Kamla Prasad vs Pandey Ram Chandra Prasad Narain Singh

Jwala Prasad, J.—This appeal arises out of a suit brought by the plaintiff, Kamla Prasad, for recovery of Rs. 61,452 on foot of a mortgage bond, dated the 31st August 1903, executed by one Jamuna Prasad in favour of the plaintiff''s father, Pokhar Mal, who died in Jaith 1319 (1912) leaving the plaintiff as his sole surviving heir.

The bond purports to have been signed and executed by Jamuna Prasad for himself and as guardian of his brother defendant No. 2, who was then a minor, hypothecating the entire joint family property. The consideration of the bond in said to be to pay off Rs. 174-4-0 due to the plaintiff''s father Pokhar Mal under two hand notes Rs. 1,182-8-3 due to him on Bahi Khata account, Rs. 753-7-3 in cash to Jamuna Prasad to meet the house-hold expenses of the joint family and Rs. 1,886-12-6 to be deposited by the mortgagee in Court in satisfaction of a decree of one Gajadhar Prasad Sahu in execution of which the family property was advertised for sale on 1st September 1903. The total amount of consideration thus came to Rs. 4,000, for which the bond in question was executed. The due date for the payment of the money secured was 30th Baisakh 1311 and the interest stipulated for in the bond was at the rate of 24 per cent per annum and compound interest with yearly rests. The original debt of Rs. 4,000 with interest and compound interest came to Rs. 61,452 on the date of the suit, 28th April 1916. The plaintiff seeks to recover the said amount by sale of the mortgaged property.

Jamuna Prasad, the executant of the bonds, is dead. The defendant No. 1 is his son and the defendant No. 2 is his brother. The defendant No. 3 is the mother and the defendant No. 4 is the widow of Jamuna Prasad. The defendants Nos. 3 and 4 hold some of the mortgaged property in lieu of their maintenance. The defendants 3rd party ( Nos. 5 to 16) are the subsequent purchasers of some of the property in suit and the defendants 4th party, Nos. 17 to 28, are puisne mortgagees in respect of Borne of the property. Defendants Nos. 1, 5, 7, 13, 15, 18 and 23 filed separate written statements. Out of these defendants, only Nos. 1, 4, 5 and 18 appear to have contested the suit in the Court below. The other defendants did not enter appearance in the Court below. The respondents-defendants Nos. 1, 4, 5, 7, 17 and 18 filed Vakalatnamas in this Court but only defendants Nos. 5 and 18 contested the appeal at the time of its hearing.

The defendant No. 1, son of the original mortgagor Jamuna Prasad, denied execution of the bond and payment of the consideration. He alleged that Jamuna Prasad owed no money to Pokhar Mal on handnotes and bahi khatas and that no money was due to Gajadhar Prasad under a mortgage-decree, that there was no family necessity for borrowing money, that Jamuna Prasad was a man of visions habits and the debt was contracted for immoral purposes. He also stated that the plaintiff was a minor and an idiot and could not maintain the suit without a next friend and without impleading Sri Bam, Thakur Das, Kishen Lal and Moti Lal, who were joint with his father Pokhar Mal, as party to the action. He also pleaded limitation.

The pleas taken by the other defendants in the written statements are more or less the same as those taken by the defendant No. 1. In addition, some of the defendants ( Nos. 5, 7, 13, 15 and 18) asserted that, even if the debt contracted by Jamuna Prasad be good and valid, the properties purchased or held in mortgage by the defendants could not be made liable for the claim of the plaintiff.

It would thus appear that the defendants in their written statements resisted the plaintiff''s claim on all conceivable grounds. The pleas taken by them gave rise to 8 issues. All these issues, except issue No. 4, were decided by the Subordinate Judge against the defendants. The learned Subordinate Judge held that the bond was duly executed by Jamuna Prasad for self and as guardian of his minor brother defendant No. 2 for valuable consideration and for the legitimate purposes of the joint family of which he was the karta, and that the debt was not contracted for any illegal or immoral purposes. He further held that there was no substance in the defendants'' pleas in bar of the suit, namely, that the plaintiff was not entitled to institute the suit, being a minor and an idiot, or that the Court-fee paid was not sufficient, or that there was any non-joinder of parties, or that the suit was barred by limitation.

