Shaikh Jan Mohammad v. Bikoo Mahto

Ross, J.:— (After stating the facts, as set out above, proceeded as follows:) The evidence, together with the recital in the bond (quoted above in full) makes it clear that the two instruments were interdependent and formed one transaction and there is, therefore, no room for the theory of antecedent debt, nor indeed was that the plaintiffs' case. The plaintiffs' case was in accordance with the recitals in the mortgage that the purchase was for the benefit of the family.

The learned Advocate for the appellants in supporting the judgment of the Court below contended that the finding of the learned Subordinate Judge on the question of legal necessity was wrong and that the mortgage was executed for legal necessity or rather for the benefit of the family. The test in such a case is, whether the charge was one that a prudent owner would make in order to benefit the estate as was pointed out in Sheotahal Singh and Sitaram Singh v. Arjun Dass where numerous authorities are referred to. In that case their Lordships said: “The only other question that remains for our consideration is—was this a transaction in the ordinary course of management and for the benefit of the joint family?………………” I quite agree that the manager of a joint-family has no authority whatever to affect or dispose of any portion of joint family property in order to enable him to embark on speculative transactions, but I cannot say that the mortgagee must in each case satisfy the Court that the transaction was bound to benefit the joint family. There is a certain element of risk in every business transaction and if we are to hold that when the business has succeeded and the entire family has benefited by it, that we ought not to uphold the mortgage transaction entered into by the manager to enable him to embark on such a business, unless the mortgagee satisfies us that the business was bound to succeed and that benefit was bound to accrue to the family, we would necessarily handicap the managers of joint Hindu families and place a limitation on their powers, which would have the effect of “stopping all business transactions in every Mitakshara family” …………… “The test, in my view, is, was it a transaction into which a prudent owner would enter in the ordinary course of business? If it was, then the transaction ought to be upheld.” In Lola Mukti Prokash Nande v. Srimati Iswari Dei Debi Richardson, J., observed, in speaking of legal necessity, “that phrase though sanctioned by usage is not perhaps a very apt one. If the two expressions “legal necessity” and “legitimate family purpose” are treated as interchangeable and as having the same legal significance in reference either to a father as Karta or to a brother or other relation as Karta or to a widow in possession of a widow's estate, nevertheless the law was to be applied to those different states of the facts and some difference of result must ensue. A father, with minor sons, must have some discretion………………. “Family necessity” is an expression that must receive a reasonable construction.” Now what are the facts here? Bikoo and Phagu, the two adult members of the family, both joined in executing this mortgage and this in itself would be some evidence of legal necessity. They had a share in Soniawan and their family residence there. They also had a, usufructuary mortgage over a share which had come into the market. It was clearly desirable that if possible they should purchase this share and avoid the risk of difficulty with a new owner and at the same time realize their security and find an investment for the money that they had in hand. No evidence has been given to show directly that the price they paid, Rs. 12,000, was more than the property was worth. The defence relied, and the learned Subordinate Judge has based his decision, upon two leases of shares in this village according to which the income of 4-annas 7-dams share was only Rs. 265; and the argument was that as the interest on the loan amounted to Rs. 600 the transaction was necessarily imprudent; and this was the ground of the decision of the question of legal necessity in Raghunath Singh v. Modnarayan Singh relied upon by the respondents. In that case, however, it was established on evidence that the income of the property purchased was Rs. 500 or Rs. 600 a year while the interest payable on the mortgage was Rs. 750 a year with annual rests. In the present case the only evidence is these two leases and these do not seem to me to provide the true criterion of value of the property. We do not know the circumstances in which these leases were executed and they are only indirect evidence of the value of the property. In any case the property is more valuable to the owner who manages it directly and especially to a purchaser who already has a share in the village and resides there. The defendants' patwari, defence witness no. 1, admits in his evidence that there, are papers showing the income of the property; but these papers were not produced, nor did Bikoo and Phagu the adult members of the family come to depose. The transaction has never been repudiated and the purchasers have all along been and still are in possession of the purchased share. If Rs. 12,000 was the proper price, then the income must be greatly in excess of what the learned Subordinate Judge estimates it to be.

