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The Mylapore Hindu Permanent Fund, Ltd. Vs. Chinniah - Court Judgment

LegalCrystal Citation
SubjectCompany;Civil
CourtChennai
Decided On
Reported inAIR1926Mad785; 95Ind.Cas.610; (1926)50MLJ595
AppellantThe Mylapore Hindu Permanent Fund, Ltd.
RespondentChinniah
Cases ReferredSriniwasa v. Rangayya
Excerpt:
.....interest at the enhanced rate claimed as from the death of her father, the original debtor to the fund. if all that become vested in the legal representative were merely rights and it was not a case of bundle of rights and obligations, no doubt any rule which provides for some necessary condition being satisfied before such rights are regarded as transferred or assigned by operation of law may be deemed as improper. if taking these two penalties together i should be satisfied that they constituted stipulations only by way of reasonable compensation for the default contemplated or committed and not by way of penalty chiefly intended to operate by way of terrorem over the party in order to secure primarily the performance of the original contract, then no question would arise whether the..........still entertain very serious doubts as to the legality of the provisions in this article at any rate with regard to the legal consequences which are said to result by virtue of this article on a person ceasing to be a hindu and embracing another faith. the legal consequences are undoubtedly in the nature of a penalty or forfeiture of benefits. the question is whether any provision that a contracting party should lose all the advantages of a contract on his ceasing to be a hindu and embracing another religion would not be opposed to public policy thereby rendering such a condition absolutely illegal and unenforceable. the learned vakil for the plaintiff fund argued that the whole constitution of the fund was hindu, that the fund admitted only hindus as subscribers and shareholders and.....
Judgment:

Srinivasa Aiyangar, J.

1. Some very interesting questions have been raised in the course of the discussion of this case, but the main question for determination is merely whether the plaintiff Fund is entitled to recover from the defendant interest at the enhanced rate claimed as from the death of her father, the Original debtor to the Fund. This Fund, which is called the Mylapore Hindu Permanent Fund, Limited, is a registered Company governed by its Memorandum and Articles of Association. The chief object of the company on a perusal of the rules and regulations would appear to be to grant loans only to persons who are shareholders of the company or who agree to become and do become shareholders of the company for the purpose of obtaining the loans applied for. ft seems to me that it would be necessary to bear this chief provision in the rules in mind in coming to a decision on the question raised.

2. The first loan made to the defendant's predecessor was, what is called, a special loan, that is, a loan advanced on a promissory note secured by an equitable mortgage effected by the deposit of title deeds of imrnoveable property. In this case there were also subsequent loans made to the defendant's predecessor as ordinary loans. The enhanced interest is claimed in respect of all these transactions.

