Mahadeo Prashad and Others vs Bissessar Prashad and Others

Jwala Prasad, J.—This appeal is directed against a decision of the Subordinate Judge of Muzaffarpur, dated the 28th November 1919, passed in an action to enforce a mortgage. The mortgage was executed on the 11th September 1911 by the defendant No. 1 in favour of the plaintiff No. 1. The other plaintiffs are members of a joint Mitakshara family and claim the bond in suit as belonging to the family.

Defendants Nos. 2 and 3 are the minor sons of defendant No. 1 and are joint with him. Defendant No. 1 is the Karta of the family. The other defendants are interested in the mortgaged property and are therefore impleaded as such in the suit. They did not appear in the suit; only defendant No. 4 filed a written statement, but he did not appear at the trial.

The claim of the plaintiff was resisted only by defendants Nos. 1, 2 and 3. Defendant No. 1 filed a separate written statement and defendants Nos. 2 and 3 another. The case of defendant No 1 was that the bond was taken from him under undue influence; that he was under the pressing necessity of borrowing Rs. 2,400 to deposit the same in the Civil Court in order to have an execution sale of a valuable property of his, namely Mauza Bahersi, set aside, that the creditor agreed to lend the said sum to the defendant but ultimately at the last moment refused to lend the sum of B Rs. 2,400 unless the defendant borrowed from him Rs. 19.000 and paid off all the defendant''s debts standing on the date of bond; that the defendant could not get loan elsewhere and as the time for depositing the amount necessary to set aside the sale of Bahersi was about to expire, the defendant was forced to borrow Rs. 19,000 and to agree to pay the high , rate of interest and compound interest stated in the bond the terms of which were penal and unconscionable. He further contended that he sold Mauza Muhammadpur, Tauzi No. 14,632, to defendant No. 4 for Rs 8,000, who tendered this amount to the plaintiffs in part satisfaction of the mortgage debt; but the plaintiffs refused to accept this amount and hence the plaintiffs are not entitled to interest and compound interest on Rs. 8,000 from the date of tender.

Defendants Nos. 2 and 3 contended that the defendant No. 2 was born on the 21st of June 1910, that is, some 15 months before the bond in suit. They denied the execution of the bond, the passing of any consideration, the existence of family necessity to execute the bond, or the benefit of the loan to the family. They also denied their liability to pay prior debts mentioned in the mortgage bond in suit, to pay off which the loan from the plaintiff is said to have been taken. They also contended that the Clause as to interest was extortionate and unenforcible as there was ample security for the money said to have been advanced. There was also a dispute between the parties as to the correct description of, some of the mortgaged properties end as to whether some of them were really mortgaged or not.

The mortgage was executed to enforce a loan of Rs. 19,000 which with interest and compound interest swelled to Rs. 50,486, the amount of Claim laid in the suit.

Upon the pleadings the following issues were raised the Court below:

Issues Nos. 1 and 2 were not pressed either in the Court below or in this flour and therefore should not be stated.

(3) Is the bond in suit; genuine and �or consideration, was it executed for the benefit of the estate and for legal necessity?

(4) Was the bond in suit executed by defendant No. 1 under undue influence?

(5) Is the contract for payment of interest and compound interest penal and unconscionable?

(6) Can the interest of defendants 2 and 3 in the joint property be made liable?

(7) Which of the mortgaered properties are liable for plaintiff''s claim?

(9) Did plaintiff refuse to accept Rs. 8,000 offered in part satisfaction of the debt by Aurudh Chaudhury If so, what is Its effect?

(9) In what amount and relief, if any, are the plaintiffs entitled?

(10) Was defendant No. 2 born be-fore the execution of the bond?

The Court below has decided all these issues against the defendants and has given a full decree to the plaintiff. Defendants Nos. 1 to 3 have therefore come to this Court in appeal.

The learned Vakil on behalf of the appellants has not seriously disputed the finding of the Court below as to the genuineness of the bond in question or as to its being for consideration. He, however, contends that the bond in question was executed in such circumstances as made the defendant No. 1 altogether helpless and placed him at the mercy of the creditor so as to agree to the terms of the bond in question. He says that the plaintiff No. 1 took advantage of the situation in which the defendant No. 1 was placed at the time and contrived to put off the advance of the loan to a time when the defendant was unable to go out of his clutches in order to seek relief somewhere else and to secure an advance which at that moment he so urgently wanted. In this way the learned Vakil for the appellants contends that the borrower defendant No. 1 was und�r the influence of the creditor who dominated over his will and made the defendant to agree to the terms that he proposed, and consequently the bond in question is affected by the Rule of undue influence described in Section 16 of the Contract Act. [The Judge then dealt with evidence and found that no undue influence was exercised and proceeded as follows.]

