What is Collateral Purpose?

Jojy George Koduvath, Kottayam.

Introspection

Does the law allow to use unstamped or insufficiently stamped document in evidence?  NoSec. 35 of the Indian Stamp Act is the relevant provision.
But, it can be used for collateral purposes; or the substantive purpose after payment of penalty (except promissory note).
Does the law allow to use unregistered (compulsory registrable) deed in evidence?  NoSec. 49 of the Registration Act bars.
But, it can be used for collateral purposes.
Should the court exclude an unregistered (compulsory registrable) deed even if marked without objection?Yes (2008) 8 SCC 564
But, it can be used for collateral purposes.
When does question of using a document for ‘collateral purpose‘ arise?  ….In case of an unregistered (compulsorily registrable)  document: Sec. 49 of the Registration Act.
Can the court allow to use an unstamped or insufficiently stamped document for ‘collateral purpose‘?  NoIt is the duty of every Judge not  to  admit a document that is not duly stamped, even if no objection to other side. 2017-3 AIR(Kar)(R) 570; AIR 2015 Kar 175.
Can a document, required to be registered, but not registered, be used in a suit for specific performance.YesIt may be used in a suit for specific performance under Proviso to Sec. 49 of the Registration Act. And, it can be received as evidence of an oral agreement of sale.
S. Kaladevi v. V.R. Somasundaram, (2010) 5 SCC 401; Ameer Minhaj v. Dierdre Elizabeth (Wright) Issar, 2018 (7) SCC  639.

What is Collateral Purpose?

The word ‘collateral’ signifies something beyond or parallel. According to Law Lexicon it means “that which is by the side, and not the direct line; that which is additional to or beyond a thing” (Amit Khanna.  Vs Suchi Khanna, 2008-10 ADJ 426; 2009-75 AllLR 34; 2009-1 AWC 929).

The Apex Court in K.B. Saha and Sons Private Limited v. Development Consultant Ltd., (2008) 8 SCC 564: 2008 AIR SCW 4829, held as under:

  • “A collateral transaction must be independent of, or divisible from, the transaction to effect which the law required registration.”
  • “A collateral transaction must be a transaction not itself required to be effected by a registered document, that is, a transaction creating, etc. any right, title or interest in immovable property of the value of one hundred rupees and upwards.”

Yellapu Uma Maheswari v. Buddha Jagadheeswararao, (2015) 16 SCC 787, is an authority to see, what is ‘collateral purpose’. It is held that following matters can be proved with an unregistered partition deed, as ‘collateral purpose’-

  • severancy of title,
  • nature of possession of various shares;
    • but not primary purpose, i.e. division of joint properties by metes and bounds.

It is held as under:

  • “In a suit for partition, an unregistered document can be relied upon for collateral purpose i.e. severancy of title, nature of possession of various shares but not for the primary purpose i.e. division of joint properties by metes and bounds. An unstamped instrument is not admissible in evidence even for collateral purpose, until the same is impounded. Hence, if the appellant-defendant wants to mark these documents for collateral purpose it is open for them to pay the stamp duty together with penalty and get the document impounded and the trial court is at liberty to mark Exts. B-21 and B-22 for collateral purpose subject to proof and relevance.” 

Should an opportunity be given to cure defect, by paying deficit Stamp Duty?

In Kalaivani @ Devasena v. J. Ramu, 2010(1) CTC 27,  it was held that an opportunity should be given to the party who produces the document with insufficient stamp, to pay the deficit stamp duty and penalty so that the document could be exhibited; and that if penalty is not paid, the document should be impounded. It is held as under:

  • “24. .. It is well settled that even an unregistered document is admissible in evidence for collateral purpose provided it is adequately stamped under the Stamp act. If the document is both unstamped and unregistered, as the document in question here, it is no doubt true that it cannot be looked into for collateral purpose also. But such a document should not be thrown out at the threshold itself and an opportunity must be extended to the party who wants to mark the document on his side by directing him to pay the deficit stamp duty along with the penalty upto date, then the document could be admitted in evidence for collateral purpose. If the person does not pay the Court, then the document is to be impounded and sent to the Collector for taking action under the law.”

Unstamped or Insufficiently Stamped Pro-note

Unstamped or insufficiently stamped promissory note cannot be marked in evidence. The weight of authority is on the side that says it is incurable. Hence no secondary evidence can also be lead on the same. It cannot be used for collateral purpose also. But the creditor can prosecute a suit upon ‘original consideration’.

