A Collateral transaction means, a transaction other than the transaction affecting the immovable property but which is in some way connected with it.
Before adverting to the case law, I would like to give a brief prelude to the issue. The plain dictionary meaning of the phrase “collateral” is “additional but subordinate, secondary” (Oxford Dictionary, Thesaurus & Word Power Guide, Indian Edition 2007). An area which often creates a doubt is whether the word “collateral” should be applied qua the transaction or the relief claimed in the suit? The proviso to Section 49 of the Registration Act makes it evident that it is only with reference to the transaction affecting the immovable property. For example, in a suit for injunction, the main purpose is to prove possession. The possession in a sale deed is collateral to the transaction. The case law discussed below would show that the phrase ‘collateral purpose’ is qua the transaction and not with reference to the relief claimed in the suit. Equally important area where the Courts often face the problem is in understanding the purport of the phrases ‘collateral transaction’ and ‘collateral purpose’.
Section 17 of the Registration Act specified the documents, whose registration is compulsory. Under clause (b) of sub-section (1) thereof, other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish whether in present or in future, any right, title or interest whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property, are included. A sale deed purporting to convey right and title in the property undoubtedly falls in this category of instruments. Section 49 of the Registration Act laid down the effect of non- registration of documents required to be registered. For proper and better appreciation, this provision is reproduced hereunder: “No document required by Section 17 or by any provisions of the Transfer of Property Act, 1882 to be registered shall,
(a) affect any immovable property comprised therein; or
(b) confer any power to adopt; or
(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 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 or as evidence of any collateral transaction not required to be effected by registered instrument.” (Emphasis is mine) The proviso to Section 49 of the Registration Act, which is relevant for the present purpose, carved out an exception to the rule contained in the main provision as regards the effect of an unregistered document requiring registration and receiving of such document as evidence of any transaction. The proviso permits such document to be received as evidence under two contingencies, namely (1) as a piece of evidence of a contract in a suit for specific performance in Chapter II of the Specific Relief Act, 1877 and (2) as evidence of any collateral transaction not required to be effected by registered document.
In K.B.Saha & Sons Pvt. Ltd. v Development Consultant Ltd. the Supreme Court has considered the true meaning and purport of “collateral fact/collateral purpose” with reference to the decided case law. The question that arose before the Supreme Court was, whether the memorandum of agreement whereunder the suit property was leased out was admissible in evidence, as the same was not registered. The further question considered by the Supreme Court was, whether Clause 9 of the lease agreement which constituted an important term of the lease agreement could be used as evidence of any collateral transaction not required to be affected by registered instrument.
After considering the judgments in Haran Chandra Chakrvarti v Kaliprasanna Sarkar, Ratan Lai & others v Harisankar & others10, Bajaj Auto Limited v Behari Lal Kohli and Rana Vidya Bhushan Singh v Ratiram, in paragraph 34 the Supreme Court deduced the following principles:
“From the principles laid down in the various decisions of this Court and the High Courts, as referred to hereinabove, it is evident that:-
1. A document required to be registered 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 immoveable 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 providing an important clause would not be using it as a collateral purpose.”
On the above legal principles the Supreme Court held that Clause 9 cannot be looked into for collateral purpose as it constitutes an important term of the agreement.
On a compendious reference of the case law discussed above, the followings conclusions emerge:
i) A document, which is compulsorily registrable, but not registered, cannot be received as evidence of any transaction affecting such property or conferring such power. The phrase “affecting the immovable property” needs to be understood in the light of the provisions of Section 17(b) of the Registration Act, which would mean that any instrument which creates, declares, assigns, limits or extinguishes a right to immovable property, affects the immovable property.
ii) The restriction imposed under Section 49 of the Registration Act is confined to the use of the document to affect the immovable property and to use the document as evidence of a transaction affecting the immovable property.
iii) If the object in putting the document in evidence does not fall within the two purposes mentioned in (ii) supra, the document cannot be excluded from evidence altogether.
iv) A collateral transaction must be independent of or divisible from a transaction to affect the property i.e., a transaction creating any right, title or interest in the immovable property of the value of rupees hundred and upwards.
v) The phrase “collateral purpose” is with reference to the transaction and not to the relief claimed in the suit.
vi) The proviso to Section 49 of the Registration Act does not speak of collateral purpose but of collateral transaction i.e., one collateral to the transaction affecting immovable property by reason of which registration is necessary, rather than one collateral to the document.
vii) Whether a transaction is collateral or not needs to be decided on the nature, purpose and recitals of the document.
Having culled out the legal propositions, the discussion on this issue will be incomplete if a few illustrations as to what constitutes collateral transaction are not enumerated as given out in Radhomal Alumal (2 supra) and other Judgments. They are as under:
a) If a lessor sues his lessee for rent on an unregistered lease which has expired at the date of the suit, he cannot succeed for two reasons, namely, that the lease which is registrable is unregistered and that the period of lease has expired on the date of filing of the suit. However, such a lease deed can be relied upon by the plaintiff in a suit for possession filed after expiry of the lease to prove the nature of the defendant’s possession.
b) An unregistered mortgage deed requiring registration may be received as evidence to prove the money debt, provided, the mortgage deed contains a personal covenant by the mortgagor to pay .
c) In an unregistered agreement dealing with the right to share in certain lands and also to a share in a cash allowance, the party is entitled to sue on the document in respect of movable property .
d) An unregistered deed of gift requiring registration under Section 17 of the Registration Act is admissible in evidence not to prove the gift, but to explain by reference to it the character of the possession of the person who held the land and who claimed it, not by virtue of deed of gift but by setting up the plea of adverse possession .
(e) A sale deed of immovable property requiring registration but not registered can be used to show nature of possession.
The above instances are only illustrative and not exhaustive.