Balasubramania Pillai vs Arumugham Pillai and Another

V. Ramaswami, J.—This case raised an important question relating to the interpretation of Section 7(2) and Explanation 1 of the Tamil

Nadu Debt Relief Act, 1972 (XXXVIII of 1972) (hereinafter called the Act). Before dealing with that question, we may shortly state the relevant

facts. The suit was filed by the Appellant-Plaintiff for recovery of a sum of Rs. 2,215-40 p., due on a simple mortgage, dated 14th October, 1970.

That mortgage was executed by the Defendants for a sum of Rs. 5,000 mortgaging three items of property. The interest was payable at 12 per

cent per annum each month and in default, at 18 per cent per annum from the date of default. It appears that one of the items of mortgaged

property was sold to one Surname on 20th March, 1974 for a sum of Rs. 6,000 and on the purchaser paying the entire sum of Rs. 6,000 towards

the mortgage, the Plaintiff released that item from the mortgage. The amount claimed in the suit is arrived at on the following basis; The amount

advanced Rs. 5,000 and interest from 14th October, 1970 to 20th March, 1974, Rs. 3,090 making a total of Rs. 8,090. On 20th March, 1974 a

sum of Rs. 6,000 was received from the purchaser of one of the mortgaged items and after deducting this amount, the amount payable under the

mortgage was determined at Rs. 2,090 as on 20th March, 1974. An interest of Rs. 125.40 P. has been claimed for the period from 20th March,

1974 to 20th July, 1974 the date of suit, making a total of Rs. 2,215-40 P. The Defendants, relying on Section 7 contended that no amount was

due. Though the trial Court decreed the suit it restricted it to an amount of Rs. 2,090 and did not give the interest of Rs. 125-40 P. But an appeal,

the lower appellate Court reversing the judgment of the trail Court held that no amount was due in view of the provisions of Section 7 and

dismissed the suit. Hence the second appeal.

Though we are primarily concerned with the provisions of Section 7(2) read with Explanation-1, it will be useful to quote the entire Section 7 as

some of the reasoning will have a bearing on the other provisions in the same section. Accordingly that section is quoted

Provision for debts incurred before 1st March, 1972; Debts incurred before the 1st March, 1972 shall be scaled down in the manner mentioned

hereunder, namely:

(1) Where any debtor has paid to any creditor twice the amount of the principal whether by way of principal or interest or both, such debt

including the principal, shall be deemed to be wholly discharged.

(2) Where the sums re-paid by way of principal or interest or both fall short of twice the amount of the principal, such amount only as would make

up such shortage or the principal amount or such portion of the principal amount as is outstanding, whichever is smaller, shall be re-payable.

(3) Subject to the provisions of Sections 18 to 21 nothing contained in (1) and (2) shall be deemed to require the creditor to refund any sum which

has been paid to him or to increase the liability of a debtor to pay any sum in excess of the amount which would have been payable by him, if this

Act not been passed,-

Explanation 1. In determining the amount re-payable by a debt or under the section, every payment made by him shall be credited towards the

principal, notwithstanding that he has expressly stated in writing that such payment shall be in reduction of interest.

Explanation II. Where the principal was borrowed in cash with an agreement to re-pay it in kind, the debtor shall notwithstanding such agreement,

be entitled to re-pay the debt in cash after deducting the value of payment made by him in kind, at the rate, if any, stipulated in such agreement, or

if there is no such stipulation, at the market rate prevailing at the time of each payment.

Explanation III. Where a debt has been renewed of included in a fresh document executed before, on or after the 1st March, 1972, whether by

the same debtor or by any other person acting on his behalf or in his interest and whether in favour of the same creditor or of any other person

acting on his behalf or in his interest, the principal originally advanced together with such sums, if any, as have been subsequently advanced as

principal shall alone be treated as the principal sum re-payable under this section.

Explanation IV. Where a debt has been split up, whether before, on or after the 1st March, 1972, among the heirs, legal representatives or assigns

of a debtor, or of a creditor and fresh document have been executed in respect of the different portions of such debt the provisions of this section

shall continue to apply in respect of each of the different portions.

