1. This Civil Miscellaneous Appeal is preferred by the first respondent in the Court below in a petition for scaling down a debt under Section 19-A of Madras Act TV of 1938. The petitioner in the lower Court has filed a memorandum of cross-objections, which has also to be dealt with.
2. The facts are these. The petitioner in the lower Court and the sons of his brother, Sivasankara, Vayyapuri and Sivagnana constituted a Hindu joint family. On behalf of this family, and during the course of his management, Sivasankara borrowed Rs. 10,000 in March, 1928, executing a promissory note therefor. Several payments were made towards this note, and, for the balance due under it and comprising a fresh loan of Rs. 800 or so taken, Sivasankara executed another note in February, 1931, for Rs. 4,800 and odd. In June, 1933, this was renewed by a promissory note for Rs. 10,000 and odd executed by Sivasankara and the petitioner-in the lower Court. This not merely included the principal and interest under the promissory note of 1931, but also fresh loans taken prior to October, 1932. Sometime thereafter Rs. 3,000 was borrowed, and certain payments were made towards that debt. For the balance due on those dealings, and the promissory note of J933 earlier referred to, a fresh promissory note for Rs. 16,092-2-0 was executed by Sivasankara and the petitioner in the lower Court on 7th May, 1936. It is alleged that Rs. 5,000 had been paid under this document.
3. In December, 1949, there was a partition arrangement in the family of the petitioner in the Court below, and the debt was allotted to his share. It appears later that Vayyapuri, among the members of this joint family, and the son and widow of Sivasankara also undertook to pay some amounts, and did do so. The petition in the Court below was instituted upon the basis that the entire group of dealings related to the joint family, the debt being traceable through a series of renewals without loss of its identity at any stage. It was under these circumstances that the petitioner in the Court below sought relief under the provisions of Madras Act IV of 1938.
4. It is important to note the grounds upon which the first respondent below (appellant here) has filed his appeal. The main point taken is that Exhibit B-8 dated 7th May, 1936 (for Rs. 16,092-2-0 already referred to) is a result of a mutual settlement of accounts between the parties, so that it is not open to the Court to proceed into the prior transactions. There could be no question of any outstanding interest to be wiped off, nor of any open payment available for appropriation by the Court. Under those circumstances, the learned Subordinate Judge erred in holding (paragraphs 16 of his judgment) that 'the debt will have to be scaled down under Sections 8 and 9 of the Act.' The same argument is sought to be reinforced upon other grounds. Not merely the amounts shown in the various promissory notes, but dealings in money (hand-loans) between the parties have entered into the history of the transactions, and have been taken into account in the settlement. Consequently, the petitioner below was not entitled to go behind Exhibit B-8. Further, the identity of the debt has not been maintained, and the provisions as to renewal laid down in Sections 8 and 9 are inapplicable. Again, the accounts show that, from time to time, credits and debits have been balanced, and exhibited as cancelling each other (Tamil entry; Kanchu, Ner). Hence, nothing was left outstanding for appropriation. In any event, the accounts filed were maintained by an interested party now colluding with the petitioner in the Court below, and ought not to have been relied on. The joint family did not figure as an entity in these transactions, and the debt was not a family debt at all. On the contrary Sivasankara and the other members separately conducted individual transactions, till the promissory notes of 1933 and 1936, and even at that stage, those transactions merely became clubbed into the transactions of two members of the family.
5. We shall later proceed into the grounds appearing in the memorandum of cross-objections filed by the petitioner in the lower Court (1st respondent here). For the moment, it is sufficient to note that the crux of the memorandum is that the calculation adopted by the lower Court is incorrect. The entries clearly show that the payments were appropriated by the creditor towards principal at every relevant stage. The balance due is shown as principal, and outstanding interest, separately. Hence, the outstanding interest, remaining unappropriated, will stand wiped out on 1st October, 1937, by virtue of the provisions of the Act. In other words, the objection is entirely to the method of calculation.
6. We shall now deal with the arguments advanced by the learned Counsel for the appellant (first respondent below), who has addressed arguments at length upon the facts, and also upon several decisions bearing on the legal implications, with specific reference to Madras Act IV of 1938.
