Classification of documents basing on the transactions – Relevant Laws defyning and explaining the different transactions – Method of interpretation of current nature of documents.
Dr. Y. Srinivasa Rao,
M.A (English Lit.)., B.Ed., LL.M., Ph.D in Law of Torts.
DISTRICT & SESSIONS JUDGE, ANDHRA PRADESH.
A flaw does not either invalidates a document or suspends its operation till the defect is rectified or the ambiguity clarified.
The cardinal rule is that, clear and unambiguous words prevail over the intention. But if the words used are not clear or ambiguous, intention will prevail. After the dicta the Privy Council in Shamu Pattar Vs. Abdul Qadir, 35 Mad 607 (PC) : 39 LA. 218, the Transfer of Property (Amendment) Act 27 of 1926 inserted the definition of “attested” in Sec. 3 of the Transfer of Property Act in terms of the definition of the Indian Succession Act. In general sense, ‘attestation of a document’ is a common formality. In India, few documents are required by law to be attested. Wills made after 1st January 1866 by persons other than Hindus, Muslims or Buddhists, Wills made by Hindus, Buddhists, Sikhs and Jainas on or after 1st September 1870 in the territories subject to the Lieutenant Governor of Bengal or in the towns of Madras and Bombay or relating to immovable property situate within those limits and wills made by any Hindu, Buddhist, Sikh or Jaina on or alter 1st January 1927 must be attested under Sec. 63 of the Indian Succession Act 1925.
Under Sec. 59 of the Transfer of Property Act, where the principal money secured is one hundred rupees or upwards, a mortgage, other than a mortgage by deposit of title deeds, can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. Under Sec. 124 of the Transfer of Property Act, a gift of immovable property of whatever value can be made only by a registered instrument attested by at least two witnesses. This rule does not apply to gifts made by Muslims. No other deed or document requires to be attested. An instrument creating a charge does not require to be attested and proved in the same way as a mortgage., Ramaswamy Iyengar v. Kuppuswamy Iyer, AIR 1921 Mad 514. Under Sec. 54 of the Transfer of Property Act, a deed of sale of tangible immovable property of value of one hundred rupees and upwards or of a reversion or of other intangible thing can be made only by a registered instrument and it requires no attestation. It is curious to note that In respect of Bonds, nevertheless for the purpose of Stamp Act, it may be necessary for a bond to be attested, it is not a document required by law to be attested within the meaning of Sec. 68 of the Indian Evidence Act. An agreement for sale is a document which does not require to be attested by any law. An instrument creating a charge does not require to be attested and proved in the same way as a mortgage. [Ramaswamy Iyengar v. Kuppuswamy Iyer, AIR 1921 Mad 514.
Three rules must be kept in mind while interpreting a document:
2. CLASSIFICATION OF DOCUMENTS BASING ON THE TRANSACTIONS: (SALE – GIFT – MORTGAGE – WILL – PRONOTE – LEASE – ADOPTIONS – AGREEMENTS ETC.)
Section 67 and 68 of Indian Evidence Act, 1872 are very importance for consideration to know the difference between proof of document not required by law to be attested and proof of document required by law to be attested. Curiously enough, as was held in Karuppaiyan Vs. Muthukaruppan, AIR 1975 Mad 221, an attested document which is not required by law to be attested may be proved by any of the modes indicated in Sec. 67 of the Indian Evidence Act without examining the attesting witnesses.
According to Section 123 of the Transfer of Property Act gift-deed is required to be attested at least by two witnesses. A conjoint reading of Section 122 and 123 of the Act makes it abundantly clear that “transfer of possession” of the property covered by the registered instrument of the gift duly signed by the donor and attested as required is not a sine qua non for the making of a valid gift under the provisions of Transfer of Property Act, 1882.
ii) Mortgage deed
One of the essentials of mortgage deed is that each of the attesting witnesses must have signed the document in the presence of the executant. If the provisions of Sections 58 and 59 of the Registration Act and Sections 3 and 59 of the Transfer of Property Act are read together, there was no escape from the conclusion that a mortgage deed was required to be proved by producing it least one of the attesting witnesses. (Registration of mortgage deed is compulsory except in case of mortgage by deposit of title deeds).