The other ground upon which the learned Subordinate Judge proceeded was that the purchase was speculative in that the 17 bighas of kasht land stood recorded in the record-of-rights in the names of tenants and in a suit brought by the purchasers to recover possession of this land they failed. Now in the first place it is to be observed that this 17 bighas was only a small portion of the property purchased. The plaint in the suit brought about this land (Exhibit 12) shows that the value of 17 bighas was Rs. 1,275 and paragraph 4 of that plaint shows that in 1885 and 1893 the land was purchased in two parts at a total price of Rs. 533. Secondly, although the land was entered in the times of tenants in the record-of-rights, Bikoo and Phagu did in fact succeed in their suit before the Subordinate Judge although they failed before the Court of appeal and it therefore cannot be said that even this part of the purchase was purely speculative; and, thirdly, even if the 17 bighas were only raiyati land in the possession of tenants the deposition of Bikoo in the suit already referred to shows that the rental was Rs. 116. The same deposition shows that besides this 17 bighas there were five mango trees, eight mahua trees and seventy-four palm trees. In my opinion therefore, the conclusion of the learned Subordinate Judge is based on an under-estimate of the value of the property and the defendants have given no proper evidence to show that the transaction was imprudent. Moreover I doubt the validity of the test applied by the learned Subordinate Judge in the circumstances of the present case, namely, a comparison of the estimated income with the interest on the debt. Bikoo and Phagu were well-to-do. The evidence of the defence witness no. 6 is that their income is Rs. 7,000 or Rs. 8,000 from milkiat and four thousand maunds of grain from raiyati lands. They were therefore in a position to pay off this loan and there was no reason to expect that interest would accumulate unpaid. The nature of the transaction cannot be judged by what has actually happened, but must be judged by the circumstances of the time. There is nothing to show that the borrowers were undertaking a liability which they could not meet; and if the debt had been paid promptly, there could be no question that the transaction was for the benefit of the family. They are not in my opinion entitled now to turn round and say that because their own default in paying the debt has led to the accumulation of interest, therefore the transaction itself was not for the benefit of the family. I hold therefore that the mortgage was good and binding on the family and that the learned Subordinate Judge has rightly passed a mortgage decree. The cross-objection therefore fails and must be dismissed with costs.

There remains the appeal itself on the question of interest. It was argued for the appellants that compound interest is not in itself unconscionable or improper. Reference was made to the decision of the Judicial Committee in Sunder Mull v. Satya Kinkar Sahana where Lord Summer observed that there was no rule, when the terms of a loan were challenged, to lean to their reduction, or to presume that simple interest must always be judicially preferable to compound interest; and that compound interest was common and may often be necessary, and proper in India under the circumstances of that country. But the question here is whether the plaintiffs have proved that it was necessary to borrow money at this rate. Some oral evidence was given that money was lent at Rs. 1-8-0 to Rs. 2 per cent, per mensem and it was also stated by one of the witnesses that Bikoo had tried to get the loan from other money-lenders, but their terms were too high. As the learned Subordinate Judge has pointed out, no attempt was made to examine these money-lenders; and the documentary evidence in the case goes conclusively to show that money can be had at 15 per cent, per annum simple interest. A number of documents were produced by the defence showing that this was the rate charged by the Co-operative Society of Barh. In this state of the evidence the decision of the learned Subordinate Judge on this part of the case must be upheld.

The appeal must therefore be dismissed with costs and the decision of the learned Subordinate Judge confirmed.

Fazl Ali, J.:— The facts of the case are fully set out in the judgment of my learned brother and it is unnecessary to repeat them. I propose, however, to express my views shortly on the main points arising in the case.

The first question is whether the mortgage bond in question was executed to pay off an antecedent debt. Mr. Khurshaid Husnain appearing for the appellants contends that it is so. It is pointed out by him that on the 9th of February, 1911, Sohan Mahto had executed a sale deed in favour of Biku and Phagu for a sum of Rs. 16,000 out of which Rs. 4,000 had to be paid by borrowing from Jangli Mia on the 12th of February, 1911. It is, therefore, argued that on the 9th of February, 1911, Biku and Phagu had made themselves liable to their vendor for a sum of Rs. 4,000, the balance of consideration money, which remained unpaid, and this constituted the antecedent debt which was paid off by executing the mortgage bond of the 12th February. Now, this is an ingenious argument; but it does not derive any support either from the authorities which have defined and explained what an antecedent debt is, nor by the evidence adduced on behalf of the appellants themselves. The term ‘antecedent debt’ has been explained by the Privy Council in the case of Chet Ram v. Ram Singh thus: “As to the matter of antecedency of debts, it is clear beyond question that the antecedency is antecedency to the mortgage itself. And it is more than that—it is disconnection with the mortgage in fact as well as in time. In no other way can, in the law of India, joint family property protect itself against being undermined.”

In the case of Sahu Ram Chunder v. Bhup Singh Lord Shaw made the following observations which are quoted so often: “The arguments in support of the validity of the mortgage also took this shape. It was said: what difference would it make if the father had contracted the debt an hour, a day, a year before granting the mortgage? Then de facto it would be an antecedent debt and the creditor would have a mortgage good on that ground. Their Lordships cannot assent to ally such proposition that a mortgage on the family estate would follow the loan. The case as put might instantly raise the presumption that what occurred was substantially this, that the father contracted the debt knowing that he was at the end of his personal resources and that the creditor advanced the money relying upon an understanding or agreement express or implied given to the father. In truth in order to validate such transaction of mortgage there must, to give effect to the doctrine of antecedency in time, be also real dissociation in fact.”

Again it was pointed out in the case of Brij Narain Roy v. Mangla Prasad that “‘antecedent’ means antecedent in fact as well as in time, that is to say, that the debt must be truly independent and not part of the transaction impeached.”

In the light of these observations let us see whether the sale deed of the 9th of February brought into existence any obligation or debt which might properly be regarded as antecedent to the mortgage bond executed three days later. The entire case of the plaintiffs, as set out in the plaint and in the evidence negatives this theory of an antecedent debt. The plaintiffs' witnesses make it clear that money was borrowed from Jangli Mia in order to purchase property from Sohan Mahto and that negotiations with Jangli Mia had been going on since before the execution of the sale deed by Sohan. These statements go to show that the idea of borrowing from Jangli arose in the mind of Biku and Phagu even before the execution of the sale deed of 9th February. In fact the two transactions were in contemplation at the same time and the object of entering into one was to provide funds for the other: In such circumstances it is difficult to hold that the two transactions were really dissociated in fact or independent of each other.

The case of Raghunath Singh v. Mode Narain is a case exactly in point. In that case the defendants had executed a mortgage bond to pay off the consideration for a sale deed executed about five days earlier and it was held that under the circumstances of the case the mortgage bond had not been executed to pay off an antecedent debt. This seems to conclude the point and I have no hesitation in holding that there was no antecedent debt to be paid off by the mortgage bond in suit.

The second point which arises for consideration is whether the money was borrowed under the mortgage bond for any legal necessity or for the benefit of the family. The learned Subordinate Judge has come to the finding that no legal necessity has been proved in this case and that the transaction of the 9th of February for which money was borrowed from Jangli Mia was not for the benefit of the family. Ordinarily the findings of fact arrived at by the trial Court would be entitled to great weight; but I am constrained to hold that in the present case the learned Subordinate Judge has not come to a correct finding. In the opinion of the learned Subordinate Judge the question of legal necessity did not arise, because he thought the suit had to be decreed in any case on the ground that the sons and grandsons were under a pious obligation to pay off debts contracted by the father. Dealing with this aspect of the case, the learned Subordinate Judge says:

“So on the principle deducible from all these decisions it can be said in the present case that the sons and grandsons of Biku Mahto and Phagu Mahto would be liable to satisfy the mortgage debt, unless they prove that the debt was contracted for any illegal or immoral purpose, and it is not necessary for the plaintiff to prove the existence of or inquiry regarding any legal necessity. In this view of the law the question of legal necessity does not arise and so the first portion of the issue is not necessary for the purpose of decision in this suit.”

Again, the learned Subordinate Judge adds:

“But as I have already held necessity or no necessity the plaintiffs in this case are bound to succeed as it is a case between the fathers and sons and grandsons and unless the sons and grandsons prove that the debt was contracted for immoral or illegal purpose they, are bound by the mortgage effected by their fathers.”

If the learned Subordinate Judge meant that he could grant a mortgage decree in the case merely because the mortgage decree was a debt contracted by a Hindu father he was clearly in error. If he meant, that the mortgage was valid because it was effected to pay off an antecedent debt, he has not been able to express himself as clearly as he should have done. In any case it is clear that taking the view that he did, he did not examine the question of ‘legal necessity’ or ‘benefit to the family’ as carefully as he would have probably otherwise done.

Now, the term “necessity” is not to be understood in the sense of what is absolutely indispensable, nor is actual compelling necessity to case the sole test of the validity of an alienation by the manager of a Hindu family. If it can be shown that the transaction as a whole was beneficial to the interests of the family, the transaction will be held to be valid and binding on the other members. [See Rambilas Singh v. Ramyad Singh]. Then again, as was pointed out in Hanuman Prasad Pandey v. Musammat Bdbui Munraj Kueri, “The power of a manager for an infant heir to charge an ancestral estate by loan or mortgage is by the Hindu law a limited and qualified power which can only be exercised rightly by the manager in a case of need or for the benefit of the estate. But where the charge is one that a prudent owner would make in order to benefit the estate a bona fide loan is not affected by the precedent mismanagement of the estate ………… A lender, however, is bound to inquire into the necessities of the loan and to satisfy himself as well as he can with reference to the parties with whom he is dealing, that the manager is acting in the particular instance for the benefit of the estate. If he does so enquire and acts honestly the real existence of an alleged and reasonably credited necessity is not a condition precedent to the validity of a charge which renders him bound to see to the application of the money.”

