Rectification of Instruments

Section 26 of the Specific Relief Act talks about rectification. Let us understand in more clear terms.
Rectification’ means correction and here ‘instrument’ means any legal document/contract.

So rectification of instruments means correction or changes in the contract. Under Section 26 of the
Specific Relief Act,1963, it is provided that when any contract may be rectified:

1. When there is a fraud or when there is a mutual mistake by both the parties. Now the person who
is entitled for the rectification of instrument are as follows: –

 Either party or his representative can file.

 The plaintiff in any suit can file if any rights arising under the rectification of instruments.

 Defendants can file in any suit as mentioned in sub-clause (B).

2. If in any case in which a contract or instrument is to be rectified under clause (1), the court finds
that contract is done by fraud or by mutual mistake of the parties, then the court has discretionary
power to rectify it.

3. If parties claim for rectification and the court thinks fit, then it will be specifically enforced.

4. No relief shall be granted until the parties specifically claim for rectification of the instrument.

Modes of Rectification of Instrument

Chapter three of the Specific Relief Act, 1963 deals with the rectification of instruments and Chapter
five of the Specific Relief Act, 1963 deals with the cancellation of instruments. Under section 26 of
the specific relief act, the modes of rectification of instrument are: –

Fraud

Whenever someone intentionally misrepresents the other regarding the contract, there is a way of
rectification of the instrument. Fraud means, when:

 A person suggests a fact which is not true.

 A person hides a fact, which he already knows about.

 A person made a promise without any intention of performing it.

Mutual mistake of parties

The term ’mutual mistake’ means the common mistake on the part of both the parties to contract. A
party who wants rectification of the instrument has to establish that there was a prior complete
agreement that was reduced to writing in accordance with the common intention of the parties and
by reason of mistake the writing did not express the real intention of the parties. If the mistake is not
from both the parties but from the scribe then it will not be rectified. A mutual mistake can be
established by any parties to a contract. On the basis of unilateral mistake not amounting to fraud,
there cannot be rectification.

Real Intention of the Party

The rectification of the instrument always involves the real prior agreement between the parties and
the absence of such facts in the agreement of the document as a result of fraud or mutual mistake.
The court has also the responsibility to see whether the parties do have a real intention or they are
framing the instrument and further the court has to ascertain for the same.

Requirements For Rectification of Instrument Under Section 26

There are certain requirements under Section 26 of the specific relief act.

 Existence of fraud or mutual mistake: – for the rectification of instrument, one has the proof
regarding the fraud and the mutual mistake. The intention must be truthful which is owing to
fraud or common mistake.

‘Fraud’ means an act done by any party through a contract to deceive another party to enter into a
contract.

‘Common mistake’ means when the mistake in any contract or in any deed done by both the
parties.

‘Real intention of the parties’ means it’s not only the party to prove fraud or mutual mistake but
also the court has to find out and further the court has to also ascertain the real intention of the
parties.

 The burden of proof lies on the person who wants rectification of the instrument.

Parties To Rectification of Instrument

Either party to a contract or their legal representative in interest can take action for the rectification
of the instrument under Section 26. Any other person does not have any right to maintain a suit for
its rectification. Proper parties can apply for the same. ‘Proper parties’ are those parties when a case
is brought for rectification of sale deed at that time the other parties who are affected by it are called
proper parties.

Effect of rectification of Instrument

A deed can only be rectified by the court so as to confirm the true intention of the executing party at
the moment of execution. After the execution the written agreement does not continue to exist with
a parol variation, it is to be read as if it had been originally drawn in its rectified form. When the
court rectifies a deed of transfer it becomes a conveyance and so no further conveyance is required.
The order should be declared that the deed ought to be rectified, point out the way in which it
should be rectified and direct an endorsement of the order on the conveyance.

Cancellation of instrument

Section 31 of the specific relief act, 1963 provides the cancellation of the instrument. Cancellation
may be ordered when:-

1. The person against whom a written instrument is void or voidable and has reasonable cause
that such an instrument is causing serious injury to him/her. In that case, the court has the
discretion, so it is declared to be true and orders it to be delivered and cancelled.