Section 68 of the Evidence Act deals with proof of the execution of documents required by law to be attested. It provides that such documents shall not be used as evidence until at least one attesting witness has been called to prove the execution if there be an attesting witness alive and subject to the process of the Court and capable of giving evidence. Since by Section 63 of the Succession Act, 1925 a will has to be attested by two or more witnesses, Section 68 of of the Evidence Act would come into play and therefore it was incumbent on the prepounder of the Will to examine the attesting witness to prove due prosecution of the will.
iv) Sale deed
A sale deed is required to be properly stamped and registered before it can convey title to the vendee. However, legal position is clear law that a document like unregistered sale deed, though not admissible in evidence, can be looked into for collateral purposes. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction.As per Section 54 of the Act, the title in immovable property valued at more than Rs. 100/- can be conveyed only by executing a registered sale deed. Section 54 specifically provides that a contract for sale of immovable property is a contract evidencing the fact that the sale of such property shall take place on the terms settled between the parties, but does not, of itself, create any interest in or charge on such property.
v) Promissory note.
Promissory note is not compulsorily attestable document.Stamp duty on Promissory note is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument, Section 4, Negotiable Instruments Act, 1881.
vi) Lease deed
In Anthony v, K.C. Ittoop and Sons, 2001 (1) MLJ 12, the Supreme Court found that there are three interdictions to claim that an instrument can create a valid lease in law. The first inhibition is that it should be in accordance with the provisions of Section 107 of the Transfer of Property Act. The second inhibition, as pointed out by the Supreme Court, is Section 17(1)(d) of the Registration Act, which states that where a lease of immovable property from year to year or for any term exceeding one year or reserving an yearly rent, such document should be compulsorily registered. The third inhibition, as noted by the Supreme Court, is Section 49 of the Registration Act relating to the consequence of non-compliance of Section 17. Section 49(c) contemplates that no document required by Section 17 or by any provision of the Transfer of Property Act to be registered shall be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered.
vii) Partition deed.
In Bapayya Vs. Ramakrishnayya, 1938-1 Mad L J 582, AIR 1938 Mad 568, it was held that where unregistered partition list were sought to be put in evidence for the purpose of providing a partition between the parties, the question to be decided was whether the documents constituted the bargain between the parties, or they were merely the record of an already completed transaction, the question being whether there was a sufficient dissociation of the transaction. See also. Roshan Singh & Ors vs Zile Singh & Ors, AIR 1988 SC 881. Ambati Durgamma And Ors. vs Pericherla Jagapathiraju, 2005 (1) ALD 607, 2005 (1) ALT 357.
Effect of unregistered partition deed:- The effect of unregistered partition deed and held that an unregistered partition deed is inadmissible in evidence and cannot be looked into for the terms of partition but can be looked into for the purpose of establishing a severance in status. See. Chinnappareddigari Pedda Muthyalareddy vs Chinnappareddigari Venkata Reddy, AIR 1969 AP 242. Latest ruling of 2017, Moghal Sardar Hussain Baig vs Syed Farveej Begum, CRP.No. 1115 of 2017,dated 1207-2017.
Unregistered partition deed:-
Non-registration of a document which is required to be registered under Sec. 17(1) (b) of the Registered Act makes the document inadmissible in evidence under Cl. (cf) of Sec. 49 of the Registration Act, even though such a document can be used for a collateral purpose and that oral evidence can be adduced to establish that there was as disruption in status of the joint family.See. Chinnappareddigari Pedda vs Chinnappareddigari, AIR 1969 AP 242. In this case, it was further observed that it has been held in a series of decisions that an unregistered partition deed can be looked into for the purpose of finding out whether there has been severance in status. It is unnecessary to refer to all of them in view of the categorical pronouncement of the Supreme Court in Naini Bai Vs. GIta Bai.
