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Judgment
Charles Arnold White, Kt., C.J.—This is a suit brought by the endorsee of a promissory-note of Rs. 1,500 which provided for the payment
of interest at the rate of 60 per cent per annum. The makers of the none were five ladies. Two issues were raised: is the note genuine? is the rate of
interest provided in the note enforceable? The judge found that the note was genuine but that the rate of interest was not enforceable and in lieu of
the interest provided for in the note he gave the plaintiff interest at the rate of 24 par cent, per annum. The plaintiff appeals against this. There is no
cross-appeal as regards the genuineness of the note. The contesting defendants are defendants Nos. 1, 6, 7 and 8. They plead that the note was
fraudulent and that the rate of interest was high and unconscionable There is no plea that the note was procured by the exercise of undue influence
on the part of anybody. There is no issue as to this and there is no finding of the District Judge as to this. Consequently, I suppose it must be taken
that the District Judge, although he was not prepared to find or although at any rate he did not consider it necessary to find that the execution of the
note was procured by undue influence, was of opinion that he could give relief to the defendants by way of reducing the rate of interest provided
for in the note to what he considered an equitable rate in all the circumstances of the case. Now it seems to me and I speak only for myself that it
was not open to the District Judge on general equitable grounds to interfere with the contract between the parties unless he was satisfied that the
contract was brought about by the exercise of undue influence. As the Judge has given the plaintiff a decree on the note it must of course be taken
that the Judge did not consider that it was vitiated by fraud. In support of the contention that the learned Judge can, on general equitable grounds,
interfere with the contract rate of interest, our attention has been called to several authorities. Poma Dongra v. William Gillespie (1907) 31 Bom
348 was cited to us. There the Court granted equitable relief on the ground that the agreement appeared to be of an unconscionable character. It
would seem in that case the learned Judge (Dewar, J.) was of opinion that the agreement was brought about by undue influence. He says ""I have
no doubt in my mind that, when the defendant executed the two promissory-notes in this suit undertaking to repay the loans with interest at 75 and
60 per cent, per annum, the plaintiffs were in a position to dominate his will."" That, observation is obviously made with reference to Section 16 of
the Contract Act. Then we have the Allahabad decision in Balkishan Das v. Madan Lal ILR (1907) All. 303. In that case the learned Judges
confirmed the judgment of the District Judge reducing the rate of interest, although in that case there was the finding by the Court below which was
accepted in the High Court that it was not a case in which it could be said that undue influence was brought to bear. All I can say with regard to
that case is, speaking with all respect, that it seems to me to be impossible to reconcile it with the decision of the Privy Council in Dhanipal Das v.
Raja Maneshar Bakhsh Singh (1906) 33 I.A. 118 a case, I think I am right in saying which was not brought to the notice of the learned Judges of
the Allahabad High Court. In that case the Subordinate Judge held that it was not one of fraud or undue influence but of inequitable dealing and he
decided to interfere in the enforcement of the hard terms of the contract and accordingly allowed simple interest at 18 per cent, but not compound
interest. In dealing with this judgment Lord Davet in delivering the judgment of the Privy Council said ""The Subordinate Judge was wrong in
deciding the case in accordance with what he supposed to be English equitable doctrine. He ought to have considered the terms of the amended
Section 16 only. He also mistook the English Law. Apart from a recent statute an English Court of Equity could not give relief from a transaction or
contract merely on the ground that it was a hard bargain, except perhaps where the extortion is so great as to be of itself evidence of fraud, which
is not this case. In other oases there must be some other equity arising from the position of the parties or the particular circumstances of the case.
But, although he was wrong in the reasons for his judgment, the Subordinate Judge may be right in his findings of fact."" This, so far as I know, is
the latest decision of the Privy Council with regard to this question. The principle of this decision was applied by this Court in Ranee Annapurni
Nachiar v. Swaminatha Chettiar I.L.R(1911) Mad. 7. There are no doubt earlier cases of the Privy Council in which equitable relief has been
granted and the rate of interest has been cut down without any finding express or implied that the agreement was brought about by undue influence.
