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V. Narayanaswami Vs. Sri Mohan Prasad Singh Deo Zamindar of Bodogode Estate, Ganjam District - Court Judgment

LegalCrystal Citation
SubjectLimitation;Commercial
CourtChennai High Court
Decided On
Case NumberO.S. Appeal No. 165 of 1953 and memo of objections
Judge
Reported inAIR1959Mad82
ActsLimitation Act, 1908 - Schedule - Articles 74, 80 and 116; Code of Civil Procedure (CPC), 1908 - Sections 35
AppellantV. Narayanaswami
RespondentSri Mohan Prasad Singh Deo Zamindar of Bodogode Estate, Ganjam District
Appellant AdvocateP.S. Ramaswami Iyengar, Adv.
Respondent AdvocateB.V. Ramanarasu and ;M.L. Nayak, Advs.
DispositionAppeal allowed
Cases ReferredBanking Co. v. Yates
Excerpt:
.....default of the last instalment was within time with regard to the entire claim, and that the subject-matter of the appeal which represents only a portion of the interest due is well within time as the claim for the recovery of the principal itself was not barred. we also agree with him that so far as the instalments of the principal amounts are concerned, which are provided for in clause (b), article 74 read with article 116 would apply and that the suit claim in respect of all except the last instalment is clearly barred by limitation. the doctrine that interest is an accessory which falls to the ground with the principal does not apply to a case like this because the payment of interest commission and other banking charges due from the guaranteed party is as much guaranteed as payment..........which are provided for in clause (b), article 74 read with article 116 would apply and that the suit claim in respect of all except the last instalment is clearly barred by limitation.6. learned counsel for the appellant further contended that art. 80 would be the appropriate article in this case, and that under the terms of the bond time will begin to run only from the dare when the last instalment became due. we see nothing in the terms of the bond to warrant this contention. art. 80 is in the nature of a residuary article, and in view of our finding that article 74 would apply there is no case for the application of article 80- even if this article were to apply the third column therein shows that the starting point of time is 'when the bond becomes payable' and the bond having.....
Judgment:

Ramachandra Iyer, J.

1. This appeal arises out of the decree and judgment in C. S. No. 14 of 1950, on the original side of this court. The plaintiff is the appellant. He instituted the suit under the Summary Chapter against the respondent for the recovery of a sum of Rs. 35,350 on the foot of a registered bond, Ex. P. 1 dated 3-3-1937, executed by the respondent and his father. The debt remained undischarged to any extent till the date of the suit. The respondent was granted on his application leave to defend, on condition that he deposited a sum of Rs. 3617 in court.

This was done by the respondent. In the trial the only plea that was raised was that the action was barred by limitation inasmuch as the bond was one which stipulated for the repayment of the debt in seven annual instalments commencing from 1-1-J938, and that under Art. 74 of the Limitation Act only the claim in respect of the last instalment of Rs. 2000 which fell due on 1-1-1944 was in time. Ramaswami Gounder J., who tried the suit upheld this plea and held that on a reading of the bond, particularly, Clause (b) it was clear that the time to sue for the instalments had started to run when there was a default in the first instant when they became due.

In this view the learned Judge passed a decree for the last instalment together with interest thereon at the rate stipulated in the bond. It is against this decree that the present appeal is preferred. The appellant has however confined his claim only to a sum of Rs. 4176 being the interest which had accrued within six. years of the suit on the instalments of the principal amount the payment of interest being, it is said, based on an independent contract between the parties. In the alternative interest on the last instalment from the date of the bond, viz., Rs. 1430-9-0 is claimed. It may be necessary at this stage to set out the terms of the bond so far as may. he relevant to this appeal.

Ex. P. 1; (a) The executants hold themselves jointly and severally liable for and agree to pay the claimant his heirs, successors or assigns the sum of Rs. 20,000, with interest at 6 per cent per annum from this date personally and from all their properties as per the instalments specified here-under;

(b) The executants shall pay the claimant or his authorised agent the sum of Rs. 3,000, as the first instalment of the principal amount of this bond on or before 1-1-1938 and the balance in annual instalments of Rs. 3,000 on or before the 1-1-1939, 1940, 1941, 1942, 1943, and a last instalment of Rs. 2000 on or before 1-1-1944.

