Tag Archives: undue influence

Appointment of Arbitrator – No Claim Certificate Obtained by Fraud, Coercion, Duress or Undue Influence

In Union of India v. Master Construction Company, (2011) 12 SCC 349, it was held as under:

            “In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no claim certificate has been obtained by fraud, coercion, duress or undue influence and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no – claim certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all.”

            From the proposition which has been laid down by the Hon’ble Apex Court, what reveals is that a mere plea of fraud, coercion or undue influence in itself is not enough and the party who alleged is under obligation to prima facie establish the same by placing satisfactory material on record before the Chief Justice or his Designate to exercise power under Section 11(6) of the Arbitration and Conciliation Act, 1996 which has been considered by the Hon’ble Supre Court in New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd., (2015) 2 SCC 424 as below:

            “It is therefore clear that a bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up a plea, must prima facie establish the same by placing material before the Chief Justice/ his Designate.”

            It is true that there cannot be a rule of its kind that mere allegation of discharge voucher or no claim certificate being obtained by fraud/coercion/undue influence practiced by other party in itself is sufficient for appointment of the arbitrator unless the claimant who alleges that execution of the discharge agreement or no claim certificate was obtained on account of fraud/coercion/undue influence practiced by the other party is able to substantiate the same, the correctness thereof may be open for the Chief Justice/his Designate to look into this aspect to find out at least prima facie whether the dispute is bona fide and genuine in taking a decision to invoke Section 11(6) of the Arbitration and Conciliation Act, 1996. United India Assurance Co. Ltd. v. Antique Art Exports Pvt. Ltd., (2019) 5 SCC 362.

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Allegations of fraud, misrepresentation and undue influence – Burden of Proof

When fraud, misrepresentation or undue influence is alleged by a party in a suit, normally, the burden is on him to prove such fraud, undue influence or misrepresentation. But when a person is in a fiduciary relationship with another and the latter is in a position of active confidence, the burden of proving the absence of fraud, misrepresentation or undue influence is upon the person in dominating position and he has to prove that there was fair play in the transaction and that the apparent is the real, that the transaction is genuine and bona fide. In such a case the burden of proving the good faith of the transaction is thrown upon the dominant party , that is to say, the party who is in a position of active confidence. A Person standing in a fiduciary relation to another has a duty to protect the interest given to his care and the court watches with jealousy all transactions between such persons so that the protector may not use his influence or the confidence to his advantage. When the party complaining shows such relation, the law presumes everything against the transaction and the onus is cast against the person holding the position of confidence or trust to show that that the transaction is perfectly fair and reasonable, that no advantage has been taken of his position. This principle has been engrained in Section 111 of the Evidence Act, 1872. The rule here laid down is in accordance with a principle long acknowledged and administered in Courts of Equity in England and America. This principle is that he who bargains in a matter of advantage with a person who places confidence in him is bound to show that a proper and reasonable use has been made of that confidence. The transaction is not necessarily void ipso facto nor is it necessary for those who impeach it to establish that there has been fraud or imposition, but the burden of establishing its perfect fairness, adequacy and equity is cast upon the person in whom the confidence has been reposed. The rule applies equally to all persons standing in confidential relations with each other. Agents, trustees, executors, administrators, auctioneers and other have been held to fall within the rule. The section requires that the party on whom the burden o proof is laid should have been in a position of active confidence. Where fraud is alleged, the rule has been clearly established in England that in case of a stranger equity will not set aside a voluntary deed or donation, however improvident it may be, if it be free from the imputation of fraud, surprise, undue influence and spontaneously executed or made by the donor with his eyes open. Where an active confidential, or fiduciary relation exists between the parties, there the burden of proof is on the done or those claiming through him. It has further been laid down that where a person gains a great advantage over another by a voluntary instrument, the burden of proof is thrown upon the person receiving the benefit and he is under the necessity of showing that the transaction is fair and honest. Pratima Chowdhury v. Kalpana Mukherjee, (2014) 4 SCC 196.

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Undue Influence

In a recent Judgment of the Allahabad High Court it was held as under:
“Undue influence does not connote excessive, inordinate or disproportionate influence but something wrongful. Acts of undue influence sometime range themselves under either coercion or fraud. Person having influence over another and by that influence induces the will of the other to his subjection, then it is such coercion as is sufficient to constitute undue influence. It is an influence whereby control is obtained over the mind of the victim by insidious approaches and seductive artifices. It may arise where parties stand to one another in a relation of confidence which puts one of them in a position to exercise over the other, an influence, which may be perfectly natural and proper in itself, but , is capable of being unfairly used. The question whether a party is in a position to dominate other is broadly a question of fact. No general law can be laid down as to when one would be in a position to dominate over the will of the other owing to complexities of human nature and relations. It may arise due to personal relationship as a result of circumstances, in which the contract was entered into. In Inchenoriah Binte Mohd. Tahir v. Shaik Allie Bin Omar Bin Abdullah Bahashuan, AIR 1929 PC 3, it was held, where the donor is not only an old lady of feeble health but is also entirely dependent upon the done, her nephew, even for food and clothes, there is sufficient relation between them to presume undue influence being responsible for bringing about the gift.
A person of hundred years age, indebted to third parties and for the purpose of managing his own livelihood, dependent upon another can be said to be in a position to be influenced and dominated by the will of such person on whom he relies and depends.
Undue influence was read alongwith fraud and coercion and in Bishundeo Narain and another v. Seogeni Rai and Jagernath, AIR 1951 SC 280, it was held that in cases of fraud, “undue influence” and coercion, the parties pleading it must set forth full particulars and the case can only be decided on the particulars as laid. There can be no departure from them in evidence. General allegations are insufficient even to amount to an averment of fraud of which any court ought to take notice however strong the language in which they are couched may be, and the same applies to undue influence and coercion.” Haridwar(D) through his legal heirs v. Smt. Kulwant (D) through her legal heirs, 2013 (4) AWC 3302.

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