The Secretary of State for India in Council vs M.A.C. Arunachala Mudaliar and Others

Abdur Rahman, J.—This is an appeal by the Secretary of State for India and arises out of a suit filed by one Arunachala Mudaliar and his

son on the basis of a mortgage deed (Ex. A) executed in their favour by Narayanaswami Naidu and his sons on the 19th of July, 1925. Since a

priority was being claimed on behalf of the Secretary of State, in respect of a sum of Rs. 5,000 advanced to Narayanaswami Naidu on various

dates between the 28th of September, 1925 and the 6th of May, 1926, he was also impleaded as a defendant in the suit. The trial Court decreed

the plaintiff''s claim and overruled the plea of priority raised on behalf of the Secretary of State and the only question which we have now been

called upon to decide is if the decision of the trial Court is correct.

The facts which have given rise to this litigation are simple and may be set forth here. It appears that Narayanaswami Naidu was desirous of

installing a Suction Gas pumping plant on his land and intended to move the Government for an advance of Rs. 5,000, to effect this improvement.

Before making a formal application, he seems to have approached the Assistant Industrial Engineer first and laid the proposed project before him

for his consideration. The officer made two reports in this connection in April and May, 1923 (Ex. XII). In view of the uncertainty of result of the

application which he intended to make and at all events of the inordinate delay which an application of this nature would take before it could be

finally disposed of, he borrowed a sum of Rs, 2,000 on 26th May, 1923, from the plaintiffs for purchasing an oil engine and executed a promissory

note in their favour (Ex. C). Narayanaswami then presented an application to the Supervisor of Industries on the 1st of June, 1923 (Ex. II) in

which he asked for ""an agricultural loan of Rs. 5,000."" During the investigation which proceeded on this application, he made two statements on

23rd July, 1924 (Ex. XVII) and on 9th September, 1924 (Ex. XVIII) to which we shall advert later. This application was rejected on 23rd

October, 1924, although Narayanaswami made another attempt to secure the loan and addressed a letter to the Director of Industries on the 26th

of February, 1925 (Ex. G) which was referred to the Collector. He was again examined by the Tahsildar on the 10th of April, 1925 (Ex. XIX)

who recommended the loan to be advanced to him (Ex. XXII) and this was finally sanctioned by the Director on the 13th of July, 1925, and

communicated to Narayanaswami by means of a letter dated 16th July. 1925 (Ex. XXI). The plaintiffs at this stage appear to have been

approached for another loan of Rs. 1,000 or so and found an opportunity to have a deed of mortgage for Rs. 7,500 executed by Narayanaswami

and his sons in their favour (Ex. A). This deed was executed on the 19th July, 1925, in consideration of the two prior promissory notes (Exs. B

and C) and of a sum of Rs. 1,007-11-0 which is stated to have been advanced at the time of the execution of the deed.

There is no doubt that the action of the plaintiffs in getting their Simple money debt converted into a secured debt at this stage when the Director

of Industries had sanctioned a loan for Rs. 5,000 six days earlier excites one''s suspicion against the bona fide nature of this transaction but in the

absence of any other evidence, it is impossible to rest our decision on a surmise and a conjecture. They may have been duped by Narayanaswami

and his sons in the manner as the Secretary of State and his officers have been. It is equally probable that the knowledge of Narayanaswami having

made or revived his application to the Government for a loan, or of the Director having sanctioned it,, was deliberately kept back from the

plaintiffs. It is easy to conceive that if they had come to know of these facts, they would not have advanced a further sum of Rs. 1,000; but taking

advantage of their position as creditors, they availed themselves of the opportunity afforded to them by agreeing to make a further advance only on

the condition of their debt being secured. Whatever be the case, no question was put to Rungaswami Mudali (P.W. 1) who was a clerk of the

plaintiffs for 20 years and no evidence was produced on behalf of the appellant which would justify an inference of this nature.

