V. Bhargava, J.
1. The following question has been referred for opinion of the Full Bench:--
'Are renewals included in the term 'loan' as used in Section 28 of the U. P Agriculturists' Relief Act and/or a debtor can insist that transactions of renewals should be re-opened and interest allowed according to theScheduled rate of the Act on the amount of the first transaction of renewal after coming into force of the U. P. Agriculturists' Relief Act and that the subsequent renewals should be ignored?'
The facts which have given rise to this reference may be briefly stated. The respondents filed a suit for recovery of a sum of Rs. 16,270/14/- on the basis of a promissory note. There were money lending transactions between the parties to the suit and after an accounting which took place on Aghan Badi 12 Sambat 1991, a sum of Rs. Rs. 9,178/11/3 was found due to the plaintiff from the defendants. The defendants executed a promissory note for this amount in favour of the plaintiff on the 3rd of December 1934 and at the same time executed a receipt explaining how the whole of the consideration money for the pronote had been received by them. This receipt stated that the executants had money lending dealings with the plaintiff and, on account being taken, a sum of Rs. 9,178/11/3 was found due on account of principal and interest and it was in lieu of this sum due that the pronote was being executed. This promissory note was renewed on the 30th of November 1937, for a sum of Rs. 11,150/-. Once again a receipt for consideration was also executed in which it was stated that accounts have been taken in respect of the earlier pronoter of December 1934 and after setting off the payments made, a sum of Rs. 11,150/- was found due which was acknowledged and in respect of which the fresh pronote was executed.
There was a second renewal on the 29th of November 1940 and on this occasion also a similar receipt was executed showing that the consideration for this pronote was also represented by the amount found due on account, being taken to respect of the pronote of the 30th of November 1937. The last renewal took place by execution of a pronote dated the 28th of November 1943 and this time also the receipt of consideration was similarly acknowledged by stating that account had been taken in respect of the pronote. of the 29th of November 1940 and after setting off the payments made a sum of Rs. 13,550/11/9 was found due. This last pronote was, therefore, executed for this amount.
The suit was instituted by the plaintiffs on the basis of this pronote claiming this amount as the principal money due and interest on this amount from the date of this pronote viz. the 28th of November 1943 upto the date of suit an the stipulated rate of 8 per cent per annum it may be mentioned that the agreed rate, of interest in the first pronote dated the 3rd of December 1934 was 9 per cent per annum compoundable yearly and in all the three subsequent pronotes it was 8 per cent per annum compoundable yearly. It was also the admitted case of both the parties that, at the time of each renewal of the pronotes the accounts were made on the basis of the pay-ments actually made and on the basis of the rate of interest stipulated in the pronotes without taking into account the provisions of the U.P. Agriculturists Relief Act (hereinafter referred to as the Act).
2. The suit was contested by the defendant appellants on various grounds but the only pleawith which we are concerned relates to the claimof the defendants to obtain benefit under the provisions of Section 28 of the Act.
It is contended that interest, should be a allowed at the reduced rate provided by that provision of law on the two pronotes executed in 1940 and 1943. The plaintiff resisted this plea on the contention that each transaction of renewal really amounted to a fresh loan and consequently for the purpose of applying the provisions of Section 28 of the Act the earlier renewals, were of no effect so that the plaintiff should be allowed Rs. 13,530-11-0 as principal amount deemed to have been taken as a loan on the 28th November 1943 and interest on that amount at the rate laid down in the Act. It is in these circumstances that the Division Bench, before which the appeal came up for hearing, framed the question of law reproduced above and referred it to the Full Bench for opinion.
3. The question that has been referred to the Full Bench is clearly divisible into two parts and, in fact, the Bench framing the question has itself divided that question into two parts though incorporating both the parts in one single question. The first part of the question is as to whether renewals are included in the term 'loan' as used in Section 28 of the Act. On this question it does not appear to me to be necessary to go into any deep discussion about the purpose and the language of the Act as there is already a Full Bench decision of this Court with which I respectfully agree.
The first decision on this point was given by a Division Bench in Dharam Singh v. Bishan Sarup : AIR1938All1 which case came up to this Court as arising out of proceedings under Section 33 of the Act. In that case, a usufructuary mortgage was executed in lieu of two previous hypothecation bonds and it was held that, as there was no fresh advance of any money under the usufructuary mortgage the transaction could not be regarded as a fresh advance so that the applicant was entitled under Section 30(1) of the Act to have the interest reduced for the period of Jan. 1, 1930, till August 1933 when the new mortgage deed was executed.
