Nemai Chand Sen & Anr. v. Ram Kewal Sha & Ors.

The Judgment of the Court was as follows:

Das, J.:— This is a suit on a mortgage executed by the Defendant Ram Kewal Sha on June 30, 1937. The sum secured is Rs. 20,000 repayable on June 30, 1939, with interest thereon at 8 per cent, per annum with quarterly rests. There is an express covenant on the part of the mortgagor that he will also, so long after June 30, 1939, as the said sum of Rs. 20,000 or any part thereof will remain unpaid, pay interest thereon at the rate with quarterly rests as aforesaid until the whole of the said principal sum of Rs. 20,000 shall be fully paid and satisfied.

2. The interest provided for in the mortgage is in excess of the limits specified in the Bengal Money-Lenders Act, 1940. In view of the provisions of that Act the Plaintiffs have, in paragraph 12 of the plaint, claimed only simple interest at 8 per cent, per annum. In the prayers the Plaintiffs have prayed, inter alia, for a decree in Form 5A of Appendix D of the First Schedule to the Code of Civil Procedure as modified by sec. 34 (1)(a) of the Bengal Money-Lenders Act, 1940, which means, speaking briefly, that the preliminary decree should declare the amount due and make it payable by instalments with liberty to the Plaintiffs, in default of payment of any instalment, to apply for a final decree after serving the prescribe notice. Mr. B.C Ghose, appearing for the mortgagor Defendant, has also asked that a decree be passed in accordance with the provisions of sec. 34 (1)(a) of that Act. The only point which has been argued before me is whether interest should be made payable on the instalments from the date of the decree up to the respective dates they fall due. Mr. B.C Ghose contends that as the loan is a pre-Act loan, no interest can be allowed on the decretal amount under sec. 31(a). Mr. P.C Ghose contends, on the contrary, that sec. 31(a), on a proper construction, has no application in view of the mortgagor's covenant to pay interest until realisation.

3. Mr. P.C Ghose's argument is as follows: It is well established on the high authority of the decision of the Judicial Committee in Kusum Kumari v. Debi Prasad Dhandhania(1) and the earlier decisions of the Board referred to therein that “up to the date fixed for redemption the matter between the parties is one of their contract, and what the Court has to consider is how much does the law allow them to recover under it” and that “after the expiration of that day, if the property should not be redeemed, the matter should pass from the domain of contract to that of judgment, and the rights of the mortgagee should thenceforth depend, not on the contents of his bond, but on the directions in the decree.” Therefore, if the mortgage provides, as it does in this case, for payment of interest until realisation, the Court must allow interest up to the date of redemption as this interest is interest on the loan under the mortgage and not interest on the decretal amount under the decree. This principle has been followed by Sen, J., in Mohini Mohon Roy Chowdhury v. Rai Ashutosh Ghose, Bahadur(2). Under Or. 34, r. 4 there had to be one date of redemption within which the whole amount had to be paid. Now under the Bengal Money-Lenders Act the amount may be made payable by stated instalments spread over a number of years. This means that the single date of redemption provided under Or. 34, r. 4 is split up into several dates of redemption or, in other words, the date of redemption or, in other words, the date of the payment of the last instalment. Therefore up to the date of payment of the last instalment the matter between the parties is still one of their contract and the Court can allow interest on all instalments. There is nothing in the Bengal Money-Lenders Act which cuts down the rights of the mortgagee under the contract up to this period. Sec. 31(a) of that Act is no bar to allowing such interest because that section is subject to the agreement between the parties as held by a Division Bench of this. Court in Atul Krishna Das v. Amrita Lal Chakravarty(3). The last-mentioned decision has been followed by McNair, J. and Gentle, J., sitting on the Original Side of this. Court. Such is the argument of Mr. P.C Ghose for the Plaintiffs.

4. I gather McNair, J., did not deliver any judgment but simply followed the decision in Atul Krishna's case. The point appears to have been conceded by learned Counsel before Gentle, J., for I find the following observations in his judgment which has been placed before me.