See Blog: (CLICK): Adjudication as to Proper Stamp under Stamp Act

 No Adjudication Needed If Power of Attorney is Sufficiently Stamped

Can Unregistered Agreement be admitted in a suit for specific performance?

  • It is held in S. Kaladevi Vs. V.R. Somasundaram, (2010) 5 SCC 401, that a document required to be registered, if unregistered, can be admitted in evidence as evidence of a contract in a suit for specific performance.
  • It is followed in Ameer Minhaj v. Dierdre Elizabeth (Wright) Issar, 2018 (7) SCC  639.

Relevant Provisions in the Registration Act:

Sec. 17(1) (g) and 49 are the relevant provisions. They read as under:

  • “17. Documents of which registration is  compulsory– (1) The following documents shall be registered, …, namely:
  • …
  • …
  • (State Amendment –AP) Agreement of sale of immovable property of the value of one hundred rupee and upwards. (Similar State Amendment in Tamil Nadu and Kerala also.)
  • “49. Effect of non-registration of documents required to be  registered.– No document required by section 17 …. to be registered shall-
  • (a) affect any immovable property comprised therein
  • (b) ….
  • (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:
    • Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877), or as evidence of any collateral transaction not required to be effected by registered instrument.”

K.B. Saha and Sons Private Limited v. Development Consultant Ltd.

The Apex Court in K.B. Saha and Sons Private Limited v. Development Consultant Ltd., (2008) 8 SCC 564: 2008 AIR SCW 4829, has laid down the principle in respect of the collateral purpose.

  •        “34. From the principles laid down in the various decisions of this Court and the High Courts, as referred to here-in-above, it is evident that :-
  •        A document required to be registered is not admissible into evidence under section 49 of the Registration Act.
  •       Such unregistered document can however be used as an evidence of collateral purpose as provided in the Proviso to section 49 of the Registration Act.
  •        A collateral transaction must be independent of, or divisible from, the transaction to effect which the law required registration.
  •       A collateral transaction must be a transaction not itself required to be effected by a registered document, that is, a transaction creating, etc. any right, title or interest in immovable property of the value of one hundred rupees and upwards.
  •      If a document is inadmissible in evidence for want of registration, none of its terms can be admitted in evidence and that to use a document for the purpose of proving an important clause would not be using it as a collateral purpose.

‘Collateral Purpose‘ under Sec. 49 Registration Act

Section 49 of the Registration Act expressly states admissibility of unregistered documents  in evidence for collateral purposes.

The Supreme  Court observed in Sri Venkoba Rao Pawar v. Sri S. Chandrashekar, that the collateral purpose/transaction must be independent of, or divisible from the transaction which requires registration.

In S. Kaladevi Vs. V.R. Somasundaram, (2010) 5 SCC 401, Our Apex Court held as under:

  • “11. The main provision in Section 49 provides that any document which is required to be registered, shall not affect any immovable property comprised therein nor such document shall be received as evidence of any transaction affecting such property. The proviso, however, would show that an unregistered document affecting immovable property and required by the 1908 Act or the Transfer of Property Act, 1882 to be registered may be received as an evidence to the contract in a suit for specific performance or as evidence of any collateral transaction not required to be affected by registered instrument. By virtue of the proviso, therefore, an unregistered sale deed of an immovable property of the value of Rs.100 and more could be admitted in evidence as evidence of a contract in a suit for specific performance of the contract. Such an unregistered sale deed can also be admitted in evidence as an evidence of any collateral transaction not required to be effected by registered document. When an unregistered sale deed is tendered in evidence, not as evidence of a completed sale, but as proof of an oral agreement of sale, the deed can be received in evidence making an endorsement that it is received only as evidence of an oral agreement of sale under the proviso to Section 49 of the 1908, Act.”
  • 12. Recently in the case of K.B. Sahaand Sons Private Limited v. Development Consultant Limited ,(2008) 8 SCC 564, this Court noticed the following statement of Mulla in his Indian Registration Act, 7th Edition, at page 189:
    • “……The High Courts of Calcutta, Bombay, Allahabad, Madras, Patna, Lahore, Assam, Nagpur, Pepsu, Rajasthan, Orissa, Rangoon and Jammu & Kashmir; the former Chief Court of Oudh; the Judicial Commissioner’s Court at Peshawar, Ajmer and Himachal Pradesh and the Supreme Court have held that a document which requires registration under Section 17 and which is not admissible for want of registration to prove a gift or mortgage or sale or lease is nevertheless admissible to prove the character of the possession of the person who holds under it……”
  • “This Court then culled out the following principles (K.B. Saha case, SCC p. 577, para 334):
    • “1. A document required to be registered, if unregistered is not admissible into evidence under Section 49 of the Registration Act.
    • 2. Such unregistered document can however be used as an evidence of collateral purpose as provided in the proviso to Section 49 of the Registration Act.
    • 3. A collateral transaction must be independent of, or divisible from, the transaction to effect which the law required registration.
    • 4. A collateral transaction must be a transaction not itself required to be effected by a registered document, that is, a transaction creating, etc. any right, title or interest in immovable property of the value of one hundred rupees and upwards.
    • 5. If a document is inadmissible in evidence for want of registration, none of its terms can be admitted in evidence and that to use a document for the purpose of proving an important clause would not be using it as a collateral purpose.
  • To the aforesaid principles, one more principle may be added, namely, that a document required to be registered, if unregistered, can be admitted in evidence as evidence of a contract in a suit for specific performance.”

