The Allahabad High Court observed that parole evidence may be considered contrary to the rule in Section 92 of the Evidence Act only in the most extraordinary circumstances suggesting a sham transaction or an entirely different one from what has been scripted in the contract or

In a case involving a registered sale agreement, Mishri Lal agreed to transfer one-fourth of the property to Jeet Kaur for Rs. 9000. The Appellant claimed Rs. 7900 as earnest money, with Rs. 1100 due at the sale deed's execution. The Second Appeal stemmed from a specific performance contract, which the Trial Court decreed in favour, but the Lower Appellate Court modified it to order a refund of the earnest money.

The Bench of J.J. Munir observed, “Normally and invariably, as a rule, parties ought be bound by the terms of their written deed or contract, and it is only in the most extraordinary circumstances, suggesting a sham transaction or an entirely different one from what has been scripted in the contract or deed, that parole evidence may be considered contrary to the rule in Section 92 of the Evidence Act."

Advocate G.N. Verma appeared for the Appellant and Advocate S.N. Singh appeared for the Respondent.

The case involved a registered agreement to sell, where Mishri Lal (Respondent) agreed to transfer his one-fourth share in a property to Smt. Jeet Kaur (Appellant) for a sale consideration of Rs. 9000/-. The Appellant alleged that Respondent received Rs. 7900/- as earnest money and agreed to receive the remaining Rs. 1100/- when executing the sale deed. In response, the Appellant served a notice, requesting the Respondent to fulfil his obligations under the agreement by receiving the balance amount and executing the sale deed.

The Appellant filed a Second Appeal arising out of a specific performance contract. The Trial Court had decreed the suit but the Appellate Court modified the decree. The Appellate Court substituted the direction for specific performance with an order to refund the admitted earnest.

The Court framed the following issues:

(i) Whether in a case where substantial part of the sale consideration is paid at the time of the suit agreement or thereafter before the suit is instituted, discretion can be exercised by the Court against granting specific performance under Section 20 of the Specific Relief Act, 1963?

(ii) Whether Court can go behind the terms of the agreement executed between the parties in view of the provisions of Sections 91 and 92 of Indian Evidence Act, 1972?

The Court noted that interpreting terms in a formal document, functioning as a contractual agreement should align with their apparent meaning. Section 92 allows parties to clarify a transaction's true nature if it deviates from the written agreement, permitting the introduction of oral evidence. While circumstances suggesting a disparity in the suit agreement may allow considering parole evidence, Section 92 imposes limitations unless an irresistible inference exists that the written agreement does not authentically reflect the parties' intentions.

The Court noted that the Trial Court ruled in favour of the Appellant based on the suit agreement's terms and supporting evidence, but the Lower Appellate Court, though having the authority to review evidence, faced limitations in considering parole evidence. The Lower Appellate Court's concerns about the Rs.5400/- payment and receipt-related issues were deemed irrelevant by the Court.

Additionally, the Bench observed that the Sub-Registrar's endorsement mentioning only Rs.2500/- at the time of registration was considered insufficient to draw an irresistible inference of a sham document. The court reiterated that parties should generally be bound by the terms of their written contract, with parole evidence only applicable in extraordinary circumstances.

The Court noted that if a party does not base its case on the grounds specified in the six provisos of Section 92 or the exceptions outlined in Sections 93 to 100 of the IEA, then oral evidence supporting those claims must be allowed. In this case, the defendant did not specifically plead or attempt to prove fraud, intimidation, illegality, lack of due execution, or lack of capacity. Instead, the defendant argued that the agreement represented a transaction different from what the parties intended. The Court acknowledged that this argument is permissible but only if an irresistible inference can be drawn from the circumstances indicating that the written contract does not accurately reflect the real transaction.

The Court added, “Of course, if a party does not rely on the terms of a contract on one or the other grounds postulated in the six provisos of Section 92 or one of the exceptions in Sections 93, 95, 96, 97, 98, 99 and 100 of the Evidence Act, oral evidence in support of those pleas must be permitted to be led. Here, that is not the case. The defendant has not specifically pleaded or sought to establish fraud, intimidation, illegality, want of due execution, want of capacity in him; but simply said that the agreement embodies a transaction different from what the parties entered into. Though, this is permissible in view of the judicially evolved principles, but only if by the most exacting standards an irresistible inference from circumstances could be drawn that the solemn contract is not the embodiment of the real transaction”.

The Bench observed that the Lower Appellate Court erred in not applying this stringent standard before considering parole evidence and other circumstances to challenge the terms of the suit agreement. According to the High Court, the Trial Court was correct in relying on the terms of the registered agreement executed between the parties, without delving into parole evidence or other circumstances, to assess whether the suit agreement truly embodied the apparent transaction between the parties.

The Court emphasized that one of the principles guiding the discretion to grant specific performance is the substantial compliance by the plaintiff, the buyer, with their part of the contract. If the buyer has paid almost the entire agreed sale consideration, with only a small amount remaining, the Court should typically exercise discretion in favour of the buyer. While specific performance is an equitable relief and discretionary, substantial payment by the buyer is considered a significant factor favouring the grant of specific performance.

Therefore, the Court held that when a substantial portion of the sale consideration is paid either during the execution of the suit agreement or before legal action is initiated, discretion should generally not be exercised against granting specific performance under Section 20 of the SRA.

Accordingly, the Court allowed the Appeal and set aside the order of the Lower Appellate Court.

Cause Title: Smt. Jeet Kuar v Sri Mishri Lal (2023:AHC:220473)

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