“On behalf of the Plaintiff it was contended that interest is payable by a mortgagor to a mortgagee in respect of the principal even when, as in this ease, the provisions of the Bengal Money-Lenders' Act apply. In support of that contention two decisions of this Court on the Appellate Side were cited. They are Promode Nath Sinha v. Sm. Rameswari Dassi(4) and Atul Krishna Das v. Amrita Lal Chakravarti.

The principles and propositions which are discussed and decided in the above two authorities are not disputed by learned counsel on behalf of the second Defendant. One would not expect the first Defendant, appearing in person, would deal with the matter. I, therefore, propose to follow those two decisions.”

5. In these circumstances the two decisions of McNair, J. and Gentle, J., although they are entitled to my respect and careful consideration, do not advance the matter any further than the decision in Atul Krishna's case.

6. Mr. B.C Ghose contests the correctness of the decision in Atul Krishna's case. He argues that the construction there put upon sec. 31(a) of the Act, if correct, must also be put upon sec. 36. Such construction will make sec. 36 meaningless and therefore render the whole Act nugatory. I propose, therefore, to consider the matter in the light of the rival contentions pressed before me and come to my own conclusions and then consider the decision in Atul Krishna's case.

7. Turning to the Code of Civil Procedure, I find that sec. 34 gives power to the Court to allow interest from the date of suit up to the date of decree and from the date of decree up to the date of payment or to such earlier date as the Court thinks fit. This power is not founded on the agreement of parties but is a statutory power given by this section. The Court has a discretion under this section to allow or not to allow such interest. If the Court thinks fit to allow interest, its discretion is not fettered by any agreement between the parties as to the rate at which it will allow the interest, although ordinarily the Court will, in allowing interest up to the date of the decree, adopt the rate agreed between the parties. The provisions of this section lay down the general power of the Court in awarding pendente lite interest and interest on decree.

8. The next provision for payment of interest is to be found in Or. 34 of the Code which only applies to mortgage suits. To put shortly, in a preliminary decree in a suit for sale the Court—

(a) orders an account to be taken of what is due to the Plaintiff at the date of such decree for principal, interest and costs of the suit and certain other costs charges and expenses; or

(b) declares the amount so due at that date; and

(c) directs

(i) that if the Defendant pays into Court the amount so found or declared due on or before a fixed date (which is usually six months from the date of the decree) together with subsequent interest on such sums respectively as provided in r. 11, the Plaintiff shall deliver up the title deeds and re-transfer the property free from the mortgage; and

(ii) that in default of such payment the Plaintiff shall be entitled to apply for a final decree for sale.

9. The first thing I notice is that the preliminary decree up to and including the direction for payment into Court in effect directs the mortgagor to perform his obligations under the agreement within the time fixed. It condones the breach on the part of the mortgagor for having failed to strictly perform his duties under the agreement prior to suit and gives a locus poenitentise, an equity of redemption. It is not a decree for payment of money which can be enforced in execution. It is only when the mortgagor fails to perform his obligations even within this period of grace that coercive methods are to be adopted. To that end it is provided that in default of payment the mortgagee shall be entitled to apply for a final decree for sale. After default the matter is taken up by the Court. This is what I think is meant by the observations of the Judicial Committee in the cases to which I have referred, namely that up to the period of redemption the matter between the parties is one of their contract and that after that date it passess from the domain of contract into the domain of judgment. These observations must be read in relation to the provisions of Or. 34.

10. The second thing I see is that the interest up to the date of the decree is included in the amount found or declared to be due, but the subsequent interest is not included in the amount found or declared due. The subsequent interest is, however, included in the direction for payment into Court. This subsequent interest is to be calculated in the manner prescribed in r. 11. Turning then to r. 11, we find that it has two parts and a clear distinction is made between two stages or periods, namely the period between the date of the decree and the date fixed for redemption and the period between the date fixed for redemption and the date of realisation. In the first of these periods interest on the principal amount found or declared due on the mortgage is to be calculated at the rate payable on the principal, i.e, the agreed rate or, where no such rate is fixed, at such rate as the Court deems reasonable. I leave out of consideration for the moment the interest on the other two items regarding costs of the suit and other costs, charges and expenses. In this period interest on the principal amount is calculated at the agreed rate, if there be any. The matter being still in the domain of contract and the interest being calculated at the agreed rate, it must be regarded as interest on the loan under the agreement. This, I conceive, is the effect of the decision of Sen, J., in Mohini Mohon Roy Chowdhury v. Rai Ashotosh Ghose Bahadur. It is on this footing that the learned Judge held that the borrower in that case was entitled to be released from liability for interest in excess of the limits specified in see. 30 of the Bengal Money-Lenders Act. The question in the form in which it has been presented before me, namely whether the interest during this period is interest on the decretal amount within the meaning of sec. 31(a) on a proper construction of that section, was not raised or discussed at all. In the second period, i.e, the period between the date of redemption and the date of realisation the interest is to be calculated at such rate as the Court deems reasonable. In this period the matter is in the domain of judgment and is not regulated by the agreement of the parties.