7. The arguments concerning the identity of debtor and creditor and the reliability of the accounts filed in suit, may be immediately disposed of. In paragraphs 11 and 12 of his judgment, the learned Judge has discussed this matter at length. He relies upon the testimony of the Karnam (P.W. 1), who had special acquaintance with the family, and comes to the conclusion that, throughout, all the dealings, whether they were promissory notes, or money borrowed upon hand-loans, were by and on behalf of this joint family. The learned Judge held that both the petitioner in the Court below, and Sivasankara were managing members of this joint family, at different stages. The point is really of very little significance, in view of the present form of Explanation HI to Section 8 of Madras Act IV of 1938, after the further amendments which have been enacted. Admittedly, as the definition stands, the term 'debtor' includes 'heirs, legal representatives, or assigns or any other person acting on his behalf or in his interest'. The matter has been considered in Srinivasa Pillai and Ors. v. Muthayya Pillai and Anr. : AIR1956Mad364 , by the learned Chief Justice and Panchapakesa Ayyar, J. The decision has laid down that the effect of the present form of the Explanation is to emphasise the identity of the debt. So long as that identity can be traced, any changes or alterations in the debtor or creditor would not take away the case from the ambit of the Explanation. The renewed document may be by a person other than the original debtor, and in favour of a person other than the original creditor.
8. The finding of the lower Court upon this point is hence correct.
9. The more difficult question is whether the identity of the debt has also been established, in these series of transactions. What is urged by learned Counsel for the appellant is that hand-loans, individual promissory notes and part payments towards the debts figure in a confusing manner, which renders it extremely difficult to apply the provisions of Sections 8 and 9 of Madras Act IV of 1938 to this group of transactions. But, as we find from the accounts, it is clear that throughout, there is the connecting strand or thread which enables us to trace back the debts from the promissory note of 1936 (Exhibit B-8) to the original transactions of 1931 and 1928. So long as this trace or connecting thread runs through the transactions, we are unable to see how it could be maintained that the identity of the debt has disappeared. The facts that there have been interim transactions, whether of promissory notes or hand-loans, merging in the renewals at different stages, or that one or other member has acted on behalf of the joint family, cannot make any difference. We hold that since the strand or continuity is unimpaired, the identity of the debt remains, enabling the debtor to obtain relief. We also hold that since the accounts are clearly genuine and contemporaneously maintained, they must be accepted as the basis for relief in this case. It is not as if the appellant has produced any other set of accounts, which could form the alternative for scaling down operations.
10. The far more important argument is that the promissory note of 1936 (Exhibit B-8) is the result of a mutual settlement of accounts between the parties, and that, as such, there could be no question of any outstanding interest to be wiped off, or any open payments to be appropriated. In this view, the document of 1936 (Exhibit B-8) becomes the starting point for the application of the provisions of the Act, particularly as other dealings were also taken into account in the settlement. It is strenuously contended that the Full Bench decision of this Court in Suryanarayana v. Venkataramana Rao (1953) 1 M.L.J. 267 : I.L.R. (1953) Mad. 295, is an authority for this view.
