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Radhasoami Satsang Sabha Vs. Hanskumar Kishanchand - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 105 of 1953
Judge
Reported inAIR1959MP172
ActsContract Act, 1872 - Sections 23 and 65; Societies Registration Act, 1860 - Sections 6; Transfer of Property Act, 1882 - Sections 60; Evidence Act, 1872 - Sections 92; Code of Civil Procedure (CPC) , 1908 - Order 34, Rule 11
AppellantRadhasoami Satsang Sabha
RespondentHanskumar Kishanchand
Appellant AdvocateM.R. Bobde and ;P.R. Padhye, Advs.
Respondent AdvocateS.C. Dube and ;A.R. Choubey, Advs.
Cases Referred(see Jaigobind Singh v. Lachmi Narain
Excerpt:
- - that clause provides as follows :2 the objects of the sabha are :objects (a) to regulate the conduct of the followers of the radhasoami faith, and to establish, run and subsidise religious, educational and industrial institutions with a view to advance the cause of religious, mental, moral and technical education among the followers of the radhasoami faith, solely with the object of doing public good and not for purposes of profit; our conclusion is further strengthened by the provisions of sub-clauses (h) and (i) of clause 24; which clearly envisage the investment of 'surplus funds of the sabha in such manner .as itmay deem fit' and the acquisition of 'immovable property on behalf of the sabha'.we may also point out that in the instant case the loan was at the instance of the.....t.p. naik, j. 1. the judgment in this appeal shall also govern the judgment in first appeal no. 56 of 1953.2. the facts of the case relevant for the purpose of the appeals may shortly be stated as follows.3. the plaintiff-appellant, radhasoami sat-sang sabha, dayalbagh, agra, filed a suit against the defendant-respondent, hanskumar, for the realisation of rs. 21,949/1/6/-, which was the balance due on a mortgage dated 21st october, 1939 executed by the defendant hanskumar in favour of the plaintiff sabha, by sale of the mortgage security. the claim on the mortgage was negatived, though the suit was decreed by passing a money decree in the sum of rs. 16,612/9/- only with future interest at 4 per cent per annum from the date o the decree till realization in favour of the plaintiff sabha......
Judgment:

T.P. Naik, J.

1. The judgment in this appeal shall also govern the judgment in first appeal No. 56 of 1953.

2. The facts of the case relevant for the purpose of the appeals may shortly be stated as follows.

3. The plaintiff-appellant, Radhasoami Sat-sang Sabha, Dayalbagh, Agra, filed a suit against the defendant-respondent, Hanskumar, for the realisation of Rs. 21,949/1/6/-, which was the balance due on a mortgage dated 21st October, 1939 executed by the defendant Hanskumar in favour of the plaintiff Sabha, by sale of the mortgage security. The claim on the mortgage was negatived, though the suit was decreed by passing a money decree in the sum of Rs. 16,612/9/- only with future interest at 4 per cent per annum from the date o the decree till realization in favour of the plaintiff Sabha. Both the sides have appealed against the said judgment and decree. The plaintiff's appeal is first appeal No. 105 of 1953, while the defendant's appeal is first appeal No. 56 of 1953.

4. The suit of the plaintiff was based on the following allegations. The defendant, Hanskiimar, had executed a registered mortgage on 21st October, 1939 in favour of the plaintiff, Radhasoami Satsangh Sabha, which is a society registered under the Societies Registration. Act (XXI of 1860) for a sum of Rs. 30,607/8/-. The rate of interest agreed to be paid on the loan was 5 per cent per annum compound with six-monthly rests. The loan was repayable in three years and the property, which was the subject-matter of the mortgage was :

'All that part of the , old Military Barracks situated at Khandwa which is marked in red ink and is shown by letters, ABCDE, in red ink in Schedule 'A' attached with the plaint and is more fully described therein.'

The defendant Hanskumar had also executed a promissory note in favour of the plaintiff Sabha on 9th October, 1941 for a consideration of Rs. 1,002/9/7 due from him on adjustment of the accounts in respect of 'Raja-barari Estate' at Timarni. On this loan he had orally agreed to pay interest at 5 per cent per annum with six-monthly rests. Both these loans were, with the consent of the defendant, consolidated in one khata in the account books of the plaintiff at Dayalbagh, Agra.

