SC Lays Down Framework for Interpreting Legal Agreements and Deeds
In Annaya Kocha Shetty (Dead) through LRs v. Laxmibai Narayan Satose (Dead) through LRs & Others, the Supreme Court held that when the language of a deed is clear and unambiguous, courts must apply the literal rule of construction, giving words their plain and natural meaning. Judicial interpretation is unwarranted unless the language is doubtful or fails to reflect the parties’ intent. The Court, relying on Provash Chandra Dalui v. Biswanath Banerjee [(1989) Supp 1 SCC 487], reiterated that reference to surrounding circumstances is permissible only if ambiguity exists.
Justices Pankaj Mithal and SVN Bhatti laid down the principles of contract interpretation:
1. Literal Rule – Interpret words in their ordinary sense.
2. Golden Rule – Depart from literal interpretation only if it leads to absurdity.
3. Purposive Interpretation – Used cautiously, focusing on the contract’s object and context.
The case concerned a dispute over a conducting agreement for a hotel business. The plaintiff claimed tenancy or licence rights under the Bombay Rent Act, 1947. While the trial court found it to be a leave and license agreement and ruled in the plaintiff's favor, the appellate and High Courts disagreed, holding it was merely a business arrangement.
Upholding the appellate findings, Justice Bhatti observed that the agreement did not transfer possession to the plaintiff but merely allowed him to run the hotel for a royalty—indicative of a business contract, not a lease or license. Applying Sections 91 and 92 of the Indian Evidence Act, 1872, the Court emphasized that oral evidence cannot contradict a written agreement unless exceptions like fraud or mistake apply.
The Court further noted that the agreement lacked any clause regarding transfer of possession—a key indicator that the plaintiff was not granted tenancy rights. The document clearly entrusted only the running of the hotel business, not the property itself. Thus, the appeal was dismissed, affirming that the agreement was for conducting business and not a leave and license arrangement.