This decision of the Division Bench was, however, overruled by a five-Judge pencil of this Court in Pratap Singh v. Gulzari Lal, 1942 All LJ 3 : (AIR 1942 All 50) (FB). The majority judgment in that case was delivered by Bajpal, Hamilton and Dar, JJ. It will be enough to quote from the judgment of Dar, J. for the purpose of explaining the reasons for the view arrived at by majority in that case. Dealing with this point Dar, J. held:--
'Is there anything in the express language of the Agriculturists Relief Act which confines the term 'loan' to the original loan and excludes renewed loan from its operation? Is there any thing in the express language of the statute which declares a perfectly legitimate transaction on the basis of which one loan was closed and another loan started as inoperative? Is there anything in the express language of the Act which says that a well-recognized doctrine of law inmoneylending transactions, viz. renewal of bonds on the basis of notional payment and as a result of which transactions were closed and settled years ago in this case before us, the first more than twenty years and the second more than eight years ago, will all be reopened and declared as not binding on the parties? I cannot find any express language in the statute which will compel me to adopt such an interpretation. For the moment I turn again to the Interpretation. Clauses in Section 2(10) of the U.P. Agriculturists Relief Act. It is said that the definition of the words 'loan' and 'interest' as given in Section 2 justified the interpretation, that loan in Section 2 (10) means money actually lent and not what is nationally lent. I can only take Section 2(10) as an interpretation clause which defines and not one which under the guise of definition enacts. Now, Section 2(10) defines 'loan' as an advance to agriculturist whether money or in kind and it includes any transaction which is in substance a loan. I should say that an original loan, when accounts have been settled and on the basis of settlement of accounts it is renewed by a fresh-mortgage bond, is in substance a loan within the meaning of the definition and there is no reason to interpret the words 'which is in substance a loan' in any sense so as to destroy the-validity of past transactions and in my opinion, where an earlier transaction of loan is renewed, the new transaction itself is a 'loan' for purposes of Section 2(10) of the U. P. Agriculturists' Relief Act.'
The learned Judge thereafter proceeded to take notice of the fact that the word 'loan' occurs in four different sections of Ch. IV of the Act and did not rule out the possibility that, in each of these sections, it may have a somewhat-different meaning for the reason that differences-may arise on account of the different language of the sections and the context in which it occurs.
In this connection, the learned Judge went on to say that
''It may be that the payment referred to in Section 29 of the Act may mean an actual payment and not a notional payment and it may further be that for purposes of Sections 28 and 31, that is, for loans taken after the Act, renewal may be permissible or it may be subject to limitation that interest realised or accrued cannot exceed the principal sum of thy original loan.'
Due to this doubt expressed by the learned Judge, it was urged before us that the view, expressed by the. Full Bench to the effect that, where an earlier transaction is renewed, the new transaction' itself is a loan, should not be held to be applicable to the interpretation of the word 'loan' in Section 28 of the Act. I am, however, unable to find any reason why the word 'loan' in Section 28 of the Act should be interpreted differently from that word as used in Section 30 of the Act. The word 'loan' has been defined in Section 2(10) (a) of the Act and the meaning given in the definition has been made applicable to the word 'loan' as used in all the sections of the Act unless a contrary intention may appear from the context. The meaning given to the word 'loan'in Section 30 by the Full Bench should, therefore, apply to that word used in Section 28 of the Act also unless it is held that there is something in the context in Section 28 which compels the courts to give a different meaning to the word 'loan' in that section. I have not been able to find any particular reason why the word 'loan' in Section 28 of the Act requires to be interpreted differently from that word as used in Section 30 of the Act.
In this connection, notice may be taken of the various decisions in which it has been held that apart from Section 30 of the Act,, even in other sections of the Act or in other laws, where theword 'loan' is similarly defined, a renewed loan is to be treated as a new loan.
A Full Bench of the Oudh Chief Court in Badloo v. Inder Bikram Singh, AIR 1945 Oudh242 held that a debt originally advanced before the Act came into force and renewed by a pro-note after the Act, is in substance a loan under Section 2(10) (a) of the Act and the provisions ofSection 39 of the Act would apply if they are notexcluded on account of other considerations.
