Confidentiality or Non-Disclosure Agreements

In this article, Abhishek Mishra discusses the capacity to enter into Contracts With Person Of Unsound Mind.

When we learn something new, the first question which strikes our mind is why we need it and what its applicability is in our day to day life. So before we discuss our topic we must know the purpose of the contract. The basic purpose of contract law is to provide a framework within which individuals can freely contract. The word freely means that there should be full and free consent of the parties. Consent can be free only when it is rational and deliberate. Rational consent can only be given when a person is of sound mind. The author through this article will try to do an analysis of the role of unsoundness of mind in case of a contract with the help of statutes, case laws and judgements with respect to English and Indian law.

English law vs. Indian law: An analysis

English contract law is the primary source of its Indian counterpart. Even then there is some dissimilarity between the two. The author will further in this article try to analyse those dissimilarities.

What is sound mind for the purpose of contracting?

Under English law, Persons who have been identified with a mental incapacity are protected from entering contracts. Now, the question is who lacks capacity under English law? A person under English law lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain. It is immaterial whether the impairment or disturbance is permanent or temporary. A person cannot be declared incapable merely on grounds of age or appearance or on the basis of any assumptions which is the result of his behaviour. A person is considered as unable to make decisions for himself if he fails to understand the information relevant to the decision, to retain that information, to make use of that information for making the decision, or to communicate his decision by talking, using sign language or any other means. A person is not declared incapable only on the grounds that he is able to retain the information relevant to a decision for a short period, in this case, information, includes information about the reasonably foreseeable consequences of deciding one way or another, or failing to make the decision.

Now let’s come to the definition of sound mind with respect to the Indian Contract law. According to section 12 of The Indian Contract Act,1872, A person is said to be of sound mind for the purposes of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. In Kanhaiyalal v. Harsing Laxman Wanjari (AIR 1944 Nag 232), it was held that mere weakness of mind is not unsoundness of mind. Mental incapacity, arising out of any reason, deprives a person not only of a full understanding of transaction but also of the awareness that he does not understand it. A person of unsound mind is thus not necessarily a lunatic. It is sufficient if the person is incapable of judging the consequences of his acts. In Inder Singh v. Parmeshwardhari Singh (AIR 1957 Pat 491), justice Sinha explained the effect of section 12 in following passage:

“According to this section, therefore the person entering into the contract must be a person who understands what he is doing and is able to form a rational judgement as to whether what he is about to do is to his interest or not. The crucial point, therefore, is to find out whether he is entering into the contract after he has understood it and has decided to enter into that contract after forming a rational judgement in regard to his interest…. It does not mean that the man must be suffering from lunacy to disable him from entering into a contract. A person may to all appearances behave in a normal fashion, but, at the same time, he may be incapable of forming a judgement of his own, as to whether the act he is about to do is to his interest or not.”

This distinguishes it from lack of ability arising due to illiteracy and unfamiliarity with the language.

Is a person of unsound mind competent to contract?

Indian law has a different opinion from English law on this issue. Under English law, a person of unsound is competent to contract, although the contract can be avoided at his option if he satisfies the court that he was incapable of understanding the contract and the other party had the knowledge of the same. Thus, under English law, the contract is voidable at his option. It becomes binding on him only if he affirms it, Imperial Loan Co v. Stone ((1892) 1 QB 599 (CA)), in this case Lord Esher said that a mentally disordered person can only set aside a contract entered into with a person of sound mind in following circumstances: “When a person enters into a contract and afterwards alleges that he was so insane that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding, what it was about.” The position of English law is same for drunken people as it is for a person who is mentally afflicted; such contract is not altogether void but is voidable at the option of the person who entered into the contract in such a state of drunkenness as to not know what he was doing and such fact is known to the other contracting party, Surrey v. Gibson ((1845) 13 M&W 623). Even under English law, contract by a lunatic person is not void. In Campbell v. Hooper ((1855) 3 Sm&G 153), where a mortgagee sought a decree for repayment of debt and evidence showed mortgagor was lunatic when contracted and in addition to it mortgagee was unaware of it. It was held that mere fact of lunacy cannot make a contract invalid. If the other party had knowledge of it, it becomes voidable at the option of the lunatic. Thus it is clear that under English law what is most important is that the other person with whom the person of unsound man contracted had the knowledge of the former being in an unsound state of mind or not.

On the other hand under Indian law a person of unsound mind when is state of unsoundness is not competent to contract. The agreement of a person of unsound mind is void, Amina Bibi v. Saiyid Yusuf (ILR (1922) 44 All 748). However, a person who is usually of sound mind but occasionally of unsound mind may not make the contract when he is of unsound mind whereas a person who usually is of unsound mind but sometimes becomes sound can contract in those intervals when he is sound. In Nilima Ghosh v. Harjeet Kaur (AIR 2011 Del 104) it was discussed that the most relevant thing for declaring an agreement void is whether the person in question was suffering from mental disability on the date of execution of the agreement.

India Contract law also treats a drunken person similar to a person of unsound mind. In Ashfaq Qureshi v. Aysha Qureshi (Nivedita Yadav) (AIR 2010 chh 58), where a Hindu girl was married to a Muslim man, the girl filed a suit on the grounds that she was not in her sense as she was under intoxication at the material time and was not conscious of ongoing conversion and nikah ceremony. And also that she had not lived with that man for a single day. She proved all the stated facts and thus the marriage was declared void on the grounds that as she was intoxicated so she was not in a position to take a decision and forming a rational judgement in regard to his interest.

On whom does the burden of proof lie?

In every case initially, the presumption is in favour of sanity but the presence or absence of it at the time of making the contract is a question of fact in all cases. It is immaterial that the person was insane in a previous or a post time after the point of time when the contract was made except for it is likely to create a suspicion of likelihood of such disorder at the time of formation of contract, M’Adam v. Walker ((1813) 1 Dow 148 (HL)). The onus of proving insanity is on the person who alleges it, Mahomed Yakub v. Abdul Quddus (AIR 1923 Pat 18717). In Lakshmi v. Ajay Kumar (AIR 2006 P&H 77) it was held that it must be proved that the point of insanity was at the time of formation of the contract. In Mohanlal Madangopal Marwadi v. Sadasheo Sonak (AIR 1941 Nag 251), it was held that, in the case where a person is usually of unsound mind, the burden of proving that he was of sound mind at that time lies on the person who affirms it. Whereas, in the case where a person is usually in a sound state of mind the burden of proving that he was in an unsound state of mind lies upon the person who challenges the validity of the contract. However, in case of drunkenness or other cause, the onus lies on party who sets up that disability to prove that it existed at the time of the contract and it has to be proved that the party was so drunk as to unable to comprehend the meaning and effects of an agreement, and, under the English law also that the other party was aware of his condition.


As going through this research work it is established that Indian contract law is heavily borrowed from its English counterpart but both differ in some aspects, and the English model seems to have a wider ambit than its Indian counterpart.


  • Primary sources
    1. Mental Capacity Act, 2005 c 9.
    2. The Indian Contract Act, 1872 (Act 9 of 1872).
  • Secondary source
    1. DR Avtar Singh, Law of Contract And Specific Relief (Eastern Book Company, Lucknow, 12th edn., 2017).
    2. Pollock And Mulla, The Indian Contract And Specific Relief Acts (LexisNexis, Gurugram, 14th edn., 2013).
    3. Manupatra
    4. SCC Online


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