11. We think that this is to misconceive altogether the true scope and applicability of the Full Bench decision in Suryanarayana v. Venkataramana Rao (1953) 1 M.L.J. 267 : I.L.R. (1953) Mad. 295. Before proceeding to that decision, we desire to refer to one or two other cases of this Court, which do illustrate the type of circumstances under which the Courts have found it impossible to proceed behind the face or form of a particular debt, when attempting to apply the provisions of Madras Act IV of 1938. A good illustration of this is to be found in Subbarayudu v. Sriramalu : AIR1944Mad13 . The learned Judges Wadsworth and Patanjali Sastri, JJ., held that where a compromise decree was demonstrably a renewal of an anterior debt, the Court could scale down that decree, and give relief under Madras Act IV of 1938. But where the compromise was a result of mutual concessions and advantages which made up the agreement, and where in consequence it was extremely difficult to disentangle that part which was a renewal of the original debt, it became impossible to treat the transaction as a renewal. The compromise decree had to be then considered as the starting point, and the provisions applied. Another interesting case is Grandhi Hanumantha Rao v. Chinnarama Naidu and Ors. : AIR1943Mad338 . The same learned Judges (Wadsworth and Patanjali Sastri, JJ.) were applying the provisions of the Act to a particular promissory note debt, which was discharged by the execution of two further documents. The circumstances were such that it was impossible to determine how much principal and how much interest traced from the original transaction, was included in each of the two subsequent documents. Those documents carried different rates of interest, and the two contracts also differed in their terms. In such a context, it was neither practicable nor desirable to treat the two separate contracts, as if they formed together a single debt renewing the prior liability. In Kodali Venkayamma v. M. Ramakotayya : AIR1941Mad479 , the same learned Judges have pointed out that the mere awarding of counter interest does not imply that the payment does not remain open. The appropriation could only be deemed to have been made when the fresh document was executed, after deducting payments with counter interest. In Valliammal v. Ramaswami Goundar and Ors. : AIR1943Mad127 , the same learned Judges held that the mere fact that the later mortgage bound property not covered by the earlier mortgage, could not affect the question whether the later mortgage was a renewal of the earlier mortgage. Nor will the answer be affected by the fact that the later mortgage comprises an additional consideration, besides the discharge of the earlier mortgage. Again, where a renewal does not take into account the statutory reduction of liability under the prior debt, it is open to the debtor to take the plea that the subsequent note was not supported by consideration to the extent which is in excess of what was due under Act IV of 1938. Reference might be made to G. Mullikarjuna Rao v. M. Tirupurasundari : AIR1953Mad975 , and G. Suryanarayana v. T. Alavandara Rao : (1945)2MLJ565 , and also to the Full Bench decision in V. Section T. Sheik Mansoor Tharaganar and Anr. v. S.V.S. Sankarapandia Mudaliar : (1958)2MLJ568 .
12. What is the result of the decisions that we have examined with reference to the principles applicable to a matter of this kind? So long as identity of the debt remains intact, the debtor is always entitled to the advantages of a beneficent legislation like Madras Act IV of 1938. He cannot be denied those advantages, even if certain intercurrent transactions have entered into the stream of transactions. It would not matter that additional consideration from other incidental dealings has entered into certain renewals, that further properties have entered into a hypothecation, and so on. The fact that the renewal does not take account of the statutory reduction of liability, would again be immaterial. It is always open to the debtor to subsequently plead failure of consideration to this extent. The test is not whether there has been only one linked series of transactions, or whether other transactions have merged in the renewals. So long as the broad identity of the parties remains, within the meaning of Explanation III to Section 8, it would not matter which particular member of the family dealt with the creditor. Again, so long as the debt is traceable through the series, and the identity of the debt remains, the complexity of the circumstances will be no ground for denying relief. It is only where the identity of the debt is itself destroyed, because the renewal is in such form that the constituent elements thereof in regard to the prior debt cannot be traced, that the renewal debt becomes the starting point. The two most important cases upon that aspect are Grandhi Hanumantha Rao v. Y. Chinnarama Naidu and Ors. : AIR1943Mad338 and Subbarayudu v. Sriramulu : AIR1944Mad13 . In both those cases the identity of the debt was destroyed, and tracing back became impossible, and the learned Judges hence held that the renewals were the starting points for the application of the Act.
13. That is not at all the case here, and the accounts and the documents themselves clearly show the identity of the debt running through the entire series of transactions. We have now to see how far the Full Bench decision in Suryanarayana v. Venkataramana Rao (1953) 1 M.L.J. 267 : I.L.R. (1953) Mad. 295, helps the contention of the appellant that we ought not to go behind the document Exhibit B-8, because it is the result of a settlement between the parties, even if tracing back is perfectly feasible.
