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Mohini Mohan Roy Chowdhury And Ors. v. Rai Ashutosh Ghose Bahadur And Anr.
Factual and Procedural Background
The petitioners (mortgagors) borrowed money on mortgage under a bond that fixed interest at 7% per annum with quarterly rests, reducible to 6.5% per annum if dues were regularly paid. The dues were not regularly paid and the mortgagee instituted a suit. A preliminary decree was passed on 9 February 1939 and the final decree on 29 January 1940. The sale pursuant to the final decree became absolute and on 22 April 1941 the sheriff was directed to make over possession to the plaintiffs.
The amount of interest calculated up to the date of the preliminary decree did not exceed the maximum permitted by Section 30 of the Bengal Money-lenders Act, but the interest calculated up to the date fixed for payment (the date specified in the preliminary decree for payment after the registrar's accounts and period of grace) was admitted to be in excess of the statutory maximum. The mortgagors applied under Section 36 of the Bengal Money-lenders Act for relief from payment of that excess and sought reopening of the decree and a new instalment decree.
The respondents (mortgagee) argued that interest payable after the date of the preliminary decree is not "interest" within the meaning of Section 2(8) of the Bengal Money-lenders Act and therefore the mortgagors were not entitled to relief as to that excess.
Legal Issues Presented
- Whether the interest awarded to the mortgagee by the preliminary decree on the principal sum found due for the period between the date of the preliminary decree and the date fixed therein for payment is "interest" within the meaning of Section 2(8) of the Bengal Money-lenders Act.
- Whether the preliminary decree converts the principal sum found due into a decretal debt on the date of the preliminary decree (thus removing it from the domain of "loan"), or whether the liability remains contractual until the date fixed for payment (the expiry of the period of grace), with the consequence that interest up to that payment date remains interest "in respect of" the loan under Section 2(8).
Arguments of the Parties
Petitioners' (Mortgagors') Arguments
- The petitioners sought relief under Section 36 of the Bengal Money-lenders Act from payment of the excess interest calculated up to the date fixed for payment, arguing that such interest falls within the definition of "interest" in Section 2(8) and so is subject to statutory control.
- Implicit in the petitioners' case (as accepted by the court) is that the preliminary decree does not finally convert the principal into a decretal liability on the date of the preliminary decree; final determination occurs on the date fixed for payment after the registrar's accounts and period of grace.
Respondents' (Mortgagee's) Arguments
- Mr. Ghosh for the respondents contended that once the preliminary decree declared sums payable as principal and interest on the date of the decree, the liability of the mortgagor passed from the domain of contract into the domain of judgment; the amount declared due as principal thus ceased to be a loan and became a decretal due.
- On that basis, the respondents argued that interest awarded after the date of the preliminary decree (i.e., interest on the decretal amount until the payment date) was not "interest" within the meaning of Section 2(8) of the Bengal Money-lenders Act and so the mortgagors could not obtain relief under that Act as to that sum.
- Mr. Ghosh referred to earlier decisions (Jagannath Prosad v. Surajmal Jalal and Kusum Kumari v. Debi Prosad) but argued that those decisions pre-dated the 1929 amendment to Order 34 Rule 2 and that the amendment effected a change such that the preliminary decree now converted liabilities on the date of the preliminary decree.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jagannath Prosad v. Surajmal Jalal | Held that in mortgage suits the contract remained effective until the expiry of the period of grace; only after that date did the matter pass from the domain of contract into the domain of judgment. | The court cited this decision as supporting the view that the contractual character of the principal survives until the date fixed for payment (expiry of the period of grace), and therefore interest up to that date is interest "in respect of" the loan under Section 2(8). |
| Kusum Kumari v. Debi Prosad | Same principle as above: contractual liability continues until expiry of period of grace; also referenced for the Judicial Committee's view regarding the 1929 amendment to Order 34 Rule 2. | The court relied on this decision both for the principle that liabilities remain contractual until the payment date and for the view that the 1929 amendment to Order 34 Rule 2 did not change the law but gave legislative recognition to the prior judicial interpretation. |
Court's Reasoning and Analysis
The court began by construing the statutory definition of "interest" in Section 2(8) of the Bengal Money-lenders Act, which treats any sum in excess of the principal as "interest" if it (a) is payable in consideration of the loan or (b) is otherwise payable in respect of the loan. The court emphasized that a sum need not be payable as consideration for the loan to qualify as "interest"—it suffices that it is payable in respect of the loan.
The pivotal question therefore became whether the sum awarded by the preliminary decree for the period between the date of the preliminary decree and the expiry of the period of grace was payable "in respect of" the mortgage loan. The respondents' argument—that the preliminary decree converts the principal into a decretal debt on the date of the decree and thus interest accruing thereafter is not "in respect of" the loan—was tested against the language and operation of the preliminary decree itself and the relevant provisions of Order 34 of the Code of Civil Procedure (Rules 2, 4, 10 and 11).
The court examined the preliminary decree's directions to the Registrar to take accounts "for the period up to the date of the preliminary decree" and to state, in his report, what would be due six months from the date of the report's submission (the period of grace). The Registrar was then to make subsidiary accounts and inquiries as necessary, and on confirmation of the report the judgment-debtor was ordered to pay the amounts found due within six months of countersignature and thereafter sums as the Court might fix under Rules 10 and 11.
Reading the decree together with Order 34 Rules 2, 4, 10 and 11, the court concluded that the preliminary decree operates in two stages: (a) an amount comprising principal found due and interest calculated up to the date fixed for payment; followed by (b) subsequent interest and other sums recoverable thereafter. The court observed that the principal and the interest up to the payment date (stage (a)) are calculated on the principal due and are not converted into a finalized decretal liability on the date of the preliminary decree, because the amount due was not finally ascertained on that date but only after the registrar's accounts and the expiry of the period of grace.
The court therefore rejected the respondents' contention that the liability passed into the domain of judgment on the date of the preliminary decree. Instead, it held that the liability crystallizes and the decree begins to operate as a decretal obligation only on the date fixed for payment (after the period of grace). As a consequence, the principal found due retains the character of a loan until that payment date, and interest payable on that principal for the intervening period is a sum payable "in respect of" the loan within the meaning of Section 2(8).
The court addressed the respondents' submission that earlier cases were overtaken by the 1929 amendment to Order 34 Rule 2. It found that the Judicial Committee's interpretation in Kusum Kumari v. Debi Prosad indicated that the 1929 amendment did not change the law substantively but gave legislative recognition to the judicial interpretation already prevailing; thus the amendment did not support the respondents' argument that the preliminary decree now converts liabilities on the date of the decree.
Holding and Implications
Holding: The court held that the interest awarded by the preliminary decree for the period between the date of the preliminary decree and the date fixed therein for payment is "interest" within the meaning of Section 2(8) of the Bengal Money-lenders Act. Consequently, the petitioners were entitled to relief under the Act.
Direct consequences ordered by the court:
- The previously passed decrees were reopened and the sale set aside.
- A new decree was passed in accordance with Section 34 of the Bengal Money-lenders Act.
- The mortgagee was granted interest at the rate of 8% simple from the date of the mortgage until the date fixed for payment of the first instalment under the new decree.
- The decretal amount (as fixed) was directed to be paid in five equal annual instalments, the first instalment to be paid one week after the reopening of the Court.
- The parties were ordered to bear their own costs of the application; plaintiffs retained their entitlement to all costs incurred in the suit up to date and to costs incurred due to reopening and passing of the new decree.
Implications beyond the immediate case: The opinion relies on existing case law and statutory interpretation to clarify that interest accruing up to the date fixed for payment under a preliminary decree is caught by the definition of "interest" in Section 2(8). The court did not state that it was creating a new precedent beyond applying and reaffirming the principles in the cited authorities.
