Raghunath Prasad v. Sarju Prasad

Facts

• Raghunath Prasad (father) and Sarju Prasad (son) were co-owners of joint family property
• They had quarrelled over the property; the father initiated criminal proceedings against the son
• During the dispute, the father executed a mortgage in favour of the son on allegedly unfavourable terms
• The father later claimed the mortgage was obtained through undue influence, arguing the son had used the family power dynamics to dominate his will

Issue

1. What is the proper method of determining whether undue influence exists under Section 16 of the Indian Contract Act? What must be proved and in what order?

Held

• The Privy Council laid down the three-stage test:
• First: The relations between the parties must be such that one is in a position to dominate the will of the other
• Second: Once domination is established, the question is whether the contract was induced by undue influence; whether the dominant party actually used that position to obtain the contract
• Third: If undue influence is proved, the burden shifts to the beneficiary to show the transaction was not unconscionable (or that independent advice was obtained)
• On the facts, the Privy Council held that the relationship between father and son in this case did not establish domination of will

Ratio Decidendi

Proof of undue influence requires a sequential three-stage inquiry: (1) establishing a relationship of dominance; (2) proving the contract was induced by that dominance; (3) examining whether the transaction is unconscionable. A mere relationship (even familial) does not automatically create a presumption of undue influence; the specific dynamics of domination must be established on the facts. The burden of proving stages (1) and (2) lies on the party alleging undue influence.