Sadasiva Babu and Others vs Kasinath Trust Funds and Others

Ayyar, J.—This is a defendants'' second appeal from the judgment of the District Judge of Cuttack-Sambalpur reversing a decision of the Subordinate Judge of Sambalpur, who dismissed; the plaintiffs'' suit which was based on a bond dated 14th May 1932. The facts giving rise to the-present suit were the following. The defendants-are members of a joint Hindu Mitakshara family, and one Dayanidhi Babu, father of defendants 2 to 4, had borrowed a sum of Rs. 2000 from Dasarathi and Ananda, the ancestors of on& Gangadhar, on the basis of a mortgage bond dated 16th August 1900. Gangadhar subsequently obtained a decree in 1922 on the foot of this bonds and started execution proceedings, the decretal dues along with interest having by that time swelled up to Rs. 8000, including the cost of execution. The same Gangadhar got some of the ancestral immovable properties of the defendants'' family sold in execution and purchased them himself for Rs. 2125. After the sale was confirmed and before Gangadhar could take possession, Dayanidhi, the harta of the defendants'' family, along with other family members came to an amicable arrangement with Gangadhar with a view to save the properties, the arrangement being that the defendants'' family paid a sum of Rs. 1000 to Gangadhar and executed a fresh bond for the balance of the above mentioned sum of Rs. 8000 in lieu of the said ancestral properties being returned to them. This bond which was for Rs. 7000 and was executed on 14th May 1982 is the bond in suit. It was an instalment bond, the executants promising to repay the sum of Rs. 7000 in seven annual instalments of Rs. 1000 each payable on the first day of the month of August each year beginning from 1st August 1983; there was also a provision, that in case of default of any instalment, the entire amount of the instalments, remaining unpaid would become due at once and be recovered in one instalment. The defendant''s family accordingly paid the first instalment to the said Gangadhar and also certain sum of money towards the second instalment. On 11th November 1984 Gangadhar, being hard pressed by his own creditors, transferred his rights under the bond in suit to the plaintiff by an assignment deed for a consideration of Rs. 3500, and Dayanidhi and other defendants were informed accordingly, and they admittedly made some payments thereafter to the plaintiff. The plaintiff in the suit is the "Kasinath Trust Fund" and the suit was brought by the trustees of this Fund on the ground that the second instalment due under the bond had not been fully paid up, and that the defendants had defaulted payment since 1st August 1934. The total claim including interest which was calculated at the rate of Rs. 6 per cent, per annum from the date of default, namely, 1st August 1934, was laid at Rs. 4893-6-0. The payments mentioned in paras. 8 and 9 of the plaint as having been made by the defendants were admitted by them, in the written statements filed on behalf of defendants 2 to 6 and the minor defendants, but the liability to pay anything more to the plaintiff under the bond in suit was sought to be resisted on various grounds which it is not necessary to investigate in this appeal for reasons which will presently appear. On 20th July 1940, by which date the Orissa Moneylenders Act of 1939 had been extended to Sambalpur, a supplementary written statement which was filed on behalf of defendants 2 and 4 said that according to the provisions of the Money-lenders Act the plaintiffs were not entitled to any decree, as they had admittedly realised more than double the principal amount of the loan under the bond of 1900, and that under the said Act the defendants were entitled to have the whole transaction re-opened with effect from 1900, the date of the original mortgage and interest calculated at 9 per cent, per annum and that a total sum of Rs. 6416-2-0 had already been paid up as against the original loan of Rs. 2000. The guardian-additem on behalf of the minor defendants also filed a similar written statement, and the only question for decision in this second appeal is whether the defendants-appellants are entitled to be relieved of their indebtedness under the bond in suit by reason of the provisions of the Money-lenders Act. The learned Subordinate Judge held that the defendants were entitled to the benefits ac truing to them under Sections 9 and 10, Money-lenders Act, and passed a decree in favour of the plaintiff only for the costs of the suit. He has found in the first place that Dasarathi and Ananda, the predecessors of Gangadhar (the plaintiff''s assignor) were ''money-lenders'' as defined in Section 2(j), Money-lenders Act and has referred to the evidence adduced by the parties in this connection; as a corollary he has held that the plaintiff was a money-lender to whom the provisions of Act III [3] of 1939 were applicable. He has also held that even though the original loan had matured into a decree the bond in suit related to a past liability and that the consideration under the said bond was accordingly to be regarded a loan as defined in the said Act. He further held that the fact that the bond in suit contained no stipulation for interest did not make any difference to this position. The learned Subordinate Judge found that the defendants had admittedly paid up a sum of Rs. 6416-2-0 apart from a sum of Rs. 975 by attachment and sale of their paddy in execution, or, in other words, Rs. 7391-2-0 in all, which was almost treble the original amount advanced, and came to the conclusion that the defendants were, therefore, entitled to be relieved of their indebtedness under the Money-lenders Act without liability to make any further payments to the plaintiff. On appeal the learned District Judge has reversed this finding on three grounds. In the first place, the learned District Judge observed that there was no evidence on the record to show that Dasarathi and Ananda were moneylenders within the meaning of the Money-lenders Act. Secondly, he was of the opinion that no personal liability remained after the decree of 1922, that the said decree was in the circumstances to be considered merely "damages for fraud" and that such award of "damages for fraud" could not be regarded as a loan. In conclusion, the learned District Judge held that the plaintiff was entitled to a decree for the principal amount claimed, without any interest, inasmuch as the bond in suit did not bear interest. Hence this second appeal.

