Skip to content


V.S.T. Sheik Mansoor Tharaganar and anr. Vs. S.V.S. Sankarapandia Mudaliar - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1958)2MLJ568
AppellantV.S.T. Sheik Mansoor Tharaganar and anr.
RespondentS.V.S. Sankarapandia Mudaliar
Cases ReferredPundarikakshudu v. Venkatakrishna
Excerpt:
.....illegal or even a failure of consideratipn in regard to the new loan. the power to go behind a suit debt and to apply the provisions of the act for the original liability is conferred only to cases under sections 8 and 9. but even in cases coming under section 13 it would be open to the defendant to plead and prove that the debt sued on could not form the basis of an action or that there was a failure of consideration. in a case where the new contract was effective there may be a failure of consideration, e. in those cases, as we have pointed out earlier, there would be no failure of consideration for no portion of the interest had been discharged by section 13, it being open to the debtor (if he so chose) to pay the higher stipulated rate of interest. , held that there was nothing..........after the act came into force. the case urged on behalf of the defendants is that though the suit debt was the result of a settlement of account on 17th august, 1951, it could be traced back to its origin and the interest which augmented the principal at each settlement of account reduced by applying section 13. before considering that contention it is necessary to dispose of another contention advanced on behalf of the defendants. mr. d. ramaswami iyengar on their behalf contended that notwithstanding the periodical settlements, the identity of the original debt continued to remain as the liability has always been what he styled as a 'pass book liability ', being the amount due on a single account composed of advances and interest at the contract rate, and that portion of such.....
Judgment:

P.V. Rajamannar, C.J.

1. There can be no doubt that there are two decisions of two Division Benches of this Court taking different views on the main question which arises in this appeal. The two decisions are Ramalakshmi v. Gopalakrishna Rao (1944) 2 M.L.J. 285, and Srinivasa Rao v. Abdul Rahim Sahib : AIR1956Mad618 . The learned Judges, in the latter case, were inclined to the view that the decision in the earlier case was considerably shaken by Certain observations in a subsequent Privy Council case. Even if that be so, the proper course would be to refer the question for decision by a Full Bench, and this is referred accordingly.

2. The Appeal then came on for hearing in pursuance of the above order of refe rence before the Full Bench {Rajamannar G.J., Ramachandra Iyer and Ganapatia Ptllai, JJ.)

3. The Judgment of the Court was delivered by

Ramachandra Iyer, J.

4. This appeal which is directed against the decree in O.S. No. 154 of 1951 on the file of the Sub-Court, Tirunelveli, raises a question under Section 13 of the Madras Agiculturists Relief Act (IV of 1938). The defendants in the suit which was laid for recovery of Rs. 20,000 are the appellants. On 2nd Decem-ber, 1943, they as borrowers began certain monetary dealings with the plaintiffs. On that day a sum of Rs. 7,000 was advanced to the former, who agreed to repay the same with interest at 10J per cent, per annum. That transaction and those that followed were entered in Exhibit A-i styled as a pass book, in some respect similar to a banker's pass book. The terms of the initial advance were entered in the book in the form of a promissory note for the amount lent, and the signature of the defendants were taken on proper revenue stamps. Subsequent advances and payments were entered in the book and at the endof each year of account (the end of the month of Adi according to the tamil calendar) interest at the contract rate was debited against the borrower; There were periodical settlements of accounts though not at regular intervals, at which the amount due to the creditor was ascertained, and an acknowledgment as to the correctness of the amount and a promise to pay it with future interest then stipulated, were recorded in Exhibit A-1, the defendants signing the same in token of their assent. The fresh agreements entered into on each settlement of account were in the form of promissory notes and stamped as such. The last of such settlements was on 17th August, 1951, wherein the defendants agreed to pay the plaintiff or his order the sum of Rs. 19,513-13-3 with interest thereon at 12 per cent. That formed the basis of the suit which was filed about 3 months thereafter. The defendants claimed that they were agriculturists entitled to the benefit of the Madras Act IV of 1938 (which will hereafter be referred to as the Act), that the settlements of accounts would not bind them and should be reopened and that they would not be liable to pay anything more than the principal amount actually advanced less payments, together with interest at 5 per cent, per annum. The learned Subordinate Judge held that the defendants were entitled to the benefits of the Act but were. bound by the various settlements of accounts. On that finding he passed a decree against the defendants for the sum claimed with interest thereon at 12 per cent, from the date of plaint. In the present appeal the defendants contest the propriety of the judgment and decree of the lower Court.