1. If the family arrangement is reduced to writing and it purports to create, declare, assign, limit or extinguish any right, title or interest of any immovable property, it must be properly stamped and duly registered as per the Indian Stamp Act and Indian Registration Act.
2. If the family arrangement is stamped, but not registered, it can be looked into for collateral purposes. A person cannot claim a right or title to a property under the said document, which is being looked into only for collateral purpose.
3. A family arrangement which is not stamped and not registered, cannot be looked into for any purpose, in view of the specific bar in Section 35 of the Indian Stamp Act. A document must be read as a whole.
4. As to the nature of transaction under the document, it cannot be decided by merely seeing the nomenclature. Mere usage of past tense in the document should not be taken indicative of a prior arrangement.
3. RELEVANT LAWS DEFINING AND EXPLAINING THE DIFFERENT TRANSACTIONS
Sale and Agreement to sell— Essential feature that distinguishes contract of sale from agreement to sell, is that in contract of sale, property in goods is transferred from seller to buyer immediately, whereas in agreement to sell, property is transferred on a future date/dates. Agreement to sell becomes sale on fulfilment of conditions provided therein or when time provided in agreement elapses, State of Uttaranchalv. Khurana Bros., (2010) 14 SCC 334. 2.If transfer of property is in praesenti, it is called “sale”; but if transfer is to take place at a future time and subject to some conditions to be fulfilled subsequently, it is “agreement to sell”. “Agreement to sell” becomes effective when seller agrees to transfer property in goods to buyer for a price and such contract may either be absolute or conditional. When time in the agreement to sell lapses or conditions therein subject to which property in goods is to be transferred are fulfilled, said “agreement to sell” becomes a “sale”, Hyderabad Engg. Industriesv. State of A.P., (2011) 4 SCC 705.
Gift. Is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee and accepted by or on behalf of the donee, Section 122, Transfer of Property Act, 1882. A gift, though a transfer, is a gratuity and an act of generosity and does not contain any element of consideration in any shape or form. Complete absence of monetary consideration is the main hallmark which distinguishes a gift from a grant or for that matter other transactions which may be for valuable or adequate consideration. Where there is any equivalent or benefit measured in terms of money in respect of a gift the transaction ceases to be a gift and assumes a different colour, Sonia Bhatia v. State of U.P., (1981) 2 SCC 585. The old text-writers made a gift (donatio) a distinct species of deed and describe it as a conveyance applicable to the creation of an estate-tail; while a feoffment they strictly confine to the creation of a fee simple estate. The operative verb in ‘give’, which no longer implies any covenant in Law (Real Property Act, 1845, 8 & 9 Vict. c. 106, Section 4) and the deed requires livery of seisin. A gift is not presumed and a Court of Equity will not assist a donee, but rather relieve a donor by setting aside the gift on the ground of undue influence (see that title) or a fiduciary relationship of the donee to the donor. Huguenin v. Baseley, (1807) 14 Ves 273: 33 ER 226; Morley v. Loughan, (1893) 1 Ch 736, 757; Lyon v. Home, (1868) LR 6 Eq 655. Under Mohammedan law, gift is a donation conferring right of property without exchange. The gift is in the nature of contract where there must be a tender of property, acceptance of the property by the donee and delivery of possession of the property. It is only when these three ingredients are satisfied a gift is completed, Gulamhussain Kutubuddin Maner v. Abdulrashid Abdulrajak Maner, (2000) 8 SCC 507, 509.
Onerous Gift — Where a gift is in the form of a single transfer to the same person of several things of which one is and the others are not burdened by an obligation, the donee can take nothing by the gift unless he accepts it fully. Where a gift is in the form of two or more separate and independent transfers to the same person of several things, the donee is at liberty to accept one of them and refuse the others, although the former may be beneficial and the latter onerous, Section 127, Transfer of Property Act, 1882.
