Recommendations of the Law Commission of India

The basic rules and principles which govern contracts are enacted in the Indian Contract of 1872. The Contract Act did not cover the entire field of contract law. In the pre-independence era, in cases not provided by the Contract Act or other legislative enactments relating to particular contracts, the high courts in their original jurisdiction to apply Hindu Law to Hindus and Mahommedan Law to Mahommmedens.

After the enactment of the Constitution of India, the Indian Contract Act continued to be in operation under Article 372(1). However, the provisions of the Act would be subject to the provisions of the Constitution. Any provision of the Contract Act, if inconsistent with the fundamental rights, would be void under Article 13 of the Constitution.

A contract as defined by the Indian Contract Act of 1872 is an “agreement enforceable by law” [1] . Though the definition of a contract is simple enough, they are various facets and intricacies to this definition of a contract which the Indian Contract Act in its subsequent sections attempts to describe.

The definition of contract is built upon a succession of definition of elements which constitute it, namely, proposal, acceptance, promise, promisor, promisee, consideration and agreement. Thus, a valid contract under the Indian Contract Act can come into existence only when the offer has been communicated and the same is accepted by the offeree. The conditions required for an agreement being enforceable by law are contained in Chapter II of the Act, Section and absence of any of these conditions makes the contract void or voidable. The manner in which the civil contracts are enforced belongs to civil procedure and specific relief

1.2 Chapterization

This project has been divided into several chapters for the purpose of convenience of the reader. The first chapter looks at the basic components of a contract as per the Indian Contract Act, 1872. The second chapter studies what coercion is. The third chapter looks at the recommendations of the Law Commission of India with respect to contract law. Fourthly, this project looks at the recommendations of the Law Commission with respect to Coercion.

1.3 Research Methodology

The method of research employed is doctrinal. Various texts, newspaper articles, journals have been referred to. Online journals and data available on the internet have been extensively used.  The books and articles required for this project have been provided by the NALSAR law library. The project is an original work of the author. No part of the project is plagiarized.

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Chapter 2: Essentials of a Contract

Offer and Acceptance

Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. As a contract is an agreement, an offer is an indication by one person (the “offeror”) to another (the “offeree”) of the offeror’s willingness to enter into a contract on certain terms without further negotiations. A contract is said to come into existence when acceptance of an offer (agreement to the terms in it) has been communicated to the offeror by the offeree.

Treitel defines an offer as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed”, the “offeree”.4 An offer is a statement of the terms on which the offeror is willing to be bound.

The “expression” referred to in the definition may take different forms, such as a letter, newspaper, fax, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract.

Whether the two parties have an agreement or a valid offer is an issue which is determined by the court using the Objective test (Smith v. Hughes). Therefore the “intention” referred to in the definition is objectively judged by the courts. In the English case of Smith v. Hughes 5 the court emphasized that the important thing is not a party’s real intentions but how a reasonable person would view the situation. This is due mainly to common sense as each party would not wish to breach his side of the contract if it would make him or her culpable to damages, it would especially be contrary to the principle of certainty and clarity in commercial contract and the topic of mistake and how it affects the contract

Proposal is defined under section 2(a) of the Indian contract Act, 1872 as “when one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal/offer”. Thus, for a valid offer, the party making it must express his willingness to do or not to do something. But mere expression of willingness does not constitute an offer. An offer should be made to obtain the assent of the other. The offer should be communicated to the offeree and it should not contain a term the non compliance of which would amount to acceptance. The offer must be distinguished from an invitation to offer.

Capacity of parties to contract: Parties entering into an agreement must be competent and capable of entering into a contract. If “A” agrees to sell a Government property to B and B agrees to by that property, it could not treated as a valid agreement as A is not authorized or owner of the property. If any of the party is not competent or capable of entering into the agreement, that agreement cannot be treated as a valid contract. According to Section 11 of the Act which says that every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. So it is clear that the party must be of sound mind and of age to enter into a valid agreement which can be treated as a valid contract.

