Jaigobind Singh and Ors. vs Lachmi Narain Ram and Ors.

Sulaiman, J.—This appeal arises out of a suit brought to enforce two simple mortgage deeds, dated 4th October 1923, and 24th April

1930, for Rs. 2500 and Rs. 1800 respectively, carrying interest at Re. 1-1-0 per cent. per mensem, compounded every year. Most of the points

which arise in this case are fully covered by our decision in Case No. 9 of 1939, Surendra Prasad Narain Singh v. Gajadhar Prasad Reported in

(1940) 27 AIRFC 10 decided today. It is therefore necessary to deal with only the new points which have been raised in this appeal and which

deal principally with the liability for interest. On behalf of the appellants it has been argued that the findings of the Courts below as regards legal

necessity for the rate of interest are inadequate. In the first place, strictly speaking, this is not a constitutional ground at all, and as the appellants

neither appealed for nor obtained the certificate referred to in Order 45, Rule 2, Civil P.C., they are not entitled to argue it as of right. This Court

may however grant leave under Section 205(2) of the Act. In the second place there are, at any rate by implication, concurrent findings of both the

Courts that there was legal necessity for the rate of interest agreed upon.

The trial Court dealt with the question of legal necessity under issue 4, relating to the legal necessity for the debt, without expressly considering

whether legal necessity for the rate of interest also had been established. It considered the rate of interest under issue 5, relating to the question of

its being excessive and penal. The finding was against the defendants. The High Court also did not consider this matter under the head legal

necessity, but considered it under the head rate of interest. As regards the first mortgage deed, it was pointed out that the earlier mortgage deed

and bonds carried compound interest at Re. 1-8-0 per cent. per mensem, with yearly rests. There was only one earlier promissory note for Rs. 50

carrying simple interest at Re. 1-8-0 per cent. per mensem. In the opinion of the High Court the fresh transaction at compound interest, at Bupee

1-1-0 per cent. per mensem with yearly rests, was quite a prudent one. It was further pointed out that in the plaint the plaintiffs had claimed

compound interest at the rate of Re. 1 per cent. per mensem. As regards the second mortgage, the High Court pointed out that the plaintiffs''

evidence showed that the usual rate of interest had varied from 1 to 2 per cent. per mensem, compoundable every year, which received support

from the earlier transactions, and that there was no reliable evidence on the defendants'' side to prove that such compound interest was excessive.

No doubt, strictly speaking, the Courts when dealing with the question of legal necessity should have recorded an express finding that there was

legal necessity not only for the amounts borrowed, but also for the rate of interest agreed upon. The burden did not in the first; instance lie on the

defendants to show that the rate of interest was necessarily excessive. But presumably the case was not argued before the High Court from this

standpoint, and in any case it appears that the High Court was satisfied that the first transaction was quite prudent and therefore the second

transaction also, which involved the same rate of interest, was equally good. The trend of the High Court''s opinion seems to be that there was legal

necessity for the rate of interest agreed upon.

It is pointed out on behalf of the appellants that the original amount of the first mortgage deed, which had also included interest for a previous

period, was only for Rs. 2500 while the plaintiffs claimed over Rs. 11,000 at the date of the suit. Similarly, they were claiming about double the

amount on the second deed. The trial Court had no occasion at all to consider the reopening of the transaction under the old Section 12, as the Act

came into force after the case was decided by it. It is therefore contended that the High Court was wrong in not applying Section 12 of the old

Money-Lenders Act on the ground that it had ""a complete discretion."" It is argued that discretion is not arbitrary but must be exercised judicially.

The High Court has however said that upon the facts of this case there is nothing which would justify the Court, in the exercise of its discretion, in

re-opening the accounts. It, therefore, appears that the High Court did consider this point but did not think it fit to re-open the transaction. The

grounds which might have influenced the High Court were probably those discussed earlier when considering the rate of interest. When the

question was one of a discretion of the High Court we cannot in appeal interfere with the way in which the discretion was exercised or not

exercised, unless it appears that the High Court did not apply its mind at all to the question, or acted capriciously or in disregard of any legal

principle, or was influenced by some extraneous considerations wrong in law. If there can be no legal objection to the way in which discretion has

or has not been exercised by the High Court, then we would not in appeal substitute our own discretion for that of the High Court: 45 IA 61.

Rehmatunnissa Begam v. Price (1917) 4 AIR PC 116

It is then argued that the High Court had really no discretion in the matter and should have acted under the old Section 12 to which Section 8 of

the new Act applies. It is argued that the word ""may"" in the opening portion of the Section has the meaning of the word ""shall,"" and that the Court

has the option of exercising all or any of the three powers mentioned therein, but has no power not to exercise any of the three powers at all. This

contention cannot be accepted. While the word ""may"" occurs in the opening portion of the Section, the word ""shall"" occurs in the proviso, and

these two words must have distinct meanings. It also appears that the Legislature has advisedly used the word ""may"" in some Sections like 10 and

