Abstract

In the common law, it has been acknowledged that the parties should enter into the contract
on a voluntary basis and the party which had entered due to threat is not bound by the terms
of the contract. Law has been evolving and in the concept of duress, this paper deals with the
concept of Economic duress. It discusses the historicity and the jurisprudential principle
behind the concept and the landmark cases from which this concept emerged from the
common law. The paper analyses the relation between undue influence and duress i.e.
coercion in Indian law as far as economic duress is concerned along with the concept of
unconscionability. It explores the concept of economic duress in the case of the state
compelling to make contracts in the Indian Judiciary system. The paper explains how the
issue of economic duress is relevant to be addressed in the contemporary era.
Keywords: Economic Duress, Common law, State, Indian Law, Undue Influence,
Unconscionability
Introduction
The law ensures that a contract must be done between two parties with free consent. Free
Consent is the gist to form a contract. The contract should be free from coercion 1, undue
influence2, fraud3, misrepresentation4 and mistake as per mentioned in the statute itself.
The historical origins of the concept of duress are shrouded by the ancient mists of the
common law. Duress in English law is coercion in Indian Law. In the earlier concept’s duress
was discussed basically in the two types i.e. Duress of person and Duress of Goods, the
concept of economic duress comes into existence afterward.
The first element is coercion on the complainant, it is seen that whether consent was freely
given or not. Nevertheless, only the lack of consent of the complainant is not sufficient to
constitute duress. If there is any kind of pressure that doesn't allow the complainant to freely
do what he wants, then it is also illegal. The defendants must have behaved in a way that
makes the pressure affecting the complaint’s consent to be regarded as illegitimate. There
must be such behavior by the complainant which makes the pressure influencing the consent
of the complainant and to be considered as illegitimate.

1
Indian Contract Act, 1872, § 15 (2019).
2
Indian Contract Act, 1872, § 16 (2019).
3
Indian Contract Act, 1872, § 17 (2019).
4
Indian Contract Act, 1872, § 18 (2019).

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The concept of economic Duress emerged from the landmark case The Universal
Sennital5.The English court had tried to establish an understanding of this particular concept.
There are also not any strong precedents regarding the concept of economic duress.
Duress
In English law, for a very long period of time threat or violence to a person is considered as
duress, but now it also constitutes a threat to the property, to a seizure of goods and threat to
economic interests. 6In Common law, the term Duress refers to violence to a person.
Whenever from the natural weakness of intellect or from fear either party is actually in a state
of mental incompetence to resist pressure improperly brought to bear, there is no consent.7
There are two main elements that are required for constituting duress, pressure which is
exerted on the victim would be the compulsion of the will of the victim, and the pressure
exerted must be illegal.8
Coercion and Duress, it is not necessary to be a party to contract and it could be directed
against a stranger also but immediate violence and confronting a person of a normal state of
mind are not essential in Indian law.9
Nature of Duress: If a contract is made by instigating pressure on the other part then it is
voidable10 on the basis of duress. We can claim for recovery of money if it has been paid
under duress and in some cases, we can recover by proving duress is a tortuous act assault
and in case of economic duress by proving threat. Duress can also be dealt with under a
Consumer Protection Act for unfair trade practice if the trader induces the consumer to enter
into a contract.11
Categorization of Duress: Traditionally duress was recognized as a form of threat. At first,
the threat to a person was recognized by the court, then the threat to property and then the

5
J Beatson & A. Burrows & J. Cartwright, Anson's Law of Contract, 377 (30th ed. 2003).
6
1, R Yashoda Vardhan & Chitra Narayan, Pollock & Mulla The Indian Contract & Specific Relief Acts, 346
(15th ed. 2017).
7
Scott v Seabright, 12 P.D. 21 (1886, 24). See Pierce v Brown., 19 L.E.d. 134.
8
V. Visalakshi & P. Arun Bhupathi, Government Contracts, 74 (1st ed. 2014).
9
1, R Yashoda Vardhan and Chitra Narayan, Pollock & Mulla The Indian Contract & Specific Relief Acts, 342
(15th ed. 2017).
10
John Cartwright, Ansion’s law Of Contracts, 375 (30th ed. 2016).
11
Consumer Protection (Amendment) Regulations, 2 SI (2008).

