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Sajanlal Jhaverilal and Co. Vs. Gulabchand Keshrichand and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMumbai High Court
Decided On
Case NumberO.C.J. Suit No. 1574 of 1950
Judge
Reported inAIR1953Bom125; (1952)54BOMLR632
ActsDebt Law; Bombay Money-Lenders Act, 1947 - Sections 2, 2(9), 2(10), 9(2), 23, 24, 25, 25(1), 25(2), 25(3), 27, 28, 29 and 34; Code of Civil Procedure (CPC), 1908 - Order 34, Rule 11; Bombay Money-lenders Act, 1946 - Sections 25; Bombay Money-lenders (Amendment) Act, 1951; Interest Act
AppellantSajanlal Jhaverilal and Co.
RespondentGulabchand Keshrichand and ors.
Appellant AdvocateG.N. Joshi and ;K.K. Desai, Advs.
Respondent AdvocateM.V. Desai and ;R.M. Kantavala, Advs.
Excerpt:
.....agreed upon in such transaction should not be awarded merely because it was in excess of the rates fixed under section 25(1) of the act. - - the defendants, however, failed to pay the amount demanded. and the act has been brought into operation on november 17, 1947. as the preamble states, the act was passed for making better provision for the regulation and control of transactions of money-lending in the state of bombay. section 10 of the act prohibits a court, after the expiry of six months from the date on which the act comes into operation, from passing a decree in favour of a money-lender in any case filed by a money-lender to which the act applies, unless the court is satisfied that at the time when the amount or any part thereof to which the suit relates was advanced the..........of 1947. the plaintiffs claim that they are entitled to interest at the stipulated rate till the date fixed for redemption under the provisions of order xxxiv, rule 11, of the civil procedure code. the sole question that falls to be decided therefore is whether the plaintiffs are entitled to interest at the stipulated rate, notwithstanding the provisions of the bombay money-lenders act, xxxi of 1947. (3) at the outset it must be stated that mr. joshi on behalf of the plaintiffs concedes that the plaintiffs are money-lenders under the provisions of the bombay money-lenders act, xxxi of 1947.(4) the bombay money-lenders act xxxi of 1947 was published on may 31, 1947. it was provided that the act was to come into force on such date as the provincial government may by notification in the.....
Judgment:

Shah, J.

(1) The plaintiffs have filed this suit to enforce a mortgage in their favour created by defendants Nos. 1 and 2, and the husband of defendant No. 3 as members of a joint and undivided Hindu family. The mortgage was an equitable mortgage effected on July 19, 1947, and was for a sum of Rs. 42,000. The mortgagors agreed to pay interest at the rate of one per cent, per mensem by equal monthly instalments. After the mortgage was effected by the mortgagors, Panachand Keshrichand, the husband of defendant No. 3, died on March 23, 1948. Defendant No. 3 is his heir and legal representative. On July 28, 1948, the attorneys of the plaintiffs called upon the defendants to repay Rs. 42,000 with interest at the rate stipulated. The defendants, however, failed to pay the amount demanded. The plaintiffs thereafter filed the present suit seeking to recover Rs. 42,000 as principal, and Rs. 14,640 as interest due up to October 18, 1950, with further interest on the amount of Rs 42,000 at the rate of 1 per cent, per mensem from October 19, 1950.

(2) The defendants have appeared in this Court to defend the suit. They have not denied execution of the mortgage nor the covenants thereof. The only point which they have sought to raise is, that the plaintiffs being money-lenders, the rate of interest which con be awarded as against them cannot exceed the rate provided under the notification issued by the Government of Bombay on December 27, 1947, under the Bombay Moneylenders Act, XXXI of 1947. The plaintiffs claim that they are entitled to interest at the stipulated rate till the date fixed for redemption under the provisions of Order XXXIV, Rule 11, of the Civil Procedure Code. The sole question that falls to be decided therefore is whether the plaintiffs are entitled to interest at the stipulated rate, notwithstanding the provisions of the Bombay Money-lenders Act, XXXI of 1947.

