Ramaswami Pillai vs Sankara Mudaliar and Others

Subba Rao, J.—This appeal raises some interesting points of law under the Madras Agriculturists'' Relief Act, 1938 as amended by the

Madras Act XXIII [23] of 1948. The facts are fully and accurately stated by the learned Subordinate Judge of Salem in his judgment and it is not

necessary to restate them. It is enough if the material facts sufficient to appreciate, the contentions of the parties are briefly stated.

Defendant 1, Arumugam Pillai, for himself and as guardian of his then minor son defendant 2 executed a mortgage deed in respect of the

properties situate in Pandamangalam and Vangarai in favour of the plaintiff for a sum of Rs. 5000 carrying interest at ten per cent. per annum.

Defendant 3 is defendant 1''s after-born son. In I. P. no. 80 of 1933 on the file of the District Court of Salem defendant 1 was adjudged an

insolvent and so the Official Receiver of Salem in whom his interest vested was added as defendant 4. The plaintiff instituted O. S. no. 50 of 1944

on the file of the Court of the Subordinate Judge of Salem on the foot of the mortgage deed impleading the aforesaid four defendants. On the same

properties there was a prior mortgage executed by defendant 1. On 10-11-1926 defendants 1 and 2 executed another mortgage in respect of

Pandamangalam lands in favour of one Poosari Sellaperumal Pillai. Periasami Pillai, the son of the said Sellaperumal Pillai, instituted O. S. No. 50

of 1934 on the file of the Court of the Subordinate Judge of Salem to enforce the said mortgage and obtained a decree. To that suit the plaintiff,

the puisne mortgagee, was added as defendant 4. Under the said decree a sum of Rs. 4620-4-0 due to Periasami under his prior mortgage was

directed to be paid to him and also a sum of Rs. 6933-6-0 due to defendant 4 (the present plaintiff) under the mortgage deed dated 10-8-1931

was directed to be paid to him. Under Clause 4 of the decree the mortgaged properties, i. e., Pandamangalam lands had to be sold and the

proceeds realised had to be paid to Periaswami in the first instance and the balance to defendant 4 (the present plaintiff) towards his mortgage. The

properties were sold on 18-11-1935 and after paying the prior mortgagee the surplus amount of Rs. 3477-13-8 was paid to the plaintiff. An

endorsement dated 25-11-1935 was made on the mortgage deed dated 10-8-1931 to the effect that a sum of Rs. 3477-13-8 had been paid

towards the suit mortgage. Out of the said amount the plaintiff credited in his account books Rs. 2135-6-8 towards interest and Rs. 1342-7-0 for

principal. He filed the present suit on the footing of the mortgage dated 10-8-1931 for the balance of the amount due thereunder after giving credit

to the said amount of Rs. 3477-13-8 in the manner stated above. Defendant 2 was the only contesting defendant. Various contentions were raised

by defendant 2 and they are reflected in the following issues :

Is the mortgage true, supported by consideration and binding on defendants 2 and 3 ?

iS the appropriation of Rs. 3477-13-8 in manner claimed by the plaintiff true and valid ; and are defendants or any of them agriculturists entitled

to benefits under Act IV [4] of 1938 ?

Is plaintiff estopped from proceeding against item 2 for any of the reasons urged by defendant 2 ?

Is the suit barred by res judicata or Order 2, Rule 2, Civil P. C., or otherwise not maintainable by reason of Order S. No. 50 of 1934 and the

insolvency ?

What relief, if any, is plaintiff entitled to ?

The learned Subordinate Judge held against defendant 2 on all the issues and decreed the suit as prayed for. Defendant 2 has preferred the

above appeal against the said decree of the learned Subordinate Judge. Pending the appeal, Madras Act XXIII [23] of 1948 amending the

Madras Agriculturists Relief Act of 1938 was enacted by the Madras Legislature and the learned counsel for the appellant without in any way

questioning the finding of the lower Court on any of the issues contented himself to base his client''s relief on the provisions of the Amending Act.

The learned counsel''s first argument is that under Explanation III added to Section 8, Madras Agriculturists Relief Act of 1938 by the Amending

Act XXIII [23] of 1948 his client is entitled to trace back his debt to the original principal amounts of the promissory notes to discharge whereof

he and his father executed the mortgage deed. To appreciate his contention it is necessary to state the origin of the indebtedness which finally

culminated in the suit mortgage deed. The suit mortgage deed is Ex. P. 1. The amount under that mortgage deed was borrowed for the payment of

certain earlier debts. The following tabular form shows at a glance the earlier debts which were directed to be paid by the mortgagee.

