1. The appellants were the defendants in a suit based on a settled account. The dealings between the parties began in 1931, but it is quite clear that the balance due as on the 1st October, 1932, was all wiped off by subsequent payments and that the debt remaining at the time of the settlement on the 17th June, 1936, included no portion of that original debt so as to bring the transaction under Section 8 of the Madras Act IV of 1938. The settlement of June, 1936, was accompanied by an agreement which is Ex. N. That states that the amount due for principal and interest was Rs. 8,050; the creditor had agreed to give up Rs. 1,400 and the debtor agreed to pay Rs. 6,650 with interest at Re. 0-12-6 per cent. per mensem. It is also provided that this amount shall be repaid in full by the 1st April, 1937, and in default the debtors agreed that the amount of Rs. 1,400 provisionally given up shall be paid by them with interest, that is to say, they agreed in that event to pay the full amount of Rs. 8,050. The debtors failed to make payment in the manner contemplated. Their total payments aggregated to Rs. 2,450, the whole of which was appropriated in the accounts to the principal of the settled debt.. On the date on which the default was committed the creditor debited in his account the amount of Rs. 1,400 describing it as ' the balance interest due by you under the terms of the agreement between yourselves and ourselves.' He filed the suit admitting that the defendants were agriculturists and scaling down the debt under Section 9 of Act IV on the basis of the principal Rs. 8,050, less payments made, together with interest at 5 per cent. up to the 22nd March, 1938, and thereafter at 6 1/4 per cent. The actual claim was something less than the amount which would be due on a proper calculation on this basis. The suit was decreed. In appeal it. is contended firstly that this amount of Rs. 1,400 is a penalty and secondly that this amount of Rs. 1,400 represents interest at Re. 0-12-6 per cent. per mensem and it has to be scaled down to 5 per cent. per annum.
2. The first contention is clearly devoid of substance. The amount of Rs. 8,050 was the amount admitted to be due on. the 17th June, 1936. The creditor agreed to give a concession to the extent of Rs. 1,400 on a certain condition and the debtor agreed to treat that amount as part of the principal debt carrying interest in case that condition was not fulfilled. It is merely a conditional concession to be automatically cancelled on non-fulfilment of the terms and there can be no question of penalty in such a case.
3. The argument based on Section 9 of Act IV of 1938 really challenges the correctness of the decision of one of us in Seshayya v. Swamireddi : AIR1942Mad204 , followed in an actual case of accounts, Muthusamia Pillai v. Sankara Aiyar (1942) 1 M.L. 86. It cannot be contended that the sum of Rs. 1,400 is interest due under the agreement Ex. N. This agreement treats the Rs. 1,400 as part of the principal debt created by the settlement. No doubt this sum of Rs. 1,400 historically was made up of interest due on the preexisting debt. It is contended that the settlement evidenced by Ex. N must be. treated as a renewal of the pre-existing debt and that this amount of Rs. 1,400 must be regarded as interest on that debt and scaled down under Section 9 to the rate of 5 per cent. as was contended in the decision first quoted. The proviso to Section 9 (1) lays it down that any part of the debt which is found to be a renewal of a prior debt shall be deemed to be a debt contracted on the date on which such prior debt was incurred and if such debt had been incurred prior to the 1st October, 1932, shall be dealt with under the provisions of Section 8. This proviso is no doubt intended to enable a debtor whose debt though contracted after the 1st October, 1932, is really a renewal of a debt contracted before the 1st October, 1932, to get the benefit of Section 8 of the Act. The way in which this proviso has been worded has given rise to an argument that even when no part of the debt is contracted prior to the 1st October, 1932, the date of the debt will be deemed to be the date on which the original debt was contracted where there is a renewal. Even granting so much, what is the result? The debt to be scaled down is still the debt under the contract. There is no provision in Section 9 for the re-opening of this contract except to the extent prescribed in the first part of that section which provides for the reduction of the rate of interest. The explanation to Section 8 which enables the Court to treat as principal the amount advanced under the earlier debt applies only to proceedings under that section. There is nothing in Section 9 which would justify the importation of that rule into the process of scaling down a debt no portion of which was incurred before the 1st October, 1932. It follows therefore that even if we deem the date of the debt to be some date earlier than that on which the contract was actually executed, there is no relief which the debtor is entitled to get under Section 9 in respect of that debt, except the relief of reducing the interest due on the contract, even if we read the first part of the proviso as an independent provision; that is to say, we have a provision which leads nowhere. The obvious intention of the Legislature in enacting this proviso was merely to give a rule for the classification of debts into those to which Section 8 will apply and those to which Section 9 will apply. The latter class of debts has to be scaled down with reference to the actual contract modified to the extent indicated by the reduction of the rate of interest. In this view it follows that the principal of the suit debt is the sum of Rs. 8,050 which the debtors agreed to pay with interest thereon. The interest has been correctly scaled down.
4. The appeal is therefore dismissed with costs.