Nanhak Singh and Others vs Ram Lagan Dubey and Others

This is an appeal from the preliminary decree in a mortgage suit. The bond was executed by defendant 1 on 17th July 1907, for a principal sum of Rupees 1633-10-10�. The mortgagor made an admitted payment of Rs. 1500 on 12th September 1919. He sold a part of the mortgage property on 19th July 1921, to defendant 10 for a consideration of Rupees 2615-10-0 of which Rs. 170-11-0 was paid to the vendor in cash. Rs. 322 was left with the purchaser for payment to a creditor Asghar Ali, Rs. 400 similarly was left in deposit for payment to another creditor, a co-operative bank, and Rs. 1722-15-0 was similarly left in deposit for the satisfaction of this mortgage. The purchaser made a payment on account of this mortgage on 22nd August 1921 of Rs. 1200. According to the plaintiff no further payment was made and the mortgage debt with interest at bond rate amounted at the date of suit to Rs. 5113-9-10. The defence was that a further payment of Rs. 695-7-9 was made on 23rd March 1929, leaving only Rupees 126-15-0 due which the defendant was ready to pay with interest to date but the plaintiff was not willing to receive. It is also said that interest is not payable at the rate charged by the plaintiff, that being a penal clause in the bond and not enforcible. The Subordinate Judge negatived both these contentions of the defendant and decreed the entire claim.

In appeal the same points have been raised and in addition it has been contended that having regard to the provisions of the Bihar Money-Lenders Act, 1938, the plaintiff is entitled at the most to a very much smaller amount than that claimed. We propose to discuss first the plea of payment. It is supported by a receipt purporting to be signed by the plaintiff Ram Lagan Dube. The Subordinate Judge compared the disputed signature with admitted signatures of Ram Lagan and found the disputed signature not to be genuine. Ram Lagan is an old man whose sight according to the evidence has been failing for the last seven or eight years. The signatures on the admitted documents as well as on the disputed ones have been placed before us. The appearance of the admitted signatures is entirely consistent with their being made by an old and feeble man who can hardly see what he was writing. Those on the disputed documents are clearly and firmly written as if by a very much younger man.

They cannot possibly have been written by the same hand as the admitted signatures unless in the admitted signatures the plain, tiff was deliberately disguising his handwriting which there is no reason whatever to suppose. When the earlier payments were authenticated by endorsement on the back of the bond, it is, as the Subordinate Judge has pointed out, not very probable that the defendant would make a substantial payment like this without getting such an endorsement. We therefore maintain the finding of the Subordinate Judge that the payment pleaded has not been established.

Next we take the plea that the rate of interest claimed is penal and not enforcible. The stipulation in the bond was that the borrower should repay the money on the due date, 30th Jeth 1315 with interest at As. 9-6 per cent, per month. It was further stipulated that in case of non-payment, the creditor would be entitled to get interest at Re. 1-4-0 per cent, per month from after the due date. On this basis the creditor has calculated interest at As. 9-6 from the date of the bond to the due date of payment and thereafter at Re. 1-4-0 per cent. Compound interest is not charged. The defendant''s contention is that the stipulation for the payment of higher rate of interest from the date of default is a stipulation by way of penalty and u/s 74 of the Indian Contract Act the creditor is not entitled to enforce it. Interest is only payable at the rate engaged for in the primary contract, namely at 9� annas. The question whether an agreement that interest at a higher rate shall be recoverable in defaulf of payment on the due date is an agreement by way of penalty or no has been discussed in numerous decisions and the views expressed in the several High Courts have from time to time differed. It is unnecessary to go through all those decisions; it will be sufficient to refer to the Privy Council decision in the leading case in Sunder Koer v. Rai Sham Krishen (1907)34 Cal 150. In this case it was decided that where in default of payment on the due date a higher rate of interest was payable retrospectively from the date of the bond, that must always be regarded as a stipulation by way of penalty, but on the other hand where a lower rate of interest was payable up to the due date of payment and a higher rate of interest thereafter, that might or might not be a penalty according to the circumstances of the particular case.

The point which the Courts have to consider is what was the primary contract between the parties. For this we have to refer to the mortgage bond (Ex. 1). The executant therein states that

I the declarant have executed this mortgage bond for Rs. 1,633-10-10� bearing interest at the rate of 9� annas per one hundred rupees per mensem in favour of Rarn Lagan Dube.

Further he states:

I do declare that I shall pay up in full the Rs. 1,633-10-10�, principal with interest on 30th Jeth 1315 Fasli in one lump.

It is further stated that:

If I fail to pay up in full the principal with interest in one lump on 30th Jeth 1315 Fasli, the due date of payment, the Said Mahajan or his heirs and representatives will be competent to recover the same from the person and properties of me, my heirs and representatives by bringing a suit.