The defendant repaid an amount totalling to Rs. 29,078/13/4 on various dates in various sums Howards the mortgage debt in suit and did not pay the balance in spite of repeated demands. The amount remaining due, according to the plaintiff, was thus Rs. 21,949/1/6, which was the claim in suit and for which it claimed a mortgage decree for sale. It also claimed a personal decree against the defendant, if the mortgage security was found insufficient to satisfy its claim in suit.

5. The defendant denied the claim. His case was that he had rendered meritorious service to the plaintiff Sabha at great personal sacrifice to ' himself, in consideration of which the plaintiff Sabha had, besides conferring on him the honour of an honorary membership of the 'League of Service' and gifting to him a bungalow at Burhanpur, also undertaken to provide him, if he needed it, full financial help without restriction as to time or extent and without any reference to interest to be charged on the sums to be given.

Being so assured by the plaintiff Sabha, he contracted to purchase the 'old military barracks' at Khandwa for Rs. 30,000/-. For this purpose he borrowed a loan of Rs. 25,000/- from the plain-tiff Sabha. He was then asked to execute a promissory note dated 31st December, 1936 (Ex. P-37), which stipulated that the defendant was liable to pay interest at 5 per cent per annum at half-yearly rests on the loan. As the stipulation regarding interest was contrary to the assurances given earlier, the defendant had protested to the then head of the Sabha, 'Sir Anand Swarup', who was also his elder brother.

The latter asked the defendant to execute the promissory note with a clause of interest at the direction of the office as a mere formality and to raise the question at the time of the repayment of the loan. Unfortunately, after about six months of the execution of the promissory note, Sir Anand Swarup died, and soon after, in 1939, the defendant was dunned for the repayment of the loan together with interest. He was given the option of repaying the loan with interest in full or to execute a mortgage in terms to be dictated by the Sabha.

If the amount was not paid, he was threatened with a suit which would have meant complete ruination of his business, as he had no liquid assets to discharge the plaintiff's claim as all his money was invested in the suit property. He had thus no option but to execute the mortgage deed in suit. He alleged that the mortgage in suit was thus got executed from him by the exercise of undue influence, coercion and duress.

It was, therefore, not enforceable in law. He admitted the execution of the promissory note dated 9th October, 1941, but denied that he had agreed to pay interest on it, or that he had consented to have it amalgamated with the mortgage to make it a secured debt. He further averred that the consent, even if established, could not make an unsecured debt a secured debt.

It was, therefore, alleged that the amount due under the promissory note could not be treated to be a part and parcel of the mortgage debt. The defendant also pleaded that the plaintiff Sabha had no power under the constitution and bye-laws of the Society to lend money or give loans on interest to anybody, much less for the purposes of profit. The action of the plaintiff Sabha was alleged to be ultra vires its constitution, and consequently it was urged that the suit as framed was not maintainable.

It was then urged that the plaintiff Sabha was a money-lender, and as it did not hold a moneylender's certificate, the suit was liable to be dismissed. A further plea was that the plaintiff had not complied with the provisions of Section 3 (1) (a) and (b) of the Central Provinces Moneylenders Act, and, therefore, if interest and costs were disallowed, nothing remained due on the mortgage claim.

The repayments towards the mortgage loan, amounting to Rs. 29,073/13/4 as alleged by the plaintiff in paragraph 8 of the plaint, were admitted. In the end, the defendant claimed to be relieved against the penal rate of interest and prayed that the decretal sum be made payable in yearly instalments of Rs. 1,500/- each.

6. The findings of the trial Court were as follows :

(1) That the plaintiff Sabha could maintain the suit in its registered name.

(2) That the mortgage dated 21st October, 1939 (Ex. P-1) was not executed by the defendant Hanskumar under any undue influence, coercion or duress exercised over him by the plaintiff.

(3) That the plaintiff Sabha did intend to charge interest on the amounts advanced, and the defendant had agreed to pay the same.

