Question

Given below is a statement of legal principle followed by a factual situation. Apply the principle to the facts given below and select the most appropriate answer.
Legal Principle: Contract is an agreement freely entered into between the parties. But when consent to an agreement is obtained to undue influence, the contract is voidable at the option of the party whose consent was so obtained.
Factual Situation: The pragya had been worked for a business man Anurag since the age of $18$, working for a range of Anurag's businesses. In $2000$, (aged $21$) Pragya purchased a flat. In $2005$, Mr. Anurag's business was facing financial difficulties, and he asked Pragya to offe up her flat as financial security against an overdraft facility for the business. In July of that year, the banks solicitors wrote to Pragya, advising that she should take Independent legal advice before putting her property up as a security for the debt. The bank also notified Pragya that the guarantee was unlimited in both time and financial amount. Having discussed the arrangement with Anurag, Pragya was unaware of the extent of the borrowing, but was assured that her mortgage would not be called upon, and that his own properties which were also used as security would be looked at first. A charge was executed over the Pragya's property in August $2005$. In $2009$, Mr.s Anurag's business went into liquidation and the bank formally demanded $Rs.60,24,912$ from Pragya. Pragya raised the defence of undue influence - stating that Mr. Anurag had induced her to enter into the agreement, and the bank had full knowledge/ notice of this undue influence which should set aside the banks right to enforce the debt recovery against Pragya. Bank is contending that there is no undue influence.
Whether the consent to offer the flat as financial security obtained through undue influence?

• A. No because pragya was not forced by Anurag to offer here flat as a security
• B. No, because pragya was an educated and adult employee of Anurag and she knew what she was doing
• C. Yes, an employer/ employee relationship was capable of developing into such a relationship for undue influence. There was no benefit to Pragya in the agreement. The lack of benefit to one party was evidence enough
• D. No, an employer/ employee relationship is not capable of developing into a relationship for undue influence

Answer 1

The correct option is C Yes, an employer/ employee relationship was capable of developing into such a relationship for undue influence. There was no benefit to Pragya in the agreement. The lack of benefit to one party was evidence enough

Yes, an employer/ employee relationship was capable of developing into such a relationship for undue influence. There was no benefit to Pragya in the agreement. The lack of benefit to one party was evidence enough.
The employer Anurag used means of undue influence over employee Pragya as the employer has a dominant position over the employee. One of the essentials of a valid Contract is Consideration and in this case Pragya received no Consideration (benefit).
(Mahboob Khan and Ors. vs Hakim Abdul Rahim AIR $1964$ Raj $250$).