To resume the narrative, Narayanaswami executed a mortgage-deed in favour of the Secretary of State on 5th August, 1925 (Ex. XXIV) under

which some of the lands mortgaged with the plaintiffs were again mortgaged with him but the mortgage-deed recites that the debt was advanced

under the provisions of the Land Improvement Loans Act (XIX of 1883) and those of the Agriculturists'' Loans Act (XII of 1884). The learned

Government Pleader contends that in spite of the fact that the deed of mortgage in favour of the Secretary of State is subsequent to that of the

plaintiffs, the former should have been held to have priority as the loan was advanced under the provisions of and for a purpose covered by the

Land Improvement Loans Act and not under the Agricultural Loans Act. He urges that a reference to both the Acts in the forms Exs. III (a) and III

(c), in Narayanaswami''s application Ex. XIII and in the mortgage-deed Ex. XXIV was made under a mistake as the purpose, for which the

money could have been advanced, and that it fell under the provisions of the Land Improvement Loans Act alone and not under the provisions of

the other Act. The learned Counsel on behalf of the respondents contends on the other hand that a reference to both the Acts was deliberate as the

purposes for which the money was advanced fell partly under one Act and partly under the other. The determination of this question is important as

a loan granted under the provisions of the Improvement Loans Act would have priority over the debts due to other mortgagees who have a charge

or incumbrance on the land for the benefit of which it was granted by the Government.

This necessitates an examination of the various provisions of both the Acts referred to above. Section 4 of the Land Improvement Loans Act

provides, as its name indicates, that loans may be granted under this Act for the purpose of making any improvement which adds to the letting

value of the land. In the sub-clause of the same section ''improvement'' has been stated to include besides other things the construction of wells,

tanks and other works for the storage, supply or distribution of water for the purpose of agriculture. The loans made under the Agricultural Loans

Act can be made to owners or occupiers of arable land for the relief of distress, the purchase of seed and cattle or any other purpose not specified

in the Land Improvement Loans Act (1883) but connected with agricultural objects (Section 4). A comparison of the two sections would thus

show that if a loan could be granted under the Land Improvement Loans Act, it could not be granted under the Agriculturists'' Loans Act.

The relevant provision of Section 7 of the Land Improvement Loans Act is to the effect that all loans granted under the Act along with the

interest and costs shall be recoverable out of the land for the benefit of which the loan has been granted as if they were arrears of land revenue due

in respect of that land.

Section 8 of the Act provides that a written order under the hand of an officer empowered to make loans under this Act granting a loan for the

purpose of a carrying out a work described therein shall be conclusive evidence of-

(a) that the work described is an improvement within the meaning of this Act;

(b) that the person mentioned had at the date of the order a right to make such an improvement; and

(c) that the improvement is one benefiting the land specified.

After an examination of the various provisions of the Land improvement Loans Act, there is little doubt that if the loan was advanced for the

purpose of installing a gas plant to facilitate the supply or distribution of water on Narayanaswami''s lands, it would fall within Section 4 of the Act.

The only question then is if it was advanced for that purpose? In this connection it will be interesting to note Narayanaswami''s statement recorded

by the Revenue Inspector on the 23rd of July, 1924 (Ex. XVII) which reads as follows:

The loan now applied for is not intended for sinking a well and purchasing an engine. I have applied for an agricultural loan of Rs 5,000 for

discharging the debt previously contracted in respect of this item. One year has elapsed since the date of purchase of the engine and lands are

cultivated by this. The engine has been working. I have prepared and produced lists (Ex. XVI) relating to debts contracted in respect of engine and

expenses. Amount spent till this date is Rs. 4,300. Cost of building to be constructed is Rs. 500....

He made a similar statement to the Tahsildar on the 9th of September, 1924 (Ex. XVIII). To the same effect was his statement which he made

on the 10th of April, 1925 (Ex. XIX) after his application was rejected and was being re-considered at his request.

In view of these statements, Mr. Sitarama Rao contended that it was wholly immaterial whether the improvements were already carried out on

the date of the order granting the loan or not, as long as the purpose for which the loan was granted is covered by Section 4 of the Act. In other

words he argued that the improvements for which the loan is advanced need not necessarily be such as have to be carried out in future. It was

suggested by him that an application by an intending borrower for the purpose of making one of the improvements mentioned in the Act is

conclusive of the matter, if it is accepted by the officer empowered to make loans under the Act. Reliance was placed by him on a case decided by

a Division Bench of this Court in Sankaran Nambudripad v. Ramaswami Aiyar (1918) 84 M.L.J. 446 : ILR 41 Mad. 691.

