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Thomas Varghese, v. Joseph Thomas, .
Structured Summary of the Opinion (Raman Nayar, J.)
Factual and Procedural Background
The court was asked to answer whether an agriculturist debtor who has committed six consecutive defaults of instalments specified in sub-sections (2) and (3) of section 4 of Act 31 of 1968 thereby forfeits the benefits of sub-section (1) of section 5 of the Act. The question arose in an appeal from a lower appellate court decision concerning a decree for money due on a promissory note. The lower appellate court had found that the promissory note was executed for the price of goods purchased for the purpose of trade. The present court notes that, on the threshold, if that finding is correct the debt would fall within the exclusion in clause (vi) of section 2(c) of the Act and thus would not be a debt within the meaning of the Act. The appeal challenges the lower court's denial of the Act's benefits to the judgment-debtor; the present court ultimately dismisses the appeal with costs.
Legal Issues Presented
- Whether an agriculturist debtor who defaults six consecutive instalments under sub-sections (2) and (3) of section 4 forfeits the benefits of sub-section (1) of section 5 of Act 31 of 1968.
- Whether a decree for money due on a promissory note executed for the price of goods purchased for the purpose of trade falls within the exclusion in clause (vi) of section 2(c) and therefore lies outside the operation of the Act.
Arguments of the Parties
Argument As To Restriction of sub-section (1) of Section 5
- A contention was put forward (challenging a Full Bench decision) that the words “for the purpose of payment under this Act” in sub-section (1) of section 5 limit the benefit to payments that are expressly “under the Act.” The argument reasoned that a debtor who defaults under section 4(2) & (3) and then makes payments not “under the Act” should not be entitled to the relief in section 5(1).
Appellant's Argument Regarding the Decree and Promissory Note
- The appellant (judgment-debtor) argued that the extant liability is the decree debt alone (and not a debt within the Act) — contending that the decree is for money due under the promissory note and therefore not for the price of goods purchased for trade. This was advanced to claim entitlement to the Act's benefits despite the underlying commercial nature of the transaction.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Harihara Iyer v. Joseph, 1964 Ker LT 789 : AIR 1966 Ker 228 (Full Bench) | Full Bench holding that a debtor who defaults six consecutive instalments does not forfeit the benefit of section 5(1) (i.e., the Full Bench answered the central question in the negative). | The court expressed respectful agreement with this Full Bench decision and held that it does not require reconsideration; the opinion follows and reaffirms that decision. |
| Mannanda v. Mathai, 1963 Ker LT 390 | Prior decision approved by the Full Bench in Harihara Iyer; related to interpretation of the Act's relief provisions. | Noted by the court as one of the decisions approved by the Full Bench whose conclusion the court follows. |
| Varkey v. Mathew, 1963 Ker LT 1044 | Prior decision approved by the Full Bench in Harihara Iyer. | Recorded as part of the line of authority endorsed by the Full Bench which this court respects. |
| Antony v. Krishnan Nair, 1963 Ker LT 1047 (Division Bench) | Contains an observation (by Joseph, J.) highlighting an absurd consequence of a restrictive interpretation of the phrase “under this Act.” | The court relied on the observation in that decision to illustrate the absurdities of the restrictive contention and to rebut that contention. |
| Case reported in 16 Trav LT 741 | Authority treating a promissory note (and a decree based on it) executed for the price of goods purchased for trade as representing the price of goods and thus excluded from the Act. | The court cited this decision to support the proposition that a promissory note executed for the price of goods (and a decree founded on it) falls within the exclusion in clause (vi) of section 2(c). |
| Mariakutty v. Lonan, 1960 Ker LT 525 (Division Bench) | Held that promissory notes executed for the price of goods purchased for trade represent the price of such goods and are excluded from the Act. | The court cited and relied on this Division Bench authority to uphold the exclusion of the decree from the Act's coverage. |
| Commissioner of Income-tax v. Rajagopala, AIR 1932 Mad 436 (SB) | Decided on issues cited in Mariakutty; the court here stated that Rajagopala has no bearing on the present matter. | The court expressly said that Rajagopala has no bearing on the issue of whether a promissory note represents the price of goods for trade. |
| Muhammadkutty Haji v. N. Nambudiri, 1962 Ker LT 3 | Referenced in the context of Mariakutty and Rajagopala; court indicated Rajagopala's inapplicability as noticed in Mariakutty also applies here. | Mentioned as part of the authorities discussed in Mariakutty; the court referred to that observation in support of excluding Rajagopala from bearing on the present issue. |
Court's Reasoning and Analysis
The court's analysis proceeds in two related strands: statutory interpretation of the Act's relief provisions and application of the statute to the facts of the present case.