I may refer to the cases of Srimati Kamini Soondari Chowdhrani v. Kali Prosunno Ghose (1886) 12 I.A 215 and Rajah Mokham Singh v. Rajah
Rup Singh (1898) 20 I.A. 137. Roth these cases were decided after the passing of the Indian Contract Act, 1872, and before the amendment of
Section 16 by the Act of 1899. The object of the amendment was to extend the scope of the section and does not affect the question, we are now
considering. With regard to the latter case it may be observed that the language of their Lordships is somewhat guarded. They conclude their
judgment by saying ""a decision thus arrived at ought not to be set aside on appeal unless it clearly appears to be wrong."" It may be that the last
decision in Dhanipal Das v. Rajah Maneshar Bakhsh Singh (1906) 33 I.A. 118, is difficult to reconcile with the two earlier decisions. It seems to
me, we ought to apply the principle as laid down in the latest case; and applying that principle I am of opinion that it was not open to'' the District
Judge to reduce the rate of interest unless he was of opinion (and in the absence of any issue or finding I do not think we can assume he was of
opinion), that the stipulation as to interest was procured by the exercise of undue influence as defined by Section 16. We have a state of things in
which the District Judge has found we must take it, against the plea of fraud; because if the plea of fraud was made out, he of course would not
have given the plaintiff a decree for the amount of the principal with interest at the rate which he thought was equitable. We must take it that he
finds against the plea of fraud, that he finds that the document was a genuine document in the sense that it was executed by the parties by whom it
purports to have been executed and, that he does not find that it was brought about by undue influence. In these circumstances, I think that his
judgment that the rate of interest ought to be cut down cannot be supported. Then I assume for the purposes of this appeal and only for the
purposes of this appeal, that it is open to us to deal with this case as if there had been the plea of undue influence raised and to consider whether,
on the evidence, the plea is established. On the evidence it seems to me clear that that plea is not established. The transaction was carried out by
the fifth witness for the plaintiff, who is the father of the defendants Nos. 4 and 5 and the husband of the second defendant and who acted under a
power-of-attorney which was given to him by his own daughters and by the other defendants in the case--the executants of the note. The difficulty,
about the case is, to say who is the party who exercised the domination and who is the party whose will was dominated. The fifth witness for the
plaintiff, the agent, was acting under a power-of-attorney and there is no evidence to support the suggestion that his will was dominated in that that
he entered into a transaction which he knew was inequitable or which he knew was contrary to the interests of his principals, the parties who gave
him the power-of-attorney. The ladies were very anxious to raise the money for the purposes of saving the estate from sale but there is no evidence
from which we can draw the inference that their agent, brought pressure to bear upon the ladies or that they were in a position of helplessness.
Then can it be suggested that his will was dominated? There is no evidence to show that he entered into an agreement by which the original payee,
who is the first witness for the plaintiff, agreed to advance the amount of Rs. 1,500. It is not found that this Rs. 1,500 was not advanced. The
original payee in turn endorsed the note to the plaintiff. It is not found that the plaintiff did not advance Rs. 1,500 to the original payee. I can find no
evidence in the case, at any rate our attention has not been called to any, which would in my opinion, warrant us in holding that the wills of the
executants of the note were dominated by anybody or that the will of their agent was dominated by anybody so as to bring in the provisions of
Section 16 of the Contract Act. No doubt the rate of interest is high and it may be that a very high rate of interest is not only evidence of the
unconsionable nature of a bargain but is also evidence that the will of the party who consented to pay the exorbitant rate of interest was dominated.
Here we have the rate of interest at 60 per cent. In the circumstances of this case it seems impossible to hold on that alone that the contract was
brought about by undue influence and in my opinion there is really no other evidence in the case which would warrant us in coming to that
conclusion. There is a further question that I need not discuss, i. e., as to the rights of the plaintiff as the holder of the note by indorsement from the
original payee. Then there is another defence put forward; so far as I understood it, it was that the payee was a mere name-lender for the fifth
witness for the plaintiff who held the power-of-attorney and that the benefit of the transaction was to be enjoyed by this fifth witness. If there was
any evidence at all that there was anything like collusion or conspiracy as between the payee and the fifth witness for the plaintiff that they would be
sharers of the spoils, then of course we should have to consider whether we could allow the transaction to stand. But so far as I can see there is no
evidence. This defence seems to me merely a suggestion which is quite unsupported by the evidence. For these reasons I think we must allow the
appeal and give the plaintiff a decree for the amount of the principal and interest at the rate provided for in the note. We modify the decree of the
lower Court by substituting the rate of interest as provided for in the promissory-note for the interest at 24 per cent. Interest at 6 per cent, after the
date of the plaint will be allowed. The plaintiff will have costs here and in the lower Court to be paid by the first defendant and the second
defendant''s legal repre sentatives.
Sankaran Nair, J.
u/s 16 of the Indian Contract Act IX of 1872 before it was amended a contract which was entered into by one party under undue influence as
defined therein was voidable by him. The following is the definition of undue influence. Undue influence is said to be employed in the following
cases:
(1) When a person in whom confidence is reposed by another, or who holds a real or apparent authority over that other, makes use of such
confidence or authority for the purpose of obtaining an advantage over that other, which but for such confidence or authority, he could not have
obtained:
(2) When a person, whose mind is enfeebled by old age, illness, or mental or bodily distress, is so treated as to make him consent to that, to
which, but for such treatment ha would not have consented, although such treatment may not amount to coercion."" Srimati Kamini Soondari
Chowdhrani v. Kali Prosunno Ghose (1885) 12 I.A. 215 was decided while this provision of law was in force. That was a suit for the recovery of
money due under a mortgage-bond. The plaintiff was the mukhtear of the defendant who was a purdanashin lady; and the question was whether
with regard to the rate of interest it was an unconscionable bargain in which undue advantage was taken of the lady by her mukhtear, the plaintiff.