(3) At the outset it must be stated that Mr. Joshi on behalf of the plaintiffs concedes that the plaintiffs are money-lenders under the provisions of the Bombay Money-Lenders Act, XXXI of 1947.

(4) The Bombay Money-lenders Act XXXI of 1947 was published on May 31, 1947. It was provided that the Act was to come into force on such date as the Provincial Government may by notification in the Official Gazette appoint in that behalf; and the Act has been brought into operation on November 17, 1947. As the preamble states, the Act was passed for making better provision for the regulation and control of transactions of money-lending in the State of Bombay. Section 2, Sub-section (9) of the Act, defines the expression 'Loan' and Section 2, Sub-section (10), defines the expression 'moneylender'. The Act imposes various obligations upon persons who desire to carry on business as money-lenders. It requires them, among other things, to maintain accounts in the manner prescribed under the Act. The Act also requires money-lenders to take out licenses for carrying on the business of money lending in the State of Bombay. Section 10 of the Act prohibits a Court, after the expiry of six months from the date on which the Act comes into operation, from passing a decree in favour of a money-lender in any case filed by a money-lender to which the Act applies, unless the Court is satisfied that at the time when the amount or any part thereof to which the suit relates was advanced the money-lender held a valid license.

Under Section 23 it is provided:

'Notwithstanding anything contained in any agreement or any law for the time being in force, no Court shall in respect of any loan whether advanced before or after the date on which this Act comes into force, decree, on account of interest, a sum greater than the principal of the loan due on the date of the decree.'

The effect of this provision is to extend, what is called, the rule of 'damdupat' to all classes of money-lenders and money-lending transactions in the State of Bombay.

(5-6) Section 24 enables a judgment-debtor in respect of any money-lending transaction to pay the decretal amount by instalments whether the decree is passed before or after the date on which the Act comes into operation.

(7) Under Section 26 a money-lender is entitled to receive from the debtor reasonable charges for expenses for loans; and under Section 29 the Court is entitled to re-open the previous transactions between money-lenders and debtors. I have referred to some of the provisions of the Act for the purpose of showing that the Act interferes with the several vested contractual rights, but it appears from the various provisions made in the Act that where the statute intended to affect the rights of the parties retrospectively it has been so expressly provided; see for instance Sections 23, 24, 27 and 28.

(8) Section 25 of the Act imposes limits on the rate of interest. That section, as amended by the Bombay Money-lenders (Amendment) Act, XIII of 1951, provides as follows:

' 1. The State Government may from time to time by notification in the Official Gazette fix the maximum rates of interest for any local area or class of business of money-lending in respect of secured and unsecured loans.

2. Notwithstanding anything contained in any law for the time being in force, no agreement between a money-lender and a debtor for payment of interest at rates exceeding the maximum rates fixed by the State Government under Sub-section (1) shall be valid and no Court shall in any suit to which this Act applies award interest exceeding the said rates.

3. If any money-lender charges or receives from a debtor interest at a rate exceeding the maximum rate fixed by the State Government under Sub-section (1), he shall, for the purposes of Section 34, be deemed to have contravened the provisions of this Act.'

(9) In exercise of the power reserved to the Provincial Government under Sub-section (1) of Section 25, a notification was issued by order of the Governor of Bombay on December 27, 1947: 'In exercise of the powers conferred by Section 25 of the Bombay Money-lenders Act, 1946 (Bombay Act XXXI of 1947), the Government of Bombay is pleased to fix the following maximum rates of interest for all classes of business of money-lending for the whole Province:

(i) Six per cent, per annum for secured loans;

(ii) Nine per cent, per annum for unsecured loans.'

