Jagannath Roy vs Rajkumari Prativa Debi

Ray, J.—This is a mortgage suit. On the 8th July, 1923, Kumar Prasanna Dev Raikut mortgaged several properties some at Calcutta within the jurisdiction aforesaid and some outside the jurisdiction for the sum of Rs. 7,95,000 in favour of Kumar Promatha Nath Roy. The mortgagor covenanted to pay the mortgage sum on the 8th July, 1928, with interest at 12 per cent, per annum payable by quarterly instalments and with compound interest at the same rate with half-yearly rest in the account. By another mortgage dated the 23rd December, 1923, Kumar Prasanna Dev Raikut mortgaged and further charged the properties mentioned in the 1923 mortgage in favour of Kumar Promatha Nath Roy for a sum of Rs. 1,10,000 and the mortgagor covenanted to pay the mortgage sum on the 8th July, 1928, with interest by quarterly instalment at 12 per cent, per annum with compound interest at the same rate with half-yearly rest in the account. By. an indenture of further charge dated the 21st September, 1929, Kumar Prasanna Dev Raikut further charged the properties mentioned therein in favour of Kumar Promatha Nath Boy for a sum of Rs. 5,85,000 and the mortgagor covenanted to pay the said sum of rupees payable by monthly instalments and compound interest at 12 per cent, per annum with half-yearly rest in the account.

By a registered agreement between Kumar Pramatha Nath Roy and Kumar Prasanna Dev Raikut dated the 21st September, 1929, the date of payment of money payable to the mortgagee under the indentures dated the 8th July, 1923 and 23rd December, 1923, was extended up to the 21st March, 1930. By the said agreement the mortgagee agreed to charge interest at the reduced rate of 9 per cent, per annum on the money payable on the said three indentures in the event of regular and punctual payment of interest by the mortgagor as provided in the said agreement.

The mortgagor had made certain payments of interest but failed to pay anything towards the principal. Kumar Pramatha Nath Roy thereupon the 24th July, 1931, instituted this suit for recovery of the principal sums of Rs. 14,90,000 and Rs. 2,76,909-13-9 for interest up to the 31''st July, 1931, aggregating Rs. 17,66,909-13-9.

On the 29th August, 1932, there was a consent decree declaring Rs. 20,84,247-13 payable by the mortgagors and further charges calculated up to the 31st December, 1932. It was provided in the consent decree that the money should be paid within 3 years and 7 months from 1st January, 1933 and interest should be paid thereon at 12 per cent, per annum with half-yearly rest. On the 18th July, 1933, the Plaintiff''s costs were taxed at Rs. 2,422-11-3.

On the 10th July 1937, notice of motion was taken out by the mortgagee''s solicitors inter alia for sale of the mortgage properties, for grant of leave to the mortgagee to bid for and purchase the mortgage properties and if declared the highest bidder and purchaser to set off the amount of purchase money portent against the money payable and for appointment of Receiver.

By a consent order dated the 28th April, 1938, Jagannath Roy and Balaram Roy, sons of the mortgagee Kumar Pramatha Nath Roy, were substituted as decree-holders.

On 19th June, 1939, there was final decree and on 20th July, 1939, there was appeal from the final decree. On 19th November, 1940, there was an application under the Bengal Moneylenders Act.

On 2nd January, 1942, the Court of Appeal by decree remanded the suit to the trial Court and ordered as follows:

In these circumstances, the proper course is to allow the appeal and remand the matter to the learned Judge to him to grant the Appellant such referred under the Bengal Moneylenders Act as he may consider the Appellant is entitled to.

By an order dated 7th September, 1948, Rani Ashrumati Devi was brought on record in this suit as Administration-ad-litem. By a further order dated 7th December, 1954, Rajkumari Protiva Debi was brought in on the records of this suit as Administration-ad-litem.

