Badrilal vs Badrilal

H.R. Krishnan, J.—This is an application in revision by the defendant-debtor from the judgment of the first appellate Court varying the decree of the trial Court to the advantage of the plaintiff, on the ground that in the circumstances of the case, it was not open to the trial Court to go behind the balance struck in the books of the plaintiff, as the verified total of the amounts outstanding against the defendant was really an acknowledgement and amounted to a fresh cause of action. The defendant has come up to this Court in view of Section 102, Civil Procedure Code, with an application in revision. This involves an important question of law as to extent of the Courts power u/s 3 of the Madhya Bharat Interest Act, to go back to the original cause of action, and adjust towards the principal the interest payment in excess of that allowed by the Act. In this connection the parties have cited different rulings of this High Court which, they urge, are mutually conflicting. If the rulings of this High Court in regard to the application of Section 3 of the Madhya Bharat Interest Act are self-contradictory, it will be necessary that a reference should be made to a Full Bench; but studying them, with reference to the facts of each case, I note that they are easily reconcilable.

The tactual findings necessary for the purpose of this case are the following:-As a result of different transactions in kind as well as in cash, certain sums were shown in the books of the plaintiff as outstanding against the defendant. Each entry was signed by the defendant as evidence of its arithmetical correctness. From time to time arithmetical totals were struck and verified by the defendant, but in no verification is there any word to indicate that the verified total was being treated as a fresh loan or a "settled account" in other words, a fresh cause of action. It also appears that the interest added was at a rate higher than that provided by the Interest Act. These additions had the effect of compound interest with annual rests, because during each year the total balance of the previous year began to bear interest which was added on at the end of the year, verified by the debtor, and charged to interest in the next year, and so on. The trial Court was of the view that in application of the retrospective effect of Section 3 of the Madhya Bharat Interest Act, it could scale down and simplify the interest, and apply the surplus towards the principal. By this method, it brought down the claim from a total of Rs. 437 to Rs. 41/12/6.

The appellate Court, however, took another view. Retrospective effect of Section 3 of the Act was all right; but it could not go backwards beyond the date on which the last total was struck and acknowledged as a fresh loan. This having been done, on the date on which the borrower had last signed in the books, awarded a decree for Rs. 361, while being less than the plaintiff''s claim was much more than that decreed by the trial Court. From this, the defendant has come up in appeal urging that the decree of the trial Court should be revived because the rulings reported in Bhanvarlal vs. Navalkishore 1957 JLJ 954 (DB) and Bherodan vs. Murlidhar 1960 JLJ 375 (DB) justified such procedure and enable the Court to reopen accounts right up to the starting point of the liability. The plaintiff-respondent, on the other hand to had relied upon Mushat Cloth Stores vs. Shivratan JLJ 462 (SB), which has been subsequently affirmed in the ruling reported in Mohanlal vs. Kallu 1960 JLJ 442 (DB). It appears, there are other rulings of this High Court which have not been pointed but these four are typical.

All these rulings accept the basic principle that Section 3 of the Vadhya Bharat Interest Act should be applied retrospectively going back to the point when the cause of action. i. e., the subject-matter of the suit, originated; and that any payment of interest in excels of that permitted by statute should be applied towards the reduction of the principal. However, the point of real difficulty and apparent--and in my opinion only apparent conflict is in regard to what in each case, was the initial liability, which could not be further analysed for the purposes of the case. If at any particular point in a succession of transactions, the parties create a fresh cause of action, either by an acknowledgement noted in the books, or by a fresh pro-note, then it is the starting point of the liability for the purpose of the suit, though behind it there might have been other transactions. In other words, the new agreement would be one creating the liability. If that agreement provides for a rate of interest higher than the one permitted by the statute, the accounts can be worked out backwards up to that point, but not any further behind. Anything earlier than the cause of action may not be re-opened.

Though it is clear, there may in any particular case be an additional complication. A series of transactions might be noted in the books of the creditor and initialled or signed by the debtor as arithmetical verification. In such a case, the creditor might assert that it is a fresh cause of action, and as such it cannot be broken up with reference to whatever happened before it; while the debtor might assert that it is not an acknowledgement or a fresh cause of action, but only a point in a continuous series without any fresh undertaking or agreement. On the latter view, of course, the whole series can be broken up between principal and interest, the latter scaled down end excess realizations adjusted towards the principal. Thus, the real controversy in all such casts is not in regard to the principle of retrospective application to the point at which the cause of action to the suit started but as to the starting point itself, which would be a question of fact ascertainable from the manner of entries in the books or the acknowledgement or verification, if any, or fresh pro- note.