3. The contention on behalf of the plaintiff with regard to this claim for payment of enhanced interest is this. As the company or the Fund grants loans only to subscribers or, as they are called shareholders, the provisions contained in Article 55 of the Articles of Association relating to this Fund become necessary to be considered. It is as follows: 'Subject to the provisions of Article 58, the death of a shareholder or his adjudication as an insolvent or his change of religion whereby he ceases to be a Hindu shall operate as a withdrawal of his shares from the date of the receipt of information in the Fund of such death, adjudication or change of religion.' I entertained and still entertain very serious doubts as to the legality of the provisions in this article at any rate with regard to the legal consequences which are said to result by virtue of this article on a person ceasing to be a Hindu and embracing another faith. The legal consequences are undoubtedly in the nature of a penalty or forfeiture of benefits. The question is whether any provision that a contracting party should lose all the advantages of a contract on his ceasing to be a Hindu and embracing another religion would not be opposed to Public policy thereby rendering such a condition absolutely illegal and unenforceable. The learned vakil for the plaintiff Fund argued that the whole constitution of the Fund was Hindu, that the Fund admitted only Hindus as subscribers and shareholders and even refused under its articles to make loans to others than Hindus and that, therefore, in these circumstances there was nothing in Article 55 to constitute it a violation of the principles of public policy. I should have had very little hesitation in holding that it would be against public policy, because it seems to me that the general principle of law that no man should be directly or indirectly prevented from giving effect to a conscientious change in his religious convictions is a principle even higher than that of mere freedom of contract so-called. Whatever the sacredness may have been in which the so-called freedom of contract was held at one time, not only by law and legislature but also by political thinkers that prniciple has yielded to a very large extent both in modern theory and practice. Mr. Venkataramana Rao in support of his contention that provisions with regard to forfeiture on change of religion were recognised as valid by law referred to two cases, namely Hodgson v. Halford (1921) 41 MLJ 346, and In Re Dick-son's Trust (2). Both these cases were cases of testamentary bequests which were really in the nature of gifts, and I cannot regard that the principles applicable to a case of testamentary bequest are equally applicable to contracts supported by consideration. The question would also have to be considered, if it should ever arise, whether the provision that on the insolvency of the shareholder he ceases to be a shareholder should not also be regarded as opposed to general principle of law. In this case, however, I have only to do with the death of the subscriber. For this purpose, however, it is not necessary to decide the question how far, if the provision stood alone and without such an article as Article 58, it may be regarded as not opposed to public policy or general principles of law. But Article 58 provides that where a shareholder dies, his legal representative may request the Fund to transfer the shares to such representative and that thereupon the Fund shall transfer the same. The result of this article merely amounts to this. The Fund refuses to regard the legal representative as the assignee or transferee by the operation of law merely of the shares and requires that a request to such effect should be made by the legal representative. If all that become vested in the legal representative were merely rights and it was not a case of bundle of rights and obligations, no doubt any rule which provides for some necessary condition being satisfied before such rights are regarded as transferred or assigned by operation of law may be deemed as improper. But a shareholder has not only rights in the company or against the company but is also under certain obligations of a contractual character. Merely because the shareholder has died, it would not follow that the legal representative, whoever he may be, would be ready and willing to assume also those obligations. I am therefore unable to regard as anything unreasonable the provision in Rule 158 which requires that a request for the transfer of the shares in the name of the legal representative should be made by such representative. In this case it is admitted that no such request was made. By virtue therefore of these two rules it came to pass that the shareholder ceased to be a shareholder and the legal representative did not continue as shareholder in the Fund. Then we come to Article 33 by which it is provided that if the borrower ceases to be a shareholder on the day on which he so ceases to be, the amount of any special loan taken by him became repayable. In the subsequent deeds of mortgage executed by the predecessor of the defendant in respect of the further loans advanced to him as ordinary loans, there is a similar provision made in Clause (6) of the mortgage deed. No dispute or question has been raised on behalf of the defendant with regard to the legal results following on this rule or article. But Article 43 of the Fund provides that both in respect of the amount of all special loans that has fallen due and payable and also in respect of the amount of ordinary loans which has become payable under the articles the interest shall be paid at 2 pies per rupee instead of at 7 per cent, per annum or 6 1/4 per cent, per annum as the case may be. The result of all these provisions read together is that when a shareholder of this Fund dies and when the legal representative does not elect to continue as shareholder, all the loans taken by him from the Fund, whether special or ordinary become repayable at once without any regard whatever to the time that might-have been fixed for repayments and that the amounts of such loans would carry interest from such date at 2 pies per rupee per month. The contention that has been argued is that this provision is penal and that the defendant should be relieved against it. At 2 pies per rupee per month the interest comes to 12 1/2 per cent, per annum, so that the stipulation merely amounts to this that if default be made in the payment of the amount that has become payable interest shall be paid at 12 1/2 per