The Court, however, decided issue No. 4, which related to the rate of interest claimed by the plaintiff, against him and reduced his claim from Rs. 61,4(sic)2 to Rs. 10,636-11-6. The plaintiff has, therefore, appealed to this Court and contends that he is entitled to the entire sum claimed by him as the amount arrived at by calculating interest at the rate and in the manner stipulated for in the bond. The defendants have not appealed to this Court against the decision of the Subordinate Judge upon the other issues, nor is there any cross objection by them attacking the findings of the Subordinate Judge on those issues. This appeal is, therefore, directed solely against the decision of the Subordinate Judge on issue No. 4, which runs as follows:--

Is the interest mentioned in the bond excessive and by way of penalty?

The finding recorded by the Court below is rather summary and runs as follows:--

In the present case Jamuna Prasad was entirely at the mercy of his creditors. There was pressing demand for him to borrow money to save the joint family property from auction sale. The lender was in a position to dictate terms to him which led to this hard and unconscionable bargain.

Upon this finding the Court below has held that the stipulation for interest was by way of penalty and applying section 74 of the Indian Contract Act has reduced the bond rate and allowed the plaintiff only simple interest at 12 par cent per annum as an adequate and reasonable compensation.

The aforesaid finding of the Court below is, to my mind, vague and insufficient for applying section 16 or 74 of the Indian Contrast Act. The Court below has assumed, without giving any reason, that the terms in the bond relating to interest were hard or unconscionable. There is nothing on the record to show that the rate of interest and compound interest was unusual or was in any way exorbitant. The defendants have adduced no evidence on the point. On the other hand, it would appear from the previous dealings between the parties, as proved by Exhibits 2, 2A, 3 to 3C, 4 to 4Q, that the rate of interest of, 2 per cent per mensem, was the usual rate paid by the mortgagor Sarju Prasad to the plaintiff''s father Pokhar Mal. In the bond, Exhibit A, dated the 26th Jane 1917, executed by defendant No. 2 in favour of Gouri Dutt, defendant No. 18, the stipulation as to the interest is exactly in terms similar to those in the bond in suit; namely, interest at 24 per cent per annum and compound interest with yearly rests. Gouri Dutt in his evidence says that he has taken another bond also from Sarju Prasad. The rate of interest in the bond, far from being improvident, hard or unconscionable, appears to be the usual market rate.

Again, there is a vague suggestion, though there is no definite finding, that the lender took unfair advantage of the pressing need of the debtor and his own position as a lender in extorting from him the terms in the bond regarding interest. There is absolutely no room for such a suggestion upon the evidence on the record. It may be that there was pressing necessity for the debtor to incur the debt in question for which the mortgage bond was executed, or that the lender was in a position to dominate the will of the debtor, but there is nothing to show that he used that position to obtain an unfair advantage over the debtor. The question of undue influence was not seriously raised by any of the defendants except defendant No. 23, who in his written statement said that the plaintiff and his predecessor-in-interest used undue influence on the debtor and finding the debtor in a helpless and needy condition insisted on the bard and unconscionable interest and compound interest, and that the bargain struck by the plaintiff was hard, exorbitant and inequitable and as such not fit to be enforced in a Court of law or justice. This defendant, except filing the written statement, does not appear to have contested the suit in the Court below and, as a matter of fact, no issue in terms of the written statement was raised. This defendant has not entered appearance even in this Court, though impleaded as a respondent. The issue in this case as to the interest mentioned in the bond being excessive and by way of penalty was raised upon the written statement of the other defendants. No evidence was offered by the defendants as to the stipulation about interest having been inserted in the bond on account of any undue influence or coercion on the part of the lender. On the other hand, the plaintiff has definitely proved that the stipulation regarding "interest and compound interest was not inserted in the bond under any undue influence" (vide P.W. No. 1, a marginal witness to the bond). This evidence is not controverted and there is no reason why it should not be accepted. In fact, the Court does not definitely find that the contract as to interest was brought about by undue influence or pressure, and, even if it meant to do so, its finding would be without any evidence on the record. The result is that the finding of the Court below that the interest was bard and unconscionable, or that the lender lock advantage of his position and dictated terms to the borrower, must be set aside and with it the foundation upon which the learned Subordinate Judge has applied section 74 of the Indian Contract Act, for holding that the stipulation regarding interest was by way of penalty.