A Division Bench of this Court in Lachmi Lal v. Narain Das : AIR1950All152 also heldthat a renewal is a fresh loan as it is in substance a loan and, if it came into existence forthe first time after the Act came into force, it is clearly governed by Section 39 of the Act.
A Full Bench of this Court in Ketki Kunwarv. Ram Swarup, 1942 All LJ 578 : (AIR 1942 All 390) had occasion to deal with the word 'loan' asdefined in the U.P. Debt Redemption Act. Thedefinition of the word 'loan' in that Act is in terms almost identical with the definition givenin Section 2(10) (a) of the Act and) the Full Bench held that a renewed loan is a transaction which amounts to an advance within the meaning of Section 2(9) of the U.P. Debt Redemption Act.
A contrary view, however, appears to have been taken by a Division Bench of this Court an Badri Prasad v. Nirmal Singh : AIR1949All179 where it was held that a loan renewed before the Act came into force would no doubt be regarded as a loan for the purpose of the Act but loans renewed by an agriculturist after the coming into force of the Act, could not be treated as fresh loans for purposes of Sections 28 of the Act. I may say with respect that the learned Judges, who decided that case, rightly held that the decision of the five-judge Full Bench in 1942 All LJ 3 : (AIR 1942 All 50) (FB) did not in terms apply to the case before them as they were dealing with a case of renewal after theenforcement of the Act, while the Bench in the case of 1942 All LJ 3: (AIR 1942 All 50) (FB) had before it a case where the renewal to be considered was one made prior to the enforcement of the Act. After noticing this distinction between the two cases, the learned Judges, however, 'proceeded to hold that the language of Section 30 of the Act was substantially different from thatused to Section 28 of the Act and the considerations, which applied to the interpretation of Section 30, would not be the same as are applicable tothe other section.
Relying on the language of Sub-section (1) of Section 28 of the Act, they expressed the view that this section prohibits the taking of a loan by an agriculturist after the coming into force of the Act bearing interest at a rate higher than that specified in Schedule II and, consequently, a loan renewed after the enforcement of the Act can-not be treated as a new loan. It appears that, in giving this interpretation to the word 'loan' in Section 28 of the Act, the learned Judges were considerably influenced by the fact that if, a renewed loan is treated as a new loan, it would permit unscrupulous creditors to evade the provisions of Section 28 of the Act and, take advantage of the renewal to claim validly interest at a rate higher than that permitted by Section 28 of the Act.
It has appeared to me that the interpretation put on the word 'loan' by the five-Judge Full Bench in 1942 All LJ 3 : (AIR 1942 All 50) (FB) can be applied to the word 'loan used in Section 28 of the Act without creating any such anomaly provided it is kept in view that, at the time of each renewal, the amount, for which the fresh loan is deemed to have been taken, is represented by only a notional amount equated with the amount due on the previous loan and no actual advance in cash or kind takes place on the occasion of such a renewal. This aspect of the case, I consider, needs a little, more detailed explanation, particularly because it is this aspect which is covered by the second part of the question referred to our Bench for opinion. Consequently I proceed to deal with this aspect as being involved in the first part of the question as well as the point for consideration in the second part of the question.
4. In the second part of the question, we have been asked to express our opinion on the point whether a debtor can insist that transactions of renewals should be reopened and interest allowed according to the scheduled rate of the Act on the amount of the first transaction of renewal after coming into force of the Act and that the subsequent renewals should be ignored.
At first sight, on the view, I have expressed above, that a renewal must be treated as a new and fresh loan even though the renewal may have taken place after the Act came into force, it would appear that this question should he answered against the debtor. There is, however, the aspect which I have emphasised above that, in the case of a renewal, there is actually no advance in cash or kind and the consideration, of the renewed loan is only a notional amount. This notional amount need not necessarily be the amount shown as consideration for the renewed loan. In cases where there is an actual advance of money for transaction of a loan, there can he no difficulty in holding that the actual amount advanced as the amount of loan, on which interest would be payable, would be the amount payable as principal money in addition to the interest.
A different consideration, however, arises where no cash is actually advanced but the advance is notional and is deemed to be represented by the actual amount due on the earlier loan. In such a case, where the consideration is notional, the notional amount should not be heldto be the amount mentioned at the time of the renewed loan as the consideration for it simply because the parties consider that that was the amount which should be treated as consideration for the renewed loan.
