants to amend their Written Statement to incorporate particulars of the alleged fraud, which they used as a defence to claim that the Sale Deed in question was fraudulently executed. After the amendment, the Court found that there was sufficient compliance with Order VI Rule 4, and hence accepted the defence of fraud.
4. Misrepresentation
“Misrepresentation” means and includes:
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the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
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any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him;
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causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
Thus misrepresentation, as distinguished from fraud, lacks the malicious intent of the party so perpetrating such misrepresentation, and includes any positive assertions, breach of duty and inducement of another party to enter into an agreement, all without the actual intent to deceive.
As a broadly accepted rule, any pleading alleging misrepresentation cannot be general, and specific circumstances ought to be averred, which show that misrepresentation was practised.[14] The onus of proving misrepresentation is always on the person alleging it.[15]
In the case of Kisan vs. Kausalyabai & Ors.[16], the plaintiffs alleged that the sale deeds in question were executed under misrepresentation. Upon a closer examination of the pleadings, the Bombay High Court held that the averments in the plaint were too vague and failed to specify the date of the alleged misrepresentation or how the Plaintiff was misled. The Court further held that even after a liberal construction of the pleadings, the plea in respect of the alleged misrepresentation were too ambiguous and short of the requisite particulars as contemplated under Order VI Rule 4 of the Code.
CONCLUSION
The purpose of the provisions of Order VI Rule 4 of the Code is twofold. Firstly, it is based on the maxim secundum allegata et probate i.e., the plaintiff could succeed only by what he had alleged and proved. He should not be allowed to travel beyond what was pleaded by him and put in issue. On the failure to prove his case as alleged, the court is not permitted to conjure up a new case for him by stretching his pleading by reading into the same.[17] It is also axiomatic (and the subject of considerable jurisprudence) that the plaintiff will not be allowed to lead evidence beyond his pleadings. Secondly, that each Plaintiff or Defendant is entitled to know any and every particular, enabling them to suitably prepare for trial and avoid any surprises.
While it is true that undue influence, fraud, misrepresentation are cognate vices and may, in part, overlap in some cases, they are in law distinct categories, and in view of Order VI Rule 4 read with Rule 2 of the Code, are required to be separately pleaded, with specificity, particularity and precision.[18]
Further, in the absence of any specific pleadings, per Order VI Rule 4 of the Code, it is open for the Court to permit an amendment (subject inter alia to the relevant limitation period), reject the claim, or pass a decree on admission. Therefore, parties must be vigilant about the allegations levelled in their respective pleadings, as well as the particulars thereof which must be furnished. Any shortcomings in this regard may affect the party adversely, thereby even negating genuine claims owing to mere lapses on the part of the draftsmen, leading to an inadvertent miscarriage of justice.
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1] Anson’s Law of Contract, 30th Edn., pg.4.
[2] (2007) 10 SCC 195.
[3] AIR 1951 SC 280.
[4] Section 16(1) of the Indian Contract Act, 1872
[5] A. Palaniappa Mudaliar vs. P.T. Kandaswamy Mudaliar & Anr, (1971) 1 Mys LJ 258.
[6] (1964) 1 SCR 270.
[7] Ibid, 5.
[8]New India Assurance Company Ltd. vs. Insurance Ombudsman, (2016) 2 KLT 926.
[9] Mahomed Buksh Khan & Ors. vs. Hosseini Bibi & Ors, L.R. 15 IA 81.
[10] AIR 2010 SC 2132.
[11] (2019) 10 SCC 695.
[12] 2010 SCC online Kar 329.
[13] (1999) 4 SCC 262.
[14] Yog Raj vs. Kuldeep Raj Gupta & Anr, AIR 1991 J&K 26
[15] Kuppuswami Chettiar vs. A.S.P.A. Arumugam Chettiar & Anr, AIR 1967 SC 1395.
[16] 2007 (3) BomCR 118.
[17] Afsar Sheikh & Anr. v. Soleman Bibi & Ors., (1976) 2 SCC 142.
[18] Ibid, 15.
