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Sowcar T. Thimmappa, v. S.L Prasad, .
Judgment Summary — Venkatachaliah, J.
Factual and Procedural Background
The respondent (landlord) came into possession of a vacant site in Mysore under a lease granted by the Nanjaraj Bahadur Chatram Fund Committee and granted a sub-lease of that site to the appellant (tenant) for the purpose of running a toddy shop. The appellant began vending toddy on the site from 1-1-1968. The parties had executed an agreement of lease dated 31-12-1967 which was not registered. The appellant did not pay rent to the respondent after taking possession.
Pursuant to an eviction order in H.R.C. 300 of 1970 (Munsiff, Mysore), respondent took possession of the site on 17-12-1972. On 4-1-1971 respondent instituted O.S. No. 2 of 1971 in the Principal Civil Judge, Mysore alleging non-payment of rent for the period 1-1-1968 to 31-12-1970 and claiming Rs. 18,000 as arrears of rent together with Rs. 4,320 as interest prior to suit. The trial Court (judgment and decree dated 10-4-1973) found for the respondent, awarded the arrears and also awarded pre-suit interest (Rs. 2,880 at 12% per annum). The appellant appealed against that judgment and decree.
At trial both parties gave evidence (appellant as D.W.1 and respondent as P.W.1). The trial Court held the written agreement of 31-12-1967 inadmissible because it was compulsorily registrable but unregistered, yet on admitted landlord-tenant relationship and other evidence recorded a finding that rent was Rs. 500 per month and entered a decree for the arrears. The trial Court also allowed interest prior to suit. In the present appeal the appellant challenged (a) the finding on the rate of rent and (b) the award of pre-suit interest.
Legal Issues Presented
- Whether the defendant (appellant) took the scheduled property on lease at a monthly rent of Rs. 500 as alleged by the plaintiff (respondent) or whether the rent should be Rs. 150 per month as contended by the defendant.
- Whether the plaintiff is entitled to recover interest prior to suit (the trial Court had awarded interest prior to suit).
- To what reliefs are the parties entitled (incidental issue flowing from the above determinations).
Arguments of the Parties
Appellant's Arguments
- The agreed rent of Rs. 500 per month was not for the vacant site alone but was in consideration of the respondent's promise to erect certain structures on the land for the appellant's use; because the respondent failed to carry out that obligation the appellant contended he was liable to pay only Rs. 150 per month (the rate the respondent allegedly paid to the Fund Committee).
- Before this Court appellant's counsel (Sri P. Shivanna) urged that the trial Court's finding that rent was Rs. 500 p.m. was erroneous and unsupportable on the evidence, and that the award of interest prior to suit was not permissible.
Respondent's Arguments
- The respondent maintained that the agreed rate of rent was Rs. 500 per month and sued for arrears and interest. Documentary and oral evidence was placed before the trial Court; Exhibits P-1 to P-6 were marked for the respondent.
- In support of the award of interest prior to suit respondent's counsel (Sri B.S. Keshava Iyengar) urged that interest could be granted in equity and relied upon statutory provisions and judicial decisions: he pointed to S.114 of the Transfer of Property Act and S.21(2)(iii) of the Karnataka Rent Control Act as statutory instances where interest/solatium on arrears is contemplated, and sought to draw analogies from Supreme Court authority (R.S. Lal Praduman Kumar v. Virendra Goyal) and other cases to support equitable award of interest in appropriate circumstances.
