Justice R. Sakthivel, hearing an appeal (A.S.No.279 of 2017), upheld a Trial Court’s decision to deny specific performance of the sale agreement. However, the High Court (Madras HC) modified the final decree, granting the plaintiff’s alternative prayer for a refund of Rs. 10,00,000/-, concluding that the agreement was intended as security for this loan amount.

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Oral Evidence Admissible to Prove Registered Sale Agreement was ‘Security’ for Loan; Sections 91 & 92 Evidence Act Not a Bar: Madras HC
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Law Trend
November 3, 2025 12:19 PM

The Madras High Court (Madras HC) has ruled that oral evidence is admissible to ascertain the “true nature” of a registered document, holding that Sections 91 and 92 of the Indian Evidence Act, 1872, do not bar a party from proving that a document purported to be a Sale Agreement was, in fact, executed as security for a loan transaction.

Justice R. Sakthivel, hearing an appeal (A.S.No.279 of 2017), upheld a Trial Court’s decision to deny specific performance of the sale agreement. However, the High Court (Madras HC) modified the final decree, granting the plaintiff’s alternative prayer for a refund of Rs. 10,00,000/-, concluding that the agreement was intended as security for this loan amount.

The appeal was filed by K. Ganesan (appellant/plaintiff) against a judgment dated March 28, 2017, from the Second Additional District Court, Erode, which had dismissed his suit (O.S.No.221/2014) against Ms. S. Selvi (respondent/defendant).

Background of the Case
The plaintiff, K. Ganesan, had filed the original suit seeking specific performance of a registered Sale Agreement (Ex-A.1) dated July 2, 2014, for a property owned by the defendant, Ms. S. Selvi. The total sale consideration was fixed at Rs. 15,00,000/-, of which the plaintiff claimed to have paid Rs. 10,00,000/- as an advance on the date of the agreement.

The defendant, in her written statement, admitted to the execution of the Sale Agreement (Ex-A.1) but denied its nature. She contended that the document was “a loan agreement in the guise of Sale Agreement.”

According to the defendant, her husband had previous loan transactions with the plaintiff, who she alleged was a professional money lender. She claimed that a police complaint (Ex-B.8) was lodged by the plaintiff on July 1, 2014, regarding the loan. Subsequently, a ‘panchayat’ was convened that same evening, and as per the compromise, the Sale Agreement was executed the next day (July 2, 2014) only as a security for the outstanding loan, which she claimed was Rs. 6,00,000/-. She also alleged the property was worth over Rs. 1.5 Crores.

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The Trial Court accepted the defendant’s contentions, found that the plaintiff had failed to prove the payment of the Rs. 10,00,000/- advance, and held that the agreement “was not intended for Sale.” The suit was dismissed in its entirety, denying both specific performance and the alternative relief of a refund.

Arguments in the High Court
The appellant/plaintiff, represented by Ms. V. Srimathi, argued that the Trial Court had erred. The primary contention was that Ex-A.1, being a registered document, precluded the defendant from leading oral evidence contrary to its terms, as barred by Sections 91 and 92 of the Indian Evidence Act, 1872.

The respondent/defendant, represented by Mr. R. Bharanidharan, reiterated that the document was executed as security following the police complaint (Ex-B.8) and the subsequent panchayat. It was argued that the plaintiff had failed to prove his “wherewithal” (financial capacity) to pay Rs. 10,00,000/- in cash as alleged.

High Court’s Analysis and Findings
Justice R. Sakthivel found that the defendant’s evidence, particularly the police complaint (Ex-B.8) obtained via RTI, was critical. In that complaint, dated July 1, 2014 (one day before the Sale Agreement), the plaintiff himself had alleged that the defendant’s husband owed him “lakhs in loan” and that he (the plaintiff) had “no loan / security document.”

The Court noted that the plaintiff withdrew this complaint on July 15, 2014, stating a ‘panchayat’ was held. The e