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L.I.C. Of India & Anr vs Consumer Education & Research ... on 10 May, 1995
Showing the contexts in which unconscionable contracts appears in the document
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In Central Inland Water Transport Corporation Ltd. v.

Brojo Nath Ganguly, 1986 (2) SCR 278 at 369-70, Madan, J. speaking for a bench of two judges considered the development of law, held that an instrumentality of the State cannot impose unconstitutional conditions in statutory rules vis-a-vis its employee to terminate the service of a permanent employee in terms of the rules and held thus:

"Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of nineteenth-century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak? Should the courts sit back and watch supinely while the strong trample under 5 foot the rights of the weak? We have a Constitution for our country. Our judges are bound by their oath to "uphold the Constitution and the laws". The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the speaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today's complex world of giant corporations with their vast infra-structural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances."

In his "The Bargain Principle And Its Limits" published in (1982) 95 Har. L.R. page 441, Prof. M.A. Eisenberg quotes Prof. Arthur Leff from the latter's article "Unconscionability of the Code" published in 1967) 115 U.Pen. Law Review 485 at 494 stating that:

"The purpose of contract law is not simply to create conditions of liability, but also to respond to the social process of promising."

He stated that since the law does not enforce a promise as such, a legal analysis of bargain of promise must start with a question whether such promise is enforceable at all. He further quoted Aurthor Leff analysing the distinction between procedural and substantive unconscionability. Procedural unconscionability is fault on unfairness in the bargaining process and substantive unconscionability is fault or unfairness in the bargaining outcome-that is, unfairness of terms. Quoting S.208 of the Restatement (second) of Contracts, he stated at page 752 that :

"Over the last fifteen years, however, there have been strong indications that the principle of unconscionability authorises a review of elements well beyond unfair surprise, including, in appropriate cases, fairness of terms."
He further states that :
"Theoretically it is possible for a contract to be oppressive taken as a whole, even though there is no weakness in the bargaining process." Professor Eisenberg propounds the basic test thus: "Whether the clause involved are so one-sided as to be unconscionable under the circumstances existing at the time of making of the contract - The principle is one of the prevention of oppression and unfair surprise - and not of distrubance of allocation of the risks because of superior bargaining power."