1. Interpretation of “under this Act” and relationship of Sections 4 and 5:
- The court examined the contention that the phrase “for the purpose of payment under this Act” in section 5(1) restricts relief to payments made expressly “under the Act.”
- It rejected that restrictive reading for textual and purposive reasons. Textually, the court observed that the proviso to sub-section (5) of section 4 makes the whole debt “forthwith payable” upon certain defaults, which would make any subsequent payment a payment “specified by and therefore as much a payment under the Act” if the restrictive reading were adopted; this would produce strained results.
- The court noted absurd consequences of the restrictive interpretation highlighted by prior authority (Joseph, J.), such as penalising a debtor who paid in lump sum rather than by instalments and producing anomalies in post-Act determinations under sections 7, 8 or 10 where recalculation must follow section 5.
- It pointed to section 6(1), which prescribes application of payments towards interest as re-calculated under section 5 before principal, as indicating that recalculation under section 5 is not confined to payments expressly made “under the Act.”
- On purposive grounds, the court emphasized the Act's object — relief of indebted agriculturists — and found no reason to confine section 5(1)'s benefits only to those making payments strictly “under the Act.”
- The court concluded that the phrase “under this Act” was intended to qualify “debt” (i.e., a debt that falls under the Act) rather than the narrower notion of the form of payment; in substance the Act reduces the debt for practical purposes and provides a form of discharge (often by scaled payments), and section 5 operates independently to scale down interest and principal where applicable.
2. Independence of Section 5 from Section 4:
- The court described sections 4 and 5 as providing distinct reliefs: section 5 limits interest and scales down the debt; section 4 provides for payment of that (possibly scaled) debt in instalments.
- Forfeiture under the proviso to section 4(5) of benefits of sub-sections (2) and (3) (i.e., instalment benefits) upon six consecutive defaults does not, in the court's reasoning, logically or textually amount to forfeiture of the independent benefit of section 5(1).
- Because section 5 can be applied to recalculations of interest accrued before the Act and to reductions of principal where interest had been added to principal, its operation does not depend on section 4.
3. Application to the facts:
- Although the court thoroughly answered the abstract question (and reaffirmed the Full Bench), it observed the question did not strictly arise in the present case because the debt was a decree debt founded on a promissory note.
- The lower appellate court had found that the promissory note was executed for the price of goods purchased for the purpose of trade. The present court held that if the promissory note was so executed, the promissory note (and the decree based thereon) “represent the price of goods purchased for the purpose of trade” and therefore fall within the exclusion in clause (vi) of section 2(c) of the Act.
- The court therefore concluded that the debt in question was not a debt within the meaning of the Act; the Act's provisions did not apply to this debt.
- The court also observed that the lower appellate court was wrong in thinking section 9 had any bearing on the matter, but nonetheless was right in denying the benefits of the Act to the judgment-debtor given the exclusion.
Holding and Implications
Holding: The court reaffirmed the Full Bench decision (Harihara Iyer v. Joseph) that an agriculturist debtor who has committed six consecutive defaults does not thereby forfeit the independent benefit of sub-section (1) of section 5; section 5 operates independently of section 4. However, on the facts of this case the court held that the debt before it (a decree for money due on a promissory note executed for the price of goods purchased for trade) was excluded from the Act under clause (vi) of section 2(c).
Disposition: APPEAL DISMISSED — the appeal was dismissed with costs.
Implications:
- Direct effect on the parties: The appellant judgment-debtor is denied the benefits of the Act in this case because the debt was held to be excluded from the Act (it represents the price of goods purchased for trade). The lower appellate court's denial of the Act's benefits is affirmed (subject to the observation that that court erred in invoking section 9).
- Precedential effect: The court expressly affirmed and followed the Full Bench decision in Harihara Iyer v. Joseph and did not reconsider it; the opinion thus maintains existing precedent rather than create a new contrary rule.
- No broader change of law was announced beyond the reaffirmation of existing authorities and the textual/purposive reading of section 5(1) as independent of section 4.
Result recorded: Appeal dismissed (with costs).
End of summary — based exclusively on the provided opinion text.