There is no dispute between the parties as to whether the Bengal Moneylenders Act. and the relevant provisions thereof apply. There is also no dispute between the parties with regard to the principal sum in the mortgage dated 8th July, 1923 and in the mortgage dated 23rd December, 1923. The question which was urged before me is whether the further charge dated 21st December, 1929, for Rs. 5,85,000 is a principal sum under the Bengal Moneylenders Act. On behalf of the mortgagees, it was contended that the charge dated 21st September 1929, was a loan and that the sum mentioned therein is the principal sum as in the two earlier mortgages. On behalf of the mortgagors, it was contended that the further charge was created only for payment of interest which had already accrued due to the mortgages under the mortgage dated 18th July, 1923 and the'' mortgage dated 23rd July, 1923, and as such, the charge dated 21st September, 1929, was not for any principal sum advanced by the lender and further that there was not an actual advance of the entire sum by the lender to the borrower and that therefore the entire sum of Rs. 5,85,000 is not the principal amount nor was it a loan.

By a letter dated 26th August, 1952, the mortgagor''s solicitor called upon the mortgagee''s solicitor to admit if the 74 items of payment mentioned in the said letter had been paid towards payments of debts on the mortgages and for further charge being the subject matter of the suit. By letter dated 19th November, 1952, the mortgagee''s solicitor replied to the mortgagor''s solicitor that 8 items of payment mentioned in the said letter were not admitted. By another letter dated 8th January, 1953, the mortgagor''s solicitor called upon the mortgagee''s solicitor to admit if 10 items of payments mentioned therein had been paid. By letter dated 19th January, 1953, the mortgagee''s solicitor admitted 8 out of the 10 items mentioned in the letter dated 8th January, 1953. The only two disputed items were item No. 1 in the letter dated 8th January, 1953, for Rs. 7,291-10-8 and item No. 6 for Rs. 25,843-15-11. On the basis of the said correspondence resting with the mortgagee''s solicitor''s letter dated 9th February, 1963, whereby the mortgagee admits the sum of Rs. 20,54,883-8 to have been paid, it appears that there are certain items of disputed payments. With regard to such disputed items of payments, it is not possible for me to come to any finding inasmuch as there has been no oral evidence led before me.

At the trial, the parties did not lead any oral evidence but placed before me the following documents:

(1) Mortgage dated the 8th July, 1923, appearing at page 63 in part 2 of the Paper Book in Appeal from Original Decree No. 37 of 1939.

(2) Indenture of further charge dated the 23rd December, 1923, appearing at page 76 of the same Paper Book.

(3) Indenture of further charge dated the 21st September, 1929; appearing at page 85 of the same Paper Book.

(4) Affidavit of Kumar Prasanna Deb Raikut dated the 8th July, 1923 and the attestation certificate dated the 11th July, 1823, by Mr. Edwin Parcy Swinhoe, Notary Public, certifying that on the 8th July, 1923, the said Prasanna Deb Raikut signed and affirmed the said affidavit.

(5) A true copy of the certified copy of entries in the current account of Kumar Pramatha Nath Roy with the Imperial Bank of India, since known as State Bank of India. The entries relate to the year 1929 in the month of September and the certificate is dated 3rd March, 1956, signed by M. K. Adhikari, Chief Accountant, State Bank of India.

(6) True copy of the certified copies of the entries in the account of Kumar Prasanna Deb Raikut with Imperial Bank of India (since known as State Bank of India) for the months September-October, 1929 and the date of certificate is 19th November, 1955, signed by M. K. Adhikari, Chief Accountant, State Bank of India.

(7) Notice of Motion, dated 18th November, 1940, petition on behalf of the Defendant filed on the 19th November, 1940. affidavit of Manmatha Nath Pal affirmed on the 23rd of November, 1940, filed on the same date, and the affidavit of Satish Chandra Roy affirmed on 4th February, 1941 and filed on the 5th January, 1942.

(8) The Paper Book in appeal from original decree No. 37 of 1939 was also referred to in general.

At the trial, the following questions were urged before me:

(a) What is the principal amount advanced? Is it the aggregate of the mortgage dated the 8th July, 1923, the second mortgage dated the 23rd December, 1923 and the further charge dated the 21st September, 1929, or is it the aggregate of the two mortgages of the year 1923?

(b) What moneys have been paid by the mortgagors to the mortgagees?

It is common ground that interest has been paid at 121/2 per cent, compound interest and that the final decree is based on interest calculated at 9 per cent, compound interest.

