Philippose Thomas vs The State Bank of Travancore

P. Subramonian Poti, J.—The main question that arises in this appeal is whether the defendant, a debtor, is entitled to the benefits under Act XXXI of 1958 in respect of a debt owing to a Banking Company. The defendant executed an overdraft agreement and a promissory note as collateral security for the due payment of the amount, in favour of the Orient Central Bank Ltd., on 15-7-1954. These are evidenced by Exs. P1 and P2 respectively. The pronote was for a sum of Rs. 1000/-. The Orient Central Bank Ltd. was later amalgamated with the Kottayam Orient Bank Ltd., Afterwards the Kottayam Orient Bank Ltd. was amalgamated with the State Bank of Travancore, which is the plaintiff. The dealings of the defendant commenced with the Orient Bank Ltd. were continued with the Kottayam Orient Bank Ltd. For the amounts due as per Ex. P1 overdraft agreement payable to the Kottayam Orient Bank Ltd. the defendant executed a fresh agreement and also a promissory note as collateral security. This was on 15-7-1957. The Kerala Agriculturists Debt Relief Act (Act XXXI of 1058) came into force on the 14th of July 1968. Long after that, on 12-6-1960, the defendant again executed another overdraft agreement Ex. P5 in favour of the Kottayam Orient Bank Ltd. in respect of the liability incurred under the earlier transaction. A promissory note Ex. P6 was also executed as collateral security. Subsequently this suit was filed by the plaintiff bank for amount found due under Ex. P5 agreement. The defendant contended that he was entitled to the benefits of Act XXXI of 1958 and, therefore, the amount due was liable to be calculated in accordance with the provisions of that Act. The trial court accepted this plea of the defendant and gave a decree to the plaintiff for amount due calculated in accordance with the provisions of Act XXXI of 1958. The plaintiff took up the matter in appeal. In the appeal, the main contention raised by the plaintiff was that Exs. P5 to P7 evidenced a renunciation of the right of the defendant under Act XXXI of 1958 and such renunciation being after the commencement of the Act, it is not open to the defendant to fall back upon the original transaction evidenced by Ex. P1 and P2. This contention was accepted by the appellate court which held that the trial court was in error in applying sub-section (1) of section 5 to the plaint liability. The suit was, therefore, decreed in terms of the plaint. The defendant, who lost in the lower appellate court, has come up in this second appeal. In view of the fact that the only question argued in this appeal by both sides concerns the applicability of Act XXXI of 1958 to a case where the original debt is renewed under a fresh document executed after the commencement of Act XXXI of 1958 I do not propose to consider the other questions raised in the memorandum of appeal but not argued before me. The only question for decision is whether a ''debt'' which was incurred prior to the commencement of the Act XXXI of 1958 and in respect of which a fresh document is executed after the commencement of the Act renewing or including the debt so incurred, is a debt to which the Act applies. The case of the plaintiff is that it would not apply in view of the definition of ''debt'' in section 2 (c) of the Act which in terms limits it to liabilities due from or incurred by an agriculturist on or before the commencement of the Act. The defendant, in answer seeks to draw a distinction between incurring of liability and its ''pay ability''. According to him even in the case of a renewed debt or one included in a fresh document, the incurring of the liability is under the original document, but it is payable under the fresh document; that it is immaterial that it becomes so payable after the commencement of the Act, so long as the incurring of the liability is under a transaction entered into on or before the commencement of the Act. In view of this it is the construction of section 2(c) of Act XXXI of 1958 that arises for decision in this appeal.

Section 2(c) of the Kerala Agriculturists Debt Relief Act XXXI of 1958 defines a debt as follows:--

(c) ''debt'' means any liability in cash or kind, whether secured or unsecured, due from or incurred by an agriculturist on or before the commencement of this Act, whether payable under a contract or under a decree or order of any court, or, otherwise, and includes any debt or balance of debt due at the commencement of this Act under the Madras Indebted Agriculturists (Re-payment of debts) Act, 1955, or the Travancore-Cochin Indebted Agriculturists Relief Act, 1956, but does not include--

i) any sum payable to the State or the Central Government or to any local authority,

(ii) any sum payable to the Reserve Bank of India, the State Bank of India, any subsidiary bank within the meaning of clause (K) of section 2 of the State Bank of India (Subsidiary Banks) Act, 1959, the Travancore Credit Bank (in liquidation) constituted under the Travancore Credit Bank Act, the Financial Corporation established for the State of Kerala under the State Financial Corporations Act, 1951, or any co-operative society, including a land Mortgage Bank registered or deemed to be registered under the Travancore-Cochin Co-operative Societies Act, 1951, or the Madras Co-operative Societies Act 1932.

Provided that the right of the Bank, Corporation or society to recover the sum did not arise by reason of an assignment made subsequent to the 1st day of July 1957...........

Principal is defined in section 2 (h) as under:

''Principal'' means the amount originally advanced, together with such sum, if any, as has been subsequently advanced, notwithstanding any stipulation to treat any interest as principal and notwithstanding that the debt has been renewed or included in a fresh document whether by the same debtor or by his heirs, legal representatives, or assigns or by any other person acting on his behalf or in this interest and whether in favour of the same creditor or his heirs, legal representatives or assigns or of any other person acting on his behalf or in his interest.

