Bai Hira Devi And Others vs The Official Assignee Of Bombay

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 197 of 1956

Decision Date: 20 February 1958

Coram: P.B. Gajendragadkar, Natwarlal H. Bhagwati, J.L. Kapur

In this case the Supreme Court of India delivered its judgment on 20 February 1958. The bench was composed of Justice P B Gajendragadkar, Justice Natwarlal H Bhagwati and Justice J L Kapur. The matter was recorded as Civil Appeal No 197 of 1956, arising from a decision rendered by the Bombay High Court on 6 August 1954, which itself stemmed from an earlier High Court order dated 28 January 1954 in Insolvency No 74 of 1951. The official citation of the judgment is 1958 AIR 448 and 1958 SCR 1384.

The substantive dispute concerned a deed of gift executed by a certain Daulatram Hukamchand on 22 May 1950. In that deed Daulatram purported to transfer property to his wife, Bai Hira Devi, and their three sons, who were the appellants before the Court. Subsequently, several creditors of Daulatram filed a petition in the Bombay High Court seeking his adjudication as an insolvent, claiming that he had given notice of suspension of payment on 2 August 1951. The petition was granted and Daulatram was formally adjudged insolvent on 21 August 1951. By operation of section 17 of the Presidency‑towns Insolvency Act (III of 1909), the entire estate of the insolvent vested in the Official Assignee of Bombay, who became the respondent.

Shortly after the adjudication, on 26 September 1951, the Official Assignee filed a notice of motion under section 55 of the Presidency‑towns Insolvency Act. The motion sought a declaration that the deed of gift executed by Daulatram was void. In response, the appellants submitted that, although the instrument was labeled a gift, the transaction was in reality a transfer for valuable consideration. They therefore requested permission to introduce evidence demonstrating that consideration had been paid. The respondent objected to the admission of such evidence, contending that it was barred by section 92 of the Indian Evidence Act, which, according to the respondent, prohibited oral evidence that contradicted the terms of a written instrument.

The Court examined the scope of section 92 of the Indian Evidence Act. It held that the provision applies only in cases where the dispute is between parties to an instrument or their duly authorized representatives in interest. When the controversy involves a stranger to the instrument and a party to it, or that party’s representative, section 92 does not apply, and both sides are free to adduce oral evidence even if such evidence would vary, contradict, add to, or subtract from the written terms. In the present matter, the Court noted that the appellants, although representing the interest of the insolvent estate, were not in a position where the respondent was acting as the insolvent’s representative in interest when he filed the petition under section 55. Consequently, the proceedings were not between the parties to the deed of gift or their representatives, and the bar of section 92 did not arise. The Court therefore concluded that the appellants were entitled to lead the evidence they sought to prove the existence of valuable consideration.

Procedurally, the appeal before the Supreme Court was presented by counsel for the appellants, who were assisted by the Attorney‑General for India, while counsel for the respondent represented the Official Assignee. The Court, after considering the arguments and the statutory framework, delivered its judgment affirming that the evidence of consideration could be admitted, and that the respondent’s reliance on section 92 of the Evidence Act was misplaced in the circumstances of this case.

The Court observed that the present appeal, granted by special leave, originated from a notice of motion filed by the respondent Official Assignee under section 55 of the Presidency‑Towns Insolvency Act. The respondent sought a declaration that a deed of gift dated 22 May 1950, executed by the insolvent Daulatram Hukamchand in favour of the appellants, was void. The factual background showed that certain creditors of Daulatram instituted a petition in the High Court of Judicature at Bombay—Insolvency Case No. 74 of 1951—requesting that Daulatram be adjudged insolvent after he gave a notice of suspension of payment of his debts on 2 August 1951. The court adjudicated Daulatram insolvent on 21 August 1951, and consequently the estate of the insolvent vested in the respondent pursuant to section 17 of the Act. On 26 September 1951, the respondent filed the present notice of motion. The deed of gift in question transferred property from Daulatram to his wife and three sons, who are the appellant parties now before this Court. In response to the notice of motion, appellants I to III filed a joint affidavit setting out the circumstances under which the deed of gift was executed. Substantively, the appellants contended that, although the instrument was labeled a gift, it was in reality a transaction supported by valuable consideration and therefore did not fall within the mischief of section 55 of the Insolvency Act.