- It was conceded by respondent's counsel before this Court that the Interest Act, 1839 was not extended to the then State of Mysore, so that the trial Court's reliance on that statute could not be maintained.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bengal-Nagpur Rly. Co. Ltd. v. Ruttanji Ramji, AIR 1938 PC 67 | Cited for the principle that interest as damages cannot be awarded; authority that interest cannot be given as damages for detention of a debt. | The Court relied on this authority to support the proposition that an award of interest merely for detention of a debt (without equitable foundation) is not permissible and used it to justify setting aside the pre-suit interest award. |
| Mahabir Prasad Rungta v. Durga Dutta, AIR 1961 SC 990 | Cited as an instance of the settled position that interest as damages cannot be awarded. | Referenced to reinforce the rule that interest cannot be awarded as damages; used in reasoning against granting pre-suit interest in absence of other grounds. |
| R.S. Lal Praduman Kumar v. Virendra Goyal, (1969) 1 SCC 714 : AIR 1969 SC 1349 | Contains observations (paragraph 7) relating to the jurisdiction of Courts in granting relief against forfeiture for non-payment of rent; relied upon by respondent. | The Court noted that the observations relate to relief against forfeiture and held that the analogy of permissibility of interest under S.114 T.P. Act or solatium under S.21(2)(iii) KRCA was not apposite to support an equitable award of interest on arrears in the present case. |
| Union of India v. Watkins Mayor & Co., AIR 1966 SC 275 | Referred with approval to the passage in Bengal-Nagpur Rly. Co.'s case about invoking rules of equity and the requirement to establish circumstances attracting equitable jurisdiction. | The Court cited this authority to emphasize that equitable jurisdiction to award interest requires a state of circumstances attracting such jurisdiction; absence of such pleaded circumstances here defeated an equitable award of pre-suit interest. |
| New Brunswick Electric Power Co. v. Hart, (1929) AC 631 : AIR 1929 PC 185 | Quoted (via Lord Tomlin) for the proposition that to invoke equity it is necessary to establish circumstances which attract equitable jurisdiction (example: non-performance of contract where equity can give specific performance). | The Court relied on this statement to stress that a party must plead and establish equitable circumstances before a court can exercise equitable jurisdiction to award interest; such pleading was absent here. |
| Messrs. Trojan & Company v. Rm. N.N. Nagappa Chettiar, AIR 1953 SC 235 (referring to Johnson v. Rex) | Illustrates that money obtained and retained by fraud can be recovered with interest in equity or law; supports that equity awards interest in specific situations (e.g., fraud). | The Court acknowledged this as an example of equitable jurisdiction awarding interest, but found no pleaded facts in the present case akin to those equitable foundations (such as fraud) to justify interest here. |
| Johnson v. Rex, (1904) AC 817 (Privy Council) | Authority that money obtained by fraud and retained by fraud can be recovered with interest in court of equity or law. | Cited as an example of where equity awards interest; the Court observed that no similar foundation was established in the pleadings of the present suit. |
| National Insurance Co. Ltd. v. Life Insurance Corporation of India, AIR 1963 SC 1171 | Shows that interest in equity may be payable on purchase price where equitable considerations make the purchaser liable to account (doctrine of exchanging characters in equity). | The Court treated this as another illustration of equitable instances where interest is payable, but held that the present pleadings did not lay the necessary foundation for equitable relief of this nature. |
| London, Chatham and Dover Rly. Co. v. South Eastern Rly. Co., (1893 AC 429) | Held that interest could not be given by way of damages for detention of a debt. | Used to support the conclusion that, absent equitable or contractual/statutory basis, pre-suit interest could not be awarded merely for detention of the rent debt. |
Court's Reasoning and Analysis
The Court addressed the two principal points raised on appeal in sequence.
On the rent-rate issue (point (a)), the Court accepted the trial Court's reliance on two material circumstances: (1) the appellant commenced business on 1-1-1968 and did not issue any notice to the respondent about the alleged failure to erect structures which was said to reduce the rent; and (2) the appellant, when examined in H.R.C. 300 of 1970, had admitted the rent was Rs. 500 per month for the vacant site alone. Portions of the appellant's earlier deposition were marked as Exhibits P-2 and P-3 and were relied upon. The Court reiterated the legal proposition that admissions by a party, while not absolutely conclusive, may be presumed to be true unless satisfactorily explained or withdrawn. The appellant failed to explain or satisfactorily withdraw his prior admissions and even went so far as to totally deny previous statements without an adequate explanation. On this basis the appellate Court found no error in the trial Court's finding that rent was Rs. 500 per month and held point (a) against the appellant.
On the interest issue (point (b)), the Court examined whether interest prior to suit could be sustained. It observed the trial Court purported to award pre-suit interest under the Interest Act, 1839, but that respondent's counsel conceded this statute was not extended to the then State of Mysore and therefore could not provide a basis for the award. The Court then reviewed the general legal bases on which pre-suit interest might be claimed: contract, usage of trade, statutory provision, the Interest Act, or equitable principles.
