26. When instrument may be rectified.- (1) When, through fraud or a mutual mistake of the parties, a contract or other instrument in writing (not being the articles of association of a company to which the Companies Act applies) does not express their real intention, then:
(a) Either party or his representative in interest may institute a suit to have the instrument rectified; or
(b) The plaintiff may, in any suit in which any right arising under the instrument is in issue, claim in his pleading that the instrument be rectified or
(c) A defendant in any such suit as is referred to in clause (b), may, in addition to any other defence open to him, ask for rectification of the instrument.
(2) If, in any suit in which a contract or other instrument is sought to be rectified under sub-section (1), the court finds that the instrument, through fraud or mistake, does not express the real intention of the parties, the court may, in its discretion, direct rectification of the instrument so as to express that intention, so far as this can be done without prejudice to rights acquired by third persons in good faith and for value.
(3) A contract in writing may first be rectified, and then if the party claiming rectification has so prayed in his pleading and the court thinks fit, may be specifically enforced.
Relief of rectification can be claimed regarding the following:
(a) Contract- Significantly, contract has same meaning as defined under the Indian Contract Act, 1872. Significantly, a contract under the Indian Contract Act can be oral or written. However, relief of rectification can be granted regarding the written contract.
(b) Written instrument; However, instrument as such is not defined under this Act but is defined under Section 2(14) of the Indian Stamp Act 1899. An instrument means any document by which rights or duties are created or transferred etc., and includes will or decree or deed etc.
In Commissioner of Income Tax v Kamla Town Trust (1996 SC), a company had created a trust to construct a settlement for use by their workmen which included amenities like hospitals, schools, and temples. It sought to rectify the trust deed to bring it in conformity with its real intention of creating a public charitable trust alleging mistake attributed to a misunderstanding of the draftsman. The Civil Court ordered rectification holding that a trust deed was covered by the expression “any other instrument in writing” and that the Civil Court was competent to grant the relief of rectification. The income tax authorities refused to accept the same, in a proceeding from such order, it was held that the Civil Court was competent to grant the relief of rectification, and that the income tax authorities not being party to the rectification proceedings, could not challenge the competency of the Court to conduct such proceedings.
Section 26 not applicable to Article of Association:
It is important to note that Section 26 does not include Articles of Association. It was also held by the Apex of India in CIT v Kamala Town Trust (1996 SCC). The Court stated that Articles of Association of a company may be altered by the company in the manner provided in the Companies Act, and hence have been specifically excluded.
In Sheo Murat v Ram Murat (2004 AII), it was held by the Allahabad Court that suit for rectification of sale-deed by plaintiff was maintainable. In this case agreement to sell property was executed by uncle in favour of his two nephews i.e., plaintiff and defendant no. 1. Subsequently sale deed was in name of defendant no. 1 only. As the said sale deed as reflected by evidence was found to be a result of fraud and misrepresentation acted upon executants of sale-deed, uncle by defendant no. 1, hence, rectification was ordered on the ground of fraud and misrepresentation.
Mutual mistake
Another ground for rectification in mutual mistake. The term mutual mistake used in the Section refers to the common mistake which arises where both parties are ad idem; it is mistake “possessed or shared alike by both or all the persons or things in question”. Significantly, mistake could be of fact or law.
Mutual mistake of fact: Mistake may arise out of an error of the plaintiff’s advisors or a mistake made by the writer while reducing the contract into writing or by sheer negligence. In case of Natarajan Asari v Pichamuthu Asari (1972 Mad), it was held that suit lies for rectification in a sale deed on ground of mutual mistake in description of property; or mistake in stating the price of the property. In case of mutual mistake, either party can prove the mistake and seek the relief.
Unilateral mistake of fact is not a ground of rectification: It is important to mention that mutual mistake and not unilateral mistake is a ground of rectification. Therefore, where there is a unilateral mistake relief of rectification cannot be granted. In Haji Abdul Rahman Allarakia v The Bombay and Persia Steam Navigation Company (1960 AIR), the plaintiff chartered as steamer from the defendants to sail from Jedda on “10th August, 1892 (15 days after the Haj) in order to convey pilgrims returning to Bombay. The plaintiff believed that “10th August, 1892” corresponded with the fifteenth day after Haj. But the defendants had no belief on the subject, and contracted only with respect to the English date. The 19th July, 1892 and not 10th August, 1892 corresponded with the fifteenth day after the Haj. On finding out the mistake, the plaintiff sued the defendants for rectification of the charter parts. It was held that the agreement was one for the 10th August, 1892 that the mistake was no mutual, but on the plaintiff’s part alone, and therefore, there could be no rectification. The Court further expressed its opinion that even if both parties were under the mistake, the court would not rectify but only cancel the instrument as the agreement was one for the 10th August, 1892 and that date was a matter materially inducing the agreement.
Mutual Mistake of Law
It is important to note that rectification can be claimed when there is mistake of law. It seems that Section 26 clearly allows that Court to rectify an instrument to bring the legal consequences into conformity with those intended by both the parties. Of course, there must be some limitation on the full amplitude of such a doctrine; the remedy is discretionary, and the Courts will not permit it to be abused.
Does not express real intention of the parties
Two grounds for rectification are fraud and mutual mistake. However, another condition is that due to fraud or mistake the parties failed to express their intention. Therefore, where the parties expressed their real intention then relief of rectification cannot be granted.