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threats of economic harm. Although now duress has now come under one head that is
illegitimate pressure still there exists a difference between them.12
Juridical Duress: A contract would be set aside if it is against the will of the victim to do a
contract by negating her/his consent.13 However, there is some ambiguity when the
interpretation was done that it is not easy as that about the faulty defence of the victim but
about the involuntary act to enter into a contract.14
Types of Duress: Duress of person: It has long been established that duress can vitiate a
contract where it consists of actual or threatened violence to a person for example threats to
kill the party to a contract or the threat to kill close relative. 15 The seriousness of the contract
is defined as whether the person is able to resist the pressure or the fear of death that is
imposed upon him. It has to be established that the contract was signed under threat whether
there was actual harm caused or not.
Duress of Goods: A contract is made under the threat of seizure of goods or property it can be
set aside on the basis of duress. Recovery of money along with the goods is the remedy under
this type of duress.
Economic Duress: The situation in which one party reorganizes the terms of the contract
which is for the benefit of that respective party and leads to the disadvantage of the other but
the other has to accept the condition against his will because of no alternate choice and leads
to economic loss, such a contract can be negated on the ground of economic duress. 16 This
comes into existence as one of the parties basically the trade unions threaten to boycott of
ship or transportation mode or breaking of a contract that already existed, this becomes a
valid point to set aside the contract. One party tries to build the terms in its favor and adds
demand changing terms and conditions of the contracts.
Historicity of Economic duress
Under English law, for a period of time duress of person, duress of goods was considered.
Though the earlier cases have required that if there is vitiation of consent and an involuntary

12
Barton v. Armstrong, AC 104 (1976).
13
Occidental Worldwide Investment Corp v Skibs A/S Avanti, 1 Lloyds Rep 293 (1976).
14
Pao On V. Lau Yiu Long, 3 All ER 65 (1979).
15
J Beatson & A. Burrows & J. Cartwright, Anson’s Law of Contract, 378 (30th ed. 2017).
16
R Yashoda Vardhan & Chitra Narayan, Pollock & Mulla The Indian Contract & Specific Relief Acts, 348
(15th ed. 2017).

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act of victim then there is duress17, in later cases, a test of practical choice was done on the
part of a victim.18With the commencement of cases like Astley v Reynolds, a range of
English cases are there which helps for the evolvement of the doctrine of duress of goods.
This law of duress of goods started to be the main point or a central type case of economic
duress.19.The latter theme that succeeding cases developed. Inequality of bargaining, the
inevitable product of state conferred monopoly, was used to justify the extension of the
doctrine of economic duress.20
In common law basically, it is discussed about commercial pressure. As the threatening to
breach the contract unless a demand for extra payment or consideration is given, may well to
legitimate commercial pressure, especially where unexpected difficulties arise in the
performance of the contract and that party is genuinely unable to perform the contract without
extra payment. The Doctrine of Economic Duress has evolved as a part of duress in the
common law. This has developed through several cases that have come forward with years.
1.The Siboen and the Sibotre case: This was the first case in which economic duress was
considered to be a cause of action. It would be possible to make the contract voidable on the
ground of economic duress but it was not established in this case. It was discussed that there
should be coercion of will in order to negate the consent and only commercial pressure is not
sufficient. In recent cases, more reliance is based on the absence of choice in place of
coercion of will. 21
2. The Evia Luck case: The main issue, in this case,was whether duress was the reason that
the plaintiffs had breached their contractual duties and whether there was English law. It was
held that the law governing the government is English law and Swedish law and hence the
appeal was dismissed. There would be default in payment by Dimskal and could be duress as
I.T.F put them under, as nothing is mentioned in English law which says that blacking of a
ship didn't amount to duress.22