The learned District Judge thought that the mere description of Dasarathi and Ananda as Mdhajans in the original mortgage bond of the year 1900 was not sufficient to prove that they were money-lenders within the meaning of the Orissa Money-lenders Act and that on this ground alone the defendants'' case was bound to fail. In the Act of 1939 the expression ''moneylender'' was defined in Section 2(j) as

a person who advances a loan in the regular course of business of money-lending with a capital of more than a sum of rupees one thousand

for purposes of all sections of the Act except Sections 9 to 16, and for purposes of these sections as

a person who advances a loan in the regular course of business of money-lending irrespective of the amount invested in the said business.

It is, however, not necessary to examine this definition in its applicability to the present suit or to discuss the evidence on the point as to whether either Gangadhar, the plaintiff''s assignor "was a money-lender, or whether his predecessors Dasarathi and Ananda can be deemed to have been money-lenders as defined in Section 2 of the Act, for the Amendment Act of 1947 (Act XVIII [18] of 1947) has defined the expression "money-lender" beyond all doubt for the purpose of such sections of the Money-lenders Act as are relevant to the present appeal. According to this Amendment Act, the term "money-lender" means in Sections 4, 5,6, 7, 8, 18 and 19--with which we are not concerned--"a person who advances a loan in a regular course of business of money-lending"; and in the remaining sections of the Act "a per. son who advances a loan." In other words, it is no longer necessary in applying the sections of the Act other than those just specified to prove that the creditor in question is a professional money-lender or Mahajan or "that he has been advancing loans in the regular course of business of money-lending, and excepting the case of the sections specifically excepted in Section 2 of the Amendment Act, the expression "money-lender'''' would apply to the case of any person who is proved to have advanced a loan. This being the position, there can be no doubt whatsoever that the creditors in the present case were "money-lenders" within the meaning of the Money-lenders Act. Now, on behalf of the defendants-appellants it is urged that they are entitled to the benefits accruing to them under Sections 10 and 11(1) of the Orissa Money-lenders Act. I should observe at this stage that Sections 10 and 11 can be invoked in the present case, even if it be held that Gangadhar, Dasarathi and Ananda were not moneylenders, for the Amendment Act of 1947 has amended the old Sections 10 and 11, so as to make their provisions applicable to a suit brought not only by a money-lender but by "any other person." Section 10(1) of the Act of 1989 reads as follows:

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, in any suit brought by a money-lender in respect of a loan advanced before or after the commencement of this Act, pass a decree for an amount of interest for the period preceding the institution of the suit which, together with any amount already realised as interest through Court or otherwise is greater than the amount of the loan originally advanced.

This section, in short, embodies the rule of Damdupat. Section 11(1)(i), which is the other section of the Money-lenders Act relevant for this appeal, runs as follows:

In any suit brought by a money-lender in respect of a loan advanced before the commencement of this Act, the Court shall exercise all or any of the following powers as may be applicable to it, namely: (i) re-open the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any interest, in excess of nine per centum simple per annum in the case of a secured loan....