It may be seen from Explanation-1 that, if the payment of Rs. 6,000 made by, the purchaser of one of the items of mortgaged property was

taken as a payment made by the debtor, the amount being in excess of the principal amount of Rs. 5,000 no amount will be due for payment. But

the learned. Counsel for the Appellant contended that in order to enable a debtor to invoke the provisions of Section 7, especially ""Explanation-1,

the payment towards the mortgage money should have been made by the debtor himself and any payment made by any person, other than the

debtor could be appropriated by the creditor towards any interest that, may be due and that, therefore, any balance towards principal after such

appropriation is payable by the debtor. In this connection, the learned Counsel relied on certain decisions rendered under the corresponding

provision in the Tamil Nadu Agriculturists, Relief Act, 1933 (IV of 1938). The earliest of the decisions which was referred to by the learned

Counsel was Ramasawmi Pillai v. Sankara Mudaliar (1950) 1 M.L.J. 224. That decision was concerned with the interpretation of Section 8 of the

Agriculturists'' Relief Act. The provision of Sub-section (3) of Section 8 is identical with Section 7(2) of the Act now under consideration. But

explanation 1 to Section 8 as amended by Madras Act XXIII of 1948 was slightly different and that read as follows:

In determining the amount re-payable by a debtor under this section, every payment made by him shall be credited towards the principal; unless he

has expressly stated in writing that such payment shall be in reduction of interest.

In that case, a first mortgagee filed a suit for recovery of the amount due under his mortgage impleading the second mortgagee also as a party. In

execution of the first mortgage, the property was sold and after appropriating the amount due under the first mortgage, the executing Court

directed the payment of the balance of money available to the second mortgagee. The amount was appropriated by the second mortgagee towards

interest and in the subsequent suit filed by the second mortgagee for recovery of mortgage money the mortgagor relied on the payment made

earlier and invoked the provisions of Explanation-1 in support of his plea for reduction of the principal due to the extent of the payment made in the

earlier suit. The mortgagee contended that the amount earlier paid was not expressly stated to be a payment in reduction of interest and that,

therefore Explanation 1 has no application. It was further pointed out on behalf of the creditor that in the case of receipt of money from Court it is

impossible to apply the explanation as it is not expected of the Court to give a direction in the manner contemplated by the said explanation. This

argument was accepted by the Division Bench and it was held therein:

.... Explanation 1 obviously could not have contemplated the payment of the amount by Court as it was unreasonable to expect that the Legislature

intended that the Court should give direction in regard to the mode of appropriation of the amount so paid.

The next decision relied on by the learned Counsel is a Full Bench decision of the Andhra Pradesh High Court reported in Ramamma v.

Penchalu ILR [1959] A.P. 704 (F.B.). In that case also, there were certain moneys lying to the credit of a debtor in a Court. In execution of

another money decree obtained against the debtor, the creditor got payment of the money and appropriated it in part satisfaction of the decree by

appropriating the amount, first towards interest and the balance towards principal. In approving the decision of this Court in Ramaswami Pillai v.

Sankara Mudaliar (1950) 1 M.L.J. 224 and considering the same Explanation-1 to Section 8 of the Agriculturists'' Relief Act IV of 1938 as

amended by Madras Act XXIII of 1948, the Full Bench held:

The crucial question for decision is whether monies realised from Court towards a debt could be regarded as a payment made by a debtor. It is

significant that the Explanation talks of payment by a debtor and does not include payments made on account of or on behalf of a debtor or by a

duly constituted agent as in the cases which will be referred to presently. In such a situation, can a payment which is not made by the debtor himself

or by a Court or some other agency, even assuming that they purport to do so on behalf of the debtor, be treated as a payment made by him. In

our opinion, the explanation insists on payments by the debtor himself. The act of the one cannot be regarded as the act of another even, if it is with

the implied authority of another. It could only be said that one of them does act as the agent of the other. There is no scope for importing the idea

of agency into the Explanation, in the absence of the words ''payment by him or on his behalf or by a duly constituted agent''. There is no warrant

for incorporating these words into it. A legislation of this kind, which is ex-proprietary in nature, has to be strictly construed. We feel that the

legislature has advisedly confined it to payments made by a debtor for the reason that he has to exercise volition whether such payment should go

in reduction of interest or principal and that any one on his behalf should not be authorised to give such a direction as it would affect the interests of

the debtor (Italics is mine).

In coming to this conclusion, the Full Bench has also relied on the wording of Explanation 2 similar to Explanation 2 to Section 7 and some other

arguments which are not necessary to be noted.

