Contracts 2.docx

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY 2018-19

SUBJECT: Law of Contracts

Final Draft on:

COERCION and DURESS UNDER THE GUIDANCE OF

SUBMITTED BY

Dr. Manoj Kumar

Tanurag Ghosh

Asst. Professor (Law )

B.A. LLB (Hons)

Dr. RMLNLU, Lucknow

Roll No.: 147

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Table Of Contents

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Acknowledgement

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Introduction

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What is Coercion?

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Techniques of causing coercion

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Acts Forbidden By IPC

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Need For Amendment of Section 15

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Duress Under The English Law

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Elements and Forms Of Duress

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Comparison With English Law

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Conclusion

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Bibliography

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ACKNOWLEDGEMENT

I am really thankful for this chance to make this project. I would like to thank my professor Dr. Manoj Kumar under whose guidance all of this was made possible. I would also like to thank Madhu Limaye Library for providing me with resources for completing the project on time. I thank Dr RMLNLU for providing me the chance to study law and explore its aspects so freely. Lastly, I would like to thank my parents and friends without whose support, this project would not have been possible. Tanurag Ghosh

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INTRODUCTION

Coercion is defined as “It 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 is the practice of compelling a person or manipulating them to behave in an involuntary way (whether through action or inaction) by use of threats, intimidation or some other form of pressure or force. Coercion may involve the actual infliction of physical or psychological harm in order to enhance the credibility of a threat. The threat of further harm may then lead to the cooperation or obedience of the person being coerced. It may also refer to more subtle means of influence such as sweet talking, begging, charming, and seduction.

“What is Coercion? An agreement the consent to which is caused by coercion is voidable at option of the party whose consent was so caused. “Coercion” is defined in Section.15. According to Sec.15, “ Coercion is the committing or threatening to commit, any act forbidden by the Indian Penal Code (XLV of 186o), 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 is the practice of compelling a person or manipulating them to behave in an involuntary way (whether through action or inaction) by use of threats, intimidation or some other form of pressure or force. Coercion may involve the actual infliction of physical or psychological harm in order to enhance the credibility of a threat. The threat of further harm may then lead to the cooperation or obedience of the person being coerced. Any person’s set of feasible choices is obtained from the combination of two elements: the initial endowment (the perceived initial state of the world, which the chosen actions are going to affect) and the transformation rules (which state how any chosen action will change the initial endowment, according to the person’s perception).It follows that coercion could in principle take place by purposely manipulating either the transformation rules or the initial endowment (or both). In practice, however, the detailed choice reaction of a victim to a change in initial endowment is generally unpredictable. Hence effective coercion can only be carried out through manipulation of the transformation rules. This is done by the credible threat of some injury, conditional on the victim’s choice. often, it involves the actual inflicting of injury in order to make the threat credible, but it is the threat of (further) injury which brings about the change in transformation rules. Coercion does not remove entirely the victim’s ability to choose, nor does it necessarily affect his or her ranking of potential alternatives.” “ As Roman jurists used to say, coactus volui, tamen volui (I willed under coercion, but still I willed). In the terminology of rational choice theory, coercion does not remove a person’s 4

objective function, but only affects the constraints under which such function is maximized. Yet, the purpose of coercion is to substitute one’s aims to those of the victim. For this reason, many social philosophers have considered coercion as the polar opposite to freedom. Various forms of coercion are distinguished: first on the basis of the kind of injury threatened, second according to its aims and scope, and finally according to its effects, from which its legal, social, and ethical implications mostly depend.

Techniques Of Causing Coercion Consent is said to be caused by coercion when it is obtained by pressure exerted by either of the following techniques: 1. Committing or threatening to commit any act forbidden by the Indian Penal Code: or 2. Unlawfully detaining or threatening to detain any property.”