Mortgage. It is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability, Section 58 (g) of Transfer Property Act, 1882. A dead pledge; a thing put into the hands of a creditor. A mortgage is the creation of an interest in property, defeasible (i.e., annullable) upon performing the condition of paying a given sum of money, with interest thereon, at a certain time. This conditional assurance is resorted to when a debt has been incurred or a loan of money or credit effected, in order to secure either the repayment of the one or the liquidation of the other. The debtor or borrower, is then the mortgagor, who has charged or transferred his property in favour of or to the creditor or lender, who thus becomes the mortgagee. If the mortgagor pay the debt or loan and interest within the time mentioned in a clause technically called the proviso for redemption, he will be entitled to have his property again free from the mortgagee’s claim.
Anomalous Mortgage — A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage, Section 58 (g) of Transfer Property Act, 1882.
English mortgage — Where the mortgagor binds himself to repay the mortgage-money on a certain date and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage, Section 58 (e) of the Transfer of Property Act, 1882.
2. Where the mortgager binds himself to repay the mortgage money on a certain date and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will transfer it to the mortgager upon payment of the mortgage money as agreed, the transaction is called an English mortgage, Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247.
Equitable mortgage —The requisites of an equitable mortgage are: (i) a debt; (ii) a deposit of title deeds; and (iii) an intention that the deeds shall be security for the debt, Syndicate Bank v. APIIC Ltd., (2007) 8 SCC 361. 2. The following mortgages are equitable — (1) Where the subject of a mortgage is trust property, which security is effected either by a formal deed of a written memorandum, notice being given to the trustees in order to preserve the priority. (2) Where it is an equity of redemption, which is merely a right to bring an action in the Chancery Division to redeem the estate. (3) Where there is a written agreement only to make a mortgage, which creates an equitable lien on the land. (4) Where a debtor deposits the title-deeds of his state with his creditor or some person on his behalf, without even a verbal cmmunication. The deposit itself is deemed evidence of an executed agreement or contract for a mortgage for such estate. This transaction, which appears to be a judicial repeal of the Statute of Frauds, 29 Car. 2, c. 3, Section 4, is estansively resorted to and is known in practice as an equitable mortgage by deposit of title-deeds. An equitable mortgage being a contract for a mortgage, the mortgagee might file a bill or claim in Equity, either for a legal mortgage, a foreclosure and conveyance or a sale.
Mortgage By Conditional Sale — Where, the mortgagor ostensibly sells the mortgaged property on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute or on condition that on such payment being made the sale shall become void or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale, Section 58 (c) of Transfer Property Act, 1882.
Mortgage By Deposit Of Title-Deeds — Where a person in any of the following towns,namely, the towns of Calcutta, Madras and Bombay and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds, Section 58 (f) of Transfer Property Act, 1882.
Simple Mortgage — Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee, Section 58 (b) of Trasnfer of Property Act,1882.
Usufructuary Mortgage — Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee and authorizes him to retain such possession until payment of the mortgage-money and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest or in payment of the mortgage-money or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee, Section 58 (d), Transfer of Property Act, 1882. ,
“Will” shall include a codicil and every writing making a voluntary posthumous disposition of property, Section 3(64), General Clauses Act, 1897. A will is an instrument whereunder a person makes a disposition of his properties to take effect after his death and which is in its own nature ambulatory and revocable during his lifetime. A will has three essentials i.e. (i) it must be a legal declaration of the testator’s intention; (ii) that declaration must be with respect to his property; and (iii) the desire of the testator that the said declaration should be effectuated after his death. The essential quality of a testamentary disposition is ambulatoriness of revocability during the executant’s lifetime. The basic and fundamental difference between a will/testamentary disposition and a settlement/gift is that in the case of a will, the crucial circumstance is the existence of a provision disposing of or distributing the property of the testator to take effect on his death, whereas in the case of a gift, the provision becomes operative immediately and a transfer in praesenti is intended and comes into effect. A will is, therefore, revocable because no interest is intended to pass during the lifetime of the owner of the property. In the case of gift, it comes into operation immediately. Further, a gift takes effect by a registered instrument signed by or on behalf of the donor and attested by at least two witnesses. On the other hand, a “will” need not necessarily be registered. But the mere fact of registration of a “will” will not render the document a settlement. In other words, the real and the only reliable test for the purpose of finding out whether the document constitutes a will or a gift is to find out as to what exactly is the disposition which the document has made, whether it has transferred any interest in praesenti in favour of the settlees or it intended to transfer interest in favour of the settlees only on the death of the settlors, Mathai Samuel v. Eapen Eapen, (2012) 13 SCC 80. 3. It is the legal declaration of the intention of a testator with respect to his property which he desires to be carried into effect after his death. He is simply exercising a power to which he is entitled to under the usage of the institution. A nomination takes effect in praesenti. It is the declaration of the intention of the head of the mutt for the time being as to who his successor would be; therefore, although it is said that the usage in the mutt is that the power of nomination is exercisable by will, it is really a misnomer, because a will in the genuine sense of the term can have no effect in presenti, Sri Mahalinga Thambiran Swamigal v. Sri LA Sri Kasivasi Arulnandi Thambiran Swamigal, (1974) 1 SCC 150. 4. Means the legal declaration of the intention of the testator with respect to his property which he desires to be carried into effect after his death, [Section 2(h), Succession Act, 1925.