Free Consent: Consent is said to be free if it is not caused by

* Coercion – Consent is said to be caused by coercion when it is obtained by pressure exerted by either committing or threatening to commit an act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property.

* Undue influence – A contract is said to be induced by “undue influence” where the relation 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.

* Fraud – Means and includes the following acts done with the intention to deceive or to induce a person to enter into a contract. (a) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true (b) active concealment of a fact by a person who has knowledge or belief of the fact, (c) promise made without the intention of performing it.

* Misrepresentation – When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, it is misrepresentation. A breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is also a misrepresentation.

* Mistake – Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as the value of the thing, which forms the subject matter of the agreement, is not deemed as mistake as to a matter of fact. Unilateral mistake, i.e. the mistake in the mind of only one party does not affect the validity of the contract.

If the contract made by any of the above four reason, at the option of the aggrieved party it could be treated as a void contract. If the agreement induced by mutual mistake the agreement would stand void or cancelled. An agreement can be treated as a valid contract when the consent of the parties are free and not under any undue influence, fear or pressure etc. The consent of the parties must be genuine and free consent.

Lawful consideration: An agreement must be supported by a consideration of something in return. That is, the agreement must be supported by some type of service or goods in return of money or goods. However, it is not necessary the price should be always in terms of money. It could be a service or other goods. The purpose of the doctrine of consideration is to put some legal limits on the enforceability of agreements and to establish which promises should be legally enforceable. Among the limitations on the enforcement of promises, the requirement of consideration is said to be the most fundamental.

Lawful Object: The objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract. A rents out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract. Therefore the consideration as well as the object of the agreement should be lawful.

Consideration or object is unlawful if

(1) It is forbidden by law,

(2) Is of such a nature if permitted it would defeat the provisions of any law,

(3) It is fraudulent,

(4) The court regards it immoral,

(5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.

Not expressly declared void

If the agreement is declared void by the Indian Contract Act( Section 23-30) or by any other law, it is not enforceable.

Chapter 3: Coercion under Indian Contract Act, 1872

Under Section 15 of the Indian Contract Act, coercion is defined as the as follows:

“Coercion is the committing or threatening to commit, any act forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”

Coercion invalidating a contract need not proceed from a party to the contract, or be immediately directed against a person whom it is intended to cause to enter into the contract.

The act or the threat to commit the act should have caused the party to enter into the contract. The term “cause” is not a term of art but one of science. Nothing can be said to be the cause of a particular effect, unless it is the proximate and immediate cause of that effect. When a particular effect is said to be caused by a particular factor, it must be clearly and cogently established that the effect is the direct outcome of the particular cause. Thus, in order for coercion to invalidate a contract, it has to be instrumental in making the party agree to the contract.

There are two categories of acts that commission or the threat of commission of which would amount to coercion within the meaning of Section 15 of the Act: i) An act forbidden by the Indian Penal Code of 1860, ii) Unlawful detention or threat of detention of any property.

Act forbidden by the Indian Penal Code

The words “Act forbidden by the Indian Penal Code make it necessary for the courts to decide whether a given act of coercion is such as to amount to an offence under the Indian Penal Code of 1860. There has been considerable case law with regard to this section.

In the case of Ranganayakamma v. Alwar Setti [2] , a 13 year old Hindu widow consented to adopt a boy, when the relatives of the adopted boy obstructed the removal of her husband until she gave her consent to the adoption. The court held that this constituted an offense under Section 297 of the Indian Penal Code which enacts that whosoever with the intention of wounding the feelings of any person, or with the knowledge that the feelings of a person are likely to be wounded, offers an indignity to any human corpse, or causes disturbance of any person assembled for the performance of funeral ceremonies, is liable to imprisonment of fine or both. Thus, it was held that the consent was obtained by coercion within the meaning of Section 15 of the Indian Contract Act.