“Act Forbidden By The Indian Penal Code The words “act forbidden by the Indian Penal Code” make it necessary for the court to, decide in a civil action, if that branch of the section is relied on, whether the alleged act of coercion is such as to amount to an offence. The mere fact that an agreement to refer matters in dispute to arbitration was entered into during the pendency, and in fear, of criminal proceedings is not sufficient to avoid the agreement on the ground of “coercion”, though the agreement may be void as oppose to public.” “For instance, A threatens to shoot B if B does not agree to sell his property to A at a started price, B’s consent in this case has been obtained by coercion.” For coercion its not necessary that the IPC should be applicable at the place where the consent has been so caused. Explanation to Section 15 makes it clear that to constitute coercion, “It is immaterial whether the IPC is or not in the force in the place where the coercion is employed”. The following illustration1 will explain the point: s A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code (45 of 186o).A afterwards sues B for breach of contract at Calcutta. A has employed coercion, although his act is not an offence by the law of England, and although section 5o6 of the Indian Penal Code (45 of 186o) was not in force at the time when or place where the act was done. In Ranganayakamma v Alwar Setti2 the question before the Madras High Court was regarding the validity of the adoption of a boy by a widow, aged 13 years. on the death of her husband, the 1

The Indian Contract Act, 1872

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Ranganayakamma v Alwar Setti, [1889] I.L.R. 13 Mad. 214.

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husband’s dead body was not allowed to be removed from her house for cremation, by the relatives of the adopted buy until she adopted the boy it was held that the adoption was not binding on the widow as her consent had been obtained by coercion. 3 “In Chikkan Ammiraju v Chikkam Seshama, 4 the question before the Madras High Court was that whether coercion could be caused by a threat to commit suicide. In this A, a Hindu, by a threat of suicide, induced his wife and son to execute a release deed in favor of A’s brother in respect of certain properties as their own by the wife and the son. The question before the court was whether a threat to commit suicide could be considered to be an act forbidden by the Indian Penal Code. It was held by Wallis, C.J. and Seshagiri Ayyar, J. that a threat to commit suicide amounted to coercion within the meaning of Section 15 of the Indian Contract Act and therefore the release deed was voidable. It was observed that the threat to commit suicide could be considered to be an act forbidden by the Indian Penal Code and also the threat to kill oneself was an act where a person was acting to his own prejudice and also to the prejudice of his wife and the son and thus the requirements of Section 15 was satisfied. oldfield, J., who dissented was however of the view that the suicide is not an act forbidden by the Indian Penal Code (only an attempt to commit suicide is punishable under Section 3o9, Indian Penal Code and threat to do a forbidden act within the meaning of Section 15 of Indian Contract Act. Pollock and Mulla are of the view that the minority view is correct, and they recommend amendment of Section 15 so as to cover cases of threat also. 5”

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According to Pollack and Mulla, Indian Contract and Specific Relief Acts, 9th ed., p. 134 by obstructing the removal of the corpse the possible offence tried to be committed was under section 297, Indian Penal Code, which provides punishment to a person for wounding the feelings of a person by offering indignity to any human corpse. The authors also think that the case could well have been covered under Section 16 of the the Indian Contract Act as the widow’s consent had been obtained by undue influence. 4 Chikkan Ammiraju v Chikkan Seshama,[1918] I.L.R. 41 Mad. 33. 5 Indian Contract and Specific Relief Acts, 9th ed., 1950