(4) That the giving of a loan with interest was neither an object of the plaintiff Sabha nor could it amount to any of the acts incidental to the achieving of the religious and charitable objects or the plaintiff Sabha. The mortgage was, therefore, unenforceable.

(5) That the plaintiff Sabha was, however, entitled to the refund of the consideration advanced by it to the defendant under Section 65 of the Indian Contract Act. The plaintiff was thus entitled to Rs. 25,000/- and Rs. 3,075/7/9 with interest at 5 per cent per annum from the date of loan, to the date of suit, and Rs. 1,002/9/7, less repayments made as per schedule with the decree.

(6) That the plaintiff Sabha was not a moneylender within the meaning of the Madhya Pradesh Money-lenders Act; and even if it was a moneylender, the transactions in suit were excepted from the provisions of the said Act in view of Section 2 (vii) (b) of the Act.

(7) That though the defendant had agreed to coosolidate the amount due under the promissory note dated 9th October, 1941 with that under the mortgage deed dated 21st October, 1939 and to be included in one khata, the amount due under the promissory note could not form part of the mortgage debt.

(8) That there was no evidence to establish that the loan of Rs. 1002/7/6 was to carry any interest. In the result a decree was passed in favour of the plaintiff Sabha against the defendant for Rs. 16,612/9/- with interest at 4 per cent per annum from the date of the decree till its realization. The decretal amount was also made payable in three equal yearly instalments, commencing from 1st February, 1953, with a condition that on default of any one instalment the whole of the decretal amount shall become recoverable immediately.

7. The learned coupsel for the plaintiff-ap-pellant raises the following three contentions so xr as its appeal (e.g. first appeal No. 105 of 1953) is concerned :

(1) That there was no legal justification for not decreeing the claim of the plaintiff Sabha on its mortgage.

(2) That interest should have been allowed on the loan of Rs. 1,002/9/7, which was later on amalgamated with the mortgage with the consent of the defendant.

(3) That the decretal amount should not have been made payable in instalments.

8. We will examine these contentions seriatim.

9. As regards contention (1) : The claim was based on a mortgage dated 21st October, 1939. The trial Court has held that the giving of a loan to the defendant with interest was neither an object of the plaintiff Sabha nor could it amount to any of the acts incidental to the achieving of the religious and charitable objects of the plaintiff Sabha mentioned in Clause 2 (a) of its memorandum of association. Consequently, it has held that the mortgage was unenforceable in law, though the amount advanced thereunder could be recovered on the principle of accounting for benefits had and received!

10. For its conclusion that the advancing of a loan and the taking of a mortgage were ultra vires the plaintiffs memorandum of association the trial Court has relied on Clause 2 of the said memorandum. That clause provides as follows :

'2 The objects of the Sabha are : --

Objects

(a) To regulate the conduct of the followers of the Radhasoami Faith, and to establish, run and subsidise religious, educational and industrial institutions with a view to advance the cause of religious, mental, moral and technical education among the followers of the Radhasoami Faith, solely with the object of doing public good and not for purposes of profit;

(b) To collect, preserve and administer the properties, movable and immovable, that have been or may hereafter be dedicated to Radhasoami Dayal or that may be acquired for or presented to the Radhasoami Satsang Sabha and to deal with and apply the same to the furtherance of the religious and charitable objects of the Sabha;

Note; Applications regarding dedication of properties of all description to Radhasoami Dayal may be presented in Form A,

(c) To do the above and all such other things as are incidental or conducive to the attainment of the above objects, provided that the mandates, if any, of the Sant Sat-Guru of the time, who is recognised as the Representative of the Supreme Creator Radhasoami Dayal, shall be paramount and absolute in all matters relating to the furtherance of the religious and charitable objects specified above.'