Under Section 16 of the Act, Sections 10 and 11 have been made applicable, (i) to suits brought by money, lenders in respect of loans advanced before the commencement of this Act, and pending on the date on which the said sections come into force; and (ii) to appeals and proceedings in execution arising in respect of decrees passed on 1st April 1936, or thereafter on the basis of loans whether such appeals or proceedings in execution were pending on, or instituted after, the date on which the said sections come into force. Further, Sub-section (2) of Section 10 of the old Act, provides as follows:

Where, in any suit, as is referred to in Sub-section (1), it is found that the amount already realised as interest through Court or otherwise, for the period preceding the institution of the suit, is greater than the amount of the loan originally advanced, so much of the said amount of interest as is in excess of the loan shall be appropriated towards the satisfaction of the loan and the Court shall pass a decree for the payment of the balance of the loan, if any.

The present suit based on the instalment bond was filed on Sist July 1931, and the provisions of the Money-lenders Act were extended to Sambalpur, as already stated, in 1940. By the Amendment Act of 1947, the provisions of Sections 10 and 11(1) of the old Act have been made applicable to suits brought by "any person" and not merely "a money-lender." In these circumstances it is contended on behalf of the appellants that inasmuch as they had already paid up a total sum of over Rs. 6000 as against the original mortgage loan of Rs. 2000 incurred in 1900 they are entitled to be relieved of all liability in respect of the said loan by virtue of Sections 10 and 11(1)(i), Money-lenders Act.

Mr. Chatterji arguing for the respondents conceded at first that the instalment bond in suit was in the nature of a "loan" to which the provisions of the Money-lenders Act apply and then realising that this line of argument would land him in difficulties, contended that the instalment bond could not be regarded as a loan at all, inasmuch as it did not stipulate for payment of any interest on any amount advanced or meant to be advanced as principal. He also took up the position that the mortgage loan of 1900 had merged in the decree of 1922, that the instalment bond in suit was an independent transaction being merely in the nature of an arrangement to pay off the decretal dues and interest on the decretal dues, that the decree of 1922 blocked the way of the judgment-debtor in claiming relief under the Money-lenders Act and that the benefits conferred by Section 11(1)(i) of the Act could be availed of by the judgment-debtor only in the case of appeals and proceedings in execution arising in respect of decrees passed on 1st April 1936, or thereafter. This last argument, namely, that the transaction could be re-opened u/s 11(1)(i), and that the debtor relieved of all liability in respect of any interest in excess of 9 per cent, simple per annum in the case of a secured loan only where appeals or execution proceedings are pending in respect of decrees passed on 1st April 1986, or thereafter was sought to be met on behalf of the, appellants on the ground that the present suit based on the instalment bond had been brought in respect of a loan advanced before the commencement of the Act and pending on the date on which Sections 10 to 15 came into force.

Among the cases cited by Mr. Chatterji was the ruling reported in Basudeb Mahapatra v. Surendra Nath Mitra A.I.R.1942 Pat. 431. This ruling, however, does not help him, as it merely emphasised the distinction between a suit and an execution proceeding with reference to its applicability to Sections 10 to 16, Money-lenders Act, and pointed out that the provisions of Section 10 were not applicable to execution proceedings. The ruling reported in Harekrishna Mahanti v. Puri Bank Ltd. A.I.R.1915 Pat. 281 was also relied upon on behalf of the respondents in support of the contention that the loan in the present case had merged in the decree of 1922. In that case, however, the question which was decided was that the provisions of Section 11, Money-lenders Act did not allow the re-opening of a transaction which had merged into a decree long before the relevant date, namely, 1st April 1946. The loan in that case was that of 1909 and it had merged in a decree of 1927, and the decree had, as a matter of fact, been satisfied. In the present case, there is no question of reopening a loan which had merged into a decree long before 1st April 1936. In fact by entering into the instalment bond of 1932, the parties appear to have disregarded the decree of 1922, and the appellants in claiming the benefits conferred by Section 10 and 11(1), Money-lenders Act are not seeking to interfere with the decree of 1922. The remedy they are seeking is to be relieved of all liability in respect of any interest in excess of 9 per centum simple per annum in the case of the mortgage loan of 1900 by virtue of Sections 10 and 11(1), Money-lenders Act, and for this purpose pray for the re-opening of the original transaction and the taking of an account between the parties. Mr. Chatterji then contended that the instalment bond of 1932 was not in the nature of a loan as there was no stipulation for interest. A "loan," as defined in Section 2(i), Money-lenders Act, means

an advance whether of money or in kind on interest made by a money-lender and shall include a transaction on a document bearing interest executed in respect of past liability and any transaction which in substance, is a loan.