This as it stands is sufficient to constitute a complete contract. Then follows the stipulation that

in case of non-payment on the due date interest will run at Re. 1-4-0 per cent, per mensem and the creditor will recover interest at the rate of 1� per cent, per mensem after the expiry of the said due date from the person and properties of me, the declarant as well as from my person.

Then it is said as security for principal and interest: "I have mortgaged and hypothecated 1 anna 12 dams pukhta share of Jagdispur." I think that the stipulation for higher interest after default is on a different footing from the primary contract and must be read as stipulation by way of penalty. It does not follow that the rate of interest after default is to be restricted to the rate agreed on in the primary contract. On the contrary Section 74, Contract Act, requires the Court in such a case to assess a reasonable compensation and if the higher rate stipulated for is found not to be unreasonable the compensation may be as high as that but shall not be higher. In our opinion simple interest at Re. 1-4-0 per cent, per annum was not unreasonable. We have still however to see whether the mortgage property was hypothecated for the payment of interest at the penalty rate or only for the payment of interest at the bond rate. We have already quoted the declaration in Ex. 1 in which the mortgage bond is said to be executed for Rupees 1633 odd bearing interest at the rate of 9� annas per one hundred rupees per mensem. In connexion with the stipulation for a higher rate in the event of default the provision in the bond is that this higher interest is recoverable from the person and properties of the executant. The words are appropriate to a personal undertaking to pay money rather than to a mortgage loan.

7.When the bond says "as security for the principal and interest I have mortgaged and hypothecated" the mortgage property the words, it seems to us, are to be read with the previous declaration: "I have executed this mortgage bond for Rs. 1633 bearing interest at the rate of 9� annas per one hundred rupees per mensem" in the absence of any express provision that the interest at the higher rate will also be recoverable from the mortgage property. In this connexion it is noticeable that in the account Ex. B dated 12th September 1919, the genuineness of which is admitted and which was signed by Bisesar Dube, one of the plaintiffs, interest from 1907 to 12th September 1919 was calculated at 9� annas only and not at the higher rate. In the present suit there is no claim for a money decree against the executant. Such a claim if preferred would obviously have been barred by time and we are of opinion that the bond in suit operates as a mortgage bond only to the extent of principal with interest at 9� annas per cent, per month. The defendants propounded another account dated 22nd August 1921 Ex. B.1.

This purports to have been signed by Ram Lagan Dube but the signature is denied and is not accepted by the Subordinate Judge as genuine. With that finding we agree for reasons already given but the calculation of principal and interest in that account is arithmetically correct on the basis of Ex. B and of interest charged at 9� annas. It is possible that the account was prepared at the time but not signed and for the purpose of authenticating it a signature not genuine has been affixed at some later date. It is admitted that the payment of Rs. 1200 was made on 22nd-August 1921 and it appears that by arithmetical reckoning there remained due on that date a balance of Rs. 533-15.0. Calculation of the amount due on the mortgage on the date of suit ought to be made accordingly, subject to what remains to be said regarding the next objection.

This objection arises out of the passing of the Bihar Money-Lenders Act, 1938. Reliance is placed on Section 11. In that Section, which by the Bihar Money-Lenders (amendment and application to pending suits and proceedings) Act, 1938, is made applicable to pending litigations instituted before as well as after the passing of the principal Act and to appeals as well as suits, it is enacted that:

Notwithstanding anything to the contrary contained in any other law or in anything having the force of law or in any contract, no Court shall,... pass a decree for an amount of interest for the period preceding the institution of the suit which together with any amount already realized as interest through Court or otherwise is greater than the amount of the loan advanced, or if the loan is based on a document, the amount of loan mentioned in the document on which the suit is based.

If this enactment is effective and applies to the present proceedings the maximum amount that can be decreed as owing at the date of the suit is double the principal less realizations to date. Double the principal is Rs. 3267-5-9� realizations to date are Rs. 2700, the balance is Rs. 567-5-9�. No interest can be decreed in excess of that amount. It has been argued that all the previous realizations were on account of interest and nothing on account of principal and that there is nothing in Section 11 to prevent the creditor from recovering at least the principal amount of his loan however much he may previously have realized on account of interest. The proposition of law is correct but the facts do not support the argument for the respondents for, as I have shown, it is clearly established by Ex. B that of the realizations more than a thousand rupees had been credited against the principal as far back as 1919.

The amount, Rs. 567.5-9� is therefore the maximum amount to be taken as due on account of principal and interest at the date of suit provided that the provisions of Section 11 of the Act are effective and apply to the case before us. But the recent decision of the Pull Bench in Sadanand Jha v. Aman Khan A.I.R (1936) Pat. 55 compels us to overrule this contention. The mortgagee, we must hold, is entitled to a decree for the amount due on the mortgage calculated in the manner previously explained. The decree under appeal is to be modified accordingly. Appellants are to have costs of this appeal in proportion to their success. Respondents are to have costs of the Court below calculated on the amount decreed by us, and to bear their own costs of the appeal. We certify that this is a fit case for appeal u/s 205, Government of India Act.