The provisions of Clauses (h) and (i) of bye-law 24 may also be noted. These are:

'(h) to raise loans and to invest surplus funds of the Sabha in such manner or with such bankers as if may deem fit and also to sell or otherwise transfer Government or other securities and stocks, debentures or shares held by the Sabha;

(i) to acquire or transfer immovable property on behalf of the Sabha;'

11. In the opinion of the learned Judge of the trial Court, 'the basic idea in the objects of the association is that the plaintiff-society cannot make any prost in any of its undertakings'. It is difficult to see how this conclusion has been arrived at on the basis of the objects set forth above. Possibly, the learned Judge was relying on the phrase 'and not for purposes of profit' occurring in Clause 2 (a) above.

The said phrase has reference to the topics mentioned in Sub-clause (a) only and cannot be imported into consideration in considering the objects mentioned in Sub-clause (b). Under that sub-clause one of the objects of the Sabha k to 'administer the properties, movable and immovable .....that may be acquired for ..... the Radhasoami Satsang Sabha', and the said object is couched in such wide terms as to include the advancing of a loan with interest and to the taking of a mortgage therefor.

Our conclusion is further strengthened by the provisions of Sub-clauses (h) and (i) of Clause 24; which clearly envisage the investment of 'surplus funds of the Sabha in such manner ..... as itmay deem fit' and the acquisition of 'immovable property on behalf of the Sabha'. We may also point out that in the instant case the loan was at the instance of the Sahabji Maharaj, who was the Sant Sat-Guru of the time, and consequently under Clause 2 (c) his mandate, being paramount and absolute, no objection can be raised as to the ultra vires character of the transaction in suit. The same considerations apply to the subsequent mortgage which was under the orders of the 'Mehtaji Sahab', the successor in office of the Sahabji Maharaj and the Sant Sat-Guru in 1939.

12. But, even if we are wrong as to our interpretation of the memorandum of association and therefore even if the transactions in suit were ultra vires the plaintiff Sabha, they were not shown to be illegal within the meaning of the Contract Act and consequently, in our opinion, neither the promissory note nor the mortgage becomes unenforceable for that reason.

13. It is not disputed that the plaintiff society being a registered society under the Societies Registration Act is a corporation or a quasi-corporation capable of entering into a contract. The registration confers on the plaintiff Sabha a legal personality and consequently any contract entered into by it would bo legally enforceable, unless it was vitiated by an illegality or was shown to be void for any other reason.

14. The difficulty in the determination of the question in the instant case is created by the use of the word 'ultra vires' by the learned Judge in the sense of 'excess of authority' as well as in the sense of 'something illegal which is prohibited by law'. That the two things are substantially different was pointed out by Blackburn J., (as he then was) whose minority judgment was later on approved by the House of Lords, in Taylor v. Chichester and Midhurst Railway Co.. 1867-2 Ex Ch. 356 at p. 379. He said:

'But the legislature, with a view to public policy, does, sometimes expressly, sometimes by implication, prohibit the doing of certain acts by companies thus incorporated, and when an act is thus made malum prohibitum, any contract to do it is illegal; and if there is an attempt made to enforce such a contract, the defendant, whether a company or an individual, may, if his conscience permit him, set up the illegality to which he was a party; for in pan delicto potior est conditio defen-dentis. Though every share-holder in the company had assented to the making of a particular contract, yet if the legislature have, not merely for the protection of the share-holders., but for the good of the public, forbidden the making of it, it is illegal, and the corporation whose shareholders have all assented is in no worse position for raising the defence than the chairman of the company who has personally entered into the contract and yet may, as was decided in Macgregor v. Dover and Deal Railway Co., (1852) 18 QBD 618, set up the provisions of the Railway Acts as making his personal contract illegal.

The question whether a particular thing is thus prohibited by the statutes must in every case depend upon the true construction of them.

I think it very unfortunate that the same phrase of 'ultra vires' has been used to express both an excess of authority, as against the shareholders, and the doing of an act illegal as being malum prohibitum: for the two things are substantially different: and I think the use of the same phrase for both has produced confusion.'