1. The point which arises for decision in this application is whether the interest awarded to the mortgagee by the preliminary decree in this suit on the principal sum found due for the period between the date of the preliminary decree and the date fixed therein for payment is interest within the meaning of Section 2(8), Bengal Money-lenders Act, The matter arises in this way. The petitioners borrowed money on a mortgage, the interest fixed in the bond being 7 per cent, per annum with quarterly rests reducible to 6J per cent, per annum with quarterly rests if the dues were regularly paid. The dues were not regularly paid and the mortgagee instituted a suit. The preliminary decree was passed on 9th February 1939 and the final decree on 29th January 1940. The sale pursuant to the final decree has been made absolute and on 22nd April 1941 the sheriff was directed to make over possession to the plaintiffs. The amount of interest Sue on the bond calculated up to the date of the passing of the preliminary decree is not in excess of the maximum allowed by Section 30, Bengal Money-lenders Act, but the amount of interest calculated upto the date fixed for payment is admitted before me to be in excess of the maximum. The mortgagors apply under Section 36, Bengal Money-lenders Act, for relief from the payment of this excess of interest and claim that the decree should be reopened and a new instalment decree passed. Mr. Ghosh appearing for the respondents contends that interest payable after the date of the preliminary mortgage decree is not interest within the meaning of the Bengal Moneylenders Act and that the mortgagors cannot get any relief from the payment of such interest. Interest is defined in Section 2(8), Bengal Money-lenders Act thus:
'Interest' includes any sum by whatsoever name called, in excess of the principal paid or payable to a lender in consideration of, or otherwise in respect of, a loan whether the same is charged or sought to be recovered specifically by way of interest or otherwise, but does not include any sum lawfully charged by a lender in accordance with the provisions of this Act or any other law for the time being in force for or on account of costs, charges or expenses.
2. I leave out of consideration the latter part of the sub-section which excludes any sum charged for costs, etc., as it is not relevant to the matter under discussion. The section says that anything paid in excess of the principal is interest if it satisfies any one of the following two conditions, viz. : (a) It is payable in consideration of the loan, (b) It is otherwise payable in respect of the loan. It is clear from this definition that even if the sum is not payable in consideration of the lotto it will still be interest, if it is payable in respect of the loan. Now can it be said that the interest awarded by the preliminary decree for the period between the date of the preliminary decree and the expiry of the period of grace is a sum payable in respect of the mortgage loan. Mr. Ghosh says it cannot and his argument is this : The preliminary, decree declares the sums which were payable as principal and interest on the date of the decree. When this is done, the liability of the mortgagor passes from the domain of contract into the domain of judgment and the amount declared due as principal loses the character of a loan and becomes a decretal due. The interest awarded on such an amount is not a sum payable in respect of a loan and is therefore not interest within the meaning of Section 2(8). An examination of the preliminary decree does not support this view. The preliminary decree directs the Registrar to take an account of what is due for principal and interest on the mortgage at the date of the preliminary decree.
3. He is also directed to take accounts of certain other matters with which I need not deal as they relate to matters with which this application is not concerned. All these accounts are to be taken for the period up to the date of the preliminary decree. The Registrar is to make a report of these accounts to the Court and in that report he is given liberty to state what will be due on such accounts six months from the date on which the report is submitted to the Court for countersignature. In other words, he is to calculate, inter alia, the amount which will be due for interest on the principal from the date of the preliminary decree upto a date six months subsequent to the date on which the report is submitted. The Registrar is further directed to take thereafter as occasion arises such subsidiary accounts and make such enquiries as may be necessary for the purpose of finally adjusting the amount to be paid to the plaintiff or any other party under the decree. The decree goes on to say that on the report being confirmed the judgment-debtor shall pay into Court (1) the amount found due on the report within six months of the date of the countersignature and (2) thereafter on such date as may be fixed such other amounts as the Court may award under Rules 10 and 11 of Order 34, Civil P.C. This is the preliminary decree.