The Court further recounted that at the hearing of the notice of motion before Justice Coyajee, the appellants sought to present oral evidence to support their claim that the deed represented a transfer for consideration rather than a genuine gift. The respondent objected, arguing that such evidence was inadmissible under section 92 of the Indian Evidence Act. Justice Coyajee overruled the objection and permitted the appellants to lead their evidence. Nevertheless, Justice Coyajee ultimately rejected the appellants’ contentions and, by his judgment dated 28 January 1954, granted the declaration sought by the respondent under section 55 of the Act. The appellants appealed this judgment and order (Appeal No. 30 of 1954), which was heard by Chief Justice Chagla and Justice Shah. Those learned judges held that Justice Coyajee had erred in law by allowing oral evidence to be led in support of the proposition that the deed of gift was in fact a transfer for consideration. They concluded that the gift had been made out of natural love and affection, and that, under section 92, the appellants were not entitled to introduce evidence to prove the presence of a different valuable consideration. Consequently, the appellate judges declined to consider the oral evidence actually produced by the appellants and dismissed the appeal on 6 August 1964.

The Court did not feel it necessary to examine the oral testimony that the appellants had actually produced, nor to determine whether Mr Justice Coyajee had been correct in rejecting that testimony on its merits. Consequently, the appeal filed by the appellants was dismissed on 6 August 1964. Earlier, on 23 September 1954, the appellants had applied to the High Court at Bombay for a certificate, but that application was refused. The appellants then sought and obtained special leave to appeal from this Court on 3 November 1954, which is why the present appeal now reaches this Court for its final decision. The central issue that the Court must resolve in this appeal is whether the appellants were legally permitted to adduce oral evidence in order to demonstrate the true character of the disputed transaction. In order to answer that issue, the Court must examine the proper scope and effect of sections 91 and 92 of the Indian Evidence Act.

Chapter VI of the Evidence Act opens with section 91, which deals with the exclusion of oral evidence where documentary proof is available. Section 91 states that when the terms of a contract, grant, or any other disposition of property have been reduced to writing, and whenever law requires a matter to be recorded in a document, no oral evidence may be offered to prove the terms of that contract, grant, or disposition, except the document itself or secondary evidence of its contents where secondary evidence is admissible under the Act. The ordinary rule therefore requires that the content of a document be proved by primary evidence, namely the original document itself. Section 91 is commonly referred to as embodying the “best evidence rule,” because the best evidence of a document’s contents is the document itself, and the Act mandates its production to establish those contents. In effect, the rule in section 91 is exclusive: it excludes oral testimony for proving the terms of a document unless the law expressly permits secondary evidence. Section 92 further restricts oral evidence by prohibiting the admission of oral agreements once a document that displaces property rights has been produced under section 91. Thus, after the document has been introduced to prove its terms, section 92 prevents any oral statements from being used to contradict, vary, add to, or subtract from those terms, limiting such exclusion to disputes between the parties to the instrument or their representatives.

The Court observed that the statutory terminology limits the application of the rule to the parties to the instrument and to their representatives in interest, and that the six provisos attached to the section were not relevant to the matters before it. It was pointed out that sections ninety‑one and ninety‑two of the Evidence Act function together as complementary provisions. Section ninety‑one would be ineffective without the assistance of section ninety‑two, just as section ninety‑two would have no operation without the support of section ninety‑one. Because section ninety‑two bars the admission of oral evidence for the purpose of contradicting, varying, adding to or subtracting from the terms of a document that has been properly proved under section ninety‑one, the Court said that section ninety‑two effectively renders the proof of the document final as to its contents. The Court further explained that, like section ninety‑one, section ninety‑two is founded upon the best evidence rule, although the two sections differ in several important respects. Section ninety‑one is applicable to every document, irrespective of whether the document purports to transfer any rights, whereas section ninety‑two is confined to documents that can be described as dispositive. Moreover, section ninety‑one covers both bilateral and unilateral documents, while the operation of section ninety‑two is restricted solely to bilateral documents. Section ninety‑one establishes a rule of universal application that is not limited to the executant or executants of the document, whereas section ninety‑two applies only between the parties to the instrument or their representatives in interest. The Court emphasized that there is no doubt that section ninety‑two does not extend to strangers who are not bound by or affected by the document’s terms. Persons who are not parties to the document are therefore not barred from presenting extrinsic evidence to contradict, vary, add to or subtract from the document’s terms. The exclusion of oral evidence under section ninety‑two can be invoked only when a dispute arises concerning the effect of the document as between the parties or their representatives in interest. This principle, the Court noted, is made absolutely clear by the provisions of section ninety‑nine. Section ninety‑nine provides that persons who are not parties to a document or their representatives in interest may give evidence of any facts showing a contemporaneous agreement that varies the terms of the document. Although section ninety‑nine expressly mentions variation, the Court held that the right granted to third parties under that section must be understood to include the right to introduce evidence not merely to vary the terms but also to contradict, add to or subtract from them. Having accepted this interpretation, the Court said that before assessing how section ninety‑two affects the appellants’ ability to lead oral evidence, it was necessary first to determine whether section ninety‑two is applicable at all to the present suit between the official assignee, who is the respondent, and the donees of the insolvent, who are the appellants. The Court therefore posed the question of whether the official assignee stands as the representative‑in‑interest of the insolvent and can be described as such when he proceeds under section fifty‑five of the Presidency‑towns Insolvency Act.