Similarly, in In re Coltman; Coltman v. Coltman, 1881-19 Ch D 64 at p. 69, Jessel. M. R. said:

'I am not satisfied that an express provision in the Act of Parliament that the trustees should not lend money upon personal security would have made any difference. The loan would have been wrong, it would have been an appropriation of the society's money to their own use, but there would not have been any such illegality in the transaction as would preclude the trustees from recovering the money lent. It seems to me that to hold it to be incompetent to maintain an action under those circumstances would be to say that it was incompetent for a trustee who had improperly appropriat-ed the money of the society and lent it in his own name to take steps to enable him to restore it.How the persons who borrowed it, there being no illegality in the borrowing on their part, and no illegality in their agreeing to repay the money so borrowed, and no illegality in the purpose to which they were intending to apply it, can set up the doctrine that they are relieved from their liability by reason of the money having originally belonged to a friendly society, is a thing which I am-quite unable to understand.'

While, Prett L. J., at p. 70 expressed himself as follows:

'The only objection to this loan is that it wasmade without authority. But it does not seem to me that the borrower can set up as a defence loan action that the person who leut him the money, and to whom he has made a promise to repay that money, had no authority to lend it to him. That is an objection which it is not for him to take. The-contract is, if you will lend me so much money I will pay you that money back on demand. The consideration is the handing over the money. That is not illegal. The promise to pay back money which you have borrowed is not illegal. The money was not borrowed for any illegal purpose, in order to do an illegal or immoral thing, and I cannot see that there is anything illegal in the contract. The only objection is, that those who made the-contract with the debtor had no authority to make-it, and that is an objection which he gannot take.'

15. If this distinction is borne in mind, it would be clear that oven if the lending and the subsequent mortgage be unauthorised, the transac-tion was not tainted with any illegality and consequently the contract is not avoided nor does the ultra vires character of the transaction prevent the property from passing.

16. In Ayres v. South Australian Banking Co., 1871-3 PC 548 at pp. 558, 559 Mellish LJ, delivering the judgment of the Board, said:

'Another objection was taken by Mr. Manisty on the terms of the Charter -- the clause in the Charter which says, it shall not be lawful for the Bank to make advances on merchandise. Now, unquestionably, a great many questions might be raised on the effect of that clause in the Charter which may be of very great importance, but which also being of great difficulty, their Lordships do not think it necessary to give any opinion upon. There may be a question as to what are the transactions which come really within the clause, and whether this particular case does come within it. There may be also question whether, under any circumstances, the effect of violating such a provision is more than this, that the Crown may take advantage of it as a forfeiture of the Charter, but the only point which it appears to their Lordships is necessary to be determined in the present case is this, that whatever effect such a clause may have, it does not prevent property passing, either in goods or in lands, under a Conveyance or instrument which, under the ordinary circumstances of law, would pass it. The only defence which can-be set up here (there is no plea of illegality) is under the plea of not possessed, that the right of property and the right of possession never passed to the plaintiffs. Their Lordships are of opinion, that whatever other effect it has, it cannot have the effect of preventing the property passing. If that were otherwise, the consequences might be most lamentable, because if the property never passed to them, they could not themselves convey any property to third persons. Transactions of the most honest description might be set aside. Theymight do what is a very common thing, make advances and take Bills of Exchange with the Bills of Lading attached. If it is to be said that the property in the goods mentioned in the Bill of Lading does not pass to them, then any purchaser to whom they might sell the goods under the Bill of Lading would get no title, and the original owner who had received the full proceeds of .the goods, or a large advance upon them, might say, 'Oh the property never passed to the South Australian Bank, and, therefore, it never passed to you'. Mr. Manisty admitted that he could find no authority for the proposition, that any violation of such a condition of a Charter would prevent the property in goods passing to the person to whom an instrument otherwise valid professed to pass it, and their Lordships are of opinion, that whatever other effect the violation of such a condition may have, it has not the effect of preventing the property in the goods passing, or of preventing an action of Trover being maintained if there is a wrongful conversion.'

17. In Great Eastern Railway Co. v. Turner, (1872) 8 Ch A 149 at p. 152, Lord Selborne L. C. said:

'True it is that the investment was an unauthorised investment; but I entirely assent to what was said by Sir Richard Baggallay, that there is no difference between an unauthorized investment of the money of a public company by its trustees, and an unauthorized investment of the moneys belonging to any other trust by the trustees of that trust. It would be monstrous -- it would be extravagant to the very last degree -- to say, that because the money of cestui que trust has been laid out in an unauthorized manner, that therefore they are not to have the benefit of whatever value there is in the proprty bought with their money.'