5. On the evidence on record it cannot be disputed that the defendants would be entitled to the benefits of the Act. The contract between the parties from the beginning stipulates interest at rates higher than what could be recovered under the Act, and at every settlement of account such interest has been added to the outstanding principal, amounting in effect to compound interest. The transactions between the parties commmenced after the Act came into force. The case urged on behalf of the defendants is that though the suit debt was the result of a settlement of account on 17th August, 1951, it could be traced back to its origin and the interest which augmented the principal at each settlement of account reduced by applying Section 13. Before considering that contention it is necessary to dispose of another contention advanced on behalf of the defendants. Mr. D. Ramaswami Iyengar on their behalf contended that notwithstanding the periodical settlements, the identity of the original debt continued to remain as the liability has always been what he styled as a 'pass book liability ', being the amount due on a single account composed of advances and interest at the contract rate, and that portion of such liability which represented the accrued interest could be scaled down under Section 13. But having regard to the various settlements of accounts and the promissory notesexecuted at each settlement there is no justification in the circumstances of this case to hold that the original debt has remained intact. The terms of the successive agreements or promissory nates have not been the same ; for instance the rate of interest originally agreed upon was 10 per cent, per annum. At the time when the settlement was made on 8th September, 1948, it was increased to 12 per cent. The promissory note executed on each settlement would be inconsistent with the debt having been single, although it can be said that the later promissory notes were renewals of the earlier ones.

6. The question then is whether in the case of a debt incurred after the Act, which was later renewed or included in a fresh contract between the parties it would be open, in isuit based on the later contract or debt to go behind it and scale down the original debt by applying the provisions of Section 13 of the Act and ascertain what should be the real principal of the suit debt. Section 13 so far as it is relevant for the present purpose says:

In any proceeding for recovery of a debt the Court shall scale down all interest due on any debt incurred by an agriculturist after the commencement of the Act, so as not to exceed a sum catculated at 6J per cent, per annum....

7. The rate of 6 1/4 per cent, per annum which was originally permitted was altered into 5I per cent, by a notification of the State Government published on 29th July, 1947 made under the powers granted to them under the proviso to the section. The learned advocate for the appellants contends that as Section 13 provides for the scaling down the interest on 'any debt incurred after the commencement of the Act', the original debt and all the renewals thereof could be scaled down in accordance with the Act and the amount payable ascertained. It is claimed that this construction of the section would have the merit of giving effect to the intention of the Legislature which enacted the law to protect the agriculturist against his own contract. We cannot agree with the contention. The terms of the section would be the best exponent of the intention of the Legislature and it is only when there is a difficulty in ascertaining their meaning that other circumstances could be taken into consideration to aid proper construction. The words 'any debt' though wide enough to include, debts already incurred, should in the context be taken to refer only to a subsisting debt. Where an old liability is merged or renewed by a fresh contract, the old debt is extinguished and could no longer be termed a debt unless the later debt has under the law been allowed to be ignored and the transaction reopened. The Legislature when it intends that particular debts should be traced back to their origin, provides for such reopening of debts specifically. (Vide Sections 8 and 9). In Pundarikakshudu v. Venkatakrishnha (1957) 1 An. W.R. 47 : A.I.R. 1957 Andh. Pra. 204, Subba Rao, C.J., (as he then was) who delivered the judgment of the Court observed:

For one thing in the case of a debt incurred after the commencement of the Act, Section 13 does not in express terms provide for tracing back a debt to its originFor the other, the use of the word any instead of the definite article ' the ', qualifying the word ' debt ' became necessary as the word ' debt' jn the opening line of the section is used in general terms without being limited to a debt incurred after the Act.