Now, as to the terms of the bond. The stipulation in the bond itself does not in any way show that it was by way of penalty. The bond provides that interest and compound interest at 2 per cent per mensem would be payable upon the principal sum of Rs. 4,000 from the date of the bond to the due date, 30th Baisakh 1311, and on default of the payment of the loan on the due date the interest and compound interest at the aforesaid rate would continue to be payable up to the date of realisation, and that on the 24th Assin 1311, each year, interest and compound interest then accruing would be added to the principal and will carry interest and compound interest. In other words, the bond provides for payment of interest and compound interest at the rate of 24 per cent per annum with yearly rests. The bond does not stipulate for the payment of increased rate from the date of default in payment, nor does it in any way vary the rate of interest on account of such default. Section 74 has, therefore, no application to the aforesaid stipulation for interest in the present case. The Court below, as well as the learned Vakil on behalf of the respondents, has relied on certain judgments of the Calcutta High Court in the cases of Khagaram Das Vs. Ramsankar Das Pramanik, and Sanat Kumar Das and Others Vs. Indra Nath Barman and Others . In the former case section 71 was applied where the entire sum payable in 10 instalments without interest was, in default of payment of one or two instalments, not only made repayable in one lump sum but was also made to carry interest at an unusual rate. This does not apply to the present case. Similarly, in the latter case section 74 applied to the facts and circumstances of that case, as is obvious from the following observation made by the learned Chief Justice:--"But I wish to make it quite clear that this agreement is a stipulation by way of penalty, having regard to the circumstances of this case only, because it may well be that in other cases 75 per cent is a perfectly proper rate. At any rate, it may not he a stipulation by way of penalty." The principle enunciated in Satish Chunder Giri Vs. Hem Chunder Mookhopadhya, seems to apply to the present ease. This Court in several cases has held that it is not competent to rip up a contract merely because it considers the rate of interest hard and unconscionable and that a debtor cannot be relieved except by showing that he comes within the four corners of section 16 of the Indian Contract Act: Nathuni Sahu Vs. Baijnath Prasad and Others, and Lakhi Chand Sahu Vs. Pear Chand Sahu and Others, . The Court below has declined to follow the authorities of this Court, saying that they are in conflict with those of the Calcutta High Court. This appears to be unjustifiable on the part of the learned Subordinate Judge. He was bound to follow the decisions of this Court whether they were right or wrong, or whether they were in conflict with the decisions of the other High Courts in India. On the other hand, the aforesaid authorities of this Court are supported by the principle enunciated by their Lordships of the Judicial Committee in several cases, and notably in the two recent cases, 23 CWN 130 (Privy Council) and 23 CWN 233 (Privy Council) . In these cases the stipulations for interest and compound interest were similar to those in the present case and the principal sum had swollen up to considerable amounts. Their Lordships observed that the transaction was unduly improvident but, in the absence of any evidence to show that the money-lender had undoubtedly taken advantage of his position, it is difficult for a Court of Justice to give relief on grounds of simple hardship. In the case of 10 CWN 849 (Privy Council) , relied on by the Court below, their Lordships of the Judicial Committee lay down that, under the amended section 16 of the Indian Contract Act, it has to be Been whether a person in a position to dominate the will of the debtor "used that position to obtain an unfair advantage over the debtor." Of course, in that case it was found as a fact that undue influence was used in bringing about the terms of the contract. It has already been shown that in the present case the interest in the bond was not at all bard or unconscionable but that it was the usual and market rate of interest, and that the transaction was in the ordinary course of business and that the contract was not induced by undue influence. Even if the interest was unusual, hard or unconscionable, upon the principle of the aforesaid cases the lower Court was not competent to disallow the contract rate.