Mere threat of bringing a criminal charge does not amount to coercion, as it is not forbidden by the Indian Penal Code .But threat of bringing a false charge with the object of making another enter into a contract is coercion. [3]

Unlawful Detaining of Property

Consent can also be said to be caused by coercion, if it is caused as a result of unlawful detaining of property or a threat to do so. In the case of Bansraj Das v. Secretary of State [4] , for the purpose of realising a fine due from a son, the government attached the property belonging to both him and his father. The payment made by the father in order to save the property from being sold was held to have been made under coercion.

In another illustrative case, where an agent, whose services were terminated, detained accounts to obtain his release, the court held that the release was said to have been induced by coercion. [5]

To the prejudice of any other person

The term “prejudice” used in this section does not imply merely the emotion of prejudice. Some form of legal injury must follow in order that a person is said to be prejudiced. When the threat to commit suicide by a husband caused a wife to release the property, the court held that the wife was prejudiced. [6]

Burden of proof

The defendant relying on the defence of coercion should set out all the facts constituting these invalidating circumstances. [7] A suspicion or mere probability is not enough to constitute coercion. Thus, in a contract between two parties where coercion was not the solitary reason to enter into a contract, there is no burden of proof on the party threatened to show that but for the threat, no agreement would have been made.

The burden of proof does not lie on the innocent party to show that but for the threats, no contract would have been formed. It is for the party using the alleged threats to establish that the acts of alleged threats or unlawful pressure contributed nothing to the consent of the other party to the contract.

Compulsion of Law

Compulsion of law is not coercion under Section 15 and the contract in the eyes of the law is freely made. The mere fact that the contract has to be entered into in conformity with and subject to restrictions imposed by law does not per se impugn on the consensual element in the contract. ‘Compulsion of law is not coercion’ and despite such compulsion, ‘in the eye, the agreement is freely made.’ [8]

Difference between Coercion and Duress

a)      Coercion in India means committing or threatening to commit an  act forbidden by the Indian Penal Code. Duress, under Common Law, consists in actual violence or threat of violence, to a person. It includes Going of an illegal act against a person, whether it be a crime or a tort. Thus, unlike coercion, duress is not confined to unlawful acts forbidden by any specific penal law, like the Indian Penal Code in India.

b)      In India, coercion can also be there by detaining or threatening to detain any property. In other words, in coercion, an act may be directed against a person or his property. In England, duress is constituted by acts or threats against the person of a man and not against his property:

c)      In India, coercion may proceed from a person who is not a party to the contract, and it may also be directed against a person who, again, may be a stranger to the contract. In England, duress should proceed from a party to the contract and is also directed against the party to the contract himself, or his wife, parent, child, or other near relative

Chapter 4: Recommendations of the Indian Law Commission

The Indian Law Commission, under the Chairmanship of Shri M C Setalvad, prepared and submitted its Thirteenth Report in 1958 recommending amendments to the various provisions of this act.

The thirteenth Law Commission Report stated that since 1872 when the Contract Act was enacted there have been many developments in the fields of law, industry and commercial relations which have to be provided for under the Indian Contract Act. The common law of England on which the Indian Contract Act is based had its roots in property law. In those days, land was the most important form of property and consequently most contract disputes related to land. Therefore the Law Commission says that the Indian Contract Act was enacted keeping in mind the intricacies relating to transfer and sale of property. “They looked for certainty, and gave justice a second place.” In this scenario, the Law of Contracts tended to become rigid and technical. In the 19th century, freedom to contract was to become the governing principle of the Law of Contract and thus, the scope of the Indian Contract Act was to be changed keeping in mind the transitions in society and law.

The most important among the recommendations of this commission are:

Modification of the doctrine of privity to enable a third party to sue on a contract made for his benefit under certain circumstances.

