Iqbal Ahmad, A.C.J and Verma, J.:— This is an appeal by a creditor arising out of proceedings under the U.P Encumbered Estates Act (XXV of 1934). Iltifat-un-nissa Begam, who is the respondent in the present appeal, applied under section 4 of the Encumbered Estates Act and the case was, in due course, forwarded by the Collector to the civil court under section 6 of the Act. One of the creditors mentioned in the application was the firm Sahimal Manohardas which is represented by the appellants in the present appeal. Iltifat-un-nissa, the applicant, had borrowed a sum of Rs. 7,500 from the said firm on the basis of a mortgage deed dated the 21st of May, 1913. The interest stipulated in the deed was at the rate of 11 annas percent, per mensem, compoundable with yearly rests. The property mortgaged was zamindari property, the Government revenue of which was Rs. 1,516 and it is admitted on all hands that the security was more than sufficient for the debt advanced.
The creditor had put his mortgage into suit and the suit was decided on the basis of a compromise. The decree that was passed on the basis of the compromise is dated the 2nd of December, 1919. The decree was, in all, for a sum of Rs. 13,371-12-0 and by virtue of the compromise, which was embodied in the decree, the decretal amount was payable by yearly instalments of Rs. 1,200. The decretal amount was to carry interest at the rate of Rs. 8-4-0 per annum with yearly rests.
Iltifat-un-nissa was always punctual in the payment of the instalments provided for by the decree, and it is a matter of admission that by the year 1935 she had paid to the decree-holder a sum of Rs. 18,000.
The decree-holder appellant filed a claim before the Special Judge under section 9 of the Encumbered Estates Act and claimed a sum of Rs. 17,467-4-0 as still due to him. The case put forward by him was that in the calculation of the amount due to him the interest should be calculated on the decretal amount at the rate of 8¼ percent, with yearly rests. This position was controverted by Iltifat-un-nissa, the applicant, and she claimed the benefit of the provisions, of the Usurious Loans Act (No. X of 1918) as amended by the Usurious Loans (United Provinces Amendment) Act No. XXII of 1934.
The learned Special Judge held that the interest provided for by the compromise decree was excessive and accordingly reduced the interest from 8¼per cent, compoundable with yearly rests to 7 percent, simple interest. The decretal amount with interest at the rate of 7 percent, per annum came to Rs. 16,384-9-0 on the date of the application filed by Iltifat-un-nissa under section 4 of the Encumbered Estates Act. As she had already paid a sum of Rs. 18,000 the learned Judge held that the appellants had received a surplus amount of Rs. 1,615-7-0 and, as such, were not entitled to a decree with respect to any amount. In view of these conclusions the learned Judge rejected the claim of the appellants.
The reasons assigned by the learned Judge for granting relief to Iltifat-un-nissa in the matter of interest commend themselves to us. The security for the mortgage debt was, as already stated, more than sufficient and the appellants therefore ran no risk in advancing the loan. Iltifat-un-nissa abided by the terms of the compromise decree and punctually paid the instalments provided for by that decree. She had, on the date of the application under section 4, paid to the appellants a sum of Rs. 18,000, which was far in excess of double the amount originally advanced by the appellants. In this state of the facts it is impossible to hold that the learned Judge was not justified in extending to Iltifat-un-nissa the benefits of the provisions of the Usurious Loans Act as regards reduction in the rate of interest.
It is, however, contended by Mr. Peare Lal Banerji that the provisions of the Usurious Loans Act were not applicable to the claim of the appellants and he accordingly urges that the learned Judge of the court below was wrong in interfering with the rate of interest provided for by the compromise decree. In support of this contention he has invited our attention to two provisions of the Usurious Loans Act. He has firstly relied on section 2(3)(i)(a) which provides that suits to which the Act applies are suits “for the recovery of a loan made after the commencement of this Act”. He has further placed reliance on the second proviso to sub-section (1) of section 3 of the Act which lays down that, in the exercise of the power given to the court to re-open the transaction between the parties, the court is not competent to “do anything which affects any decree of a court”. He argues that as the loan, which was the basis of the compromise decree, was incurred by Iltifat-un-nissa prior to the passing of the Usurious Loans Act and as that loan had merged into a decree the learned Judge of the court below was not justified in applying the provisions of the Act to the loan or the decree in question.
In our judgment there is no force in the argument of the learned counsel. By section 2(3)(ii) the Act has been made applicable to “any proceeding for the determination of a claim under the U.P Encumbered Estates Act, 1934”. It follows that the provisions of the Act as regards the re-opening of transactions between the parties thereto and as regards the reduction of interest have been made applicable to all proceedings under the Encumbered Estates Act irrespective of the date on which the loan that forms the subject of those proceedings was incurred. In other words, in proceedings under the Encumbered Estates Act it is competent to a court to reduce the rate of interest even though the loan was incurred prior to the passing of the Usurious Loans-Act. In this view of the matter the learned Judge of the court below was right in applying the provisions of the Usurious Loans Act to the claim preferred by the appellants.
There was no doubt a compromise decree obtained by the appellants, but the moment Iltifat-un-nissa's application under the Encumbered Estates Act was forwarded by the Collector to the Special Judge and the decree-holder put forward the claim under section 9 of the Act the decree ceased to exist. It is clear from the scheme of the Encumbered Estates Act that a decree obtained by a creditor ceases to exist as such when he prefers a claim under section 9 of the Act. The claim has to be adjudicated upon not on the basis of the decree held by a claimant but on the basis of the loan that he originally advanced to the landlord applicant. That this is so is clear from the provisions of sections 14 and 15 of the Act. It is to be noted in this connection that every claim preferred by a creditor ultimately becomes the subject of a decree passed by the Special Judge. This shows that a decree obtained by a creditor prior to the initiation of proceedings under the Encumbered Estates Act ceases to be operative as a decree when the debt which merged in that decree becomes the subject of adjudication by the Special Judge. A claim by a creditor based on a decree stands on the same footing as a claim by a creditor on the basis of the loan advanced by him. It is therefore manifest that when the appellants preferred their claim under the Act before the Special Judge the decree in their favour ceased to exist and, as such, there could be no question of the court not having the power to reduce the rate of interest under section 3 of the Usurious Loans Act.
Mr. Peare Lal Banerji also contended that the rate of interest stipulated in the mortgage deed and provided for by the compromise decree was not excessive and as such the learned Special Judge was wrong in interfering with that rate. We are not impressed with this argument. The circumstances pointed out by the court, below fully justified that court in concluding that the rate of interest was excessive and in reducing that rate to 7 percent, per annum.
Lastly it was argued by Mr. Banerji that in view of the provisions of section 14(4)(a) read with sub-section (5) of section 14 of the Encumbered Estates Act it was incumbent on the Special Judge to calculate the amount that was due to the appellants on the 31st of December, 1916, on account of principal and interest, to treat that amount as principal and then to allow interest on that amount at such rate as the court deemed reasonable. In our judgment this argument is untenable. Sub-clause (a) of sub-section (4) of section 14 can apply only to those cases in which, as a result of his finding, the Special Judge comes to the conclusion that a certain amount is due to a claimant on account of principal and interest on the date of the application under section 4. It can obviously have no application to a case like the present in which the finding of the Special Judge was that no amount was due to the claimant on the date of the application. The Special Judge was not, therefore, called upon to apply the provisions of sub-section (5) of section 14 of the Encumbered Estates Act.
For the reasons given above we hold that the decision appealed against is perfectly correct and accordingly we dismiss this appeal with costs.
There is a cross-objection filed by Iltifat-un-nissa. There is no force in that objection. It is accordingly dismissed with costs.