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N.S. Sreenivasa Rao Vs. G.M. Abdul Rahim Sahib - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai High Court
Decided On
Reported inAIR1956Mad618; (1956)2MLJ189
AppellantN.S. Sreenivasa Rao
RespondentG.M. Abdul Rahim Sahib
Cases Referred and Dhanakotia Pillai v. Narayana Iyer
Excerpt:
- - 70 endorsed on the promissory note, and expressly stated to be towards the interest due. 771. the underlying principle on which the learned judge held that payments once made cannot be reopened was based upon a mistake of law, as it is well established that a payment under a mistake of law cannot ordinarily be recovered through courts......was not legally due and which could not have been enforced; the 'mistake' is thinking that the money paid was due when in fact it was not due. there is nothing inconsistent in enacting on the one hand that if parties enter into a contract under mistake in law that contract must stand and is enforceable, but on the other hand that if one party acting under mistakes of law pays to another party money which is not due by contract or otherwise, that money must be repaid.it is clear that in the present case, the payment of interest were paid under the mistaken belief that in law, the plaintiff is entitled to the higher rate of interest, and we are of opinion that it would not have been the intention of the defendant to make a present of the larger sum of money to the plaintiff. under.....
Judgment:

Govinda Menon, J.

1. The question that arises in this Civil Revision Petition is one regarding the applicability of Section 13 of the Madras Agriculturists' Relief Act (Act IV of 1938). As it is an important one, the matter has come up for decision before the Bench.

2. On 2nd April, 1944, the defendant executed a promissory note in favour of the plaintiff for a sum of Rs. 200 agreeing to pay interest at 12 per cent, per annum. On I3ih March, 1947, there was a payment of Rs. 70 endorsed on the promissory note, and expressly stated to be towards the interest due. Similarly on 8th June, 1949, and her payment of Rs. 30 towards the interest was made, and there were further payments of Rs. 35 on 23rd February, 1950 and Rs. 50 on 1st September, 1952, towards interest as such. Appropriating these payments towards interest, the plaintiff brought the suit for recovery of Rs. 233-5-0 which according to him constituted the principal and balance of interest at the contract rate.

3. The contention of the defendant was that the payments already made should be appropriated in the manner contemplated under Section 13 of the Act that is to say, the rate of interest should be only 5J per cent, as contemplated by that section and any amount in excels of that sum should be adjusted towards the principal. The lower Court accepting the defendant's contention decreed the suit on the basis of appropriation of interest at the statutory rate, and not at the contract rate, that is the plaintiff was entitled to take only interest at the rate of 5 1/2 per cent, and not 12 per cent. Aggrieved by that decision the plaintiff has come up in revision and contends that the amounts already paid should be deemed to have been appropriated by consent of parties towards the interest due at the contract rate, and therefore, the plaintiff is entitled to get the principal with 5 1/2 per cent, interest from 1st September, 1952, that is when the interest was paid last.

4. The chief argument of Mr. S. Ramachandra Iyer for the petitioner is that Section 13 of the Act unlike Sections 8 and 9 speaks of 'interest due on any debt'. Whereas in Section 8 what is stated is that debts incurred before 1st October, 1932, shall be scaled, down in the manner mentioned there and Section 9 lays down the mode of scaling down of the debts incurred on or after 1st October, 1932. According to the learned Counsel, the distinction is that when the parties come to Court requesting for scaling down of debts, either incurred before 1st October, 1932 or after 1st October, 1932, the provisions of Section 8 or 9 respectively may be applied; but with regard to any debt incurred after the commencement of the Act, when a party comes before Court and seeks enforcement of the contract, whatever has been paid as interest should be considered as having been appropriated as a result of settlement and therefore, even if a higher rate of interest has been paid, such payment would not come within the mischief of the section. In other words what is argued is interest due must be read as interest 'outstanding and not paid'. Where therefore, there has been an appropriation of interest at a higher rate than what is laid down in Section 13, it should be deemed as if there is no interest due when remedy is sought for in a Court of law, and that there can be no reopening of settled transactions. Learned Counsel relies upon the observations contained in Ramalakshmi v. Gopalakrishna Rao (1944) 2 M.L.J. 285, where it was held that in the case of a promissory note executed after the commencement of Act IV of 1938, carrying interest at 12 and 3/8 per cent, higher than what is laid down in Section 13, and where there were series of payments of interest expressly appropriated by endorsements in a suit for the principal together with interest at the contract rate where the debtor claimed relief under Section 13 of the Act, that payments having been made and appropriated towards interest at the contract rate under a mistake of law, cannot be got back and re appropriated towards principal, so as to make the whole of the accrued interest amenable to the process contemplated under Section 13. Wadsworth, J., who delivered judgment referred to the observations of the same Bench in C.M.A. 387 of 1942, following Sharp Brothers and Knight v. Chant (1917) 1 K.B. 771. The underlying principle on which the learned Judge held that payments once made cannot be reopened was based upon a mistake of law, as it is well established that a payment under a mistake of law cannot ordinarily be recovered through Courts.