8. We agree with the above view of the learned Judges of the Andhra High Court.

9. The matter which then would arise for consideration would be as to how far an agriculturist debtor who voluntarily agrees to pay interest at a rate higher than that prescribed by the Act, would be entitled to be relieved against his own agreement. The Act does not render the payment of or a contract to pay interest on a debt at a rate higher than that prescribed for each of the various categories, illegal. Nor is there any question of public policy involved when a higher rate of interest on a loan is agreed to by an agriculturist. Under the provisions of the Act relief to agriculturist debtors was granted by the Act itself discharging the whole or a portion of the interest on debts incurred prior to the Act. Section 8 discharged all outstanding interest on a debt incurred prior to 1st October, 1932, while in regard to debts incurred after that date but before the Act, Section 9 discharged that portion of the interest which was above simple interest at 5 per cent, per annum. Future interest on those debts were regulated by Section 12. Section 13 dealt with debts incurred after the Act. Under that section there is no provision for any statutory or automatic discharge of interest stipulated at a rate higher than that prescribed therein such excess interest was only made irrecoverable if the creditor sought to enforce the debt in a Court of law. There being thus neither a prohibition against a stipulation for payment nor an automatic discharge of higher rates of interest agreed to be paid by an agriculturist debtor, it cannot be said that when a creditor with the assent of his debtor added to the principal loan the interest accrued in terms of the contract, and the debtor entered into a fresh contract treating the consolidated amount as principal for the fresh loan, there would be anything illegal or even a failure of consideratipn in regard to the new loan. Such a new loan would constitute a debt incurred on the date of renewal and if a suit is barred on that debt, the provisions of Section 13 could be attracted to that debt alone and not to the earlier debts of which it was a renewal or substitution. Under the ordinary law where parties enter into a new contract in substitution of an earlier one, the later contract alone would govern the rights of the parties. The Court would itself have no power to go behind that contract except in cases where the later contract fails for some reason known to law or where a statute gives an express power to reopen the same. A familiar example of statute authorising the reopening of the contract is provided by Section 3 of the Usurious Loans Act. Sections 8 and 9 of Act IV of 1938 confer jurisdiction on Courts to reopen a transaction in cases of renewals of debts incurred prior to the Act. But Section 13 confers no such power andprima facie the scaling down of interest contemplated by it could only be in relation to the debt sued on. In Thiruvengadatha Iyengar v. Sannappan Served : AIR1941Mad799(2) , it was held that the principle of renewal adopted by the Legislature in the scaling down operations under Sections 8 and 9 of the Act would not apply to the case debts incurred after the Act which would be governed by Section 13. That view was reiterated in Krishnamurthi v. Narayana (1944) 2 M.L.J. 298, where it was held that there was nothing in sect ion 13 which imported the Explanation to Section 8 and allowed the Court to go behind the contract. In that case the suit promissory note and the two earlier notes of which the suit note was a renewal were executed after the Act. Wadsworth, J., held that the scaling down of the interest under Section 13 would apply only to the suit note and not the earlier ones.

10. But apart from the question of renewal, there may be cases where the debtor would be entitled under the general law to go behind the suit transaction, in which case the earlier liability Will be scaled down in accordance with the Act. This is not by reason of any power or jurisdiction to go behind a contract but on account of the suit contract being or becoming unenforceable, the parties being relegated to the earlier contract in that contingency. In Suryanarayana v. Alavendra Rao : (1945)2MLJ565 , the suit was laid on the basis of a promissory note executed after the Act but which was a renewal of a debt incurred prior to the Act. Wadsworth and Patanjali Sastri, JJ., held though Section 13 would not enable the debtor to treat the suit debt as a renewal of the earlier one, it would be open to the debtor to show that the suit claim was not intended to create a liability by its own force but was a mere voucher for an earlier debt, that he could also prove that the suit contract was entered into in circumstances which would render it unenforceable or that there was no consideration in respect of the suit contract. In that case the debt sued on represented the principal and interest of a debt incurred prior to the Act, the interest being partially wiped out by Section 9 of the Act on the date when the Act came into force, that is, prior to the execution of the promissory note sued on. It was held there was no consideration for that portion of the interest which had been wiped out by the Act. In A.S. No. 290 of 1944 a similar question arose for decision.

11. Patanjali Sastri, J., delivering the judgment (unreported) of the Bench observed:

It has been held in Balasubramania v. Venkatarama Chettiar (1934) 67 M.L.J. 650, that a plea that the promissory note sued on is not supported by consideration to the extent of apayment made under the earlier note but taken into account at the time of the execution of the new note in renewal was open to the debtor under Section 44 of the Negotiable Instruments Act. The same principle has been applied in several cases arising under Act IV of 1938, where promissory notes executed prior to the commencement of the Act were renewed subsequent to the Act, for the full amount due under the notes without taking into account the statutory reduction of the liability thereunder. In some cases an agreement or understanding at the time of the execution of the new note whereby the creditor agreed to receive onlyjthe amount due under the earlier note as scaled down and not to claim more was put forward and accepted. In other cases the matter was dealt with on the footing that the new note was not supported by consideration except to the extent of the amount due under the earlier note as scaled down under the Act.