In examining whether the official assignee may be described as the “representative‑in‑interest” of the insolvent when he moves the Insolvency Court under section 55 of the Presidency‑towns Insolvency Act, the Court first noted the operation of section 17 of the same Act. Section 17 provides that, upon the making of an order of adjudication, the property of the insolvent, wherever situated, vests in the official assignee and becomes divisible among his creditors. However, the property about which the official assignee seeks a declaration under section 55 has already left the insolvent’s estate before the adjudication order. Consequently, such property cannot be said to vest in the official assignee as a result of the adjudication order itself. Moreover, when the official assignee files a petition under section 55, he does so expressly and solely for the benefit of the creditors. An insolvent, by his own nature, has no right to challenge a transfer that he himself effected, and the official assignee therefore holds a title that is higher than that of the insolvent. When, under section 55, the official assignee challenges any transfer made by the insolvent, he is not acting on the insolvent’s behalf but in the interest of the entire body of the insolvent’s creditors. In theory and on principle, once an adjudication order is made, all proceedings concerning the insolvent’s estate fall under the exclusive control of the Insolvency Court. The official assignee, as the holder of the estate, is charged not only with safeguarding the creditors’ interests but also with protecting “public morality and the interest which every member of the public has in the observance of commercial morality” (1). There is no doubt that only the Insolvency Court possesses jurisdiction to annul the insolvent’s transactions, whether the case is governed by the Presidency‑towns Insolvency Act or by the Provincial Insolvency Act. Accordingly, the proceedings initiated under section 55 cannot be regarded as proceedings taken for or on behalf of the insolvent.

The provisions of section 55 themselves reinforce this conclusion. Section 55 declares that any transfer of property which is not a transfer made before or in consideration of marriage, and which is not made to a purchaser or encumbrancer in good faith and for valuable consideration, shall, if the transferor is adjudicated insolvent within two years of the date of transfer, be void against the official assignee. This section, much like section 53‑A of the Provincial Insolvency Act, renders the impugned transfers voidable at the instance of the official assignee or the receiver. The transfers in question are not declared void as between the parties themselves; rather, they are avoided by the official assignee or the receiver, and that avoidance is intended to benefit the whole body of the insolvent’s creditors. The relevant sections of both Insolvency Acts thus support the same view that the official assignee acts in a capacity distinct from that of a representative‑in‑interest of the insolvent, pursuing the recovery of property for the creditors rather than for the insolvent personally. (1) “The Law of Insolvency in India” by Rt. Hon. Sir D. F. Mulla, Kt., 2nd Ed., p. 231.

The Court observed that the enactments required the Insolvency Courts to set aside the transactions that were being contested, exercising the Courts’ exclusive jurisdiction for that purpose. The clear objective of those provisions was to return to the insolvent’s estate any property that had left the estate as a result of the insolvent’s own act of transfer, and to make that property available for distribution among the insolvent’s creditors. Consequently, the Court held that it would be impossible to say that, when the official assignee filed a petition under section 55 of the Act, the official assignee was acting as a representative‑in‑interest of the insolvent.

In this regard, the Court pointed out that, in cases governed by the Presidency‑towns Insolvency Act, the practice in Calcutta and Bombay had consistently permitted a creditor who had proved his debt to file a petition under section 55 to set aside the transfer, provided the creditor could show that the official assignee, after being offered a reasonable indemnity, had unreasonably refused to make the application. The Court further noted that, under section 54‑A of the Provincial Insolvency Act, a creditor himself could make the application when the receiver refused to take any action.

The Court then explained that where a creditor applied to set aside a voluntary transfer made by the insolvent, there could be no doubt that the creditor was not the representative‑in‑interest of the insolvent and that the creditor would clearly not be affected by the provisions of section 92 of the Indian Evidence Act. It would be anomalous for section 92 to apply to proceedings instituted by the official assignee under section 55, even though that section could not and would not apply to similar proceedings instituted by a creditor.