18. In Turner v. Bank of Bombay, ILR 25 Bom 52, the Bank of Bombay had lent money to Turner on equitable mortgage in contravention of Section 37 of the Presidency Banks Act, 1876. Repelling the contention that no valid charge had been created, as the mortgage was unauthorized, Sir Lawrence Jenkins, C. J., delivering the judgment of the Division Bench, held that the mortgagors could not repudiate the obligation into which they had purported to enter and that the Presidency Banks Act did not prevent the actual acquisition by the Bank of the charge, though, no doubt, the directors acted in breach of their duties. The principle laid down in the aforesaid four English cases cited in paragraphs 14 to 17 above was approved. The Bombay case was followed by the Madras High Court in Ahmed Sait v. Bank of Mysore Ltd., ILR 53 Mad 771: (AIR 1930 Mad 512).

19. As the object of the agreement had not been shown to be illegal, for the reasons stated above, we are of opinion that there was no impediment to the enforcement of the mortgage in suit against the defendant and to the passing of a mortgage decree for sale as prayed for by the plaintiff-appellant.

20. So far as this part of the case was concerned, there was 110 strenuous opposition to the appeal.

21. As regards contention (2): This contention related to the grant of interest on the sum of Rs. 1,002/9/7, which was borrowed on the basis of a promissory note (Ex. P-2) on 9-10-1941 and which -sum was later amalgamated with the mortgage debt. The fact of amalgamation cannot be disputed. Vide Ex. P-9, dated 24-1-1949, the Secretary of the plaintiff Sabha asked for the set-tlement of the promissory note loan of Rs. 1,002/9/7 dated 9-10-1941, but in reply (Ex. P-31), dated 25-1-1949, the defendant intimated:

'In reply I have to inform you that a pro-note dated 9-10-1941 was duly executed by me forthe said amount, 'and later on this amount wasamalgamated with the amount of the mortgagedeed.' You will please therefore look carefully andminutely into the details of the account of themortgage deed since the date of its execution, i. e.,13-10-1939. I am sure you will find the sum ofRs. 1,002/9/7 duly accounted for.' (The underlining (here in ' ' is ours).

The question then is whether the aforesaid amalgamation creates a further charge on the mortgage security and makes it a part and parcel of the mortgage debt. No authority was cited for the proposition that an unsecured debt could thus partake of the character of a mortgage debt by any oral on even a written agreement. In Mitra's Transfer of Property Act (Eleventh Edition), paragraph 379, the learned author has pointed out, that

'If a mortgagor, after executing a mortgage, takes a subsequent loan from the mortgages under a simple money-bond, and in that bond stipulates that he will not redeem the mortgage without paying off the subsequent loan, the stipulation cannot be enforced, because the simple money-bond does not create any charge on the property, and the covenant in the bond will be treated as one placing an unnecessary hindrance in the way of the mortgagor (i. e., a clog on redemption and therefore unenforceable; the mortgagor (or a purchaser of the equity of redemption) will be entitled to redeem the mortgage without paying off the amount due under the money-bond.'

We are, therefore, of opinion that the amalgamation did not augment the mortgage debt and no I mortgage decree could be claimed with respect to I that amount.

22. Then, the question arises whether, even if the debt of Rs. 1,002/9/7 did not become added to the mortgage debt, it could be decreed; and, if so, with interest at 5 per cent., per annum with half-yearly rests. The trial Court has decreed the sum, though interest claimed thereon has been disallowed.

23. The learned counsel for the defendant contended that the claim with respect to this sum was barred by time. There was no such plea in the written statement. On the other hand, the allegations of the plaintiff with respect to this sum contained in paragraph 17 of the plaint were not disputed. The allegations' were:

'If for any reason, the plaintiff be not found entitled to treat the amount due on the pronote as mortgage money, the plaintiff is entitled to a money decree for the claim on the pronote, claim under which is within time having been acknowledged by the defendant by his letters and writings and also by payments in writings under his signature on various dates mentioned in para 10 above.'