17
Pao On V. Lau Yiu Long, 3 All ER 65 (1979).
18
R Yashoda Vardhan & Chitra Narayan, Pollock & Mulla The Indian Contract & Specific Relief Acts, 347
(15th ed. 2017).
19
John P. Dawson, Economic Duress- An Essay in Perspective, Mich. L. Rev. 253, 255 (1947).
20
Id., at 254.
21
Occidental Worldwide Investment v Skibs (The Sibeon & The Sibotre), 1 Lloyds Rep 293 (1976).
22
Dimskal Shipping Co. S.A. V International Transport Workers Federation, 3 W.L.R. 875 (1991).

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Concept of Economic Duress
The concept of Economic Duress awaits a precise and succinct definition. The main
constituents of Economic Duress are as follows:
 Lack of Alternative Choice
 Fear of Disastrous Economic consequences
 A Threat to commit the Breach of Contract
 Commercial Pressure23
Firstly, to discuss the first point that the Lack of Alternative means "even if any remedy is
available it is shown to inadequate.24 “No Alternative” means the alternatives available to the
innocent party are not sufficiently acceptable. The English courts have held that the consent
of one party was given due to the economic duress by other parties in the following case:
Atlas Express Ltd V. Kafco (Importers and Distributors) Ltd (1989) QB 833, This case
considers the issue of economic duress and whether or not an agreement to increase the price
of an existing contract for the freight of goods was entered into under circumstances of
economic duress. Here, an importer entered into an agreement with a freight company to
transport some products that they had imported a price was agreed upon however sometime
later the freight company wanted to increase the price, this was unsuccessful so soon after the
company sends an empty trailer to the importers' premises with a note that stated if the
increased price was not agreed then work would not be done. 25The new terms and conditions
of duress were applied here.
Secondly, about Fear of disastrous economic consequences that as it is discussed in the case
of The Universal Sennitel. Here Lord Liplock held that: The prospects in which I.T.F. asked
the shipowners to enter into another agreement or a special agreement and should pay money
which will latter certify receipt amounts to economic duress. It is conceded that financial
consequences to the owners would be rendered of but the blacking is so ruinous which directs
to the coercion of shipowner's will which negates their consent to all agreements which they
have made and also the payments made by the shipowner to I.T.F.26

23
V. Visalakshi & P. Arun Bhupathi, Government Contracts, 75(1st ed. 2014).
24
Pao On V. Lau Yiu Long, 3 WLR 435 (1979).
25
J Beatson & A. Burrows & J. Cartwright, Anson’s Law of Contract, 378 (30th ed. 2002).
26
V. Visalakhi & P. Arun Bhupathi, Government Contracts, 79 (1st ed. 2014).