Serial No. Amount Previous debt More anterior debt if any Amount claimable now.

Rs. Ex. Amount Ex. Amount Rs.

1080 P. 2 1050 P. 2.a. 500 500

545 P. 3 600 P. 3.a. 500 500

647 decree � 500 500

854 P. 5 700 P. 5.a. 700 700

805 P. 6 750 �� 750

150 P. 7 150 �� 150

880 P. 8 1000 (-200) �� 800

39 cash __ 39

Total 5000 8939

It is common cause that the previous debts were payable to different creditors other than the mortgagee. In view of the then settled law as laid

down by the Courts the principal amount advanced under the mortgage deed was accepted as the principal amount for purposes of scaling down

but it is now contended that in view of the Explanation III now added to the Amending Act the defendant is bound only to pay the principal

amounts covered by the earlier promissory notes. To appreciate this contention the relevant provisions of the explanation may be extracted ;

Where a debt has been renewed or included in a fresh document executed before or after the commencement of this Act, whether by the same or

a different debtor and whether in favour of the same or a different creditor, the principal originally advanced together with such sums, if any, as

have been subsequently advanced us principal shall alone be treated as the principal sum repayable under this section. (Section 8).

This explanation was enacted in substitution of the explanation which read as follows :

Where a debt has been renewed or included in a fresh document in favour of the same creditor, the principal originally advanced by the creditor

together with such sums, if any, as have been subsequently advanced as principal shall alone be treated as the principal sum repayable by the

agriculturist under this section.

The difference between these two explanations, so far as it is material to the question to be decided in this case is that in the substituted explanation

the words ""whether in favour of the same or a different creditor"" are added. Relying upon these words Mr. Ramaswami Iyengar the learned

counsel for the appellant argued that though the mortgagee is a different creditor from that of the original creditors to discharge whose debts the

mortgage was executed his client is liable to pay only the principal originally advanced to him under the earlier documents. On a superficial reading

of the explanation this argument appears to be plausible but a deeper scrutiny would expose the fallacy behind this argument. As the explanation is

substituted by the Amending Act, it is necessary to consider the history of this explanation and also the circumstances under which it came to be

enacted. There was a long catena of judicial decisions on the interpretation of the explanation to Section 8, Madras Agriculturists'' Relief Act of

1938 before the Amending Act of 1948. The word ""renewed"" is subject to judicial interpretation both in England and here. In Law Lexicon of

British India by Ramanatha Iyer it is stated that the renewal of a negotiable bill or note is regarded simply as a prolongation of the original contract.

In Barber v. Mackrell, (1893) 68 L. T. 29 : 41 W. R. 341 Lindley L. J. says:

A bill is renewed when another bill is taken in its place, the parties to the bill and the amount of it being the same, though perhaps in some cases

the interest due on the one bill is added.

The said dictum of Lindley L. J. was accepted and followed by Wadaworth and Patanjali Sastri JJ. in Neelappa Reddiar Vs. Solaimuthu

Udayan and Another, . In the words of Wadsworth J.

the renewal of a debt ordinarily means the substitution of a fresh contract between the same parties for the same amount or the same amount or

the same amount plus accrued interest.

It necessarily implies that the original debt is not extinguished. The words ""included in a fresh document"" were explained by Somayya J. in the

decision reported in In Re: Balusu Subbaraidu and Others, . In his view the words were intended to provide for a case where the debtor instead of

merely executing a new document for the exact sum owing under the previous one, takes a fresh loan and executes the document both for the sum

due under the original document and for the sum taken at the time of the new document. The juxtaposition of the words ""renewed"" and ""included in

a fresh document"" was relied upon for expressing the view that the fresh document must be by the same debtor.