Mr. Ghosh on behalf of the mortgagees contended before me that the charge dated 21st September, 1929, shows that the lenders had lent and advanced to the borrowers the amount of Rs. 5,85,000 and that therefore this sum was the principal amount. He also contended that the lender was not interested in the application of the money lent by the lender to the borrower and the further charge was a document containing recitals of the advance and that therefore the court should accept that solemn declaration. Mr. Ghose further referred to me the declaration dated 8th July, 1953.

In support of the contentions on behalf of the mortgagees, counsel referred me to two decisions reported in Lyell v. Chappell [1223] 2 K.B. 691 and Joygobind Singh v. Lochmi Narayan and Ors. [1940] F.C.R. 61. The broad proposition which Mr. Ghosh extracted from these two authorities is that the true fact of a transaction is to be looked into and that it is not necessary that the lender should actually hand over the money to the borrower.

The word "principal" has been defined in Section 2, Sub-Section 16, of the Bengal Moneylenders Act as meaning in relation to a loan the amount actually advanced to the borrower. The word "loan" has also been denned in Sub-Section 12 of Section 2 of the Act as meaning an advance whether of money or in kind made on condition of repayment with interest and including any transaction which is in substance a loan. It appears that the first part of the meaning of "loan" gives the primary meaning of loan and the second part enlarges the primary meaning by using the word "includes". In order to be a loan within the meaning of the Act the stipulation for payment of interest is a sine qua non. There has to be also an advance of money or of kind and there should also be a condition of repayment. The primary meaning of the word "loan" has been enlarged in the latter part of the definition and the result is that in regard to such transactions the substance and not the form must be looked into and facts and circumstances attending the transaction should also be taken into consideration.

With, regard to the further charge dated 21st September, 1929, there is a recital as follows appearing at page 85 of the Paper Book:

And whereas there is now due and owing to the mortgagee under and by virtue of the said recited indenture of mortgage and of mortgage further charge and additional security for respectively of the 8th July, 1923 and the 23rd December, 1923, the sum of Rs. 9,05,000 as principal with all interest and compound interest thereon calculated up to the 28th September, 1929, is being fully paid up and satisfied simultaneously with the execution of these presents and whereas the mortgagor being in need of a further sum of Rs. 5,85,000 as approved (s.i.c.) to the mortgagees to lend and advance to him the sum which the mortgagee has signed to do on having the repayment thereof with interest....

It appears from the statement of account of Kumar Pramatha Nath Roy that on the 21st September, 1929, by cheque No. 90528 Rs. 5,85,000 was paid and it further appears that on the same date Rs. 5,70,088-12-9 by cheque was deposited to the credit of Kumar Pramatha Nath Roy. It also appears from the certified copy of the account of Kumar Prasanna Deb Raikut that on 21st September, 1929, Rs. 5,85,000 by cheque was deposited to the credit of Kumar Prasanna Deb Raikut with the Imperial Bank of India and by cheque No. 92817 Rs. 5,70,088-12-0, was withdrawn. That sum of Rs. 5,70,088-12-9 which was withdrawn by Kumar Prasanna Deb Raikut was paid on the same day to Kumar Pramatha Nath Roy and it was so credited to the account of Kumar Pramatha Nath Roy. As a matter of fact, there is no dispute between the parties that out of the sum of Rs. 5,85,000 on the 21st September, 1929, Rs. 5,70,088-12-9 was paid by Kumar Prasanna Deb Raikut to Kumar Pramatha Nath Roy and that the sum represented the interest on the earlier mortgages of 1923 up to the 28th September, 1929. As a matter of fact the charge dated 21st September, 1929, in the recital contains also a statement that interest and compound interest on the two mortgages calculated up to 28th September, 1929, is being fully paid up and satisfied simultaneously with the execution of these presents. The documentary evidence is clear that Rs. 5,70,088-12-9 out of Rs. 5,85,000 was paid as interest and. the charge for Rs. 5,85,000 was paid for obtaining interest on the 2 earlier mortgages.