(10) Now, it is argued on behalf of the defendants that under Sub-section (2) of Section 25 read with the notification, which I have set out above, no money-lender is entitled to charge or receive from a debtor interest at a rate exceeding the maximum fixed in the notification, even in respect of transactions which have been entered into before the date on which the Act was brought into operation. It is argued that the Legislature has made all agreements between money-lenders and debtors for payment of interest exceeding the rates fixed in the notification issued under Sub-section (1) of Section 25, invalid, and therefore irrespective of the question, whether the loan was one which was advanced before the date on which the Act was brought into operation or the date on which the notification was issued by the Government of Bombay, the provisions limiting the rate of interest under Sub-section (2) of Section 25 must apply. It is pointed out that under Sub-section (3) of that section charging or receiving interestfrom a debtor at a rate exceeding the maximum rate fixed by the Provincial Government is rendered penal.

(11) At first sight it may appear that it was the intention of the Legislature to limit the rates of interest in respect of all transactions entered into, whether before the date on which the Act came into operation or after the date on which the Act was brought into operation. But from the context in which the provision regarding limitation of interest is enacted and the language in which the provision is cast it appears to me that the provision relating to the limitation of the rate of interest was not to operate in the case of loans which were advanced prior to the date on which the Act was brought into operation. In Sub-section (2) it is expressly provided that 'no Court shall in any suit to which this Act applies award interest exceeding the said rates' (rates specified in Sub-section (1) of Section 25). The expression 'suit to which this Act applies' is denned in Section 2, Clause (17), as meaning any suit or proceeding

'(a) for the recovery of a loan made after the date on which this Act conies into force;

(b) for the enforcement of any security taken, or any agreement, made after the date on which this Act comes into force in respect of any loan made either before or after the said date; or

(c) for the redemption of any security given after the date on which this Act comes into force in respect of any loan made either before or after the said date.'

From the definition of the expression 'suit to which the Act applies' it is apparent that limitation on the jurisdiction of the Court imposed by Sub-section (2) applies only to a suit where a money-lender is seeking to recover a loan advanced after the date on which the Act has come into force or to enforce a security which has been taken after the date on which the Act was brought into operation, or, where there is a suit filed by a debtor for redemption of security given after the date on which the Act came into force. There is no dispute that the Legislature has placed limitations upon the Court's power to award interest at rates exceeding the rates fixed by the Government under Sub-section (1) of Section 25 only in suits to which the Act applies. In suits or loans or transactions to which the Act does not apply, there is no such limitation. If it was intended that agreements for interest in respect of transactions which are excluded from the definition of 'suit to which the Act applies' are void, there would be a discrepancy between the two parts of Sub-section (2).

(12) It may be possible to read Sub-section (2) of Section 25 in two ways: (1) all agreements between money-lenders and debtors for payment of interest at rates exceeding those fixed by the Government are void, and in awarding interest at reasonable rate under the Interest Act or in the exercise of the equitable jurisdiction, where such jurisdiction exists, the Court shall not award interest in suits to which the Act applies at rates exceeding those fixed under Section 25, Sub-section (1); (2) Agreements between moneylenders and debtors for payment of interest at rates exceeding those fixed by the Government are void only to the extent to which the rate is in excess of the rate fixed by the Government, and in suits to which the Act applies the Court shall not award interest at a rate higher than the rate fixed by Government under Section 25 Sub-section (1).

(13) Mr. M.V. Desai has contended that on either construction the plaintiffs are not entitled to obtain interest at the rate of one per cent per mensem as stipulated. He argues that in respect of all transactions whether entered into before or after the Act came into operation the entire agreement to pay interest became void, but the Court in the exercise of its jurisdiction to award interest at a reasonable rate under the Interest Act, or in the exercise of the equitable jurisdiction, would be entitled to award interest, but the exercise of the jurisdiction would be subject to the limitation contained in Sub-section (2). In any case, Mr. Desai argues, that as soon as the Act came into operation interest payable in money-lending transactions then outstanding would be reduced to the ceiling fixed by the Government, and in respect of suits to which the Act applies, the Court would be prohibited from awarding interest at a rate higher than the rates fixed under Sub-section (1).

