The Court said that a valid gift is made where there is an intention to gift and delivery of the subject matter.
Crucially, it is the donor’s intention at the time the money is transferred that determines its character.
It also noted that once a gift has been made, the donor cannot subsequently change its character merely by asserting that it was actually a loan.
A gift can only be revoked if there is some legal ground for setting aside the transfer.
Therefore, the central question before the High Court was whether Agarwal intended the disputed payments to be gifts or interest-free loans when he made them, rather than how he characterised them after the relationship ended.
The Court said that a valid gift is made where there is an intention to gift and delivery of the subject matter. Crucially, it is the donor’s intention at the time the money is transferred that determines its character.
It also noted that once a gift has been made, the donor cannot subsequently change its character merely by asserting that it was actually a loan.
“Once a donor has made a gift, he or she cannot resile from his or her position and convert the gift into a loan.”
The reason, the Court explained, is that once the donor parts fully with the property, there is no title left with the donor which can subsequently be converted into a loan. A gift can only be revoked if there is some legal ground for setting aside the transfer.
Therefore, the central question before the High Court was whether Agarwal intended the disputed payments to be gifts or interest-free loans when he made them, rather than how he characterised them after the relationship ended.
