Natarajulu Naicker vs Subrahmanian Chettiar and Others

The decrees from which the second defendant''s legal representative appeals, the second defendant having since died, were passed in suits

brought by three plaintiffs to enforce by the sale of mortgaged properties two hypothecation bonds executed by first defendant, the elder brother of

second defendant in a joint Hindu family managed by the younger brother, second defendant.

The principal of the hypothecation deed concerned in appeal No. 331 is Rs. 1,250 and the principal of the hypothecation deed concerned in

Appeal No. 183 is Rs. 7,500.

The first defendant after sowing his wild oats and hopelessly encumbering his half share of the ancestral estate in doing so, proceeded to convey

his interest in the family properties to his brother for Rs. 35,000 by means of an unregistered sale-deed in consideration of second defendant''s

undertaking to discharge the first defendant''s debts; but as he neglected to complete it, second defendant had to compel specific performance of

his contract by means of a suit and get a sale-deed executed by the court on behalf of the first defendant in favour of the second defendant in the

present suit.

At the trial the defence of both borthers to these suits was that the hypothecation bonds were not fully supported by consideration, only Rs. 500

having passed for the bond of Rs. 1,250 and only Rs. 2,880 for the bond of Rs. 7,500, and that even the smaller amounts of which payment was

admitted were paid for being spent for immoral purposes. It was also contended that the rate of interest secured by these bonds was penal and

should be relieved against.

The learned Subordinate Judge found that the bonds were fully supported by lawful consideration and gave the plaintiffs decrees accordingly.

He found the interest to be penal and in one case reduced the rate from 30 per cent per annum compound interest, on default of payment of the

principal sum which bore simple interest, at 24 per cent to 25 1/2 per cent simple interest and in the other case from 21 per cent compound

interest on default of payment of the principal which bore simple interest; at 18 per cent to 19 1/2 per cent simple interest.

At the trial and at the hearing of the appeals a special case was attempted to be made out of the fact that on the date when the bond for Rs.

7,500 was executed and a promissory note for Rs. 1,000 principal and interest thereon was thereby discharged a sale deed of land for a price of

Rs. 1,500 was executed by the second plaintiff in favour of Vijayalakshmi, a dancing girl of Palni who was the first defendant''s concubine, and,

that according to the endorsement on the promissory note Rs. 1,222 of the proceeds of the sale went towards the discharge of the promissory

note drawn in favour of second plaintiff''s brother-in-law Rajanan alias Subbaya Chetty. The suggestion is that in order that first defendent might

fulfil his obligation to the purchaser on account of his co-habitation with her, the money-lending plaintiff sold, land belonging to him and by that

means increased the indebtedness to himself of the spendthrift whose estate he coveted. It is therefore argued on the analogy of Pannichand and

Others Vs. T. Nanoo Sanker Tawker, and Cannan v. Bryce 106 E.R. 628 and other English cases that the whole transaction under which the

plaintiff lent money to the first defendant was tainted with immorality and so is not enforcible.

But there is no allegation, much less proof, that the land which was the subject of the sale-deed was given to Vijayalakshmi as a reward for

concubinage, or that the money borrowed by first defendant went to compensate second plaintiff for the loss of the land, although both brothers,

first and second defendants, were examined as defence witnesses and might have stated the fact if it was true. Nor were the first and second

plaintiff''s cross-examined when they were in the witness box as to the necessity for selling this land at that particular time or as to the application of

the sale-proceeds. Everything has been left to be inferred from the circumstances that Vijayalakshmi was the name of one of the girls taken by first

defendant to Madras for the Christmas festivities, that he admittedly lived with them therefor one week, that Vijayalakshmi''s house is in Palni

where also second and third plaintiffs live, and that she bought a house from the second plaintiff on the same date that the two plaintiffs lent money

under a hypothecation bond to the first defendant. The cash paid under that bond to Rajanan Chetty actually fell short of the price paid for the

land, if the recitals are true. This is the only item to which the appellant''s vakil has been able to point as savouring of immorality. As regards the

rest of the money borrowed by first defendant, it has been left to be deduced from mere suspicion that first defendant spent it on immoral objects

with the connivance of the plaintiffs. There is no evidence that it was part of the contract between the parties that the money should be so applied.

