“Agreement Signed

under Pressure”
LEB Assignment
IBS Hyderabad
Submitted by: Aagam Maniar

Section: J
AGREEMENT SIGNED UNDER PRESSURE:

CASE: Sarkara Amarendra Nath vs. Union of India

(Case Studies in Management: Volume IX; p.216)

Case Summary/Facts:

• June 1928, Sarkara Amarendra Nath joins the then Bengal-Nagpur Railway
in a “cash and pay Branch”.

• 1948, Mr. Nath is promoted to post of Chief Cashier.

• Mani Pramanik is a pay-clerk in the same department and is in charge of

making payments of provident fund to retired Railway servants.

• December 1948 and January 1949, Nath receives complaints against

Pramanik regarding delays in payment to beneficiaries. Nath deputes two
inspectors to look over Pramanik’s work and accounts.

• March 1949, it is detected that Pramanik misappropriated a sum of Rs.

51,000 prior to Nath’s appointment as chief cashier. This leads to an enquiry
and Pramanik is convicted and sentenced to 1 year’s rigorous imprisonment
with a fine of Rs. 1000.

• Later that month, Nath is called upon to furnish a bond for the purpose of
indemnifying the Railways against any loss it might sustain by reason of his
 neglect toward his duty. Also, he was directed to sign a bond and furnish
security up to Rs. 30,000 for the same.

• 1954, the Union Of India forfeited a sum of Rs. 10,000 from Nath’s security
deposit.

• Sarkara Amarendra Nath filed a suit against Union of India holding that the
forfeiture was illegal and void.

ISSUES:

1. Is the forfeiture of the security deposit valid or not?

2. Was there any undue influence on Amarendra Nath to execute the
indemnity?

CONTENTION OF THE PARTIES:

• UNION OF INDIA contended that as chief cashier of the Railways, Nath

was responsible for all liabilities of his pay clerks handed over to cash dept.
Also, it said had Nath been more careful and vigilant, and discharged his
duty properly, the entire sum misappropriated by Pramanik could have been
saved and the Railways wouldn’t have suffered a loss.

• NATH argued that he had been made to sign the bond under undue
influence.

COURT OBSERVATIONS :

It was conceded by the court that the Union of India was in a position which could
enable it to exert undue influence.
It was also observed that the Railways had lost the money before Nath became
chief cashier.

RELEVANT LEGAL PROVISIONS/THEORY:

SECTION 16. "Undue influence" defined

• Any contract is said to be induced by "under influence" where the relations

subsisting between parties are such that one of the parties is in a position to
dominate the will of the other party and uses that position to obtain an unfair
advantage over the other.
• 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 party, or where he
stand in a fiduciary relation to the other; or

(b) Where he makes a contract with a person whose mental-

capacity is temporarily/permanently affected by reason of
age, mental or bodily distress or illness.

Misrepresentation, mistake, duress and undue influence are legal theories

supporting a finding that a contracting party did not, actually, consent to the
terms of an agreement. Generally, if a contracting party can establish the
elements of these theories, he/she may rescind the contract (However, he is
not required to do so, and may choose not to rescind.) Section 20 reads:
“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.
Any such contract may be set aside either absolutely or, if the party who was
entitled to avoid it has received any benefit there under, upon such terms and
conditions as to the court may seem just.”

A newly emerging form of duress is economic duress (sometimes called

"business compulsion"). This concept refers to the various forms of economic
 pressure, such as threats of economic harm, which can be applied in the
business context. Generally, the threatened harm must be such that a serious
economic loss would occur if the threat were carried out. Courts usually make
a distinction between situations in which the party applying duress takes
advantage of the other party's difficult financial condition and situations in
which the party applying duress actually created the other party's bad financial
situation and then took advantage of it. Despite the fact that the conduct
sounds unacceptable in both situations, most courts would find economic
duress only in the second case. One should keep in mind that lack of capacity
to contract is not the same thing as undue influence. Victims of undue
influence, usually, have legal capacity to contract, but their powers of
judgment and common sense are over-whelmed by the stronger party to the
transaction with who they are in a confidential relationship.

ANOTHER CASE REGARDING UNDUE INFLUENCE:

In Bank of China vs. Maria Chia Sook Lan, the respondent who had charged her
property for facilities given to her husband for his business contended that the bank
had procured the execution of the guarantee by her under undue influence.

She alleged that the bank acting through its servant had threatened her. The facts
that were relied upon were the statements made by the bank officer there (a)
pressing her in her husband’s absence to give a further guarantee of his account;
(b) threatening that if she did not give the guarantee, the bank would sell her shares
held as security for overdraft and (c) threatening that, if she did not give the
guarantee, the bank would make her husband bankrupt.

It was conceded for the guarantor that although the bank was entitled to make him
bankrupt, the threat to do so constituted undue influence.

The court took the view that, considering the facts relating to the guarantee,
Madam Chia had actually failed to establish undue influence.

JUDGEMENT:
The court ruled that taking the facts into account there was not enough evidence to
establish that undue influence had been used by the Union of India.

However, since the funds had been misappropriated by Pramanik before Nath
became chief cashier and signed the bond, thus Nath was not liable and the
forfeiture was not valid.

Appraisal about the case:

1.Is the forfeiture of the security deposit valid or not?

Solution:

The Union of India has tried to enforce the doctrine of vicarious

performance on Mr. Nath. Vicarious liability implies ‘an employer is made
liable for the negligent acts/omissions of his employee in the course of
employment whether or not such act or omission was specifically authorized
by the employer’.

However, this kind of liability is not found under Criminal Law, as is the
case here (misappropriation of funds), even though common in civil law.
Moreover, since Mr. Pramanik had misappropriated the sum before Mr.
Nath signed the bond, he cannot be made liable for it.

Thus, the forfeiture of the security deposit is not valid and is voidable.

2.Was there any undue influence on Amarendra Nath to execute the

indemnity?

Solution:

Section 16 of the Contracts Act 1950 states the general principle and the
emphasis where undue influence is deemed to exist and lays down some
rules for establishing on whom the burden of proof is in certain situations. It
states: “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.” There are certain essential elements
namely a relationship in which one party is dominant and the use of such
dominance upon another to obtain an unfair advantage . The presence of
undue influence in the formation of a contract can lead to its being flouted
by the other party who claims to have been influenced to agree to it.

In such cases person who is in some such position to dominate the will of
another, enters into 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 be upon
the person in a position to dominate the will of the other.

However, the fact that a person who is alleged to exercise undue

influence upon another party, is in a “deemed position” to dominate the
will of the other is by itself not enough to prove that there has been a
case of undue influence. There must be a further element present.

In the case, given the facts, there is not enough evidence that undue
influence has been exercised by the Union of India. (I have included a
similar case in this write-up.)

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