The courts should go behind the recitation in the terms of the contract by the parties and should determine what the notional amount is by applying the correct principles of law applicable to the facts of each case. If the re-newal is of another loan taken earlier but after the Act had come into force, the principal amount for the renewed loan should be determined by calculating the correct amount due on the earlier loan in accordance with the provisions of the Act.
As an example, supposing an unsecured loan js taken by an advance in cash of a sum of Rs. 1000/- after the Act came into force, bearing interest at the rate of 12 per cent. per annum and then there is a renewal of the loan on the expiry of one year. Ordinarily, the parties, at the time of the renewal, if they ignore the benefit conferred on the debtor by Section 28 of the Act, would agree that the amount due on the loan so taken would be Rs. 1,120/- and this would be the amount that would be shown in the renewed loan as the consideration for that loan. The prescribed rate of interest chargeable under Section 28 of the Act would, however be 91/4 per cent. so that, if the provisions of Section 28 of the Act were to be applied to the original loan taken, the amount due after one year in respect of that loan would be Rs. 1092/8/-. When, on the expiry of a year, the loan is renewed, and the parties enter a sum of Rs. 1,120/- as the principal amount of the renewed loan, the courts should, in my opinion go behind the terms contained in thc document and hold that the sum legally due on the earlier loan being Rs. 1,002/8/- only and no actual cash having passed at the time of the renewal, the notional amount advanced for the renewed loan is the sum of Rs. 1,092/8/- and not the sum of Rs. 1,120/-. In a case where the notional amount is to be determined, the fact that the parties under some mistake or ignorance of fact or law arrive at a particular figure for the notional advance cannot stand in the way of the courts determining the notional amount correctly in accordance with law. In such a case, therefore if a loan is advanced after the Act came into force and is subsequently renewed, the amount of the principal for the renewed loan represented by the notional amount the under the previous loan must be worked out by applying the provisions of (Section 28 of the Act and, consequently calculating interest at the rate permitted by that provision of law.
The effect of this principle would be that the provisions of Section 28 of the Act would not be evaded merely by the circumstance that a renewed loan is to be treated as a new loan. Even if there are successive renewals, on each occasion of renewal, the amount of consideration shown in the renewed loan would have tobe reduced to the figure of the amount due in the earlier loan worked out in accordance with the provisions of Section 28 of the Act and, consequently, thc debtor would in effect get the full benefit of Section 28 of the Act in respect of all the renewals. If this principle is applied, it seems to me that the creditor would not be able to evade the provisions of Section 28 of the Act and the word 'loan' would bear an uniform meaning in all the provisions of the Act including Section 28.
5. In the case before us, the claim in the suit was based on a pronote dated the 28th of November, 1943. Even though that loan had to be treated, as a fresh loan made on that date, we must determine what way the notional amount which must be deemed to have been advanced by the plaintiff to the defendants on that date. That notional amount would be the amount which was legally, due from the defendants to the plaintiff on the basis of the earlier pronote dated the 29th of November, 1940 and that amount must he worked out by calculating interest on that earlier pronote at the rate prescribed by Section 28 of the Act.
Similarly, in order to work out the amount due, on the pronote dated the 29th ofNovember 1940, it would be necessary to determine what was the principal amount whichmust be deemed to have been notionally advanced on that date and that sum being equal tothe amount deemed to have been notionallypaid as being due on the pronote dated the 30thof November 1937, the courts would have towork out the amount due under the pronote of1937 at the rate of interest permitted underSection 28 of the Act. Going back still earlier theamount of notional advance under the pronoteof the 30th of November 1937, must be heldto be the amount legally due under the pronote of 1934 which was a pronote executed before the Act came into force. Onthat pronote the interest would have to becalculated in accordance with the provisions ofSection 30 of the Act. This interest would, however, have to be calculated on the amountshown as the consideration for the pronotewithout going back further and reconsideringthe earlier pronote if this pronote of 1934 wasalso a renewal of an earlier loan. If in thiscase, for example it had been found that thepronote of 1934 was itself a renewal of anearlier loan, the courts would not be competent to apply the principle explained by meabove in respect of that renewal because, whenthe renewal took place in 1934, the Act hadnot come into force at all. The renewal onthat date for the amount shown in the pronote was therefore, a valid renewal and thefact that the consideration was equated withthe amount found due on the previous loan inaccordance with the terms of the contract between the parties at the time of the renewaldoes not effect the validity because that amount was legally due from, the debtors to thecreditors at the time of the renewal in viewof non-existence of the Act.