(c) The executants shall pay the claimant on the 1st January of each year commencing with 1-1-1938 the amount of interest due under the bond along with the instalment or instalments of principal due on such date, and on failure of such payment of interest on the due date the same shall be capitalised every year and carry interest at the same rate of 6 per cent., per annum and any unpaid instalment or instalments of principal shall also continue to carry interest at the same rate of six per cent, per annum till payment.

(d) The executants shall have the rights, if they choose to do so, to pay more than Its. 3000 towards any annual instalment of principal and the claimant shall be bound to accept the same provided that all interest due by such date of payment is first paid up and the amount of principal in excess of Rs. 3000 is in multiples of Rs. 500. The executants shall also have the right to pay up at any time during the continuance of this bond, other than the stipulated dates for instalment payments, any sum in multiples of Rs. 500 towards the principal amount of this bond provided all instalments of principal and interest previously due are paid up;

(e) The claimant is not bound to accept annual instalments of less than Rs. 3000 but may if he chooses accept such smaller sums;

(f) In case the executants fail to pay any instalment or instalments of principal or the interest due on the due dates the claimant shall have the option to enforce payment of the same through court but shall not be bound to do so and may, at his option, wait till all instalments are due and such further time therefore as may be allowable under the law of limitation.'

2. The defendant pleaded that the bond was one under which the sum secured was payable in seven instalments commencing from 1-1-1938 and that the suit was barred in respect of all except the last instalment of Rs. 2000. The learned Judge accepted the contention of the defendant and held that Art. 74 of the Indian Limitation Act applied to the claim and that Clause (f) cannot confer a right to sue for recovery of the money when once the time to recover the instalments has started to run under the provisions of Clause (b). He, therefore, held that the plaintiff's claim failed substantially and passed a decree for the last instalment together with interest thereon at the stipulated rate. Having regard to the fact that the bond was not clear in regard to the rights of the parties he directed the defendant to pay the plaintiff the entire costs of the suit.

3. The plaintiff has filed the appeal questioning the correctness of the judgment upholding the plea of limitation but he has restricted the relief to which he would be entitled to a sum of Rs. 4176 representing interest which bad accrued within 6 years of the suit on the instalments of principal on the ground that there is an independent contract to pay interest. Alternatively he has claimed that interest on the last instalment should be decreed from the date of the bond which according to him came to Rs. 1430-9-0.

4. The respondent has filed a memorandum of cross-objections questioning the propriety of the award of full costs of the suit to the appellant.

5. Mr. T.N.C. Srinivasavaradachariar, the learned counsel for the appellant, has contended that on a fair reading of Ex. P. 1 it cannot be construed to be an instalment bond within the meaning of Art. 74 of the Limitation Act and that Art. 75 cannot also apply. He contended that under Clause (f) of the bond set out above the entire principal became due on the default of all the instalments and that the suit which was filed within six years of the default of the last instalment was within time with regard to the entire claim, and that the subject-matter of the appeal which represents only a portion of the interest due is well within time as the claim for the recovery of the principal itself was not barred.

According to him the provision of Clause (b) of the bond which entitles the debtor to pay the debt in seven instalments is only a privilege, granted to him, but the debt is repayable only at the end of the period fixed for the instalments. It is clear on a reading of Clause (b) that so far as the principal amount of Rs. 20,000 is concerned it is not repayable as such in one lump but is repayable only in six annual instalments of Rs. 3000 each, commencing from 1-1-1938, and the balance of Rs. 2000 on or before 1-1-1944. There is no provision either in Clause (b) or (f) or anywhere in the rest of the document which makes the entire debt of Rs. 20,000 repayable as a whole in default of payment of one or more of the instalments.

Clause (f) confers the right on the creditor to recover only the unpaid instalments as such and not the entire debt with its integrity unaffected. Hamaswami Gounder J., held that Clause (f) gave only an option to the creditor not to sue for the recovery of the instalments as and when each of the instalments fell due and enabled him to wait till all the instalments had become due and then sue for all of them, and that such a provision in Clause (f) being in the nature of an extension of the period of limitation 'ex contractu' cannot, therefore, be given effect to. We agree with the learned Judge in this construction of Clause (f) as one which only reiterates the plaintiff's right to sue for the instalments as such. We also agree with him that so far as the instalments of the principal amounts are concerned, which are provided for in Clause (b), Article 74 read with Article 116 would apply and that the suit claim in respect of all except the last instalment is clearly barred by limitation.