14. This matter can be quite simply dealt with. A careful examination of the decision shows that the point which arose for determination was the consequence of the enactment of Explanation I to Section 8 by amending Act XXIII of 1948, which itself was necessitated by the decision in Doraisami Mudaliar v. Md. Amiruddin : AIR1948Mad434 , where Gentle, C.J., and Bell, J. held that a particular payment was liable to be appropriated first towards interest due under the decree and then only towards principal, reversing the trend of earlier cases of this Court. The Full Bench decision in Suryanarayana v. Venkataramana Rao (1953) 1 M.L.J. 267 : I.L.R. (1953) Mad. 295 examines the scheme of Section 8, with specific reference to the Explanation, upon the vital aspect of the unilateral right of the creditor to appropriate payments towards interest, under Section 60 of the Contract Act. The relevent passage may be set forth in extenso as follows:
The point for decision is whether by the Explanation the Legislature intended to alter the law as laid down in the decisions. An examination of the scheme of Section 8 does not support the contention that such alteration was intended. Section 8(1) enacts that 'all interest outstanding' on 1st October, 1937, shall be deemed to be discharged. These words presuppose that interest as such remains outstanding and payable on that date and it is that outstanding interest that is discharged by the operation of the statute. If in fact there was no interest payable on that date Section 8(1) would have no application. Likewise, when the Explanation provides that the payments shall be credited towards principal, it presupposes that those payments are still open and unappropriated. In other words, for the Explanation to apply there must be on the one hand arrears of interest outstanding and payable and on the other, payments open and unappropriated and the Explanation provides how in that contingency the payments are to be appropriated. Where there has been in fact a settlement of accounts and a fresh document executed by the debtor, that must necessarily have the effect of discharging the interest on the one hand and of appropriating the payment on the other. Such a transaction would therefore seem to be outside the Explanation.
15. We have extracted this passage, in order to show the context of the Full Bench decision, and also its true applicability and scope. The decision is concerned with the effect of a fresh document, upon outstanding interest, or as an appropriation of the payment. It is not authority for the view that where there is a transaction which may be called a 'settlement of accounts', this has ipso facto the effect of inhibiting the debtor from proceeding into prior transactions, in order to obtain reliefs under Madras Act IV of 1938. That would depend entirely upon the identity of the debt being traceable through the series of transactions, and the tests that we have earlier referred to. In brief, the Full Bench decision really refers to the character of an appropriation, and how a renewal may evidence appropriation, and does not lay down any wide proposition that a transaction which is termed as a 'settlement' will have the effect of preventing a debtor from claiming benefits under Section 8 or Section 9 by tracing the debt back.
16. Under those circumstances, the grounds urged in the appeal itself seem to be lacking in substance, and must be rejected.
17. We now come to the memorandum of cross-objections. Here, it has to be stated that the lower Court has not given effect to the state of affairs really evidenced by the accounts and the documents. What we find in the present case is that a series of payments were specifically appropriated towards the principal, ex facie and as declared by the particulars of the accounts. The nature of an appropriation was dealt with by King, J., in Raghava Reddiar v. O. Devarajulu Reddiar : AIR1943Mad236 . The learned Judge denned appropriation as 'the indication of an intention that money would be applied in a particular way', and pointed out that proof of it could be by a statement oral or written, or by circumstantial evidence. It is urged against the cross-objector that interest has been calculated upon the entire debt, notwithstanding these specific appropriations towards the principal. It appears very much as if the appropriation towards principal were made for some ancillary purpose, such as reduction of the amounts liable to be assessed for income-tax, and so on. But, for whatever purposes these appropriations were made, they are exhibited in the accounts, and the force of such express appropriation cannot be denied.' The result certainly is that interest alone is left outstanding, and that the provisions of Madras Act IV of 1938 (Sections 8 and 9) thus do become applicable. Further, we are clear that the periodical balance of credit and debit entries to show a nil balance was a particular method of maintaining the accounts, and no evidence of a fresh settlement at each stage. Since the appropriations towards principal have to be given effect to, the calculation pressed for by learned Counsel for the cross-objector (respondent) is accepted by us, and we accordingly declare the liability to be Rs. 1,537-1-1. This will carry interest at 5 percent, under the Act, till date of realisation. The memorandum of cross-objections is thus allowed in part, and the Civil Miscellaneous Appeal dismissed with costs to the respondent in the appeal.