By a marriage settlement, A the father of B, the intended wife, covenants with C, the intended husband, to pay to C, his executors, administrators and assigns, during A’s life, an annuity of Rs. 5,000/.C dies insolvent and the official assignee claims the annuity from A. The Court, on finding it clearly proved that the parties always intended that this annuity should be paid as a provision for B and her children, may rectify the settlement, and decree that the assignee has no right to any part of the annuity.
When Suit is to be filed
In Gerela Kalita v Dharmeswar Saikia (1961 Assam), the plaintiff may, therefore, institute the suit for rectification after the fraud is discovered or mutual mistake came to light, at whatever time the discovery takes place.
Either party or his representative in interest [Section 26(1) (a)]
First person who can claim this relief is either party to the contract. Therefore, a person who is not a party to the contract cannot claim this relief. In case of Joseph John Peter Sandy v Veronica Thomas Rajkumar (20134 SCC), the Apex Court held that a person who is neither a party to an instrument nor representative in interest cannot seek rectification.
In Trendtext Trading Corpn v Credit Suisse (1982 AC), the Court held that the relief can also be sought by (or against) the representative in interest of the party to the written contract or instrument.
A plaintiff may, in any suit in which any right arising under the instrument is in issue [Section 26(1) (b)
Where in a suit pending before the court any right arising under the instrument is in issue then the plaintiff may request the court to rectify the instrument. Example- Where a suit for possession of IMP is filed by the plaintiff, he can plead his right to rectification of the lease deed.
A defendant in any such suit as is referred to in clause (b) {Section 26(1) (c)]
Where in a suit pending before the court any right arising under the instrument is in issue then the defendant may in addition to any decree available to him request the court to rectify the instrument. In Sateri Shiddappa Gadkari v Rudrappa Shetteppa Bahenbatti, the Bombay High Court also held entitled to counter-claim for rectification.
Discretion of the Court
It is important to note that relief of rectification is discretion of the Court. In the case of Commissioner of Income Tax v Kamla Town Trust (1996 SC), the jurisdiction to grant this relief lies with the Civil Court, and the order of rectification granted by the Civil Court binds the income tax authorities. In an action to enforce an award, a claim for rectification of the agreement containing arbitration clause was allowed.
Burden of Proof
In Marappuredigari Sayamma v R. Venkata Reddy (1931 Mad), the Madras High Court held that the burden of proof lies on the party seeking rectification to prove the circumstances entitling him to rectification, and the burden is heavy. Further, in Rajarm v Manik (1952 Nag), it was held the person who seeks to rectify a deed upon the ground of mistake must establish in the clearest and most satisfactory manner that the alleged intention to which he desires it to be made comfortable, continued concurrently in the minds of all parties down to the time of its extension, and also must show exactly and precisely the form to which the deed ought to brought.
Oral evidence of proof
Generally, a party to a written agreement is not allowed to give oral evidence to contradict the written agreement, where it does not express his intention (Indian Evidence Act, 1872, Section 91 and 94 for summary of the provisions of that Act, see Indian Evidence Act, 1872, Section 9, under “Extrinsic Evidence”). However, where the instrument does not reflect the real intention because of fraud or mutual mistake, he may seek to get the instrument rectified under this Section, and give oral evidence for the purpose (Indian Evidence Act, 1872, Section 92, Proviso 1 and 2).
No relief when third party has acquired some rights in good faith-
Expression “Without Prejudice to Rights Acquired by Third Parties in Good Faith” clearly shows that no relief can be granted when rectification affects the right of third person acting in good faith and for value. Significantly, main objective of this expression is to protect the third person acting in good faith and for value. However, following conditions must be fulfilled:
(i) Good faith
(ii) For value
(iii) Without notice
A intending to sell to B his house and one of three godowns adjacent to it, executes a conveyance prepared by B, in which, through B’s fraud, all three godowns are included out of the two godowns which were fraudulently included. B gives one to C without value and lets the other to D for a rent; neither C nor D having a knowledge of the fraud. The conveyance may, as against B and C, be rectified so as to exclude from it the godown given to C but it cannot be rectified so as to affect D’s lease (Illustration (I) to Section 31 of the repealed Act of 1877). In this example, the transfer to C is not for value, and the conveyance may, therefore, be rectified as regards the godown transferred to him, though he had no knowledge of B’s fraud. The transfer to D, however, is for value and since he was having no knowledge of the fraud, the conveyance cannot be rectified so as to affect his lease.
Rectification followed by specific and other relief [Section 26(3)]
In case of written contract, which is rectified, the Court may specifically enforce the contract or grant any other relief after the rectification if the party has so claimed.
In Natha v Hamid Ali Beg (1926 Oudh), the Court held that the purpose of this provision is to prevent multiplicity of suits.
A, contract in writing to pay his attorney, B, a fixed sum in lieu of costs. The contract contains mistakes as to the same and rights of the client, which, if construed strictly, would exclude B from all rights under it. B is entitled, to have it rectified and to an order for payment of the sum as if at the time of its execution it has expressed the intention of the parties (1854 Beav).
No relief of Rectification when not claimed
It is important to note that though it is discretion of the Court to grant relief of rectification but no relief for the rectification of an instrument shall be granted to any party unless it has been specifically claimed. Therefore, it is duty of the plaintiff to claim this relief and where such relief is not claimed, no relief shall be granted by the Court.
Amendment of the plaint
In case of Puran Ram v Bhagu Ram (2008 SC), the Supreme Court held that where an application for amendment of plaint was made for correcting description of land, and then made another amendment application beyond the period of limitation seeking to amend the description in the agreement, amendment was allowed as the relief of specific performance claimed in the suit remain unchanged.