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Thirdly about the threat to commit the breach of contract, in the case of North Ocean
Shipping Co Ltd V. Hyundai Construction Co. Ltd (1975) QB 705, Defendant agrees to build
a tanker for the plaintiff for a fixed amount in 5 installments in US Dollar. Hyundai
Construction, for safety issue of repayment, opened a letter of credit in the event of default.
North Ocean Shipping Co. Ltd rejected the claim and paid the following two installments
based on the original price. Hyundai Construction returned these payments. It also rejected
the idea of arbitration and gave an ultimatum to North Ocean Shipping Co. Ltd that they
either accept Hyundai Construction's demand for a 10% price increase or Hyundai
Construction will terminate the contract it was held by Moctta J that the company’s threat to
break the contract without legal justification unless the owners increased their payments by
10% did amount to duress in the form of economic pressure rendering the variation voidable
at their opinion. But the Plaintiffs, by their lack of protest and their delay in claiming
repayment, had affirmed the variation of the contract in the shipbuilder’s favor and were
bound by it.
Now about commercial pressure, it should be such an extent that the victim must not have
any other alternative choice and should be against his will. In the case Pao On V. Lau Yiu
Long (1980) AC 614 (PC), the plaintiff in the food ship case had entered into an agreement for
food ship corp. for the purchase of shares so that the consideration exchange there was that
the food ship shares would be sold by the corporation to the plaintiff in exchange for the
payment of a certain price for the shares and also a promise not to resell those shares are not
we sell more than 60% of those shares within a year now another agreement that the plaintiff
entered into was an indemnification agreement with the majority shareholders of food ship
corporation so this agreement that it was called into question as to whether or not it was a
valid contract under that indemnification agreement the majority shareholders of the
defendants had promised to indemnify for any losses that the plaintiff may suffer so if the
price of those shares had gone down, below a certain level of majority shareholders would
have compensated the plaintiff for that loss under that under that promise in exchange for that
promise the consideration provided by the plaintiff to the majority shareholders was a
promise not to resell more than 60% of the shares within the year so it was the exact same
promise that the plaintiff had made to foodship corporation under the other agreement , the
agreement for the purchase of the shares so now the issue was now is that promise not to
resell more than 60% within a year made to majority shareholders is that considered to be
valid consideration because it was a pre-existing contractual obligation that the plaintiff

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already had to someone else which was the corporation and court found that promise was
valid consideration that this previous promise is anew benefit for majority share under the
indemnification agreement and therefore it valid consideration27.
Economic Duress in India
In India, a plea of economic duress arises in cases of forced labor. It includes the physical
force and compulsion as the first one compels a person to provide labor and the latter one is
due to hunger and poverty. while entering into a contract of service or labor.
Economic coercion would fall within the meaning of s. 16 of Indian Contract Act, 1872
which defines Undue Influence as one where the relationship in the parties is existing in such
a way that one is in the position to overcome or dominate the will of other as mentioned in
the case of Puri Construction Pt. Ltd V. Larsen and Toubro Ltd of Delhi High court. But some
other sections in the Indian Contract Act, 1872 also refers to Duress in India. As sec 15 of
Indian Contract Act,1872 which refers to duress in India it is about coercion. Sec 72 of Indian
Contract Act, 1872 mentions more about economic Duress, “Liability of person to whom
money is paid, or thing delivered by mistake or under coercion”. The term Coercion used in
sec 72 is not under the definition used in sec 15 of Indian Contract Act, 1872 and use in a
normal or general sense28 Indian courts had given certain parameters for determining
economic duress.
The Indian Judiciary in order to deal with such contracts having an unconscionable bargain
have not resorted to the concept like economic duress as was done by their English
counterparts but dealt with the same under the concept of Undue Influence. The philosophy
underlying the concept of undue Influence is that the psychological dominance of one party
over the other enabling it to exert non-physical pressure over the other resulting in an
unconscionable bargain and giving an unfair advantage to the dominant party vitiates free
consent on the part of the party in the weak bargaining power29.The analysis of the Indian
Judiciary's approach to tackle the subtle forms of pressure can be analyzed according to the
two mentioned points:
1. Excessive rate of Interest
2. Unusual High return of the contract

27
Jill Poole, Casebook on contract law, 253 (8th ed. 2006).
28
Kanhaiya Lal v. National Bank of India ,15 BOMLR 472 (1913).
29
V. Visalakshi & P. Arun Bhupathi, Government Contracts, 83 (1st ed. 2014).