2. If the instrument has been registered under the registration act, the court shall send a copy
of the order to that officer in whose office that instrument has been registered and that
officer shall not of the copy of the instrument contained in his books for the cancellation.

There are several cases regarding the rectification of instruments.

In this case, it was held that the appellant filed a civil suit with the allegation that the plaintiff
purchased property (land) from the defendant by registered sale deed for valuable consideration but
due to inadvertent mistake and misunderstanding in the sale deed they are taking undue advantage
for the same. In the judgment it was held that the appeal is liable to be allowed and the judgment
passed by the lower appellate court is liable to set aside and the judgment and decree passed by the
trial court are liable to be restored.

 Shamim Ahmed Siddique vs Society Ltd. And Ors. ( 2008)

In this case it was held that rectification of an instrument under 31, it must be proved that it was
through the mutual mistake of the parties that the instrument in question did not truly express the
intention of the parties. And it must be proved that there has been a mistake in framing the
instrument, and it must ascertain the real intention of the parties in executing the instrument. If the
court is satisfied by these are the two conditions, the court has the discretionary power to rectify it.

Rescission of a Contract
Rescission can be legally defined as “the abrogation of a contract, effective from its inception,
thereby restoring the parties to the positions they would have occupied if no contract had ever been
formed. The word “rescission” is derived from the Latin term rescindere, which means to cut or tear
open. It is an unwinding of a transaction or undoing of a contract.

Rescission can either be mutual or unilateral. Unilateral rescission is generally exercised when it is
found that the underlying basis of the contract is basically wrong or on faulty grounds. In other
words, some intentional act or omission of a contracting party destroys the very reason that the
other party made the contract in the first place. The contract can be rescinded, at the instance or
option of the innocent party. It is like a self-help remedy. On the other hand, in mutual rescission,
parties rescind the contract on certain already agreed terms of the contract.

Basically, there are two kinds of rescissions based on nature and origin. The first is “common-law
rescission” where the contract has a voidable clause at one party’s option or there is a legal ground
to avoid the contract such as:

 Misrepresentation

 Mistake

 Duress and undue influence etc.

The second one is “equitable rescission” which requires a party to seek relief from a contract where
it would be inequitable to bind a party by a contract where the foundation is wrong and tainted. It is
a discretionary remedy based on equitable grounds and the court merely decides the validity of the
rescission which is exercised by the innocent party, rather than initiate it themselves. Hence, we can
say that it’s an enforcement of a previously exercised legal right.

Rescission of Contract under Indian Contract Law

In India, there is no mandatory form or mode to exercise the right of rescission. It is enough
under Section 66 of Indian Contract Act, 1872 that communication of rescission is done as in the case
of a proposal or an offer. However, in certain cases even notifying the concerned authorities, would
be sufficient. It is to be noted that the notice of avoidance should be given within a reasonable time
after the innocent party knows the relevant facts. Or else, the contract would remain valid, later the
innocent can sue such party for breach of contract.

In India, rescission is awarded at the discretion of the court under Sections 27-30 of the Specific
Relief Act, 1963. It is essential that the process of rescission is the act of the party rescinding, and not
of the court. However, the court may annul a rescission previously influenced by self-help.

Grounds to rescind a contract

Sections 27 and 28 of the Specific Relief Act, 1963 provides the grounds for filing a suit for rescission
and we are limiting our discussion only to Section 27. As per Section 27 of the Act any person
interested in a contract may sue to have it rescinded. Such rescission may be granted by the courts in
the following cases:

(I) where the contract is voidable or terminable

(II) where the contract is unlawful for causes not apparent on its face and the non-affected party is
more to blame than the innocent/affected party.

A voidable contract is an agreement which is enforceable at the option of one or more of the parties
thereto, but not at the option of another or others. A contract is declared voidable under various
provisions of the Indian Contract Act, 1872 (“ICA”).