12. The first type of cases referred to by the learned J udge was where the new note was not intended to operate as the foundation of any obligation but as a mere voucher of an antecedent liability or that which was procured by misrepresentation, undue influence, etc., where the suit contract could not form the basis of the action. The observations should not however be understood as laying down that evidence can be let in to prove that there was an agreement or understanding between the parties contrary to or at variance with the terms of the written contract if such a contract was valid as a contract. The second type of cases referred to by the learned Judges is illustrated by the decision reported in Soma Reddy v. Tippa Reddy (1948) M.L.J. 282. In Mallikarjuna v. Tripura Sundari : AIR1953Mad975 , decided by one of us, the suit was based on a debt incurred after the Act. The origin of that debt was a promissory note of the year 1936 prior to the Act the amount of which was renewed by successive documents after the Act. Such renewals included interest at the higher contract rate provided for by the 1936 note ignoring the statutory discharge of the interest effected by Section 9. It was held that the debt sued on was unsupported by consideration to the extent of the interest which stood discharged by the Act.

13. The principle of the decisions referred to above is that in regard to a debt incurred after the Act there is no provision for scaling down the debt by going behind the suit debt on any theory of renewal. The power to go behind a suit debt and to apply the provisions of the Act for the original liability is conferred only to cases under Sections 8 and 9. But even in cases coming under Section 13 it would be open to the defendant to plead and prove that the debt sued on could not form the basis of an action or that there was a failure of consideration. Such a defence is not by virtue of anything in or peculiar to the Act, but one under the general law. If for example the document on which a suit is filed is vitiated by one of the circumstances which would entitled the defendant to avoid a contract and he has so avoided it, or if the document was not intended to be the foundation of any liability, e.g., an acknowledgment or voucher, the antecedent contract would be the one to determine the rights of the parties. In a case where the new contract was effective there may be a failure of consideration, e.g., an amount not due being included in the document. This principle will or can have no application in the case of a debt incurred after the Act and renewed thereafter. In those cases, as we have pointed out earlier, there would be no failure of consideration for no portion of the interest had been discharged by Section 13, it being open to the debtor (if he so chose) to pay the higher stipulated rate of interest. The renewed debt would be fully supported by consideration and there being no power in the Court to go behind it (except in cases where a contract is avoided under the general law) the provisions of Section 13 would apply only to the renewed debt. Dhanakodi Pillai v. Narayana Iyer (1955) 2 M.L.J. 569, is a case where a debt was incurred for the first time in the year 1945 and was renewed in 1948, the later debt being the one sued on, Krishnaswami Nayudu, J., held that there was nothing illegal in an agriculturist debtor agreeing to pay and paying at rates higher than the rate provided under the Act, and that if an agriculturist discharges the debt he could not plead either that the consideration was not valid or it had failed. But the learned Judge felt himself bound by the judgment in Mallikarjuna v. Tripura Sundari : AIR1953Mad975 and applying the principle of that decision to post-Act liabilities, reopened the suit transaction and scaled down the debt with reference to the 1945 loan. We find ourselves unable to agree with several of the observations of the learned Judge. Nor can we accept that the case has been correctly decided. We have already pointed out that the failure of consideration for renewed note is confined to cases where the renewal was after the Actor a debt incurred prior to the Act including in the renewed document the amount that stood discharged by the Act. That principle recognised as it was in A.S. No. 290 of 1944 and in Mallikarjuna v. Tripura Sundari : AIR1953Mad975 , could not apply to a case whei'e the original debt was after the Act and where no question of discharge of interest by the Act and consequent failure of consideration for the renewed note would arise. The same question arose in Pundarikakshudu v. Venkatakrishna (1957) 1 An. W.R. 47 : A.I.R. 1957 Andh. Pra. 204, where both the original and the renewed debts were incurred after the Act. It was held that the Court could not go behind the suit debt and that under Section 13 there was no automatic discharge of any interest so as to justify any theory of failure of consideration. We agree with the view expressed by the learned Judges in that case.

14. The result is that in the present case the defendents would not be entitled to relief by way of reopening the settled accounts and that the last of the settlements on which the suit is based should be deemed to be the debt incurred within Section 13. The interest payable on that contract will alone be scaled down in accordance with that section.

15. There is, however, one small error in the decree of the lower Court. Under the settlement of account, dated 17th August, 1951, the defendants agreed to pay a sum of Rs. 19,513-13-3 with interest thereon at 12 per cent, per annum. In the plaint which was filed on 15th November, 1951, interest was calculated at the contract rate till the date of plaint. This the plaintiff will not be entitled to. Under Section 13 interest at 5 per cent, per annum alone could be awarded. Therefore the decree of the lower Court would be modified accordingly. Subject to this modification the appeal fails and is dismissed with costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //