Report No. 69
Good Faith Section 111
Section 111 provides that 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. Although the section does not use the words "undue influence" in the sphere of contracts, it is some times invoked in cases where there are allegations of undue influence and abuse of fiduciary relationship in contract.
53.2. Analogous provision in Contract Act.-
It is, therefore, pertinent to refer to the analogous provision in the Contract Act1-Section 19A. Under that section, when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. "Undue influence" is defined in section 16 of that Act which expressly saves section 111 of the Evidence Act. Section 16 reads-
"16(1). 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.
(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the Will of another-
(a) where he holds 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 reasons 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 'lie upon the person in a position to dominate the will of the other. Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872)."
1. Section 19A, Indian Contract Act, 1878.
53.3. Comparison of the two provisions.-
Both the provisions relate to transactions entered into by persons between whom there is a fiduciary relationship,1 and both contain rules as to the burden of proof. But there are points of distinction between the two. Under the Evidence Act, the mere fact of one party to the transaction being in a position of active confidence shifts the burden of proving good faith to the party who is in that position. But, under the Contract Act, it is only when the transaction appears, on the face of it, or on the evidence adduced, to be unconscionable, that the burden of proof is thrown on the party who is in a position to dominate the will of the other.2 If the transaction does not, on the face of it, appear to be unconscionable, the party seeking to avoid the contract has to establish that the person in the position of domination has actually used that position to obtain an unfair advantage for himself3.
1. Md. Abdul Rehman v. Md. Abdul Ghana Khan, AIR 1937 Oudh 56.
2. Raja Mohan Manucha v. Nisar Ahmed Khan, AIR 1937 Oudh 87.
3. (a) Poosathurai v. Kannappa Chettiar, AIR 1920 PC 65;
(b) Rathunath Prasad v. Sarju Prasad Sahu, AIR 1924 PC 60.
53.4. Whether uniformity should be introduced.-
The difference between the two provisions may provoke a query whether it is not desirable to make the two provisions uniform in language. This May, at the first sight, sound an attractive course. There are, however, certain reasons why it would not be an appropriate course. In the first place, section 111 is a general provision; and as it is applicable to all transactions, it would not be appropriate to adopt the language of the Contract Act, because that languag.- and particularly, the expression "undue influence.- may not be appropriate for non-contractual transactions.
Secondly, the provisions in the contract Act are a bit cumbersome, because it is only when two ingredients are satisfied, namely, the dominating position of one party and a transaction which is apparently unconscionable, that the burden of proof is placed upon a party in a dominating position. The provision in the Evidence Act is, on the other hand, a simpler one. Thirdly, the existing language in the evidence Act does not seem to have caused any difficulty in its application.
53.5. No change.- We do not, therefore, propose to disturb the section on this point.