(14) For the purpose of deciding the present case it is unnecessary to decide which of the two constructions is correct because, in my view the assumption underlying the argument of Mr. Desai, that Section 25, Sub-section (2) applies to transactions before the date on which the Act was made applicable is unwarranted. Normally all legislation is prospective, and an intention to divest citizens of vested rights will not be imputed to the Legislature, unless it is expressed or by clear intendment implied. Where the Legislature intended to deprive parties governed by the Act of their rights, express provision was made by the Legislature; see Sections 23, 24, 27 and 28. The Legislature has not made any express provision that the interest payable in respect of loans borrowed before the Act came into operation, is to be reduced; and the question is whether such an intention can be implied. Now, Section 25, Sub-section (2) seeks to invalidate agreements between money-lenders and debtors. The expression 'money-lender' in the Act has not the same connotation as it has in its popular acceptance. The expression 'moneylender' is defined as meaning a person natural or legal or a joint Hindu family or an unincorporated body, who or which carries on business of money-lending. Merely because a person may have carried on business of giving advances at interest on credit in the past, he does not become a money-lender for the purposes of the Act. A person would be a moneylender only if he carries on business of money-lending at the time when the Act comes into operation or thereafter. If what is rendered invalid is an agreement between a money-lender and a debtor relating to payment of interest it is postulated that the parties to the agreement at the time of the agreement must be moneylender and debtor within the meaning of the Act. If they did not hold that character at the time of the agreement to pay interest, the agreement cannot be deemed to be invalid. In other words, the agreement to pay interest which is invalid must be an agreement between parties who stood in relation of moneylender and debtor within the meaning of the Act. The declared invalidity of the agreement to pay interest at rates higher than the rate fixed can therefore only apply to transactions entered into after the Act comes into operation, and not before. Consequently, even though the limitation upon the power of the Court to award interest is imposed expressly in suits to which the Act applies, there is no inconsistency between the provision which declares invalidagreements to pay interest at rates exceeding the rates fixed under Clause (1), and the limitation upon the power of the Court in suits to which the Act applies. In my view it was intended by enacting Section 25, Clause (2), to provide that an agreement for payment of interest on loans or securities created at rates exceeding the rates fixed by Government could not be enforced if the transaction was entered into after the Act came into operation between a money-lender and a debtor, and that the Courts would in suits filed in respect of the loans or securities award reasonable interest not exceeding the rate fixed by Government under Sub-section (1).

(15) The transaction in the suit being before, the date on which the Act was brought into operation, I am of the view that it was not intended by the Legislature that the rate of interest agreed upon by the parties should not be awarded merely because it was in excess of the rates fixed under Sub-section (1) of Section 25 of the Act. I, therefore, hold that the plaintiffs are entitled to the rate of interest stipulated in the mortgage deed.

(16) The loan in the present case was made on July 19, 1947, that is before the date on which the Act came into operation, and the security was also given on that date. The present suit is therefore not one to which the Bombay Money-lenders Act, XXXI of 1947, applies, and therefore the Court is not prohibited by reason of Sub-section (2) of Section 25 from awarding interest at a rate exceeding the maximum, rates fixed under Sub-section (1) of Section 25. For reasons detailed earlier the agreement to pay interest at the stipulated rate is not invalid under the first part of Sub-section (2) of Section 25.

(17) Accordingly, there will be a decree in favour of the plaintiffs in terms of prayers (a), (b), (c) and (d) to the plaint. The time to be fixed for redemption will be six months from this date. Defendants to pay the costs of the suit. Costs to be tacked on to the mortgage amount. Interest after the date fixed for redemption will be at the rate of 4 per cent per annum. Costs to be taxed on the scale of an ordinary short cause.

(18) Suit decreed.


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