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Need for amendment of Section 15 “It may be noted that committing or threatening to commit any act forbidden by the Indian Penal Code constitutes coercion. Acts forbidden by other penal laws are not included in the definition. The Law Commission of India in its report on the Indian Contract Act has recommended6 amendment of Section 15 and inclusion in the definition other penal laws also. The recommendation is as under:” “The proper function of the Indian Penal Code is to create offences and not merely to forbid only what it declares punishable. There are laws other than the IPC performing the same function. We suggest that the words ‘ Any act forbidden by the Indian Penal Code’ should be deleted and a wider expression be substituted therefore so that penal laws other than the Indian Penal Code may also be included. The explanation should also be amended to the same effect.” “Unlawful detaining of Property According to Section 15, coercion could also be caused by 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. For example, if an outgoing agent refuses to hand over the account books to the new agent until the principal executes in his favor, it is coercion’. 7 If the detention of property is not unlawful, there is no coercion. Thus if a mortgage refuses to convey the equity of redemption except on the terms dictated by him, there is nothing unlawful in it and therefore no coercion is caused in this case. 8 To The Prejudice of a person Section 15 requires that there should be 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 enter into an agreement. It means that the act causing coercion should not be necessarily against the contracting party, it is enough that the act is to the prejudice of any person whatever, and with the intention of causing any person to enter into an agreement. If for example, A unlawfully detains B’s son, C, in order to coerce B to enter into the agreement the case would be covered within this Section. Apart from that, it is also not necessary that the wrongful act causing coercion should proceed from the party to the contract. Thus, if in order to coerce a widow to adopt a child, the relatives of the adopted boy do not allow the dead body of the widow’s husband to be taken out of the home until the adoption is made, this is coercion. 9”

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Law Commission of India, 13th report on Indian Contracts, 1958 , p.21 Muthiah Chettiar v Karupan Chetti, [AIR 1927 Mad. 852] 8 Bengal Stone Co. Ltd v Joseph Hyam, [1918] Cal L.J. 78 9 Rangnayakamma v Alwar Setti, [1889] I.L.R. 13 Mad. 214 7

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Threat to strike is no coercion “In Workmen of Appin Tea Estate v Industrial Tribunal,10 the demand of the workers for bonus was accepted after a threat of strike. The question which had arisen was, whether such a decision between the union of workers and the Indian Tea Association could be declared void on the ground that there was coercion. It was held that because of the doctrine of collective bargaining under the Industrial Disputes Act, the demand of the workers could be backed by a threat of strike. Such a threat was neither an offence under the Indian Penal Code, nor was it unlawful detaining or threatening to detain any property and hence it did not amount to coercion and as such the agreement was valid.” Statutory compulsion is no coercion “When a statue requires a contract to be entered into, the consent in such a case is not deemed to be caused by coercion, undue influence, fraud, misrepresentation or mistake. In Andhra Sugars Ltd. V State of A.P.11 if any cane grower offered to sell his sugarcane to a factory in a certain zone, the factory was bound to accept the offer under the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, and accordingly the agreement was entered into. It was held that even though there was a legal compulsion for the factory to make the agreement, the agreement could not be said to be entered into by the lack of free consent, and there was no coercion either.

Duress under the English Law Under common law duress contains in actual violence or threat of violence to a person. It only includes fear of loss to life or bodily harm including imprisonment, but not a threat of damage to goods.12 The threat must be to do something illegal i.e. to commit a tort or a crime. 13 There is nothing wrong in threat to prosecute a person for an offence14 or to sue him for a tort15 committed by him, although threatening illegal detention would be duress. Moreover duress must be directed against a party to the contract, or his wife, child , parent or other near relative, and also caused by the party to the contract or within his knowledge.” According to the Black’s Law Dictionary, duress may be “any unlawful threat or coercion used… to induce another to act [or not act] in a manner [they] otherwise would not [or would]”.

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Workmen of Appin tea estate v Industrial tribunal, [AIR 1966 Assam 115] Andhra Sugars Ltd. V State of A.P. [A.I.R 1968 SC 599] 12 Atlee v Backhouse, [1838] 3 M&W 13 See Ware and De Frevile Ltd. V Motor Trade Association, [1921] 3 KB. 40: 14 Fisher & Co. v Appolinaris Co. [1875] LR 10 Ch.App 297 15 Powell & Hoyland [1851]6 Ex. 67 11

