Supreme Court: The bench of L. Nageswara Rao* and Vineet Saran, JJ has shed light on how Courts should proceed while interpreting contracts.
Referring to various authorities, here is what the Court concluded:
- The duty of the Court is not to delve deep into the intricacies of human mind to explore the undisclosed intention, but only to take the meaning of words used i.e. to say expressed intentions.[1]
- In seeking to construe a clause in a Contract, there is no scope for adopting either a liberal or a narrow approach, whatever that may mean. The exercise which has to be undertaken is to determine what the words used mean. It can happen that in doing so one is driven to the conclusion that clause is ambiguous, and that it has two possible meanings. In those circumstances, the Court has to prefer one above the other in accordance with the settled principles. If one meaning is more in accord with what the Court considers to the underlined purpose and intent of the contract, or part of it, than the other, then the court will choose former or rather than the later[2].
- The intention of the parties must be understood from the language they have used, considered in the light of the surrounding circumstances and object of the contract.[3]
- Every contract is to be considered with reference to its object and the whole of its terms and accordingly the whole context must be considered in endeavoring to collect the intention of the parties, even though the immediate object of inquiry is the meaning of an isolated clause[4].
[Bangalore Electricity Supply Company Limited (BESCOM) v. E.S. Solar Power Pvt. Ltd, 2021 SCC OnLine SC 358, decided on 03.05.2021]
Judgment by: Justice L. Nageswara Rao
[1] Kamala Devi v. Seth Takhatmal, 1964 (2) SCR 152
[2] Ashville Investment v. Elmer Contractors, 1988 (2) All ER 577
[3] Bank of India and Anr. v. K. MohanDas, (2009) 5 SCC 313
[4] Bihar State Electricity Board v. Green Rubber Industries, (1990) 1 SCC 731