Their Lordships of the Privy Council accepted the finding of the lower Court against fraud and undue influence and they were of opinion that the
whole transaction could not be therefore set aside. But assuming the validity of the mortgage, the question was argued before them whether the
agreement about the rate of interest was not an unconscionable bargain such as a Court of Equity could relieve against. They followed the English
Law as laid down by the Master of The Rolls in Beynon v. Cook (1875) L.R. 10 Ch. 389, and quoted the following passage with approval: The
point to be considered is, was this a hard bargain? The doctrine has nothing to do with fraud.... It has been laid down in case after case that the
Court, wherever there is a dealing of this kind, looks at the reasonableness of the bargain, and if it is what is called a hard bargain sets it aside.
It was obviously a very hard bargain indeed, and one which cannot be treated as being within the rule of reasonableness which has been laid
down by so many Judges."" Following this judgment they held that the compound interest charged was exorbitant and unconscionable and as the
purchaser took full notice of these circumstances it should not be allowed and accordingly reduced it. The decision establishes that; though the
agreement is valid so far as the Contract Act is concerned, though there is neither fraud nor undue influence, it will not be enforced if such as will
be relieved against in a Court of Equity. Their Lordships say ""The finding of the lower Court against fraud and undue influence must now be
accepted; a contrary finding would have avoided the whole transaction. But assuming the validity of the mortgage, a question arises whether, under
the circumstances, the rate of interest exacted did not amount to a hard or unconscionable bargain such as a Court of Equity will give relief against
and accordingly reduced the interest as pointed out above. Similarly in another case where the plaintiffs had, in the belief that the defendant''s claim
to an estate was well founded, advanced the sums necessary to enable him to prosecute the successful appeal to the Privy Council it was held that
the reward stipulated for was in the circumstances, excessive and unconscionable. The Judicial Committee of the Privy Council held that it was so
and they accordingly set aside the agreement and awarded the plaintiff reasonable damages. See Rajah Mokham Singh v. Rajah Rup Singh (1893)
20 I.A., 127. It will be observed that relief was awarded to the plaintiffs in these oases not on the ground that they were procured by undue
influence as defined by Section 16 of the Indian Contract Act but on the broad grounds on which relief was awarded by the English Courts of
Equity. In Dhanipal Das v. Rajah Maneshar Bakhsh Singh (1906) 33 I.A., 118 Lord Davey is however reported to have said ""The Subordinate
Judge was wrong in deciding the case in accordance with what he supposed to be English equitable doctrine. He ought to have considered the
terms of the amended Section 16 only."" This would be in direct conflict with the judgment in Srimati Kamini Soondari Chowdhrani v. Kali
Prosunno Ghose (1885) 12 I.A., 215 already cited unless we are to assume that amending the Act the legislature intended to embody in Section
16 the rules enforced in this respect by the English Courts of Equity and among them the rule that a transaction may be so unconscionable and the
extortion so great as to be evidence of undue influence. I am of opinion that the amendment was made for that purpose and that the substituted
definition of undue influence includes within its scope oases which did not (all within the section as it originally stood. According to this section there
are two elements necessary. One of the parties to the contract must be in a position to dominate the will of the other and he must have used that
position to have obtained unfair advantage over the other. Now excessive interest in itself may not be a ground for relief but it may be evidence of
the fact that the debtor must have been in a very helpless condition to accept the terms imposed by the creditor. The exorbitant nature of the
interest itself may be evidence of that. It may also be evidence that he must have used it to obtain an unfair advantage over the other if the position
of the parties is such that we may fairly presume that otherwise the debtor would not have accepted those terms. In the present case the contract
rate of interest is 60 per cent. The debtors were women who were not able to enter into the transaction themselves. They bad applied for loans in
other quarters and they had failed. The properties were going to be sold. If, therefore, these facts had stood alone it might be fairly presumed that
unless the defendants were in a distressed condition and utterly helpless in the matter and the plaintiff had not taken advantage of this position they
would not have cared to pay this interest. In this case, however, it appears that the loan was negotiated by the plaintiff''s fifth witness, Sitapathi
Naidu, who had a power-of-attorney from all these defendants. It is impossible to hold that he was in any condition of helplessness and that his
mind was in any way dominated by that of the creditor. It was suggested in argument before us that the creditor, the payee, was only the benami
holder but the evidence does not support this suggestion. It was also argued that he was in some way interested in the loan. That also has not been
established whereas we have the facts admitted that some of the debtors in this case are his own daughters and that the promissory-note was
attested by the husband of another female debtor. I am, therefore, clearly of opinion that one of the conditions necessary for the granting of relief
does not exist in this case. Though as I have pointed out above the rate of interest provided in the promissory-note in itself might, in the
circumstances, show that the transaction was unconscionable and that the plaintiff used his position to dominate the will of the defendants, in this
case such presumption is rebutted. I am, therefore, of opinion that the defendants are not entitled to any reduction of interest and I agree in the
decree proposed by his Lordship the Chief Justice.