What do you understand by cancellation of instruments? When may cancellation be ordered? What is principle of compensation on cancellation?

The Nature and Purpose of the Remedy

The relief of cancellation of instruments is, at its heart, a species of protective justice. It is not a remedy that waits for harm to be done. As the Madras High Court explained with great lucidity in the Full Bench decision of Muppudathi Pillai v Krishnaswami Pillai (AIR 1960 Mad 1), the jurisdiction under this section is preventive, not punitive. A party against whom a document might someday be used is not compelled to sit still and wait for the blow to fall. The law permits him to anticipate the danger, approach the court, and have the instrument cancelled before it can be turned against him — at a time when evidence may still be fresh and available. This is precisely the basis of a quia timet action — an action brought to prevent a wrong that is apprehended rather than one that has already occurred.

The rationale behind this remedy was colourfully described by Whitely Stokes in his Anglo-Indian Codes: documents in India were frequently obtained which, though not enforceable in a court of justice, could expose the true owner to vexatious litigation or cast a cloud over his title. Section 31 arms the aggrieved party with the means to remove that cloud.

What is an Instrument

Before asking when cancellation may be ordered, one must first appreciate what qualifies as an "instrument" within the meaning of section 31. The term has not been defined in the Act itself, but reference to the Stamp Act, 1899 illuminates it — an instrument includes every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded. A gift deed, a power of attorney, an endorsement on a negotiable instrument, a sale deed, a mortgage — all qualify.

A judgment or an award of a tribunal, however, is expressly excluded from the scope of section 31, as was settled in Pratabmull Rameswar v KC Sethia (AIR 1960 Cal 702). Judgments and decrees are public records and adjudicated matters; they cannot be "delivered up and cancelled" in the manner contemplated by this section. Interestingly, a compromise decree has been the subject of divergent views — the Rajasthan High Court in Mohan Bai v Jai Kishan (AIR 1988 Raj 22) has taken the view that since a compromise is a contract between the parties, it may be set aside on grounds of fraud or misrepresentation under the Explanation to Order XXIII, Rule 3, CPC. The Delhi High Court, however, took the contrary view in Sushila Badola v Tushar Patni (decided 08.05.2019), holding that once filed in court and accepted, a compromise deed merges with the judicial order and loses its character as a "written instrument" within the meaning of section 31.

Conditions for Granting Cancellation — Section 31(1)

The three essential ingredients for a decree of cancellation under section 31(1) are well-settled and must all co-exist:

• First, the instrument must be void or voidable as against the plaintiff — meaning the plaintiff must be a person against whom the document can operate or purport to bind.

• Second, the plaintiff must have a reasonable apprehension that the instrument, if left outstanding, may cause him serious injury.

• Third, the court must, in the exercise of its discretion, consider it just and proper to adjudge the instrument void or voidable and order its cancellation.

The element of "reasonable apprehension of serious injury" requires some elaboration. As the Bombay High Court held in Jeka Dula v Bai Jivi (AIR 1938 Bom 37), "mere speculation as to unknown and vague complications arising in the future is no ground for cancellation." The apprehension must be grounded in law and fact — not imaginary or fanciful. Importantly, where the illegality or nullity of an instrument is apparent on its face, there may be no need for cancellation at all, for a document whose nullity is self-evident cannot realistically cast a cloud over anyone's title. Story's Equity Jurisprudence states with characteristic precision that in such cases, "there can be no danger that the lapse of time may deprive the party of his full means of defence" — and accordingly, courts of equity do not interfere to cancel what already stands condemned by its own terms.

Who May Sue

Section 31 deliberately uses the phrase "any person against whom a written instrument is void or voidable." This is wider than the parties to the instrument. It encompasses legal heirs, representatives in interest, co-sharers in joint family property, Hindu reversioners, and, in appropriate cases, even creditors who are defrauded by the debtor's deed — as confirmed in Ishwar Timappa Hegde v Devar Venkappa Shanbog (1902 ILR 27 Bom 146). However, the crucial qualification is that the instrument must be void or voidable against the person seeking cancellation. A person who neither executed the document nor is bound by the person who executed it cannot seek cancellation under section 31, for the document is neither void nor voidable against such a person and, if left outstanding, is incapable of injuring him — this was firmly held in Kamalakshi Amma v Sangeetha (AIR 2012 Ker 180).

Categories of Instruments That May Be Cancelled

The scope of void or voidable instruments within the section is broad.

Contracts by incompetent persons — where a person executes a deed while inebriated, mentally unsound, or of unsound mind — may be cancelled, as was decreed in Chacko v Mahadevan (AIR 2007 SC 2967), where a sale deed executed by an owner suffering from alcoholic psychosis for a nominal value was set aside. Forged documents, though judicially undetermined, may also be cancelled by anticipation, for a forged document can create great mischief while its forgery remains unproved before a court. Unlawful agreements whose illegality does not appear on the face may attract cancellation, subject to the court's discretion, particularly where one party is more to blame than the other. Instruments originally valid but subsequently void — such as those rendered impossible of performance by subsequent events — may equally fall within the section's protection, as illustrated in Inder Pershad Singh v Campbell (1881 ILR 6-7 Cal 474).