It is, therefore, clear that under the law as then understood whether it was a case of renewal or inclusion in a fresh document the creditor and the

debtor must be the same. This accepted interpretation of the words were applied to the varying situations that came up for decision before the

Courts. Where a promissory note of 1918 of an earlier debt by A was discharged and in lieu of it on the same day a fresh promissory note was

executed by B (a distant relative of the original debtor) who renewed it by a series of documents terminating in the suit promissory note it was held

in Neelappa Reddiar Vs. Solaimuthu Udayan and Another, that the debt under the promissory note was not in renewal or inclusion of the

promissory note of 1918 within the meaning of the Act. The reason for the ruling was that as the debtors were different the fresh contract was not

between the same parties and so it could not be a renewal within the meaning of the Act. Where in respect of interest due on a mortgage a

promissory note was executed prior to 1-10-1932 by the mortgagor in favour of the son of the mortgagee, and the son sued and obtained a

decree on the note it was ruled in Varadarajan Pillai v. Krishnamurthi Pillai, 32 M. L. W. 595 : AIR 1941 Mad. 32l that the promissory note could

not be regarded as a renewal of the earlier liability in favour of the ""same creditor"" within the meaning of the explanation to a. 8. Where a debt is

partitioned between the members of the family and the separated members executed different promissory notes in favour of the same creditor and

those promissory notes have been renewed subsequently from time to time it was held in S. Ramasubbier and Another Vs. P. Rama Aiyar and

Others, that the debts can only be traced back through successive renewals to the promissory notes executed on partition. In the decision reported

in Varadarajan Pillai v. Krisknamurthi Pillai, 52 M. L. W. 595 : A. I. R. 1941 Mad. 321, the facts are for interest due on a mortgage of 1926 a

promissory note was executed in favour of the son of the mortgagee and the debtor claimed that the promissory note debt representing interest on

the earlier mortgage must be deemed to be wiped out by reason of the Explanation to Section 8 of the Madras Agriculturists'' Relief Act IV [4] of

1938. The learned Judges relying upon the provisions of the Negotiable Instruments Act held that, though the family was beneficially entitled to the

decree amount the creditors were different and, therefore, the decree amount could not be traced back to the mortgage debt. The only exceptions

that were accepted in the application of the principle were in regard to heirs, assigns, legal representatives of the creditors and the benami

transactions not hit by the Negotiable Instruments Act. These are not really exceptions but in law both the documents are really in favour of the

same creditor. A second document may be executed in favour of a benamidar, donee or a relative for the purpose of accommodation or a person

standing in fiduciary relationship the beneficial interest being in the first creditor. For the purpose of convenient reference, we shall call the second

creditor as the nominee of the first creditor. Courts refused to consider him as the ""same creditor"" within the meaning of the section except in the

case of a benamidar not governed by the Negotiable Instruments Act. A document may be executed in favour of another under three

circumstances: (1) A executes a promissory note in favour of B, and later on executes a renewed promissory note in favour of B for the amount

due under the earlier promissory note. (2) A may execute a promissory note in favour of B and later on with the consent of B, A may execute

another promissory note in discharge of the earlier one in favour of a nominee of B. (3) Thirdly, A may execute a promissory note in favour of B

and later on execute in favour of C another promissory note and discharge the earlier promissory note either paying the amount directly or by

directing the second promisee o pay the amount to the first promisee. The aforesaid discussion of, the case law shows that only the execution by

the debtor in favour of the Sitme creditor was considered as ""renewal"" within the meaning of the Explanation and though the identity of the debt

was not lost the learned Judges refused to consider the second category of cases as ""renewal"" or inclusion within the meaning of the Explanation.

Indeed no question was ever raised that if a debtor borrowed money from a third party by executing a fresh promissory note and discharged the

earlier promissory notes directly or through a new creditor it was ""renewal"" within the meaning of the Explanation. In the third class of cases there

is no identity of the debt at all. It is really a discharge of the earlier indebtedness by payment either directly or indirectly. In this state of law, the

Amending Act XXIII [23] of 1948 was passed and there a new Explanation was substituted for the old. Mr. Ramaswami Iyengar argued the word

different creditor"" is comprehensive enough to include even a third person in whose favour the debtor executed a document requesting him to

discharge the earlier debt. The meaning to be attached to the words ""different creditor"" is necessarily controlled by the clause ""where a debt has

been renewed or included in a fresh document."" To state that the document executed in favour of a third party with a direction that the amount may

be paid to the earlier creditor is a renewal of the earlier promissory note is certainly doing violence to the language of the Explanation. The

established meaning of ""renewal"" or ""inclusion"" cannot be ignored unless the words used are clear and unambiguous. The fundamental idea of

renewal or inclusion"" in the fresh document is that the new contract also must be between the same parties or substantially the same parties. A

document executed in favour of an utter stranger to the transaction for the purpose of borrowing amounts to pay off earlier debts cannot be a fresh

document as it is a first document so far as that new creditor is concerned but the words ""different creditor"" in the Explanation must be given a

meaning. The Explanation must have been intended to cover the second category of cases mentioned above, that is, if a fresh document was

executed in favour of a third party with the consent of the parties concerned, A debt incurred for the purpose of discharging an earlier debt cannot

be considered the same debt when the earlier debt was paid off. The identity of the debt is lost and a new debt has come into existence for the first

time.

