Bapurao v. Anant Kashinath

1. This is an application by respondents-defendants 1 and 2 for amendment of the preliminary decree for foreclosure dated 18th November 1940. The date fixed for payment of the decretal amount was 18th May 1941. The amount payable under the decree is Rs. 1,44,433-6-0 [Rs. 15,875 principal, Rs. 1,25,023-8-0 interest on the said principal and Rs. 1517-14-0 and 2017 for costs of the suit and the appeal]. The applicants urge that the decree which has been drawn up is not in accordance with the judgment and that it should have been for Rupees 35, 284-14-0 (Rs. 15,875 principal, Rs. 15,875 interest—interest being restricted to this amount by reason of the rule of damdupat and Rs. 3534-14-0 on account of costs.)

2. The difference is due to the fact that in the decree interest at Re. 1-2-0 p.c p.m with annual rests has been calculated on Rs. 31,750 from 14th August 1929, the date of suit, to 18th May 1941, the date fixed for payment. In order to understand the point involved in this application it is necessary to set out briefly a few relevant facts. Lalji Shankar executed a mortgage for Rs. 15,875 on 21st March 1922 in favour of Vishwanath Banki, father of plaintiff 1, and Lalji Vithoba, plaintiff 2 and agreed to pay interest at Re. 1-2-0 p.c p.m with annual rests. The date fixed for payment was 21st March 1927. On default in payment of the amount on the due date the mortgagor was to pay interest at Rs. 2 p.c p.m with annual rests from the date of the bond till satisfaction. As the amount due under the mortgage was not paid the plaintiffs filed civil Suit No. 15 of 1933 in the Court of the Third Additional District Judge, Akola, on 14th August 1929 to enforce the mortgage. The relief clause is in these terms:

“11(a) The defendants be directed to pay to the plaintiffs Rs. 31,750 made up of the amount of Rs. 15,875 and Rs. 15,875 only on account of interest thereon as the same amounts to more than damdupat as mentioned in the annexed schedule.

(f) Interest at the above rate from the date of the suit till that of satisfaction be allowed.”

3. The trial Court dismissed the suit on 19th December 1935. The mortgagees filed First Appeal No. 33 of 1936 against that decree. They restricted the claim in appeal to Rs. 31,750 as in the lower Court and paid court-fee on that sum. In the memorandum of appeal there was no specific claim for interest pendente lite. The appellants were bound to pay court-fee on the amount of interest which had accrued due from the date of suit till the filing of the appeal if they wanted interest pendente lite at the contract rate. On 8th August 1939 the Divisional Bench held that the mortgage was enforceable and referred the question of law arising out of the appeal to a Full Bench for decision. The decision of the Full Bench is reported in I.L.R (1940) Nag. 573.1 For the purpose of this application it is not necessary to state the question which was formulated or the decision of the Full Bench thereon. After the decision of the Full Bench the appeal came up for hearing before the Divisional Bench. Only two points were urged, viz: (i) the extent of the share of Janrao and Dyandeo, defendants 6 and 7 in certain fields which should be exempted from the operation of the mortgage and (ii) whether Bapurao, applicant 1, who was born on 9th December 1926, after the execution of the mortgage, dated 21st March 1922, was entitled to challenge the mortgage executed by his father. These points were decided by the judgment dated 18th November 1940. The concluding portion of the judgment is in these terms:

“The result is that the appeal succeeds except as regards the ⅔rd share in the fields we have specified above belonging to defendants 6 and 7. The decree of the lower Court will, therefore, be set aside and a foreclosure decree will now be passed in the plaintiffs' favour in respect of all the mortgaged property except the for share mentioned above. The costs of the suit and of the appeal will be paid by the defendants. A further six months will be allowed for redemption.”