Raman Nayar, J.:— The question, for answering which this case has come up before us, is whether an agriculturist debtor who has committed six consecutive defaults of the instalments specified in sub-sections (2) and (3) of section 4 of Act 31 of 1968 forfeits the benefits of sub-section (1) of section 5 of the Act, or the sub-section as we shall hereafter call it. Or rather, since this has already been answered in the negative by a Full Bench of this court in Harihara Iyer v. Joseph, 1964 Ker LT 789 : (AIR 1966 Ker 228) (approving the decisions in Mannanda v. Mathai, 1963 Ker LT 390, Varkey v. Mathew 1963 Ker LT 1044 and Antony v. Krishnan Nair, 1963 Ker LT 1047 the last of these of a Division Bench) whether that decision requires reconsideration Doubt has been cast on the correctness of this Full Bench decision on the score that it does not pay due heed to the words, “for the purpose of payment under this Act” appearing in the sub-section. The contention is that it is only for the purpose of a payment specified by some provision or other of the Act that relief under the sub-section is available. A debtor who defaults the payments specified in sub-sees. (2) & (3) of S. 4 has failed to comply with the provisions of the Act Any payment he might make cannot properly be described as a payment under the Act, and therefore he is not entitled to the benefit of the sub-section.
2. So runs the argument. But it does not impress us at any rate it does not so impress us as to persuade us to unsettle what must now be regarded as well settled even if the underlying assumption that the benefit of the sub-section is available only for making a payment specified by the Act were correct, it would not be difficult to meet the argument. For the proviso to sub-section (5) of Section 4 of the Act says that the whole debt due from the hexadic defaulter (if we may call him so) “shall be forthwith payable so that any payment towards the debt would be a payment specified by and therefore as much a payment under the Act as a payment under sub-sections (2) and (3) of the section. but, it seems to us that the assumption is wrong and we are afraid it stems from a mistaken reading of the sub-section. Were it well founded it would lead to the absurd result pointed out by Joseph, J. in 1963 Ker LT 1047 that a debtor who chooses to pay his debt in lump without availing himself of the benefit of the instalments provided by Section 4 would not get the benefit of the sub-section unless his payment is to be regarded as an advance payment of the instalments. He would have to pay the debt in the 17 equal half yearly instalments specified in sub-sections (2) and (3) of section 4 to get the benefit: And, what of a post-Act determination under section 7 or section 8 or section 10, which we suppose must necessarily calculate interest (and principal) in accordance with the sub-section. Does the determination stand vacated if repayment is not made “under the Act”? If that be so, and the creditor becomes entitled to the entire contract debt, how is he to obtain a decree for this? And does not sub-section (i) of section 6, which says that payments already made shall be applied towards Interest as re calculated under section 5 before being applied towards principal, clearly indicate that re calculation under section 5 is by no means confined to cases where payments specified by the Act are made? Again, what of a debt in which, by reason of renewals or otherwise, interest has been added to the principal from time to time and which, because of the large repayments made, stands discharged if interest and principal scaled down in accordance with the sub-section and if the appropriations enjoined by section 6 are made? There is here no payment under the Act. Is it then to be denied the benefit of the sub-section as a reward for the usurious lender and a penalty for the honest debtor Will the latter have to pay the entire contract debt outstanding in lump while, if he had repaid nothing, he would have had to pay much less (being entitled to a scaling down of both interest and principal under section 6(1) on the basis of the original principal) and that in instalments. Surely no law could so penalize honesty and reward dishonesty although most statutes which relieve persons from contracts regarded as unconscionable confine the relief to those who have defaulted, denying it to those who have kept their word and fulfilled the contract. And how is a debtor coming within the body of sub-section (5) of Section 4 to be given the benefit of having to pay only the original principal in the case of a renewed debt as undoubtedly he must? He would be in a worse case than the debtor we are here considering, namely, a debtor coming within the proviso, since any payment made by him can I no sense be regarded as a “payment under the Act”. True, the benefits of section 4 are expressly preserved for him but that, at best, is only the benefit of paying in instalments and of paying interest at the rate specified in sub-section (1) of section 5 on the principal debt outstanding at the time of each payment Now is he to be given the benefit of that part of the sub-section which says that only the outstanding interest as calculated there under together with the outstanding (original) principal shall be payable since any payment by him would not be a payment under the Act?
3. Having regard to the purpose of the Act, namely, the relief of indebted agriculturists, we can think of no conceivable reason why the benefits of sub-section (1) of section 5 should be confined to those debtors who make payments specified by the Act and should be denied to those who make payments not so specified. And we are inclined to the view that the words, “under this Act” occurring in the sub-section really qualify the word, “debt” rather than the word, ‘payment” so that all that is meant is that, for the purpose of paying a debt falling under the Act (as distinguished from liabilities of the kind referred to in sub-section (2) of the section which are not debts within the meaning of the Act) the amount of the debt shall be determined by calculating interest as provided by the sub-section Indeed the words, “for the purpose of payment” serve no special purpose and seem to have found place in the sub-section only because the form in which the Act gives relief to the debtor is not so much by reducing the debt itself as by providing for its discharge on payment of a reduced sum and by allowing payment of that sum in instalments. But that is a mere matter of form in substance the debt itself is for all practical purposes, reduced.