In this connection, the wording of the relevant portion of the suit mortgage deed may also be noted. It reads as follows :

In all the amount due by us in respect of seven items is Rs. 4961-0-0. By directing you to pay to the aforesaid persons on our behalf the said

amount of four thousand nine hundred and sixty one rupees after settling the accounts, and to take back the said promissory notes, and receipts for

Court decrees yourself and keep them in support hereof the amount received by us is Rs. 4961-0-0.

It is clear from this document that the mortgagee was directed to pay that amount as the mortgagor''s agent. If the mortgagor received the amount

and paid off the earlier debts it cannot reasonably be argued that this mortgage debt was a renewal of the earlier debts. On principle it cannot

conceivably make any difference if instead of receiving the amount and paying directly the creditors the new creditor was directed to pay on behalf

of the mortgagor. In the circumstances he pays the amount as the agent of the mortgagor.

For the aforesaid reasons we are of opinion that the words ""different creditor'' in the section cannot apply to a creditor from whom amounts were

borrowed for the purpose of discharging earlier debts. In no sense of the term can that document executed in favour of that creditor be a renewal

of the earlier document or an inclusion of an earlier debt in a fresh document. It is then argued by the learned counsel for the appellant that the

entire amount paid to the plaintiff in O. S. No. 50 of 1934 should be credited towards the principal. This argument was based upon Expln. I newly

added to Section 8, Madras Agriculturists'' Relief Act by the Amending Act XXIII [23] of 1948. Explanation I reads thus :

In determining the amount repayable by a debtor under this section, every payment made by him shall be credited towards the principal, unless he

has expressly stated in writing that such payment shall be in reduction of interest.

The contention was that when the said amount of Rs. 3477-13-8 was paid the debtor did not expressly state in writing that such a payment should

be in reduction of interest and that the entire amount should go in reduction of the principal. To appreciate this contention the facts may be briefly

recapitulated. Out of the sale proceeds of Pandamangalam lands in execution of the decree in O. S. No. 50 of 1934 there was a surplus of Rs.

3477-13-8 which was paid to the plaintiff in the suit. The endorsement on the suit mortgage document reads as follows :

Rs. 3477-13-8 was paid towards this mortgage on 18-11-1995 by cheque No. 118076 of book No. 1181 in E. P. No. 46 of 1935 in O. S. No.

50 of 1934 on the file of this Court. Sd. K. M. K. Kurup Sub-Judge, 26-11-1935.

After the receipt of the money, the mortgagee appropriated Rs. 2135-6-8 for interest and rupees 1342-7-0 for principal. Admittedly the

mortgagor did not expressly state in writing that the said payment should be in reduction of interest. It is, therefore, contended that under Expln. I

the entire amount should go in reduction of the principal. Mr. Rhashyam Iyengar for the respondent argued that Expln. I had no application at all as

it contemplates only a case of a payment by a debtor with an option to expressly state in writing that the amount paid by him should be in reduction

of interest. He points out that in the case of receipt of money from Court it is impossible to apply this explanation as it is not expected of the Court

to give a direction in the manner contemplated by the said explanation. As this is an expropriatory Act with retrospective effect we are bound to

construe the Amending Act XXIII [23] of 1948 strictly and unless the words used in the Expln. I are clear and unambiguous we cannot grant the

relief asked by the debtor. Mr. Ramaswami Iyengar supported his arguments by relying upon the decision reported in Govindaswami Pillai v. Desai

Goundan, 44 Mad. 971 : A. I. R. 1921 Mad, 704. That was a decision on the construction of Section 20, Limitation Act (IX (9) of 1908). In that

case a certain amount was deposited into Court to the credit of the suit. The Court paid out to the decree-holder on 11-8-1914. When the

payment was made the Judge signed a paper showing that payment was made in his presence and through Court. On the decree-holder filing an

application for execution of the decree on 10-8-1917 the question arose whether that payment would save limitation. That would depend upon the

question whether the payment made by the Court was a payment by the debtor or by his agent duly authorised in his behalf within the meaning of