Void Instrument and the Question of Necessity

An interesting issue under section 31 is whether a person must file a suit for cancellation when a document is void ab initio. The answer is that the remedy is permissive, not obligatory. As the Supreme Court held in Prem Singh v Birbal (2006 5 SCC 353), when a document is void ab initio it is non est — a nullity in the eye of law — and a decree for setting it aside is not strictly necessary. A person in possession may simply ignore it; a person out of possession may sue for possession without separately seeking cancellation. However, once a plaintiff does choose to file a suit for cancellation, the suit — even if the document is void — will be governed by Article 59 of the Limitation Act, 1963, which prescribes a period of three years from the date when the facts entitling the plaintiff to such relief first became known to him. For voidable documents, by contrast, the suit must be filed within that period — the document being valid until set aside, it cannot be ignored and must be formally challenged.

Partial Cancellation — Section 32

Not every case demands cancellation of the whole instrument. Section 32 provides that where an instrument is evidence of different rights or different obligations, the court may, in a proper case, cancel it in part and allow it to stand for the residue. The critical condition is that the rights and obligations sought to be cancelled must be distinct and separable from those that are to survive — the section is inapplicable where the good and bad parts are intertwined and inseparable, in which case the instrument must either stand as a whole or fall as a whole.

The illustration is instructive: in Ram Chandar v Ganga Saran (1917 ILR 39 All 103), where A executed a mortgage deed and subsequently forged a receipt of payment on the same document, B was held entitled to have only the forged endorsement cancelled, leaving the mortgage deed standing in other respects. Similarly, in Chajulal v Gokul (AIR 1952 MB 168), a mortgage deed contained recitals falsely claiming rights over the adjoining owner's property. The adjoining owner was held entitled to have those false recitals cancelled, leaving the rest of the mortgage intact, since those recitals were separable from the mortgage obligation itself.

The Principle of Compensation on Cancellation — Section 33

Section 33 is the conscience clause of Chapter V. It embodies the foundational equitable principle that he who seeks equity must do equity, and its operation extends both to plaintiffs who succeed in obtaining cancellation and to defendants who successfully resist suits on the ground that the instrument is void or voidable.

Sub-section (1) provides that on adjudging the cancellation of an instrument, the court may require the party to whom the relief is granted to restore, so far as may be, any benefit received from the other party, and to make any compensation that justice requires. The decree passed in such cases is a conditional decree — the relief of cancellation is granted on the condition that the successful party restores the benefit or pays the compensation adjudged. The section applies irrespective of whether the successful party is the plaintiff or the defendant, and irrespective of whether the contract was with a competent person.

Sub-section (2) addresses the position where the defendant successfully resists a suit. Clause (a) deals with a voidable instrument — where the defendant pleads voidability and succeeds, the court may require him to restore any benefit received under the instrument or make compensation for it. Clause (b) addresses a special situation: where the instrument is void because the defendant was incompetent to contract — a minor or a person of unsound mind — the court may require him to restore any benefit received, to the extent that he or his estate has been benefited, but there is no liability to make compensation beyond the benefit actually received. This is a conscious distinction: the law recognizes that an incompetent party's estate should not be unjustly enriched at the expense of the other party, but equally that it would be harsh to impose full compensatory liability on someone who lacked capacity when the contract was made.

The important limitation on this principle is that where the other party knew he was dealing with a minor or an incompetent person, he cannot invoke section 33 to claim equity. As the principle was settled in Indar v Narindra (32 PR 1904) and reiterated subsequently, "a person dealing with a minor with knowledge of his minority cannot claim equity under this section." Equity is not available to those who knowingly exploit incapacity.

The courts have consistently exercised this power to award compensation with discretion. In Sadashiv Bhaskar Joshi v Dhakubai (1880 ILR 5 Bom 450), where a sale deed was obtained by fraud for a grossly inadequate price, the court held that the fraudster was entitled on cancellation only to be placed in the position in which he would have stood had he obtained a mortgage instead of a sale — he was not entitled to any allowance for improvements made on the property obtained by fraud.

Cancellation and the Civil Court's Exclusive Jurisdiction

A final but important point concerns jurisdiction. The power to cancel a registered instrument vests exclusively in the civil court and cannot be exercised by revenue courts, co-operative courts, registering authorities, or arbitral tribunals. This was emphatically settled by the Supreme Court in Gorakh Nath Dube v Hari Narain Singh (AIR 1973 SC 2451), and reiterated in Satya Pal Anand v State of Madhya Pradesh (2015 15 SCC 263), where it was held that the unilateral cancellation of a sale deed by the registering authority, without a court decree and without notice to the purchaser, was wholly impermissible. A registered sale deed vests title in the purchaser; it can only be divested by a decree of a competent civil court. Any "deed of cancellation" executed unilaterally by the vendor and presented for registration has no effect in law — it does not create, extinguish or limit any right, title or interest in the property.