4. As we understand the scheme of the Act, it provides two distinct and separate reliefs in the matter of the repayment of a debt by an agriculturist. Section 5 provides a ceiling on the interest and thus scales down the debt where the interest which would otherwise be payable is above ceiling. It also scales down the principal to what we have called the original principal in cases where interest has been added to the principal. Section 4, which should logically come after and not before Section 5, provides that, even the debt as so scaled down can be paid in instalments. If default short of six consecutive instalments is committed, then under sub-section (5) of Section 4 the defaulted instalments can be recovered from the debtor, but the debtor is still entitled to the benefits of the section but, if the default extends to six consecutive instalments then the proviso to sub-section (5) lays down that the debtor forfeits the benefits of sub-sections (2) and (3) of the section but it says nothing whatsoever about his forfeiting the benefit of sub-section (1) of section 5.
5. If as we think, sub-section (1) of section 5 is an independent provision and not a mere adjunct of sub-section (2) of section 4, forfeiture of the benefits of the latter would not entail forfeiture of the benefits of the former merely because for the purposes of the latter, Interest has to be calculated in accordance with the former. That does not preclude the former being applied for other purposes. Nor do we think that the proviso to sub-section (5) of Section 4 which says that the whole debt together with such interest as may have accrued thereon shall be payable rules out the application of section 5 merely because it does not say that the interest shall be calculated under section 5.
6. As we have said the application of section 5 does not depend on section 4. If it did there would be no provision in the Act for scaling down interest accrued due before the Act — sub-section (2) of Section 4 refers only to the rate of interest payable after the Act — or restricting the principal payable to the original principal.
7. We are in respectful agreement with the view expressed in 1964 Ker LT 789 : (AIR 1966 Ker 228 (FB)) and do not think that decision requires reconsideration.
8. We have answered the question not without reluctance — only because it was for that purpose that the case was placed before us. For, we must say that the question does not really arise in this case. The debt here is a decree debt and the question is whether the appellant judgment debtor's entitled to the benefits of the act the decree was for money due on a promissory note and the lower appellate court has found that the promissory note was executed for the price of goods purchased for purpose of trade. That was the view taken by the first court as well although it did not enter a definite finding on the point. If that be so it seems to us clear that the debt (whether it be the liability under the decree or under the promissory note that we are considering) would fall within the exclusion in clause (vi) of Section 2(c) of the Act. It would not be a debt within the meaning of the Act and no question of applying the provisions of the Act would arise. The argument that found favour with the first court in allowing the judgment-debtor the benefits of the Act was that the liability on account of the price of goods purchased for purpose of trade was discharged by the promissory note and that the decree is for the money due under the promissory note not for the price of the goods.
9. Before us the argument has been carried a step further and it is said that the liability now extant is only that under the decree, not under the promissory note, nor for the price of the goods. This argument fails to take note of the very wide wording of the excluding clause, “any debt which represents the price of goods purchased for purpose of trade” If the promissory note was executed for the price of goods purchased for the purpose of trade and the decree was passed on the foot of that promissory note, we think that would be quite right to say that the promissory note, and in turn, the decree, represent the price of goods purchased for the purpose, of trade. That was the view taken in the case [reported in 16 Trav LT 741 and by a Division Bench of this court in Mariakutty v. Lonan, 1960 Ker LT 525, and with great respect we think that these cases were correctly decided. As pointed out in the latter decision, the decision in Commissioner, Income-tax v. Rajagopala, AIR 1932 Mad 436 (SB) has no bearing on the matter, and that, as noticed in that very decision applies also to Muhammadkutty Haji v. N. Nambudiri, 1962 Ker LT 3 — see paragraph 5 of the report.
10. It is not urged that the finding of the lower appellate court that the promissory note was executed for the price of goods purchased for the purpose of trade is wrong in law the evidence of the decree-holder as also the agreement, Ext. D-1 which the judgment-debtor entered into with him when purchasing his stock in trade, shows that the purchase was for the purpose of carrying on the trade. It is not therefore open to the appellant judgment-debtor to challenge that finding in second appeal.
11. In this view of the matter, namely, that the debt in question was not a debt within the meaning of the Act, the lower appellate court was quite right in denying the judgment debtor the benefits of the Act although we must observe that the court below were wrong in thinking that section 9 of the Act had any bearing on the case. In the result, we dismiss this appeal with costs.
JK/LGC/D.V.C
12. Appeal dismissed.
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