11. The third thing I find is that during both these periods the mortgagee is not as of right entitled to interest. There are two qualifications, namely (i) the interest must be legally recoverable and (ii) the Court in its discretion thinks fit to allow the interest. I do not understand the observations of their Lordships of the Judicial Committee to which I have referred to mean that if there be an agreement to pay interest up to realisation, the mortgagee must ex debito justitiae get interest from the date of the decree up to the date of redemption. During this first period the agreement between the parties as to payment of interest has no inviolable sanctity of its own except where the interest is legally recoverable and the Court in exercise of its discretion thinks fit to allow any interest during this period. If the interest is legally recoverable and the Court thinks fit to allow any interest during this first period, then it has to be calculated at the agreed rate. The agreement of parties has therefore a secondary importance. In other words, Or. 34, r. 11(a) does not wholly supersede the agreement of parties but makes it subject to the two qualifications I have mentioned. In the second period, i.e, after the date of redemption the matter goes out of the domain of contract and is not regulated by the agreement and is entirely a matter of the Court's discretion. In other words, Or. 34, r. 11(b) completely supersedes and puts an end to the agreement of the parties as regards the payment of subsequent interest. This, in short, is what I conceive to be the effect and import of the provisions of Or. 34, rr. 2, 4 and 11 of the Code of Civil Procedure.

12. I now come to the Bengal Money-Lenders Act, 1940. After this Act came into operation, if the mortgagor so applies, the preliminary decree in a mortgage suit must be in accordance with the provisions of sec. 34 (1)(a) of the Act. The section begins with the words “Notwithstanding anything contained in any law for the time being in force or in any agreement.” On the face of this section the principal innovation brought about is that the Court is now empowered to allow the amount found or declared due to be made by stated annual instalments instead of fixing one date for payment of the whole of that amount. Therefore this section by itself alters the provisions of Or. 34, rr. 2 and 4 to this extent. This is the first modification.

13. Sec. 34 of this Act must be read along with the other sections of the same Act. Turning back, we find sec. 30 which introduces a limitation as to the amount and rate of interest recoverable. We have seen that under Or. 34, rr. 2 and 4 the amount found or declared due is to include interest calculated at the agreed rate up to the date of the decree. By reason however of the provisions of sec. 30 of the Bengal Money-Lenders Act, the interest for the period prior to the suit as well as for the period after the suit and up to the decree must not exceed the limits specified in that section. This is the second modification.

14. Then comes the question of subsequent interest. We have seen that Or. 34, r. 11 has two parts. The first part deals with the period up to the date of redemption and the second part deals with the period after the date of redemption. In this second period the agreement of parties has no force at all. The agreement is superseded by Or. 34, r. 11(b) during this period and the matter is left entirely to the discretion of the Court, for the matter has passed into the domain of judgment. We find that sec. 31(a) of the Bengal Money-Lenders Act imposes a prohibition on the Court in case of a pre-Act loan in the matter of allowing interest on the decretal amount. Therefore, clearly, sec. 31(a) takes away the discretion left to the Court by Or. 34, r. 11(b). In other words, the agreement of parties is superseded by Or. 34, r. 11(b) which, in its turn, is superseded by sec. 31(a) in regard to a pre-Act loan. This is the third modification.