It is immaterial that subsequently the Act came into force and laid down under Section 30of the Act that no debtor was liable to pay interest On a loan taken before the Act came into force at a rate higher than that specified in the Schedule for a period from January 1, 1930. I say this is immaterial because Section 30 in terms is a prospective section and only determines the liability of interest of a debtor which liability is to be discharged after the Act had come into force. A liability that (had been discharged before the Act came into force would not be affected by the provisions of Section 30 ofthe Act.
In the case of renewal in 1934, the earlier loan, even though it might have been taken after January 1, 1930, ceased to exist as a result of that renewal and a fresh loan came into existence in that year. A previously discharged liability on the earlier loan would not, (therefore, be affected by the provisions of Section 30 of the Act. The liability, which subsequently came into existence in 1934 and continued to remain in existence as a fresh liability started in that year, when this Act came into force, would be the liability governed by Section 30 of the Act.
Consequently, in my opinion, if there were any renewals before the Act came into force in respect of any original loan taken earlier, the provisions of Section 30 of the Act would apply treating the loan last renewed before the Act came into force as a new loan.
In respect of the loans taken after the Act came into force, however, Section 28 of the Act would apply to all renewals and in applying Section 28 of the Act the principle to be enforced by the courts will be that explained by me above, viz. that for each loan the courts would determine the notional amount deemed to have been paid in discharge of the previous loan in accordance with law applying the provisions of the Act applicable at that time and would then deem that amount to be the amount notionally advanced in respect of the renewed loan. This principle would continue to be applied to each subsequent renewal. The result would be that in effect all the loans would have to be reopened and ultimately the creditor would receive interest only at the scheduled rate laid down in Section 28 of the Act.
6. In this connection a point that was canvassed before us was whether in view of Section 92 of the Indian Evidence Act the courts are competent to examine what was the real notional advance in respect of each renewed loan and whether the courts were not bound by the figure admitted as consideration in the various pronotes at the time of renewals.
It appears to me that this question can very simply be answered on the principle laid down by a Full Bench in Board of Revenue, Uttar Pradesh v. Padum Bahadur Singh : AIR1957All391 . It was held that the amount of consideration to be paid as agreed in a contract reduced to writing is a term of contract but the actual amount of consideration paid or received is note a term ofthe contract so that oral evidence can be givento prove what was the actual amount paid or received. In fact, it is well known that in suits for recovery of money on pronotes it has been held by all the courts that a debtor is entitled to show that he did not receive the entire amount of consideration as entered in the Pro-note and the conditions of the loan contained in the pronote do not debar him from giving oral evidence on this point by virtue of Section 92 or the Indian Evidence Act. In a case where the amount of consideration is not the actual amount advanced in cash but is a notional amount which the courts deem to be the advance, this principle must apply with greater force and it must be held that the courts must deem that amount to be notionally advanced which represents the national payment on the earlier loan determined, in accordance with the law applicable.
7. For the reasons given above, I would answer the first part of the question referred to the Full Bench in the affirmative. So far as the second part of the question is concerned, my answer is that the debtor cannot insist that the transactions of the renewals should be reopened on the ground that the renewals do not represent new loans and that line subsequent renewals should be ignored but, even treating each renewal as a new loan, the courts must reopen all previous transactions of renewals for the purpose of determining the notional amount of advance to be treated as the consideration for the loan represented by each renewal.
Bishambhar Dayal, J.
8. I agree.
A.P. Srivastava, J.
9. I agree that the question referred to us should be answered in the manner indicated by my learned brother V. Bharguva, J.
10. About the first part of the question authority appears to be overwhelming in support of the view that renewals must be considered to be loans for the purposes of the various sections of the U. P. Agriculturists' Relief Act (hereinafter referred to as the Act). A Full Bench of live Judges in 1942 All LJ 3: (AIR 1942 All 50) (FB) by a majority of three to two held that for the purposes of Section 30 of the Act renewals could be considered to be loans. A Full Bench of the Oudh Chief Court in AIR 1945 Oudh 242 came to the same conclusion with reference to Section 39 of the Act. The opinion was shared by a Division Bench of this Court in : AIR1950All152 . In 1942 All LJ 578: (AIR 1942 All 390) (FB) a renewal was treated as a loan for the purposes of the U. P. Debt Redemption Act. It is true that Dar, J., who delivered the leading judgment in the case of 1942 All LJ 3: (AIR 1942 All 50) (FB) (Supra) made it clear that he was dealing with the word 'loan' only as used in Section 30 of the Act. He did not rule out the possibility that the word may have different meanings in different sections of the Act. It is also true that the language used in Section 28 is not identical with that of Section 30 of the Act. While Section 30 enacts.