11, while it has deliberately used the word ""shall"" in Sections like 4, 5, 6 and 7 and also 13 and 14. The policy of the Act clearly appears to be to

prohibit rate of interest in excess of 9 per cent. per mensem for secured loan advanced after the Act came into force (Section 5) and to prohibit

compound interest altogether for loans advanced after the Act Section 9). On the other hand, as regards previous loans, Section 7 creates a bar

against interest exceeding the principal, and Section 8 gives a discretion to the Court to give other reliefs according to circumstances. Obviously,

by the use of the word ""may"" it is intended that the Court should consider the circumstances of each case and then decide whether it should or

should not exercise all or any of the three powers mentioned in the Section. Had the intention been as contended for on behalf of the appellants,

the language would have been ''the Court shall exercise all or any of the following powers.'' The use of the word ""may"" indicates that the Court is

not bound to exercise at least one of the powers, and may well not exercise any of the powers at all. The language as it stands can mean only this

that the Court has the discretion to exercise all or any or none of the specified powers.

A further point has been urged on behalf of the respondents that the new Section 7 is ultra vires of the Provincial Legislature. The argument is as

follows: Quite apart from any question of repugnancy, which is cured by the assent of the Governor-General, Section 7 has been enacted to

reduce interest on all loans including loans based on a document. Now a loan based on cheques, bills of exchange, promissory notes and other like

instruments, would be a loan based on a document within the meaning of the Section and would be governed by the prohibition contained in it. But

cheques bills of exchange, promissory notes and other like instruments"" fall under List 1, Entry No. 28 of Schedule 7, and are within the axclusive

powers of the Federal Legislature. By virtue of Section 100 read with Section 316, it follows that the power of the Provincial Legislatures to make

enactments in respect of these documents is wholly excluded. If the provisions of Section 7 would be void in such particular cases, then the whole

Section must be deemed to be altogether void. Although one of the previous debts had in part been based on a promissory note, the present suit is

based on a mortgage deed and not on a promissory note and the field is therefore apparently clear. The period of limitation being short, Section 7

would rarely apply to suits on promissory notes. It is accordingly unnecessary to consider the objection in detail in this case, particularly as the

point does not directly arise, nor has it been fully argued before us. Even the Full Bench case of the Madras High Court (1939) 1 MLJ 272,

Nagarathnam v. Seshayya (1939) 26 AIR Mad 361 was not cited at the Bur.

Lastly, a question has been raised whether we are bound to allow the contractual rate of interest pendente lite. Prior to 1929 the position was

that there was the general Section 34, Civil P.C., under which in a decree for payment of money the Court had full discretion to order interest at

such rate as it deemed reasonable to be paid on the principal sum adjudged from the date of the suit onwards. Then there were Rules 2 and 4 of

Order 34, which applied to a mortgage suit, and the Court had to order an account to be taken of what was due to the plaintiff at the date of such

decree for principal ""and interest on the mortgage"". According to Section 57-A, T.P. Act, mortgage money also included the interest on the

principal secured by the mortgage. The special provision in Order 34 had to be applied in preference to the general provision in Section 34. Till the

period for redemption expired, the matter was considered to remain in contract and the interest had to be paid at the rate specified in the contract:

AIR 1927 PC 1. Jagannath Prasad Singh v. Surajmal (1927) 14 AIRPC 1

By Act 21 of 1929, Order 34 was amended, and a new Rule 11 was inserted, which deals specially with interest, and provides that the Court

may"" order payment of interest to the mortgagee up to the date fixed for payment at the rate payable on the principal. It follows that this special

provision, which removes any conflict that there might have been between Section 34 and Order 34, Rules 2 and 4, gives a certain amount of

discretion to the Court, so far as interest pendente lite and subsequent interest are concerned. It is no longer absolutely obligatory on the Courts to

decree interest at the contractual rate up to the date of redemption in all circumstances, if there be no question of the rate being penal, excessive or

substantially unfair within the meaning of the Usurious Loans Act, 1918: see AIR 1932 Pat 332 Sripat Singh v. Naresh Chandra Bose (1932) 19

AIR Pat 332 at p. 334, although in this case when considering Order 34, Rule 2, the Privy Council case in AIR 1927 PC 1, Jagannath Prasad

Singh v. Surajmal (1927) 14 AIRPC 1 was overlooked. In 1939 FLJ 7 Jagdish Jha v. Aman Khan (1940) 27 AIR FC 3 at p. 9, interest after the

institution of the suit was ordered by this Court to be paid at the rate of 6 per cent. per annum on the principal amount till the date fixed for

payment. In my opinion the view then taken as to the power of a Court to reduce interest pendente lite was not contrary to law.

The Bihar Legislature, as shown by the Preamble of Act 3 of 1938, in order to give relief to debtors has inaugurated a new policy by regulating

money-lending transactions. Section 6 makes any contract for the payment of compound interest after the Act came into force altogether void.

Section 7 disallows interest up to suit in excess of the amount of the principal. Section 8 gives power to the Court to reopen the whole transaction

and gives relief in respect of interest in excess of 9 per cent. simple per annum in the case of a secured loan notwithstanding any contract to the

contrary. The power of the Court to reduce interest in Bihar has, therefore, become much wider than that under the Usurious Loans Act. It may

not be quite in harmony with these new provisions to go back to the old practice or the old standard of high rates of interest, which were freely

allowed. It may even be contrary to the spirit of the Bihar Act now to allow compound interest at a high contractual rate not only during the

pendency of the suit but even up to six months after the preliminary decree to be passed hereafter.

