Report No. 199
Procedural unfairness separately defined in section 5:
What we mean by 'procedural unfairness' is set out in section 5 of the Bill as follows:
"Section 5: Without prejudice to the provisions of sections 3 and 4, a contract or a term thereof is procedurally unfair if it has resulted in an unjust advantage or unjust disadvantage to one party on account of the conduct of the other party or the manner in which or circumstances under which the contract has been entered into or the term thereof has been arrived at by the parties."
It will be noticed from the previous chapter that such a general statement of what is 'procedurally unfair' has been attempted in other jurisdictions also though no statute precisely devises a full separate section for giving the meaning of these said words.
Here, one important fact has to be noticed. Under the Indian Contract Act, 1872, it is provided in section 19 that certain contracts are voidable and be avoided. It is also stated that the party concerned may, avoid the contract or he may,
"insist that the contract shall be performed and that he shall be put in the position in which he would have been if the representations made had been true.
The fact remains that if the party wants to avoid a voidable contract, he has under section 19 of the Contract Act, 1862 only to prove one or other of the grounds, namely, that his consent to the agreement was caused by coercion, fraud or misrepresentation. He need not necessarily prove that any unjust advantage has been gained by the other party or that he has suffered an unjust disadvantage as we are now proposing in section 5.
However, section 19A of the Contract Act, 1872 which deals with 'undue influence', while permitting avoidance of a contract, states that "Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just".
But, what we propose under section 5 is not at par with section 19 but somewhat on par with section 19A. We propose that where procedural unfairness is alleged, i.e. facts relating to the conduct or manner or circumstances under which the contract is entered into or a term is arrived at, then in addition, the party seeking to avoid has to prove unjust advantage to the opposite party or unjust disadvantage to himself.