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Elements of Duress “It is a fact that people enter into contracts on a daily basis as a result of pressure of one kind or another. As Lord Wilberforce and Lord Simon remarked in Barton v Armstrong 16, “in life including the life of commerce and finance, many acts are done under pressure so that one can say that the actor had no choice but to act.” Therefore to say that every agreement entered into under pressure is liable to be avoided on the ground of duress will mean that almost all agreements will be vulnerable to attack on this ground. The law has to determine the pressure which is unacceptable and so amount to duress and pressure which is acceptable and therefore should not constitute duress. This has been done by laying done two requirements which must be satisfied for relief to be available on the grounds of duress. There must be pressure which amounts to compulsion of will of the complainant and the pressure must be one that the law does not regard as legitimate. As Lord Scarman explained in Universe Tankships Inc of Monrovia v. ITF17. There are “two elements in the wrong of duress: (1) Pressure amounting to compulsion of will of the victim, and (2) The illegitimacy of the pressure exerted The first element concerns the coercive effect of pressure on the complainant. It inquires whether the complainant’s consent was truly given. However, the complainant’s defective consent alone is not sufficient to constitute duress. The second element is necessary. The pressure that impairs the complainant’s free exercise of judgment must be illegitimate. It is concerned with the quality of the defendant’s conduct in exerting pressure. The defendant must have behaved in a way which makes the pressure affecting the complainant’s consent to be regarded as illegitimate.” Forms of Duress Originally, the parameters of the doctrine were very narrow in that an agreement could be avoided for duress only where the duress was in the form of a threat to the person. Subsequently, it was accepted that duress of goods can also vitiate consent to an agreement, and recent developments in respect of economic duress show that the categories of duress should not be regarded as closed. 1. Duress of Person Duress of the person may consist in violence to the person, or threats of violence, or in imprisonment, whether actual or threatened. The threat of violence need not be directed at the claimant: a threat of violence against the claimant’s spouse or near relations and a threat against the claimant’s employees has been held to constitute duress. It is suggested that even a threat

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Barton v. Armstrong [1976] A.C. 104. Universe Tankships Inc of Monrovia v. ITF [1983] 1 A.C. 366.

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against a stranger should be enough if the complainant genuinely that the submission was the only way to prevent the stranger from being injures or worse.” “The complainant only needs to prove that the pressure was the reason why he entered into the contract and the court will conclude that illegitimate pressure induced the contract unless there is evidence that the illegitimate pressure in face contributed nothing to the decision to enter the contract. It is not necessary for the claimant in case of threat to person to demonstrate that he had no practical alternative but to enter into the challenged contract. In the case of Antonio v Antonio18 where a wife succumbed to a long campaign of threats of violence and intimidation by her husband and transferred him half the shares in her company and enter into a shareholders’ agreement with him, the court found that the transfer and the agreement were both induced by duress. The court did not even enquire into whether she had any practical alternative such as seeking legal remedy. 2. Duress colore officii In cases where the illegitimate pressure is in the form of an unlawful demand for payment by a public official, a distinction is to be drawn between cases where the complainant paid the money in order to obtain a service from the public official (such as granting of a license or permit) and cases where the complainant paid the money by way of tax or similar impost. In the first category, the court readily infers that the claimant had no practical alternative but to submit to the demand of the public official since, as Littledale J. put in the Morgan v. Palmer19, the complainant could not otherwise obtain the services he required. But in cases where the payment is by way of tax, there is a practical alternative open to the claimant in the form of legal proceedings to challenge the legality of the public official’s demand for tax.” 3. Economic Duress “Certain threats or forms of pressure, not associated to the person, nor limited to the seizure or withholding of goods, may give grounds for relief to a party who enters into a contract as a result of threat or pressure. In cases of economic duress the main question is whether the claimant had practical or adequate alternative or not. The alternative must be practical or reasonable in the sense that it was adequate for the claimant’s purpose in the circumstances. In the case of a threat to breach a contract, for example if the circumstances are such that the claimant can easily obtain the required goods or services from an alternative source at a reasonable prize then the court is likely to regard this as a reasonable alternative and therefore may regard this as a strong evidence that the claimant’s decision to enter into the agreement was not induced by illegitimate pressure; but it is different where the circumstances are such that it would be difficult or impossible to find the substitute for the contracted goods or services within the time available at a reasonable cost.”