6. Learned counsel for the appellant further contended that Art. 80 would be the appropriate article in this case, and that under the terms of the bond time will begin to run only from the dare when the last instalment became due. We see nothing in the terms of the bond to warrant this contention. Art. 80 is in the nature of a residuary article, and in view of our finding that Article 74 would apply there is no case for the application of Article 80- Even if this article were to apply the third column therein shows that the starting point of time is 'when the bond becomes payable' and the bond having become payable in respect of each of the instalments as and when the instalment fell due as per Clause (b), Article 80 would be of no avail to the appellant.

7. It was next contended that under Clause (c) of the bond, the plaintiff has got an independent cause of action in respect of interest payable on the debt and that the appellant would be entitled to the interest accrued on the unpaid instalments within six years of the suit. According to him Clause (c) constitutes an independent contract in respect of the interest payable on the debt and a suit could validly be maintained in respect of the interest on the instalments. Even if this construction of Clause (c) is to be accepted it does not necessarily follow that interest is not accessory to the principal. The general principle is that interest is accessory to and follows the principal and cannot be recovered apart from the principal.

If the claim in regard to the principal is barred the claim in regard to interest would equally be barred. Holloway, J., in Valia Thamburatti v. Virarayan, ILR 1 Mad 228 cites the following passage from Savigny at page 231:

'When a principal demand is lost by prescription actions for all sums of interest in arrears are barred with the principal even when these would primarily arise at a very recent time. The ground of this apparent anomaly is to be found in the accessory nature of these liabilities which would render the pursuit of them after the loss of the main action a contradiction in terms.'

An exception to this rule, is however, recognised in cases where there is a separate covenant to pay interest. Reliance was placed by the learned counsel for the appellant on a decision of the Privy Council reported in Cheang Thye Phin v. Lam Kin Sang, 1929 AC 670: AIR 1929 PC 240. That was an action for administration against a surviving executor by the personal representatives of the testator. Accounts were claimed on the basis that in regard to income from certain items to which the testator was entitled there was intestacy and that the executor was liable as a trustee.

It was found that claims prior to 12 years before the action were barred by limitation. So far as is relevant in the present context there were two items of claim: (1) in regard to an advance by the trustee to himself and (2) in regard to advances made by the trustee to some third party. Both the advances were made more than 12 years before the suit and the account sought was in respect of interest. In regard to the first item of claim, their Lordships of the Privy Council held that there was no question of accountability as trustee, the only relationship being that of a debtor and a creditor. The claim for interest when the claim for principal was barred was rejected. Lord Warrington of Clyffe observed at page 677 (of AC): (at p. 242 of AIR) as follows:

'It seems to their Lordships to follow that there being no independent contract to pay interest, the interest is a mere accessory of the principal and if the principal is irrecoverable so is the interest on it.'

As regards the second item mentioned above i. e., a claim for interest in respect of an investment fey the trustee it was observed:

'It does not follow, however, that in this case the interest on the sum in question should also be excluded. The interest is represented by the surcharge ..... This sum was due not from the trustee himself, but from the person to whom it had been advanced by the trustee and it would appear from the evidence .......... that there was a special contract to pay interest at a specified rate. This being the case, the principle that where interest is a mere accessory to the principal and a claim to the latter is barred by statute the interest thereon cannot be recovered, does not apply. The trustee might have received the interest as it became due and each such receipt after 30-3-1908, would have come into the present account. The account is to be on the footing of wilful default.'

8. It is true that the latter observations were concerned with the liability of a trustee for wilful default, but the decision is of value in recognising the distinction between a case where the claim for interest is purely accessory to the claim for principal and a case where the claim for interest is severable therefrom and could form the subject-matter of an action, notwithstanding the fact that the claim for principal was barred. The decision reported in Elder v. Northcott, (1930) 2 Ch 422, was next relied on.

That was a case where the plaintiff's claim was on the basis of a loan repayable with interest. The recovery of the loan was barred by the provisions of this Limitation Act, but it was contended for the plaintiff that although the principal became irrecoverable such instalments of interest as had accrued within six years of the suit could be recovered. Clauson J., held that the principal sum having become barred by the statute the interest so claimed was, being only accessory to the principal, barred with it.' At page 428 the learned Judge said:

'Perhaps in cases where there is an express contract to pay interest independently of principal there might be ground for such an argument but in ordinary cases interest has always been deemed a mere accessory of the loan and when the demand for the principal is barred the accessory falls along with it. HolIis v. Palmer, 2 Bing NC 7I3 : 5 LT CP 264. That sentence gives rise, of course, to this difficulty that it would seem to suggest that in some cases, at all events where there is an express contract to pay interest independently of the principal the interest and the principal can be treated as being wholly different matters and the barring of the principal might be treated as not barring the claim to the interest. It may be, I do not say that it is, that the Chief Justice had in mind such a case as that where there is a covenant to pay the principal and a separate covenant to pay interest. That is not the present case.'