The two batches of rulings mentioned are typical. In all of them, retrospective application is admitted. In the ruling reported in 1957 JLJ 954, the position was similar to that in the instant case. There were books of accounts over a long period; but two points were significant: the point represented by Ex. P/5, extract from the khata of the defendant for the year Samvat 1986-87 shows a previous balance, an acknowledgement and a fresh agreement to pay by instalments ending in Jelh Sudi 1995. We are certainly not concerned with what happened before it. The next point is represented by Ex P/2, which is an extract from the books for 1995-96 (Samvat). Whereas in Ex. P/5 there was an acknowledgement and a fresh agreement. In this Ex. P/2 there is a debit balance on Jeth Sudi 10, Samvat 1996 and is just signed without anything indicating an acknowledgement or, a fresh liability. The plaintiff''s counterpart of the same document is the entry Ex. P/1 again for Rs. 8,000, signed by one of the defendants on 27-5-1945. The Court recognised the retrospective effect of Section 3 of the Interest Act and directed that the lower Court should ascertain, how much had been included in the amount of Rs. 8,000 by way of compound interest and disallow it in other words, they were prepared to go behind the balance of Rs. 8,000 of Samvat 1995-96; but they were not prepared to go behind the agreement of Ex. P/5 of 1986-87. Though this has not been discussed at length, the distinction is crucial. When the parties had arrived at the figure of Rs. 8,000, it was only an arithmetical balance and not a fresh cause of action but the agreement Ex P/5 was treated as a starting point and a fresh cause of action. The former could be re-opened, but not the latter.

This principle has not been varied or ignored in the Single Bench ruling reported in 1958 JLJ 462. Instead of using the word ''''fresh cause of action" or ''''fresh agreement" this ruling describes it as a "settled account" and then holds that it cannot be reopened so as to determine the principal sum:

"Such drastic power of re-opening the accounts on the ground that the amount acknowledged includes excess interest and compound interest, cannot be inferred merely from the definition of the expression "principal sum" in Section 2 (4) of the Act "

I find exactly the same crucial difference between the two Division Bench Rulings of 1960 already referred to. The earlier ( Bherodan and Others Vs. Murlidhar, arose out of a redemption suit filed by the purchaser of the equity of redemption tendering the amount which he considered was still payable. Over a length of period, the mortgagees had been in possession and had been applying the income towards interest agreed at 12 p c. p. a., they were adding the deficit to the principal and again charging interest at that rate subject to further adjustment out of the income. The Court directed the commissioner to take accounts, applying the income derived by the mortgagees towards interest at the statutory rate of 6% and adjusting the surplus, if any, against the principal. There is nothing in this amounting to a disapproval of the principle contained in the Single Bench Ruling. Nor is there any conflict between this and the later Divisional Bench Ruling reported in Mohanlal Vs. Kalloo, . The latter was a reference on the question which has been quoted there-

"Whether a debtor is entitled to invoke benefit of Section 3 of the Madhya Bharat Interest Act, 1956 so as to claim a re-adjustment of interest already paid by him or appropriated by the creditor at a rate higher than the maximum permissible under that section ?"

Here again, it has been ruled that, once there is a settled account or acknowledged principal, it becomes a fresh cause of action and cannot be broken up with reference to what happened before it. However subsequent transactions by way of payment of interest can certainly be re-opened and the rate of interest scaled down. In cases where the scaling down of interest is permissible, it is open to the Court to re-appropriate the excess interest towards the principal.

The foregoing analysis of all the four rulings, which as I have already noted, are typical, shows that there is really no conflict, the apparent difference being in regard to whether a particular point where the balance might have been struck, does really represent an acknowledgement or a fresh agreement or is only an arithmetical total of a continuing series.

Applying this principle lo the instant case I note that there has been no settled account or acknowledged principle. No doubt, the borrowings of each year are totalled, interest added and carried on the next year. Individual entries have been verified by the borrower; but there is no indication at all that this was intended to be a fresh agreement. The first appellate Court followed a principle which was certainly correct, but it did not fit in with the facts of the present case. I would, accordingly, allow the application, set aside the judgment and decree of the appellate Court and restore that of the trial Court. Costs and pleaders fee according to rules payable by the plaintiff-opposite party to the defendant-applicant throughout.