The facts of the case, however, are distinguishable from, the facts of the present one. It was found for a fact in that case that the borrower had

utilized the portion of the loan advanced under the Act for the improvement already effected while it has not been established in this case that any

portion of the money taken by Narayanaswami from the Government went to liquidate the debts incurred by him for making the improvements.

Mr. Sitarama Rao characterises this fact to be a mere accident in that case and urged that this would not touch the principle on which the case was

decided. We do not agree. There is no doubt that the learned Judges were greatly impressed by this fact and the following remark made by

Seshagiri Aiyar, J., although liable to a different interpretation as well, must be understood to have been made in this sense. He observed:

The test is not whether the improvement was subsequently made but whether the money was applied for the construction of agricultural

improvements upon the property.

If the words ''applied for'' were used by the learned Judge in the sense of merely making an application to the Government, we would, with

great deference, disagree. The whole case really turns on the interpretation of the words ""for the purpose of making any improvement"" used in

Section 4 of the Act. It is a well-known canon of construction as observed by Lord Wensleydale in Grey v. Pearson (1857) 10 E.R. 1216 : 6

H.L. C. 106, that

In construing wills and indeed, statutes and all written instruments, the grammatical and ordinary sense of the words is to be adhered to, unless that

would lead to some absurdity, or some repugnancy or inconsistency with the rest of the instrument, in which case the grammatical and ordinary

sense of the words may be modified so as to avoid that absurdity and inconsistency, but no farther.

The business of an interpreter is not to improve upon the words of an enactment but to expound them. As observed by Cockburn, C.J., in

Palmer v. Thatcher (1878) 3 Q.B.D. 346 , the question for him is not what the Legislature meant, but what its language means, that is, what the

Act has said that it meant.

We have therefore to proceed on the principle enunciated by these noble Law Lords and interpret the language of Section 4 of the Land

Improvement Loans Act. To our minds, the words in the section are unambiguous and can only be held to apply to improvements which have not

been effected at the time when the loan was granted and cannot be held to apply to improvements which had already been carried out at the time

when the grant was made. A reference to Section 8 of the same Act will not be out of place. The words used in that section are ""for the purpose of

carrying out a work"" (thereby meaning improvement) can only be taken to mean future improvements only and not those which have already been

made. We would have to face all kinds of difficulties and would not know where to draw a line, if we once failed or refused to place a grammatical

construction on these words. As an illustration, we may take the case of a person who mortgaged his lands with A in 1910 and made certain

improvements on those lands with the money received by him from A. Let us suppose that he mortgaged the same lands with B in 1922,

discharged A''s debt, re-mortgaged the same lands with C in 1934, discharged B''s debt out of the money received from C and then made an

application in 1935 to the Government u/s 4 of the Act. If the Government accepts his application and grants him a loan in 1936, would the claim

by the Secretary of State be held to have priority over C''s claim as a mortgagee? If the construction suggested by Mr. Sitarama Rao is correct, he

must, to be logical, say that it would be so. But when this case was put to him by one of us, he was not prepared to go to that extent and said that

this construction would be unreasonable, but he would confine the operation of the section to those cases only when improvements were affected

by a person while he was either contemplating to make an application under the Act or had made one before the improvements were made.

Where is the guarantee but, that the application made by a person would necessarily be accepted by the Government? Are the mortgagees, who

have taken a mortgage without any knowledge of the borrower''s intention to make an application or of the fact that an application has already

been made by him, to remain in suspense for all this time? The position is to our minds impossible and cannot be accepted. After all it is for the

Government to see, at the time when loan is being granted, if any improvements have already been effected by the borrower and if it finds that they

have been, its officers should see that the persons who have advanced loans for this purpose are satisfied. In this case there is a volume of

evidence on the record from which it has been established that Narayanaswami never concealed the fact that improvements for which the money

was being asked for, except to a small extent of Rs. 500 or so, were carried out long before the order granting the loan was passed. In fact he

stated that his object in taking the money was not to make improvements but to pay off the creditors from whom he had raised loans to carry out

these improvements. Is the payment of such debts one of the purposes mentioned in Section 4? The answer can only be one and that in the

negative. There is no reason to hold why we should read the words ''for the purpose of making any improvement'' as having the same meaning as

the words ''for the purpose of paying for an improvement'' would have meant, if used in the section. There is nothing in the Act, which would make

the interpretation we are placing on these words as repugnant or inconsistent with the rest of the Act and surely there is no absurdity which this

construction would entail. We would therefore put a grammatical construction on these words and hold that they refer to future improvement only.