The appellant defendants, however, contend that the rate of interest of 15 per cent. per annum and compound interest is not enforceable. It is urged that, though the borrowing by the father in order to pay off the antecedent debts as well as for other family purposes might be a valid necessity, yet the borrowing at the rate mentioned in the bond was not a family necessity and the mortgaged properties being the joint family properties of all tie defendants, the father-defendant No. I, had no specified share therein and therefore he was not justified in pledging the family properties to pay interest at the rate mentioned in the bond. On the other hand, on behalf of the plaintiffs respondents it has been contended that the contract voluntarily made by defendant No 1 for valid debt binds the defendants Nos. 2 and 3 and the family properties were validly mortgaged; that the rate of interest howsoever exorbitant cannot be abrogated unless the agreement was tainted by undue influence, fraud or misrepresentations such as are mentioned in the Contract Act and that the plaintiffs are entitled to recover the loan at the rate of interest and compound interest mentioned in the bond by sale of the mortgaged properties. At the Bar the following authorities are cited in support of the aforesaid respective contentions of the parties: Hurro Nath Rai v. Randhir Singh [191] 18 Cal. 311, Nand Ram v. Bhupal Singh [1912] 34 All. 126, Dhani Pal Das v. Maneshwar Baksh [1906] 28 All. 570, Nawab Nazir Begum v. Rao Raghunath Singh [1919] 41 All. 571, Ram Bujhawan Prosad Singh v. Nathu Ram 1923 P.C. 37, Kamla Prasad v. Pandey Ram Chandra Prasas Narain Singh [1919] 4 Pat. L.J. 565, Manna Lal v. Karu Singh [1920] 1 Pat. L.T. 6, Aziz Khan v. Duni Chund 23 C.W.N. 130 and Balla Mal v. Ahad Shah [1918] 16 A.L.J. 905. We hare carefully gone through those authorities. The principle seems to have been settled that a solemn agreement duly and freely entered into cannot be rescinded and the parties to the contract cannot be allowed to avoid the terms thereof which they agree to with their eyes open and with no restraint upon their freedom of will. Upon this principle, contracts for payment of exorbitant rates of interest, such as, 75 per cent, in some cases were upheld and were not allowed to be disturbed; but in those cases the contracts were upheld against the party to the contract on the ground that a party to the contract cannot be allowed to rip up the terms of the contract when he agreed to them voluntarily and with his eyes open. But when a contract entered into by a head member or Karta of a joint Hindu family is sought to be enforced against the other members on the ground of necessity, it must be shown not only that there was the necessity to borrow the principal sum but that the rate of interest agreed upon was also a necessity in other words, that it was impossible for the Karta or the held member to obtain the loan for family necessity except at the rate of interest agreed upon. This seems to be the distinguishing feature in the authorities cited above. The creditor in such a case has not only to show that there was a family necessity so as to bind the members of the family on behalf of the parties to the contract with respect to the loan advanced but that the rate of interest was the market or commercial rate. He will not be entitled to enforce a higher rate of interest against the other members and to make the joint family properties liable for interest higher than the current market rate of interest. In the present case the family was joint and the properties mortgaged are the joint family properties of all the defendants. The mortgage, therefore, cannot be validly enforced with respect to the rate of interest beyond the current market rate. The case seems to be governed by the recent decision of their Lordships of the Judicial Committee in the case of Ram Bujhawan Prasad v. Nathu Ram 1923 P.C. 37.