4. The mortgagees did not claim interest pendente lite and so the question whether they were entitled to such interest was not decided. The judgment did not award interest at the contract rate on Rs. 31,750 with annual rests from the date of the suit till the date fixed for payment. The decree was, however, drawn up in office on 9th December 1940 which determined the amount payable on 18th May 1941, as Rs. 1,44,433-6-0. This included Rs. 1,09,148-8-0 as interest calculated on Rs. 31,750 with annual rests at the contract rate of Re. 1-2-0 p.c p.m from the date of the suit till the date fixed for payment. No objection was taken by the defendants to the amount mentioned in the decree as payable to the mortgagees. More than 11 months after the drawing up of this decree an application for amendment of the decree was filed. The question for decision is whether a civil Court has power to award interest on the amount due under the mortgage from the date of the suit till the date of the decree at the contract rate either under Section 34 or R. 11 of O. 34 of the CPC, notwithstanding that the limit imposed by the rule of damdupat for the recovery of interest had been reached before the institution of the suit. The existence of such a power has been affirmed in A.I.R 1924 Nag. 3482 by Kinkhede A.J.C, and in A.I.R 1929 Nag. 3553 by Jackson A.J.C and it has been denied in A.I.R 1929 Nag. 1174 and in A.I.R 1931 Nag. 885 by Macnair A.J.C, and in 27 N.L.R 3126 by a Bench of Macnair, J.C, and Subhedar A.J.C We have to decide which of the two views is correct. The debtor and the creditors are Hindus and are residents of Berar. The property mortgaged is situate there. The rule of damdupat applies to Berar: A.I.R 1917 Nag. 1167 and 10 N.L.R 91.8 This has not been disputed by the parties before us. The rule of damdupat is a branch of the Hindu law of Debts. The rule is stated by Gautama in these words:

“If (the loan) remains outstanding for a long time, the principal may be doubled (after which interest ceases).” Sacred Books of the East, Vol. II, Chap. XII, 31, page 242.

5. In Manu the rule is stated thus:

“In money transactions interest paid at one time (not by instalments) shall never exceed the double (of the principal)….” Laws of Manu, Chap. VIII, 51, page 280.

6. The other texts have been collected in Colebrooke's Digest, in Mandlik's translation of Mayukha and in Ganganath Jha's Hindu Law in its Sources, chap. V, vol. I. Some of these texts have been cited in 1 Bom. H.C.R 47.9 3 Bom. H.C.R.A.C.J 2510 at p. 26, 12 W.R O.C 911 and 10 N.L.R 91. According to the rule of damdupat the amount of interest recoverable at any one time cannot exceed the principal: 1 Bom. H.C.R 47; 14 Cal. 78112 at p. 789. The reason of the rule has been stated by Kanhaiyalal, J. in his judgment in 46 ALL. 77513 at p. 782 in these words:

“The Hindu law did not recognise any rule of limitation for the recovery of debts. Every debt which was lawful was binding and recoverable from the debtor irrespective of the period which may have elapsed since the original liability was incurred, and no restriction on its recovery was recognized beyond this that at no time more than double the amount of the principal money could be claimed.”

7. The rule is one of equity, and according to 40 Cal. 71014 at p. 713 one of good sense. This salutary rule has been embodied in several Acts for the relief of debtors by the Indian Legislature: The Deccan Agriculturists' Relief Act, 1879, Section 13(g) of the C.P and Berar Money-lenders Act, 1934, Sections 9 and 10 of the Bengal Money-lenders Act, S. 30 and the Sonthal Parganas Settlement Regulation 3[III] of 1872, S. 6, may be mentioned by way of illustration. The rule of damdupat is not affected by the Usury Laws Repeal Act, 1855. According to that Act the Court is bound to award interest at the contract rate, whatever the rate of interest may be. There are certain exceptions to the rule which need not be stated as they are not necessary for the decision of this case. But in cases to which the rule of damdupat applies, the creditor cannot at any one time recover interest in excess of the amount of the principal: 3 Bom. H.C.R.A.C.J 23,15 7 Bom. H.C.R O.C 19,16 3 Bom. 31217 at p. 838, 12 W.R O.C 9 and 5 Cal. 867.18 Under Section 37 of the Contract Act, the parties to a contract must either perform, or offer to perform, their respective promises unless such performance is dispensed with or excused under the provisions of this Act or of any other law. The rule of damdupat is one such law and S. 37 of the Act does not affect the operation of the rule. This is recognised in 26 Mad. 66219 at p. 670.