Modification of the doctrine of consideration to make contracts enforceable without consideration, an agreement to keep an offer open for an indefinite period of time.

The recognition of principle of promissory estoppels

To make wagering contracts and collateral agreements unlawful

To permit reasonable restraint on the right to carry on trade

To include the principles regarding material alterations to documents. [9]

The Law Commission of India has also recommended other specific amendments to the Indian Contract Act. In the 97th report which was submitted in the year 1984, S28 of the Act which dealt with prescriptive clauses was to be amended which it was in the year 1997. In the 103rd report about unfair terms of contract, it recommended adding a new chapter to the Act giving power to the court to refuse to enforce a contract or part which was unconscionable. The 108th Report of 1984 about promissory estoppel, recommended adding one section to the act making promises enforceable even though without consideration, if they were acted upon. This report also gave the limits for operation of the doctrine of promissory estoppel.

Chapter 5: Law Commission Recommendations with respect to Coercion

The 13th report of the Law Commission of India which was chaired by Shri M C Setalvad contained a segment on Section 15 that is the definition of coercion. The definition of coercion given in the Indian Contract Act is not exhaustive. It cannot apply to situations in modern times where coercion can be induced by very many ways.

Coercion, as already seen, is defined in the Indian Contract Act, as “the committing or threatening to commit, any act forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”

The phrase “any act forbidden by the Indian Penal Code” is what was critically examined by the Law Commission. The purpose of the Indian Penal Code is to create offences and not merely forbid them. The Indian Penal Code forbids only that which it deems punishable. There are laws other than the Indian Penal Code performing the same function.

It has been up to the courts so far to interpret the meaning of the phrase in question and differentiate between “forbidden by the Indian Penal Code” and “punishable by the Indian Penal Code. One such case where this differentiation was made was in the case Ammiraju v. Seshamma [10] , an intriguing question arose as to whether a release signed by a wife and son in consequence of a threat of committing suicide had been obtained by coercion within the meaning of Section 15. The issue here was whether suicide is an act forbidden by the Indian Penal Code. The court held that the word “forbidden” is wider than the term “punishable”. As an attempt to commit suicide is punishable under the Indian Penal Code, the threat to commit suicide would also come under the ambit of acts “forbidden” by the Indian Penal Code. The dissenting judge was of the opinion that the section should be construed strictly and that an act which was not punishable by the Indian Penal Code cannot be forbidden by it as a penal code forbids only what it punishes.

This kind of interpretation can vary from court to court. Though it was held in the above case that threat to commit suicide does constitute coercion within the meaning of Section 15 of the Indian Contract Act, the section itself has to amended to include a more comprehensive meaning to the offences, the commission or the threatening of which, would constitute coercion.

The report suggested the words should be deleted and in place a wider expression of the offences forbidden by law in India be included in the Section. In the draft proposal of the amendment submitted by the Law Commission, they stated that the definition of coercion be changed as follows:

“ Coercion is the committing or threatening to commit any act, when the committing, or threatening to commit such act is punishable by any law for the time being in force, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention to causing any person to enter into a contract.

Chapter 6: Conclusion

The aim of this project has been to make the reader familiar with the essentials of a contract and to also to describe in detail the effect of coercion on a contract and the recommendations of the Law Commission of India with respect to coercion.

While analysing whether the Law Commission Report should be implemented or not, one should remember that the Indian Contract Act in its first form was enacted in 1872. Though it was enacted in the 19th century, it has managed to serve its purpose of defining the general principles of contracts to this day.

But the definition of coercion as given in the Indian Contract Act of 1872 is outdated for modern use. It includes within its ambit only offences which are forbidden by the Indian Penal Code. In the first place, the Indian Penal Code only declares offences “punishable” and not “forbidden”. Secondly, in the present context, the Indian Penal Code is not the only law that defines and punished offences in India.

Thus, it is my opinion that the definition of coercion should be updated and the law commission recommendation should be implements forthwith.