The respondent sought to rely on equitable jurisdiction to support an award of interest and pointed to S.114 of the Transfer of Property Act and S.21(2)(iii) of the Karnataka Rent Control Act as statutory provisions contemplating interest or solatium in related contexts, as well as to judicial observations in R.S. Lal. The Court held that those statutory provisions relate to relief against forfeiture and solatium in that context and that the analogy to a general equitable award of interest on arrears of rent was not apposite.
The Court further emphasized the settled principle drawn from authorities (including Bengal-Nagpur and decisions approving it) that invoking equitable jurisdiction to award interest requires pleadings and proof of circumstances that attract equitable relief (for example, fraud or other special equities). The Court noted examples where equity awards interest (fraud, purchaser not paying price, etc.), but found that the pleadings in the present case contained no foundation to invoke equity: no equitable grounds were pleaded that would justify interest as an equitable remedy. The Court also observed that some arrears had been deposited in Court in H.R.C. 300 of 1970, but that fact, without appropriate pleadings, did not establish equitable grounds.
Concluding its analysis, the Court held that awarding interest merely on the ground of detention of a debt (i.e., arrears of rent) without more would be contrary to authority which disallows interest as damages for detention of a debt. For these reasons the Court found the trial Court's award of pre-suit interest unjustified.
Holding and Implications
Core Ruling: Appeal partly allowed.
Direct consequences and orders:
- The appellate Court affirmed the trial Court's decree in so far as it granted recovery of the arrears of rent of Rs. 18,000 and preserved the entitlement to pendente lite and future interest at the rate of 6% per annum on those arrears.
- The appellate Court set aside the trial Court's award of interest prior to the suit (pre-suit interest) — the specific award of Rs. 2,880 at 12% per annum was cancelled.
- Costs: the respondent is entitled to costs proportionate to his success in this appeal; the appellant will bear and pay his own costs.
The Court did not claim to lay down any new principle of law; its decision applied existing statutory provisions and settled equitable principles and precedents to the facts before it. No broader precedent or novel rule was announced beyond the application of established authorities to these facts.
Venkatachaliah, J.:— This appeal by the defendant is directed against the judgment and decree dated 10-4-1973 in O.S No. 2 of 1971 on the file of the Court of the Principal Civil Judge, Mysore decreeing respondent-plaintiff's suit for recovery of arrears of rent with interest and costs.
2. The facts necessary for the disposal of this appeal, briefly stated, are:
Respondent having come into possession of a vacant site in Mysore under a lease granted to him by the Nanjaraj Bahadur Chatram Fund Committee, Mysore, granted a sub-lease of the same in favour of the appellant, who took the site for the purpose of running a toddy shop therein. It is not disputed that the appellant commenced his business of vending toddy on the said site from 1-1-1968. It is also common ground that there was an agreement of lease dated 31-12-1967 executed between the parties, which, however, was not registered. After being put into possession of the said site, appellant did not make any payments towards rent to the respondent.
3. Pursuant to an order of eviction made in H.R.C 300 of 1970 on the file of the Court of the Munsiff, Mysore, respondent took possession of the site on 17-12-1972. As to these facts, there is no dispute. On 4-1-1971, respondent instituted the suit from which this appeal arises alleging that the appellant had failed to pay rents for the period between 1-1-1968 and 31-12-1970 and sought recovery of the sum of Rs. 18,000/- in this behalf together with the sum of Rs. 4,320/- claimed as interest prior to suit on the unpaid rents.
4. The appellant while admitting the relationship of landlord and tenant, however, contended that the rent of Rs. 500/- per month was agreed to be paid not for the mere vacant site alone, but in consideration of the promise on the part of the respondent to erect certain structures on the land for the use of the appellant, and that as the respondent had failed to carry out this obligation on his part, appellant was liable to pay only Rs. 150/- per month, which was the rate at which respondent, in turn, had to pay to the said Nanjaraj Bahadur Chatram Fund Committee.
5. On these pleadings, the Court below settled the following issues:
1.(a) Whether the defendant took the schedule property on lease from the plaintiff on a monthly rent of Rs. 500/- as alleged by the plaintiff?
1.(b) Whether the defendant is liable to pay at Rs. 150/- per month for the reasons stated in para 12 of his written statement?