It may also be noted that there was no issue framed on this question, and it was not also raised in the defendant's grounds of appeal. There is thus no basis for the contention that the claim in respect of the, loan of Rs. 1,002/9/7 should be dismissed as time-barred.

24. This brings us to the question of interest. The promissory note (Ex. P-2) is silent about interest. The plea of the plaintiff is that the defendant had orally agreed to pay interest on the said sum at 5 per cent., per annum with six-monthlyrests. The trial Court has held that the plaintiffdid not adduce any evidence on this issue.

No oral evidence regarding the alleged agreement to pay interest was pointed out to us, but it was contended that the conduct of the defendant in paying interest amounting to Rs. 9S7/8/- on the consolidated amount of Rs. 37,500/-, which included the sum of Rs. 1,002/9/7, calculated on the basis of 5 per cent., per annum with half-yearly rests, showed that there must have been such an agreement, and that in any case such an agreement could be spelled out from the courseof conduct of the parties.

This actual payment of interest is for the years 1944 to 1948 (see Exhibits P-24, P-26, P-27 and P-29). For earlier years, the plaintiff's accounts show that it added interest at 5 per cent., per annum with half yearly rests On this sum and in arriving at the agreed figure of Rs. 37,500/- as due from the defendant to the plaintiff Sabha, the defendant had included in it the sums due as interest at the above rate: (see Exs. P-21 and P-22).

It may also be noted that the liability to payinterest at the aforesaid rate was also acknowledged by the defendant in his letters, dated 26-10-1943, (Ex. P-17) and dated 31-7-1944 (Ex. P-24). See also letters dated 8-4-1949 and 10-94949 (Exhibits P-32 and P-S3), wherein the defendant did not deny his liability to pay interest, but instead accepted it and only asked for time. Under thecircumstances, the plaintiff Sabha was entitled tointerest 'at 5 per cent., per annum with half-yearly rests on the amount of the loan of Rs. 1,002/9/7 evidenced by Ex. P-2, dated 9-10-1941.

25. The last contention need not be decided, In view of the fact that we ore allowing the mortgage claim and consequently the provisions of Rule ill of Order XXI of the Code of Civil Procedure do not apply.

26. Coming to the appeal of the defendant (First Appeal No. 56 of 1953), the first contention of the defendant-appellant is that the Central Provinces and Berar Moneylenders Act applied and as the plaintiff had not complied with, its provisions, it was not entitled to interest and costs. The contention, was negatived by the trial Court, and, in our opinion, corecily. The plaintiff has its head office in Dayalbagh, Agra, and the loan transaction also took placeat Agra.

There is no evidence that the plaintiff carried on any business of moneylending within the then Stateof Macinya Pradesh. But, even if it were a moneylender, the provisions of Section 2 (vii) (b) exempt 'a loan by any society registered under the Societies Registration Act. 1860 (XXI cf I860). The relevant clause reads as follows :

'2. In this Act, unless there is anything repugnant in the subject or context,

* * * * *(vii) 'loan' moans, an actual advance made within twelve years from the date of the last transaction, whether of money or in kind at interest and shall include any transaction, which the Court finds to bein substance a loan, but it shall not include--

* * * * *(b) a loan to or by or a deposit with any society or association registered under the Societies' Registration Act. 1860 (XXI of 1860), or under any other enactment.'

27. The learned counsel for the defendant, however, contends that the aforesaid exception will not apply, as the plaintiff society was not registered under the Act XXI of 1860 in the State of Madhya; Pradesh, In our opinion, the law only requires registration under that Act, wherever obtaining, and does!not require registration in the State of Madhya Pradesh only, before benefit of that sub-clause could be claimed.

28. The learned counsel for the defendant then contends that there was no intention to pay interest on the part of the defendant and no intention on tile part of the plaintiff to charge interest, and consequently interest could not be charged at the rate stipulated in the mortgage-bond. The contention has no force. There is ample evidence to show that the plaintiff Sabha did intend to charge interest on the amounts advanced and the defendant also agreed to pay the same.