Mr. Chatterji cited the Federal Court decision in AIR 1940 10 (Federal Court) , which was the case under the Bihar Money-lenders Act, and contended that had the intention of the parties been to refer to the total amount, including principal and interest, mentioned in any document, "it would have been simpler to use some other word like claim or debt." But their Lordships went on to say in the same case that "interest would be included in the loan only if its amount is entered in the document on which the loan is based," It is, however, not necessary in the circumstances of the present case to resort to the definition of loan as given in the Bihar Money-lenders Act. It is clear that under the definition in the Orissa Money-lenders Act, "loan" would include "any transaction which, in substance, is a loan." It is true that in the instalment bond the interest payable on the amount secured by the bond was not stipulated, but it would have been obvious from the facts already stated that this instalment bond was excluded not only in respect of the balance of the principal which remained unpaid on that: date, but also the interest which remained un-paid. The transaction was, therefore, in substance a loan. In AIR 1936 63 (Privy Council) , a Privy Council case, it was pointed out that when once a decree had been passed the loan or debt, as a subject of enforcement, no longer existed and that it was merged in the decree and the allowance of interest on the decree was not the allowance of interest on the loan or debt. Admittedly, no interest accruing on the decretal dues of 1922 was included in the instalment bond; the interest included was the interest payable on the original loan of 1900. In the suit brought by the mortgagees in 1921 on the basis of the original bond with an alternative prayer for foreclosure or the passing of a money decree, a money decree had been passed for Rs. 5000 odd. In execution of this decree, some of the properties had been sold up by Gangadhar in 1932, and it was with a view to save these family properties from passing into the possession of Gangadhar that a fresh bond, namely, the bond in suit, was executed on 11th May 1932. The original loan of 1900 no longer exists as a subject of enforcement, but a fresh loan has been created since 1932 by reason of the instalment bond. Mr. Chatterji also cited the ruling reported in AIR 1945 108 (Privy Council) , which was a case based on the Bengal Money-lenders Act. The question in that case was whether the effect of Section 30, Bengal Money-lenders Act was to affect judgments already obtained and whether u/s 36(1) of the said Act a Court could re-open a judgment or decree, and it was held that it was clear that the Legislature intended that the power of re-opening a transaction should be extended to re-opening a decree obtained by a moneylender which had not been fully satisfied by 1st January 1939. There is no question in the present, case of re-opening a decree which had not been fully satisfied on the relevant date, namely, on 1st April 1986. The question for decision in this case is whether the instalment bond dated 11th May 1932 was, in substance, a loan, and whether, if so, the appellants are entitled to the benefits conferred on them by Sections 10 and 11 (1) UK Money-lenders Act, so as to relieve them of all liability in respect of interest in excess of 9 per cent, simple per annum in the case of the loan. I have no doubt that this question must be answered in favour of the appellants and that the appellants are entitled to re-open the whole transaction, back to the year 1900 and have an account taken with a view to relieving them of all liability in respect of interest on the mortgage loan of Rs. 2000 in the manner provided by Sections 10 and 11 (1)(i), Money-lenders Act. In the result, the judgment of the learned District Judge must be set aside, and the second appeal allowed with costs. The judgment of the learned Subordinate Judge will be restored So far as the costs are concerned. As the defend ants-appellants have admittedly paid almost three times the original amount advanced, the plaintiffs are not entitled to any other relief.

Das J.

I agree, and would like to explain in my own words the reasons for the decision given. In my opinion, the crucial question in this case is if the instalment bond of 11th May 1932, constitutes a loan or not. Once it is found that the instalment bond constitutes a loan, there is, in my opinion no escape from the position that the appellants are entitled to the benefit of the provisions of the Orissa Money-lenders Act. The expression "loan" has been defined in Section 2(i) of the Act. The definition includes three classes of transaction: firstly, the expression means an advance whether of money or in kind on interest made by a money-lender; secondly, the expression includes a transaction on a document ''bearing interest executed in respect of past liability; and thirdly, it includes any transaction which, in substance, is a loan. The instalment bond does not itself provide for any future interest. The main question before us is if the transaction is, in substance, a loan. A transaction of the instalment bond has been placed before us by learned Counsel for the respondent. The instalment bond recites that

on a calculation of the dues on the decree in T.S. 5 of 1921 of the Court of the Subordinate Judge, Sambalpur and in Appeal No. 81, together with costs of execution and interest etc., a sum of Rs. 8000 is due etc.

