1. This appeal involves a question of the applicability of what is commonly known as the damdupat rule in Sub-sections (2) and (3) of Section 8 of Madras Act IV of 1938 to a debt which is the result of the clubbing together of pre-existing debts due to the same creditor by the same debtor when payments have been made towards the separate debts before the clubbing took place. We are not aware of any decision of this Court which has laid down the correct method of dealing with such cases under these provisions.
2. The facts, established are that on 15th April, 1914, the appellant who is the creditor advanced Rs. 300 on a mortgage bearing interest at 18 per cent. under Ex. B. On 22nd May, 1916, he made a further advance of Rs. 200 on a mortgage Ex. C bearing interest at 24 per cent. On 1st November, 1925, he advanced a sum of Rs. 50 on a promissory note which has not been exhibited. The rate of interest according to the defendants' evidence was either 12 or 15 per cent. On 16th February, 1926, these three advances were consolidated into a single mortgage Ex. A, a further advance of Rs. 450 being made in cash at the time of the consolidation. Having regard to the state of accounts between the parties on the three transactions, the total consideration for the consolidated mortgage was Rs. 1,000, that is to say, the sum of Rs. 450 together with the principal only of each of the three antecedent transactions. Plaintiff's case was that at the time of this consolidated mortgage he gave up all the interest on the earlier transactions none of which had been paid. As the plaintiff did not produce his accounts, this not very probable story has been quite rightly rejected. Both the Courts below have accepted the defence version that the reason why only the principal amount of these antecedent debts came to be included in the consolidated mortgage was that all the interest on these earlier debts had been regularly paid. The Courts below have however, rejected the defence assertion that payments were all made towards the consolidated mortgage.
3. On these facts the learned District Judge has applied, the damdupat rule in a manner which seems hardly to be warranted by the terms of Section 8. He has taken the three antecedent documents, added together the principal, multiplied it by two, added together all the payments made towards these three antecedent documents, and finding that more than twice the principal of these three documents had been paid at the time of the consolidation, has treated these documents as if they were discharged and as leaving a mortgage for the fresh cash advance of Rs. 450 towards which no payment had been made, and for this amount a decree has been given with interest at the statutory rate. What in effect the learned District Judge has done has been not to scale down the debt as it stood at the time of the commencement of the Act having regard to the principal sum originally advanced and any further advances made thereafter, but to scale down the consolidated debt as it stood on 16th February, 1926, and treat the fresh advance as one in respect of which the interest was cancelled under the first clause of Section 8. That is not in our opinion the procedure which the section contemplates.
4. Incidentally we observe that in calculating the amount paid towards these three debts, both the Courts below appear to have relied not upon the evidence adduced by the defendant but upon the figure given in his written statement. In the written statement the defendant asserts that a total amount of Rs. 1,744 was paid by way of interest up to the date of the consolidation of the debts. In the actual evidence, the defendant's evidence is that he paid regularly the interest due as required in the documents without falling into arrears at all. Calculating the actual interest due on the first two documents we find that it amounted to Rs. 102 per annum. The interest on the promissory note cannot have amounted to much more than Rs. 2 at the time when the consolidated note was executed, for it had been running only for just over three months. It seems to us apparent that on the defence evidence that the debtors paid the full amount of interest due on all these three documents and nothing towards the principal, the total of his payments as on 16th February, 1926, would be approximately Rs. 1,130, not Rs. 1,744 as alleged in his written statement.
5. Assuming that Rs. 1,130 was paid on these three antecedent transactions, being made up of the amount of Rs. 648 due on the first document, Rs. 480 due on the second document and Rs. 2 due on the third document, and that nothing was paid towards the consolidated mortgage, what is the result of the application of Section 8 in the manner most favourable to the defendant? It has been suggested that when separate debts towards which payments have been made have been consolidated into a single debt, payments made towards the separate debts cannot be clubbed together and treated as payments towards the consolidated debt for the purpose of applying clauses 2 and 3 of Section 8. No doubt it may at first sight seem anomalous when there are two debts towards one of which there has been a long series of regular payments and towards the other no payments at all and these two debts come to be clubbed together into a single debt, to treat all the payments made to one of the earlier transactions as payments towards the composite transaction. On the other hand that seems to be the method contemplated in the Act. The explanation to Section 8 says that where a debt has been renewed, the principal advanced together with such sums as have been subsequently advanced as principal shall alone be treated as the principal sum repayable. This explanation applies to the whole of Section 8, not merely to the first clause thereof. Applying this explanation to clauses 2 and 3, it seems to follow that where the word ' principal ' is used in these clauses, the Legislature intended to refer not to the actual principal of the debt subsisting when the Act came into force, but to what we have described as the notional principal calculated in the manner laid down in the explanation, and when these clauses speak of payments whether by way of principal or interest towards the debt, it seems to follow that we must take into account payments made towards any component part of that principal having regard to the way in which it is to be calculated by totalling all the sums advanced at different stages. In fact, the Legislature seems to have treated debts which have a long antecedent, history and become consolidated by the addition of varying advances made at different times, as if the whole liability were a single advance, the principal of which is the sum total of the various sums actually advanced; that is to say, the Legislature seems to have ignored the anomaly resulting from payments made towards one portion of the principal being regarded as payments made towards the principal as a whole. We wish to safeguard ourselves against making any pronouncement upon what would be the position if the composite debt were made up of two antecedent transactions one of which is protected from the procedure under the Act.
6. It seems to us that the only logical alternative to the method suggested above, of clubbing all the advances and clubbing all the payments and treating them as a single transaction, would be to hold that the damdupat clauses cannot be applied at all where separate debts have been consolidated into a single debt, except perhaps with effect from the date of consolidation. This seems to amount to a partial rejection of the scheme of the explanation to the section, and it has the notable disadvantage that it gives the maximum benefit to the comparatively undeserving debtor who has paid nothing towards his debts by the application of Clause 1 of Section 8 and refuses anything but a modicum of relief to the deserving debtor who has been paying regularly for a long period of years for whose relief clauses 2 and 3 have been inserted. We do not think that it was the intention of the Legislature to refuse the relief contemplated under clauses 2 and 3 of Section 8 merely because the separate debts have come to be consolidated by agreement of parties.
7. A further suggestion has been made that it would be more logical to carry out the scaling down operations under these clauses in two stages, firstly by applying these clauses to the separate debts up to the date of consolidation and arriving at a new figure of the amount which would be substituted for the actual figure found in the consolidated document and then the process contemplated in these clauses would be applied once again with reference to payments made after consolidation. Such a method would, no doubt, be fairly logical. Unfortunately there is nothing in the Act to warrant its adoption. We do not feel disposed to read into the Act provisions which are not there, however desirable those provisions may be.
8. In the result, therefore, we allow the appeal to this extent that the total notional principal of the debt as scaled down will be Rs. 1,000, the total payments made towards this debt will be Rs. 1,130, and the appellant will be entitled to a decree for the difference between twice the notional principal and the amount of the payments, that is to say, he will have a decree for Rs. 870 with interest at 6 1/4 per cent. from 1st October, 1937. Proportionate costs in all the three Courts.