The evidence has been discussed in paragraph 21 of the trial Court's judgment and we agree with its findings on the point. There is further difficulty in the way of the defendant, as Section 92 of the Indian Evidence Act bars proof of an oral agreement not to charge interest, even though the mortgage bond in terms provided for it. That such an oral agreement could not be proved has also been held in Maheshchandra v.. Anandachandra Shaha, ILR 61 Cal 344: (AIR 1934 Cal 564} and Abdul Azizmia v. Amanmal Bathra, AIR 1925 Cal 276 (1).

29. It is then contended that on the plaintiff's own case there was a novation of the contract of mortgage, when the amalgamation of the promissory note loan dated 9-10-1941 with the mortgage loan in the khata account of the plaintiff took place, and consequently the mortgage was destroyed; and as there was no fresh agreement to pay interest on the khata account, interest could not be charged thereafter. Alternatively, it was contended that the debt on the promissory note Ex. P-2 was barred by limitation.

30. In the first place, this was nobody's case in the trial Court, and the learned counsel for the defendant admits that no such ground was taken by him in the grounds of appeal in this Court. Secondly, there was no novation of the contract. What the plaintiff pleaded was that the debt on the promissory note was agreed to be a further charge on the mortgage security by consent of the parties by amalgamating the promissory-note debt under Ex. P-2 with the mortgage debt.

We have already held that it could not have such an effect and that the two debts remained separate, though for the purposes of accounting interest was calculated en the consolidated sum in ihe khata. We have also held that the debt on the promissory-note was not barred by limitation.

31. The last contention of the defendant is that the interest charged was excessive and ought to be relieved against. The pica of excessive rate of interest was never raised in the Court below. All that was submitted was that there was no agreement as to interest. The interest stipulated was 5 per cent per annum with half-yearly rests. It had been paid up to year 1948, and thereafter liability to pay it was time and again acknowledged in the letters written by the defendant to the plaintiff, though no amount was actually paid.

The accumulation of interest is thus due to the default of the defendant himself, without any adequate reason. The circumstance that the interest was at compound rate would by itself not be sufficient to show that the contract rate of interest was extortionate or unreasonable. No material has been placed before us to establish that the rate of interest was excessive. In our opinion, the rate of interest cannot be said to be excessive.

32. We, therefore, order that the plaintiff Sabha shall be entitled to interest at the contract rate from the date of the mortgage to the date of institution of the suit. Parties agree that the ac-counts be settled in the following manner. The amounts paid by the defendant towards the consolidated debt in suit be first applied to satisfy the debt on the promissory-note dated 9-10-1941. The promissory-note debt would thus be wiped out. The balance then due would all be the balance due on the mortgage debt. This would be the amount for which a preliminary decree has been claimed by the plaintiff Sabha. It will thus be entitled to Rs. 21,949/- on its mortgage.

33. As for interest during the pendency of the suit as also during the pendency of the appeal, the grant is in our discretion under Rule 11 of Order 34 of the Code of Civil Procedure: (see Jaigobind Singh v. Lachmi Narain, AIR 1940 FC 20). The plaintiff in its memorandum of appeal has claimed Rs. 1,397/- on this account, which works out at 5 per cent simple and appears to us to be reason-able. We, therefore, award him Rs. 7,727/- towards interest during the pendency of the suit and. the appeal. The defendant had paid towards the decree Rs. 6,493/- on 30-1-1953 and Rs. 3,000/-on 14-6-1954 as per directions of the Court. Taking these repayments into account, the parties agree that the amount now due works out at Rs. 17,759/-.

34. No other point was pressed.

35. We, therefore, hereby direct that a preliminary decree for sale be drawn up directing the defendant to pay the balance of the mortgage debt with interest amounting to Rs. 17,579/- to the decree-holder plaintiff on or before 14-2-1959.

36. In the result, the appeal of the plaintiff is allowed with costs while' that of the defendant is dismissed with costs.


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