The Madras High Court (Madras HC) has ruled that oral evidence is admissible to ascertain the “true nature” of a registered document, holding that Sections 91 and 92 of the Indian Evidence Act, 1872, do not bar a party from proving that a document purported to be a Sale Agreement was, in fact, executed as security for a loan transaction.
Justice R. Sakthivel, hearing an appeal (A.S.No.279 of 2017), upheld a Trial Court’s decision to deny specific performance of the sale agreement. However, the High Court (Madras HC) modified the final decree, granting the plaintiff’s alternative prayer for a refund of Rs. 10,00,000/-, concluding that the agreement was intended as security for this loan amount.
The appeal was filed by K. Ganesan (appellant/plaintiff) against a judgment dated March 28, 2017, from the Second Additional District Court, Erode, which had dismissed his suit (O.S.No.221/2014) against Ms. S. Selvi (respondent/defendant).
Background of the Case
The plaintiff, K. Ganesan, had filed the original suit seeking specific performance of a registered Sale Agreement (Ex-A.1) dated July 2, 2014, for a property owned by the defendant, Ms. S. Selvi. The total sale consideration was fixed at Rs. 15,00,000/-, of which the plaintiff claimed to have paid Rs. 10,00,000/- as an advance on the date of the agreement.
The defendant, in her written statement, admitted to the execution of the Sale Agreement (Ex-A.1) but denied its nature. She contended that the document was “a loan agreement in the guise of Sale Agreement.”
According to the defendant, her husband had previous loan transactions with the plaintiff, who she alleged was a professional money lender. She claimed that a police complaint (Ex-B.8) was lodged by the plaintiff on July 1, 2014, regarding the loan. Subsequently, a ‘panchayat’ was convened that same evening, and as per the compromise, the Sale Agreement was executed the next day (July 2, 2014) only as a security for the outstanding loan, which she claimed was Rs. 6,00,000/-. She also alleged the property was worth over Rs. 1.5 Crores.
The Trial Court accepted the defendant’s contentions, found that the plaintiff had failed to prove the payment of the Rs. 10,00,000/- advance, and held that the agreement “was not intended for Sale.” The suit was dismissed in its entirety, denying both specific performance and the alternative relief of a refund.
Arguments in the High Court
The appellant/plaintiff, represented by Ms. V. Srimathi, argued that the Trial Court had erred. The primary contention was that Ex-A.1, being a registered document, precluded the defendant from leading oral evidence contrary to its terms, as barred by Sections 91 and 92 of the Indian Evidence Act, 1872.
The respondent/defendant, represented by Mr. R. Bharanidharan, reiterated that the document was executed as security following the police complaint (Ex-B.8) and the subsequent panchayat. It was argued that the plaintiff had failed to prove his “wherewithal” (financial capacity) to pay Rs. 10,00,000/- in cash as alleged.
High Court’s Analysis and Findings
Justice R. Sakthivel found that the defendant’s evidence, particularly the police complaint (Ex-B.8) obtained via RTI, was critical. In that complaint, dated July 1, 2014 (one day before the Sale Agreement), the plaintiff himself had alleged that the defendant’s husband owed him “lakhs in loan” and that he (the plaintiff) had “no loan / security document.”
The Court noted that the plaintiff withdrew this complaint on July 15, 2014, stating a ‘panchayat’ was held. The execution of the Sale Agreement on July 2, 2014, immediately after the complaint, was deemed significant. The Court observed: “This Court wonders whether such conduct would be consistent with ordinary human conduct. Would a person execute a Sale Agreement in favour of someone who had lodged a police complaint against them or their spouse just the previous day? Ideally, no prudent person would do so.”
The Court also analyzed the plaintiff’s evidence regarding the payment of the Rs. 10,00,000/- advance and found it contradictory and unproven.
- P.W.1 (The plaintiff) gave contradictory testimony on how the money was handed over.
- P.W.2 (Thangavelu, an attesting witness) “deposed that he did not witness any passing of consideration.”
- P.W.3 (Murugaboopathy) gave “contradictory” evidence regarding the location where the advance was allegedly paid (Document Writer’s office vs. Sub-Registrar Office).
- P.W.4 (The Document Writer) “deposed that no advance was paid in his presence.”
The Court concluded, “Thus, there is no satisfactory evidence to prove the passing of consideration under the Sale Agreement.” It held that the defense theory that the agreement was “security for the loan transaction” was “probable.”
Addressing the plaintiff’s main legal challenge regarding Sections 91 and 92 of the Evidence Act, the High Court (Madras HC) held that the bar was not absolute. Relying on the Supreme Court’s decision in R. Janakiraman -vs- State (2006) 1 SCC 697, the Court affirmed that the bar applies to contradicting the terms of a contract, “not to disprove the contract itself, or to prove that the document was not intended to be acted upon.”
Quoting the apex court’s decision in Gangabai v. Chhabubai (1982), the judgment noted that the bar “is not attracted when the case of a party is that the transaction recorded in the document was never intended to be acted upon at all… and that the document is a sham.”
The High Court (Madras HC) therefore found: “Ex-A.1 – Suit Sale Agreement was not intended for sale but a security to a loan transaction with no passing of consideration thereunder, in the guise of a Sale Agreement.” The claim for specific performance was consequently dismissed.
Final Decision
While upholding the dismissal of specific performance, Justice R. Sakthivel held that the Trial Court had “failed to grant the alternate relief of return of money.”
The Court reasoned that while the nature of the document could be challenged, the terms—specifically the amount of Rs. 10,00,000/- mentioned as ‘advance’—were written in the registered document. The Court found that the defendant had “neither disproved that the loan amount is Rs.10,00,000/-… nor she has proved the discharge plea satisfactorily.”
Observing that “If really the defendant or her husband owed only Rs.6,00,000/-, then there is no reason for the parties to write Rs.10,00,000/- as the advance amount,” the Court held that the “defendant cannot be unjustly enriched at the cost of the plaintiff.”
The Appeal Suit was “partly allowed,” and the Trial Court’s judgment was modified. The final orders are:
- The suit for specific performance and injunction is dismissed.
- The “alternate relief of return of money is granted.”
- A “Money Decree is passed in favour of the plaintiff for Rs. 10,00,000/- (Rupees Ten Lakh only) along with 7.5% interest (simple interest) per annum from the date of Suit till the date of realisation.”
- A charge is created upon the suit property to enable the plaintiff to realize the decreed amount.