15. The question then arises, does sec. 31(a) in regard to a pre-Act loan also supersede the provision of Or. 34, r. 11(a) in respect of the interest during the first period, i.e, the period from the date of the decree up to the date of redemption? That is the question which is now before me. Sec. 31(a) is in these terms:—

“31. Notwithstanding anything contained in any law) for the time being in force, no court shall, in any decree passed in any suit to which this Act applies:—

(a) if the loan to which the decree relates was advanced before the commencement of this Act, allow any interest on the decretal amount.”

16. Both in the marginal note and in the body of cl. (a) we find the expression “decretal amount.” What is the meaning and import of that expression in the Bengal Money-Lenders Act? First of all, I take it that it has some relation to the word “decree” appearing in the beginning of the section. What is the decretal amount in relation to the decree passed in any suit to which this Act applies? In a mortgage suit to which this Act applies, the decree is passed under sec. 34 of the Act. In sec. 34 (1)(a) (i) we find the expression “the amount of the decree.” What is “the amount of the decree” to which regard must be had in fixing the number of instalments? It must be or at any rate must include the amount found or declared due. If we next turn to sec. 34 (1)(b), we find both the expressions “amount of the decree” and “decretal amount.” There is no doubt that the two, expressions have been used synonymously. Then if we pass on to sec. 35 which also applies to sales in execution of mortgage decrees, we find the expression “amount decreed” which undoubtedly means or at any rate includes the amount found or declared due. In my opinion the words “decretal amount” in sec. 31(a),“amount of the decree” and “decretal amount” in sec. 34 and “amount decreed” in sec. 35 mean the same thing as I said in Mrityunjoy Ray v. Netai Chandra Dutta(5). Therefore, the amount found or declared due is or at any rate is included in “the amount of the decree “or “the decretal amount” or “the amount decreed,” whichever expression you may use. We have seen that under Or. 34, r. 11(a) interest for the period up to the date of redemption is allowed on three items mentioned therein. All those three items are included in the amount found or declared due. Interest on any of those three items therefore must be interest on part of the amount found or declared due which, as we have seen, is “the amount of the decree” or “the decretal amount” or “the amount decreed” within the meaning of those words in the three sections I have mentioned, namely, 31, 34 and 35. If this be so, then there can be no getting away from the conclusion that notwithstanding anything contained in sec. 34 and Or. 34, rr. 2, 4 and 11 of the Code, interest is prohibited under sec. 31(a) on a plain reading of that section by itself. If this be the correct meaning of the expression “decretal amount” in sec. 31(a), then it will be of no use to hark back upon the observations of the Judicial Committee made with reference to the provisions of Or. 34 about the matter being in the domain of contract in this period. It must be held that the Money-Lenders Act has brought about a change in the law in this behalf and imposed a ban on the exercise of the discretion given by Or. 34, r. 11(a) to the Court, whether the matter is in the domain of contract or otherwise.

17. This difficulty is sought to be got over by Mr. P.C Ghose by advancing the reasoning which found favour with Rau, J., in Atul Krishna Das v. Amrita Lal Chakravarty. Let us now analyse that case. I shall first advert to those portions of that decision with which I find myself in agreement. Rau, J., was of opinion (p. 419):—

“(i) that in respect of a preliminary mortgage decree the expression “decretal amount” in sec. 31(a) means the amount found or declared due at the date of the decree;

(ii) that the subsequent interest is not included in the decretal amount;

(iii) the prohibition of sec. 31(a) includes a prohibition of interest on any portion of the decretal amount;

(iv) this prohibition extends to interest allowed for the first period, i.e, from decree up to the date of redemption under Or. 34, r. 11(a) as well as to interest allowed for the second period, i.e, from the date of redemption up to realisation under Or. 34, r. 11(b).”