The principle of these two judgments was applied in the decision reported in Jaggayamma v. Lakshmi Narayana ILR [1961] 2 A.P. 47, 54 in

which the facts shortly stated were as follows:

A mortgagee obtained a mortgage decree against a number of mortgagors. After the decree, one of the mortgagors-debtors was adopted in a

different family. The property mortgaged was sold and a third party mortgagor on a dispute raised by the debtor, who was adopted in a different

family filed an inter pleader suit and deposited the entire money. The amount was with drawn by the creditor on furnishing security. The question

for consideration was whether Explanation-1 to Section 8 of the Agriculturists'' Relief Act was applicable. The contention was that the payment,

should be treated as by an agent of the judgment-debtor and that, therefore, the explanation was applicable. Repelling this argument the Division

Bench of the Andhra Pradesh High Court held;

We may straight away dispose of the question'' as to whether the payment by the third party purchaser could be regarded as a payment by the

agent of the judgment-debtor. Section 8 of the Act is the provision for the scaling down of the debts incurred before the 1st of October 1932, and

the manner in which such scaling down should be effected has been mentioned in Clauses (1) to (4) of the said section. Explanation 1 to this

section says that when arriving at the amount repayable by the debtor under this section every payment made by him shall be credited towards the

principal unless expressly stated in writing that such payment shall be in reduction of interest. The object of Explanation 1 is to take away the lights

of the creditor to appropriate payments towards interest unilaterally, as he would be entitled to do u/s 60 of the Contract Act. If there are arrears

of interest outstanding and payable and payments made open and unappropriated, this Explanation gives the method of appropriation. It must be

stated that there is no scope for importing the idea of agency into the Explanation. Reading the section as it is it is the debtor who has to exercise

his volition whether a particular payment should go towards principal or interest. Therefore, the argument that the payment by the purchaser should

be regarded as having been made on behalf of the judgment-debtor cannot be sustained. (italics is mine).

Taking a similar view with reference to Explanation 1 to Section 8, another Division Bench of the Andhra Pradesh High Court in the case reported

in Soorneedi Sathiraju and Others Vs. Batchu Venkata Rao,, held that even in a case where a mortgagee-purchases apart of the hypothec a in

court-auction in execution of a simple money decree the creditor was entitled to appropriate the amount towards interest and the Explanation is not

applicable. The learned Judges pointed out that though it is true that full effect should be given to the intention of the Legislature, it is not possible to

travel beyond the clear language and obvious intendment of the provisions or stretch their scope by analogy. They further held:

Section 8(2) of the Madras Agriculturists'' Relief Act contemplates total extinguishment of debt of an agriculturist debtor in case he pays to the

creditor twice the amount of the principal sum whether by way of principal or interest or both. If, however, the debtor is not an agriculturist or the

payment is not made by him, there is no doubt, the case would be beyond the purview of the provision. The section is concerned with payment by

agriculturist debtor and not with the identity of the debt. It has relation to the person paying. It must be a payment made by him and not by any

other, who is interested in the property.

It may be seen that the ratio of these decisions rested mainly on the principle of appropriation. In the absence of any specific direction by the

debtor at the time of payment, the creditor under the general law contained in Section 60 of the Contract Act is entitled to appropriate the payment

either towards interest or principal or towards both. Explanation-1 to Section 8 as amended by Madras Act XXIII of 1948 required any amount

paid by a debtor to be credited towards the principal unless he has expressly stated in writing, that such payment shall be in reduction of the

interest. This exception thus postulates a debtor expressly requiring in writing that such payment shall be in reduction of interest. In other words, it

contemplates payment by a person, who had authority to direct such payment to be appropriated only towards the interest. It is in those

circumstances, the decision in Ramaswami Pillai v. Sankara Mudaliar (1950) 1 M.L.J. 224 held that payment by a direction from court of the

surplus money in deposit after payment of the prior mortgagee to the second mortgagee could not be held to go in reduction of the principal. As

already stated, the Court specifically referred to the inability of a Court to give directions in regard to the mode of appropriation of the amount so

paid. The Full Bench decision in Ramamma v. Penchalu ILR [1959] A.P. 704 (F.B.) also related to a case of payment out by the Court of an

amount standing to the credit of a debtor and the creditor appropriating it towards interest and part for the principal. The decision in Jaggayamma

v. Lakshmi Narayana ILR [1961] 2 A.P. 47 related to a case of a purchaser of the mortgaged property depositing the money in an inter pleader

suit and the creditor withdrawing the money on furnishing security. It is also similar to the other two cases, namely, in Ramaswami Pillai v. Sankara

Mudaliar (1950) 1 M.L.J. 224 and Ramamma v. Penchalu ILR [1959] A.P. 704 (F.B.). Soorneedi Sathiraju and Others Vs. Batchu Venkata

Rao,, was also a case of a creditor purchasing the property in court-auction and crediting the amount payable towards the purchaser to this

account on mortgage.