8. The question whether the rule of damdupat is applicable to cases of mortgages governed by the Transfer of Property Act has given rise to some divergence of judicial opinion. But the weight of authority is in favour of the view that the rule is not in any way affected by the provisions of the Transfer of Property Act. In 26 Mad. 662 it was held that the rule of damdupat does not apply to mortgages executed after the Transfer of Property Act, 1882, came into force. It was obiter and not necessary for the decision of the case because the rule is not in force in any part of the Madras Presidency: 6 M.H.C.R 400.20 A different view was taken in 33 Bom. 199,21 42 Cal. 82622 and in a series of cases in the Judicial Commissioner's Court: A.I.R 1917 Nag. 116, A.I.R 1929 Nag. 117, A.I.R 1931 Nag. 88 and 27 N.L.R 312. That the rule of damdupat applies to mortgages executed in Berar has not been disputed before us. The only question that has been urged by the mortgagees-respondents is that the rule of damdupat, which prevents recovery of interest in excess of the principal, does not affect the power of the Court to grant interest on the mortgage amount from the date of the suit till the date fixed for payment at the contract rate.

9. A mortgage has a dual aspect; it is primarily a loan and it is also a transfer of interest in immovable property as security for the payment of the loan. The rule of damdupat merely prevents recovery of interest on the loan in excess of the principal but does not in any way affect the provisions of the Transfer of Property Act, 1882. Formerly there were provisions in the Transfer of Property Act, 1882, which dealt with the constitution of a mortgage suit, the procedure to be followed therein and the method of accounting to be adopted. There were no such corresponding provisions in the Code of Civil Procedure, 1882. Section 209 of the Code empowered a civil Court to award interest in a decree for payment of money. In 34 Cal. 150, 161 : 34 I.A 9, 2123 their Lordships of the Privy Council state:

“They think that the scheme and intention of the Transfer of-Property Act was that a general account should be taken once for all, and an aggregate amount be stated in the decree for principal, interest and costs due on a fixed day, 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.”

10. In dealing with the power of a Court to award interest after the date fixed for payment their Lordships observe:

“It is immaterial to inquire into the source of the power in the Court to allow such interest. The words of Section 209 of the CPC, are large enough to include the case of a sum of money payable to the plaintiff out of a fund, and it may be that the Legislature considered that the power of the Court to allow interest after the fixed day was sufficiently provided or preserved by that section, the two Acts being contemporary. Or it may be said that the provisions of the Transfer of Property Act are not exhaustive and were not intended to overrule the established practice.”

11. The accounting in a mortgage suit is now done according to the provisions of O. 34 of the CPC, 1908. Section 34 of the Code corresponds to S. 209 of the Code of 1882 and makes provision for the award of interest in a decree for payment of money. On a preliminary decree for foreclosure or sale under O. 34, Rr. 2, 4 of the CPC, 1908, a mortgagee is entitled to interest, at the rate and with the rests stipulated in the mortgage down to the date fixed for redemption by the decree. In 54 Cal. 161 : 54 I.A 124 their Lordships reconciled S. 34 with O. 34 of the CPC, in these terms:

“Really this matter is determined beyond question by O. 34 of the CPC, 1908. This may, for this particular case of mortgages, differ from the general provision of S. 34 of the Code; but if so, the particular avoids the general.”

12. In O. 34 of the CPC, 1908, there was no specific rule as to interest. Former R. 11 was a rule which laid down the principle ‘redeem up’ and ‘foreclose down.’ This rule was omitted and embodied in Section 94 of the Transfer of Property Act. A new R. 11 was introduced by Act 11[xi] of 1929 which came into force on 1st April 1930 and it dealt with the payment of interest in a mortgage suit. The rule of damdupat operates only so long as the relation of creditor and debtor exists, but not when the contractual relation has come to an end by reason of a decree. The contractual relation of creditor and debtor arising out of a mortgage-debt comes to an end on the expiry of the date fixed for payment under the preliminary decree in a suit on the mortgage if the property is not redeemed. The matter then passes from the domain of contract to the domain of judgment, and the rights of the mortgagee thenceforth depend, not on the contents of the bond, but on the directions in the decree. The operation of the rule of damdupat consequently is from the date of the mortgage to the date fixed for payment in the preliminary decree in the suit based on the mortgage. If on any intermediate date the limit imposed by the rule of damdupat is reached no further interest can be granted. In the present case as the limit had been reached before the suit was filed no further interest could be granted from the date of suit to the date fixed for payment under the preliminary decree. In 33 Cal. 126925 it was held that the mortgagee was entitled to interest notwithstanding the rule of damdupat because he claimed it under an order of the Insolvency Court which amounted to a decree and did not claim it under the mortgage. In 40 Cal. 710 it was held that the rule of damdupat did not apply to the interest accruing after the date fixed for redemption. The learned counsel for the plaintiff-respondent contended that under O. 84, R. 11 of the CPC, 1908, a mortgagee is entitled to interest at the contract rate with compound rests on the principal amount found or declared due. The relevant portion of the rule is given below:

“In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as follows, namely:

(a) interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage—

(i) on the principal amount found or declared due on the mortgage,—at the rate payable on the principal, or, where no such rate is fixed, at such rate as the Court deems reasonable.”