18. With all the above reasonings and conclusions I respectfully agree. But Rau, J., held that the subsequent interest for the first period under Or. 34, r. 11(a) is saved from the operation of sec. 31(a) by reason of the agreement of the parties, because sec. 31(a) must be read as subject to the agreement of the parties. Rau, J., concedes at p. 468 that if the words “or in any agreement” were not inserted in any of the secs. 30, 31 and 34 and only the words “Notwithstanding anything contained in any law for the time being in force” were used in those sections, then the last-mentioned words alone would be sufficient to supersede the agreement of the parties for the purposes of those sections, because the last-mentioned words would override the law by which the agreement is enforceable and therefore also the agreement itself. In this view the words “or in any agreement” would have been redundant. But the fact that the legislature has thought it necessary to insert those words “or in any agreement” in secs. 30 and 34 but has left them out in sec. 31 can hardly be treated as being of no significance and that it does lead to the inference that sec. 31 is not intended to apply where there is an agreement to the contrary. It is on this reasoning that Rau, J., held that the opening clause of sec. 31 must be read as if it ran “Notwithstanding any-thing contained in any law for the time being in force, but subject to the operation of any agreement.” Having reached this conclusion whereby sec. 31(a) was out of the way, the learned Judge had to hold that Or. 34, r. 11(a) of the Code remains unaffected by sec. 31(a) and therefore interest should be allowed on the instalments and framed a decree accordingly.

19. This reasoning appears to be attractive and may be applied to a well-drawn statute with success. The drafting of the Bengal Money-Lenders Act, however, appears to be extremely inartistic, loose and full of anomalies. We have seen that different words “amount of the decree,” “decretal amount” and “amount decreed” have been used in different sections meaning the same thing. A reference to the law reports will show the numerous difficulties that have been caused by this ill-drawn piece of legislation. In my opinion the omission of the words “or in any agreement” in sec. 31 is only another instance of loose drafting and does not indicate any deliberate expression of a different intention as thought by Rau, J. If by reason of the omission of those words in sec. 31 that section is to be construed in the way indicated by the learned Judge, then the same construction has to be put on sec. 36 where those words are not to be found. On a parity of reasoning the opening clause of sec. 36 would also read “Notwithstanding anything contained in any law for the time being in force but subject to the operation of any agreement.” So read, the section will be meaningless and the whole purpose of the Act will be rendered nugatory. Take cl. (a) of sub-sec. (1). How can the Court re-open any transaction if the Court is bound by the agreement of parties? Cl. (b) of sub-sec. (1) becomes absolutely absurd, because “subject to the operation of any agreement” read into the opening clause cannot possibly be reconciled with “Notwithstanding any agreement” in the beginning of cl. (b) of sub-sec. (i). There will be an express contradiction in this. Likewise cl. (c) becomes inoperative for, if by the opening clause, read as aforesaid, the Court is bound by the agreement of the parties, how can the Court release the borrower of all liability in excess of the limits specified in sec. 30? The position here will be amusing, for under sec. 30, notwithstanding anything contained in any law for the time being in force or in any agreement, the borrower is not liable for any interest in excess of the limits therein specified but under sec. 36, construed as aforesaid, the power of the Court to release the borrower is “subject to the operation of any agreement.” Take cl. (d) of sub-sec. (1). If the power of the Court is subject to the agreement of parties, how can the Court order the lender to repay any money paid under that agreement? The same anomally will appeal in construing sub-sec. (6) of sec. 36. Such a construction will enable the parties to contract out of sec. 36 of the Act and if parties can contract out of sec. 36, the whole machinery for giving relief to borrowers will break down and the object of the Act, namely the control of money-lenders and regulation, and control of money-lending, will be frustrated. For reasons stated above I am unable to accept and adopt the reasoning of Rau, J., and I most respectfully beg to dissent from this part of that decision. His Lordship's attention does not appear to have been drawn to sec. 36 at all. In my judgment the words “or in any agreement” appearing in secs. 30 and 34 are redundant or were there put in to emphasise what was and is implicit in the preceding words and that the absence of the words “or in any agreement” in secs. 31 and 36 does not make any difference in the wide meaning of the preceding words. The words “Notwithstanding anything contained in any law for the time being in force” includes the law applicable to an agreement and therefore the agreement itself.

20. There is another objection, if I may respectfully suggest, to the reasonings of Rau, J. His Lordship proceeds on the assumption that Or. 34, r. 11(a) makes the agreement of parties as to payment of interest the final determining factor. I have endeavoured to show that under Or. 34, r. 11(a) the final determining factor as to whether interest will be awarded or not is the discretion given to the Court. The agreement comes in, after the Court thinks fit to allow interest, for regulating the rate of interest. If I am right, then this statutory power of the Court will be superseded by the words “Notwithstanding anything contained in any law, etc.,” in sec. 31(a). Therefore, even on this construction of Rau, J., sec. 31(a) will be a bar to allowing interest inspite of the agreement of the parties.