Mr. Mukherjee on behalf of the mortgagor contended that the substance and not the form should be looked into and that the further charge dated 21st September, 1929, was in substance not a loan or advance. He also contended that by reason of the facts and circumstances surrounding the charge dated 21st September, 1929, it was abundantly clear that Rs. 5,70,800-12-9 which was the interest on the 1923 mortgages was being paid out of the sum of Rs. 5,85,000, and therefore there was no actual advance of that sum. In my view the recital in the further charge dated September 21, 1929, cannot be conclusive inasmuch as such, a construction would always defeat the purpose of the Moneylenders Act. It was help in an unreported decision in Jagannath Ray v. Madam Mohan Burman Appeal from original decree No. 154 of 1943 (unreported) that in a case coming under the Bengal Moneylenders Act "it is the duty of the court to find out what is the principal of the loan, and the definition given in the Act of the words ''principal of the loan'' is the amount actually advanced. If in a case the lender hands over a sum of money to the borrower and takes back a portion thereof either at the same time or later on the actual advance for the purpose of the definition must not be what was given in the form of an advance in the first instance but the net balance which remains with the borrower. For the purpose of considering what is the principal of the loan all devices and contrivances adopted by the lender with a view to get back part of the advance must be ripped open and the matter must be looked in its bare nudity."

In the case of Lyell v. Chappell (supra) relied on by Mr. Ghose the borrower had borrowed �150 from the lender at an exorbitant rate of interest on a promissory note dated April 25, 1930, and a memorandum dated October 27, 1930, recited that the borrower had agreed to borrow �200 from the lender for repaying the previous loan. The borrower authorised the lender to allocate the whole of the sum of � 200 in settlement of the promissory note dated April 25, 1930. On October 27, 1930, another promissory note for � 300, �200 for principal and �100 as interest was made by the borrower. The lender brought a suit on the promissory note dated October 27, 1930. The question in that case was whether there was a sufficient memorandum within the meaning of Section 6 of the English Moneylenders Act, 1927. Section 6 of the English Moneylenders Act is as follows:

(1) No contract for the repayment by a borrower of money lent to him after the commencement of this Act and no security given by the borrower in respect of any such contract shall be enforceable unless a note or memorandum in writing of the contract being made and signed personally by the borrower...and no such contract or security shall be enforceable if it is proved that the note or memorandum as aforesaid was not signed by the borrower before the money was lent or before the security was given as the case may be.

(2) The note or memorandum as aforesaid shall contain all the terms of the contract and in particular shall show the date on which the loan was made, the amount of the principal of the loan, and either the interest charged on the loan expressed in terms of a rate per cent, per annum..

It was held in that case that where the time for payment of the original loan had expired without complete payment and the time for repayment was extended or altered, the memorandum showing the altered terms was within Section 6 of the English Act if the memorandum was made prior to the commencement of the extended period. It was also held in that case that in case of renewals of loan on altered terms, it was not required that a memorandum of the alteration should be signed before the original loan was made because that would be impossible. In my view, neither the words of the Section 6 of the English Act nor the facts of the case have any application to the case before me.

The other case cited before me was Jaygovinda Singh v. Lachminarayan Ram and Ors. (supra). That was a case relating to the construction of a document as to whether it was within the meaning of Section 2 and Section 7 of the Bihar Moneylenders Act. In the Bihar Moneylenders Act "principal" is denned as meaning, "in relation to a loan the amount actually lent to the debtor". u/s 2(f) of the Bihar Monylenders Act a "loan" means advance, "an advance whether of money or in kind on interest" made by a moneylender including "a transaction on a bond bearing interest executed in respect of past liability and any translation which in substance is a loan". The relevant words in Section 7 of the Bihar Act in that case are "a transaction on a bond bearing interest executed in respect of a past liability". In the case before the Federal Court, it was a suit to enforce two simple mortgage deeds dated October 4, 1924 and April 24, 1930, for Rs. 2,500 and Rs. 1,800 respectively carrying interest at Re. 1 per cent, per month compounded every year. In that case the mortgage dated October 4, 1923, was executed to secure a payment of Rs. 2,500. This amount of Rs. 2,500 was made up of the sum of Rs. 1,500 received in cash to pay the other creditors of the mortgagor and Rs. 1,000 treated as paid to the mortgagee in discharge of antecedent debts due to them from the mortgagors. The mortgage bond dated October 4, 1923, gave particulars of the antecedent debts and after reciting that the amount due upto that date for principal and interest was Rs. 1,047 it provided for the payment of Rs. 1,000 out of the loan towards that amount. The question was whether the mortgage bond dated October 4, 1923, was liable to be reopened in respect of the antecedent debts referred to therein and also whether the court would limit the interest up to the date of the suit in respect of this portion of the mortgage debt to the amount of principal due under the antecedent transactions. This contention was negatived on the ground that the mortgage bond dated October 4, 1923, was "a loan based on a document" and under the words of Section 7 of the Bihar Act interest in such a case claimable up to the amount of the loan mentioned in the document is permissible. It was also held that the loan document in that case was the bond dated October 4, 1923, and not an earlier document referred to therein and the definition of a loan in the Bihar Act included a transaction in a bond executed in respect of past liability. The ratio decidendi in my view, before the Federal Court, was that the liability on a loan document rested on the document itself and under the Bihar Moneylenders Act it was permissible to bring within the definition of a loan the principal amount as mentioned in the bond and renewed bonds and earlier transactions could not therefore be ripped open. In my view, the decision of the Federal Court does not apply to the facts of this case. Furthermore, the definition of a loan in the Bengal Moneylenders Act is not pari materia with the definition of a loan in the Bihar Moneylenders Act.