Considering the purpose for which section 55 had been enacted, the nature of the proceedings brought under it, and the character and effect of the final order that the provision contemplated, the Court found that, just as a creditor may apply, the official assignee also could not be said to be the representative‑in‑interest of the insolvent in those proceedings. If that position was correct, section 92 could not apply to the present proceedings between the respondent and the appellants, and therefore the respondent would not be barred from leading oral evidence of an agreement in order to contradict, vary, add to, or subtract from the terms of the disputed document.

The Court identified the remaining issue raised by Shri Purushottam: whether the appellants, who were undoubtedly the representatives‑in‑interest of the insolvent, could avoid the operation of section 92. In the Court’s opinion, the answer to that question had to be in favour of the appellants. Shri Purushottam had argued that the scheme of the relevant provisions of Chapter VI of the Indian Evidence Act was inconsistent with the appellants’ contention that they could lead oral evidence about an alleged agreement that might change the character of the transaction itself. Shri Purushottam’s argument was based principally on those provisions.

In this case, counsel for the respondent argued that the combined effect of sections 91 and 99 of the Evidence Act barred the admission of any oral evidence concerning an agreement that might modify the terms of the written document. According to that argument, section 91 requires that the document itself be produced and proved in order to establish its contents, and by necessary implication it excludes all oral evidence that could affect those contents. The Court was not persuaded by this line of reasoning. Having previously observed that sections 91 and 92 of the Act are complementary, the Court explained that section 91 alone does not exclude oral agreements that may vary the terms of a document; that very gap was the reason for enacting section 92. Consequently, if section 92 does not apply to the present facts, no other provision of the Evidence Act can be said to bar the evidence of the agreement alleged by the appellants. The Court clarified that section 91 only prohibits oral evidence that is used to prove the contents of the document itself. In the present proceedings the terms of the document have already been proved by producing the document. Whether those terms may be varied by an oral agreement falls outside the scope of section 91 and is instead governed by section 92. Therefore, if section 92 is inapplicable, there is no basis to exclude evidence of an oral agreement merely because, if believed, it might alter the terms of the transaction.

The respondent also relied on section 99, contending that it permits only persons who are not parties to a document, or their representatives in interest, to give evidence of a contemporaneous agreement that varies the document’s terms. In other words, the contention was that section 99 not only allows strangers to lead such evidence but also implicitly prohibits parties or their representatives from doing so, independently of the provisions of section 92. The Court did not interpret section 99 in that manner. From the language of section 92 it is evident that strangers to the document fall outside its ambit, and section 99 was enacted, the Court believed, merely to confirm that position. It would be unreasonable to read section 99 as creating an additional rule that excludes oral evidence by implication for parties to the document or their representatives. The Court concluded that where the written terms of a transfer are disputed between a stranger to the document and a party to it or that party’s representative in interest, the limitation imposed by section 92 does not apply, and both the stranger and the party (or representative) are free to present oral evidence of an agreement, even if such evidence, if accepted, would contradict, vary, add to, or subtract from the written terms.

In this matter the Court held that the statutory rule excluding oral evidence of an agreement does not apply when the dispute involves a stranger to the written document and either a party to the document or that party’s representative in interest. Accordingly, both the stranger and the party, or the party’s representative, may present oral evidence of an agreement even though such evidence, if accepted, could contradict, vary, add to, or subtract from the terms recorded in writing. The exclusion rule created by section ninety‑two of the Evidence Act is limited to situations involving the two parties to the written contract and is founded on the doctrine of mutuality. To apply that rule against a party or the party’s representative in a controversy that also includes a stranger would be inequitable and unfair. The Court referred to the well‑known passage in Phipson’s treatise on Evidence, which explains that when a transaction is reduced to writing solely by the agreement of the parties, extrinsic evidence intended to contradict or vary the written document is excluded only in proceedings between those parties or their privies, and not in proceedings that involve strangers or a party and a stranger. Strangers cannot be barred from proving the truth because of the parties’ ignorance, carelessness, or fraud, and a party cannot be estopped in a suit against a stranger because there is no mutuality of obligation. Applying this principle, the Court concluded that section ninety‑two is entirely inapplicable to the present proceedings, and therefore the appellants were entitled to rely on oral evidence in support of their plea. The Court observed that the judges of the Bombay High Court had not been made aware of this aspect, and consequently had decided the admissibility of oral evidence on the incorrect assumption that section ninety‑two applied. Accordingly, the Court set aside the decree of the appellate bench of the High Court at Bombay and remitted the appeal to that Court for determination on the merits in accordance with law. Regarding costs, the Court considered it just that the costs of this appeal should follow the final result of the appeal before the High Court at Bombay. The appeal was allowed and the case was remanded for further consideration.