Pronote. If there is a clear promise to repay hand loan, it must follow that the instrument falls in the definition of promissory note, Mohanlal v. Sk. Bashir, (2008) 2 Mah LJ 258. Pronote defined in the Bills of Exchange Act, 1882, 45 & 46 Vict. c. 61, S. 83, as ‘an unconditional promise in writing, made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer.’ The note can require payment at a particular place (Josolyne v. Roberts, (1908) 2 KB 349). Pronote is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument, [ Section 4, Negotiable Instruments Act, 1881, Pronote includes a treasury bill, Section 2 (h), GOvernment Securities Act, 2006. Pronote means any instrument whereby the maker engages absolutely to pay a specified sum of money to another at a time therein limited or on demand or at sight, Section 2 (k), Limitation Act, 1963.
Lease and Licence — A lease is a transfer of an interest in land. The interest transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease and it follows from it that the lessee gets that right to the exclusion of the lessor, Associated Hotels of India Ltd. v. R.N. Kapoor, AIR 1959 SC 1262, 1268: (1960) 1 SCR 368. A licence is normally created where a person is granted the right to use premises without becoming entitled to exclusive possession thereof or the circumstances and conduct of the parties show that all that was intended was that the grantee should be granted a personal privilege with no interest in the land. If the agreement is merely for the use of the property in a certain way and on certain terms while the property remains in the possession and control of the owner, the agreement will operate as a licence, even though the agreement may employ words appropriate to a lease. (Halsbury’s Laws of England), Qudrat Ullah v. Municipal Board, Bareilly, (1974) 1 SCC 202, 208-209. The difference between a “lease” and “licence” is to be determined by finding out the real intention of the parties as decipherable from a complete reading of the document, if any, executed between the parties and the surrounding circumstances. Only a right to use the property in a particular way or under certain terms given to the occupant while the owner retains the control or possession over the premises results in a licence being created; for the owner retains legal possession while all that the licensee gets is a permission to use the premises for a particular purpose or in a particular manner and but for the permission so given the occupation would have been unlawful, C.M. Beena v. P.N. Ramachandra Rao, (2004) 3 SCC 595. A lease is the transfer of a right to enjoy the premises; whereas a licence is a privilege to do something on the premises which otherwise would be unlawful. The transaction is a lease if it grants an interest in the land; it is a licence if it gives a personal privilege with no interest in the land, B.M. Lall v. Dunlop Rubber Co. (India) Ltd., AIR 1968 SC 175, 177, 178: (1968) 1 SCR 23.