2. Whether the plaintiff is entitled to recover 18% interest, as claimed?
3. To what reliefs the parties are entitled?
6. In the Court below appellant and respondent tendered evidence as D.W 1 and P.W 1 respectively and Exhibits P-1 to P-6 were marked on the side of the respondent. The agreement dated 31-12-1967 which was also sought to be relied upon by the respondent was held inadmissible by the Court below, as, according to it, the said document was compulsorily registrable, but was unregistered. However, on an appreciation of the evidence on record and on the basis of the admitted relationship of landlord and tenant between the parties, the Court below came to record finding on Issue-1 in favour of the respondent and entered a decree in his favour. The Court below also held on Issue No. 2 that respondent was entitled to interest prior to suit under the provisions of the Interest Act and awarded interest in the sum of Rs. 2,880/- at the rate of 12% per annum. The appellant questions the correctness of the judgment and decree in this appeal.
7. We have heard Shri P. Shivanna, learned counsel for the appellant and Sri B.S Keshava Iyengar, learned counsel for the respondent. We have been taken through the evidence on record and the judgment of the Court below.
8. In support of the appeal Sri Shivanna urged the following contentions:
(a) That the finding of the Court below that the rate of rent was Rs. 500/- p.m is erroneous and is not supportable on the basis of the evidence on record; end
(b) that award of interest prior to suit was not permissible.
9. These, then are the points that arise for determination in this appeal.
10. Point (a): In reaching the conclusion that the rate of rent was Rs. 500/- p.m and not Rs. 150/- per month as contended by the appellant, the Court below relied upon two circumstances. The first was that, admittedly, appellant started his business in the demised land with effect from 1-1-1968, and had not caused any notice to be issued to the respondent in the matter of alleged failure on the part of the latter to put up constructions on the site. Secondly, the Court below took note of the fact that the appellant who had been examined as a witness in the said H.R.C 300 of 1970 on the file of the Additional First Munsiff, Mysore, had admitted that the rent was Rs. 500/- per month for the vacant site alone. The portions of his earlier depositions to which appellant's attention was drawn in the course of his cross-examination were marked Exhibits P-2 and P-3 respectively. It is no doubt true that admissions are not conclusive; but what a party himself admits to be the true state of affairs may reasonably be presumed to be so unless the admission is satisfactorily explained or successfully withdrawn. In the present case, appellant did not come forward with any explanation. Indeed, he went to the extent of totally denying the previous statements. The Court below relying on these admissions held that the rate of rent was Rs. 500 per month. Sri Shivanna is unable to show how this conclusion is erroneous and how on the basis of the material on record, a conclusion different from the one reached by the Court below is warranted. We, accordingly, hold point (a) against appellant.
11. Point (b): This concerns the award of interest prior to suit. The Court below has awarded a sum of Rs. 2,880/- as interest prior to the suit on the view that grant of such interest, in the circumstances of the case, is warranted by and permissible under the Interest Act, 1839. It was conceded before us by Sri Keshava Iyengar, learned counsel for the respondent, that the provisions of Interest Act were not extended to the then State of Mysore and that no recourse could be had to the provisions of that statute in the present case.
12. Interest for the period prior to the commencement of the suit is claimable either under an agreement, or usage of trade or under a statutory provision or under the Interest Act. Interest is also awarded in some cases by Courts of equity. It is equally well settled that interest as damages cannot be awarded (See: Bengal-Nagpur Rly. Co. Ltd. v. Ruttanji Ramji, AIR 1938 PC 67 and Mahabir Prasad Rungta v. Durga Dutta, AIR 1961 SC 990). In the present case, admittedly, there is no contract to pay interest; nor is the grant of interest sought to be supported by any usage or under any statutory provision.
