Chapter 5

Interpretation of Deeds & Documents

In construing wills and indeed statutes, and all written instruments, the grammatical and ordinary sense of the words is to be adhered to, unless that would lead to some absurdity, or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency, but no farther.

Grey v. Pearson, 1857 (6) HLC 61.

Agreement

Nature of—Determination of— The Court is required to look at the substance of the matter and to give full effect to law.

The provision in the agreement regarding sharing of the loss is absolutely peculiar to this particular agreement and there is not a single authority, which has, in spite of such a provision, held that the transaction does not amount to a joint venture or a division of profits.

The Court in order to construe an agreement has to look to the substance or the essence of it rather than to its form. A party cannot escape the consequences of law merely by describing an agreement in a particular form though in essence and in substance it may be a different transaction. In these circumstances, therefore, if we construe the agreement as a sort of a joint venture or a transaction like a partnership which has been given the form and appearance of a contract of agency, the law must have its course.

C.I.T. Punjab, Haryana, J. & K., H.P. and Union Territory of Chandigarh vs.Panipat Woollen and General Mills Co. Ltd., Chandigarh, AIR 1976 SC 640: 1976(2) SCC 5: 1976(3) SCR 186

Provision in contract permitting a party to with-hold any amount toward debt due—Provision does not entitle it to with-hold an amount toward unjudged liability of damages for breach of contract.

We must, therefore, read the words any claim for the payment of a sum of money' occurring in the opening part of Clause 18 not in isolation but in the context of the whole clause, for the intention of the parties is to be gathered not from one part of the clause or the other but from the caluse taken as a whole. It is in the light of this principle of interpretation that we must determine whether the words 'any claim for the payment of a sum of money' refer only to a claim for a sum due and payable which is admitted or in case of dispute, established in a court of law or by arbitration or they also include a claim for damages which is disputed by the contractor.

This passage indicates that when there is an obligation to pay a sum of money at a future date, it is a debt owing but when the obligation is to pay a sum of money in prasenti it is a debt due. A sum due would, therefore, mean a sum for which there is an existing obligation to pay in prasenti, or in other words, which is presently. payable Recovery of such sums is the subject-mattter of Clause 18 according to the heading. That is the dominant idea running through the entire clause 18.

A claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not, eo instaniti incur any pecuniary obligation, nor does the party complaining of the breach become entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred.

Union of India vs. Raman Iron Foundry, AIR 1974 SC 1265: 1974(2) SCC 231: 1974(3) SCR 556.

Alterations

Effect of—Material alteration varying the rights and liabilities of the parties—Such alterations without the consent of other parties have the effect of cancelling the deed.

If an alteration (by erasure, interlineation, or otherwise) is made in a material part of a deed, after its execution, by or with the consent of any party to or person entitled under it, but without the consent of the party or parties liable under it, the deed is rendered void from the time of the alteration so as to prevent the person who has made or authorised the alteration, and those claiming under him, from putting the deed in suit to enforce against any party bound by it, who did not consent to the alteration, any obligation, covenant or promise thereby undertaken or made.

A material alteration is one which varies the rights, liabilities, or legal position of the parties as ascertained by the deed in its original state, or otherwise varies the legal effect of the instrument as originally expressed, or reduces to certainty some provision which was originally unascertained and as such void, or which may otherwise prejudice the party bound by the deed as originally executed.

The effect of making such an alteration without the consent of the party bound is exactly the same as that of cancelling the deed.

Loonkaran Sethia vs. Ivan E. John, AIR 1977 SC 336: 1977(1) SCC 379: 1977(1) SCR 853

Ambigous insurance policy

While interpreting the terms of the insurance policies if two views are possible, courts will accept the one which favours the policy-holders.

Life Insurance Corporation of India vs. Raj Kumar Rajagrahia, 1999 (3) SCC 465

External aid

Construction on the basis of conduct of parties—Permissibility.

In the process of interpretation of the forms of a contract, the court can frequently get great assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or in receiving performance under it. Parties can, by mutual agreement, make their own contracts; they can also by mutual agreement, remake them. The process of practical interpretation and application, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it is merely a further expression by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of contract that they had originally.