'No debtor shall be liable to pay interest on a loan taken before this Act comes into force at a rate................'
the words used in Section 28 are :
No loan taken by an agriculturist after this Act comes into force shall bear interest at a rate.......''
But this difference in language does not appear to be enough to justify putting a meaning on the word 'loan' as used in Section 28 different from that which is to be attributed to that word for the purpose of Section 30. The definition of the word 'loan' given in Section 2(10) is, unless there is anything repugnant in the subject or context, meant for all the sections of the Act and in Section 28 there appears to be nothing to indicate that notional advances could not be intended to be covered by the word for the purposes of that section.
11. It is, however, suggested that the case of : AIR1949All179 is an authority for the view that a renewed loan is not to be treated as a loan for the purposes of Section 20 of the Act and is in that sense a departure from the principle laid down by the Full Bench in Pratap Singh's case, 1942 All LJ 3: (AIR 1942 All 50) (FB). This is, however, not strictly correct. In Badri Prasad's case, : AIR1949All179 a loan of Rs. 350/- was originally advanced in cash on the 7th April 1932. The promissory note was renewed on the 21st March 1935, on the 4th October 1935 and again on the 3rd October 1938. The suit was filed on the basis of the last mentioned promissory note which had been executed for a sum of Rs. 700/-as representing the principal amount of the Previous promissory note and interest thereon. The defendant wanted all the previous renewals to be reopened and contended that the plaintiff could get interest on the original advance of Rs. 350/- made in 1931 only at the rate mentioned in Schedule III of the Act. The trial Court gave the plaintiff a decree for a sum of Rs. 700/- as principal and interest at the rate of 11% per cent. per annum up to the date of the suit. Thereafter the interest was allowed all the rate of three per cent. per annum. The lower appellate Court reopened the previous transactions and gave the plaintiff a decree for the principal amount of the original promissory note of 1931 together with interest calculated according to Schedule III of the Act. The plaintiff then filed a second appeal and relied on the Full Bench decision in Pratap Singh's case, 1942 All LJ 3: (AIR 1942 All 50) (FB) (Supra).
The learned Judges accepted the Full Bench decision and applied it to the extent to which it could be applied. They pointed out that it had been given only with reference to Section 30 of the Act (that had been made clear by Mr. Justice Dar himself in Pratap Singh's case, 1942 All LJ 3: (AIR 1942 All 50) (FB)) and precluded the defendant from getting the renewals made before the coming into force of the Act re-opened. The defendant, it was held, could not in view of the Full Bench decision go behind the renewal made on the 21st March 1934 immediately before the Act came into force. It cannot, therefore, be Said that the learned Judges differed in any way from the principle laid down in Pratap Singh's case, 1942 All LJ 3: (AIR 1942 All 50) (FB) or that they intended to lay down any different principle.
With reference to the renewals made after the coming into force of the Act, viz. in 1935 and 1938, they did say 'that different considerations will apply and held that the plaintiff was entitled to a decree for the principal amount of the promissory note dated 1934 and interest thereafter up to the date of the suit in accordance with Schedules II and III.' They did not expressly mention the considerations which led them to this conclusion. As has been pointed out by my learned brother Bhargava,, J., the same conclusion would follow if the principle of Pratap Singh's case, 1942 All LJ 3 : (AIR 1942 All 50) (FB) is correctly applied to the renewals of 1935 and 1938 also. It cannot, therefore, be said that in Badri Prasad's case : AIR1949All179 it was laid down that renewals made after the' coming into force of the Act are not loans for the purposes of Section 28.
12. The principle laid down in Pratap Singh's case, 1942 All LJ 3: (AIR 1942 All 50) (FB) appears to be of a general application and there is no valid reason why it should not be applied for interpreting the word loan' as used in Section 28.
