Court caseAIR 1924 PC 60

A father and his son jointly owned a large estate. After a quarrel, the father started criminal proceedings against the son. To fight the litigation the son borrowed Rs 10,000 from the lender by mortgaging his properties, agreeing to pay compound interest at 2 per cent per month (24 per cent a year). In eleven years the sum due had grown to over Rs 1,12,000. When the lender sued, the son pleaded that the bargain was unconscionable and that the lender had taken advantage of his mental distress, so that the burden lay on the lender to disprove undue influence.

The Privy Council (Lord Shaw) held that the inquiry under s. 16 proceeds in stages. First, were the relations between the parties such that one was in a position to dominate the will of the other? Only if that is answered yes does the second question arise: was the contract induced by undue influence? And only then does the unconscionableness of the bargain become relevant, by throwing the burden of proof on the dominant party under s. 16(3). Here the borrower had proved nothing beyond the hardness of the terms; there was no evidence that the lender held any authority over him or that his distress had been exploited. The unconscionable rate of interest, by itself, did not shift the burden. The lender's claim succeeded, though interest was moderated under the Usurious Loans Act.