If the meaning of the word or phrase or sentence is clear, extrinsic evidence is not admissible. It is only when there is latent ambiguity that extrinsic evidence in the shape of interpreting statement in which both parties have concurred should be admissible. The parties themselves might not have been clear as to the meaning of the word or phrase when they entered into the contract. Unanticipated situation might arise or come into the contemplation of the parties subsequently which would sharpen their focus and any statement by them which would illuminate the darkness arising out of the ambiguity of the language should not be shut out. In the case of an ambiguous instrument, there is no reason why subsequent interpreting statement should be inadmissible.

Godhra Electricity Co. Ltd. vs. State of Gujarat, AIR 1975 SC 32: 1975(2) SCR 42: 1975(1) SCC 199

Ancient documents

Principle of—Likelihood of decision being effected by subsequent conduct of the parties—Necessity to caution against such construction.

In interpreting ancient documents courts have to be cautious to guard against warping of the issue by reference to subsequent conduct of parties or their representatives which may vary for imponderable reasons, bona fide or otherwise.

The golden rule of construction, it has been said, is to ascertain the intention of the parties to the instrument after considering all the words, in their ordinary, natural sense. To ascertain this intention the court has to consider the relevant portion of the document as a whole and also to take into account the circumstances under which the particular words were used.

Sappani Mohamed Mohideen vs. R.V. Sethusubramania Pillai, AIR 1974 SC 740: 1974(1) SCC 615: 1974(2) SCR 594

Precision

Necessity of—Need to ensure that misunderstanding is avoided.

In drafting it is not enough to gain a degree of precision which a person reading in good faith can understand, but it is necessary to attain if possible to a degree of precision which a person reading in bad faith cannot misunderstand.

Sant Ram vs. Rajinder Lal and others, AIR 1978 SC 1601: 1979(2) SCC 274: 1979(1) SCR 900

Harmonious construction

Application of rule—The intention of parties must be gathered by taking into account the circumstances in which document was made and words therein were used.

The golden rule of construction, it has been said, is to ascertain the intention of the parties to the instrument after considering all the words, in their ordinary, natural sense. To ascertain this intention the Court has to consider the relevant portion of the document as a whole and also to take into account the circumstances under which the particular words were used. Very often the status and the training of the parties using the words have to be taken into consideration. It has to be borne in mind that very many words are used in more than one sense and that sense differs in different circumstances. Again, even where a particular word has to a trained conveyancer a clear and definite significance and one can be sure about the sense in which such conveyancer would use it, it may not be reasonable and proper to give the same strict interpretation of the word when used by one who is not so equally skilled in the art of conveyancing. Sometimes it happens in the case of documents as regards disposition of properties, whether they are testamentary or non-testamentary instruments, that there is a clear conflict between what is said in one part of the document and in another. A familiar instance of this is where in an earlier part of the document some property is given absolutely to one person but later on, other directions about the same property are given which conflict with and take away from the absolute title given in the earlier portion. What is to be done where this happens? It is well settled that in case of such a conflict the earlier disposition of absolute title should prevail and the later directions of disposition should be disregarded as unsuccessful attempts to restrict the title already given.

It is clear, however, that an attempt should always be made to read the two parts of the document harmoniously, if possible; it is only when this is not possible, e.g., where an absolute title is given in clear and unambiguous terms and the later provisions trench on the same, that the later provisions have to be held to be void.

Ramkishorelal and another vs. Kamalnarayan, AIR 1963 SC 890: 1963 Jab LJ 523: 1963 MPLJ 396: 1963 Supp. (2) SCR 417

Incorporation by reference

Determination of—Necessity of clear intent—Possibility of mere reference to other documents without incorporation.

Mere reference to some earlier transactions in a document does not amount to an incorporation in that document, of the terms and conditions relating thereto.

Before the terms and conditions of an agreement can be said to have been incorporated into another document, the same must clearly show that the parties thereto intended to incorporate them. No such intention is available in this case.

Himalaya House Co. Ltd. vs. The Chief Controlling Revenue Authority and another, AIR 1972 SC 899: 1973(1) SCJ 4: 1972(1) SCC 726: 1972(3) SCR 332.

Incorporation by reference—Effect of—It is well accepted practice of legislature to incorporate by reference in which case the provision of some other Statute, so far as relevant for the purposes of and in furtherance of the scheme of the present Statute, apply on the same—A construction which nullifies the object of incorporation, should be avoided.