The ratio of the judgment being thus related to the inability of the person paying the money to give a direction in regard to the appropriation of

the money, we have to see whether any such inability has any bearing on the interpretation of Explanation 1 to Section 7. That explanation, as

already extracted, directs that in determining the amount payable by the debtor under that section, every payment made by him shall be credited

towards the principal notwithstanding that he has expressly stated in writing that such payment shall be in reduction of interest. The language

employed is significantly different from the provisions contained in Explanation 1 to Section 8 of the Agriculturists'' Relief Act. By reason of the non

obstante clause in the Explanation it: becomes irrelevant whether the amount was paid expressly towards interest or not. In all cases of payment, it

shall go in discharge of the principal itself. Necessarily, therefore, the authority of the person to give a direction relating to the appropriation of

money becomes irrelevant and that fact would not control the scope and effect of the provision itself. Thus on the language of Section 7 read with

the explanation, I am of the view that the relevancy is payment of the amount towards the debt and not the payment by the debtor himself. It has no

relation to the person paying. In fact, Explanation 1 to Section 8 was amended subsequently by Madras Act VIII of 1973. The Explanation as

amended in 1973 reads as follows:

In determining the amount re-payable by a debtor under this section, every payment made by him shall be credited towards the principal

notwithstanding that he has expressly stated in writing that such payment shall be in reduction of interest.

It may be seen that this Explanation is identical with Explanation 1 to Section 7 of the Agriculturists'' Debt Relief Act. This Explanation, as

amended in 1973, came up for consideration in the decision reported in Ramanathan v. Oomanathan ILR [1974] 2 Mad. 99, 130. Ismail, J. as he

then was speaking for the Bench referring to the effect of the Explanation observed:

The effect of this Explanation is, to put an end to all the appropriations already made either with reference to Sections 58 to 61 of the Indian

Contract Act before the introduction of Explanation 1, for the first time, to Section 8 by the Amendment Act XXIII of 1948 or with reference to

Explanation 1 to Section 8 as introduced by the Amendment Act XXIII of 1948 and to statutorily and compulsorily appropriate all payments made

by a debtor to a creditor only towards the principal. As a matter of fact, the appropriations already made have to be re-opened for the purpose of

applying the provisions of the Act and for finding out the amount re-payable by a debtor.

The impact of this Explanation 1 as amended by the 1973 Act may now be considered. We have already shown that under Sub-section (3) of

Section 8, whether before the introduction of Explanation 1 by the Tamil Nadu Act XXIII of 1948 or after its introduction, either of the two

figures, namely, the difference between twice the amount of the principal minus all the payments made by a debtor and the principal amount or such

portion of the principal amount as is outstanding can be smaller than the other. However by virtue of Explanation 1 as amended by the 1973 Act,

this position is completely changed. Since all payments made by a debtor to the creditor have not to be appropriated only towards the principal,

the portion of the principal outstanding will always be smaller than the difference between twice the principal amount minus all the payments. In

other words, the principal amount minus all payments will always be smaller than the twice the principal amount minus the said payments. Sub-

section (3) as it stands, contemplates the possibility of either of the two figures being smaller than the other. By virtue of the amendment made to

Explanation 1 by the 1973 Act, the possibility is nullified because the principal amount minus all payments will always by smaller than twice the

principal amount minus all payments and, therefore there is no chance of twice the principal amount minus all payments being in any case smaller

than the principal amount minus all payments. In other words, the contingency contemplated by Sub-section (3), namely that in some cases the

difference between twice the principal amount minus all payments can be smaller than the principal amount or the portion of the principal amount

outstanding becomes unreal and has no significance whatever in view of the amendment made to Explanation 1 by the 1973 Act.

This interpretation and the reasoning are equally applicable in understanding the scope of Explanation 1 to Section 7.

Though the specific point as to the necessity for payment by the debtor himself was not considered in this case it may be pointed out that, that

was also a case of payment by an agent of the debtor. But whatever that be, the effect of the Explanation, as pointed out by the learned Judge, can

only lead to the inference that the payment towards a d(sic)b is relevant rather than the person, who makes the payment. The decisions cited by the

learned Counsel for the Defendant reported in Perianna Goundan v. Sellappa Goundan 48 L.W. 954, Cheruvu Nageswaraswami Vs. Rajah

Vadrevu Viswasundara Rao and Others, and the unreported judgment of Ramanuam J. in Appeal Against Appellate Order No. in 454 of 1975,

Nambi Nadar v. Tahira Kader dated 21st July, 1976 have no relevance as they dealt with cases of rights of the purchaser of the equity of

redemption to invoke the provision of Section 8.

On facts, it is not disputed that if the Explanation were to apply, the entire amount of Rs. 5,000 gets wiped-off and no amount towards the

principal being outstanding, no recovery of any further amount is possible.

The suit is, therefore, liable to be dismissed. Accordingly the second appeal fails and is dismissed. But there will be no orders as to costs.