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With concern to the excessive rate of Interest, in the case of Raghunath Prasad Sahu V. Sarju
Prasad Sahu (1924) 26 BOMLR 595 the facts were that son made a serious allegation on his
father. Due to this mental distress father borrowed from the plaintiff a sum of money, in order
to institute a criminal proceeding against the son, on the condition that in case of non-
payment of interest will be calculated on the principle of compound interest. It was held that
even though it had been an unconscionable bargain the initial fact, i.e. the position to
dominate the will must be sustained. Then, the remedy under the Indian Contract Act comes
into operation. But in this case, this fact had not been proved. The decree had been varied by
their Lordship with regards to rates of interest. In the case of Union of India V. M. V.
Damodar I (2005) BC 384, Even if it is assumed that there is an obligation on the part of the
defendant to take a loan in order to buy vessels from the Shipping Development Fund
Committee constituted under the Merchant Shipping Act, the defendants entered into the loan
contract voluntarily and the rate of interest at which the loan is given is lower than the
prevailing market rate, therefore, the plea of economic duress can be gainsaid.
Next, about the Unusual High return of the contract the Supreme Court in the case of Central
Inland Water Transport Corpn. L.T.D. V. Brojo Nath Ganguly 1986 SCR (2) 278, recognized
the possibility of entering into unconscionable, unfair, and unreasonable contracts due to
pressure, economics, and others, and held that the remedy can be provided either by invoking
the defense of undue influence or the defense of undue influence or the defense of opposed to
public policy. Though the court, in that case, was concerning itself with the contract of
employment, its observations are general in nature and can be applied mutatis mutandis to the
commercial contracts. There was an emergence of two new concepts of economic duress and
inequality of bargaining was accepted by our SC. Therefore, the victim of economic duress in
Indian law has a double remedy, defense of ‘undue influence’ and ‘opposed to public policy’.
Judicial Pronouncements in India
In Daichi Karkaria Pvt Ltd v Oil and Natural Gas Commission AIR 1992 Bom 309, it was
held that unless the custom duty is available to the plaintiff the defendant would not be
entitled to invoke the guarantee of the bank with the procurance of the consent of plaintiff
irrespective of non-receipt of the amount of refund as a result of economic duress and fraud
committed by it on the plaintiff and it was entitled to an injunction. It was also held by the
court that the victim of duress may only refuse to abide by the new terms which generate
variation and can seek an injunction for its restraining without setting aside the

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transaction.30Now for a general solution that may be offered to the remedy the situation is to
develop a general rule of unconscionability as suggested by Waddams31.It is not a new
concept that the unprivileged who are victims of gross inequality of bargaining power.
In this regard the relationship between the two concepts i.e. duress and undue influence on
the common rule of “unconscionability” is pertinent. This requires the abandonment of unfair
contracts, that in all conscience court can’t allow it due to the level of unfairness. Both the
concepts of duress and undue influence are not equal to unconscionability because they focus
more on procedural fairness rather than substantive fairness. The concept of
unconscionability would require the courts to stress the nature of the contract rather than the
events that led to its formation. With concern to duress, the concept of unconscionability
concept is not much wide, in the sense that a contract which is substantively fair can be struck
down simply because it was made under duress.32
The decision given in the case of Taiichi Karkaria Pvt Ltd. V. Oil and Natural Gas
Commission focuses that the plaintiff could consider ss. 14 and 15 of the Contract Act, as
well as the common principles of economic duress now being taken into consideration in
English, Australian and American legal system and the court, observed that s. 15 brought it
within its ambit, the concept of economic duress, and observes: “India has begun to
acknowledge the likelihood of an unconscionable bargain which could be brought about by
economic duress even between parties who may not in economic terms be situated
differently”. So, the contract alleged on this basis on the cause of economic duress could be
said voidable.33However, it bases its decisions chiefly on the principles laid down by
Supreme Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly
AIR (1986) SC 1571 which knockdown unreasonable term as void on the basis that it was
supposed to be public policy.
In the case of National Insurance Co. Ltd V. Boghara Polyfab (P) Ltd. AIR 2009 SC 170
Supreme Court has held that claims are arbitrable, when a discharge of contract by accord
and satisfaction are disputed on the basis that discharge was under economic duress on the
account of coercion employed by the employer.

