I. UNCONSCIONABILITY

Unconscionability is a legal concept stemming from the equitable principle of fairness in legal relations, whether contractual or otherwise. A contract may be challenged by a party to the same on the grounds that the same is unconscionable, if (i) such a contract contains harsh, oppressive and, therefore, unconscionable terms; or where (ii) the manner in which or the circumstances under which the contract has been entered into or the term thereof has been arrived at by the parties, is one which has caused an unjust advantage to the other party, or a disadvantage to the challenging party. This concept has been recognized by the Law Commission of India, in its 199th Report on Unfair (Procedural & Substantive) Terms in Contract.1

II. UNCONSCIONABILITY IN UK LAW

Some commentators in the United Kingdom have also identified "exploitation" as a moral wrong underpinning the concept of unconscionability. To this end, it is submitted by them that the distinction between unconscionable enrichment, and unjust enrichment as distinct legal concepts, lies primarily with the former's pre-occupation with the prevention of exploitation and giving rise to the right of restitution to redress any damages/harm caused on account of exploitative bargains.2 In this analysis, unconscionable enrichment competes with unjust enrichment on the point of acting as a trigger for restitution based claims to arise, since the former emphasizes restitution in the event of exploitation, as opposed to restitution for unjust enrichment as it presently stands under law.3 In both cases, the claimant must be at a significant disadvantage relative to the other party, where the second party has fraudulently or otherwise exploited the weaknesses of the claimant in order to enrich itself at the expense of the claimant. Commentators have after examination of case law on the subject opined that the said weakness in question could arise on account of several factors including but not limited to immaturity4, poverty5, ignorance6 and the absence of adequate and impartial advice.7

From the above, it is clear that the concept of an unconscionable bargain, is one which is (a) vitiated by principles of undue influence or unequal bargaining power, and (b) which has led to the exploitation of one party at the expense of another. Unconscionability, in relation to contracts, has generally been recognized to include absence of a meaningful choice on the part of one of the parties to avoid the contractual terms which unreasonably favour one party against the other party.8 Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction.

III. INDIAN LAW AND UNJUST ENRICHMENT

Indian law contains various provisions governing different facets of unconscionability such as undue influence and unequal bargaining power by way of provisions such as Sections 16 & 19 of the Indian Contract Act 1872 which when collectively read, provide that an agreement vitiated by undue influence, shall be voidable at the instance of the party whose consent to the same has been obtained by way of undue influence. While the principle of unconscionable enrichment is not as of yet, incorporated in entirety under Indian law, it is submitted that for reasons set out hereunder, the same forms a part of the body of law recognizing unjust enrichment as grounds for restitution.

Unjust enrichment and restitution

Indian law recognizes the law of unjust enrichment, namely, that no party shall be entitled to enrich itself inequitably at the expense of another party.

Unjust enrichment is the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience. Simply stated, a person is enriched if he has received a benefit, and he is unjustly enriched if the retention of the benefit would be unjust. In this context, whether or not the benefit is to be gauged as unjustly gained, is to be determined by whether or not such benefit belongs in justice or equity to another.9 Another way to phrase the same would be that an unjust enrichment occurs when the Defendant wrongfully secures a benefit or passively receives a benefit which would be unconscionable to retain.10

Unjust enrichment is intrinsic to the concept of restitution, and establishment of the same has been understood by courts to be a precursor to any order of restitution passed by a Court. In law, the term 'restitution' is used in three senses; (i) return or restoration of some specific thing to its rightful owner or status; (ii) compensation for benefits derived from a wrong done to another; (iii) compensation or reparation for the loss caused to another.5 Courts in India are inherently empowered to pass orders for restitutive reliefs, provided suitable facts and circumstances are established to its satisfaction irrespective of whether any specific grounds for such reliefs are provided under existing law, or are sourced from common law or equitable principles.11

In view of the above, it is clear that regardless of whether or not a specific right under equity is recognized under common law, or any applicable statute or enactment, Courts are empowered to pass appropriate orders invoking the principle of restitution seeking to disgorge a beneficiary of any unjust benefits as well as compensate the aggrieved party to the extent of the loss suffered by making it whole again. The nature of the reliefs would depend on the relevant facts and circumstances of each case.