13. The decision in Pratap Singh's case, 1942 All LJ 3: (AIR 1942 All 50) (FB) that renewals could be considered to be loans was really based on that portion of the definition of the word 'loan' given in Section 2 (10) of the Act which provided that loans would include any transaction which was in substance a loan. The view taken was that the idea behind a renewal was that accounts were settled, there was a notional payment of what was found due and there was a notional fresh advance of the amount for which the renewal was being made. The consideration for the renewed promissory note or bond was the amount which was to be deemed to have been nationally advanced though it had not been advanced in reality.
While applying this principle it should not, and cannot, be overlooked that a sort of legal fiction was sought to be utilised and what had not actually been done was being deemed to have been done. In all such cases of renewals the full amount calculated as due is never actually paid; nor is the full consideration, in fact, advanced for the renewed promissory note or bond. Such renewals may be of three kinds:--
(1) When the full amount due in respect of the past debt is handed over to the creditors and he in his own turn gives it back to the debtor after obtaining from him a renewed promissory note or bond. This is often done in respect of loans borrowed in villages from co-operative societies.
(2) When a part of the amount due in respect of the past loan has either been paid before or is paid at the time of the renewal and a fresh bond or promissory note is executed either for the balance or for the balance and something which is advanced in cash.
(3) When no prior payment is to be taken info account, the whole amount due in respect ofthe past loan is calculated, acknowledged as due and the fresh promissory note or bond is executed for that amount without anything being ad-vanced in cash.
14. Strictly speaking, renewals of the first kind are not renewals at all unless it is shown that the payment and the actual advance are fake and not intended to be real in which case the case will fall in the third category. Renewals of the second and third kinds are cases of notional payment and notional advance either in part or in full. In all such cases the amount actually paid or advanced has certainly to be taken into consideration. In respect of the amount of notional payment and notional advance which is deemed to have been paid or advanced it is al-ways open to the debtor to contend that he can be deemed to have been notionally paid only what was legally due and also that only that amount can be deemed notionally to have been advanced to him as consideration for the renewed promissory note or bond which could have been claimed by the creditor in law. He can show that the amount which could not be legally claimed could not be included in the consideration of renewed promissory note or bond and to that extent the promissory note or bond was without consideration. In respect of promissory notes Section 44 of the Negotiable Instruments Act clearly authorises the debtor to show that the consideration shown as pre-existing liability under the prior loan was really less than what was shown in the instrument.
In respect of transactions in which the Negotiable Instruments Act does not apply also the debtor is entitled to lead evidence and prove that the full consideration had not been received and could not be deemed to have been received : AIR1957All391 . Where the debtor is an agriculturist for the purposes of the Act while showing that the amount which could be deemed to have been notionally advanced to him at the time of the renewed transaction the debtor can also show that the only amount which could be due from him and which could be taken to have been advanced was the amount which could be claimed by the creditor under the provisions of the Act. The words 'notwithstanding anything in any contract to the contrary' have been used both in Sections 28 and 30 of the Act.
The obvious effect of these words is that the creditor cannot evade the provisions of these sections on the ground of any contract arrived at between him and the debtor. If, therefore he has got any amounts included in the consideration of the renewals which he could not have claimed in view of the provisions of the Act, to the extent of those amounts the renewed instruments become without consideration and the creditor's claim in respect of the amounts will not be allowed to succeed. For example, in case of a loan borrowed after the coming into force of the Act if interest can be claimed only at the rate of nine per cent. per annum simple or six per cent. per annum compoundable yearly, if the creditor obtains any renewals for amounts calculated at a higher rate of interest or obtainsrenewals at intervals of less than a year on account of which the rate charged exceeds the compound rate of interest allowed the debtor can insist that the amount should be correctly calculated and that the instrument should be deemed to have been executed only for the amount which could legally be claimed. Any payments made will, of course, have to be adjusted towards the amount which was legally due and calculations must be made on that basis.
15. The practical effect of the correct application of the principle of notional advance laid down in Pratap Singh's case, 1942 All LJ 3: (AIR 1942 All 50) (FB) therefore, is that) even in respect of the renewals made after the coming into force of the Act though the debtor can-not insist on the renewals being re-opened on the ground that they could not be considered to be loans he can in appropriate cases get the amount due from him re-calculated in accordance with the provision of the Act and insist that the claim of the creditor should be decreed only to that extent. The creditor cannot in such cases maintain a claim for amounts which could not be claimed by him under the provisions of the Act only on the ground that at an earlier stage renewals had been made for a larger amount.