4. If the decree be read with Order 34, Rules 2, 4, 10 and Rule 11 of the Code it becomes manifest that what the Court decreed so far as the principal and interest thereon is concerned is this : The judgment debtor is to pay to the mortgagee (a) the principal found due and interest on the principal calculated upto the date fixed for payment in the preliminary decree; (b) thereafter he has to pay subsequent interest on an amount made up of the principal and interest payable up to the aforesaid date of payment and certain other sums representing costs expenses and items other than the principal or interest thereon.
5. I am not now concerned with the interest payable at the stage (b). It is quite clear from the decree that the interest referred to above which is payable up to and before stage (b) is interest calculated on the amount of the principal due and on no other amount. Mr. Ghose concedes, as he must do, that this is so but he says that the amount found due as principal ceased to be a loan on the date of the preliminary decree as on that date the decree finally determined what the contractual rights and liabilities of the parties were and converted them into decretal rights and liabilities. I am unable to accept this view. In the first place, on the date of the preliminary decree the amount due for principal and interest was not ascertained. It was ascertained later after accounts had been taken. On the date of the preliminary decree the Court directed certain enquiries to be made and did not finally decide what the liabilities of the parties were. In my opinion, under the preliminary decree matters continue in a state of flux till the date appointed for the payment of the amounts found due on the several accounts mentioned therein. It is on this latter date that the rights and liabilities of the parties are given final shape and form as decretal rights and liabilities. On the date of the preliminary decree what the Court says is this:
I shall have accounts taken by my officer and on receiving his report shall determine the liability of the mortgagor up to the date which I shall fix for the payment of such liability and that date shall be six months from the date on which the report of my officer is sign/ed by me as being correct.
6. The decree begins to operate against the judgment-debtors on the date fixed for payment : If this view be correct then the liability of the judgment-debtors does not pass into the domain of judgment till the expiry of the period of grace and therefore the amount found due for principal retains its character of a loan. That being so, the interest payable on the principal is a sum payable in respect of the loan and is therefore interest within the meaning of Section 2(8), Bengal Money-lenders Act. Mr. Ghosh referred to the following cases in the course of his arguments : Jagannath Prosad v. Surajmal Jalal and Kusum Kumari v. Debi Prosad . In both these cases it was held that in mortgage suits the contract remained effective until the expiry of the period of grace and that it is only after that date that the matter passed from the domain of contract into the domain of judgment. The view that I have taken finds support in these decisions. Mr. Ghosh argued that the cases were decided before the amendment of Order 34 Rule 2 in 1929 and he says that the amendment of Rule 2 has made a difference. Formerly the preliminary decree directed an account to be taken of the amount that would be due for principal and interest and for costs on the expiry of the period of grace. There was no provision like a provision in the present Rule 2 of Order 34 for an account to be taken of what would be due on the date of the preliminary decree. Mr. Ghose's argument is that the present form of preliminary decree indicates that the intention was to convert the liability under the mortgage into a decretal liability on the date of the preliminary decree. I am unable to see how the amendment of E. 2 of Order 34 can have this effect. On the contrary, the view taken by the Judicial Committee in Kusum Kumari v. Debi Prosad is that the amendment of the Rule in 1929 did not introduce any change in the law but merely gave legislative recognition to the Judicial interpretation of the rule as it stood before the amendment.
7. There is no decision which supports the view propounded by Mr. Ghosh and in my opinion that view cannot be upheld on principle, I hold, therefore, that the petitioners are entitled to relief under the Bengal Money-lenders Act. The decrees passed are reopened, the sale is set aside and a new decree is passed in accordance with the provisions of Section 34, Bengal Money-lenders Act. The mortgagee will get interest at the rate of 8 per cent, simple from the date of the mortgage till the date fixed for the payment of the first instalment under this decree. The decretal amount shall be paid in five equal annual instalments. The first instalment shall be paid a week after the reopening of the Court. The parties shall bear their own costs of this application. The plaintiffs shall be entitled to all the costs incurred in the suit up to date in addition to the costs which shall be incurred by reason of the reopening of the decree and the passing of this decree.
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