It is held in Ameer Minhaj v. Dierdre Elizabeth (Wright) Issar, 2018 (7) SCC  639, after quoting Sec. 17 Registration Act, as under:

  • 10. On a plain reading of this provision, it is amply clear that the document containing contract to transfer the right, title or interest in an immovable property for consideration is required to be registered, if the party wants to rely on the same for the purposes of Section 53A of the 1882 Act to protect its possession over the stated property. If it is not a registered document, the only consequence provided in this provision is to declare that such document shall have no effect for the purposes of the said Section 53A of the 1882 Act.
  • The issue, in our opinion, is no more res integra. In S. Kaladevi Vs. V.R. Somasundaram and Ors., (2010) 5 SCC 401, this Court has restated the legal position that when an unregistered sale deed is tendered in evidence, not as evidence of a completed sale, but as proof of an oral agreement of sale, the deed can be received as evidence making an endorsement that it is received only as evidence of an oral agreement of sale under the proviso to Section 49 of the 1908 Act. 

After quoting Sec. 49 Registration Act it is observed by the Apex Court as under:

  • 11. In the reported decision (i.e. S. Kaladevi Vs. V.R. Somasundaram, (2010) 5 SCC 401), this Court has adverted to  the principles delineated in K.B. Saha and Sons Private Limited  v. Development Consultant Limited, (2008) 8 SCC 564 and has added one more principle  thereto that a document is required to be registered, but  if unregistered, can still be admitted as evidence of a contract in a suit for specific performance. In view of this exposition, the conclusion recorded by the High Court in the impugned judgment that the sale agreement dated 9th July, 2003 is inadmissible in evidence, will have to be understood to mean that the document though exhibited, will bear an endorsement that it is admissible only as evidence of the agreement to sell under the proviso to Section 49 of the 1908  Act and shall not have any effect for the purposes of  Section 53A of the 1882 Act. In that, it is received as evidence of a contract in a suit for specific performance and nothing more. The genuineness, validity and binding nature of the document or the fact that it is hit by the provisions of the 1882 Act or the 1899 Act, as the case may be, will have to be adjudicated at the appropriate stage as noted by the Trial Court after the parties adduce oral and documentary evidence.”

Basis of the Erudite Decision in S Kaladevi (as stated in Para 11 of the decision)

  1. Proviso in Section 49:
    1. “The proviso, however, would show that an unregistered document affecting immovable property and a document ‘required to be registered, but  if unregistered’, may, still, be received as an evidence to the contract in a suit for specific performance …. “
  2. Admitted as proof of an oral agreement of sale
    1. “Such an unregistered sale deed … can be received in evidence ….. as evidence of an oral agreement of sale.”

Unregistered Agreement can be used in Specific performance Even After the Amendment on Sec. 17

In C.  Ramya Vs. C.  Ganambal, 2020-5 Mad LJ 416 the Madras Court pointed out that the Madras and Andhra High Courts took the view that even after the amendment on Sec. 17 (Agreement of sale of immovable property is a compulsorily registrable document), non-registration of an agreement of sale does not operate as a total bar to look into the contract, since proviso to Section 49 has carved out two exceptions –

  • (i) a document ‘required to be registered, but  if unregistered,’ may, still, be received as an evidence to the contract in a suit for specific performance, and
  • (ii) it can be used for any ‘collateral purpose’.