5. Their Lordships of the Privy Council in Shiba Prasad Singh v. Srish Chandra , had to consider the effect of payments alleged to have been made under a mistake of law for the application of Sections 21 and 72 of the Indian Contract Act and in the judgment of Lord Reid, we find the principle stated which can be applied to the present case. In that case what happened was that in a mining lease the lessee was bound to pay royalties at a certain rate upto a particular period, and later on at a reduced rate, but even after the expiry of the date upto which the higher rate had to be paid, the lessee continued to pay at the higher rate, and so over paid the lessor. The question arose as to whether the lessee was entitled to set off the over payment against the royalties, which subsequently became due. Their Lordships thought it was clear that there was no intention to make a present to the lessor the money, which was really not due, and the money was paid under a mistaken belief that it was legally due. In such circumstances, the lessee was entitled to set off the amount of the over payment against the future royalties. At page 302 the following observations are seen:

Payment by mistake in Section 72 must refer to a payment which was not legally due and which could not have been enforced; the 'mistake' is thinking that the money paid was due when in fact it was not due. There is nothing inconsistent in enacting on the one hand that if parties enter into a contract under mistake in law that contract must stand and is enforceable, but on the other hand that if one party acting under mistakes of law pays to another party money which is not due by contract or otherwise, that money must be repaid.

It is clear that in the present case, the payment of interest were paid under the mistaken belief that in law, the plaintiff is entitled to the higher rate of interest, and we are of opinion that it would not have been the intention of the defendant to make a present of the larger sum of money to the plaintiff. Under these circumstances, the foundation on which Ramalakshmi v. Gopalakrishna Rao (1944) 2 M.L.J. 285, is rested is somewhat shaky. It is not a universal principle of law that money paid under a mistake of law cannot be recovered. Where a statute provides and regulates payments in a particular manner, and to a particular extent a person paying amounts in excess of that should be considered not to have done it willingly or voluntarily and with the object of making a present, but he must be deemed to have acted in ignorance of the law, and therefore, should be entitled to get back the amount.

6. The more recent trend of authority in this Court is against the contention put forward by the petitioner's learned Counsel. In Mallikarjuna Rao v. Tripura Saundary : AIR1953Mad975 , the decision of the learned Chief Justice was on the same footing. What happened there was that a promissory note executed prior to the commencement of Act IV of 1938 was renewed subsequent to the Act for the full amount due under the earlier note, without taking into account the statutory reduction of the liability, and when a suit was brought to enforce the promissory note and realise the money, the contention put forward was that to that extent, to which the excess money net legally due was made the subject of consideration, the promissory note was not supported by proper consideration. The learned Chief Justice held that the plaintiff in such a case cannot recover anything more than what would be found due and properly payable under the prior note, after applying Act IV of 1938. In coming to his conclusion an earlier decision of Patanjali Sastri and Shahabuddin, JJ., in A.S. No. 290 of 1944 was referred to and followed. An argument that there was no hing in law which would render invalid a promise to pay a larger sum of money on receipt of a smaller amount was repelled. It is now definitely settled that Section 13 applies to debts incurred after the commencement of the Act. See Thiruvmgadatha Aiyangar v. Sannappan Servai : AIR1941Mad799(2) , whether such transaction be in discharge of prior debts or not Also Pulimati Krishnamurthy v. Baggavarapu Narayana (1944) 2 M.L.J. 298. A Bench to which one of us was a party in Rajah Venkatarama Rao v. Seshayya (1953) 2 M.L.J. 520, took the view that under the Madras Agriculturists' Relief Act, a creditor is not entitled to retain payments made after 1st October, 1937, towards interest in excess, of the interest payable under the provisions of the Act without adjusting that towards the principal. Though that related to a transaction to which Section 9 applied, still we see no reason to depart from the principle laid down there. In Veeraraju v. Balakoteswara Rao (1951) 1 M.L.J. 42 : I.L.R. (1951) Mad. 645 , a Full Bench held that a creditor is not entitled to retain payments made after 1st October, 1937, towards interest in excess of the rate payable under the provisions of the Act without adjusting that towards the principal. That decision was followed by the Bench to which one of us was a party. A later Full Bench in Suryanarayana v. Venkataramana Rao (1953) 1 M.L.J. 267, was distinguished on the ground that there has been a settlement of accounts, and a fresh document executed by the debtor, which necessarily had the effect of discharging the interest on the one hand and appropriating payment on the other, in which case Explanation 1 to Section 8 applied. In a more recent case in Dhanakotia Pillai v. Narayana Iyer (1955) 2 M.L.J. 579, Krishnaswami Nayudu, J., followed the judgment of the learned Chief justice in Mallikarjuna Rao v. Tripura Saundary : AIR1953Mad975 , and held that where a promissory note was executed after the commencement of Madras Agriculturists' Relief Act in renewal of an earlier note, which was liable to be scaled down under the Act the valid consideration for the latter note would only be such of the amount as would be properly collected by the application of the Act. Therefore any excess amount which formed the consideration for the subsequent promissory note should be deemed to be not a valid consideration.