Of course, whether the Court would or would not give relief in respect of interest in excess of nine per centum simple per annum, and if so to

what extent, will depend on the special circumstances of each case. The opinion of the High Court on such a matter must carry weight, where,

being conscious of its discretionary power under Section 8, it has considered the case not to be a fit one for the exercise of such power. Just as in

Case No. 13 of 1939 Subhanand Choudhary v. Apurba Krishna Reported in (1940) 27 AIR FC 7 decided today, the pendente lite interest

should be reduced to 12 per cent. per annum simple.

Yaradachariar, J.

I wish to add a few words, with reference to the argument urged on behalf of the appellants as to the manner in which Section 7, of the Bihar

Act, 7 of 1939 should be applied to one of the loans sought to be recovered in this case. The appellants also sought to invoke the aid of Section 8

of that Act, with a view to reopen the settlement of accounts made at the time of the execution of the mortgage bond, Ex. 5. But as held by the

High Court, that Section only gives a discretionary power and we have not been shown sufficient reason for interfering with the refusal of the High

Court to exercise that power in the circumstances of this ease. It is true that in the particular paragraph dealing with this question, the learned

Judges have not assigned their reasons; but the reasons are fairly gatherable from the rest of the judgment.

The suit comprised claims under two mortgage bonds, Ex. 5 dated 4th October 1923 and Ex. 5(a) dated 24th April 1930. The interest due

under Ex. 5 (a) up to the date of the institution of the suit did not amount to a sum equal to the principal amount of the bond; no question therefore

arises under Section 7 of the Bihar Act, 7 of 1939 in respect of that bond. The earlier bond, Ex. 5, had been executed to secure repayment of a

sum of Rs. 2500 and it provided for the payment of compound interest with annual rests at Re. 1-1-0 per cent. per mensem. This amount of Rs.

2500 was made up of a sum of Rs. 1500 received in cash to pay off another creditor of the mortgagors and a sum of Rs. 1000 treated as paid to

the mortgagees themselves in discharge of antecedent debts due to them from the mortgagors. The bond gave particulars of the antecedent debts:

and after reciting that the amount due up to that date for principal and interest in respect of those debts was Rs. 1047, it provided for the payment

of Rs. 1000 out of the mortgage loan towards that amount.

With reference to Ex. 5, the learned Counsel for the appellants contended that, even under Section 7 of Act 7 of 1939, the Court must reopen

the account in respect of the antecedent debts referred to in Ex.5 and limit the interest claimable by the plaintiffs 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. I am unable to accede to this

contention. The case is certainly one of a ""loan based on a document""; and under the concluding words of Section 7, interest is in such a case

claimable up to the ""amount of loan mentioned in the document."" The loan document must in this case be taken to be Ex. 5 and not the earlier

documents referred to in it, because the definition of ""loan"" in Section 2(f) includes a ""transaction on a bond executed in respect of past liability"".

How exactly this definition and the provision of Section 7 are to be applied to ordinary cases of ""renewals"" it is not necessary for the purposes of

this case to decide. Where however as in the present case, the parties settle accounts in respect of a pre-existing liability and agree that money

borrowed under a later transaction, even from the same creditor, should be applied in discharge of that pre-existing liability, it seems to me that the

later transaction should in law be regarded as a loan by itself, though cash did not actually pass between the parties by way of lending and

repayment: see observations of Greer L.J. as he then was, in (1932) 1 KB 691 Paton v. Inland Revenue Commissioners (1932). 1 KB 691

referred to with approval by the Judicial Committee in (1940) 1 MLJ 68 Chethambaram Chettyar v. Loo Thon Poo (1940) 27 AIRPC 60 at p.

72.

The appeal is allowed and the decree of the Courts below modified to this extent, viz., that the interest payable to the plaintiffs up to the date of

the institution of the suit in respect of Ex. 5 will be limited to Rs. 2500. The question of interest pendente lite has been dealt with in Case No. 13 of

1939. Subhanand Choudhary v. Apurba Krishna Reported in (1940) 27 AIRFC 7 On both the bonds, the principal amounts will carry simple

interest at 12 per cent, per annum from the date of the institution of the suit to the date fixed for payment in the revised decree to be passed by the

High Court. After that date, there will be interest at 6 per cent. per annum on the aggregate amount of principal, interest and costs up to date of

realisation. The case will be remitted to the High Court for a revised decree being passed on the above basis. The plaintiffs-respondents will retain

the costs awarded to them by the decrees of the High Court and of the Trial Court. There will be no order as to costs in this Court.

The appellants'' learned Counsel applied for an order under Section 10 of the Bihar Act of 1939 permitting payment by instalments. The

appellants will be at liberty to make the application before the High Court which has to pass the decree.

Gwyer, C.J.

I concur and have nothing to add.