Section 20, Limitation Act. The learned Judges held that the Court should be deemed to have been an agent duly authorised by the judgment-

debtor to make the payment, and that the signature of the Judge on the paper showing the payment satisfied the condition that the fact of payment

should appear in the handwriting of the person making it as required by Section 20, Limitation Act, and that consequently the application for

execution was not barred. That decision turned upon the provisions of SECTIONS 19 and 20, Limitation Act, and the Explanation and it is of little

help in construing the Explanation I of the Amending Act. Explanation I obviously could not have contemplated the payment of the amount by

Court as it was unreasonable to expect that the Legislature intended that the Court should give directions in regard to the mode of appropriation of

the amount so paid. In the circumstances, therefore, there is no scope for the application of Explanation I to the facts of this case. If Explanation I

does not apply the general law of appropriation should apply. As the debtor did not point out the mode of appropriation the creditor was entitled

to appropriate the amount in the manner he did in Ex. P-9.

Mr. Bhashyam Iyengar contended that in any view Explanation I does not govern the facts of the present case as Section 16 of the Amending

Act does not affect the payment made in O. S. No. 50 of 1934. To appreciate his contention it is necessary to consider the provisions of Section

16 of the Madras Act XXIII [23] of 1948. It reads thus :

The amendments made by this Act shall apply to the following suits and proceedings namely :

(1) all salts and proceedings instituted after the commencement of this Act ;

(2) all suits and proceedings instituted before the commencement of this Act, in which no decree or order has been passed, or in which the decree

or older passed has not become final, before such commencement;

(3) all suits and proceedings in which the decree or order passed has not been executed or satisfied in full before the commencement of this Act ;

Provided that no creditor shall be required to refund any sum which has been paid to or realised by him before the commencement of this Act.

Mr. Bashyam Iyengar''s argument was that in so far as the payment of Rs. 3477-13-8 was concerned, it was paid in execution of the decree in O.

S. No. 50 of 1934 and that the decree was satisfied and therefore it could not be reopened. Some of the relevant facts may usefully be

recapitulated. O. S. No. 50 of 1934 was a suit filed prior to the mortgage in respect of the Panda-mangalam lands. The present plaintiff was

defendant 4 in that suit. There was a decree in his favour for a sum of Rs. 6433-9-0. It was directed to be paid off from and out of the sale

proceeds after satisfying the decree in favour of the prior mortgagee. The surplus amount was. accordingly paid to the plaintiff and the proceedings

there were closed. The present suit was filed for recovery of the balance and in this suit the question arises with regard to the appropriation of the

amount paid in the earlier suit. There is an underlying fallacy in the argument of Mr. Bashyam lyengar. For the purpose of Section 16 the suit we

are concerned with is the suit wherein we are asked to apply the provisions of the Madras Agriculturists'' Relief Act and therefore Clause (2) of

Section 16 directly applies. The only question, therefore, that arises for consideration is whether the pendency or the closure of the proceedings in

O. S. No. 50 of 1934 has any bearing on the application of Section 16. The only question with regard to those proceedings is whether the

payment of money and the appropriation of the amount by the creditor can be reopened under the Madras Agriculturists'' Relief Act or whether

this Court is precluded from doing so by virtue of some principle other than that contained in the provisions of the Madras Agriculturists'' Relief

Act. We cannot see any principle which compels us to hold that the appropriation made in O. S. No. 50 of 1934 cannot be reopened in this suit, if

Explanation I applied; nor Mr. Bashyam is able to suggest one.

Assuming that Mr. Bashyam''s argument is sound even then it would not advance his case any further. As we have already stated, the decree

was for a sum of Rs. 6933-6-0 but what was paid towards the decree was only Rs. 3477-13-8 and therefore there was a large amount still due to

the decree-holder. Clause (3) of the Act would apply to all suits and proceedings in which the decree or order passed has not been executed or

satisfied in full before the commencement of the Act. As the decree has not been satisfied in full the Act applied.

But in the view we have taken of the application of Explanation I the appropriation already made cannot be reopened.

In the result the appeal is dismissed with costs.