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Mahabala Holla and anr. Vs. the Canara Banking Corporation, Udipi, Limited, by Agent, K. Vittal Bhandary and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty;Banking
CourtChennai
Decided On
Reported inAIR1943Mad270; (1943)1MLJ172
AppellantMahabala Holla and anr.
RespondentThe Canara Banking Corporation, Udipi, Limited, by Agent, K. Vittal Bhandary and ors.
Cases Referred and Chanbasappa v. Basalingayya I.L.R.
Excerpt:
- .....have this decree amended under act iv of 1938 on the basis that the award was a renewal of the pre-existing liability which went back to a number of separate advances at different dates. this contention was met by two objections, firstly, that the contesting respondent was a scheduled bank and that the rate of interest did not exceed nine per cent. so that the transaction was protected by section 10 (2) (iii) of act iv of 1938, and secondly that the award affects property outside the madras presidency which is not amenable to legislation passed by the madras provincial legislature, and that the award as a whole must therefore be outside the scope of that legislation. the lower court, relying on the decision in wahid-ud-din v. makhan lal i.l.r. (1938) all. 781 gave effect to this latter.....
Judgment:

Wadsworth, J.

1. This civil revision petition arises out of an application under Section 19 of Madras Act IV of 1938 by defendants 3 and 5 to amend a decree based on an award. The contesting respondent is the Canara Banking Corporation, Udipi, Limited, which is a scheduled bank as defined by Section 2 (e) of the Reserve Bank of India Act, 1934. The Bank advanced a series of loans to the defendants, the two loans with which we are primarily concerned being one of Rs. 37,285 on 20th June, 1931 and another of Rs. 1,165 advanced on 4th December, 1931. On the latter date the borrowers executed a security bond in favour of the bank mortgaging their properties as security for the whole of the amounts advanced. Thereafter there was a partition in the family of the debtors and some trouble arose concerning the proportionate liability of the different branches and of the property mortgaged which had come to be separately owned as a result of the partition. In October, 1933, a reference was made to an arbitrator who had to decide what were the facts regarding the partition, what was the liability of the different branches and of the different properties belonging to these branches and what was the rate of interest to which the bank was entitled, having regard to the terms of the borrowing that the loans should carry interest at one per cent. over the current rate of the Imperial Bank of India with a default rate of 12 1/2 per cent. per annum. While the arbitration was proceeding the debtors offered certain properties as security in substitution for the properties affected by the partition and they also offered as additional security an usufructuary mortgage right over a property situated in the Bombay Presidency. The arbitrator, on 28th December, 1933, passed an award in which he calculated the amount due under the pre-existing contract, with its varying rates of interest and default rate for arrears as Rs. 47,835. He settled the extent of the liability of each branch of the family and directed payment by a certain date, failing which the full amount of Rs. 46,700 was to carry interest at 8 1/2 per cent. per annum till realization by sale of the properties set out in the schedules, which included part of the original security, the substituted security and the additional i security situated in the Bombay Presidency. It is also provided that the award should be embodied in a decree which should be treated as a final decree. This award was embodied in a decree dated 25th September, 1934.

2. It was contended before the lower Court that the applicants were entitled to have this decree amended under Act IV of 1938 on the basis that the award was a renewal of the pre-existing liability which went back to a number of separate advances at different dates. This contention was met by two objections, firstly, that the contesting respondent was a scheduled bank and that the rate of interest did not exceed nine per cent. so that the transaction was protected by Section 10 (2) (iii) of Act IV of 1938, and secondly that the award affects property outside the Madras Presidency which is not amenable to legislation passed by the Madras Provincial Legislature, and that the award as a whole must therefore be outside the scope of that legislation. The lower Court, relying on the decision in Wahid-ud-din v. Makhan Lal I.L.R. (1938) All. 781 gave effect to this latter contention and dismissed the petition. In the view which we take it is not necessary for us to go into the correctness of the decision of the lower Court on this part of the case. We are of opinion that on a correct view of the transaction the respondent is entitled to the protection of Section 10 (2) (iii) of the Act. It was held by one of us in Subramania Iyer v. India Equitable Insurance Co., Ltd. : AIR1942Mad105 , that where there was a debt due to a scheduled bank, carrying interest at nine per cent., which itself was a renewal of a pre-existing debt carrying interest at more than nine per cent. the bank was entitled to the protection of Section 10 (2) (iii). The reasoning of that decision was that the debtors are not entitled to call in aid the provisions of Section 8 for the purpose of showing that the ultimate debt is one to which the provisions of Section 8 have to be applied. In deciding the question whether the liability is one bearing interest at not more than nine per cent. per annum the Court has to look to the actual liability sought to be scaled down and cannot take into consideration any pre-existing liability, which only becomes relevant if and when it has been found that the provisions of Act IV have to be applied to the debt. Accepting this decision as correct, we have to consider whether it governs facts such as those now before us.

3. We have held in Ramamurti v. Sitaramayya : AIR1941Mad56 . that when there is a decree based on a compromise, it is the compromise which is the contract, the liability under which has to be scaled down and if that compromise can be shown to be a renewal of a pre-existing liability arising before 1st October, 1932, then the debtor would be entitled to go back to that pre-existing liability under the terms of Section 8 of the Act. It has been objected that an award passed on an agreement of the parties to refer their dispute to an arbitrator stands on a different footing from a compromise upon which a decree is based. We are of opinion that, at any rate, for the purpose of the application of Act IV of 1938, such an award is the starting point of a new liability embodied in the decree which can only be re-opened under the Act on the looting that it is a renewal or inclusion in a fresh document of a pre-existing debt. We have been referred to the decisions in Subbaraju v. Venkataramaraju : AIR1928Mad1025 and Chanbasappa v. Basalingayya I.L.R.(1927) Bom. 908 where it was recognised that Order 23, Rule 3 of the Civil Procedure Code applies to an award on reference to an arbitrator by the parties outside Court even if all the parties do not accept the award; that is to say, such an award is treated as an adjustment or compromise of the suit. It is moreover to be noted that in the present case the applicants themselves sought to go behind (his award on the footing that it was a renewal or inclusion in a fresh document of the pre-existing debts. If the award is as we think it must be treated as a renewal of the pre-existing debts the preamble stating the amount due on the previous indebtedness--both the principal and interest--is nothing more than a process of calculation of the principal amount of the fresh document having regard to the obligations which it discharges; that is to say, it renews the previous debts and starts a fresh liability carrying interest at the rate stipulated for the future. The fact that it recites a higher rate of interest on the old debts which are discharged is no ground for holding that the liability which actually ripened into the decree was one carrying more than nine per cent. per annum interest.

4. In this view we hold that the respondent is entitled to the protection of Section 10 (2) (iii) of the Act and that the decree is not liable to be scaled down. We therefore dismiss the revision petition with costs of the first respondent.


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