CONNOTATION OF DIFFERENT INTENTIONS IN CONTACTUAL AGREEMENTS – VIEW OF THE APEX COURT

CASE DIARY
Name of the case	Mangala Waman Karandikar (D) TR. LRS. v. Prakash Damodar Ranade
Application Ref.	Civil Appeal No. 10827 Of 2010
Appellant	Mangala Waman Karandikar (D) TR. LRS
Respondent	Prakash Damodar Ranade
Judiciary	Supreme Court of India
Bench	·         Chief Justice N V Ramana ·         Justice Surya Kant ·         Justice Aniruddha Bose
Date of judgment	May 07, 2021

PART - A: OVERVIEW

·      The Apex Court on 7^th day of May 2021 was considering an appeal filed by the Appellant involving substantial question of law viz. obligations and interpretation under a contractual agreement executed between the Appellant and the Respondent.

·      The Hon’ble Court expounded and deciphered the boundaries of application of proviso 6 to Section 92 read with Section 95 of the Indian Evidence Act, 1872.

·      The case under consideration involved the admissibility of oral evidences supplementing the written agreement executed between the parties in a scenario wherein the terms and conditions embedded within the agreement were comprehensible.      

PART – B: FACTS OF THE CASE

·      The husband of Appellant was the proprietor of a stationary business at a specific premises named “Karandikar Brothers” and consequent to his demise in the year 1962, the business was taken over and continued by the Appellant.

·     The Appellant was unable to run the business and decided to give the opportunity to the Respondent to take over the business and run the same for some time. For the purpose of the same, a contractual agreement was entered between the Appellant and the Respondent on 07.02.1963 (hereinafter “contractual agreement / agreement / contract”, as may be employed in the context) pertaining to transfer of the shop for business purpose for a period of two years which was subsequently renewed.

·       The Appellant apparently wanted to undertake the business of her husband and with the desire to do so, issued a notice to the Respondent to vacate the premise by a specific date. The Respondent replied to this notice stating that the basic operation of the contract entered on 07.02.1963 and as subsequently renewed, was inter alia in the nature of the rental agreement and the transfer of business is considered incidental to the contract thereby invoking the principle of seeing things on narrow and strict sense (“Stricto Sensu”).

·      The Appellant aggrieved by the conduct of the Respondent filed a civil suit before the Court of Joint Civil Judge, Junior Division, Pune (“Trial Court”) which ruled in favor of the Appellant and the Trial Court directed the Respondent to hand over the business premise (“Suit Property”). The Respondent preferred an appeal to the Appellate Court viz. the Court of Additional District Judge, Pune wherein the appellate forum also ruled in favor of the Appellant.

·      Further the Respondent filed a second appeal before the jurisdiction of the Bombay High Court against the order of the first appellate court. The High Court took a perceived view to rule in favor of the Respondent contemplating the following:

a.  The agreement entered between the parties was in the nature of leave and lisence,

b.  The Trial Court and the First Appellate Court did not have jurisdiction to entertain the case as the same is empowered to be tried under Small Causes Court established under the Provincial Small Causes Court Act.

·         Aggrieved by the order of the High Court, the Appellant preferred an appeal to the Apex Court.

PART - C: CONTENTION OF THE PARTIES

C.1. CONTENTIONS OF THE APPELLANT

The Appellant (deceased and represented through legal heirs) during the course of appeal to the Apex Court made the following submissions:

·     The contractual agreement entered and executed dated 07.02.1963 and as subsequently renewed from time to time involved the transfer of business per say and did not warrant to transfer the business premise itself in the name of Respondent.

·     The terms of agreement clearly employ the usage of word “royalty” instead of rent to the paid by the Respondent, in so far as to signify that the agreement was not in the form of leave and lisence.

·   Neither did the husband of the Appellant nor did the Appellant herself intend to transfer the suit property to the Respondent.

·    The High Court has erred in appreciate the language used in the contract which clearly casted the intention of the parties.

C.2. CONTENTIONS OF THE RESPONDENT

The Respondent during the course of appeal to the Apex Court made the following submissions:

·    The suit property used by the Appellant was a grocery shop and not a stationary shop which remained closed for few years.

·    Relying upon the High Court order, the Trail Court and the First Appellate Court did not have jurisdiction to adjudge the Respondent.

·      There is extrinsic evidence (not part of the agreement under question, rather an evidence arising out externally beyond the contract) that demonstrates that the agreement entered between the parties was indeed for the purpose of license of the suit property.

·     The Respondent is construed to be a tenant under the provisions of the Bombay Rent Act (as subsequently Maharashtra Act 17 of 1973) and enjoys protection under the provisions of Section 15A read with Section 15 of the Bombay Rent Act.

·    The Appellant has received the “rent paid” by the Respondent in lieu of taking the suit property through license. The Court should look beyond the usage of terms used in contract. (This is an oral extrinsic evidence submitted by the Respondent in the light of the case.)

·       Emphasis is placed on Section 95 of the Indian Evidence Act which contemplates the fact that when the terms used in an agreement are plain but wherein does not derive a clear meaning to the relevant facts, then evidences may be produced to establish in what sense the language is used in such contract. Further 6^th proviso to Section 92 also contemplates that “Any fact may be proved which shows in what manner the language of a document is related to existing facts.”

PART – D: QUESTION OF LAW INVOLVED

The perusal of the case by different levels of judiciary in the case under consideration has raised the following questions of law involved:

a.     Does the Respondent establish the fact that he is the licensee in the suit property?

b.     Whether the license under the agreement dated 07.02.1963 was for the purpose of running the existing business run by the Appellant or conduct a business in the suit property?

c.    What is the admissibility of extrinsic evidence under Sections 92 and 95 of the Indian Evidence Act?

