Raghunath Prasad v. Sarju Prasad [1923 I.A.]

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The suit is for recovery of the amount of principal and interest due by the appellant to the respondents (the plaintiffs) under a mortgage of date May 27, 1910. The Subordinate Judge gave decree in the mortgage suit, but only allowed simple interest. The High Court allowed compound interest.

The mortgage is dated May 27, 1910. It is for the sum of Rs. 9999 borrowed from the plaintiffs. The rate of interest is covered by the following provision:

“I, the declarant, do promise that I shall pay interest on the said debt at the rate of 2 per cent per mensem on the 30th Jeth of each year. In case of non-payment of the annual interest, the interest will be taken as principal and interest will run thereon at the rate of 2 per cent per mensem, that is, interest will be calculated on the principle of compound interest.”

There can be no question that these terms were high : if payment was not made the sum due on the mortgage would speedily mount up. By the decree of the High Court which was pronounced on November 9, 1920, it is seen that the original debt of Rs. 10,000 had reached, with interest and costs calculated up to May 8, 1921, more than a lac of rupees—namely, Rs.112,885. In eleven years the stipulation for interest at 24 per cent compound had magnified the sum covered by the mortgage more than elevenfold. It is upon these facts, coupled with one other about to be mentioned, that the appellant takes his stand.

The statement in the defence admits that at the time of the execution of the mortgage the defendant was owner of one half of a valuable joint family property. The owner of the other half was his father. Father and son had quarrelled. Serious allegations are made by the son against the father; whereas it appears that the father had instituted criminal proceedings against the son. Shortly before the date of the mortgage the defendant had borrowed Rs. 1000 from the plaintiffs, so as to enable him to defend himself in these criminal proceedings.

It is alleged that they caused him great mental distress, and that he required more money to conduct his litigations. That is the story.

The defendant gave no evidence at all. It is quite plain that no Court can accept a story thus unproved by its author as establishing a case either of mental distress or of undue influence under the Indian Contract Act. The only case which the appellant has in the case derived from the contents of the mortgage itself.

Their Lordships think it desirable to make clear their views upon, in particular, s. 16, subs. 3, of the Contract Act as amended. By that section three matters are dealt with. 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 – namely, 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 the 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.

It is sufficient to say that the borrower in the present case was sui juris; had the full power of the bargaining and of burdening his estate, that his estate was not under the Court of Wards, and that he lay under no disability. With regard to his helplessness nothing whatsoever is proved in the case except the bare fact that he, being a man of wealth as owner of one-half of certain joint family property, wished to obtain and did obtain certain moneys on loan. The only relation between the parties that was proved was simply that they were lender and borrower.

In Sundar Koer v. Sham Krishen {I.A.} the exact point was referred to by Lord Davey in the course of the judgment read by him: “There is no evidence of any actual exercise of undue influence by the mortgagees or of any special circumstances from which an inference of undue influence could be legitimately drawn, except that the mortgagor was in urgent need of money. The learned counsel for the appellant argued that the mortgagees were thereby placed in a position ‘to dominate the will’ of the mortgagor. Their Lordships are not prepared to hold that urgent need of money on the part of the borrower will itself place the parties in that position.”

This precisely fits the situation of these parties. It has not been proved – it might be said that it has not even been attempted to be proved – that the lender was in a position to dominate the will of the borrower.

In these circumstances, even though the bargain had been unconscionable (and it has the appearance of being so), a remedy under the Indian Contract Act does not come into view until the initial fact of a position to dominate the will has been established. Once that fact is established, then the unconscionable nature of the bargain and the burden of proof on the issue of undue influence come into operation. In the present case, for the reasons stated, these stages are not reached.

Their Lordships are of opinion that the decree of the High Court should be varied by allowing compound interest on the principal at the rate of 2 per cent per mensem from the date of the execution of the bond until September 25, 1917, and thereafter simple interest up to the date of realization, and that in other respects the decree of the High Court should be affirmed, as they will humbly advise His Majesty accordingly.

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