When Can a Registered Sale Agreement Be Proved as Mere Security for a Loan, and What Relief May Follow?

Registered sale agreements may be proven, by oral and documentary evidence, as executed only as security for a loan transaction—not for genuine sale—if the surrounding circumstances and conduct of parties so indicate. The Madras High Court affirms and applies Supreme Court precedent, thereby upholding existing law on the admissibility of oral evidence to challenge the true nature of a document. This judgment is binding on all subordinate courts in Tamil Nadu and Puducherry and guides handling of similar disputes on specific performance versus loan security. Alternate monetary relief with interest can be granted if contract is found to be security and not a genuine sale.

Summary

Practical Impact

What’s New / What Lawyers Should Note

• Reaffirms that oral and documentary evidence can be admitted to prove a registered sale agreement was never intended as a sale, but only as security for a loan.
• Clarifies that the bar under Sections 91 and 92 of the Indian Evidence Act does not extend to preclude evidence about the true nature of a transaction documented as a sale agreement.
• Distinguishes between challenging the “terms” of a written contract, and challenging the “nature” of the contract itself.
• Where plaintiff fails to prove passing of consideration and genuine intention for sale, specific performance cannot be granted.
• Alternate relief (return of advance with interest) can be decreed with a charge on suit property, even if suit for specific performance is dismissed.
• The burden to disprove the true nature of a document (once established prima facie by the defendant via police complaints, panchayat compromise, etc.) shifts to the plaintiff.
• The omission to adduce evidence of readiness/willingness and lack of proof of payment of consideration is fatal for specific performance suits.
• Interest below claimed rate may be awarded at court’s discretion for alternate monetary relief.

Summary of Legal Reasoning

• The court first analysed whether Ex-A.1 (the suit sale agreement) was intended as a genuine sale or only as security for a loan.
• Despite the sale agreement being a registered document, the court noted Supreme Court judgments allow parties to adduce oral evidence to establish the nature of the contract, not just its terms.
• The defendant produced documentary evidence (police complaint, panchayat compromise, bank passbook, and conduct) demonstrating the context was a loan transaction, not a real sale.
• The bar on oral evidence in Sections 91/92 of the Evidence Act does not apply when the question is whether the agreement was merely a sham or security.
• On the facts, the plaintiff did not prove passing of the advance, nor readiness to pay the balance consideration; witness testimonies were inconsistent.
• Since the document was found to be security and not a genuine sale agreement, specific performance was refused.
• Nonetheless, plaintiff was entitled to return of Rs.10,00,000/- with 7.5% interest, secured by a charge on the suit property—altering the trial court’s dismissal in part.
• The principle that alternate relief for refund may be granted when sale intent is disproved was emphasized.
• The court held that the trial court erred in denying alternate money relief, as equitable relief may be molded on true findings.

Arguments by the Parties

Petitioner (Plaintiff):

• Sale agreement (Ex-A.1) is registered—defendant is precluded by Sections 91/92 of Evidence Act from adducing oral evidence to contradict.
• Defendant did not prove existence of a loan/financial transaction.
• Defendant admitted execution of sale agreement—burden was on her to prove it was for purposes other than sale.
• Error on trial court’s part in finding that no consideration passed.
• Relied on M/s. Siddamsetty Infra Projects Pvt. Ltd v. Katta Sujatha Reddy (2024) to assert relief of specific performance.
• Sought decree for specific performance or, alternatively, refund with interest.

Respondent (Defendant):

• Sale agreement was for security, not for actual sale.
• Transactions were in the nature of money lending; agreement formalized security for loan.
• Plaintiff is a professional money lender; ongoing loan transactions led to agreement.
• Advance allegedly not paid; plaintiff did not prove source/wherewithal for payment.
• Brought evidence of payments via cheque and bank passbook entries.
• Plaintiff initiated criminal cases using blank cheques taken as security.
• Trial court rightly denied specific performance as consideration and genuine sale intent were not proved.
• Relief under Specific Relief Act is discretionary; no interference warranted.
• Relied on Ishwar Dass Jain v. Sohan Lal (2000), P.Mannathan v. B.Baskaran (2025), K.L.Damodaran v. Venkatappa Naidu (2018).

Factual Background

The plaintiff and defendant entered a registered sale agreement for immovable property on July 2, 2014, allegedly after the plaintiff paid Rs.10,00,000/- as advance. Shortly before, the plaintiff had lodged a police complaint claiming an outstanding loan to the defendant’s husband; a panchayat compromise allegedly led to creation of the sale agreement as security for the loan. The plaintiff sought specific performance; the defendant claimed the agreement was not for genuine sale but as security for repayment of a loan. The trial court dismissed the suit; plaintiff appealed seeking specific performance or refund of advance.

Statutory Analysis

• Sections 91 & 92, Indian Evidence Act, 1872: Bar on oral evidence applies only to the terms of a contract, not the nature of the agreement—oral evidence is admissible to show the document is a sham or for security only.
• Section 96 and Order XLI Rule 1, Civil Procedure Code, 1908: Basis for filing appeal.
• Section 20, Specific Relief Act, 1963: Specific performance is discretionary; readiness and willingness must be established by plaintiff.
• Transfer of Property Act, 1882: Charge created on the property for refund.

Dissenting / Concurring Opinion Summary

No separate concurring or dissenting opinions—judgment delivered solely by R. Sakthivel, J.

Procedural Innovations

• Court grants alternate relief (refund of money with interest and charge on property) after finding document was merely security, even though trial court had not granted such relief.
• No new guidelines or procedural directions; applies and clarifies existing legal position.

Alert Indicators

• ✔ Precedent Followed – The judgment strictly follows and applies existing Supreme Court law on Sections 91/92 Evidence Act and the true nature of written contracts. No precedent is broken, and the law is reaffirmed.