Now let us see what in this case has been proved to be the usual commercial rate of interest. The bond in question was executed amongst others to pay off the decree passed in favour of Gur Prasad Sahu in 1910 at the rate of 6 per cent. This is the rate of interest directed by the Court to be paid from the date of the decree upon the sum found due. This, of course, cannot be said to be the market rate of interest The rate of interest mentioned in the hand-notes, on the basis of which the decree in question was passed, was 12 per cent, per annum. The Court, however reduced it to 12 per cent, per annum (Exhibit Q) with the following observations: "As regards the rate of interest the onus to prove it was upon the plaintiff but he did not choose to adduce any evidence, both parties agreeing that the market rate is Rs. 12 p.c. per annum and that the plaintiff may be allowed interest at that rate. I have therefore no hesitation in holding fiat the plaintiff is entitled to get interest at the rate of Rs. 12 p.c. per annum." This then was found by the Court to be the current market rate of interest. Another debt mentioned in the mortgage bond is a hand-note of Jogendra Babu, dated the 29th November, 1909. This carried interest at 12 per cent, per annum with yearly rests. The previous hand-note in favour of the plaintiff, dated the 20th of June 1911 (Exhibit 3) carries interest at the rate of Rs. 1/4/-per mensem per cent. There is no mention of compound interest there. In the bon) executed by the defendant in favour of Paltu Ram, dated the 13th of February 1909, the rate of interest was 14 annas per cent, per mensem (vide plaintiff''s evidence). The plaintiff further says that Mahadeo executed a bond in favour of Ganga Prasad at the rate of interest of 12 per cent, per annum and that he executed a bond in favour of Jogendra Babu at the rate of 10 per cent, per annum. The plaintiff, no doubt, says that the rate of interest on loans on hand-notes as well as mortgages is the same and that he charged interest at the rate of Rs. 1/4/-, Rs. 1/8/-, Rs. 1/12/- and Rs. 2/- before. He does not give any evidence to show that those rates were on mortgages, nor does he make any mention of compound interest.

This is all the evidence as to the rate of interest. There is no evidence on the record that the rate of interest on a mortgage security is at the rate of Rs. 1/4/- per mensem and compound interest.

Now, the properties in this case were worth Rs. 50,030/- and the amount secured was only Rs. 19,000/-. The creditor had ample security and there is no reason why he should be allowed a higher rate of interest than the usual commercial rate that was prevalent in the market at the time It is conceded by the learned Vakil on behalf of the respondents that there is no evidence on the record to prove that Rs. 1/4/- compound interest was the market rate on mortgage securities. We, therefore, do not agree with the leayned Subordinate Judge that the usual market rate of interest is that mentioned in the bond, namely, Rs. 1/4/-per cent, per mensem with compound interest.

Defendant No. 1 was a young man when he executed the bond in question he seems to have inherited, a large property and he was anxious to save the same from being sold off in execution of the decrees of Gur Prasad Sahu and Paramhans. He, therefore, negotiated to take a large loan of Rs. 19,000/- from the pi tin tiff. Although there was no fraud, misrepresentation or undue influence in the matter of borrowing the sum of Rs. 19,000/-, yet the plaintiff took advantage of the circumstances in which the defendant was placed and agreed to lend him the said sum at an unusual rate of interest much higher than the commercial or market rate.

Considering all the circumstances of the case we hold that the plaintiff is not entitled to a mortgage decree at the rate mentioned in the bond. We disallow the compound interest, and direct that Rs. 1/4/- per cent, per mensem simple interest be allowed.

We do not see any substance in the appellants'' contention that the bond is not enforceable inasmuch as there has been an alteration in it since the execution thereof by changing the figure 12127 in the original bond into 11127 as the touzi number of property No. 10 Goonipur. We have looked into the bond itself and have considered the evidence on the record and also the evidence of the clerk of the Sub-Registration Office. I have personally examined the bond and being acquainted with the language in which the bond is written, it seems to me that the plaintiff''s case is correct that the figure was written formerly as 12127 and was corrected into 11127 when it was being read out and that as it stands it is capable of being read as -2127 and 11127. Nor is there any substance in the contention that the property No. 10 mentioned in the bond is Harpur, and not Goonipur. We agree with the learned Subordinate Judge that the plaintiff is not entitled to have pucca share of property No. 2. Touzi No. 7978 inasmuch as the Kham share of the Mouza is more than 1 anna 3 Kowris and therefore the description agrees with the existing facts. The Court is also right in correcting the touzi number of property No. 11 as prayed for by the plaintiff, inasmuch as the correct touzi number of that property is 14632, and not 14630 as mentioned in the bond.

There is no substance in the contention that no interest could be charged upon Rs. 8,000/-, inasmuch as it was tendered by defendant No. 4 when he purchased one of the mortgaged properties Mohammadpur, Touzi No. 14632. The learned Subordinate Judge has held that the tender was upon the condition that Mohammadpur would be exonerated from the mortgage lien. The evidence of Advaita Babu pleader, supports this finding. The tender was not valid. This also is not now seriously disputed.

I, therefore, confirm the decision of the learned Subordinate Judge with the modification indicated above. The usual mortgage decree will be prepared by this Court calculating interest at the rate of Rs. 1/4/- percent. per mensem simple interest from the date of the bond up to the the date of grace which will be six months from now. The costs of the plaintiff will be assessed upon the sum thus arrived at in both the Courts. After the date of grace the rate of interest will be at 6 per cent per. annum.

Ross, J.

I agree.