According to Section 19 of the ICA, a contract is voidable at the option of the party whose consent
was obtained to such agreement by coercion, fraud or misrepresentation. Similar is the situation
when the consent was obtained by undue influence under Section 19-A of the ICA.

Similarly, in case of anticipatory breach of contract by one party, the other party to the contract may
put an end to the contract, unless there is anything to the contrary as under Section 39 of the ICA.

In the same way, in case the time of performance of a contract is of the essence of the contract, non-
performance of it by one party in such prescribed time entitles the other to cancel the same as
per Section 55 of ICA.

Effects of Rescinding a Contract

In legal parlance, a rescinded contract is void ab initio. After the rescission the parties will no longer
be bound by the contract and thus none of the parties have the right to ask any of the parties to
perform the contract i.e., the original contract need not be performed

The aftermath of rescission is that:

 the parties are put back in their previous position prior to entering the contract i.e., the
rights and duties of the parties are retrospectively extinguished

 It’s considered as non-existing

The transaction established by the contract is brought to an end with retrospective effect. The
purpose of rescission is to restore the status quo ante, i.e., the state of affairs existing before the
contract was entered into.

Restitution: As a principle of equity, the party rescinding the contract is required to restore or return
the benefit received in the nature of money, property and other interests under the contract to the
other party. Any party receiving anything under the contract is liable to restore it or make
compensation for it to the other from whom it has been received.

When a contract transferring the title to property is rescinded, it usually has the effect of revesting
any property so transferred in the transferor.

Section 30 of Specific Relief Act also provides a similar provision to require parties rescinding to do
equity by restoring the respective benefits they received out of the contract, and also the
compensation which justice may require. If you get the contract rescinded, you cannot be allowed to
be unjust to retain any benefit received under the contract.

These sections are in conformity with English equitable rules, i.e., if a purchaser seeks rescission, a
court of equity can take account of any profit he has made and make allowances for any
deterioration in the property.

Damages: Damages may be awarded to restore the position of the innocent party to the pre-
contractual position when he had incurred any expenses under the contract.

The victim of a fraud is entitled to sue for damages, fraud being a tort. But this cannot be extended
to or equated with innocent misrepresentation.

Bars to Rescission

There are certain grounds on which the court may refuse to rescind, namely:

 The party seeking the remedy have affirmed/ratified the contract

Court may refuse to grant the contract where the affected/innocent party has expressly or impliedly
ratified the contract.

 Restitutio in integrum is not possible

When a party wants to avoid the contract, he must do so, so long as the parties to the contract can
be placed in the same position. If parties can’t be substantially restored to their original position due
to change in circumstances the rescission can be refused.

In Wallis v. Pratt The buyer could not make out the defect in a seed variety because those he
purchased and those supplied by the seller were indistinguishable. The defect could be known only
after the seed had been sown and the crop was ready. Here, the Buyer could claim compensation
only. There was no chance of avoiding the contract and rejecting the goods.

 Intervening third party rights are present

The right of rescission may not be available if before the contract has been rescinded, some third
party has acquired a right in good faith without notice and for value in the subject matter of the
contract.

 Severance not possible

Rescission is not allowed where the plaintiff is seeking rescission of only a part of the contract and
that part is not severable from the rest of the contract.

This remedy is also not available when the requesting party has committed some mistake in relation
to the contract and not exercised the same within reasonable time after discovering the
misrepresentation.
Recent Case Law Observations

Shiv Construction v. PWD {AIR 2015 MP 42}

A contract for construction of a bridge was a time-bound work. The contractor failed to complete the
work within the stipulated time. The State rescinded the contract. The contractor did not challenge
it. The contract was allotted to another party. The State was held entitled to recover the loss of
money thereby caused.

HD Hanumanthappa v. Mohd Sab {(2011) 1 Kant LJ 49}

The court observed that the party affected by the factors that make the contract voidable, has to
avoid it because otherwise it remains valid and it is not like that of a void agreement that does not
require to be avoided.