7. Mr. Ramachandra Iyer contends that in all the cases referred to above, the earliest transaction was one antecedent to the coming into operation of Act IV of 1938, and therefore not strictly ad idem to the present case, where the transaction took place only after the commencement of Act IV of 1938. We do not think that any such distinction can be made. He also invited our attention to the distinction that exists in the phraseology of Sections 8 and 9 on the one side and Section 13 on the o her and invited us to hold that interest due in Section 13 must be understood as interest, outstanding. In our opinion, the expression 'interest due' must be under stood as 'legally due' or payable. The word 'due' has various connotations, but nowhere is it understood as implying anything o her than having a legal justification. For example the expression due process of law has always been understood as connoting something above a mere statute law. So when the legislature used the words 'interest due', we have to take it that what was contemplated was the amount which the creditor can obtain by resort to due legal process, and not what he could obtain by illegal methods or under a mistaken notion.

8. Mr. Ramachandra Iyer then posed the question that if the debtor had paid off the entire principal with interest at the contract rate, which is much more than the statutory one under Section 13 would it be open to the debtor to have recourse to legal proceedings for the recovery of the excess interest paid by him when once the transaction is closed and nothing remained on the promissory note. Reference was also made to the provisions of the Usurious Loans Act, with regard to the reopening of transactions, But we have to bear in mind that such considerations are beside the point, because Section 13 applies only to proceedings for the recovery of a debt, and when a person has overpaid his creditor, at the time the transaction is closed, it is not open to the creditor to take any proceedings for the recovery of a debt, and a suit by the debtor for refund of the excess amount paid would nut be a proceeding for the recovery of the debt as contemplated under the Act. Such being the case, it may be probably impossible for a debtor to get back the amount, which he has already paid.

9. Our attention was also invited to a recent decision of Rajagopala Ayyangar, J., in Kondayya Chetty v. Sivasankara Naicker (1955) 2 M.L.J. 577. But we do not think that the observations of the learned Judge are in any way helpful for the discussion in the present case.

10. It seems to us, therefore, that the lower Court was right in holding that the plaintiff was entitled to interest only at the statutory rate. The Civil Revision Petition is, therefore, dismissed with costs.

11. S.A. No. 2465 of 1952.

12. The learned District Judge was of the opinion that because there is no provision in Section 13 similar to the proviso to Section 9(1) of the Act, it is not possible for the debtor to ask a Court to go behind the promissory note of 1948, and take the earlier promissory note as the starting point. For the reasons given by us in the judgment already delivered in the Civil Revision Petition, the starting point should be the promissory note of 13th March, 1946, and the interest payable should be at the rate of 5J per cent, and any excess payment should go towards the discharge of the principal, with the result that to that extent there would be no consideration for the promissory note of and April, 1948. Vide the decisions in Mallikarjuna Rao v. Tripura Sundari : AIR1953Mad975 , and Dhanakotia Pillai v. Narayana Iyer (1955) 2 M.L.J. 569. The decree of the lower appellate Court is therefore correct and the Second Appeal is dismissed in view of the fact that defendants 1 and 2 have not preferred the memo, of cross-objections.


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