It cannot be denied, in our opinion, that the object of placing both these Acts on the Statute Book of India was to help the agriculturist and

proprietors of agricultural lands and not to benefit the Government at least directly. If the assumption made by us be right, would it be correct to

place the construction suggested by the learned Government Pleader on Section 4 of the Land Improvement Loans Act? Why should it be

presumed that the Legislature was trying to take away an advantage from them by one hand which was conferred on them by the other? It would

be so, as in that case, the agriculturist would find it extremely difficult, if not impossible, to raise money on the security of their lands. Why should,

one may well ask again, the mortgagees, who had already advanced moneys on the security of lands, be treated so unjustly? Why should they be

deprived of their securities or their claims deferred to those of the Government, by an action of their own mortgagors in making applications and

getting advances under the Land Improvement Loans Act? Why should the loans advanced by the Government under the two Acts be treated

differently when the Agricultural Loans Act was passed only one year later? The answer to all these questions is not far to seek. While the loans

advanced under the Agriculturists'' Loans Act are, as provided in the Act, with the object of relieving the distress of agriculturists and for supplying

seeds, etc., objects which would not improve the letting value of the land, the purpose of advancing loans under the Land Improvement Loans Act

is specifically declared to be the improvement of the lands themselves. This would then mean that it was expected by the Legislature that the letting

value of the lands would be improved, if the loans advanced by the Government were utilized for the purpose for which they were advanced, at

least to the extent to which the money taken by the landlords under the Act Was spent on them. In that case, the prior mortgagees could not be

reasonably held to have suffered in regard to their security, as they had advanced money at the time when the improvements were not effected and

the securities on which they had advanced their money would thus remain unaffected. It may be contended that the value of their securities

enhanced by improvement effected with the funds advanced by the Government under the Act should not be permitted to be taken advantage of

by prior mortgagees in the same way as they could have done if the mortgagors had effected improvements with their own funds. But this is a

different matter. The Government could reasonably and perhaps justly insist that if any money was advanced by it under the Act, it would have

priority to that extent in view of the fact that the lands have been improved with the funds provided on its behalf; and it would be unfair for the prior

mortgagees to improve their position at the cost of the Government, which might not in that case agree to advance any money at all and the

agriculturists would suffer in consequence. Looked at even from this point of view, the same result would follow and we must hold that the money

advanced by the Government should have preceded and not followed the improvements effected on the land. The Government cannot therefore be

allowed to have a priority in respect of advances applied for and made after the improvements were carried out with funds belonging to a private

individual.

For the aforesaid reasons, we must hold that a sum of Rs. 4,150 out of Rs. 5,000 advanced by the Director of Industries, does not fall within

Section 4 of the Land Improvement Loans Act and the appellant would not therefore have any priority to that extent over the plaintiffs.

As for the rest, the position is different. A sum of Rs. 675 was spent in constructing the Engine shed after the grant was made and Rs. 175

were allowed by the Director to make further improvements to the installation. Mr. Raghava Rao''s contention that Rs. 175 were also paid for a

past improvement does not appear to be correct (see Ex. XXXVI). This sum of Rs. 850 falls u/s 4 and could be recovered by the appellant u/s 7

of the Act with interest. The costs claimed by the Government against defendants 9-12 are not allowed and the appeal is in that respect rejected.

The result is that the appeal is allowed to this extent only and the decree of the lower Court would be modified accordingly.

As for costs, there is no reason why the respondents, who have succeeded to a large extent, should not be allowed to have them at least to the

extent to which they have won. They would therefore have 5/6th of their costs in this Court and in the Court below.

The Second Appeal No. 296 of 1935 is also dismissed. These appeals having been set down to be spoken to on Friday, the 29th July, 1938,

the Court made the following

ORDER

It is now brought to our notice that before the hearing the guardian of minors 5 and 6 was dead. Adjourned one month to appoint a guardian

for the minors. The drawing up of the decree will be postponed in the meanwhile.

These appeals having been posted for orders again this day, the Court made the following.

ORDER

A guardian has now been appointed and the final decree will be drawn up in accordance with our judgment which stands.