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Antonio v. Antonio [2008] EWHC 1199 (QB). Morgan v. Palmer [1824] 2 B. & C. 729 at 739

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In North Ocean Shipping Company Limited v. Hyundai Construction Co. Ltd.20, the builders building a ship under a contract for the plaintiffs, threatened, without any legal justification, to ”” “terminate the contract unless the plaintiffs agreed to increase the price by 1o%. It was held that this amounted to a case of economic duress and that the plaintiff would be entitled, on that ground, to refuse payment of the additional 1o%. In B. & S. Contracts and Design Ltd. V. Victor Green Publications Ltd.21, the plaintiffs had contracted to erect an exhibition stand for the defendants at Olympia, but their workmen went on strike. To get the work done, the defendants agreed to contribute £45oo to pay off the workmen’s claims. It was held by the court of appeal that this promise was made under duress as the defendants had no realistic alternative but the promise to pay, given the serious threat to their economic interests.” 4. “Threat to goods is no Duress It has been noted above that the common law recognizes only a threat to man’s person and not to his goods to constitute duress. This is different from the Indian law where Section 15 of the Indian Contract Act recognizes unlawful detention, or a threat to detain property as coercion. The position under English Law may be referring to the case of Skeate v Beale22. In this case a landlord threatened to sell his tenants good’s having a distress of against the tenant for rent. The landlord withdrew this distress in exchange of the tenant paying” “ E, 3-7 sh.6d immideieatley and promising to pay the remaining amount of E 16-2sh.-6d. within a month. In an action by the landlord to the recovhad been obtained sum of 16 pounds 2sh 6d. from the tenant, the tenant pleaded that this promise had been obtained under duress by threatening sale of his property in so far as the distress was wrongful. The tenanat’s plea was rejected and he was made to pay the amount in accordance with the promise because threat regarding goods cant constitute duress. In India, in case of coercion not only the contract is voidable under Section 19, but if some money has been paid or goods delivered by a party to the contract under coercion, the same is recoverable under Section 72. The section reads as under:

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North Ocean Shipping Company Limited v. Hyundai Construction Co. Ltd. [1979] QB 705 B. & S. Contracts and Design Ltd. v. Victor Green Publications Ltd. [1984] I.C.R. 419. 22 Skeate v Beale [1840] 11 A. & E. 983 21

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A person to whom money has been paid, or anything delivered by mistake or under coercion must repay or return it.” “For example a railways company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive. If a person is dispossessed of his property under illegal threat that unless the parts with possession, he would be detained under MISA (Maintenance of Internal Security) parting with the property under such threat amounts to coercion under Section 15. In Krishnan Lal Kalra v NDMC 23 the plaintiff was given license by the NDMC” “to run an open air restraint in Connaught Circus, New Delhi. The lease was to expire on 31st may 1978. The plaintiff who started running the restraint under the name and style “Rumble open Air Restaurant” was allegedly throw out of the premises after taking the forcebile possesion thereof without the due process of the law by the defendant who sent demolition squad with police force on 7th August 1976. There was also a threat the plaintiff would be detained under MISA, if he did not hand over the possession of the property. The plaintiff alleged that there was coercion and he filed the present suit claiming damages of Rs. 1o lacs.” It was held that the person was not bound by any act done under duress or coercion. In this case the threat that the plaintiff would be detained under MISA amounted to coercion. The plaintiff’s suit was decreed for a sum of Rs. 9,11,525.12 with cost as well as interest @ 12% w.e.f 7th August,1979, i.e. the date of filing the suit till the payment of the decreed amount.” Where a party had entered into a loan transaction willingly, there would be no element of coercion. In Union of India v M.V. Damodar24, the defendants took loan for purchase of vessels, which purchase was made through Shipping Development Fund Committee, which enjoyed monopolistic character. It was not obligatory of the defendants to take loan from the committee. The loan was advanced by the committee at a subsidized rate of interest which was below the rate of interest than prevailing in the market. Keeping in view the facts of the case, the Bombay High Court held 23

Krishnan Lal Kalra v NDMC, [A.I.R 2001 Delhi 402]

24

Union of India v M.V. Damodar, [A.I.R 2005 Bom. 137]

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that the contention of the defendants that they were forced to enter into contract with the plaintiff because of economic duress due to monopolistic character of the committee was not tenable.