The following are the cases referred to by the Madras High Court:

  • G. Veeramani Vs. N. Soundaramoorthy, 2019(6) CTC 580;
  • D. Devarajan v. Alphonsa Mary, 2019 (2) CTC 290;
  • Minor Ravi Bharathi Vs. P. Balasubramani, 2014(3) MWN (Civil) 578.

Unregd. Partition Deed Admissible to see Severance & No Suit for Partition lie

In Chinnapareddigari Pedda Muthyalareddy v. Chinnappareddigari Venkatareddy,AIR 1969 AP 242, unregistered partition lists were drawn up showing the properties allotted to the respective sharers. The lists were construed as partition deeds and were held by the trial Court to be inadmissible in evidence for proving division by metes and bounds. No oral evidence was held to be admissible under section 91 of the Evidence Act to prove the factum of partition or the nature of possession.

In appeal the Andhra Pradesh High Court (FB-Jaganmohan Reddy, C.J.) held that the unregistered partition deed was admissible not for proving terms of the partition or as the source of title, but for the purpose of showing that there was a disruption (division/severance) in status and that no suit for partition would lie on the basis that the properties were still joint family properties. This decision is relied on in Booraswami v. Rajakannu, 1978-1 MLJ 248; and held further, relying on K. Kanna Reddy v. K. Venkata Reddy, AIR 1965 AP 274, that for determining status and the nature of the possession oral evidence was also admissible (for proving the factum of partition).

Effect of Marking a Document Without Objection

Unregistered (Compulsorily Registrable) Documents:

With respect to unregistered documents it is held by the Apex Court in K.B. Saha and Sons Private Limited v. Development Consultant Ltd, (2008) 8 SCC 564: 2008 AIR SCW 4829, held as under:

  • “34. From the principles laid down in the various decisions of this Court and the High Courts, as referred to here-in-above, it is evident that :
  • A document required to be registered is not admissible into evidence under section 49 of the Registration Act.
  • Such unregistered document can however be used as an evidence of collateral purpose as provided in the Proviso to section 49 of the Registration Act. ….”

In the light of the Supreme Court decision in K.B. Saha and Sons Private Limited , it appears that the observation of the Karnataka High Court in Nanda Behera v. Akhsaya Kumar Behera, 2017AIR (CC) 1893, that once the Court, rightly or wrongly, decides to admit the documents in evidence, so far as the parties are concerned, the matter is closed, is not applicable to unregistered (compulsorily registrable) documents.

However, the Calcutta High Court in Dipak Kumar Singh v. Park Street Properties (P) Limited, AIR 2014 Cal 167, distinguished K.B. Saha & Sons Private Limited, (2008) 8 SCC 564, and other decisions saying that ‘the question of admissibility of a document, which had been admitted in evidence, was not taken up for consideration’ in those decisions.

The High Court relied on Javer Chand v. Pukhraj Surana, AIR 1961 SC 1655 (question as to admissibility on the ground that it has not been stamped), which held that once a document had been marked as an exhibit in a case and the trial had proceeded all along on the footing that the document was an exhibit in the case and had been used by the parties in examination and cross-examination of their witnesses, it was not open either to the trial court itself or to a court of appeal or revision to go behind that order.

The other decisions referred to and distinguished in Dipak Kumar Singh v. Park Street Properties (P) Limited are the following:

  • Ram Kumar Das v. Jagdish Chandra Deo, Dhabal Deb: AIR 1952 SC 23,
  • Satish Chand Makhan v. Govardhan Das Byas: (1984) 1 SCC 369,
  • Anthony v. K.C. Ittoop: (2000) 6 SCC 394,
  • Surya Kumar Manji v. Trilochan Nath: AIR 1955 Cal 495,
  • Kunju Kesavan v. M.M. Philip: AIR 1964 SC 164,
  • Prasanta Ghosh  v. Pushkar Kumar Ash: 2006 (2) CHN 277.

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Read in this Cluster  (Click on the topic):

Book No, 1 – Civil Procedure Code

Power of attorney

Title, ownership and Possession

Principles and Procedure

Admission, Relevancy and Proof

Land Laws/ Transfer of Property Act

Evidence Act – General

Sec. 65B

Law on Documents

Contract Act

Easement

Stamp Act & Registration

Will

Arbitration

Divorce

Book No. 2: A Handbook on Constitutional Issues

Religious issues

Book No. 3: Common Law of CLUBS and SOCIETIES in India

Book No. 4: Common Law of TRUSTS in India

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