Inequality Of Bargaining Power Between The Bank And The Guarantor Hence The Bank Can Cause Economic

Inequality Of Bargaining Power Between The Bank And The Guarantor Hence The Bank Can Cause Economic Duress To The Guarantor

GUARANTOR IS ENTITLED TO SUBMIT BEFORE DRT THAT THE PERSONAL GUARANTEE AGREEMENT IS NOT BASED UPON A REAL CONSENT, BUT WAS INDUCED BY UNDUE INFLUENCE

1. Section 16 of the Indian Contract Act provides-

• vide Sub-section (1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.
• Vide Sub-section (3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of other."
• Therefore, the Guarantor is entitled to submit before DRT and/or Court that the personal guarantee agreement is not based upon a real consent, but was induced by undue influence by the Bank.

THERE IS SUCH AN INEQUALITY OF BARGAINING POWER BETWEEN THE BANK AND THE GUARANTOR THAT THE BANK CAN CAUSE ECONOMIC DURESS TO THE GUARANTOR

1. It is undisputed that, firstly, there is such an inequality of bargaining power between the Bank and the Guarantor that the Bank can cause economic duress to the Borrower and/or Guarantor; secondly, the personal guarantee agreement is always drawn up one-sidedly, not limited to, but including the mischievous forced waiver of certain provisions of the Contract Act; thirdly, it results in inference that the personal guarantee agreement is not based upon a real consent, it is rather an imposition upon a needy person, hence the Court would regard it as opposed to public policy, therefore void under section 23 of the Contract Act; fourthly, therefore the presumption of undue influence is bound to arise between the Bank and the Guarantor while executing the personal guarantee agreement.
2. The consent of the Guarantor having obtained by undue influence by the Bank, the personal guarantee agreement is voidable at the option of the Guarantor under section 19-A of the Indian Contract Act, 1872.