Out of this a sum of Rs. 1000 was paid in cash, and for the balance the instalment bond was executed. The said sum of Rs. 7000 included the past liability on account of interest on the original loan of Rs. 2000 as also interest on the decretal dues. It is, therefore, clear to me that the instalment bond, though it does not provide for the payment of any interest in future, does recognise and accept a liability for the payment of interest, which had previously accrued in respect of the original loan of Rs. 2000. In that view of the matter, though the document itself does not bear interest, the transaction is in substance a loan.

Once it is found that the transaction is aloan, Sections 10,11 and other sections of the Moneylenders Act will clearly apply. They will apply by virtue of the provisions of Section 16, Money-lenders Act, which section says that, so far as may be, Sections 10 to 15 shall apply to pending suits and to appeals and proceedings in execution arising in respect of decrees passed on 1st April 1936 or thereafter on the basis of loans, whether such appeals or proceedings in execution were pending on, or instituted after, the date on which the said sections come into force. We are dealing here with an appeal in respect of a decree passed after 1st April 1936. By virtue of the provisions of Section 16, therefore, we have to apply the provisions of Sections 10 to 15, so far as may be, to the facts of this case. I may further mention that Sections 10 to 15, which are to be applied even in appeal, must be Sections 10 to 15, as they stand on the date on which they are to be applied. Sections 10 to 15 have undergone some changes by the amending Act of 1947, to which my learned brother has already referred. One of the amendments made in 1947 is to do away with the restrictive provision that the suit must be by a money-lender. The benefit of those sections is now available in suits in respect of a loan, whether brought by a money-lender or by any other person. The reason for which the learned District Judge had refused relief to the appellants disappears on account of the amendments made in 1947. Then, there is a further point. The definition of the expression "money-lender" has also undergone a change by the amending Act of 1947. While applying the amending Act of 1947 to Sambalpur by a notification u/s 92, Government of India Act, 1935, the definition of the expression "money-lender" has been so radically changed that it is no longer necessary to "consider the question if money-lending was done in the "regular course of business" or not. The restrictive phrase "regular course of business" has been omitted from the definition of the expression "money-lender" when applied to Sambalpur. Therefore, it is immaterial now whether Gangadbar or his predecessors-in-interest Dasrathi and Ananda were money-lenders in the regular course of business or not. It is also immaterial if the suit was brought by a moneylender or not. The only material point for consideration is if the suit was in respect of a loan. If it was in respect of a loan, then the appellants are entitled to reliefs under Sections 10 and 11, Orissa Money-lenders Act. I have already held that the instalment bond was in substance a loan as defined in the Orissa Money-lenders Act; therefore, the appellants are entitled to reliefs under the Orissa Money-lenders Act.

Learned Counsel for the respondents has raised two points before us. Firstly, he has contended that the instalment bond is not a loan, because it does not provide for any interest. He contends that the instalment bond merely provides for the payment of the decretal debt, and a stipulation for the payment of that debt in instalments does not make the transaction a loan under the Orissa Money-lenders Act. This point I have already considered above. I have shown that though the instalment bond does not provide for interest, it is in substance a loan inasmuch as the appellants have by the instalment bond undertaken to discharge their past liability in respect of the interest accrued on the original loan. Looked at from that point of view, the instalment bond is in substance a loan.

The second point raised before us is that even if the instalment bond is a loan, the Court cannot look into the amount which was originally advanced, namely, the sum of Rs. 2000 for the purpose of calculating the present liability of the appellants. It is contended that to do so would be to interfere with the decree which had been passed in 1922 on the foot of the mortgage by conditional sale executed on 16th August 1900. I do not see how it can be said that the Court is in any way interfering with the decree of 1922 in this case. That decree was passed for a sum of about Rs. 5000 in 1922 and some of the properties were sold in execution of the decree. Nobody is seeking to interfere with the decree passed in 1922 or the sale held in execution thereof. It is only for the purpose of calculating the present liability of the appellants under the instalment bond that the original amount advanced in 1900 is being looked into. Section 10, Money-lenders Act says in very clear terms that the amount of interest for the period preceding the institution of the suit must not be greater than the amount of the loan originally advanced. I emphasise the words "originally advanced." It is merely for the purpose of calculating the present liability of the appellants under the instalment bond that the original amount advanced in 1900 is being looked into. There is no question of either interfering with or setting aside the decree of 1922 or the sale held in execution thereof. I do not think the contention of learned Counsel for the respondent on this point is correct.

For these reasons I agree to the order proposed by my learned brother.