PART – E: RULING BY THE APEX COURT

·     Interpretation in contracts / agreements entered between the parties are to be construed from the intentions of the parties to such contracts / agreements drawn down in written terms. 

·       The terms of agreement dated 07.02.1963 clearly established the fact that the Appellant intended to transfer the business run in a specific premise for time being and not the suit property itself. The deceased Appellant had the intention of transfer the running business only that is also clearly established through the agreement.

·     The contract clearly mandated the continuation of business and the Respondent undertook to pay a royalty of Rs. 90 per month.

·    The business run by the husband of the Appellant and the Appellant herself subsequently prior to the transfer of the business was “stationary business” which is clearly established in the agreement executed between the parties and the contention raised by the Respondent contradicts the clauses of agreement.

·     The agreement which is legally binding and enforceable employs the usage of words “shop” and “royalty” instead of the words ‘premises and rent’ respectively. The word ‘license’ under the Bombay Rent Act refers to premise for construing the Respondent as a tenant. Hence:

a.      The Trial Court and the First Appellate Courts were competent to try the case.

b.   The nature of agreement is not covered under the Bombay Rent Act and consequently the law does not afford protection to the Respondent.

·   Upon the interpretation of Section 92 read with 6^th proviso and Section 95 of the Indian Evidence Act, it becomes abundantly clear that oral evidences (extrinsic evidence) do not find admissibility in so far as they contradict, vary, add or substitute the terms of contract. Further, it is understood upon the interpretation of the said sections that only when the agreement and its terms are not clear and are ambiguous, susceptible to different interpretations, only then the operation of the 6^th proviso to Section 92 comes into picture. Section 95 in so far is concerned, the same finds its operation and builds on the 6^th proviso to Section 92 of the Indian Evidence Act.

·     The Respondent has failed to establish any ambiguity in the language used in the contract / agreement entered between the parties and hence the application of 6^th proviso to Section 92 and Section 95 of the Indian Evidence Act does not arise.

·     The order issued by the Trail and First Appellate Court is upheld and the order issued by the Bombay High Court is set aside.

PART – F: ANALYSIS

·     The contract (inclusive of all the terms) entered between the parties in the case are legally binding upon the parties. The intention of the parties to a contract are to be gathered from the language couched in the agreement and any advancements of facts which are outside the scope of the contract itself would in so far render such arguments void in itself.  

·    Reliance is placed on the catena of dictums issued with respect to the interpretation of terms of contract:

a.      The Rajasthan State Industrial Development v. Diamond & Gem Dev. Corpn. Ltd. & Anr.

Ref.: (Civil Appeal Nos. 7252-7253 of 2003, Judgment dated 12.03.2013):

The Apex Court in the case postulated that “A party cannot claim anything more than what is covered by the terms of contract, for the reason that contract is a transaction between the two parties and has been entered into with open eyes and understanding the nature of contract. Thus, contract being a creature of an agreement between two or more parties, has to be interpreted giving literal meanings unless, there is some ambiguity therein.”

b.      DLF Universal Ltd. & Anr. v. Director, T.&C. Planning Haryana and Ors.

Ref.: (Civil Appeal Nos. 550 of 2003, Judgment dated 19.11.2010):

The Apex Court in the case contemplated that “It is a settled principle in law that a contract is interpreted according to its purpose. Consistent with the character of purposive interpretation, the court is required to determine the ultimate purpose of a contract primarily by the joint intent of the parties at the time the contract so formed. It is not the intent of a single party; it is the joint intent of both parties and the joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation.”

·     The Anson's Law of Contract embeds the very principle that "a basic principle of the Common Law of Contract is that the parties are free to determine for themselves what primary obligations they will accept.” In the present case, the Appellant and Respondent through the terms of contract have determined the obligations that they would undertake during the time of entering into such contract, that is to say that the Respondent clearly is presumed to be aware of the purpose of the contract and does not find a footing to term the contrary later.

·     The proviso 6 to Section 92 manifests the fact that “Any fact may be proved which shows in what manner the language of a document is related to existing facts” in so far as the same does not materially disturb, add, subtract, modify, delete and contradict the terms and conditions stipulated in the agreement. The operation of such proviso is extraordinary in nature. Had the contrary intention appeared through the law maker, then the proviso would override the main provision viz. Section 92 which will the render the operation of the entire section unsustainable and would defeat the principles of legal interpretation. To supplement this, emphasis is placed on the ruling of the Bombay High Court in Martand Trimbak Gadre v. Amritrao Raghojirao Damale ((1925) 27 BOMLR 951) wherein the court expounded that “Any fact may be proved, which shows in what manner the language of a document is related to existing facts. The language of the proviso is rather vague. It is true that evidence of the circumstances surrounding a document is admissible; but it is admissible only for the purpose of throwing light on its meaning. There must be some limit to the suggestion that the surrounding circumstances can always be scrutinized so as to enable the Court to alter or change the nature of a document to something different from what it appears to be.”

·     It is thus imperative to understand that the law imposes a self-limitation as far as the applicability of the 6^th proviso to Section 92 is concerned as the same is capable to alter the very nature of the document under question and there would be no certainty on a proper construction of the document involved.

The Judgment can be accessed at:

https://main.sci.gov.in/supremecourt/2010/11126/11126_2010_31_1501_28001_Judgement_07-May-2021.pdf

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