If the interest covenanted to be paid under Clause (c) is only the interest on the instalments, we would be inclined to agree with Mr. M.L. Nayak, who appeared for the respondent, that there is no independent contract to pay interest and that the rule in 2 Bing NC 713, cannot apply and that the claim for interest would he barred by reason of the principal getting barred. In view, however, of our construction of Clause (c) of Ex. P. 1, it is unnecessary to pursue this point.

9. Under Clause (a) of Ex. P. 1, the advance of Rs. 20,000 is acknowledged and that sum is made payable with interest thereon at 6 per cent, per annum in the manner set out in the subsequent clauses, viz., (b) and (c). Under Clause (b) the integrity of the original debt is broken and provision is made for the repayment of the debt in instalments each of the instalments constituting as it were a separate item of this principal of the debt. Under Clause (c) read with Clause (a) the interest covenanted to be paid is on the sum of Rs. 20,000, advanced or on such portion thereof as may be outstanding and not on each of the various instalments into which the original debt was transformed.

This is so notwithstanding the fact that the dates of payments of the instalments of principal are identical with the dates of payment of interest, In other words the interest payable under Clause (c) is with reference to the entire original advance and not with reference to the 'debts' covered by the instalments. In the circumstances ft can never be said that the interest payable would be accessory to each of the instalments of principal as it arises out of a 'different' debt, i.e., the original debt and can be accessory only to it and not to the various instalments. We have already held that under the terms of Ex. P. 1, the original principal is not made payable as such but only in its disintegrated form.

The covenant to pay interest on the original debt can only be an independent contract, in dependant of the covenant to pay the instalments. A separate cause of action therefore lies in respect of the interest. It may be appropriate in this connection to refer to the decision of the Court of Appeal reported in Parr's Banking Co. v. Yates, (1898) 2 QB 460. The plaintiff a banking concern made advances to its customer on overdraft account and at the end of each year the plaintiff debited him with interest for the half year. The guarantor who was the defendant in the action had given a continuing guarantee which stated that me guarantee was in regard to due payment and satisfaction of the moneys and liabilities ..... that may have been or incurred in account with the guaranteed party ..... with interest, commission and other banking charges.

The claim in regard to the principal was barred by limitation and in regard to interest A.L. Smith L.J. observed at page 465 thus:

'The doctrine that interest is an accessory which falls to the ground with the principal does not apply to a case like this because the payment of interest commission and other banking charges due from the guaranteed party is as much guaranteed as payment of the sums advanced themselves.'

The learned Judges held that with regard to the claim for interest and other charges due from the party guaranteed they were intended to be guaranteed on the same footing as the advances made to him and that 'with interest' does not mean that the interest is only guaranteed as accessory to the guarantee of the principal and in that view upheld the claim of the plaintiff for interest. In the present case the covenants were distinct though embodied, in the same document.

There is and can be no question of limitation if the promise to pay interest is an independent contract as the agreement contemplated its payment on the date of the 7th instalment of principal which is well within six years of suit. In this view the appellant would be legally entitled to recover interest on the principal sum of Rs. 20,000 for six years before suit. The present claim in appeal being far less than that to which the appellant would be entitled under law, there will be a decree for Rs. 4176 with interest thereon at the rate of six per cent., per annum from the date of the plaint, in addition to what was decreed by the trial Judge. The appeal is allowed and the appellant would be entitled to the costs of the appeal from the respondent.

10. The memorandum of cross-objections is directed against that portion of the decree awarding full costs of the suit to the appellant. In doing this the learned Judge was influenced by the fact that the plaintiff could not have been clear about his rights under Ex. P, 1, That is undoubtedly so. We have not been shown any reason as to why we should interfere with the discretion exercised by the learned Judge having regard to the fact that even in the appeal the plaintiff is getting less than what ho is entitled to under the law. We decline to interfere with the order as to costs passed by the learned Judge. The memorandum of cross-objections is accordingly dismissed, but there will be no order as to costs therein.


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