In my view, the essential element in the definition of the word "principal" is the amount actually advanced. The emphasis is on what is actually advanced. Similarly, in the definition of "loan" there again occurs the words "advance". A Special Bench of this Court in Nani Lal Ray v. Gopal Lal Ray (1947) 52C.W.N. 116 held that where a part of the loan nominally advanced is retained by the lender as capitalist''s commission only the amount actually advanced must be taken as the principal of the loan as defined in the Bengal Moneylenders Act 1940. In that case Raja Gopal Lal Roy borrowed from Nandalal Roy and Pulin Krishna Roy certain sums of money on 3 promissory notes dated September 25, 1927, January 24, 1928, and February 12, 1928. On October 4, 1930, the Defendant in that suit executed 3 other promissory notes, one for Rs. 30,760 in favour of Nandalal Roy and Pulin Krishna Roy and another for Rs. 5,500 in favour of Nandalal Roy and the third one for Rs. 5,500 in favour of Pulin Krishna Roy. In respect of the promissory note dated October 4, 1930, for Rs. 30,760 the principal represented the principal and interest due up to August 3, 1930, on the three earlier promissory notes of the years 1927, 1928. On November 15, 1930 the Defendant in that suit executed a mortgage in favour of the lender for the sum of Rs. 1,00,000. The mortgage instrument recited the loans on several promissory notes including the three promissory notes of the years 1927, 1928 and the promissory note dated October 4, 1930, for Rs. 30,760 and the borrower made a statement in the instrument that loans had been taken either for payment of antecedent debts or for legal necessity. The instrument further recited that the lender had demanded payment from him of the sum due on promissory notes being the one dated October 4, 1930, for Rs. 30,760 and the other two of the same date for Rs. 5,500 each. The instrument further recited that the borrower had agreed to borrow from the lender Rs. 66,979-10-6 for repaying the loan due on the promissory notes and other creditors of his. According to the mortgage instrument the principal of Rs. 1,00,000 to secure which the mortgage was executed was made up of Rs. 66,979-10-6 which the lender is said to have advanced to the borrower to enable him to pay the loans due on the three promissory notes dated October 4, 1930 and loans due to other creditors and the balance of Rs. 33,020-5-6 represented interest of Rs. 320-5-6 on certain other promissory notes later than the promissory notes of October 4, 1930 and the principal amount of those later promissory notes. Only a. portion out of the sum of Rs. 66,979-10-6 was actually paid in cash to the borrower. In that case it was held that the promissory note dated October 4, 1930, for Rs. 30,760 which represented principal and interest up to August 3, 1930, in respect of three earlier promissory notes dated 1927, 1928 would not be included within the principal amount of Rs. 1,00,000 in the mortgage dated November 15, 1930, because that amount of Rs. 30,760 was not actually advanced. In that case the mortgage for Rs. 1,00,000 was ripped open and the promissory note for Rs. 30,760 was not included within the principal amount. The capitalist''s commission deducted by the lender or paid by the borrower on each and every transaction of the promissory notes was also not included within the principal of the mortgage dated 15th November, 1930. In that case it was held that the principal of the mortgage was what was actually advanced in cash to the borrower. Interest on the 3 earlier mortgages was included within principal of the promissory note for Rs. 30,760 and the same was disallowed as not being principal amount of loan. I must say that the two cases cited before me were referred to in the case of Nani Lal Roy v. Gopal Lal Roy (supra) and their lordships examined both the decisions and came to the conclusion that neither of the two decisions can support the plea of the lender in that case of Nani Lal Roy v. Gopal Lal Roy (supra) to include the promissory note dated October 4, 1930, for Rs. 30,760 as the principal amount within the loan of Rs. 1,00,000 mentioned in the mortgage dated November 15, 1930.