IV. PRACTICAL REMEDY

From a practical standpoint, the relief available to a party at whose expense another party has been unjustly, or unconscionably enriched, will have the remedy of approaching a civil court by way of a civil suit, seeking inter alia declaratory, injunctive, or compensatory reliefs seeking redressal by way of restitution, in respect of the loss suffered by such party, due to the acts amounting to unjust/unconscionable enrichment of another party. The precise facts and circumstances of the case establish a specific cause of action, in order for the suit to be maintainable under law will provide the contours of the reliefs that may be claimed in such case. The Code of Civil Procedure 1908 allows for open ended reliefs irrespective of the existence (or lack thereof) of privity of contract between the aggrieved and defending parties, subject to the same not being barred under law. Where the aggrieved party is able to establish a cause of action based on contractual, or equitable principles proving (i) the loss suffered by such party and (ii) the linkage between the loss suffered by the party to the specific acts under contract or the circumstances surrounding the acts by the other party leading to the unjust/unconscionable loss to the aggrieved party, a claim for restitution may be made out as against the acts amounting to unconscionable/unjust enrichment.

However, while considering the above, it is also important to keep in mind that Indian law clearly recognizes the principle that a party cannot approbate and reprobate in respect of receiving advantages/disadvantages in respect of the same document or instrument.12 Therefore, while making a claim in respect of any particular document on the basis of the principle of unconscionable enrichment, it will be imperative for any party to clearly make out a case of exploitation, unjust enrichment giving rise to a duty of restitution by the counterparty, while nevertheless overcoming the objection on approbating and reprobating instruments as held by the Supreme Court.

Footnotes

1. 199th Report of Law Commission of India, Unfair (Procedural & Substantive) Terms in Contract August 2006

2. Prince Saprai, "Unconscionable Enrichment?", Philosophical Foundations of the Law of Unjust Enrichment, Oxford Scholarship Online, (May 2009) available at https://oxford.universitypressscholarship.com/view/10.1093/acprof:oso/9780199567751.001.1/acprof-9780199567751-chapter-15 (Last visited on 26th October 2021).

3. Supra note 2.

4. Earl of Aylesford v. Morris, (1873) 8 Ch App 484 (Ch) - The issue revolved around a 22 year old heir to his father's estate who was induced into borrowing money to pay off his debts at 60% interest without receiving any independent legal advice. The transaction was set aside on account of an 'unconscientious use of the power arising out of the circumstances and conditions leading to unscrupulous money lenders taking advantage of the immaturity and lack of independent advice available to the claimant.

5. Cresswell v. Potter, [1978] 1 WLR 255n (Ch) - The issue revolved around a wife undergoing divorce who gave away her share of the matrimonial property for inadequate consideration having received virtually nothing in return, and without independent advise and the transaction was set aside on account of the finding that she was poor and ignorant and at a disadvantage due to the emotional strain of her marriage breaking down.

6. Fry v. Lane, (1888) 40 Ch D 312 (Ch)- The issue revolved around two brothers who sold their interests in land at a considerable undervalue. The transactions were set aside due to the vendors being poor and ignorant and being advised by an inexperienced solicitor who had also advised the other side previously.

7. Supra Prince Saprai

8. Supra Note 1.

9. Indian Council for Enviro-Legal Action v. Union of India & Ors, (2011) 8 SCC 161

10. South Eastern Coalfields Limited v. State of Madhya Pradesh & Ors, AIR 2003 SC 4482

11. The Supreme Court of India in Indian Council for Enviro-Legal Action v. Union of India & Ors, (2011) 8 SCC 161 has cited with approval the below quoted principle from Nelson v. Larholt [1947] 2 All ER 751- "It is no longer appropriate, however, to draw a distinction between law and equity. Principles have now to be stated in the light of their combined effect. Nor is it necessary to canvass the niceties of the old forms of action. Remedies now depend on the substance of the right, not on whether they can be fitted into a particular frame- work. The right here is not peculiar to equity or contract or tort, but falls naturally within the important category of cases where the court orders restitution if the justice of the case so requires."

12. R.N Gosain v. Yashpal Dhir, (1992) 4 SCC 683.

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