13. Sri Keshava Iyengar, learned counsel for the respondent, however, urged that interest on arrears of rent can be granted in equity and the award of interest made by the Court below is supportable on equitable considerations. Sri Keshava Iyengar pointed out that interest on arrears of rent is contemplated by S. 114 of the Transfer of Property Act. He also pointed out that a solatium on arrears of rent is envisaged in S. 21(2)(iii) of the Karnataka Rent Control Act, 1961. Sri Keshava Iyengar sought to rely on certain observations in the decision of the Supreme Court in R.S Lal Praduman Kumar v. Virendra Goyal, ((1969) 1 SCC 714 : AIR 1969 SC 1349) in this behalf. Paragraph 7 of the said decision relied on by Sri Keshava Iyengar relates to the jurisdiction of Courts in the matter of relief against forfeiture for non-payment of rent. Provisions of S. 114 of the Transfer of Property Act and S. 21(2)(iii) of the Karnataka Rent Control Act are instances of statutory stipulation for the payment of interest and solatium respectively in the context of grant of relief against forfeiture and default. The analogy of the permissibility of interest u/s 114 of the Transfer of Property Act or of the solatium under S. 21(2)(iii) of the Karnataka Rent Control Act does not appear to us to be apposite in the context of the proposition urged by Sri Keshava Iyengar that in appropriate cases interest can be awarded on arrears of rent on equitable grounds.
14. Sri Keshava Iyengar, however, referred to certain observations of the Supreme Court in Union Of India v. Watkins Mayor & Co., (AIR 1966 SC 275), where the Supreme Court, referred with approval, to the passage in Bengal-Nagpur Rly. Company's case (AIR 1938 PC 67), which reads (at p. 70):
“As observed by Lord Tomlin in Maine and New Brunswick Electrical Power Co. v. Hart, (1929) AC 631, at p. 640 : (AIR 1929 PC 185 at p. 188). In order to invoke a rule of equity, it is necessary in the first instance to establish the existence of a state of circumstances which attracts the equitable jurisdiction, as, for example, the non-performance of a contract of which equity can give specific performance.”
15. Relying upon the above observation, Sri Keshava Iyengar contended that in appropriate cases, even in the absence of provision in the contract stipulating payment of interest, award of interest on contractual payments in exercise of equitable jurisdiction is permissible.
16. Interest is allowed by Courts of equity, for instance, in the case of money obtained and retained by fraud. In Messrs. Trojan & Company v. Rm. N.N Nagappa Chettiar., (AIR 1953 SC 235), the Supreme Court referred with approval to the following statement of the law by the Privy Council in Johnson v. Rex, (1904) AC 817 : (at p. 241 of AIR SC):
“In order to guard against any possible misapprehension of their Lordships' views, they desire to say that, in their opinion, there is no doubt whatever that money obtained by fraud and retained by fraud can be recovered with interest, whether the proceedings be taken in a Court of equity or in a Court of law, or in a Court which has a jurisdiction both equitable and legal……………”
17. In National Insurance Co. Ltd. Calcutta v. Life Insurance Corporation of India, (AIR 1963 SC 1171) interest in equity was held payable on purchase price which belongs to the seller, the reason of the rule, being that the parties ‘exchange their characters in a Court of equity, the seller becomes the owner of the money and the purchaser becomes the owner of the estate’ and that “on entering possession the purchaser becomes entitled to rents but if he has not paid the price, interest in equity is deemed payable by him on the purchase price which belongs to the seller.” In the present case no foundation is laid in the pleadings to establish the existence of a state of circumstances which attracts the equitable jurisdiction. If such circumstances had been urged in the pleadings, appellant would have had an opportunity to plead equities on his side. Indeed it was stated in the course of the arguments that a part of the arrears of rent had come to be deposited in Court in the course of the said H.R.C 300 of 1970. In the state of pleadings in the present case, the grant of interest would amount to award of interest on ground alone — without more — of a mere detention of a debt. In London, Chatham and Dover Rly. Co. v. South Eastern Rly. Co., (1893 AC 429), the House of Lords held that interest could not be given by way of damages for detention of a debt. A similar view has been taken by the Privy Council in Bengal-Nagpur Rly. Company's case cited above. The present case does not, on the pleadings, attract the equitable jurisdiction of the Court. We therefore, think that the, award of interest prior to the suit was not justified. We, accordingly, hold and answer point (b) in favour of the appellant.
18. In the result, this appeal is allowed in part and while the judgment end decree of the Court below in so far as the arrears of rent of Rs. 18,000/- with pendente lite and future interest at 6% per annum is concerned are affirmed, the award of interest prior to the suit, is set aside. Respondent is entitled to costs proportionate to his success in this appeal, while appellant will bear and pay his own costs. Ordered accordingly.
19. Appeal partly allowed.
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