Another reason given by the lower Court to reduce the interest is that the stipulated rate of interest, if allowed, will prove ruinous to the minor defendant No. 1. The view taken appears to be unsound. The ruling relied upon by the Court below, Gangadas Bhattar and Another Vs. Jogendra Nath Mitter and Others , has obviously no application to the present case, inasmuch as the ground stated in that case for reducing the interest, namely, that there is nothing to show that there was any necessity to borrow money at the unusual rate of interest, does not exist in the present case. The rate of interest in the present case is not unusual at all The debt was contracted by the karta of the family, to save the family property advertised for sale in which the minor was interested, at the usual rate of interest. There is no reason why the defendant No. 1, who was then a minor, should not be bound by the agreement entered into by his father, the karta of the family.

The plaintiff is, therefore, entitled to the interest and compound interest calculated according to the rate stipulated for in the bond, namely, 24 per cent per annum, with compound interest and yearly rests. The lower Court has held that one Bhagwat Rai, who has purchased property No. 3 of Schedule II, subsequent to the present mortgage, has not been made a party and that the value of that property Rs. 96 should, therefore, be deducted from the principal sum. In this view the Court below appears to be right. The interest will, therefore, be calculated upon Rs. 3.904 as found by the Court below.

The result is that the appeal is decreed with costs. A decree will be prepared by this Court for a sum of Rs. 3,904 as principal plus the amount of interest and compound interest, calculated at the rate of 24 per cent per annum from the date of the bond till six months from this date as the date fixed for the payment of the money. In the event of non-payment of the decretal amount within six months from this date, the plaintiff will be entitled to sell the mortgaged properties mentioned in Schedule I. The rate of interest from the date fixed for payment will be at 6 per cent per annum. The order of the Court below regarding the order in which the mortgaged properties are to be sold will stand good.

B.K. Mullick, J.

I agree. In my opinion the case is concluded by the judgment of their Lordships of the Privy Council in 23 CWN 233 (Privy Council) . In my opinion the creditor was not in a position to dominate the will of the debtor within the meaning of section 16 of the Indian Contract Act, as amended. Even if he was in a position to do so, by reason of the pecuniary distress of the debtor, it has not been shown that he used his position to obtain an unfair advantage over him. If the contract were hard and unconscionable, then, the onus under sub-clause (3) of section 16 would lie on the creditor to show that the contract was not induced by undue influence. But there is nothing in the circumstances of this case to justify such a view of the nature of the contract. And, apart from any question of onus, I think the evidence clearly shows that the creditor did not obtain any unfair advantage over the debtor. Section 16, therefore, does not assist the debtor.

As to section 74 the debtor would be entitled to relief if he could show that the stipulation for compound interest in this case was in the nature of a penalty. Upon the authorities, it is quite clear that an exorbitant rate of interest is not in itself a penalty. Nor is the stipulation to pay compound interest from the date of default such a stipulation. The Court, therefore, had no power to give relief u/s 74 of the Act. In my opinion, the Courts in India are precluded from relieving the debtor with regard to interest unless the case comes within the purview of section 16 or section 74 of the Contract Act.

With regard to the minor I agree with the observations of my learned brother. The terms of the contract were such that the debt must be considered to have been contracted for legal necessity.

With regard to the property purchased by Bhagwat Rai, I agree that his non-joinder is not a sufficient ground for the dismissal of the suit. By his action the plaintiff must be held to have split up the mortgage and to have released the defendants from liability for that part of the debt, namely Rs. 96, which represents the price of the property sold to Bhagwat. A decree, therefore, for the capital sum after deduction of this sum of Rs. 96 against the present defendants is, in my opinion, correct.