cent, per annum. Even if the provision should be construed to be penal in its character and it should be decided that the plaintiff Fund would be entitled to reasonable compensation only for such default, it is impossible to hold that the rate of interest made payable namely at 12 1/2 per cent, per annum could be regarded as unreasonable. Reference has been made in this connection to the case of Sriniwasa v. Rangayya (1921) 42 MLJ 1, where Sir John Wallis, O.C.J. and Hannay,J. held that 'when the alleged penal rate is a common rate of interest in every day transactions as 12 per cent, is here, we do not think there is any sufficient reason for departing from it.' I take it that what the learned Judges meant to lay down was merely that even if it should be viewed as compensation the Court would be justified in such circumstances to award even by way of compensation a rate of interest which would make the total stipulated rate. But here, however, there is the further complication that by reason of the default made the penalty that followed was not merely the liability to pay this enhanced interest but also the liability to pay off immediately all the loans taken without reference to the periods fixed under the contracts or under the articles. If taking these two penalties together I should be satisfied that they constituted stipulations only by way of reasonable compensation for the default contemplated or committed and not by way of penalty chiefly intended to operate by way of terrorem over the party in order to secure primarily the performance of the original contract, then no question would arise whether the mere fact that the penalty was two-fold would render illegal the contract between the parties. Ordinarily I should have been disposed to hold that a two-fold penalty of such a character was liable to be regarded as penal. But it seems to me that there are special circumstances connected with this institution and the articles of association having regard to which it is not possible to regard this two-fold character of the penalty as really penal in the eye of law. The. whole purport and scope of this institution is to make loan only to subscribers at a comparatively very low rate of interest. If for any reason the borrowers cease to be subscribers a special rate of interest is provided that it is also provided, no doubt, that the amount of the loan shall become immediately payable. This latter provision may be regarded as a reasonable consequence of the entire principle underlying the constitution of this company or Fund, namely, that it is chiefly intended merely for the benefit of persons who are subscribers to the Fund. If that be so and the default happens to be that of a borrower ceasing to be a subscriber then both the penalties may follow or result. If ordinarily, however a borrower makes default in the payment of the money on the due date even then these rules as to the payment of enhanced interest would have operation and then the higher rate of interest would become payable. If that was what happened, it is impossible to regard the provision for payment of enhanced interest as penal, more especially if the total rate of interest provided for and payable under such provision cannot possibly be regarded as exhorbitant. But when a man ceases to be a subscriber not only is there default on his part with regard to his contractual obligations but there is also the fact that the security which the Fund or Company expected to be possessed of is reduced. In the contractual obligation of every borrower who is a subscriber and who binds himself to pay to the company as and by way of shares a sum of money every month there is some further security to the Fund for the loans advanced and if default be made in such obligation then it follows that the security expected by the Fund becomes reduced. It is possible to attribute the provision for the amount of the loan becoming repayable on a borrower ceasing to be a subscriber to the fact that by reason thereof the security becomes reduced. In any case as I have already observed it is only if I came to the conclusion that taking both together the amount of the loan becoming repayable immediately and the stipulation as to the payment of interest at 12 1/2 per cent, per annum the compensation provided should, in the circumstances of the case be held to be unreasonable, I shall be justified in regarding them as penal and seeking to relieve the party against it. Here in this case the default has been really of a two-fold character default in the continuous payment of the shareholders' subscriptions by reason whereof the party ceased to be a shareholder and also the non-payment of the amount of the loan which became due. The two-fold nature of the so-called penalty seems to be the mere accidental result of the nature of the default in this case and it is not necessary to regard the legal consequences that have followed as penal in their character. After all, the interest now claimed is only 12 1/2 per cent., and it has not been argued that this rate of interest cannot be regarded as reasonable having regard to the money market at the present day. There has been really no plea raised on the question of the amount having become payable on the death of the predecessor of the defendant and as I have come to the conclusion that the rate of interest claimed is not penal and that in the circumstances, I am not called upon to give relief on that ground, I hold that the plaintiff Fund is entitled to interest at the rate of 12 1/2, per cent, per annum from the death of the defendant's father.

4. On this basis the plaintiff's claim has now been proved. The promissory note and the equitable mortgage by deposit of title-deeds in respect of the special loan as also the subsequent deed of mortgage have been proved. The total amount of principal due on the death of the defendant's predecessor has been proved to be Rs. 5,377-7-9 and the amount with interest up-to-date is admitted to be Rs. 7,676-6-6. There will be a decree for this amount. Usual mortgage decree. Further interest at 12 1/2 per cent per annum on the principal sum from this date till date fixed for redemption. Time for redemption six months. There will be no personal decree against the defendant. The plaintiff Fund may take the costs of this suit from the sale proceeds. I direct that to the defendant's guardian-ad-litem the plaintiff do pay a further sum of Rs. 50 and include the total sum of Rs. 150 in the plaintiff's costs of this suit.


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