“Comparison with English Law The following comparison has been attempted by the Madras High Court. “What the Indian Law calls ‘coercion’ is called in English Law ‘Duress or Menace’ Duress is said to consist in actual or threatened violence or imprisonment of the contracting party or his wife, parent or child, by the other party or by anyone acting with his knowledge and for his advantage. But coercion as defined in Section 15 is much wider and includes the unlawful detention of property also. Further, coercion may be committed by any person, not necessarily a party to the contract. Again it need not to be directed against the contracting party, or his parent, wife or child. While in English law Duress must be such as will cause immediate violence and also unnerve a person of ordinary firmness of mind, these requisites are not necessary in Indian Law”. Under the English law, actual or threatened violence to the victim’s person has long been recognized to amount to duress, but duress may consists of actual or threatened imprisonment,” “and now also includes wrongful threats to property or threat to seize goods, and wrongful or illegitimate threats to economic interests, where the victim has no alternative but to submit. The effect of duress is not to make the act of the victim non-voluntarily, nor does it deprive him with a “choice between evils”. The classic case of duress is, not the lack of will to submit but “the victim’s intentional submission arising from the realization that there is no practical choice open to him”. There has developed tremendous jurisprudence around the concept of duress, especially “economic duress”. Devising a test for this concept involves a delicate balancing act for, in a sense, all contracts are made under pressure- each party “threatens” the other that unless his terms are accepted. other party will not get the reciprocal benefits under the contract. The test in English law has been to distinguish between legitimate and illegitimate pressures, and only the latter is said to amount to duress. Threats to commit an otherwise lawful act are ordinary not duress. Thus, a threat to breach the contracts in order to reach an agreement as to its variation has been generally regarded as a legitimate commercial pressure, especially where this is the result of an unanticipated difficulty or based on a bona fide and reasonable belief that unless the demand is met, the party would unable to perform. If however the threat is “immoral or unconscionable”, this might be held to constitute duress. Thus, an unlawful threat by a trade union to continue the “boycott” of a ship; a threat to break an existing contract coupled with unreasonable and overwhelming commercial pressure; refusal to rescue a vessel in distress or those on board save on extortionate terms; have all been held to be cases involving duress. The doctrine of economic duress has also been accepted by the Bombay High Court to be part of Indian law. However to the extent this decision is seen as an authority importing the doctrine of duress in Indian Law, its correctness is not free from doubt.”

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Summary

In this project, we come to understand as to what exactly is coercion, its relevance to the law of contracts and its importance. We come to know that free consent which is one of the fundamentals of an agreement becoming a contract can be heavily influenced by coercion. We come to understand what acts could constitute coercion and which acts do not amount to coercion. We understand how it has manifested into the society by analyzing cases which are set as precedents and we come to understand the Judiciary’s view of coercion. Next we understand why and how are the statutes which deal with this concept are now old and impractical and understand the need of amendment of present statutes for better implementation in reality. We come to understand Duress and its practicability in contracts. We come to understand different types of it and which acts could amount to duress and which could not because it is very important for one to understand the nature of an act while signing a contract. We also analyse cases to see the statute’s practical implementation and how it is perceived by the judiciary. Lastly, we come to understand the difference between the perceptions of Indian and English laws regarding these and also understand how are they different but can be compared to each other for better understanding. All of this gives a fair idea to an individual for the concepts of Coercion and Duress and how they become so important in law of contracts.

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Bibliography 1. “THE INDIAN CONTRACT ACT” BY SIR DINSHAW FARDUNJI MULLA 2. “INDIAN CONTRACT ACT AND SPECIFIC RELIEF ACT” BY AVATAR SINGH 3. Law of Contract-I with specific relief act by D.R. R.K Bangia

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