13. The rule contemplates an award of interest in case it is legally recoverable. Where therefore by operation of the rule of damdupat the limit imposed by that rule has been reached no further interest is legally recoverable and cannot be awarded under the rule.

14. In 1940 F.C.R 3126 and 1940 F.C.R 6127 it was held that a Court has a discretion in awarding interest for the period after the institution of the suit and that it is not bound to award interest for such period at the contractual rate even though such rate may not be penal, excessive or substantially unfair. In I.L.R (1942) ALL. 90828 it was held that under O. 34, Rr. 11 and 4 of the CPC, interest should ordinarily be allowed at the contractual rate on the principal amount due, in the first place up to the date of the decree, and in the second place, from the date of the decree to the date fixed for payment under the provisions of O. 34, R. 4, and that in some circumstances, for good reasons, a Judge may disallow interest altogether, but if he does allow interest, he must under the provisions of O. 84, R. 11(1) allow it on the principal amount at the contractual rate, if there is such a rate. In A.I.R 1941 Pat. 37829 it was held that O. 34, R. 11 must be read with O. 34, Rr. 2 and 4 and that interest must be calculated at the contract rate up to the date fixed for payment of the preliminary decree unless the Court finds that such rate is penal or excessive, but for the period subsequent to that date, however, the Court has, under O. 84, R. 11, the option either to allow or refuse interest. Rule 11 is an empowering section authorising a Court to award interest. It is not necessary for the purpose of this application to decide whether a Court is bound to award interest at the contract rate on the principal amount found or declared due on the mortgage, if it is not penal, excessive or unfair. The power under the rule has to be exercised consistently with the contract between the parties and the interest so determined cannot be in excess of the limit imposed by the rule of damdupat. The learned counsel for the respondent relied on 22 Bom. 86,30 37 Bom. 32631 and A.I.R 1925 Bom. 36232 in support of his contention that a Court has power to award interest pendente lite at the contract rate even though the limit imposed, by the rule of damdupat had been reached before the institution of the suit. The authority of 22 Bom. 86 is practically nil. The judgment is very short, there is no discussion and no reasons are given. The statement is in these words:

“We think that the discretionary powers conferred on the Courts by Section 209 of the CPC, of which this is one, may be exercised without reference to the law of damdupat.”

15. In the earlier portion of the judgment it had been held that there was no scope for the application of the rule of damdupat as there was the question of accounting under the mortgage. In that view there was no bar to the award of interest pendente lite. In 37 Bom. 326 the question was whether there should be interference in appeal with the exercise of the discretion by the Court of the District Judge in refusing to grant interest in excess of the amount imposed by the rule of damdupat. Their Lordships of the Privy Council did not call upon the respondents to argue the case and dismissed the appeal on the ground that no case had been made out for interference in appeal. This case cannot be treated as an authority for the proposition that notwithstanding the rule of damdupat a Court has power to award interest pendente lite in excess of the amount imposed by that rule. In A.I.R 1925 Bom. 362 the lower Court had allowed interest after the date of the suit so as to make the total sum decreed for interest equal to the amount of the principal and thereafter disallowed interest up to the date fixed for payment, but allowed further interest in case of default on the total sum from the date fixed for payment under the decree up to actual realisation. The plaintiff claimed in appeal interest pendente lite from the date of the suit till the date fixed for payment and this was disallowed. Though it affirmed that a Court had power to award interest pendente lite it refused to interfere with the exercise of the discretion by the lower Court in refusing to award interest in excess of the limit imposed by the rule. These cases were followed in A.I.R 1924 Nag. 348 and A.I.R 1929 Nag. 355. A contrary view was taken in A.I.R 1929 Nag. 117, A.I.R 1931 Nag. 88 and 27 N.L.R 312. In the latter case it was held that O. 34, Rr. 2, 4 and 11 of the CPC, make full provision for the amount of interest during the period while the matter rests within the domain of contract, and the rules do not provide for interest which does not, owing to the rule of damdupat become payable on the contract. It further held that the provisions of Section 34 of the CPC, do not permit the allowance of more interest than that Calculated by the method provided by O. 34, Rr. 2, 4 and 11. We respectfully agree with this decision. The matter, however, is now placed beyond possibility of dispute by reason of the decision in 15 Pat. 21033 which affirmed the decision in 10 Pat. 63.34 Their Lordships of the Privy Council had to construe S. 6, Santal Parganas Settlement Regulation, 1872 (Regn. 3[III] of 1872). The relevant portion is in these terms:

“All Courts having jurisdiction in the Santal Parganas shall observe the following rules relating, to usury, namely:—

(b) the total interest decreed on any loan or debt shall not in any other case exceed the principal of the original debt or loan.”

16. Their Lordships quoted with approval a passage from the judgment of Jwala Prasad, J.:—

“It is well considered that the rule of Damdupat (in which term he obviously included the provisions of S. 6 of the Regulation) applies only during the contractual relation of debtor and creditor. It does not apply when the contractual relation has come to an end by reason of a decree… In mortgage suits the contract is effective until the expiry of the period of grace and it is only after that date that the matter passes from the domain of contract to the domain of judgment … the effect of the rule of Damdupat is exhausted when the matter passes into the domain of judgment; and there is no reason why interest at court rate should not be decreed on the amount due under the mortgage from the expiry of the date of grace.”

17. Their Lordships of the Privy Council observed at page 218:

“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. This is determined by the Regulation and is limited to twice the amount of the principal. If that limit had been reached before the institution of the suit no further interest could be allowed between that date and the date fixed for redemption.”

18. There the amount legally recoverable was determined by the Regulation. In the present case this is determined by the rule of Damdupat. Applying the principle enunciated above we hold that as the limit imposed by the rule of Damdupat had been reached before the institution of the suit no further interest on Rs. 31,750 could be allowed between that date and the date fixed for redemption. The judgment did not award interest on Rs. 31,750 from the date of the suit till the date fixed for payment. The decree consequently was not in accordance-with the judgment. The application for amendment of the decree succeeds. The decree will now be amended by substituting Rs. 15,875 in place of Rs. 1,25,023-8-0 for interest and by substituting Rs. 35,284-14-0 in place of Rs. 1,44,433-6-0 as the sum awarded to the plaintiffs. The words calculated up to this 18th May 1941 in the decree and the account of interest given in the decree will be deleted. There has been an inordinate delay in making the application for amendment of the decree. The judgment was delivered on 18th November 1940. The decree was signed on 9th December 1940 and the application for amendment was made more than 11 months after the signing of the decree. We disallow the applicants their costs of this application. Defendants 1 and 2 filed an application on 20th July 1945 for extending time for payment. On 14th November 1941 the defendants filed an application for stay of further proceedings for making the decree final. The Divisional Bench passed the following order on 24th November 1941:

“Mr. Y.V Jakatdar, counsel for the petitioner heard. The proceedings will be stayed on condition that the applicant deposits in the lower Court the sum of Rs. 31,750 (which he admits should have been decreed) within a month. This sum will not be removed by the decree-holder till he is heard on 9th January 1942 for which date the application for amendment of the decree is fixed for hearing. If the property is foreclosed the money will be returned to the judgment-debtor in any event.”

19. The amount was not deposited by the defendants as directed in the order. Under the decree as drawn up the amount payable to the mortgagees was Rs. 1,44,433-6-0 on account of principal, interest and costs. The decree was one of foreclosure. We have now determined that the amount payable is Rs. 35,284-14-0. As the amount originally decreed was very large and as the decree was one of foreclosure it was not possible for the defendants to raise the amount for redemption. In the circumstances of the case we consider that defendants 1 and 2 have shown good cause for extension of time for payment. We extend time for payment of the decretal amount from 18th May 1941, the date fixed in the decree for payment to 18th November 1945 and direct as a condition for extending time that the decretal amount of Rs. 35,284-14-0 will carry simple interest at 4 per cent, per annum, from 18th May 1941 to 18th November 1945.

G.N/D.H

20. Order accordingly.