Adoption. As per Mayne’s Hindu Law the giving and receiving are absolutely necessary to the validity of an adoption; they are the operative part of the ceremony, being that part of it which transfers the boy from one family to another; but the Hindu Law does not require that there shall be any particular form so far as giving and acceptance are concerned; for a valid adoption all that the law requires is that the natural father shall be asked by the adoptive parent to give his son in adoption and that the boy shall be handed over and taken for this purpose, L. Debi Prasad v. Tribeni Devi, (1970) 1 SCC 677, 681. An act by which a person appoints as his heir the child of another. In English Law any renunciation by parents of their legal rights and liabilities in favour of an adopter is a mere empty form, however desirable an adoption may be and however solemnly consented to by the parents, may be cancelled by them and the adopted children restored to the parents, unless they be legally unfit to have the custody of the children. A contract between the mother of even an illegitimate child and another person for the transfer to that person of the rights and liabilities of the mother in respect of the child was held invalid by the Court of Appeal in Humphreys v. Polak, (1901) 2 KB 385.
4. METHOD OF INTERPRETATION OF CURRENT NATURE OF DOCUMENTS.
The cardinal rule again is that, clear and unambiguous words prevail over the intention. But if the words used are not clear or ambiguous, intention will prevail.
The Supreme Court in Delhi Development Authority vs. Durga Chand, has also noticed Odgers Rules and quoted them with approval and as the observation of the Supreme Court have the force of law of the land, it may be taken Odgers Rules (known as golden rules of interpretation) have been judicially recognized and may be adopted as Rules for interpretation of the documents in India. These Rules are listed hereunder:
7. Therefore the deed is to be construed as a whole. Apart from the said seven rules listed by Odger, it would be convenient to list the following rules for the sake of convenience are called additional rules and given number in continuation:
9. Harmonious construction must be placed on the contract as far as possible. However, in case of conflict between earlier or later clauses in a contract, later clauses are to be preferred to the earlier; while in a will, earlier clause is to be preferred to the later.
10. Contra Proferendum Rule-If two interpretations are possible, the one favourable to the party who has drafted the contract and the other against him, the interpretation against that party has to be preferred.
12. In case of conflict between printed clauses and typed clauses, type clauses are to be preferred. Similarly, in conflict between printed and hand written clauses, hand written clauses are to be preferred and in the event of conflict between typed and hand written clauses, the hand written calluses are to be preferred
From the Rules stated above, when the language used in a document is unambiguous conveying clear meaning, the Court has to interpret the document or any condition therein taking into consideration of the literal meaning of the words in the document. When there is ambiguity, the intention of the parties has to be looked into. Ordinarily the parties use apt words to express their intention but often they do not. The cardinal rule again is that, clear and unambiguous words prevail over the intention. But if the words used are not clear or ambiguous, intention will prevail. The most essential thing is to collect the intention of the parties from the expressions they have used in the deed itself. What if, the intention is so collected will not secure with the words used. The answer is the intention prevails. Therefore, if the language used in the document is unambiguous, the words used in the document itself will prevail but not the intention. See. P.Madhusudhan Rao vs Lt.Col.Ravi Manan, And Another (2015).
Chapter VI of the Indian Evidence Act, 1872, as amended (the Evidence Act) prescribes the principles of admissibility of extrinsic evidence, which also guide the interpretation of contracts with the aid of extrinsic evidence. Under Section 91 of the Evidence Act, a written contract must be proved by producing the co ntract itself (or by permissible secondary evidence) to prove the terms of such contract. Further, under Section 92 of the Evidence Act, no evidence of any oral agreement or statement is admitted in evidence for the purpose of contradicting, varying, adding to or subtracting from the terms of such written contract, subject to certain exceptions as enumerated under the section itself. Proviso (6) of Section 92 of the Evidence Act admits oral evidence in cases of latent ambiguity in the contract.
According to Section 94 of the Evidence Act, when the language used in a document is plain in itself, and when it applies accurately to existing facts, evidence cannot be given to show what facts it was meant to apply to. Also, under Section 93 of the Evidence Act, evidence cannot be given of facts to supply the defects in the language used in a document when it is, on its face, defective or patently ambiguous.
However, under Sections 95, 96 and 97 of the Evidence Act, when the language used in a document is latently ambiguous, with reference to the existing facts or one of several persons or one of several set of facts, evidence may be given to show that it was used in a peculiar sense; or to which person or which set of facts it was meant to apply to.