21. Before leaving this case, I should refer to the decision of another Appellate Bench of this Court in the case of Promode Nath Sinha Roy v. Sm. Raseshwari Dassi. There Mitter and Akram, JJ., at p. 157 observed as follows:

“As under the Act (X of 1940) simple interest at the rate not more than. 8 per cent per annum can only be allowed, the calculation of interest must be at that rate. The contract rate is thus interfered with by the Act (but the Act does not totally abrogate the provisions of Or. 34, rr. 2, 4 or r. 11 of the Code of Civil Proeedure. Those provisions of Or. 34 are only modified to the extent indicated in sec. 34(1), (a) and sec 31 of the Act. The power to award pendente lite interest in a mortgage suit is not thus taken away by the Act. Three limitations only have in our judgment, been imposed by the Act on those provisions, of Or. 34 in respect of the award of interest, namely, (1) that the pendente lite interest and interest allow-able under Or. 34, r. 11 sub-rule (a), (i) up to the; period of grace, which must;be determined in terms of see. 34(1)(a)(ii) of the Act, would not be act cording to the contract rate, where there is such a rate but would be according to the rate scaled down by, sec. 30 (1)(c) of the Act; (2) that the amount of that interest should not exceed the principal of the loan in accordance with the method of calculation to be made in accordance with sec. 30 (1)(a) and (b) of the Act; and (3) Or. 34, r. 11, sub-r. (b) is not to apply where the loan was advanced before the Act.”

22. I respectfully beg to differ from the above conclusions that the Money-Lenders Act only introduces three limitations therein mentioned. Their Lordships assumed that sec. 31(a) did not affect Or. 34, r. 11(a). The question I have discussed above does not appear to have been argued before their Lordships.

23. In my opinion in the matter of awarding interest, the Money-Lenders Act affects Or. 34 in the following particulars:

(i) Sec. 30 limits the amount and rate of interest to be included in the amount found or declared due under Or. 34, rr. 2 and 4, i.e, interest up to suit and interest pendente hie, i.e, up to the date of the decree.

(ii) Sec. 31(a) prohibits award of interest for the period after the date of the decree up to the date of redmption as well as for the period thereafter and supersedes both Or. 34, r. 11(a) and Or. 34, r. 11(b) in respect of pre-Act loans.

(iii) Sec. 31(b) limits interest for both the periods subsequent to the decree to 6 per cent, per annum and modifies Or.,34, r. 11 in its application to post-Act loans.

24. For reason stated above, by reason of the provisions of sec. 31(a) no interest can be allowed on the, principal amount included in the amount found or declared due at the date of the decree after that date.

25. As regards the number of instalments no evidence has been adduced by either party, but learned Counsel made statements as to the circumstances of their respective clients. Mr. B.C Ghose suggested that if I held with him on the question of interest, then I should allow five annual instalments and if I allowed interest on the instalments I should give the mortgagor leave to pay by 15 annual instalments. Mr. P.C Ghose on the other hand pressed for two and eight annual instalments in the two contingencies, learned Counsel after their argument left the matter of instalments to me. As I have held that no interest is payable, the number of instalments must be smaller than I would have allowed if interest was payable.

26. The amount due up to date is Rs. 26,400. Considering all the circumstances I think it will be right if I direct that the amount due be made payable by three equal annual instalments commencing from October 5, 1944. There will therefore be a preliminary mortgage decree for sale in Form 5A under Or. 34, r. 4, read with sec. 34 of the Bengal Money Lenders Act, for Rs. 26,400 without any interest and payable by three equal annual instalments commencing from October 5, 1944. There will also be a declaration as prayed in prayer (a) of the plaint, subject to the change in the municipal number of the premises which may be incorporated in the decree.

Solicitors: S.C Chakravarti for the Plaintiff; J.C Basil for the Dtefendant.

P.C