Agrawal Trading Corporation v. Assistant Collector of Customs, Calcutta, 1973 CrLJ 474: AIR 1972 SC 814: 1972 SCC (Cr) 221: 1972 (2) SCR 1005.

Amendment of Statute whereby amending Statute incorporated into earlier Statute—The amended Statute should be construed in a manner without necessitating reference to the amending Statute.

The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier, then the earlier Act must thereafter be read and construed (except where that would lead to a repugnancy, inconsistency or absurdity) as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all.

Shamrao V. Parulekar v. District Magistrate, Thana, 1952 AIR SC 324: 1952 CrLJ 1503: 1952 SCR 683: 54 Bom LR 877.

Provision of statute incorporation by another statute—Amendment of parent statute in respect of the provision incorporated—The amendment would be applicable on subsequent statute as well.

Where a subsequent Act incorporates provisions of a previous Act then the borrowed provisions become an integral and independent part of the subsequent Act and are totally unaffected by any repeal or amendment in the previous Act. This principle, however, will not apply in the following cases:

(a) where the subsequent Act and the previous Act are supplemental to each other;

(b) where the two Acts are in pari materia;

(c) where the amendment in the previous Act, if not imported into the subsequent Act also, would render the subsequent Act wholly unworkable and ineffectual; and

(d) where the amendment of the previous Act, either expressly or by necessary intendment, applies the said provisions to the subsequent Act.

State of Madhya Pradesh v. M.V. Narasimhan, 1975 CrLJ 1639: AIR 1975 SC 1835: 1975 CAR 258: 1975 SCC (Cr) 589: 1975 CrLR (SC) 456.

Literal construction

Necessity to give natural meaning to the words employed in a statute.

The ordinary rule of construction of a document is to give effect to the normal and natural meaning of the words employed in the document. The compromise deed specifically says that the properties given to Pattobai were to be enjoyed by her as "Malik Mustakil".

The words "Malik Mustikal" were strong, clear and unambiguous and if those words are not qualified by other words and circumstances appearing in the same document, the Courts must hold that the estate given is an absolute one.

Krishna Beharilal vs. Gulabchand and others, AIR 1971 SC 1041: 1971 (1) SCC 837: 1971 Supp. SCR 27

Words occurring in statutes of liberal import such as social welfare legislation and human rights' legislation are not to be put in Procrustean beds or shrunk to Lilliputian dimensions. In construing these legislations the imposture of literal construction must be avoided and the prodigality of its misapplication must be recognised and reduced. Judges ought to be more concerned with the 'colour', the 'content' and the 'context' of such statutes.

Prenn v. Simmonds, (1971) 3 All ER 237 : (1971) 1 WLR 1381.

In the same opinion Lord Wilberforce pointed out that law is not to be left behind in some island of literal interpretation but is to enquire beyond the language, unisolated from the matrix of facts in which they are set; the law is not to be interpreted purely on internal linguistic considerations.

Workmen of American Express International Banking Corporation v. Management of American Express International Banking Corporation, (1985) 4 SCC 71.

Power of Attorney

Principle of construction—Necessity to consider the purpose for which Power of Attorney was executed—Ambiguity in words used in the deed—Principles of interpretation indicated.

Several well-known rules of interpreation are: firstly, that, a word used in a document has to be interpreted as a part of or in the context of the whole; secondly, that, the purpose of the powers conferred by the power of attorney has to be ascertained having regard to the need which gave rise to the execution of the document the practice of the parties and the manner in which the parties themselves understood the purpose of the document; and, thirdly, that, powers which are absolutely necessary and incidental to the execution of the ascertained objects of the general powers given must be necessarily implied.

The most important factor in interpreting for which it is executed. It is evident that the purpose for which it is executed must appear primarily from the terms of the power of attorney itself, and, it is only if there is an unresolved problem left by the language of the document, that we need consider the manner in which the words used could be related to the facts and circumstances of the case or the nature or course of dealings. We think that the rule of construction embodied in proviso 6 to Section 92 of the Evidence Act, which enables the Court to examine the facts and surrounding circumstances to which the language of the document may be related, is applicable here, because we think that the words of the document, taken by themselves are not so clear in their meanings.

Specific instances do not derogate from the width of the general power initially conferred. To such a case the ejusdem generis rule cannot be applied. The mode of construing a document and the rules to be applied to extract its meaning correctly depend upon not only upon the frame, provisions, and language of the document. In cases of uncertainty, the rule embodied in proviso 2 to Section 92 of the Evidence Act, which is applicable to contracts, can be invoked.