Therefore, under the Evidence Act, extrinsic evidence can be given or considered only in certain cases of a latent ambiguity in a document. The legal position in India in this regard has been well summarised by the Andhra Pradesh High Court in Pradeep Kumar v. Mahaveer Pershad1 as follows:
18. From the above discussion what emerges is that:
(1) where the language used is on its face ambiguous or defective so as to render the meaning unintelligible or where the language though intelligible creates an obvious uncertainty of the meaning, extrinsic evidence is wholly inadmissible because it is a patent ambiguity;
(2) where the language used is quite plain and intelligible but some difficulty arises in applying them to existing facts, for example, when a description is partly correct and partly incorrect, parole evidence is admissible to identify the subject-matter;
(4) where the language used is plain and intelligible and applies equally to two or more persons or two or more things and it is necessary to ascertain to which person or thing the words were intended to apply, parole evidence is admissible;
Categories (2), (3) and (4) pertain to latent ambiguity.
(5) in construing the document, the intention must be gathered from the document itself. However, if there is ambiguity in the language used in the document, it is permissible to look to surrounding circumstances to gather the intention, such as user or possession and enjoyment.
When there is latent ambiguity in the language of a contract, courts in India can also rely upon a subsequent interpreting statement in which both parties have concurred or upon the conduct of both parties, for the purpose of interpreting a contract.
In Godhra Electricity Co. Ltd. v. State of Gujarat3, the Supreme Court of India (the Supreme Court), held that extrinsic evidence to determine the effect of an instrument is permissible when there is a doubt as to the true meaning of a contract. In such a situation, evidence of acts done under the contract are a guide to the intention of the parties, particularly when the acts are done shortly after the date of the contract. This principle was recently reiterated by the Supreme Court in Mukul Sharma v. Orion India (P) Ltd.
Ambiguity – Effect on operation of documents:-
The Apex Court opines that such a flaw either invalidates a document or suspends its operation till the defect is rectified or the ambiguity clarified. The substituted agreement gave a new cause of action and obliterated the earlier ones and if there was a valid defence against the enforcement of the new contract in whole or in part, the party affected must take the consequences. In the Union Of India vs Kishorilal Gupta And Bros, AIR 1959 SC 1362, In ” Russel on Arbitration “, 16th Edn., p. 63, the following test is laid down to ascertain whether an arbitration clause survives after the contract is determined:
” The test in such cases has been said to be whether the contract is determined by something outside itself, in which case the arbitration clause is determined with it, or by something arising out of the contract, in which case the arbitration clause. remains effective and can be enforced.”
INTERPRETATION OF AGREEMENTS:
The principles governing interpretation of agreements under Indian law can be summarised as infra:
(b) As a general rule, while interpreting a contract, courts in India primarily look at the words used in the contract itself, reading it as a whole. The intention of the parties is gathered from the language used in the contract by adopting a harmonious construction of all its provisions and relying upon the natural and ordinary meaning of the language, unless the meaning leads to absurdity.
(c) Indian courts also apply a “common sense” approach for the purpose of interpretation of commercial contracts and try to give a meaningful interpretation to the terms of such contracts, consistent with the economic and commercial reality.
(d) In case of latent ambiguity in the contract, courts in India will look at surrounding circumstances (including sometimes, antecedent and pre-contractual documents and correspondence, for the purpose of ascertaining such surrounding circumstances), subsequent interpreting statement in which both parties have concurred or conduct of both parties for the purpose of interpretation, particularly when the acts are done shortly after the formation of the contract.
(f) Indian courts normally read contracts according to their express terms, and would imply a term in a contract only if there is a strict necessity of doing so, based upon the “five condition test”, also referred to as the “penta test” by the Supreme Court.
(g) Specifically, with respect to interpretation of commercial contracts by an Arbitral Tribunal, Indian courts do not insist on a hyper-technical approach to interpretation of contracts by the Arbitral Tribunal and are generally reluctant to interfere with the wide powers of an Arbitral Tribunal as to the admissibility, relevance, materiality and weight of any evidence produced before it.