Again in Sheotahal Singh v. Arjun Das it was held that “it is not necessary that every alienation should be for justifying legal necessity and it is valid and binding if it is made for the benefit of the joint family. The manager of a joint Hindu family has always the power to alienate the joint Hindu family property in the ordinary course of management for the benefit of the joint family and the test in each case is whether it was a transaction into which a prudent owner will enter in order to benefit the estate.”

Thus we have to see with reference to the facts of the present case whether the transaction for which money was borrowed by Biku and Phagii from Jangli Mia was beneficial to the interests of the family and whether Biku and Phagu acted as prudent men in entering into that transaction. Now, it is in evidence that the residential house of the family is in village Soniawan and the joint family owns a fractional share as well as a large quantity of lands in the village. The transaction with Sohan Mahto meant further addition to the proprietary share in the village as well to the khudkasht land in the possession of the family. The advantage of such a transaction is obvious so far as it would offer greater facilities for the management of the joint property; and as my learned brother has pointed out it was not an unprofitable transaction from the monetary point of view also. The learned Subordinate Judge has overlooked the fact that the 17 bighas of khudkasht land purchased under the sale deed, according to the evidence on the record, were calculated to yield an yearly produce of about 100 maunds of paddy. The fact that the respondents were subsequently dragged into litigation about the possession of the lands does not necessarily show that it was a speculative transaction when it was entered into. As has been pointed out in the case of Tula Ram v. Tulsi Ram a mortgage of family property with the object of raising funds for the purchase of zamindari shares in a village such a purchase being for the benefit of the family and not detrimental to its interests, is binding on all the members who belong to the family. In such a case it is not necessary for the mortgagee to prove that the money raised by the mortgage was actually applied towards the purchase of the zamindari. It is enough if he proves that a re-presentation was made to him that the zamindari was to be purchased and after reasonable inquiry he believed the re-presentation to be true.

Again, as was pointed out in the case of Lala Mukti Prakash Nande v. Srimati Iswari Dei Debi, to which my learned brother also has referred, when the creditor lends his money on a re-presentation made by the father that the course which he proposes to 1 take, a course not unreasonable or irrational in itself, is calculated in the circumstances to promote the interests of his family, the creditor ought not to suffer because owing to the subsequent misconduct of the father things in fact turned out badly.”

The learned Counsel for the respondents drew our attention to the case of Deep Narain Chaudhury v. Debendra Nath Das and of Rambilas Singh v. Ramyad Singh. In the former case there was a distinct finding that the purchase of new property was in the nature of speculation and unprofitable to the family and so it was condemned. In the latter case it was laid down that the mere fact that money were borrowed to enable the manager to purchase immoveable property on behalf of the family did not in itself create any presumption that the transaction was beneficial to the family. But at the same time it was pointed out that it was not desirable to lay down any general proposition which would limit and refine the various cases which might be classed under the term ‘beneficial’ and that each case must be examined in the light of the facts proved and the surrounding circumstances.

I hold that the mortgagee in this case had reasons to be satisfied that the transaction for which money was borrowed was a transaction which was likely to be beneficial to the family and one which a prudent father was justified in entering into; and, therefore, the family property is liable for the mortgage money.

The result is that the cross-appeal is without merit and must be dismissed.

The next point which arises for consideration and that is the only point raised on behalf of the appellants before us—is whether the Subordinate Judge was justified in not allowing interest at the rate stipulated in the bond.

In the case of Nazir Begum it was held by the Privy Council that in the case of a mortgage executed by the manager the mortgagee must prove necessity for borrowing at a high rate failing which the Court had power to award a reasonable rate of interest.

In the case of Rambhujawan Prasad Singh v. Nathu Ram it was held that the onus of establishing that there was necessity to pay a rate of interest in excess of the ordinary commercial terms was on the plaintiff creditor. On the other hand, in the case of Sundermull v. Satya Kinker it was held that there was no rule, when the terms of a loan were challenged, to lean to their reduction or to presume that simple interest must always be judicially preferable to compound interest. It was, however, also pointed out in the same case that the authority of the karta of a Mitakshara joint family to borrow money on the security of a family property was a limited one and in the case of a loan to him the burden of proof in the first instance was upon the lender to show that both the borrowing and the terms were within the authority which the karta could exercise or, in other words, not in excess of the necessity.

In the present case we find that the plaintiffs' own witness Durga Singh (P.W 9) has proved that the interest charged on loans advanced by the Co-operative Bank in the sub-division where the parties reside is Rs. 1-4-10 per mensem. The plaintiffs in this case have not proved any other commercial rate of interest and in view of the evidence of P.W 9 the trial Court was right in not allowing any compound interest in the case.

I, therefore, agree with my learned brother that both the appeal and the cross-appeal should be dismissed with costs.

Appeal and cross-appeal dismissed.