Iqbal Ahmad, Ag. C.J.
1. This is an appeal by a creditor arising out of proceedings under the U. P. Encumbered Estates Act (25 of 1934). Iltifatunnisa Begum, who is the respondent in the present appeal, applied under Section i, Enoumbered Estates Act, and the case was, in due course, forwarded by the Collector to the civil Court under Section 6 of the Act. One of the creditors mentioned in the application was firm Sahi Mai Manohar Das which is represented by the appellants in the present appeal. Iltifatunnisa, the applicant, had borrowed a sum of Rs. 7500 from the said firm on the basis of a mortgage deed dated 21st May 1913. The interest stipulated in the deed was at the rate of 11 annas per cent, per mensem com poundable with yearly rests. The property mortgaged was zamindari property, the Government revenue of which was Rs. 1516 and it is admitted on all hands that the security was more than sufficient for the debt advanced.
2. The creditor put his mortgage into suit and the suit was decided on the basis of a compromise. The decree that was passed on the basis of the compromise is dated 2nd December 1919. The decree was, in all for a sum of Rs. 13,372-12-0 and by virtue of the compromise that was embodied in the decree, the decretal amount was payable by yearly instalments of Rs. 1200. The decretal amount was to carry interest at the rate of Rs. 8-4-0 per annum with yearly rests. Iltifatunnisa was always punctual in the pay. ment of the instalments provided for by the decree, and it is a matter of admission that by the year 1935 she had paid to the decree-holder a sum of Bs. 18,000. The decree-holder-appellant filed a claim before the Special Judge under S 9, Encumbered Estates Act, and claimed a sum of Rs. 17,467-4-0 as still due to him. The case put forward by him was that in the calculation of the amount due to him the interest should be calculated on the decretal amount at the rate of 8-| per cent, with yearly rests. This position was controverted by Iltifatunnisa, the applicant, ant she claimed the benefit of the provisions of the Usurious Loans Act (10 of 1918) as amended by the Usurious Loans (U. P. Amendment) Act 22 of 1934.
3. The learned Special Judge held that the interest provided for by the compromise decree was excessive and accordingly reduced the interest from 8& per cent, compoundable with yearly rests to 7 per cent, simple interest. The decretal amount with interest at the rate of 7 per cent, per annum came to Rs. 16,384-9-0 on the date of the application filed by Iltifatunnisa under Section 4, Encumbered Estates Act. As she had already paid a sum of Rs. 18,000 the learned Judge held that the appellants had received a surplus amount of Rs. 1615-7-0 and as such, were not entitled to a decree with respect to any amount. In view of these conclusions the learned Judge rejected the claim of the appellants. The reasons assigned by the learned Judge for granting relief to Iltifatunnisa in the matter of interest commend themselves to us. The security for the mortgage debt was, as already stated, more than sufficient and the appellants therefore ran no risk in advancing the loan. Iltifatunnisa abided by the terms of the compromise decree and punctually paid the instalments provided for by that decree. She had on the date of the application under Section 4 paid to the appellants a sum of Rs. 18,000 that was far in excess of double the amount originally advanced by the appellants. In this state of the facts it is impossible to hold that the learned Judge was not justified in extending to Ilfcifatunnisa the benefits of the provisions of the Usurious Loans Act as regards reduction in the rate of interest.
4. It is however contended by Mr. Peare Lal Bannerji that the provisions of the Usurious Loans Act were not applicable to the claim of the appellants and he accordingly urges that the learned Judge of the Court below was wrong in interfering with the rate of interest provided for by the compromise decree. In support of this contention he has invited our attention to two provisions of the Usurious Loans Act. He has firstly relied on Section 2(3)(i)(a) which provides that suits to which the Act applies are suits ' for the recovery of loan made after the commencement of this Act.' He has further placed reliance on proviso 2 to Sub-section (1) of Section 3 of the Act which lays down that, in the exercise of the power given to the Court to reopen the transaction between the parties, the Court is not competent to 'do anything which affects any decree of a Court.' He argues that as the loan which was the basis of the compromise decree was incurred by Iltifatunnisa prior to the passing of the Usurious Loans Act and as that loan had merged into a decree the learned Judge of the Court below was not justified in applying the provisions of the Act to the loan or the decree in question.
5. In our judgment there is no force in the argument of the learned counsel. By Section 2(3)(ii) the Act has been made applicable to 'any proceedings for the determination of a claim under the Encumbered Estates Act, 1934.' It follows that the provisions of the Act as regards the reopening of transactions between the parties thereto and as regards the reduction of interest have been made applicable to all proceedings under the Encumbered Estates Act irrespective of the date on which the loan that forms the subject of those proceedings was incurred. In other words, in proceedings under the Encumbered Estates Act, it is competent to a Court to reduce the rate of interest even though the loan was incurred prior to the passing of the Usurious Loans Act. In this) view of the matter, the learned Judge of the Court below was right in applying the provisions of the Usurious Loans Act to the claim preferred by the appellants. There was no doubt a compromise decree obtained by the appellants but the moment Iltifatunnisa's application under the Encumbered Estates Act was forwarded by the Collector to the Special Judge and the decree-holder put forward the claim under Section 9 of the Act, the decree ceased to exist. It is clear from the scheme of the Encumbered Estates Act that a decree obtained by a creditor ceases to exist as such when he prefers a claim under Section 9 of the Act. The claim has to be adjudicated upon not on the basis of the decree held by a claimant but on the basis of the loan that he originally advanced to the landlord applicant. That this is so is clear from the provisions of S3.14 and 15 of the Act. It is to be noted in this connexion that every claim preferred by a creditor ultimately becomes the subject 6f a decree passed by the Special Judge. This shows that a decree obtained by a creditor prior to the initiation of proceedings under the Encumbered Estates Act ceases to be operative as a decree when the debt which merged in that decree becomes the subject of adjudication by the Special Judge. A claim by a creditor based on a decree stands on the same footing as a claim by a creditor on the basis of the loan advanced by him. It is therefore manifest that when the appellants preferred their claim under the Act before the Special Judge the decree in their favour ceased to exist and as such, there could be no question of the Court not having the power to reduce the rate of interest under Section 3 of the Act.
6. Mr. Peare Lal Banerjee also contended that the rate of interest stipulated in the mortgage deed and provided for by the compromise decree was not excessive and as such the learned Special Judge was wrong in interfering with that rate. We are not impressed with this argument. The circumstances pointed out by the Court below fully justified that Court in concluding that the rate of interest was excessive and in reducing that rate to 7 per cent, per annum. Lastly it was argued by Mr. Banerji that in view of the provisions of Section 14(4)(a) read with Sub-section (5) of Section 14, Encumbered Estates Act, it was incumbent on the Special Judge to calculate the amount that was due to the appellants on 31st December 1916 on account of principal and interest and to treat that amount as principal and then to allow interest on that amount at such rate as the Court deemed reasonable. In our judgment this argument is untenable. Sub-clause (a) of Sub-section (4) of Section 14 can apply only to those oases in which as a result of his finding, the Special Judge comes to the conclusion that a certain amount is due to a claimant on account of principal and interest on the date of the application under Section 4. It can obviously have no application to a case like the present in which the finding of the Special Judge was that no amount was due to the claimant on the date of the application. The Special Judge was not therefore called upon to apply the provisions of Sub-section (5) of Section 14, Encumbered Estates Act. For the reasons given above, we hold that the decision appealed against is perfectly correct and accordingly we dismiss this appeal with costs. There is a cross-objection filed by Iltifatunnisa. There is no force in that objection. It Is accordingly dismissed with costs.