30
National Insurance Company Ltd v. Opera Clothing, (2015) SCC Online Bom 552.
31
S.M. Waddams, Unconscionability in Contracts, Mod. L. Rev. 369, 369 (1976).
32
V. Visalakshi & P. Arun Bhupathi, Government Contracts, 87 (1st ed. 2014).
33
R Yashoda Vardhan & Chitra Narayan, Pollock & Mulla The Indian Contract & Specific Relief Acts, 349
(15th ed. 2017).

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In the case of Andhra Sugars Ltd. V. State of Andhra Pradesh AIR (1968) SC 599, for
instance, under Andhra Pradesh Sugarcane Regulation and Purchase Act, 1961 and the rules
framed thereunder, the occupier of the factory has a compulsion to admit if a cane grower in a
factory zone makes an offer to sell his sugarcane. The resulting agreement was recorded in
writing and was signed by the parties. The submission of the petitioner was that the law
compelled them to buy cane growers; hence their purchases were not made under agreements
were not taxable. Therefore, the issue was whether this contract was a valid contract of sale
and thus, liable for taxation. It was held that the agreement complied with the essential
elements of section 10, Contract Act, and was a contract of sale as defined in section 4, Sale
of Goods Act 1930.34 The statutory compulsion does not amount to coercion as defined in
section 15, Contract Act; therefore, the agreement was neither void nor voidable. According
to law, the agreement was freely entered into and the purchase of sugarcane under it can be
taxed. Cheshire and Fit foot were referred to “The state may compel persons to make
contracts on the ground of social security”. To prevent a near-monopoly of factory owners of
buying of sugarcane dictating their own terms to the cane growers who scattered in the
villages who had no real bargaining power. Andhra Pradesh sugarcane Act,1961 was passed
whereby the factory owners were compelled to make contracts of purchase of cane offered by
the cane growers on prescribed terms and conditions.
‘Compulsion of law is not coercion’ and despite such compulsion, ‘in eyes of law, the
agreement is made freely’ as pointed out in the above-mentioned case.
Conclusion
A contract can't be enforced against a person who was forced to enter into a contract. Duress
is defense to a contract; it is a pressure exerted on a party to enter into a contract. Economic
Duress is one part that is a major of the developments in the field of contract law. Earlier
term Duress was used only in the context of duress of person or duress of goods. For duress
there should be a tight causal link must be established between the pressure and the contract.
The illegitimate pressure had to constitute a significant cause inducing the making of the
agreement. After the emergence of the concept, only SC has accepted that a contract can be
set aside if there is illegitimate commercial pressure on other parties which is exerted by the
pone party. The concept basically emerged from cases like Dimskal Shipping Co. SA V
International Transport Workers' Federation, The Evia Luck case, etc. There is a relationship
between undue influence and economic coercion, sec 16 of Indian Contract Act,1872 it

34
Sale of Goods Act,1930, § 4 (2019).

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mentions in its provision about the domination of stronger party to the weaker party. The
term duress and undue influence are related to unconscionability. But both the concepts are
wider than unconscionability because it focuses directly on nature on contract rather than the
procedure of forming it. The factors that are required to prove economic duress may be
utilized successfully to reverse unjust enrichment. This judicial finding could be helpful in
the cooperate sector as for the business tycoons etc.

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Bibliography
Books:
1. J. Beatson FBA, Andrew Burrows, QC (Hon), and John Cartwright, Anson’s Law of
Contract, 30th edition.
2. R Yashoda Vardhan and Chitra Narayan(ed.), Pollock & Mulla The Indian Contract &
Specific Relief Acts, 15th edition.
3. V. Visalakshi and P. Arun Bhupathi, Government Contracts, Eastern Book Company
Articles:
1. John P Dawson “Economic Duress- An Essay Perspective” 1947 45(3) Michigan Law
Review, p. 253-290.
2. Cornelius Murphy "Economic Duress and Unequal Treatise” Law Journal Library,
Hien Online, https://home.heinonline.org/
3. Robert L. Hale, “Bargaining, Duress and Economic Liberty Role of Compulsions in
Economic Transactions” Law Journal Library, Hien online,
https://home.heinonline.org

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