It was contended by the counsel for the appellant that ''principal'' means the amount originally advanced together with any such sum as is subsequently advanced and that notwithstanding that the debt has been renewed or included in a fresh document, the original advance together with the subsequent advance, if any, continues to be the debt. It is pointed out that though in the definition of ''debt'' in section 2 (c) it is provided that the incurring of the liability must be on or before the commencement of the Act, such a restriction is not seen in section 2 (h) and, therefore, even if the execution of the fresh document renewing or including the debt is after the commencement of the Act, section 2 (h) will apply. But this argument loses sight of the fact that section 2(h) will have application only for the purpose of determining ''principal'' in regard to a ''debt'' coming within the scope of the Act. Therefore the definition in section 2 (h) cannot be read so as to enlarge the scope of section 2(c). The question what ''principal'' means does not at all arise unless the debt is one which falls within the definition of section 2 (c) of the Act.

In considering whether the particular debt is a debt coming within the scope of the Act, it is clear from the definition in section 2(c) of the Act that it is on the liability, which is incurred by an agriculturist on or before the commencement of the Act, that would be a debt for the purposes of the Act. Normally, if a liability is renewed under a fresh document, in settlement of the accounts between the parties the original liability would stand extinguished and the parties would be governed by the obligations arising out of the transaction evidenced by the fresh document so executed. This is so, unless there is some statutory provision which clothes the courts with the requisite power for going behind the transaction which settles the earlier liability. The Supreme Court in C. Krishnayya & Ors. v. G. Seshachalam & Ors. ((1965) 1 S.C.W.R. 382) at page 388 held:

No doubt, where the accounts have been settled between the parties and on the basis of settled accounts a new transaction is entered into between them, normally speaking, the court has no power to enquire further, except in the circumstances envisaged in some of the provisions of the Contract Act. But then there are special provisions like the Usurious Loans Act and the Act in question which clothe the courts with the requisite power.

Therefore, it is by virtue of specific provisions in enactments such as the one now under consideration that the court is, in certain circumstances, enabled to go behind settled transactions and treat the original liability as subsisting for certain purposes notwithstanding the fact of the subsequent settlement and execution of a fresh document evidencing such settlement. One has to see whether such a power is contained in Act XXXI of 1958. It is the contention of the counsel for the respondent that it is only a debt which is incurred on or before the commencement of the Act, that is content plated u/s 2(c) and there is no provision in the Act which enables the court to apply the Act to a debt which arises subsequent to the Act by reason of a fresh transaction, even though in renewal of or including a debt in existence prior to the commencement of the Act. The counsel would further contend that whenever the liability under an earlier transaction is settled and fresh documents are executed in terms of such settlement and where such execution is after the commencement of the Act, the incurring of the liability must be considered to be after the commencement of the Act, and so, section 2(c) will not be applicable. In support of this position, the learned counsel relies on an unreported decision of this court in C. R. P. 956 of 1964. It does not appear from that decision that the learned Judge who decided that case laid down a general rule that in every case where fresh documents are executed the earlier liability, which was the subject-matter of the settlement, does not survive for the purpose of the application of the definition of ''debt'' in section 2 (c) of Act XXXI of 1958, though on the facts of that case the learned judge was inclined to hold so.

It appears to me that section 2(c) enables a court to treat a liability incurred prior to the commencement of the Act and renewed after the commencement of the Act as a debt coming within the scope of the Act. No doubt, incurring of the liability must be on or before the commencement of the Act; but if it is payable under a contract, a decree or an order of the court whether before or even after the commencement of the Act, the definition in section 2 (c) would apply. It a fresh document is executed renewing the liability under an earlier transaction or settling an earlier transaction, one that is prior to the commencement of the Act, and if a suit is instituted on the basis of the fresh document so executed, no doubt, for the purpose of the suit the amount is payable by the defendant by virtue of the fresh contract but it is in respect of a liability incurred prior to the commencement of the Act. If so, I cannot see my way to accept the contention of the learned counsel for the respondent that section 2(c) has no application to a case of execution of a fresh document renewing the earlier debt u/s 2(c) of the Act. I am supported in coming to this conclusion by the decision of this Court in Joseph v. Varkey (1966 K. L. T. 1143). No doubt, the facts of that case were different. In that case a liability incurred before the commencement of the Act was settled by compromise between the parties to a suit, entered into after the commencement of the Act. I was contended that since the compromise created a fresh obligation between the parties in the place of the original obligation and such obligation was created after the commencement of the Act, the definition of debt in section 2 (c) cannot apply. This Court, repelling the contention so raised, held that whatever may be the position as to merger or extinguishment of an anterior liability, in view of the definition contained in the statute, no such extinguishment can arise so as to replace the original debt by a new debt which would have the effect of non-suiting an applicant who claims the benefit of the statute, in relation to a liability that was once incurred before the commencement of the Act. According to me, the principle of this decision would apply not only to a case of compromise entered into by the parties after the commencement of the Act in respect of a liability due before such commencement but also to a case of execution of a fresh document in renewal of a liability incurred before the commencement of the Act. In such a case the amount becomes payable under the fresh document executed in renewal, but the liability is still that incurred before the commencement of the Act. If so, the position taken up by the respondent''s counsel cannot stand. In the decision in C. R. P. 956 of 1964 the question was not raised in this form nor so considered. The provisions of the Kerala Agriculturists Debt Relief Act have to be construed bearing in mind the object of the Act, that it is as a measure intended to benefit the indebted agriculturists and, therefore, it must be construed liberally in favour of the debtors. This view is supported by the decision in Thomas v. Thomas (1965 K. L. T. 608).

It therefore, follows that the defendant is entitled to seek the benefits of Act XXXI of 1958. I therefore allow this appeal setting aside the decree of the lower appellate court and restoring the decree of the trial court. In the circumstances of this case, there will be no order as to costs.