In Pearce v. Brooks (1886) L.R.I. Ex. P. 213 Pollock C.B. referring to Cannan v. Bryce (1819) 3 B. distinguished between cases where money

is lent with the knowledge and object that it may be applied to an illegal purpose and-cases where the lender merely hands it over into the absolute

control of the borrower and the borrower afterwards employs it illegally. The doctrine Ex Turpi Cause non Oritur actio is expressed in Section 23

of the Indian Contract Act which declares that the consideration or object of an agreement is lawful unless the Court regards it as immoral or

opposed to public policy and u/s 10 it is necessary that both the consideration and the object should be lawful for an agreement to become a

binding contract. The recitals of the promissory notes and the hypothecation bonds afford no indication that the moneys were borrowed with the

immediate object of being spent upon prostitution. The lower Court has found (and we think rightly found) that the first defendant was a man of

reckless and extravagant habits who had no regard for money and who spent it in an extravagant fashion and that he was in all probability keeping

company with dancing girls. But, as the learned Subordinate Judge observes, there is no proof that the plaintiffs joined the first defendant in his

reckless ways or that they knew that he was spending the money that he borrowed of them, for immoral purposes and that with that knowledge

they made the advances. The first defendant was not a minor nor a man who had recently attained majority, and there is no issue or finding that he

was under the undue influence of the plaintiffs. The defence thus failed to make out a case that any part of the lending was vitiated by immorality.

As to the extent to which the suit mortgages were supported by consideration, the recitals in the documents are borne out by entries in the

plaintiff''s ledger and day book. Defendant''s second witness deposed that the first defendant admitted having received consideration for one

document, Ex. A, and plaintiffs'' second witness spoke to consideration having passed for the other document, Ex. E, and the Sub-Judge believed

him. Plaintiff''s witness No. 5 who wrote both A and E stated that consideration was paid to the first defendant for both documents. The first

defendant prevaricated and repeatedly contradicted himself, first saying that Rs. 1,000 were paid for Ex. A and then denying it. He says he

received Rs. 2,300 for Ex. E though he signed for Rs. 7,500. He states that when he asked for the remaining Rs. 5,000 the defendant took him to

an arrack shop and made him drunk. Yet he raised no objection to the document being registered and in his written statement he did not advance

the plea that he was intoxicated and incapable of knowing what he was doing at the time of execution of the suit document.

Such being the state of the evidence the lower Court''s finding on the first issue that the bonds are fully supported by consideration must stand

undisturbed.

The next attack on the plaintiff''s case is based on the fact that the form of the promissory notes Exs. B, C, F, F-1, G, G2, H and H-1 offends

against Section 26 of the Paper Currency Act II of 1910 in that they are made payable to bearer on demand. This is an illegality which the law

makes punishable as an offence, This Court has held in Chidambaram Chettiar v. Ayyaswami Thevan 31 M.L.J. 401 and Nachimuthu Chetty v.

Andiappa Pillai (1917) M.W.N. 778 that promissory notes in that prohibited form are not enforcible at law and suits cannot be maintained on them

as such. It is argued that as these promissory notes which are forbidden by law form the greater part of the consideration for the suit hypothecation

bonds, the consideration for the bonds is unlawful and consequently the bonds are void agreements.

But the real consideration for the hypothecation bonds is the first defendant''s indebtedness ascertained upon settlement of accounts, of which

the promissory notes are evidence and the liability for the debts will remain even if the notes are unenforcible. See Ayyaswami Pillai v. Guruswami

Naicken (1916) 3 L.W. 463 Shanmuganatha Chettiar v. Srinivasa Iyengar 31 M.L.J. 138 and Nataraja Naicken v. Ayyaswami Pillai (1916) 32

M.L.J. 354 . There is no provision of law making promissory notes in a prohibited form inadmissible in evidence as there is in respect of

unregistered documents u/s 49 of the Indian Registration Act or in respect of unstamped documents u/s 34 of the Indian Stamp Act. We have

therefore held in Nachimuthu Chetty v. Andiappa Pillai (1917) M.W.N. 778 that they are admissible in evidence as acknowledgments. For these

reasons the suits which are on the hypothecation bonds will not fail on account of the prohibited form of the promissory notes which they

discharged.

The last objection as to the rate of interest remains to be disposed of. In the absence of a finding that there was undue influence the original rate

of interest cannot be reopened. Vide Ponnusami Naiken Vs. Nadimuthu Chetti, and Aziz Khan v. Band Chand (1918) 23 C.W.N. 130 (P.C.).

The rates to which the Subordinate Judge has reduced the interest payable in default appear to be fair and reasonable and we think we should not

interfere with them.

In the result both appeals are dismissed with costs. Time for redemption is extended to a date six months from to-day.