In the present case it appears to me that in view of the bank statements as also from the facts and circumstances surrounding the transactions of Rs. 5,85,000, Rs. 5,70,088-12-9 was not actually advanced by the lender to the borrower. The money was secured by the charge but the money represented interest which had been due on the earlier mortgages and the borrower had not actually received the money nor was the amount actually advanced by the lender. Of the balance sum it was placed before me from the affidavits referred to earlier that costs, charges and expenses of the transaction were borne out of that. In my view, the balance sum after leaving Rs. 5,70,088-12-9 cannot be urged by the borrower to be not a principal amount because that was actually advanced.

Apart from the question as to what the principal amount of the loan is, two other questions were urged before me:

(A) Whether interest has been charged in excess of the limitations specified in the Bengal Moneylenders Act and (B) whether more than twice the principal amount of the loan has been recovered. With regard to the question of interest it is common ground that at one stage interest was 12 per cent, compound and in the decree interest is provided at 9 per cent. Therefore, it appears that interest is in excess of the statutory rate provided in the Act. With regard to the other question as to what amount have been paid and what amount the mortgagor is" entitled to by reason of the disputed payments and by reason of my finding on the further charge dated September 21, 1929, I cannot at this stage come to any conclusion as to what amount is actually due but in any event since the statute says that more than twice the amount of the principal lent cannot be recovered that should be so but before the stage arrives there has to be an ascertainment of the exact amount of the principal and the exact amount of interest.

In my judgment, the charge dated September 21, 1929, for lis. 5,85,000 does not represent the principal amount actually advanced by the lender to the borrower. For the reasons given aforesaid Rs. 5,70,088-12-9 should be deducted from Rs. 5,85,000 and that amount of Rs. 5,70,088-12-9 should not be treated as the principal amount of the loan. It is well settled that in order to give relief to the borrower I must reopen the decree and unless and until I reopen the decree I cannot give relief to the borrower. I, therefore, hold that the decree is to be reopened and accordingly I order so. The principal amount of the two mortgages dated December 23, 1923 and July 8, 1928, are the principal amounts mentioned therein. I have stated that of Rs. 5,85,000, only the balance after deducting Rs. 5,70,088-12-9 will be principal amount.

There will be an urgent reference in the matter. The Referee will on the basis of the principal amount aforesaid calculate the interest as provided in the Bengal Moneylenders'' Act and arrive at the figure bearing in mind that not more than twice the amount of the principal can be in any event recovered.

At the trial the parties suggested that the reference should be an urgent one. I appoint Mr. A.M. Basu, Barrister-at-Law, as the Special Referee on fees of 15 G. Ms. per sitting of every 2 hours to make a report on the following:

(a) Interest on Rs. 7,95,000 of the mortgage dated December 23, 1923;

(b) Interest on the mortgage charge dated July 8, 1928, for Rs. 1,10,000;

(c) Interest on Further Charge dated September 21, 1929, the principal amount being Rs. 5,85,000 less Rs. 5,70,088-12-9;

(d) What amounts have been actually paid by the mortgagors and also what amounts have been received actually by the mortgagees towards the loan and interest.

The Referee will make his report within six weeks. It is to be made clear that Rs. 5,70,088-12-9 which the mortgagees show to the credit of the mortgagors in the account will no longer be available to the credit of the mortgagors by reason of the amount being wiped out from the principal.

The fees of the Referee will be paid by the Plaintiff in the first instance and he will add the same to his costs. Previous order for costs, if there be any, are not disturbed. Questions of costs at the trial and of the Reference and of instalments if any, will be dealt with by me when the report of the Special Referee comes up.

The parties will act on a signed copy of the minutes and the matter will appear on my list two months hence.