Timble Irmaos Ltd., Margao vs. Jorge Anibal Matos Sequeira and another, AIR 1977 SC 734: 1977(3) SCC 474: 1977(2) SCR 451

Precedent

The true import of the document may be gathered from its terms, not from rulings on other documents. There is a serious limitation on the service of case law in this area. It depends firstly on the actual issue in each case and the angle of vision adopted and secondly on the clauses, purposes and surrounding circumstances of each transaction.

State of Madhya Pradesh v. Orient Paper Mills Ltd., AIR 1977 SC 687: 1977(2) SCC 77: 1977(2) SCR 149

Religious endowment

Ascertainment of intention of settler must be made on the basis of whole document—Mere use of word "Trust" is not conclusive.

The question whether a dedication was complete or partial must depend on whether the settlor intended that his title should be completely extinguished and transferred to the trust, that in ascertaining that intention regard must be had to the terms of the document as a whole and that the use of the word 'trust' though of some help in determining such intention was not decisive of the matter.

C.I.T., West Bengal, III, Calcutta v. Sri Jagannath, AIR 1977 SC 1523: 1977(2) SCC 519: 1977(2) SCR 483

Principles of

The fundamental rule is to ascertain the intention of the testator from the meaning of words used in the deeds under interpretation.

(Per Mukhereja, J.): In construing a document whether in English or in vernacular the fundamental rule is to ascertain the intention from the words used; the surrounding circumstances are to be considered but that is only for the purpose of finding out the intended meaning of the words which have actually been employed.

On a construction of the entire document, my conclusion is that there is nothing in the context of the document, or in the surrounding circumstances which would displace the presumption of full proprietary rights which the use of the word "Malik" is apt ordinarily to convey.

Ram Gopal v. Nand Lal, AIR 1951 SC 139: 1951 ALJ 24: 64 MLW 547: 1950 SCJ 575: 1950 SCR 766.

Statutory contract

Public authority cannot entrust to itself unfettered right of exercising discretion except for public good.

When a public authority is entrusted by statute with a discretionary power to be exercised for the public good, it cannot, when making a private contract in general terms, fetter itself in the use of that power or in the exercise of such discretion.

The principle that a public authority cannot by contract fetter the exercise of the statutory power, which is conferred upon it for the public good, is limited in its application to those cases where the attempt to do so is otherwise than by the valid exercise of a staturoty power.

The Board was also not competent to enhance the charges under the guise of fixing uniform tariffs for all high tension consumers including the appellant under sub-section (1) of Section 49 because sub-section (1) is, on its plain language, subject to sub-section (3) of Section 49 and once special tariffs were fixed for the appellant under sub-section (3) of Section 49, there could be no question of fixing uniform tariffs applicable to the appellant under sub-section (1) of Section 49. The power to fix uniform tariffs under sub-section (1) of Section 49 could not be exercised in derogation of the stipulations fixing special tariffs made under sub-section (3) of Section 49.

We do not, therefore, think that Section 59 confers any power on the Board to enhance the charges for supply of electricity in disregard of a contractual stipulation entered into by it under sub-section (3) of Section 49.

Indian Aluminium Company v. Kerala State Electricity Board, AIR 1975 SC 1967: 1975(2) SCC 414: 1976(1) SCR 70

Trust deed

Religious endowment—Dedication of large property for religious ceremonies which could not exhaust the entire income, a portion of beneficial interest may be construed as undisposed of and shall vest as the secular property with heirs of the settler—In such case the dedicated property does not vest in the daitee but remains with grantee or his legal heirs.

There are cases where although the document purports, on the face of it, to be an out and out dedication of the entire property to the deity, yet a scrutiny of the actual provisions reveals the fact that the donor did not intend to give the entire interest to the deity, but reserved some portion of the property or its profits for the benefit of his family relations. In all such cases, the Debuttar is partial and incomplete and the dedicated property does not vest in the deity as a juridical person. It remains with the grantees or secular heirs of the Settlor subject to a trust or charge for the religious uses.

Jadu Gopal Chakravarty v. Pannalal Bhowmick, AIR 1978 SC 1329: 1978(3) SCC 215: 1978(3) SCR 855