Whether a transaction is an out and out sale or mortgage?
The real test is the intention of the parties. In order to constitute a “sale”, the parties must intend to transfer the ownership of the property and they must also intend that the price would be paid either in presenti or in future. The intention is to be gathered from the recital in the sale deed, conduct of the parties and the evidence on record.
“From the date on which possession has been delivered“- Interpretation.
It was on the recommendation of the Special Committee that the words “from the date on which possession has been delivered” were inserted into this clause by Section 17 of the Transfer of Property (Amendment) Act, 1929 (XX of 1929).
This clause obviously applies to a situation where the ownership in the property has passed to the buyer before the whole of the purch ase money was paid to the seller or the vendor. What is contained in this clause is based on the English Doctrine of Equitable Lien as propounded by Baron Rolfe in Goode and Anr. v. Burton (1847) 74 RR 633 : 1 Ex. 189. This clause confers statutory recognition on the English Doctrine of Equitable Lien. As pointed out by the Privy Council in Webb and Anr. v. Macpherson 30 Indian Appeals 238, the statutory charge under this paragraph is inflexible. The charge does not entitle the seller to retain possession of the property as against the buyer but it positively gives him a right to enforce the charge by suit. (See: Venkataperumal NAIDU V. Rathnasabhapathi Chettair; Shobhalal Shyamlal Kunni v. Sidhelal Halkelal Bania AIR (1939) Nagpur 210 and Basalingayya Revanshiddappa v. Chinnaya Karibasappa, AIR (1932) Bombay 247).
The basic principle is that the form of transaction is not the final test and the true test is the intention of the parties in entering into the transaction. If the intention of the parties was that the transfer was by way of security, it would be a mortgage. The Privy Council as early as in Balkishen Das and Ors. v. Legge, 27 Indian Appeals 58, had laid down that, as between the parties to the document, the intention to treat the transaction as an out and out sale or as a mortgage has to be found out on a consideration of the contents of document in the light of surrounding circumstances. The decision of this Court in Bhaskar Woman Joshi v. Shrinarayan Rambilas Agarwal and P.L. Bapuswami v. N. Pattay Gounder are also to the same effect. See also. Vidhyadhar vs Manikrao & Anr. , 1999 (2) SCALE 93.
In N. Pattaya Gounder v. P.L. Bappusamy Gounder (supra) , wherein it was observed that the period fixed in the document is a condition precedent for the performance and after the expiry of the period, the right reserved itself is at an end. The period fixed for the deed is not the period of limitation prescribed to any suit.
Important points to remember:-
- Article 131 of Limitation Act is applicable to agreement of sale. K. Simrathmull v. Nanjalingaiah, AIR 1963 SC 1182.
- An agreement for repurchase differs an Agreement of sale . See also. AIR-1950 FC 38.
- In fact, no period of Limitation is fixed under the Limitation Act in respect of an agreement for repurchase.
- Agreement for repurchase is nothing but a concession or an option to contract.
When a document is tendered in evidence, the first point for consideration is whether it is required by law to be attested. If it turns out to be a document required by law to be attested and there is an attesting witness available, then subject to the proviso to Sec. 68. at least one attesting witness must be called to prove the document. An instrument creating a charge does not require to be attested and proved in the same way as a mortgage. Under Sec. 54 of the Transfer of Property Act, a deed of sale of tangible immovable property of value of one hundred rupees and upwards or of a reversion or of other intangible thing can be made only by a registered instrument and it requires no attestation. An agreement for sale is a document which does not require to be attested by any law. Sec. 67 of the Indian Evidence Act deals with proof of documents which are not required by law to be attested. Sec. 68 of the Indian Evidence Act deals with proof of execution of documents required by Jaw to be attested. There is also a category of documents which we come across which could be public or private documents but they are not documents in original. Proof of such documents poses a further complication when it comes to proving the same. To prove such documents we need to lead what we all know as secondary evidence.